III. Budget Results - Third Quarter 2012

Approved Budget Modifications

The 2012 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials the authority to make certain modifications to the 2012 Corporate Operating Budget.  In accordance with the authority delegated by the Board of Directors, the CFO in July 2012 approved the reallocation of existing budget authority within the Ongoing Operations and Receivership Funding components of the 2012 Corporate Operating Budget following the mid-year reassessment of actual and projected spending.  The budgets for all major expense categories and most divisions and offices were adjusted in this reallocation.

These reallocations increased the Ongoing Operations budgets of the Division of Information Technology (DIT) and the Division of Resolutions and Receiverships (DRR) by $6 million and $3 million, respectively.  The increase in DIT supplied additional funding for software licensing agreements, equipment purchases, and contractor supported IT services.  The increase in DRR provided additional funding for the development of operational policies and procedures for the orderly liquidation of a financial company under Title II of the Dodd-Frank Act, benchmarking services to support the receivership billing rate setting process, and higher-than projected regular and relocation travel expenses.  Offsetting those increases were budget reductions of $6 million in the Office of the Inspector General (OIG), $2 million in the Division of Insurance and Research (DIR), and $1 million in the Corporate Unassigned contingency reserve for the Ongoing Operations budget component.  The Division of Administration (DOA) decreased its Receivership Funding budget by nearly $3 million because of the decline in receivership and resolution activities.  Those funds increased the Corporate Unassigned contingency reserve in the Receivership Funding budget component.

Following these reallocations, the amounts remaining available within the Corporate Unassigned budgets for the Ongoing Operations and Receivership Funding budget components are $20,323,210 and $115,612,907, respectively.  None of these modifications changed the total 2012 Corporate Operating Budget as approved by the Board in December 2011.

Approved Staffing Modifications

The 2012 Budget Resolution delegated to the CFO the authority to modify approved 2012 staffing authorizations for divisions and offices, as long as those modifications did not increase the total approved 2012 Corporate Operating Budget.  The following staffing adjustments were made during the third quarter in accordance with the authority delegated by the Board of Directors.  None of these modifications changed the total 2012 Corporate Operating Budget approved by the Board.

• In July 2012, the CFO approved an increase of two authorized non-permanent Program Manager positions in the Division of Risk Management Supervision (RMS) to work on the Virtual Supervisory Information (ViSION) Modernization and Examination Tools Suite (ETS) projects.

• In July and August 2012, following the Senate’s confirmation of a second Director (Appointive) on the Board of Directors, the CFO approved the establishment of three permanent positions in the Executive Offices to provide for the new Director and his staff support.  In addition, the CFO authorized one permanent position in RMS to provide leadership for the FDIC’s Minority Depository Institutions (MDI) program.

Spending Variances

Significant spending variances by major expense category and division/office are discussed below.  Significant spending variances for the nine months ending September 30, 2012, are defined as those that either (1) exceed the YTD budget by $1 million and represent more than two percent of 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 $2 million and represents more than four percent of the major expense category or total division/office budget.

Significant Spending Variances by Major Expense Category

Ongoing Operations

There were significant spending variances in all major expense categories in the Ongoing Operations component of the 2012 Corporate Operating Budget through the third quarter 2012.

• Salaries & Compensation expenditures were $40 million, or 5 percent, less than budgeted.  RMS ($15 million), the Legal Division ($4 million), DRR ($3 million), OIG ($3 million), the Division of Consumer Protection (DCP) ($2 million), the Office of Complex Financial Institutions (CFI) ($2 million), and DIR ($2 million) all spent less than budgeted in this expense category, largely due to vacancies in budgeted non-permanent positions.

• Outside Services – Personnel expenditures were $28 million, or 13 percent, less than budgeted.  The CIO Council spent $6 million less than budgeted.  This variance was largely due to delays in beginning a number of planned projects and a determination that certain projects should be funded through the Corporation’s Investment Budget.  CFI spent $5 million less than budgeted as it continued to refine its contracting requirements.  DOA spent $3 million less than budgeted because it erroneously charged too large a percentage of its background investigation expenses to the Receivership Funding budget component rather than the Ongoing Operations budget component.  That error will be corrected in the fourth quarter.  DOA also experienced delays in starting work on a contracted human resources project.  Furthermore, the Department of Justice (DOJ) did not request reimbursement in September, as budgeted by the Legal Division, for its projected FY 2013 defensive goodwill litigation expenses. 

