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III.
Budget Results -
Second Quarter 2006
Modifications
to Approved Budgets/Authorized Staffing
During the second quarter of 2006, the Chief Financial Officer (CFO)
approved four modifications to the 2006 Corporate Operating Budget
and/or authorized staffing in accordance with authority delegated
to him by the Board of Directors in the 2006 Budget Resolution:
- Authorized
staffing for the Division of Administration (DOA) was increased
by 13 positions. Authorized DOA staffing
was reduced from 448 to 310 (138 positions) between 2005 and
2006, but as DOA’s staffing began to approach this reduced
authorization, DOA management determined that it had over-estimated
the staffing reduction that could be made without adversely
affecting the division’s ability to handle its current
workload. Accordingly, ten occupied positions that had been
previously identified as surplus were restored, and three new
positions were added to augment staffing in the human resources
area. No additional funds will be required in 2006 for this
staffing increase since most of the affected staff were budgeted
for the full year, even though they were surplus, because of
potential separation entitlements.
- Twelve authorized positions (and the incumbent employees)
and $1,611,241 in funding for salaries and compensation and
travel were transferred from the Ongoing Operations budget
of the Division of Supervision and Consumer Protection (DSC)
to the Division of Insurance and Research (DIR). This transfer
was made in conjunction with the transfer of the International
and Large Bank Section from DSC to DIR to provide analytical
skills needed in connection with the implementation of deposit
insurance reform.
- The
Ongoing Operations budget of the Corporate University was
reduced
by $2,646,760 in conjunction with a decision by
the Corporate University Governing Board to defer implementation
of the Professional Learning Accounts (PLA) program until 2007.
Concurrently, individual division and office budgets were increased
by a total of $1,257,943 to provide funds for training and
related travel for the second half of 2006, and $1,388,817
(the full amount of the increased funding for training and
travel that was approved to implement the PLA program in mid-2006)
was reallocated to the Corporate-Unassigned budget. These funds
will be available to meet unbudgeted funding requirements that
arise during the remainder of the year.
- A total
of $539,241 was reallocated from the Ongoing Operations budget
of the Division of Receiverships and Resolutions
(DRR) to the Division of Information Technology (DIT) to provide
additional funding for completion of the inception phase of
the Claims Administration System planning project.
Status
of Spending for the Implementation of Deposit Insurance
Reform
The Board of Directors approved in March a $9.05 million increase
in the 2006 Corporate Operating Budget for unbudgeted expenses
related to the implementation of deposit insurance reform. This
included $6.5 million for system changes, $2.25 million for the
printing and distribution of revised deposit insurance brochures
for banks and the public, and $0.3 million to fill two new staff
positions in the Division of Insurance and Research (DIR). The
status of these funds through June 30, 2006, was as follows:
- Approximately
$1.8 million was spent for the printing and distribution
of updated deposit insurance brochures. The
size of this printing was smaller than originally planned because
further updates to these brochures are expected to be required
next year, once all rulemaking for deposit insurance reform
has been completed. Funds for 2007 printing and distribution
costs will be included in the 2007 Corporate Operating Budget
request submitted later this year.
- Approximately
$1.4 million was spent for system development and enhancement
activities related to deposit insurance reform
as of June 30, 2006. DIR and DIT estimate that about $5.7 million
of the $6.5 million in 2006 funding approved for this purpose
will be spent this year. Funding for continuing systems development
and enhancement activities to be undertaken next year in support
of deposit insurance reform will be included in the 2007 Corporate
Operating Budget request submitted later this year.
- No funds have yet been spent for additional
staff to support deposit insurance pricing. DIR is awaiting
the completion
of rulemaking activities before determining what additional
skills will be needed.
Spending
Variances Significant
spending variances by major expense category and division/office
are discussed below. Significant spending variances for
the six months ending June 30, 2006, are defined as those
that either (1) exceed the YTD budget for a major expense
category or division/office by an amount that exceeds $2
million and represents more than 3 percent of the 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 $3 million and
represents more than 5 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 in which a significant
spending variance occurred through the second quarter
in the Ongoing Operations component of the Corporate
Operating Budget:
- Outside Services-Personnel expenditures were $15 million,
or 21 percent, less than budgeted, largely due to delays in
starting several IT projects; delays and postponements of financial
literacy and consumer education outreach programs; and lower-than-anticipated
expenses for the new national administrative services contract.
Receivership
Funding
The Receivership Funding component includes funding for budgeted
non-personnel expenses that are incurred in conjunction with
an institution failure and the subsequent management and disposition
of the assets and liabilities of the ensuing receivership.
There was only one major expense category in which a significant
spending variance occurred through the second quarter in the
Receivership Funding component of the Corporate Operating Budget:
- Outside
Services-Personnel expenditures were $23 million, or 76
percent, less than budgeted, primarily due to a continued
reduction in receivership and resolution workload. The
workload from prior-year failures has been largely completed
and has not been replaced by workload from new failures
in the past two years.
Significant
Spending Variances by Division/Office1
There were three organizations that had significant spending
variances through the second quarter:
- The Division of Resolutions and
Receiverships spent $22 million, or 44 percent, less than
budgeted. This was
primarily due to the declining resolution and receivership
management workload and a corresponding need for less contract
support than budgeted through the second quarter.
- The
Legal Division spent $8 million, or 17 percent, less than
budgeted. This was also due to the declining resolution
and receivership management workload, which was reflected
primarily in reduced outside counsel expenses.
- The
Division of Information Technology spent $8 million, or
9 percent,
less than budgeted, including under
spending of $6 million for Ongoing Operations and $2 million
for approved Investment projects. The variance in Ongoing
Operations was primarily due to delays in starting several
IT projects. The Investment Budget variance resulted from
lower-than-estimated expenditures for the Asset Servicing
Technology Enhancement Project (ASTEP) through the second
quarter. The unused budget authority for the ASTEP investment
project will continue to be available for future use, if
needed.
Other Matters
In accordance with the requirements of the 2006 Budget Resolution,
an analysis of 2006 funding requirements for employee salaries
and fringe benefits was completed during the second quarter,
following the implementation of new 2006 pay and fringe benefit
rates. That analysis determined that those costs had been under-estimated
by approximately $14 million during the preparation of the
2006 Corporate Operating Budget. The CFO would have ordinarily
approved a corresponding increase in the approved 2006 Corporate
Operating Budget to address this funding shortfall, in accordance
with authority delegated to him in the 2006 Budget Resolution.
However, current projections indicate that the funds budgeted
for Salaries and Compensation will, in fact, be sufficient
to cover this shortfall because of a higher-than-projected
number of vacancies within the Corporation thus far in 2006.
The CFO will review the Salary and Compensation budget again
in October to make a final determination as to whether a budget
change is necessary. Regardless of the outcome of that analysis,
the Board should be aware that 2007 budget estimates for Salary
and Compensation will increase by more than the planned 4.2
percent average employee salary increase in order to more accurately
reflect projected salary and benefit costs.
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1Information
on division/office variances reflects variances in both the Corporate
Operating and Investment Budgets. |
