The Rail Passengers Association (NARP) posted this blistering critique of how Amtrak manipulates its accounting procedures to downgrade the performance of its National Network trains and over-state the performance of the Northeast Corridor. This is a major read and, truthfully, if you can spare the paper is probably best printed out before going into it, but this is very significant. Most of the work on this was done by former RPA/NARP Chairman George Chilson, who earns a huge note of gratitude for such an in-depth piece.
https://www.railpassengers.org/happening-now/news/releases/amtraks-route-accounting-fatally-flawed-misleading-wrong/
Carl Fowler
RPA Vice Chair
Railvt The Rail Passengers Association (NARP) posted this blistering critique of how Amtrak manipulates its accounting procedures to downgrade the performance of its National Network trains and over-state the performance of the Northeast Corridor. Most of the work on this was done by former RPA/NARP Chairman George Chilson, who earns a huge note of gratitude for such an in-depth piece.
The Rail Passengers Association (NARP) posted this blistering critique of how Amtrak manipulates its accounting procedures to downgrade the performance of its National Network trains and over-state the performance of the Northeast Corridor.
Most of the work on this was done by former RPA/NARP Chairman George Chilson, who earns a huge note of gratitude for such an in-depth piece.
Let's see! The Rail Passenger Association has put together an unbiased critique of Amtrak's accounting policies, procedures and practices! Which might be believable if it did not have a big dog in the hunt!
What are Chilson's qualifications? Is he an accountant? Does he have a CPA? How long did he work in accounting? And for whom, i.e. private industry, government, education, etc.? Has he worked as an auditor or managed independent auditors? Does he have a degree in finance, IT, etc.
More importantly, did Amtrak open its books to Chilson? If they didn't, then he had to rely on secondary documentation as opposed to primary documentation, which no professional auditor or consultant would do.
If the Rail Passenger Association, or anyone for that matter, wants an independent, objective assessment of Amtrak's accounting policies, procedures, and practices, they should engage a world class, independent accounting firm, e.g. PWC, KPMG, Deloitte, etc., or consulting firm, e.g. Mckinsey & Company, Booze Allen & Hamilton, etc. to perform it. They don't have a dog in the hunt; they are more likely to produce an independent, objective assessment.
The first step out of the box would be a request for Amtrak to open its books to the auditors or consultants and make the company's CFO, Chief Accountant, and President available for interviews. The auditors would also want to interview the Chair of the Board Audit Committee. If Amtrak refused to do so, a world class firm would refuse the assignment.
Rio Grande Valley, CFI,CFII
For those who want to cut directly to the chase:
https://www.railpassengers.org/site/assets/files/7353/amtraks_route_accounting_-_fatally_flawed.pdf
Chilson has a Stanford MBA in marketing.
It does occur to me that a review of this 'paper' -- by an actual trained accountant or consultant, ahem, ahem -- would be a logical first step here. (Rather than hashing over credentials or other arguments from authority, which is little better than what the RPA seems to be trying to do with its advocacy.) You might start with a recapitulation of what's important, and why Amtrak uses the accounting conventions it does.
OvermodFor those who want to cut directly to the chase: https://www.railpassengers.org/site/assets/files/7353/amtraks_route_accounting_-_fatally_flawed.pdf Chilson has a Stanford MBA in marketing. It does occur to me that a review of this 'paper' -- by an actual trained accountant or consultant, ahem, ahem -- would be a logical first step here. (Rather than hashing over credentials or other arguments from authority, which is little better than what the RPA seems to be trying to do with its advocacy.) You might start with a recapitulation of what's important, and why Amtrak uses the accounting conventions it does.
When it comes to such financial reports - I'll call your accountant and raise you with two of my own, so the bet now stands at 3 accountants.
An exercise in liars poker.
Never too old to have a happy childhood!
Overmod Chilson has a Stanford MBA in marketing.
Well, there is no doubt about it. A marketing guy is just the person to write a report on Amtrak's accounting policies, procedures, and practices.
What experience has he had directly with Amtrak's accounting policies, procedures, and practices? Even more basic, what hands-on experience has he had in accounting, finance, audit, IT or anything that would qualify him to opine on Amtrak's accounting practices?
