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Chief Financial Officer's (CFO) Report to the Board

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Chief Financial Officer's (CFO) Report to the Board Home
Executive Summary

   •  Summary Trends and Results
I. Corporate Fund Financial Results

   •  DIF Balance Sheet
   •  DIF Income Statement
   •  DIF Statements of Cash Flows
   •  FRF Statements of Cash Flows
II. Investments Results & Prospective Strategies

   •  Deposit Insurance Fund Portfolio Summary
   •  Approved Investment Strategy
III. Budget Results

   •  Budget & Expenditures by Major Expense Categories
   •  Budget & Expenditures by Budget Component, Division & Office
Printable Version

III. Budget Results - First Quarter 2008

Approved Budget and Staffing Modifications

Three modifications were made to the 2008 Corporate Operating Budget and/or authorized staffing, in accordance with the authority delegated by the Board of Directors in the 2008 Budget Resolution:

  • In January 2008, several divisions and offices reallocated budget authority among major expense categories, largely to facilitate 2008 budget execution. These reallocations did not change the total 2008 Corporate Operating Budget or the budgets of individual divisions or offices as approved by the Board of Directors in December 2007. The largest reallocation was made by the Division of Information Technology (DIT), which reallocated over $4 million from the Equipment category to other categories within its budget. This change was prompted by a late 2007 budget reallocation that made funds available to purchase equipment in 2007 rather than 2008. The total of these adjustments increased Outside Services – Personnel by $4,142,239, Travel by $573,736, and Buildings by $212,000. This was offset by decreasing Equipment by $4,073,852, Other Expenses by $770,766, and Outside Services – Other by $83,357.
  • In February 2008, the Deputy to the Chairman and Chief Financial Officer (CFO) approved a budget adjustment that affected all divisions and offices, except for the Office of Inspector General, to implement changes to the pilot Professional Learning Accounts (PLA) program approved by the Corporate University Governing Board in early 2008. There was no net change in the total Board-approved budget, but funds were shifted among divisions and offices and major expense categories. The Division of Supervision and Consumer Protection and the Corporate University had the largest net budget increases ($215,377 and $104,011, respectively). The Division of Information Technology and the Division of Administration had the largest net budget reductions ($166,465 and $90,103, respectively).
  • In April 2008, the CFO approved an increase in authorized staffing for the Division of Resolution and Receiverships (DRR) from 223 to 331. This increase included 39 new permanent positions and 69 non-permanent positions (for up to two years, with possible extensions based upon workload). In addition, the Chairman authorized DRR to increase its planned temporary over-hiring from 19 to 30.1 The increase in permanent staff was based on a reassessment of the appropriate size of the staffing platform needed to maintain readiness and fulfill DRR’s ongoing mission in light of current conditions. The temporary staffing increase was approved based on the potential increase in the number of institution failures. This was a proactive measure to address possible workload that might not fully materialize, but was deemed necessary to handle an increase in pre-failure workload and to ensure that we are prepared to handle any failures that occur. DRR plans to reallocate approximately $5.4 million from the Outside Services-Personnel category to the Salaries and Compensation category in its Receivership Funding budget to cover the cost of the non-permanent staff to be hired. Funds will be reallocated at the corporate level to DRR’s Ongoing Operations budget to provide funding for the additional permanent staff to be hired. No increase is expected to be necessary in the total 2008 Corporate Operating Budget.

The 2008 Investment Budget spending projection for the 4C project (formerly the Asset Servicing Technology Enhancement Project) was increased by $747,114 following the release of $775,000 in contingency funds by the Capital Investment Review Committee (CIRC) in March.

Spending Variances

Significant spending variances by major expense category and division/office are discussed below. Significant spending variances for the three months ending March 31, 2008, are defined as those that either (1) exceed the YTD budget by $3 million and represent more than five percent for a major expense category or total division/office budget; or (2) are under the YTD budget for a major expense category or division/office by an amount that exceeds $5 million and represents more than ten percent of the major expense category or total division/office budget.

