Finding 2025-002: Equipment and Real Property Management Federal Program Name: National Railroad Passenger Corporation Grants Assistance Listing No. 20.315 Federal Award Nos.: 69A36524520000AMTDC 69A36524520010AMTDC FR-AMT-0025-22 FR-AMT-0026-22 69A36523504100AMTDC 69A36523504110AMTDC FR-AMT-0019-20 FR-AMT-0020-20 FR-AMT-0003-14-01-02 FR-AMT-0022-21 FR-AMT-0023-21 DTFRDV-07-G-00002 DTFRDV-09-G-00002 FY2000 Appropriation FY1975 Appropriation Federal Agency: Department of Transportation, Federal Railroad Administration Criteria The code of federal regulations – 2 CFR 200.313 Equipment (d) Management Requirements requires that: (2) A physical inventory of the property must be conducted, and the results must be reconciled with the property records at least once every two years. (3) A control system must be in place to ensure safeguards for preventing property loss, damage, or theft. Any loss, damage, or theft of equipment must be investigated. The recipient or subrecipient must notify the Federal agency or pass-through entity of any loss, damage, or theft of equipment that will have an impact on the program. The code of federal regulations 2 CFR 200.303 Internal Controls states the recipient must: (a) Establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by COSO. (d) Take prompt action when instances of noncompliance are identified. Condition The following exceptions to the criteria were observed during the performance of the audit procedures: 1. For three of the equipment samples reviewed (approximately $1.1 million net book value), it was observed that the assets within Penn Coach Yard, in Philadelphia PA, lacked adequate safeguards to prevent property loss, damage or theft, as evidenced by the occurrence of two instances of property damage in the current year. EY notes Amtrak performed satisfactory investigations into both instances. 2. During EY's procedures performed for two assets (approximately $7.2 million net book value), EY identified that no inventory had occurred for the assets, even though they had been placed in service over two years prior and would have required an inventory prior to EY's observation. As this came to EY's attention after the inventory was required and during observation procedures, EY investigated further and could not obtain alternative evidence to support that an inventory had occurred within the two-year period. Cause The lack of adequate safeguards at Penn Coach Yard is attributable to a variety of insufficiencies related to security at Penn Coach Yard. The nature of much of Amtrak’s equipment is composed of moving assets on the tracks, operating up and down the corridors, operating around the yards, or moving from location to location in a geographical region to achieve daily operational objectives thus making tracking timely inventories more challenging. Furthermore, Amtrak resources are deployed such that managers and supervisors oversee geographical regions and equipment that are stationed throughout various routes, often connecting through multiple states with many unmanned and less traveled stations. In reviewing management’s internal controls, the key internal controls identified by management are not designed to ensure consistent, timely, and proactive monitoring to verify that inventory observations occur no less than once every two years. While there is an identified internal control stating that “On a monthly basis, these reports will identify all equipment that has not been observed within 2 years and communicate to the Enterprise Asset Management and Disposition Team (EAMDT) and other appropriate parties for action to be taken. EAMDT is responsible for ensuring the observations of equipment are completed. Once the equipment is observed, information is updated in the departmental source system and subsequently updated within the EAMDT reports,” the internal control does not establish a clear action plan or expected timeframe for responsible parties to respond to or remediate identified items. Further, the internal control is designed to identify assets that are already out of compliance, rather than to proactively monitor assets approaching the two‑year threshold. As a result, the internal control design is detective in nature and may not identify the risk of noncompliance until after noncompliance has occurred. Effect or Potential Effect Noncompliance with 2 CFR 200.313 (d) (2) and (3), and potential refund of grant funds used to purchase noncompliant assets. Questioned Costs The questioned costs below represent the total underlying net book value associated with EY's five equipment selections with exceptions. Assistance Listing No. 20.315 69A36524520000AMTDC/69A36524520010AMTDC $ 4,868,340 FR-AMT-0025-22/FR-AMT-0026-22 2,624,469 69A36523504100AMTDC/69A36523504110AMTDC 590,078 FY2000 Appropriation 110,077 FR-AMT-0019-20/FR-AMT-0020-20 98,376 FR-AMT-0003-14-01-02 88,840 DTFRDV-07-G-00002 30,532 FY1975 Appropriation 9,097 FR-AMT-0022-21/FR-AMT-0023-21 5,831 DTFRDV-09-G-00002 (94,917) Total Questioned Costs $ 8,330,723 Context EY performed equipment observations as a part of the testing of the equipment compliance area, randomly selecting 60 equipment units, and performing live observations with Amtrak personnel at the site with the equipment. EY performed inquiries relating to Amtrak’s safeguarding and maintenance procedures along with an inspection of the property records. Identification as a Repeat Finding Condition 2 represents a repeat finding of 2023-001. Condition 1 is not a repeat finding. Recommendation EY recommends Amtrak set up a system with certain criteria for identifying sites at a higher risk for noncompliance with safeguard requirements, and creates an action plan for evaluating, and remediating potential noncompliance. EY recommends that management consider redesigning one of its key controls to help ensure that the monitoring of the observations is occurring on a preventive basis to help identify any exposure to non-compliance before it occurs and clearly identifies any follow-up steps and actions. For example, there should be established a protocol as well as timeline for when required observations are to take place, additionally, as it is known in advance, which items are coming up for inventory, Amtrak could prepare an annual schedule of inventories, that could be revised quarterly. Views of Responsible Officials Amtrak acknowledges the recommendation that Amtrak should have a system with certain criteria for identifying sites at a higher risk for noncompliance with safeguard requirements and create an action plan for evaluating and remediating potential noncompliance. As part of this effort, the EAMDT will work with Corporate Security to review and, as appropriate, align existing governance processes to reduce the likelihood of similar noncompliance. Amtrak agrees with the recommendation to redesign key controls to help ensure that the monitoring of the observations happens on a preventive basis to help identify any exposure to non-compliance before it occurs. Amtrak published an updated Equipment Control Policy and created an eLearning course, as well as implemented several processes, technologies, and reports that help to proactively monitor and identify equipment that is 90 days or less from needing an inventory. This has improved the compliance rate from less than 70% in FY22 to over 97% in FY25. Amtrak understands that this is a repeat finding and will review with the Amtrak departmental owner of equipment that was out of compliance to strengthen the practice and reduce the likelihood of noncompliance.