The most critical question, however, is did he have access to Amtrak's books, or is he relying on secondary documents? No reputable auditor or consultant, i.e. the big four accounting firms, would rely on secondary documentation to opine on a company's accounting policies, procedures and practices. None!
The major flaw in the report is obvious. It was written by a person who is carrying the flag for the advocacy group that he represents. No one who has worked in a serious auditing or consulting organization would pay much attention to it.
Again, if the Rail Passenger Association wants an independent, objective assessment of Amtrak's accounting policies, procedures, and practices, which it probably doesn't, it should hire an independent auditor that does not have a dog in the hunt to perform the audit and/or assessment.
BaltACD When it comes to such financial reports - I'll call your accountant and raise you with two of my own, so the bet now stands at 3 accountants. An exercise in liars poker.
I respect your views on railroad dispatching, which is where I assume you spent most of your career.
You should stick to what you know. Clearly, you are out of your depth when it comes to accounting and finance.
Overmod For those who want to cut directly to the chase: https://www.railpassengers.org/site/assets/files/7353/amtraks_route_accounting_-_fatally_flawed.pdf Chilson has a Stanford MBA in marketing. It does occur to me that a review of this 'paper' -- by an actual trained accountant or consultant, ahem, ahem -- would be a logical first step here. (Rather than hashing over credentials or other arguments from authority, which is little better than what the RPA seems to be trying to do with its advocacy.) You might start with a recapitulation of what's important, and why Amtrak uses the accounting conventions it does.
You missed a key point! Without access to Amtrak's books, an outsider does not know what accounting policies, procedures and practices Amtrak uses.
I am a Texas CPA. The Texas Society of Certified Public Accountants, which has the authority of law, would come down hard on me if I opined on the adequacy of a company's accounting policies, procedures, and practices without having access to its books and key accounting personnel.
PJS1 BaltACD When it comes to such financial reports - I'll call your accountant and raise you with two of my own, so the bet now stands at 3 accountants. An exercise in liars poker. I respect your views on railroad dispatching for CSX or one of its predecessors. You should stick to what you know. Clearly, you are out of your depth when it comes to accounting and finance. I would never comment on the appropriateness of dispatching. I never worked at it; I don't know anything about it other than what I have read here or elsewhere.
I respect your views on railroad dispatching for CSX or one of its predecessors.
If it wasn't for different views of 'generally accepted accounting practices' we would not have billion dollar law suits between companies on various aspects of how they account for their business actions.
By the same token if 'the law' was black and white there would be far fewer law suits as well as much shorter legal actions.
You can't read any news paper or news web site (including Fox News) that doesn't have some referrence to a legal action over the accounting for money being a critical element in the suit. There are always two or more sides to the question.
I will never argue the details of any accounting method (I'll leave that to my daughter who is a licensed CPA in MD & FL). What I will argue is that in any large undertaking there are more than one way to apply 'generally accepted accounting principles' and the different ways will result in different results, and each of those ways will be 'legal'.
BaltACDIf it wasn't for different views of 'generally accepted accounting practices' we would not have billion dollar law suits between companies on various aspects of how they account for their business actions. By the same token if 'the law' was black and white there would be far fewer law suits as well as much shorter legal actions. You can't read any news paper or news web site (including Fox News) that doesn't have some referrence to a legal action over the accounting for money being a critical element in the suit. There are always two or more sides to the question. I will never argue the details of any accounting method (I'll leave that to my daughter who is a licensed CPA in MD & FL). What I will argue is that in any large undertaking there are more than one way to apply 'generally accepted accounting principles' and the different ways will result in different results, and each of those ways will be 'legal'.
The percentage of accounting transactions that find their way into a lawsuit is infinitesimal. But the few that do have a way of grabbing headlines.
PJS1Key point: Without access to Amtrak’s books, an outsider has little idea of how it accounts for its financial transactions. Or its cost accounting procedures. You don’t have that access. Neither do I. And neither does your daughter.
And therefore all those numbers are in question.