• Travel expenditures were approximately $10 million, or 12 percent, less than budgeted.  RMS spent $5 million less than budgeted, primarily due to the large number of vacant, non-permanent examination positions for which travel funds were budgeted but not used.  Corporate University (CU-CEP) spent $2 million less than budgeted because one scheduled CEP class was canceled, and the travel funds budgeted for that class were also not used. 

• Building expenditures were approximately $7 million, or 10 percent, less than budgeted, largely due to scheduling delays in the upgrade of the electric system for the National Data Center at Virginia Square; delays in awarding the San Francisco Regional Office (SFRO) boiler replacement contract; lower-than-anticipated expenses for Headquarters (HQ) cabling and interior construction costs; reduced utilities consumption; a reduction in monthly lease payments resulting from operating expense reconciliations and real estate tax-credits; fewer office moves than budgeted; lower-than-projected building operating expenses; and a delay in the Headquarters HVAC replacement project due to changes in the design schedule.

• Equipment expenditures were approximately $14 million, or 22 percent, less than budgeted.  DIT spent $9 million less than budgeted primarily because of delays in planned purchases of hardware and software, including hardware/software for the technical refresh and IMAC projects.  Those purchases are now expected to occur in the fourth quarter 2012 and will reduce this budget surplus.  In addition, DOA spent $4 million less than budgeted due to intentional deferment of furniture purchases until later in the year.

• Outside Services – Other expenditures were approximately $3 million, or 23 percent, less than budgeted.  DOA spent $2 million less than budgeted because of lower than expected mail-related services; significant savings from a reduction in catering expenses resulting from the change in the FDIC’s meetings and conferences policies; and reduced printing of deposit insurance materials pending clarification on the need for possible changes in the content of those materials.

• Other Expenses were $4 million, or 30 percent, less than budgeted.  The variance was mostly due to significant underutilization of Professional Learning Accounts by employees in order to focus on meeting their ongoing workload priorities, and lower-than-projected corporate office supply purchases by DOA.

Receivership Funding

The Receivership Funding component of the 2012 Corporate Operating Budget includes funding for expenses that are incurred in conjunction with institution failures and the management and disposition of the assets and liabilities of the ensuing receiverships, except for salary and benefits and related expenses for permanent employees assigned to the receivership management function.

There were significant spending variances in six of the seven major expense categories through the third quarter in the Receivership Funding component of the 2012 Corporate Operating Budget:

• Salaries and Compensation ($41 million, or 21 percent, less than budgeted).
• Outside Services - Personnel ($278 million, or 40 percent, less than budgeted).
• Buildings ($39 million, or 55 percent, less than budgeted).
• Outside Services - Other ($3 million, or 37 percent, less than budgeted).
• Other Expenses ($21 million or 45 percent, less than budgeted).

The variance in the Salaries and Compensation category was attributable to vacancies in budgeted non-permanent positions, primarily in the temporary satellite offices.  The variance in the Outside Services-Personnel expense category was due to less costly resolutions and lower-than-anticipated asset management, marketing, and contract support costs for failed bank resolutions.  The variance in the Travel category was due to lower-than-budgeted failed bank activity.  The variance in the Buildings expense category occurred as a result of shorter-than-expected operations at the site of failed banks.  The variance in the Outside Service – Other category was due to lower than anticipated costs for advertising, insurance, mail, and bank service fees.  The variance in the Other Expenses category was attributable to the sooner-than-anticipated transfer of banking operations into the Dallas office and the earlier-than-expected disposition of failed bank's assets.  This reduced the FDIC's costs of administering banking operations at the failed bank sites (including office contractor expenses).

Significant Spending Variances by Division/Office¹

Fourteen organizations had significant spending variances through the end of the third quarter 2012:

• DRR spent $363 million, or 39 percent, less than budgeted.  Approximately $357 million of this under spending was in the Receivership Funding Budget component due to lower-than-anticipated resolutions and receivership workload, as explained above.  

