Chief Financial Officer's (CFO) Report to the Board
III. Budget Results - Third Quarter 2019
Approved Budget Modifications
The 2019 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials the authority to make certain modifications to the 2019 FDIC Operating Budget. The following budget reallocations were approved during the third quarter in accordance with the authority delegated by the Board of Directors.
- In July, the CFO approved mid-year budget adjustments in the Ongoing Operations budget component that reallocated budget authority among several divisions and the Corporate Unassigned contingency reserve as well as among expense categories within division budgets. Budgets were reduced for three organizations and increased for four others.
- The budget of the Office of the Chief Information Security Officer was decreased by a net of about $278,000, with a reduction of about $826,000 in the Outside Services – Personnel expense category related to delays in fully staffing several contracts and an increase of about $548,000 in the Equipment expense category for additional expenses related to the Backup Data Center (BDC).
- The budget of the Division of Insurance and Research was decreased in the Outside Services – Personnel expense category by $200,000 due to lower-than-anticipated contract expenses for the visiting scholars program in the Center for Financial Research.
- The budget of the Office of CIO Management Services (OCMS) was decreased in the Outside Services – Personnel expense category by about $95,000 after reassessing its funding needs for the BDC and the Project Management Tools initiative.
- The budget of the Legal Division was increased in the Outside Services – Personnel expense category by $4.5 million due to a substantial increase in expenses related to ongoing litigation with a complex financial institution. Factors driving the increase include the extension of defendant litigation deadlines, fact and expert discovery, and FOIA-related issues.
- The budget of the Division of Information Technology (DIT) was increased by $4.4 million, primarily in the Equipment, Outside Services – Personnel, and Buildings expense categories to provide additional funding for the BDC and in the Equipment expense category to provide additional funding for laptop and iPhone replacements for examiners and others.
- The CIO Council budget was increased by about $920,000 to address new funding requirements. The increase included $730,000 in the Equipment expense category for software licenses and about $190,000 in the Outside Services – Personnel expense category for several development projects.
- The budget for the Division of Risk Management Supervision (RMS) was increased in the Outside Services – Personnel expense category by $550,000 to improve the analysis and sharing of cybersecurity threat information with financial institutions.
- In August, the CFO approved the establishment of an initial budget for the new Division of Complex Institution Supervision and Resolution (CISR) through budget reallocations totaling $39.9 million across several expense categories from the budgets of the Office of Complex Financial Institutions (OCFI), RMS, and the Division of Resolutions and Receiverships (DRR). This reallocation also added $2.5 million to the Corporate Unassigned contingency reserve.
- In August, the CFO approved budget increases or decreases in the Salaries and Compensation expense category for most divisions and offices. This realignment was based on an analysis by the Division of Finance of 2019 Salaries and Compensation budgets using actual salaries and fringe benefits spending through July 31, 2019, and projections of spending required for the rest of 2019.
- In August, the CFO approved the reallocation of $1.2 million in the Salaries and Compensation expense category from the Corporate Unassigned contingency reserve to OCFI and CISR to correct the timing of budget adjustments that were made to create CISR.
There were no changes to the Receivership Funding budgets for any organization.
Following these third quarter budget modifications, the balances in the Corporate Unassigned contingency reserves were $10,349,114 in the Ongoing Operations budget component and $19,313,320 in the Receivership Funding budget component.
Approved Staffing Modificatons
The 2019 Budget Resolution delegated to the CFO the authority to modify approved 2019 staffing authorizations for divisions and offices, as long as those modifications did not increase the total approved 2019 FDIC Operating Budget.
- In July, the CFO approved an increase of nine authorized permanent positions in OCMS. These positions addressed needs for increased staffing for contract management, Information Security Managers, and IT risk governance and policy.
- In August, the CFO approved the establishment of an initial 2019 staffing authorization for CISR through the realignment of 275 authorized permanent positions from OCFI (all 83 positions), DRR (31 positions), and RMS (161 positions). This realignment was made effective as of July 21, 2019.
- In September, the CFO approved the transfer of six authorized permanent positions to staff the new Administrative Services Group reporting directly to the Chief Operating Officer. These positions were transferred from the Division of Administration (DOA), the Office of Minority and Women Inclusion, and Corporate University. These positions will be reported for administrative purposes as part of the DOA staffing authorization, similar to reporting for the Internal Ombudsman.
- In September, the CFO approved an increase of four permanent authorized positions in OCMS to improve acquisition planning and strategy for the Chief Information Officer organizations.
Significant spending variances by major expense category and division/office are discussed below. Significant spending variances for the nine months ending September 30, 2019, are defined as those that either (1) exceed the YTD budget by more than $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 $7 million and represents more than seven percent of the major expense category or total division/office budget.
Significant Spending Variances by Major Expense Category
There was a significant spending variance through the third quarter in one major expense category of the Ongoing Operations budget component.
Spending in the Equipment expense category was under the YTD budget by $15.6 million, or 18 percent. This variance was attributable primarily to underspending by DIT of $12.5 million, or 23 percent, of its YTD budget for Equipment. This included approximately $10 million of underspending for hardware that was anticipated to be delivered by the end of September but was delayed. In addition, DOA underspent its YTD Equipment budget by about $1.7 million due primarily to delays in the completion of nationwide electronic security system upgrades and network migration.
The Receivership Funding component of the 2019 FDIC 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 expenses for permanent employees assigned to the receivership management function and other expenses required to ensure readiness without regard to whether failures occur.
There was a significant spending variance through the third quarter in one major expense category of the Receivership Funding budget component. Outside Services – Personnel expenses through the end of the third quarter were $52.6 million, or 51 percent, less than budgeted. This variance primarily reflected underspending by DRR ($29.4 million, or 51 percent of its YTD budget) and the Legal Division ($22.6 million, or 53 percent of its YTD budget). DRR underspending was attributable to the absence of insured institution failures for which funds had been budgeted. The variance for the Legal Division was attributable to lower-than-projected spending for outside counsel because cases were settled before going to trial; an increase in work performed by FDIC attorneys rather than outside counsel; and delays in the payment of almost $10 million of invoices that are still pending review or have been rejected and must be resubmitted.
Office of Inspector General
There were no significant spending variances during the third quarter in any major expense category of the Office of Inspector General budget component.
Significant Spending Variances by Division/Office 1
Three organizations had significant spending variances through the end of the third quarter.
- DRR spent $38.6 million, or 25 percent, less than budgeted, due to the absence of expenses for insured institution failures. The underspending was mostly in the Outside Services – Personnel expense category of the Receivership Funding budget component, but less-than-budgeted spending in the Travel, Buildings, and Other expense categories of the Receivership Funding budget component also contributed to the variance.
- The Legal Division spent $29.6 million, or 20 percent, less than budgeted, mostly in the Outside Services – Personnel expense category of the Receivership Funding budget component due to lower-than-budgeted outside counsel expenses.
- DIT spent $17.0 million, or 9 percent, less than budgeted due primarily to underspending in the Equipment expense category of its Ongoing Operations budget.