- The Washington Times - Monday, May 31, 2010

When Amtrak assured Congress it was on a “glide path” to free itself of federal subsidies early last decade, a handful of top executives secretly had reason to know better. In fact, the rail service was on the verge of bankruptcy.

But Amtrak’s public assurances were based on far more than overly rosy financial projections.

A previously undisclosed seven-year investigation later uncovered serious accounting shenanigans inside Amtrak that kept federal officials, Congress and the public in the dark about the national rail service’s true finances, according to documents obtained by The Washington Times through the Freedom of Information Act.

No criminal charges were filed, but the activities were serious enough to warrant a federal grand jury and the involvement of the U.S. attorney’s office in Washington. The investigation was headed by Amtrak’s office of inspector general and the U.S. Postal Service Inspection Service.

What authorities ultimately unraveled was that two former Amtrak officials, in fiscal 2001, either booked false or incorrect accounting entries in Amtrak’s monthly financial statements or else failed to report the activities.

In turn, these same misleading accounting entries helped make Amtrak’s monthly financial results appear closer to budget than they really were. What’s more, the “inappropriate entries” were being made when Amtrak was sending monthly and quarterly financial reports to its own board of directors, the Department of Transportation, the Federal Railroad Administration and others, records show.

Amtrak spokeswoman Karina Romero said the accounting misstatements had been corrected and that several changes were made in the wake of the investigation, including the issuance of quarterly financial statements and the establishment of an audit committee.

“This was a serious breakdown in complying with basic financial reporting requirements that rendered interim unaudited financial statements unreliable,” Amtrak Inspector General Ted Alves said in a statement to The Times on Friday.

“The problems were detected before the end of the fiscal year and proper adjustments were made,” he said, adding that auditors were able to express a “clean opinion” on Amtrak’s financial statements.

Newly disclosed details about the investigation shed light on one of Amtrak’s most difficult financial periods.

As a member of the Amtrak Reform Council from 1999 to 2002, Wendell Cox recalls hearing repeated assurances from Amtrak that the rail service was managing its money well — followed, seemingly suddenly, with dire warnings that it was teetering on collapse.

“We had heard nothing but rosy statements,” Mr. Cox said. “Then, all of the sudden, everything just fell apart. And it was clear that something was very wrong and that we and the Congress had been grossly misled.”

There were similar concerns inside Amtrak at the time.

In May 2001, the Amtrak inspector general’s audit division got a tip that employees were “making numerous journal entries to the books to ‘hang up’ expenses on the balance sheet or to move revenue,” the records show.

At the time, Amtrak already was under heavy pressure to improve finances. The Amtrak Reform and Accountability Act of 1997 gave the national rail service until the end of 2003 to end its long-standing reliance on federal subsidies.

But by the start of fiscal 2001, money was running out. Amtrak needed a quick cash infusion or it faced bankruptcy. Still, the reality of the serious financial situation was known only to “a few people” inside the company, records show.

Though a handful of Amtrak officials knew about the financial problems, “this information was guarded and not shared among other company employees,” investigators noted in their report.

Those inside Amtrak who knew about the problems included Amtrak’s president, George Warrington, who died in 2007, at least two other people and “a few people in the finance department,” records show.

There’s no indication in documents obtained by The Times that Mr. Warrington took part in or knew about false or incorrect accounting entries being made on Amtrak’s profit-and-loss statements.

But two other unnamed people inside Amtrak either made false or incorrect accounting entries or failed to report the misdeeds that aimed to make Amtrak’s budget picture look better than it really was, records show.

In releasing a summary of the investigation, in response to The Times’ open records request, Amtrak’s inspector general withheld the names of the two former employees, citing privacy exemptions. Neither was charged criminally, and they were “released from employment” in May 2007, according to the documents.

In 2003, a Congressional Budget Office study faulted the rail service for assuring Congress it was moving to self-sufficiency, while actually mortgaging its assets, including New York’s Penn Station, to borrow money.

The summary report by the inspector general obtained by The Times does not state the overall amount of the accounting misstatements identified by investigators. Amtrak officials declined to provide a figure when asked.

“This set of events took place almost 10 years ago, and Amtrak worked with federal officials who were fully apprised of the circumstances,” Ms. Romero said.

In addition, Amtrak advanced nearly $150,000 in legal fees combined on behalf of the two unnamed people who were investigated, though an outside consulting firm later determined that “neither individual acted in good faith.”

It’s unclear whether Amtrak ever recouped the legal bills.

“Amtrak pursued its claims to the extent those were legally viable,” Ms. Romero said.

• Jim McElhatton can be reached at jmcelhatton@washingtontimes.com.

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