• The Legal Division spent $32 million, or 14 percent, less than budgeted.  This variance was due to under spending of approximately $19 million for outside legal services in the Outside Services – Personnel expense category in the Receivership Funding budget component and $12 million in the Salaries and Compensation expense category ($4 million in the Ongoing Operations budget component and $8 million in the Receivership Funding budget component), mostly due to vacancies in budgeted non-permanent positions and slower-than-projected hiring to fill those vacancies.

• DOA spent $24 million, or 12 percent, less than budgeted.  This variance was largely attributable to scheduling changes related to the upgrade of the electric system for the National Data Center at Virginia Square; delays in awarding the SFRO boiler replacement contract; lower-than-anticipated costs for Headquarters cabling and interior construction costs; lower-than-budgeted utilities consumption; reductions in monthly lease payments; fewer office moves; delays in expenses for the Headquarters HVAC replacement project; under spending in the Equipment expense category due to intentional rescheduling of furniture purchases; delays in a planned human resources project; reduced mail costs due to lower-than-expected mail related services; significant savings on catering expenses due to changes in the Corporation’s meetings and conferences policies; reduced printing of deposit insurance materials pending likely revisions to those materials; and lower-than-expected expenses to support bank closings, due in part to the smaller average size of bank failures.

• RMS spent $23 million, or 6 percent, less than budgeted.  This variance was largely attributable to vacancies in budgeted non-permanent examination positions and lower than budgeted examination travel expenses resulting from those vacancies.

• DIT spent $11 million, or 5 percent, less than budgeted.  This variance was largely attributable to delays in hardware and software purchases.  Equipment and software purchases for the technical refresh and Information Management and Compliance (IMAC) projects during the fourth quarter 2012 are expected to reduce this budget surplus.

• CIO Council spent $9 million, or 15 percent, less than budgeted.  This variance was largely due to delays in beginning a number of planned projects and a determination that certain projects should be funded through the Corporation’s Investment Budget.  In addition, actual year-to-date spending on the IMAC project has fallen below the budget expectations because of delayed software purchases.

• CFI spent $7 million, or 15 percent, less than budgeted.  This variance was attributable to lower-than-budgeted spending for contractual services and a higher-than-expected attrition rate.

• DCP spent $6 million, or 5 percent less than budgeted.  This variance was primarily attributable to a $2 million variance in Salaries and Compensation due to vacancies in budgeted non-permanent examination positions; a $2 million variance in Outside Services-Personnel due to under spending for Money Smart and consumer research contracts; and a $900 thousand variance in Travel expenses due to less-than-budgeted spending for regular duty and relocation travel in Washington and the regional offices.

• The Corporation’s Executive Support Offices spent approximately $4 million, or 19 percent, less than budgeted.  This variance was mostly attributable to lower-than-budgeted spending for contract services by the Office of Minority and Women Inclusion and the Office of Communications, and slower-than-projected hiring.

• DIR spent $4 million, or 12 percent, less than budgeted, primarily attributable to vacancies in budgeted positions and slower-than-projected hiring to fill those vacancies ($2 million).  Also, spending for contractual services was lower-than-budgeted ($1 million) due to delays in the development of a plan to create the ability to more effectively access and perform analysis on new large datasets to better support risk analysis and research activities within the FDIC and a revised strategy that will rely less on contractors for the failed bank Insight project.

• Corporate University spent $4 million, or 25 percent, less than budgeted in its Corporate Employee Program budget (CU-CEP).  This variance was primarily due to the cancellation of one scheduled CEP class and the reduced need for funds for Salaries and Compensation (including overtime) and Travel resulting from that cancellation.

• The Division of Finance (DOF) spent $4 million, or 12 percent, less than budgeted.  This variance was attributable to vacancies in budgeted positions and slower-than-expected hiring.

• The OIG spent $3 million, or 12 percent, less than budgeted, because of vacancies in budgeted positions and lower-than-projected travel expenses.

• None of the $3 million budgeted for Government Litigation was spent because DOJ did not yet request the reimbursement of expenses for projected FY 2013 expenses associated with defensive goodwill litigation.

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¹Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets.