Questions for the Record Related to Amtrak's Food and Beverage	 
Service (11-JUL-05, GAO-05-893R).				 
                                                                 
On June 9, 2005, GAO testified before the Subcommittee on	 
Railroads, House Committee on Transportation and Infrastructure  
at a hearing on "Amtrak Food and Beverage Operations." This	 
letter responds to a Congressional request that we provide	 
answers to questions for the record.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-893R					        
    ACCNO:   A29519						        
  TITLE:     Questions for the Record Related to Amtrak's Food and    
Beverage Service						 
     DATE:   07/11/2005 
  SUBJECT:   Accountability					 
	     Contractor payments				 
	     Data integrity					 
	     Documentation					 
	     Food services					 
	     Food services contracts				 
	     Internal audits					 
	     Internal controls					 
	     Prices and pricing 				 
	     Railroad industry					 
	     Cost analysis					 
	     Erroneous payments 				 

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GAO-05-893R

United States Government Accountability Office Washington, DC 20548

July 11, 2005

The Honorable Don Young
Chairman
Committee on Transportation and Infrastructure
House of Representatives

Subject: Questions for the Record Related to Amtrak's Food and Beverage
Service

Dear Mr. Chairman:

On June 9, 2005, I testified before the Subcommittee on Railroads at a
hearing on "Amtrak Food and Beverage Operations."1 This letter responds to
your request that I provide answers to questions for the record. The
questions, along with my responses, follow.

1. Amtrak stated that it has used its Office of Inspector General to audit
Amtrak's food and beverage operations and that GAO did not recognize this
fact. Why does GAO think that additional information is useful to
supplement the Inspector General's food and beverage report on Amtrak's
food and beverage operations?

In our testimony, we stated that Amtrak has not required the food and
beverage contractor to submit the contractually required and independently
audited annual report of budget variances for key line items. An audit of
such a report could detect improper payments to the contractor. We also
stated that Amtrak has never had an audit conducted of the discounts and
rebates credited to it by Gate Gourmet International, even though such an
audit is allowed under their contract. An audit of the purchase data could
determine whether the contractor is appropriately passing along applicable
rebates and discounts to Amtrak.

Amtrak's statement that we did not recognize that the Office of Inspector
General (OIG) has been used to audit the food and beverage operations is
inaccurate. In the course of our work, we reviewed OIG reports on certain
aspects of Amtrak's food and beverage operations. However, we do not
believe that the past work of the OIG should be viewed by Amtrak as a
substitute for a comprehensive internal control program. Internal control
should be a continuous built-in component of operations that, among other
things, considers the results of audits and ensures prompt

1GAO, Amtrak: Management and Accountability Issues Contribute to
Unprofitability of Food and Beverage Service, GAO-05-761T (Washington,
D.C.: Jun. 9, 2005).

                 GAO-05-893R Amtrak Food and Beverage Questions

resolution. This is especially critical in an operational area where
Amtrak is losing considerable money. In addition, upon reviewing the OIG's
work we found that certain scope limitations existed. For example, the
Amtrak OIG noted in its report on the food and beverage contract to Amtrak
management that its work in this area has been limited due to the
contractor's failure to provide certain requested information and
documentation.

2. Amtrak maintains that food and beverage product rebates go directly to
Amtrak and not through Gate Gourmet. Has Amtrak implemented processes to
ensure that it is getting all of the discounts and rebates on food and
beverage items purchased by Gate Gourmet for Amtrak?

Amtrak has not implemented processes to ensure that rebates and discounts
received directly from suppliers or indirectly through its contractor are
accurate and complete. As Amtrak officials explained, the majority of
rebates are received directly from suppliers. However, no formal
procedures have been established to review and verify the amount of
rebates and discounts actually received from the suppliers or to determine
whether there are other rebates and discounts that Amtrak may be entitled
to receive from the contractor. Although the contract allowed Amtrak to
audit the contractor's allocations of rebates and discounts, Amtrak never
required such an audit and never required that the contractor certify that
all discounts due to Amtrak were credited to its account.

3. Amtrak maintains that it closely monitors food and beverage purchase
prices charged to Amtrak by Gate Gourmet - on a daily basis. Why does GAO
believe that Amtrak does not adequately monitor its purchase price
information for food and beverage items purchased by Gate Gourmet?

According to Amtrak's senior director of food and beverage services, price
reports are distributed to each of its commissaries on a daily basis.
These daily reports list the quantity, unit size, cost and last prior
purchase of the previous day's purchases. However, Amtrak has not
established procedures to ensure that all of the daily report reviews are
conducted timely and in a consistent manner, that errors or other issues
that are identified are documented and tracked, and that corrective
actions taken are documented to ensure completion. In addition, these
daily price reports are limited to detecting errors or unacceptable
purchase prices after the goods are received. More preventive control
procedures, such as the monitoring of order prices could assist in
avoiding the varying range in unit prices we found in purchase order and
payment data. Furthermore, Amtrak has not enforced key contract
provisions, such as requiring an independently audited annual report,
auditing the amount of rebates received from the contractor, and creating
contractor performance standards, which has weakened its ability to
prevent and detect improper payments for food and beverage services.

4. Amtrak says that it did not pay the prices GAO cites in its statement
for Heineken beer and that the prices paid for strip steak were paid only
for two emergency purchases in the retail market. How does GAO respond to
this and what evidence does GAO have that Amtrak did pay these prices?