Significant Spending Variances by Major Expense Category

Ongoing Operations

There was only one major expense category that incurred a significant spending variance during the first quarter in the Ongoing Operations component of the 2008 Corporate Operating Budget:

  • Outside Services-Personnel expenditures were $10 million, or 24 percent, less than budgeted. The variance was largely due to the fact that DIT budgeted funds in the first quarter for some projects which will now begin later in the year and/or require less funding than budgeted. The excess funds are expected to be reallocated to other projects that require additional funds during the second and third quarters. The Chief Information Officer Council (CIO) has approved the realignment of schedules and revised spending plans for these projects. Those adjustments will be considered during the mid-year budget review process. The variance was also due to lower net costs for the Student Residence Center (because of increased proceeds derived from use of the facility from outside parties) and lower-than-budgeted spending for contractual services in three areas: human resources, nationwide administrative services, and personnel security.

Receivership Funding

The Receivership Funding component of the Corporate Operating Budget includes budgeted funding for non-personnel expenses that are incurred in conjunction with institution failures and the management and disposition of the assets and liabilities of the ensuing receiverships. Receivership Funding also includes all salary and compensation costs of employees hired on a non-permanent basis for actual or anticipated increases in receivership and resolution activities.

There was one major expense category in which a significant spending variance occurred during the first quarter in the Receivership Funding component of the 2008 Corporate Operating Budget:

  • Outside Services-Personnel expenditures were $9 million, or 59 percent, less than budgeted, primarily due to the limited receivership and resolution activity that occurred during the quarter.

Significant Spending Variances by Division/Office2

Three organizations had significant spending variances through the end of the first quarter:

  • The Division of Information Technology (DIT) spent $10 million, or 17 percent, less than budgeted. DIT spent $8.8 million less than budgeted in the ongoing operations component of its budget, largely due to lower contractual spending for application development, operations, and maintenance activities. Adjustments to application development project schedules and budgets have been approved by the CIO Council and will be considered during the mid-year budget review process. DIT also deferred equipment spending initially budgeted in the first quarter to later in the year and spent $1.0 million less than estimated during the first quarter for approved Investment Budget projects that are monitored and reported to the Board separately by the CIRC.
  • DRR spent $5 million, or 22 percent, less than budgeted. This variance was fully attributable to under spending in the Receivership Funding component of its operating budget due to the limited receivership and resolution activity that occurred during the quarter.
  • The Legal Division spent $5 million, or 22 percent, less than budgeted. Approximately $3.8 million of this variance was due to under spending in the Receivership Funding component of the division’s operating budget due to the limited receivership and resolution activity that occurred during the quarter. Spending in the Ongoing Operations budget component was nearly $1.5 million below budget for the quarter because hiring did not occur as quickly as anticipated and retirements in late 2007 exceeded projections.

Other Matters

The 2008 Budget Resolution approved by the Board on December 19, 2007, delegated to the Chief Financial Officer the authority to “make necessary administrative adjustments to the salaries and compensation expense category of the 2008 Corporate Operating Budget” for certain factors not determined at the time of the budget adoption. In accordance with that delegation of authority, we have completed an analysis of projected 2008 salary and fringe benefit expenses, based on actual expenses through March 31, 2008. Locality pay, annual pay adjustments and lump sum/bonus payments were effective in February and first reflected in the March accounting records.

Our analysis indicates that 2008 salaries and fringe benefit costs were over-estimated by approximately $1.6 million (0.2% of the Salaries and Compensation expense category) in the formulation of the 2008 Corporate Operating Budget. This was largely offset, however, by an increase in the 2008 pay adjustment for FDIC employees – on January 10, 2008, Chairman Bair and the President of NTEU jointly announced an interim change to the Pay For Performance (PFP) program that will cost approximately $1.5 million in 2008.

Accordingly, we have determined that no adjustment should be made to the Salaries and Compensation category of the 2008 Corporate Operating Budget that was previously approved by the Board of Directors.

 

 

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1 In December 2007, the Board of Directors, in conjunction with its approval of the 2008 Corporate Operating Budget, authorized DRR to exceed its authorized staffing level on a temporary basis. This “temporary overhire” authority was intended to facilitate orderly succession management within DRR in light of an unusually large number of projected retirements doing the ensuing five years. Based on the Corporation’s retirement projections, DRR staffing is expected to return to authorized levels by year-end 2010.
2Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets.



Last Updated 05/06/2008 dofbusinesscenter@fdic.gov