Testimony 

Before the Subcommittee on Railroads, 

Committee on Transportation and 

Infrastructure, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 9:30 a.m. EDT 

Thursday, June 9, 2005 AMTRAK

Management and 

Accountability Issues 

Contribute to 

Unprofitability of Food and 

Beverage Service 

Statement of JayEtta Hecker, Director 

Physical Infrastructure Issues 

GAO-05-761T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-761T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact JayEtta Z. 

Hecker, 202-512-8984. 

Highlights of GAO-05-761T, a report to 

Subcommittee on Railroads, Committee 

on Transportation and Infrastructure, 

House of Representatives 

June 9, 2005

AMTRAK

Management and Accountability Issues 

Contribute to Unprofitability of Food and 

Beverage Service 

Amtrak’s financial records show that for every dollar Amtrak earns in food 

and beverage revenue, it spends about $2—a pattern that has held consistent 

for all 3 years GAO reviewed. In GAO’s estimation, Amtrak has lost a total of 

almost $245 million from fiscal year 2002 through fiscal year 2004 on food 

and beverage service. Since 1999, Amtrak has contracted out the 

responsibility to Gate Gourmet International (Gate Gourmet) for managing 

commissaries and for ordering and stocking all food and beverages and 

related items managing under a contract that expires in September 2006. 

Amtrak’s current cost reimbursable contract with Gate Gourmet creates, if 

anything, an incentive to increase Amtrak’s costs unless properly monitored. 

Gate Gourmet can charge Amtrak for the cost of the food and beverage 

items, as well as management, labor, and other expenses. Without defined 

controls and management, this type of contract structure provides little 

incentive for a contractor to reduce or contain costs to provide better value 

to its customer. 

GAO found five different management controls that Amtrak did not fully 

exercise regarding oversight of its food and beverage service. These 

controls include: (1) requiring an independently audited financial report, (2) 

auditing for all applicable rebates and discounts that Gate Gourmet could 

have applied to food and beverage items purchased for Amtrak, (3) 

adequately monitoring purchase price information for its food and beverage 

items, (4) not considering Amtrak’s food and beverage labor costs, as a part 

of product markups, and that (5) not utilizing Amtrak’s procurement 

department in negotiating the current contract. 

Information that could provide both internal and external accountability 

for the food and beverage function is limited. Amtrak does not include 

any information about its food and beverage expenses in any of its 

internal or external reports, including its monthly performance reports, 

its internal quarterly progress reports or its annual consolidated financial 

statements. This lack of information makes it difficult for internal and 

external stakeholders to gauge the profit or loss of the operation as well 

as to assign accountability. 

Amtrak food and beverage revenues and expenses, fiscal years 2002 to 2004 

Amtrak has provided food and 

beverage service on its trains since 

it began operations in 1971. 

Amtrak has struggled since its 

inception to earn sufficient 

revenues and depends heavily on 

federal subsidies to remain solvent. 

While a small part of Amtrak’s 

overall expenditures, Amtrak’s 

food and beverage service 

illustrates concerns in Amtrak’s 

overall cost containment, 

management and accountability 

issues. 

This testimony is based on GAO’s 

work on Amtrak’s management and 

performance as well as additional 

information gained from Amtrak 

and other transportation providers. 

This testimony focuses on (1) the 

provisions written into Amtrak’s 

contract with Gate Gourmet to 

control costs, (2) the types of 

management controls Amtrak 

exercises to prevent overpayments, 

and (3) the information Amtrak 

collects and uses to monitor the 

service and to report to 

stakeholders such as its Board of 

Directors. 

What GAO Recommends

Since we did not have sufficient 

time to obtain Amtrak’s comments, 

as required by government auditing 

standards, prior to this hearing, 

GAO anticipates making 

recommendations to Amtrak to 

improve its food and beverage 

service at a later time. 
Page 1 GAO-05-761T 

Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to testify on issues concerning the National 

Railroad Passenger Corporation’s (or Amtrak) food and beverage service, 

which will clearly illustrate Amtrak’s challenges in controlling its costs. 