BaltACD PJS1 Key point: Without access to Amtrak’s books, an outsider has little idea of how it accounts for its financial transactions. Or its cost accounting procedures. You don’t have that access. Neither do I. And neither does your daughter.
PJS1Amtrak may be using dodgy accounting. But there is no indication that they are doing so. So, I am comfortable with their reporting because I don't have access to their books. I don't have a basis for raising a question about the propriety of their cost accounting methodologies.
I would disagree on this to an extent. You can tell from their PR releases and other snippets whatever system they are using is inadequate. So for example their reports to WisDOT on Food Service. I don't need to review their books to see what is going on there, I just need to ride the train and observe and then read Amtraks Press Release on the cost breakdown of the service. Which I believe amounted to 300-400k per year for the whole corridor excluding LD trains before the food service was dropped. I can then ride the train and see they have someone in Amtrak uniform being paid to push a cart where the most expensive food item on it sells for $5-6 but which most of the food items are candy bars, M&M's and cans of soda. Then put together reasonably in my head they are paying someone a living salary to push a damn cart on a 1.5 hour run that if they sold out the cart each time.........probably would not cover their salary and benefits at Amtrak. So you can use that type of deduction to realize that lets say Amtrak is using GAAP........they have real idiots as managers.
However my guess is the managers do not have the specific cost break downs available at their fingertips because it is difficult for me to believe anyone on the face of the Earth is that stupid to try and run a onboard food service that way. I think the rail passenger association might be doing something similar.
PJS1I respect your views on railroad dispatching, which is where I assume you spent most of your career. You should stick to what you know. Clearly, you are out of your depth when it comes to accounting and finance. I would never comment on the appropriateness of dispatching. I never worked at it; I don't know anything about it other than what I have read here or elsewhere.
Don't make presumptions. I was told on this website I didn't know anything about Economics or Accounting. Which I still get a good chuckle over.
PJS1You missed a key point! Without access to Amtrak's books, an outsider does not know what accounting policies, procedures and practices Amtrak uses.
Let me rephrase slightly: 'a recapitulation of what's important, and why Amtrak uses the accounting conventions Chilson claimed it does, and why those he claims are better should be used in analysis.'
I am well aware of the situation regarding Amtrak information and the various reasons it will be difficult to acquire. That does not mean that any discussion of Chilson's paper should end abruptly with 'he's not an accountant and doesn't know what Amtrak actually uses'. All we need to discuss is ... in Texas-permissible GAAP, if necessary ... what Chilson says and whether it's a better approach IN THEORY for the Amtrak situations the RPA is taking a stand about.
Overmod Let me rephrase slightly: 'a recapitulation of what's important, and why Amtrak uses the accounting conventions Chilson claimed it does, and why those he claims are better should be used in analysis.'
Without access to Amtrak's books, as well as its Accounting Policies and Procedures Manual, plus at least the CFO and Chief Accountant, Chilson's claims about Amtrak's accounting conventions (practices) cannot be verified.
No self-respecting auditor or consultant, irrespective of where they are located, would offer an opinion on Amtrak's accounting policies, procedures, and practices w/o access to the sources stated in the preceding paragraph.
If a CPA in any state opined on the validity of a company’s accounting policies, procedures, and practices without access to the primary records – books – as well as key accounting personnel, he or she would be disciplined by the State Board of Public Accountancy in a heartbeat and probably would lose their license.
I read most of Chilson’s report. There is nothing in it to suggest that Chilson was granted access to Amtrak’s books or key finance and accounting personnel.
BTW, the report is not about Amtrak's conformity with GAAP. It addresses Amtrak's management or cost accounting procedures - allocations - for individual train routes. The title should cause a reader to pause: Amtrak's Route Accounting: Fataly Flawed, Misleading, and Wrong. If it is fataly flawed, it probably is misleading and wrong. A first year accountant with a large accounting firm would know not to stick a redundant title on a work product.
But it is a free country, and people can believe what they want to believe. I respect that. It is helpful if people know the difference between a belief and evidence-based findings.
