Improved Controls Needed Over Federal Financial Assistance to Railroads

CED-76-161: Published: Nov 15, 1976. Publicly Released: Nov 15, 1976.

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Before 1976, direct federal assistance to the nation's railroads was essentially in response to specific crises, but enactment of the Railroad Revitalization and Regulatory Reform Act changed the situation. The $1.6 billion in aid will be administered by the Federal Railroad Administration (FRA), Department of Transportation (DOT), and the United States Railway Association.

The governing agencies did not revise their review procedures for assistance applications or analysis of railroads' financial reporting systems, nor did they include comprehensive data upon which they reached decisions on financial assistance applications. Financial assistance programs which provide funds for working capital, do not lend themselves to the type of monitoring where expenditures can be readily identified with specific projects. FRA should have taken action to have financial audits made on each railroad receiving assistance at the end of the programs or when most of the federal costs had been incurred.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: To provide uniformity in reviewing applications for financial assistance and greater assurance that the applicants meet the requirements of the program, FRA should develop detailed preaward review procedures, including full documentation of all applications before implementing the programs. FRA should develop and implement a monitoring system which would provide for continuing analyses of costs incurred and regular, onsite technical inspections of work done to ensure quality, efficiency and cost-effectiveness. The system should also include review of working-capital accounts and cash flows and of intercorporate transactions to see that they are reasonably and prudently conducted. These recommendations should apply to the United States Railroad Association, if it is given responsibility for financial assistance programs.

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