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. Of Amtrak’s total food and beverage 

expenditures, about 53 percent was for labor costs for Amtrak employees 

serving the food, about 38 percent was for food costs and fees to Gate 

Gourmet International (Gate Gourmet)—the contractor for food and 

beverages and operation of Amtrak commissaries—and about 9 percent 

for other Amtrak costs. 

At your request, my statement today relates primarily to the contractor’s 

portion of this expense, as well as Amtrak’s oversight and control over its 

food and beverage service, and what Amtrak is doing to oversee and 

control contract costs. I will specifically address what we have learned in 

examining three major types of cost controls: (1) the provisions written 

into Amtrak’s contract with Gate Gourmet1

 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. We also 

talked with three other passenger transportation providers to get 

background and comparison information on their food and beverage 

services. The information I will present is based on completed work done 

in the course of our ongoing review of Amtrak’s management and 

performance which we will report on later this year. We also collected 

supplemental information from Amtrak, and on the food and beverage 

operations of VIA Rail Canada (VIA Rail) and the Alaska Railroad, two 

other providers of intercity passenger rail, and two major U.S. air 

carriers—Northwest Airlines and American Airlines. 

 1

Gate Gourmet International was formerly known as Dobbs International prior to January 

1, 2001. 
Page 2 GAO-05-761T 

In summary, we found that: 

• 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, then they could 

have been used to pay Gate Gourmet based on such things as finding 

lower-priced food products of similar quality to what is being purchased 

now. 

• Amtrak is not fully exercising prudent management techniques to control 

its food and beverage costs and prevent potential improper payments. We 

found three examples of this mismanagement at Amtrak. First, Amtrak has 

never required the contractor to submit an annual report (which 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 never audited the contractor’s purchase data—which 

is allowed under the contract—to ensure that the contractor is passing 

along any discounts or rebates the contractor receives on items 

purchased. For example, Gate Gourmet reported passing along about 

$550,000 in rebates and discounts on purchases for Amtrak totaling about 

$6.5 million out of $90 million total purchases for Amtrak from fiscal year 

2002 through fiscal year 2003.2

 Finally, Amtrak does not adequately 

monitor purchase prices reported by the contractor to identify variances 

or products with high costs. To further test purchase data, we nonstatistically selected 37 payment transactions and reviewed the underlying 

supporting documentation and found evidence of widely variable product 

prices. For example, Amtrak paid between $0.43 and $3.93 per 12-ounce 

bottle of Heineken beer. (See fig. 1.) 

 2

Fiscal year 2004 audited financial information was not available when we conducted our 

analysis. 
Page 3 GAO-05-761T 

Figure 1: Amount Amtrak Paid for a 12-Ounce Beer, Fiscal Years 2002 and 2003 

• The level of information Amtrak collects and uses to monitor its food and 

beverage service and report results to external or internal stakeholders 

inhibits accountability for its performance. Externally, 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 

to 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 we 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. 

$0.43

$3.93

Purchase price in dollars

Sources: GAO analysis of Amtrak data; Corel (clip art).

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Beer
Page 4 GAO-05-761T 

Food and beverages have been served onboard Amtrak trains since 

Amtrak was created. Amtrak’s eleven commissaries are located around the 

country and are responsible for receiving, warehousing and stocking food, 

beverages, and other items for Amtrak’s onboard dining and café service. 

Until 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, beverages, and 

related items under a contract that expires in September 2006.3

 Gate 

Gourmet (the contractor), is also a supplier of food and beverages to 

several major airlines. During fiscal years 2002 through 2004, the 3-year 

period we focused on in our audit work, Amtrak paid Gate Gourmet 

between $59 and $64 million a year in reimbursements and fees.4

 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 stock are 

charged to Amtrak employees who account for the food 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. The contract requires that Gate 

Gourmet provide Amtrak an independently audited annual report within 

120 days following the expiration of each contract year. 