There is big difference in financial analysis of production costs and accounting in my view of industry. All types of engineers and MBA degree holders plan manufacturing or production operations. I have done several to plot out variable cost curves with respect to some variable. An engineering analysis will have to be employed for Amtrak anyway as they assign a large amount of their costs. I can think of other examples where an outside group does a "tear apart" of a car or phone to create a cost to build number for stock traders to figure out profit per unit.
V.Payne All types of engineers and MBA degree holders plan manufacturing or production operations. An engineering analysis will have to be employed for Amtrak anyway as they assign a large amount of their costs.
All types of engineers and MBA degree holders plan manufacturing or production operations. An engineering analysis will have to be employed for Amtrak anyway as they assign a large amount of their costs.
In the large company that I worked for cost and allocation studies were perfromed by teams. The participants included engineers, accountants, financial analysts, IT specialists, and not infrequently consultants from a major consulting firm.
Amtrak has been accused of over reliance on allocations as opposed to the direct assigment of costs. What many have not noticed, it appears, the company is constructively addressing the issue.
According to an Amtrak IG reported dated July 28, 2016, by 2015 Amtrak was able to increase the direct assignment of business costs by product line to 55 percent, which was a marked improvement over 2013.
This is a clear example of why anyone wanting to perform a study of Amtrak's current accounting policies, procedures, and practices needs to have access to the company's books. Now!
PJS1:
As an accountant for 20 years before I made a career switch, I'm curious as to how AMTRAK handles depreciation. Is there anything you can tell me on that subject?
alphas PJS1: As an accountant for 20 years before I made a career switch, I'm curious as to how AMTRAK handles depreciation. Is there anything you can tell me on that subject?
Amtrak follows the appropriate FASB standards codification for depreciation.
Property, plant, and equipment is grouped by asset class and depreciated on a straight-line basis using a composite amortization rate.
Computer equipment and software are depreciated individually.
Properties held under capital lease and leasehold improvements are depreciated over the shorter of their estimated useful lives or the terms of the lease.
Locomotives, passenger cars and related equipment are depreciation over useful lives ranging up to 40 years. Right-of-way and other property (excluding land) are depreciated over periods ranging up to 105 years.
You can find more details regarding Amtrak's depreciation practices in the annual audited Financial Statements.
Interesting. I worked in HR for 12 years as a compensation and benefits guru, as well as an OD Specialist, before getting my accounting degree and switching to accounting. I worked for large corporations; I never practiced public accounting, but I loved it, and I still do, although I have been retired for more than 12 years.
Here is a railway age editorial about what may happen if LD trains eliminated !
https://www.railwayage.com/passenger/intercity/unintended-consequences/?RAchannel=commuterregional
I said it already elsewhere. This opinion is just another very biased article ignoring the economical facts or only uses those selected ones that fit the opinion.
Here is some information from "Amtrak Five Year Service Line Plans Base (FY 2018) + Five Year Strategic Plan (FY 2019–2023)":
Business Unit…Ridership……..Pass.Miles…..Load Factor…..Ticket Revenue
NEC……………12.04 million…….1.984 bn………57%.............$1.238 bn
State supported.15.01 million……..1.920 bn…….40%..............$0.502 bn
Long-distance…..4.70 million……..2.626 bn……..59%.............$0.504 bn
The LD trains loose $0.19 per passenger-mile
Regards, Volker
VOLKER LANDWEHR I said it already elsewhere. This opinion is just another very biased article ignoring the economical facts or only uses those selected ones that fit the opinion. Here is some information from "Amtrak Five Year Service Line Plans Base (FY 2018) + Five Year Strategic Plan (FY 2019–2023)": Business Unit…Ridership……..Pass.Miles…..Load Factor…..Ticket Revenue NEC……………12.04 million…….1.984 bn………57%.............$1.238 bn State supported.15.01 million……..1.920 bn…….40%..............$0.502 bn Long-distance…..4.70 million……..2.626 bn……..59%.............$0.504 bn The LD trains loose $0.19 per passenger-mile Regards, Volker
You seem to also only use selected facts of operating revenue, and ignoring the money pit that is the NEC, which was covered in the article.
MidlandMikeYou seem to also only use selected facts of operating revenue, and ignoring the money pit that is the NEC, which was covered in the article.
