Amtrak Inspector General Cites Increased Fraud Risk as Government Invests in Infrastructure

Though the golden days of passenger rail service are long since behind us, the federal government continues to operate Amtrak, a sprawling federal agency with more than 19,000 employees in 46 states that provides rail service to over 22 million passengers a year.¹ Under the bipartisan Infrastructure Investment and Jobs Act (IIJA) signed into law in November 2021, Amtrak is due to receive much-needed funds to make capital improvements and revitalize its aging infrastructure. The IIJA is massive, authorizing $1.2 trillion for transportation and infrastructure spending, which includes $550 billion allocated for new investments and programs.² Amtrak estimates that it will have at least $30 billion in active capital projects in fiscal year 2023 alone.³

Increased Funding Means Increased Potential for Fraud and Renewed Focus on Enforcement

On May 15, 2023, the Amtrak Inspector General issued a stark warning to government contractors and employees regarding the likelihood of increased fraud activity as a result of IIJA funding. According to the Inspector General's report, "Insights on Fraud Risks as the Company Expands Its Mission,"⁴ as much as 10 percent of infrastructure funds could be lost "through a variety of unlawful fraudulent schemes."⁵ If accurate, that would mean approximately $55 billion in stolen federal infrastructure funds. It is unsurprising that the Inspector General, who is responsible for identifying fraud, waste and abuse, would be concerned.

Specifically, the Inspector General notes that capital projects such as those funded by IIJA are highly susceptible to contract and procurement fraud. The scale, complexity and large number of stakeholders involved in large capital projects can make it difficult to account for expenditures, yet easy for contractors or subcontractors to hide inflated costs.⁶ Moreover, the sheer number of contracts that will be issued to spend the IIJA funds increases the likelihood of conflicts of interest, as well as bidding and billing schemes. The Inspector General highlighted several actions that the agency may employ to mitigate fraud risk as Amtrak prepares to embark on additional acquisitions, programs and projects, all of which should be of interest to government contractors and subcontractors.⁷ They include:

• strengthening the approval process, with different individuals responsible for billing, payments and disbursements to suppliers and subcontractors
• conducting regular and random inspections of job sites, along with increased focus by contracting officers to verify that vendors are upholding contract terms
• allocating additional resources, such as Amtrak's new Capital Delivery department, to improve oversight and management of large projects and programs
• increasing due diligence on vendors, including conducting checks to ensure that vendors are maintaining aggressive internal controls
• implementing effective information security controls in the procurement system (i.e., limiting contractors' access to information they could use to their unlawful advantage)

Takeaways

Though this Holland & Knight alert focuses on the Amtrak Inspector General's recent report, there is no doubt that all government agencies that receive IIJA funds are going to be redoubling their efforts to prevent and identify fraud. Indeed, both the U.S. Department of Energy and U.S. Environmental Protection Agency recently published reports regarding how they are addressing IIJA fraud concerns.⁸ Any government contractor or subcontractor that provides products or services involving construction, power infrastructure, broadband services, water treatment and other areas that may be funded by IIJA should be aware of these enhanced enforcement priorities and ensure that their compliance and fraud-detection programs are up to the task.

Notes

¹ 2022 Company Profile (amtrak.com).

² Infrastructure Investment and Jobs Act (IIJA) Implementation Resources.

³ Amtrak: Insights on Fraud Risks as the Company Expands Its Mission.

⁴ Id.

⁵ Id.

⁶ Id. at 6.

⁷ Id. at 7-8.

⁸ Infrastructure Investment and Jobs Act Oversight Plan – Year Two.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.