Amtrak’s model for handling its food and beverage service is similar to 

other passenger transportation companies, with some important 

differences. Northwest Airlines has outsourced their kitchen and 

commissary operations and have food and beverages delivered to each 

airplane before each flight. VIA Rail Canada, Canada’s national passenger 

railroad, serves food on most of its trains and owns and operates its own 

commissaries. Food and other items are delivered to each train, consumed 

during the train’s run and restocked at the destination. The Alaska 

Railroad, however, has a private contractor that orders, stocks, delivers, 

prepares, and serves all of its food and beverages on its trains using their 

 3

There is an option for a 5-year extension. 

4

Gate Gourmet has contracts with food and non-alcoholic beverage suppliers for Amtrak’s 

food and beverage service. Gate Gourmet purchases alcoholic beverages from distributors 

but Amtrak is directly billed as Amtrak holds the liquor license to serve alcohol on its 

trains. 

Background 

How Does Amtrak Operate 

Its Food and Beverage 

Service? 
Page 5 GAO-05-761T 

own labor force. With certain exceptions and limits, all food and beverage 

revenues and expenses are the responsibility of the contractor.5

Amtrak’s financial records show that for every dollar Amtrak earns in food 

and beverage revenue, it spends about $2—a pattern that has held 

consistent for all 3 years we reviewed. (See table 1 and fig. 2.) Amtrak’s 

financial records also indicate that Amtrak has lost a total of almost $245 

million for fiscal year 2002 through fiscal year 2004 on food and beverage 

service. Section 24305(c)(4) of Title 49, United States Code, states that 

Amtrak is not to operate a food and beverage service whose revenues do 

not exceed the cost of providing such service. About half of the total food 

and beverage expenditure is labor cost for Amtrak staff who prepare and 

serve the food aboard the trains. About 38 percent is reimbursements and 

fees to Gate Gourmet, representing the cost of food and other products in 

addition to other fees paid to Gate Gourmet. About 9 percent is for other 

Amtrak costs. While Amtrak’s labor costs for its food and beverage service 

are significant, these costs are part of Amtrak’s overall labor cost 

structure, and as such, are beyond the scope of work we did for this 

testimony. However, a recent Amtrak Inspector General report suggested 

that Amtrak could save money on its food and beverage labor if the cost of 

this labor was similar to that of the restaurant industry.6

 5

Under the Alaska Railroad contract, the contractor is guaranteed a 5 percent profit margin. 

If food and beverage sales do not provide this 5 percent margin, then Alaska Railroad 

makes up the difference. If margins exceed 5 percent, then the contractor and Alaska 

Railroad split the excess amount. 

6

Evaluation Report: Food and Beverage Financial Performance, Report E-05-03, Amtrak 

Inspector General. 

How Much Is Amtrak 

Losing on Food and 

Beverage Operations? 
Page 6 GAO-05-761T 

Table 1: Amtrak’s Estimated Food and Beverage Revenue and Expenses (by Major Category), Fiscal Years 2002 to 2004 

 2002 2003 2004cTotal 

Percent of Total 

Expense (%)

Total food and beverage revenuesa $ 84,100,000 $ 78,400,000 $ 80,400,000 $ 242,900,000 

Expense Category 

Amtrak Labor Costs $ 83,768,416 $ 83,257,574 $ 89,162,529 $ 256,188,519 52.6

Payments to Gate Gourmet $ 63,754,973 $ 59,769,085 $ 61,893,852 $ 182,422,910 38.0

All Other Amtrak Food and Beverage 

Expensesb

 $ 16,961,343 $ 15,775,092 $ 13,123,348 $ 45,859,910 9.4

Total Food and Beverage 

Expenses $ 164,489,732 $ 158,801,751 $ 164,179,729 $ 487,471,212 100.0

Profit or (Loss) $ (80,389,732) $ (80,401,751) $ (83,779,729) $ (244,571,212) 

Source: GAO analysis of Amtrak data. 