In his Railway Age opinion Mr. Seldon claims that LD trains is Amtrak's largest and most successful business (Amtrak will shut down its largest and most commercially successful business). And he claims that "Amtrak has output and load factor data for its three divisions, but goes to great lengths to conceal it, and appears not to use it".
I think my table, gathered from one Amtrak source, shows his above claims as wrong.
From the same Amtrak source a few more numbers:
....................................NEC........State supported......LD
Revenue per available......$0.36..........$0.17..............$0.12Seat-mile
Cost per available............$0.22..........$0.19...............$0.23Seat-mile
Profit/Loss per.................$0.14..........$0.02...............$0.11Available seat-mile
Profit/Loss per..................$0.24.........$0.05...............$0.19passenger-mile
The profit/loss per passenger-miles was calculated using the load factor.
I think the numbers show why Amtrak invests into the NEC. Only there it brings profit.Regards, Volker
VOLKER LANDWEHR MidlandMike You seem to also only use selected facts of operating revenue, and ignoring the money pit that is the NEC, which was covered in the article. In his Railway Age opinion Mr. Seldon claims that LD trains is Amtrak's largest and most successful business (Amtrak will shut down its largest and most commercially successful business). And he claims that "Amtrak has output and load factor data for its three divisions, but goes to great lengths to conceal it, and appears not to use it". I think my table, gathered from one Amtrak source, shows his above claims as wrong. From the same Amtrak source a few more numbers: ....................................NEC........State supported......LD Revenue per available......$0.36..........$0.17..............$0.12Seat-mile Cost per available............$0.22..........$0.19...............$0.23Seat-mile Profit/Loss per.................$0.14..........$0.02...............$0.11Available seat-mile Profit/Loss per..................$0.24.........$0.05...............$0.19passenger-mile The profit/loss per passenger-miles was calculated using the load factor. I think the numbers show why Amtrak invests into the NEC. Only there it brings profit.Regards, Volker
MidlandMike You seem to also only use selected facts of operating revenue, and ignoring the money pit that is the NEC, which was covered in the article.
My recollection of the article was Mr Selden was saying that Amtrak did not disclose segment load factors between stations. where NEC trains ran full/SFO from NYP to Phily, and then way less than half full south of there. As far as your figures go, again you are only showing operating profit/loss, and not the tens of billion$ needed for NEC maintenance/upgrade.
MidlandMikeMy recollection of the article was Mr Selden was saying that Amtrak did not disclose segment load factors between stations.
Here a quote from the above linked article: Amtrak has output and load factor data for its three divisions, but goes to great lengths to conceal it, and appears not to use it.
He might have meant between station but he said differently.
If one measures business success at passenger-miles LD-trains are the largest Amtrak business division. If it qualifies as most successful with a loss of almost $500 million I boubt.
When you have an overall (average) load factor there are section with smaller or larger ones. The load factor and passenger-miles are similar to the operating ratio, seen alone they don't tell much.
That the NEC needs Amtrak's investment is naturally when one owns the line. The LD-trains are "lucky" that they run on host railroads paying only a small fee and the host all remaining investments and maintenance costs.
So I don't care much about the necessary investments into the NEC. As long as the NEC provides a profit it seems worthwhile to me.
My judgement of the article hasn't changed, very biased and ignoring facts.
There might be a number of reasons to keep the LD-trains but economical success is not one of them. So passenger rail advocats should better concentrate on those more political reasons.Regards, Volker
While there are significant costs associated with the NEC, some strong points remain with it:
1. Amtrak controls the dispatching of most of this line. As a result, on time performance is quite better than the LD trains, excluding Amtrak equipment failures.
2. The NEC is the most visible of the Amtrak system, serving the nation's capitol, the media and financial center in New York, and the corporate and university centers in and near Boston.
Another fact that I have noticed is that the two LD trains that come the closest to breaking even are Auto Train and the Palmetto. There maybe some lessons to be learned from these two.