Based on information provided to us by Amtrak on June 29, 2005, it appears
that Amtrak (1) received and paid for 10 half-kegs of Heineken beer
($94.50 per half-keg) and not 10 cases of 12 ounce bottles of Heineken
beer ($3.93 per bottle) as we testified based on information then
available to us; and (2) Amtrak received and paid as high as $7.58 per 10
ounce portion for strip steak that was not documented as an emergency
purchase.

Purchase order and payment support provided to us by Amtrak's contractor
in March 2005 with copies of all such documentation provided to Amtrak
concurrently show that Amtrak ordered 12 ounce bottles of Heineken beer
and received and paid $3.93 per bottle for the beer. However, based on
information Amtrak provided to us after our June 9, 2005 testimony it
appears that Amtrak paid $945 to purchase 10 half-kegs of Heineken beer,
rather than 10 cases as indicated on the original documentation provided
to us and to Amtrak officials by the contractor. While we provided Amtrak
the Heineken beer purchase example 14 days before the hearing and
discussed the Heineken beer purchase in considerable detail with Amtrak
officials before the testimony, it was not until over a month after the
example was provided to Amtrak and twenty days after the testimony that we
received the additional documentation that supports Amtrak's assertion
regarding a data entry error and subsequent correction. In addition,
Amtrak officials testified that the strip steak examples were "emergency
purchases." However, following our request for documentation to support
this claim an Amtrak official told us on June 29, 2005 that documentation
to support the assertion that these were emergency purchases does not
exist. The establishment of internal control procedures that ensure the
documentation of the identification and correction of errors and approval
for emergency purchases would ensure that adequate documentation is
readily available for review by internal and external parties.

5. Amtrak maintains that its food and beverage revenues cover the costs of
food and beverage service. However, GAO and Amtrak's Inspector General
state that Amtrak loses about $2 for every $1 on food and beverage
operations. How does GAO explain the difference?

The information provided by GAO and the Amtrak OIG included the labor
costs for Amtrak employees on-board the trains delivering the food and
beverages. These costs totaled more than $256 million for the 3-year
period fiscal years 2002 through 2004. For fiscal years 2002 through 2004,
Amtrak's food and beverage expenses, including Amtrak employee labor cost,
totaled about $487 million while Amtrak's food and beverage service earned
about $243 million in revenue. This means that Amtrak spent about $2 to
earn $1 in food and beverage revenue. Section 24305(c)(4) of title 49,
United States Code provides that Amtrak may provide food and beverage
services on its trains only if revenues from the services each year at
least equal the cost of providing the services. What is to be included as
cost is not defined. During

the testimony, the Amtrak witness explained that their understanding of
this provision was that the cost to be considered included only the cost
of the food and commissary operations. Hence, Amtrak did not consider the
Amtrak employee labor costs of providing the on-board service in their
analysis of the food and beverage operations.

6. Amtrak noted that its food and beverage expenditures per passenger and
its food costs have decreased as its ridership has increased. How have
Amtrak's total costs for food and beverage service changed in relation to
Amtrak's recent increases in both ridership and passenger revenue miles?

Amtrak's total food and beverage expenditures decreased per rider by 7.7
percent and decreased per passenger revenue mile by 1.9 percent from
fiscal year 2002 to fiscal year 2004.2 However, due to reductions in
Amtrak's food and beverage revenues, Amtrak's profit/loss results per
passenger and per passenger revenue mile on trains with food and beverage
service are mixed. While Amtrak reduced its food and beverage loss per
passenger by 3.5 percent from fiscal year 2002 to 2004, its food and
beverage loss increased per passenger revenue mile by 2.4 percent over the
same period.

7. Amtrak has called GAO's evaluation process, especially how GAO
solicited and used Amtrak's comments on the draft version of its
testimony, into question. What is GAO's process for soliciting and
utilizing outside comments on its testimony? Did GAO deviate from those
processes in creating its June 9 testimony to this Committee? If so, why
did GAO deviate from those processes?

It is GAO's policy to obtain the views of agency officials for GAO
testimony statements that are based on either new or ongoing work to
validate the accuracy of the data gathered and obtain the agency's views
on the implications that flow from that data. The comments can be obtained
either orally, via teleconference or in person, or in written form. The
amount of time available for agency comments is determined on a
facts-and-circumstances basis, considering a number of variables including
the timing needs of the requester.

GAO did not deviate from these processes in preparation for the June 9
testimony. GAO sent a draft of its testimony statement to Amtrak for their
comments on June 6 and held a three-hour teleconference with senior Amtrak
officials on June 7 to obtain their comments. Subsequently, we made
changes to our statement based on the oral comments we received. Prior to
the hearing, we asked Amtrak to provide evidence

2While these calculations used total Amtrak riders and total Amtrak
passenger revenue miles, not all Amtrak trains have food and beverage
service. The trend for revenues and expenditures per rider for Amtrak's
total ridership on trains with food and beverage service followed the same
pattern as the statistics cited above for ridership on all Amtrak trains.

on their food and beverage operations to support their assertion that our
facts which were based on Amtrak and contractor documents - were
incorrect. However, even though Amtrak made statements during the hearing
based on additional documentation, they chose not to share that
documentation with us until 20 days after the hearing.

For additional information on Amtrak's food and beverage service, please
contact me at (202) 512-8984 or Randall Williamson, Assistant Director,
Physical Infrastructure, at (206) 287-4860 or [email protected].

Sincerely yours,

JayEtta Z. Hecker
Director, Physical Infrastructure

(544110)

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