Notes 

a

Revenues include a portion of first class ticket revenue dedicated toward food and beverage 

revenues. 

b

“All Other” expenses include such items as utilities, office supplies, crew meals, and reusable 

support items such as crockery and glassware. 

c

All 2004 figures are unaudited. 
Page 7 GAO-05-761T 

Figure 2: Amtrak Food and Beverage Revenues and Expenses, Fiscal Years 2002 to 

2004 

Amtrak has responded to these continued losses with some incremental 

reductions in food and beverage service. On July 1, 2005, Amtrak plans to 

discontinue food and beverage service on its routes between New York 

City and Albany, New York, which would allow Amtrak to close its 

commissary in Albany. An official in Amtrak’s Office of Inspector General 

stated that Amtrak lost between $6 to $8 per person on food service on 

those routes and that closing the commissary will save Amtrak about $1 

million per year. However, achieving additional savings by closing 

commissaries could be limited, as Amtrak’s other commissaries serve 

multiple Amtrak trains that would continue to offer food and beverage 

service. In other words, closing a commissary could affect multiple trains 

on multiple routes. According to an Amtrak procurement official, a team 

consisting of members of Amtrak’s procurement, legal, financial and 

0

50

100

150

200

2002 2003 2004

Dollars in millions

Source: GAO analysis of Amtrak data.

Fiscal Year

Total food and beverage expenses

Total food and beverage revenues
Page 8 GAO-05-761T 

transportation departments is currently working to identify ways to reduce 

Amtrak’s costs in its next commissary contract.7

Other transportation companies have taken actions to better control their 

food and beverage costs in recent years. For example, Northwest Airlines 

officials stated that they pay particular attention to food and beverage 

expenses. Since 2002, Northwest has reduced its food costs by 4 percent. 

This has been achieved by reducing or eliminating complimentary food 

service for coach passengers on domestic flights (even to the point of 

eliminating pretzels on these flights), aggressive pricing of food products 

and flexible budgeting that adjusts each month to reflect increases or 

decreases in ridership.8

 VIA Rail officials told us they have considerable 

flexibility in hiring its onboard service personnel to adjust its labor force 

to respond to peak and off-peak tourist seasons for its long-distance trains. 

In addition, VIA Rail officials said they have considerable flexibility in how 

onboard service staff are used; in essence, all onboard service staff can be 

used wherever and whenever needed. The Alaska Railroad restructured 

the contract with its food and beverage service provider to allow for food 

price fluctuation within defined limits. 

One way to control costs is to build provisions into a contract that 

motivate a contractor to keep costs as low as possible. Amtrak’s current 

cost reimbursable contract with Gate Gourmet creates, if anything, an 

incentive to increase Amtrak’s costs unless properly monitored. Under the 

contract, Gate Gourmet receives a number of reimbursements, including 

commissary, labor, and insurance costs, in addition to an operating fee. 

The operating fee is defined in the contract as 5 percent of the total actual 

cost of the onboard food and beverage items. This fee is an incentive for 

the contractor to increase Amtrak’s food and beverage costs. These costs 

can change in each yearly operating budget. This operating budget is 

subject to review by Amtrak and is mutually agreed to by both Amtrak and 

Gate Gourmet. 

Incentives can also be written into a cost reimbursable contract to control 

costs and enhance performance. Although the contract included a 

 7

The current contract expires on September 30, 2006. 

8

Northwest officials noted that in lieu of complimentary food service for coach passengers 

they have instituted a “Buy On Board” program which offers certain food items for sale to 

passengers. 

Current Contract 

Does Not Provide 

Incentives to Reduce 

or Contain Costs 
Page 9 GAO-05-761T 

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, then they could have been used to pay 

Gate Gourmet based on such things as finding lower-priced food products 

of similar quality to what is being purchased now, or identifying ways the 

food and beverage service could be operated more economically or 

efficiently. 

Other factors may not provide the needed incentives for Gate Gourmet to 

aggressively seek to reduce Amtrak’s food costs. Under current contract 

provisions, Gate Gourmet can charge Amtrak for food prepared in Gate 

Gourmet facilities and delivered to Amtrak’s commissaries. The contract 

provides considerable pricing flexibility to Gate Gourmet for these items 

with no detailed definitions or price caps. This makes it difficult to 

determine whether or not Amtrak is being charged a reasonable price. In 

addition, the contract also provides that Gate Gourmet deduct any trade or 

quantity discounts on items purchased for Amtrak either immediately from 

Amtrak’s invoices or retroactively based on the proportion of Amtrak’s 

purchases. Discounts applied retroactively are to be applied by Gate 

Gourmet in “good faith” and retroactive payments are “an approximation 

and that [Gate Gourmet] cannot guarantee exactness.” The contract 

stipulates these payments are subject to an audit by Amtrak. However, 

these audits have never been conducted. 