So yourself and Volker should redirect to the Milwaukee to Chicago corridor. Canadian Pacific owns the rail line, signaling and dispatching for 60% of the line with the other 40% METRA owned and dispatched. As WisDOT has added train frequencies the fare box has increasingly picked up and covered the avoidable costs. I am not a betting man when it comes to Amtrak but it would be interesting to see how much the additional three frequencies WisDOT tends to add will increase the financial picture more for the corridor over time.
I am not 100% sure but I think the performance of Milwaukee to Chicago corridor is now even better than LA to San Diego or approaching it. Not sure as I do not keep up with Amtrak comparison stats.
VOLKER LANDWEHR MidlandMike My recollection of the article was Mr Selden was saying that Amtrak did not disclose segment load factors between stations. Here a quote from the above linked article: Amtrak has output and load factor data for its three divisions, but goes to great lengths to conceal it, and appears not to use it. He might have meant between station but he said differently. If one measures business success at passenger-miles LD-trains are the largest Amtrak business division. If it qualifies as most successful with a loss of almost $500 million I boubt. When you have an overall (average) load factor there are section with smaller or larger ones. The load factor and passenger-miles are similar to the operating ratio, seen alone they don't tell much. That the NEC needs Amtrak's investment is naturally when one owns the line. The LD-trains are "lucky" that they run on host railroads paying only a small fee and the host all remaining investments and maintenance costs. So I don't care much about the necessary investments into the NEC. As long as the NEC provides a profit it seems worthwhile to me. My judgement of the article hasn't changed, very biased and ignoring facts. There might be a number of reasons to keep the LD-trains but economical success is not one of them. So passenger rail advocats should better concentrate on those more political reasons.Regards, Volker
MidlandMike My recollection of the article was Mr Selden was saying that Amtrak did not disclose segment load factors between stations.
Rather than ignore facts, Mr. Selden brings up the facts that many such as yourself seem to want to ignore, that is that the NEC is very expensive piece of infrastructure to maintain. The total economics overwhelm any profit from "above the rails" operation. So you "don't care much about the necessary investments into the NEC." That does not negate the fact that those capital costs are part of the costs needed to keep it running. The NEC is no more of an economic success than any other of Amtrak's product lines.
CMStPnP I am not 100% sure but I think the performance of Milwaukee to Chicago corridor is now even better than LA to San Diego or approaching it.
MidlandMikeRather than ignore facts, Mr. Selden brings up the facts that many such as yourself seem to want to ignore, that is that the NEC is very expensive piece of infrastructure to maintain. The total economics overwhelm any profit from "above the rails" operation. So you "don't care much about the necessary investments into the NEC." That does not negate the fact that those capital costs are part of the costs needed to keep it running. The NEC is no more of an economic success than any other of Amtrak's product lines.
I think you can only compare the "above the rail" costs. Amtraks owns a large part of the NEC and is responsible for investment into and maintenance of that part of the line. The LD trains don't even pay the costs they cause to their hosts.
Looking at the "above the rail" costs LD trains make a loss, NEC trains a profit. That Mr. Selden seems to ignore when he writes: Why any enterprise would try to eliminate its largest, most efficient and most successful division is a mystery. And:
The supreme irony of Amtrak’s effort is that if it succeeds, all that traffic, free cash flow, return on invested capital and growth opportunity will be lost. Worse, its annual loss, and “need” for federal subsidy to sustain what remains, will grow by more than $400 million annually (according to Amtrak), pushing the total loss and subsidy up by that amount to a figure approaching $2 billion annually.
I do not understand the following: How can free cash flow get lost when LD-trains make a loss? How can Amtrak's dept rise when the $500 million loss of the LD trains disappears?
The maintenance and investment costs are the price Amtrak has to pay for owning the ROW. On the other hand it allows Amtrak and others to run around 40 trains per direction daily in some sections instead of one pair on host railroads.
I don't know if subsidies for the NEC network are unfair when trucks and cars don't pay for the complete damage to roads they cause, or airline use an infrastructure provided at least in part by the government. I don't care in the sense that I accept the investment cost and that I think they are better used in the NEC than elsewhere in the system.
Passenger-miles, load factor, and market share alone don't tell anything about the profitability. Regards, Volker
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