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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.
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