In contrast, while Northwest Airlines has cost plus contracts with its 

largest food and beverage contractors (including Gate Gourmet), 

Northwest’s management of them is different. Northwest’s caterer 

contracts have labor and other rates specified in the contract. According 

to Northwest’s food and beverage officials, they know quickly if they 

change their menu, how much their suppliers will charge them—even to 

the addition or subtraction of a leaf of lettuce served as part of an entree. 

In addition, Northwest officials stated that each price charged by its 

contractors is checked and invoices are audited. 
Page 10 GAO-05-761T 

We identified five types of management controls that Amtrak did not fully 

exercise regarding oversight of its food and beverage service. These 

include the following: 

• Requirement for an annual report has never been enforced. 

Amtrak’s contract requires Gate Gourmet to provide an independently 

audited annual report within 120 days following the expiration of each 

contract year; this report must also be certified by Gate Gourmet officials. 

This report is to provide actual and budgeted amounts for key line items 

and to provide a narrative explanation for any actual to budget variance 

greater than one percent in the aggregate for all commissaries. However, 

Gate Gourmet has not provided this report during the five completed years 

the contract has been in place. Amtrak food and beverage officials could 

not provide us with a reason as to why they had decided not to enforce 

this provision. They told us that they relied on contractor-provided 

monthly operating statements and on reports from Amtrak’s Inspector 

General instead. Our review found that the monthly operating statements 

lacked critical information that was to be included in the annual report, 

were prepared by the party seeking reimbursement, and, perhaps more 

importantly, were not independently reviewed or audited. By contrast, the 

annual report was to be certified by contractor officials and audited by an 

independent certified public accountant. The Inspector General’s reports, 

while providing management with information on some aspects of 

Amtrak’s food and beverage service activities, should not be viewed as a 

substitute for a comprehensive audit and report. 

• Audits of discounts and rebates were not conducted. The contract 

provides that Amtrak audit Gate Gourmet’s allocations of trade and 

quantity discounts received from purchases of food and beverages. 

However, Amtrak has never conducted an audit of the discounts credited 

to it, nor has it requested that the contractor certify that all of the 

discounts that Amtrak should receive have been credited to its account. 

Information we reviewed indicates that such audits may yield savings for 

Amtrak. For example, Amtrak officials advised us that discounts and 

rebates totaling over $550,000 for fiscal years 2002 and 2003 had been 

credited on gross purchases of about $6.5 million.9

 However, total Gate 

Gourmet purchases exceeded $90 million for the 2-year period—roughly 

13 times the amount of purchases the contractor reported as being subject 

to discounts and rebates. Because Amtrak did not require an independent 

 9

Audited 2004 financial information was not available during our analysis. 

Management Controls 

Over Food and 

Beverage Operations 

Not Fully Exercised 
Page 11 GAO-05-761T 

audit or otherwise analyze the trade and quantity discounts received, 

Amtrak does not know whether or not it received all of the discounts and 

rebates to which it was entitled. Amtrak could not provide us with reasons 

supporting its decision or its consideration of this issue. 

• Adequate monitoring of purchase price information needs 

improvements. Amtrak did not adequately monitor its purchase price 

information for food and beverage items purchased by Gate Gourmet. 

Amtrak officials said they monitored contractor purchases using daily 

price reports that listed unit prices for purchases ordered the previous day 

and the price the last time the item was ordered. However, given the 

importance of purchase orders in a food and beverage operation, internal 

controls need to be developed to systematically monitor and analyze 

purchase information. These controls should then be monitored on a 

regular basis to assess the quality of performance over time.10 For 

example, controls should include processes to identify unit price variances 

over established or pre-set amounts and actions taken to document followup work performed. 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 such as corrections of amounts billed. 

