Amtrak: Improved Management and Controls over Food and Beverage Service Needed

Food and beverages have been served on board National Railroad Passenger Corporation (Amtrak) trains since Amtrak was created. Amtrak's 11 commissaries, located around the country, are responsible for receiving, warehousing and stocking food, beverages, and other items for Amtrak's on-board dining and cafe service. January 1999, Amtrak ran these commissaries with its own employees. Since then, Amtrak has contracted out the responsibility for the commissaries and for ordering and stocking all food, beverage, and related items under a contract that expires in September 2006. Gate Gourmet, the contractor, is also a supplier of food and beverages to several major airlines. During fiscal years 2002 through 2004, the period the Government Accountability Office (GAO) focused on in their audit work, Amtrak paid Gate Gourmet between $59 million and $64 million a year in reimbursements and fees. Gate Gourmet personnel operate Amtrak-owned commissaries and order, receive, store, and stock trains with food, beverages, and other related items, such as table linens and napkins. Food and beverage supplies are charged to Amtrak employees who provide on-board food and beverage service and account for the food and beverages en route. When a train arrives at its final destination, all remaining stock items are returned to a commissary. Gate Gourmet charges Amtrak for the items used, as well as for labor, management, and other fees. Since Amtrak started operations in 1971, Amtrak has struggled financially and has depended on a federal subsidy of more than $1 billion a year since fiscal year 2003 to remain solvent. For fiscal years 2002 through 2004, Amtrak's food and beverage expenses were about $487 million--or only about 5 percent of the company's total expenditures. However, during that same time period, Amtrak's food and beverage service earned about $243 million in revenue. This means that Amtrak spends about $2 to earn $1 in food and beverage revenue. Because of the importance of food and beverage operations to Amtrak and the continued interest of Congress in Amtrak's financial performance, Congress asked GAO to review Amtrak's food and beverage costs. The GAO examined the following three areas: (1) the provisions written into Amtrak's contract with Gate Gourmet International (Gate Gourmet) to control costs, (2) the types of management controls Amtrak exercises to prevent improper payments, and (3) the information Amtrak collects and uses to monitor the service and to report to stakeholders such as its Board of Directors. The provisions of the contract for food and beverage services provide little incentive for Gate Gourmet to reduce or contain the costs of food and beverages. The contract is a cost reimbursable contract, and under it, the contractor can charge for the costs of items purchased, in addition to management and other fees. Given the way Amtrak is managing the contract, none of the contractor's profit is tied to controlling costs. Although the contract included a discussion of performance standards, these standards and related measures were never created, even though they were required 45 days after the contract was signed in January 1999. Performance standards would have allowed for performance incentives and penalties. If these incentives had been developed, they could have been used to pay Gate Gourmet based on such things as finding lower-priced food products of similar quality. Amtrak is not fully exercising prudent management techniques to control its food and beverage costs and prevent potential improper payments. GAO found three examples of this mismanagement at Amtrak. First, Amtrak has never required the contractor to submit an annual report (that would be independently audited) of budget variances for key line items, even though the contract requires such a report. Such a report could detect improper payments by Amtrak to Gate Gourmet for food and beverage items. Second, Amtrak has not implemented processes to ensure that rebates and discounts received directly from suppliers or indirectly through its contractor are accurate and complete. Amtrak has not established formal procedures to review and verify the amount of rebates and discounts actually received from either its suppliers or to determine whether there are other rebates that Amtrak is entitled to from the contractor. Finally, Amtrak does not adequately monitor purchase prices reported by the contractor to identify variances or products with high costs. Although Amtrak had some processes that compare prices, the process was not robust enough to include a record of price trends or follow-up actions taken. 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. The level of information Amtrak collects and uses to monitor its food and beverage service and report results to stakeholders inhibits accountability for its performance. Amtrak does not report food and beverage expenditure information in its monthly performance reports or its annual consolidated financial statements. While Amtrak reports the combined revenue of its food and beverage services in its monthly performance reports, it does not do so for its food and beverage expenses. By combining revenue, it is difficult for managers to determine the amount of revenue attributable to food services compared with beverage services. By not reporting expenses, it is difficult to determine how much is spent on food and beverage service. This lack of information inhibits Amtrak's ability to assign accountability for performance internally or allow for any external accountability to key stakeholders. Other transportation companies GAO studied have a different accountability structure for their food and beverage service. Because VIA Rail has a fixed subsidy from the federal Canadian government, VIA Rail's management has an inherent incentive to control its costs in all areas of its operation, including its food and beverage service. The Alaska Railroad receives biweekly reports from its contractor detailing its labor and food costs that show, among other things, contractor performance against the contractual cost caps.


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Media Info

  • Media Type: Web
  • Features: Appendices;
  • Pagination: 30p

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Filing Info

  • Accession Number: 01006000
  • Record Type: Publication
  • Report/Paper Numbers: GAO-05-867
  • Files: TRIS
  • Created Date: Oct 7 2005 11:02AM