Our testing of this control showed that if Amtrak had approached this 

review in a more rigorous manner, it may have identified discrepancies 

warranting further investigation. For example: 

• Monitoring of Purchase Order Pricing: Using data mining11 and other 

audit techniques, we selectively reviewed more than $80 million of 

purchase order information for fiscal years 2002 and 2003 and found 

that the contractor was generating purchase orders with significant 

variances in unit prices. For example, in 2003, the purchase order price 

of a 10-ounce strip steak ranged from $3.02 to $7.58. 

• Monitoring of Actual Product Price Charged by Gate Gourmet: When 

Amtrak officials told us that purchase order information did not always 

 10GAO, Internal Control Standards: Internal Control Management and Evaluation Tool, 

GAO-01-1008G (Washington, D.C.: Aug.1, 2001). 

11Data mining applies a search process to a data set, analyzing for trends, relationships, and 

interesting associations. For instance, it can be used to efficiently query transaction data 

for characteristics that may indicate potentially improper activity. 
Page 12 GAO-05-761T 

reflect actual amounts paid,12 we tested actual prices paid by Amtrak to 

Gate Gourmet. To test purchase order data, we nonstatistically 

selected 37 payment transactions and reviewed the underlying 

supporting documentation and found evidence of widely variable 

product prices. For instance, in fiscal years 2002 and 2003, payments of 

over $400,000 for 12-ounce Heineken beer varied from $0.43 to $3.93 

per bottle. 

• Amtrak product pricing excludes labor costs. Our work revealed that 

Amtrak’s product price to the customer does not take into account over 

half of Amtrak’s total food and beverage costs. Amtrak’s target profit 

margin is 67 percent for prepared meals and 81 percent for controlled 

beverages. These target profit margins are expressed as a percentage of 

sales over the item product cost charged to Amtrak. However, these target 

profit margins do not take into account Amtrak’s on-board labor costs, 

which our work has determined is estimated at over half of Amtrak’s food 

and beverage total expenditures. Amtrak’s current food and beverage 

product pricing seems to ensure that its food and beverage service will not 

be profitable. 

• Available procurement expertise not brought to bear. Finally, 

Amtrak’s procurement department was not involved in the negotiation of 

the original contract.13 The current contract was signed by officials of 

Amtrak’s now defunct Northeast Corridor Strategic Business Unit.14 The 

contract’s initial period was for about 7 years (January 29, 1999, to 

September 30, 2006), with a 5-year extension option. In addition, another 

agreement to supply Amtrak’s Acela train service for food and beverage 

items from Gate Gourmet’s flight kitchens was made verbally between 

 12For example, a price change may have occurred between the time an item was ordered 

and when it was delivered. Record keeping errors may also have occurred and unit prices 

in the inventory system may, for example, be based on a different pack size than that 

received or from that used for the last purchase. 

13Since the original contract, Amtrak’s procurement department plans to take the lead role 

in any future renewal, bidding and negotiating the next iteration of the outsourced 

commissary contract. 

14According to Amtrak, Strategic Business Units (or “SBU”s) were a method for better 

managing performances and differences in businesses or markets within a company and 

were designed to anticipate and facilitate rapid response to change, place decisionmaking 

close to the customer, and establish authority and accountability. Amtrak established 3 

SBU’s—Northeast Corridor, Intercity, and West. The SBU’s were largely self-contained 

units that had their own chief executive officers, handled their own train service, procured 

their own materials and supplies, and handled their own financial management and 

planning. 
Page 13 GAO-05-761T 

Amtrak’s former president and the president of Gate Gourmet. Amtrak 

does not have any documentation for the contract terms for this service. 

In contrast to Amtrak, other transportation companies we interviewed 

closely monitor their invoices and contractor payments through periodic 

audits or have given the responsibility for costs and pricing to the 

contractor. For example, Northwest Airlines officials stated that they 

conduct regular audits of “every [food and beverage] price” they are 

charged from their contractors and have found errors in either prices or 

labor charges in their contractor invoices. VIA Rail selectively audits their 

food supplier invoices that are attached to every billing statement they 

receive. Finally, the Alaska Railroad food and beverage business model 

gives responsibility for food and labor costs to the contractor, subject to 

contractual limits. 

Finally, information that would provide accountability over this service, 

both internally and externally, is limited. We noted that while Amtrak 

reports the combined revenue from its food and beverage services in its 

monthly performance reports, it does not identify for stakeholders the 

revenue attributable to each service. Amtrak also does not include any 

information about its food and beverage expenses in any of its internal or 

external reports, including its monthly performance reports, its internal 

quarterly progress reports, or its annual consolidated financial statements. 

Absent this information, it is difficult for internal and external 

stakeholders to determine the amount of expense attributable to the food 

and beverage service and to gauge the profit or loss of the operation. This 

hinders oversight and accountability. 

Other transportation companies we 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. VIA Rail controls its food and 

beverage costs in many different ways including fixed fee supplier 

contracts, item price reports, monitoring of supplier markups and item 

prices, and fixed food cost budgets to VIA Rail menu planners. Northwest 

Airlines has a flexible monthly food and beverage budget that increases or 

decreases with ridership levels. In addition, each supplier contract has 

established markups on product prices and its contracts with food 

preparation and delivery providers have detailed labor rates that are all 

audited for accuracy. The Alaska Railroad receives biweekly reports from 

its contractor detailing its labor and food costs that show, among other 

Information for 

Accountability Is 

Limited 
Page 14 GAO-05-761T 

things, contractor performance against the contractual cost caps. In 

addition, the contractor and the Alaska Railroad will conduct annual 

audits of its contractor’s performance under the contract. 

Amtrak’s food and beverage service may represent a relatively small part 

of the company’s operating budget, but it speaks volumes about Amtrak’s 

need to get its operations in better order. In administering this contract, 

basic steps for good management have been ignored or otherwise set 

aside. Omissions include not completing agreed-upon provisions of the 

contract, not carrying through with basic oversight called for in the 

contract, and ensuring that the organization was getting products at the 

most reasonable price. Prudence requires a stronger effort, beginning with 

carrying out those steps that, under the contract, should have been taken 

all along. Amtrak needs to take such steps not only to curb the losses in 

this program, but to help convince the public that it is acting as a careful 

steward of the federal dollars that continue to keep it operating. 

Based on our work to date, we anticipate making recommendations to 

Amtrak to improve controls over its food and beverage operations. Since 

we did not have sufficient time to obtain Amtrak’s comments, as required 

by government auditing standards prior to this hearing, the 

recommendations remain tentative until that process is complete. At that 

time, we anticipate making the following recommendations that Amtrak: 

1. Better contain its food and beverage costs through: 

• Following its own procedures for ensuring proper contracts and 

payments; 

• Enforcing key provisions of the current Gate Gourmet contract 

including annual reports that are independently audited by an outside 

auditing firm and certified by Gate Gourmet officials and conduct 

regular audits of discount and rebates. 

2. Prepare a written contract for food and beverage service on Acela 

trains that specifies the service to be provided, includes incentives to 

ensure efficient and effective contractor performance, and includes 

regular annual reports and audits. 

3. Create separate revenue and expenditure reporting and other basic 

food service metrics to allow for internal and external accountability 

Conclusions 

Recommendations 
Page 15 GAO-05-761T 

for its food and beverage service and create incentives to reduce costs 

and/or increase revenue. 

4. Comprehensively review the revenue and cost structure of its food and 

beverage service to determine the most cost effective solution that can 

increase the financial contribution of its food and beverage function. 

Mr. Chairman, this concludes my testimony. I would be happy to answer 

whatever questions you or the other members might have. 

For further information, please contact JayEtta Z. Hecker at 

heckerj@gao.gov or at 202-512-2834. Individuals making key contributions 

to this statement include Greg Hanna, Heather Krause, Bert Japikse, 

Richard Jorgenson, Steven Martin, Robert Martin, Irvin McMasters, Robert 

Owens, and Randy Williamson. 

Contacts and 

Acknowledgements 

(544106) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER