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

III. Budget Results - Fourth Quarter 2018

Approved Budget Modifications

The 2018 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials the authority to make certain modifications to the 2018 FDIC Operating Budget. The following budget reallocations were approved during the fourth quarter in accordance with the authority delegated by the Board of Directors.

• In October 2018, the CFO approved an increase of $1.9 million in the Equipment expense category of the Division of Information Technology’s (DIT) Ongoing Operations budget to purchase equipment required for a planned expansion of WiFi capabilities in FDIC Headquarters facilities in early 2019.  These funds were reallocated from the Corporate Unassigned contingency reserve within the Ongoing Operations budget component.
• In December 2018, the CFO approved miscellaneous budget adjustments to address projected surpluses and shortfalls within the Ongoing Operations budgets of the Executive Offices.  There was no net increase or decrease in the total Ongoing Operations budget for the Executive Offices. 

Following these budget modifications, the balances in the Corporate Unassigned contingency reserves were $18,662,766 in the Ongoing Operations budget and $23,908,578 in the Receivership Funding budget component.  This unused budget authority lapsed at the end of the year.

Approved Staffing Modificatons

The 2018 Budget Resolution delegated to the CFO the authority to modify approved 2018 staffing authorizations for divisions and offices, as long as those modifications did not increase the total approved 2018 FDIC Operating Budget. There were no staffing modifications approved during the fourth quarter of 2018.

Spending Variances

Significant spending variances by major expense category and division/office are discussed below. Significant spending variances for the full year are defined as those that either (1) exceed the annual budget; or (2) are under the annual budget for a major expense category or division/office by an amount that exceeds $5 million and represents more than five percent of the major expense category or total division/office budget.

Significant Spending Variances by Major Expense CategoryOngoing Operations

Ongoing Operations

There were three significant spending variances in major expense categories in the Ongoing Operations budget component for 2018:

• Outside Services – Personnel expenditures were $26 million, or 10 percent, less than budgeted.  This primarily reflected underspending in the Division of Administration (DOA) and the Chief Information Officer (CIO) organizations as well as $2 million in unused budget authority in this expense category in the Corporate Unassigned contingency reserve.<p>
  • DOA spent $5 million, or 10 percent, less than budgeted for contractual services, mainly due to lower-than-budgeted expenses on HR Benefits (Career Counseling and Benefit Support Services), HR Services (including PD classification analysis and staffing/organizational restructuring reviews), background investigations, Access Control Program maintenance, and Student Residence Center management expenses.
  • The combined CIO organizations spent approximately $12 million, or eight percent, less than budgeted for contractual services.
    • DIT spent $6 million, or seven percent, less than budgeted, largely due to under-spending in the operations budgets ($3.7 million, or six percent) for the Business Administration, Enterprise Technology, and Infrastructure Services Branches. DIT also under-spent its budget for the Backup Data Center ($2.8 million, or 33 percent) due to a lower-than-projected need for onsite contractors at the new Backup Data Center and lower-than-anticipated spending for engineering services. It also under-spent its budget for services related to Technology Refreshment ($500,000, or 14 percent).
    • The CIO Council spent $4 million, or eight percent, less than budgeted due to under-spending for system enhancements from the discretionary budget allocations of divisions, lower-than-estimated maintenance costs for various systems, and lower-than-expected spending for required changes to permit systems to run in the new Backup Data Center.
    • The Office of the Chief Information Security Officer spent $2 million, or 9 percent, less than budgeted, mostly due to delays in bringing contractor staff on board, a delay in awarding the contract for Information Security Management Program support, delays in completing system certification reviews, and the delay of scheduled security assessments until 2019.
• Travel expenditures were $6 million, or six percent, under budget. This was mostly due to under-spending of $5 million by the Division of Risk Management Supervision due to lower-than-anticipated travel for bank examinations throughout the year. The Division of Depositor and Consumer Protection spent almost $1 million less than budgeted due to lower than expected relocation expenses.

• Buildings and Leased Space spending was $16 million, or 15 percent, under budget, mostly due to under-spending by DOA.  DOA spent $11 million less than budgeted because the completion of building improvement projects at the 1776 F St. and Virginia Square buildings, which were budgeted in 2018, will carry over into 2019.  Another $5 million in under-spending in this expense category was attributable to procurement delays resulting from technical and personnel issues, several field office moves that did not occur as anticipated, lower-than-expected annual utilities expenses, and deferral of the San Francisco Regional Office (SFRO) improvement project. 

• The Corporate Unassigned contingency reserve had approximately $19 million in unused budget authority remaining at the end of the year in the Ongoing Operations budget component. That unused budget authority lapsed on December 31, 2018.

Receivership Funding

The Receivership Funding component 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.

There were significant spending variances in five of the seven major expense categories in the Receivership Funding component of the 2018 FDIC Operating Budget:

• Outside Services-Personnel expenditures were $64 million, or 35 percent, less than budgeted.  This variance was largely attributable to under-spending of almost $24 million by the Division of Resolutions and Receiverships (DRR) and about $15 million by the Legal Division. The variance for DRR ($24 million, or 25 percent, less than budgeted) was primarily due to the absence of bank closings in 2018. DRR under-spent for pre-closing, closing, and resolution activities, financial advisory services, and valuation advisory requirements. The variance for Legal ($15 million, or 24 percent, less than budgeted) was due to lower-than-anticipated costs for outside legal counsel for receivership and resolution activities.  In addition, the Corporate Unassigned contingency reserve had approximately $24 million in unused budget authority remaining at the end of the year in this expense category. That unused budget authority lapsed on December 31, 2018. 

• Salaries and Compensation expenditures were $8 million, or 40 percent, less than budgeted. DRR and the Legal Division accounted for approximately $5 million and $2 million of this variance, respectively, due to vacancies in budgeted non-permanent positions.

• Other Expenses were approximately $5 million, or 72 percent, less than budgeted. This variance was almost entirely due to lower-than-budgeted spending by DRR for administrative expenses, settlements, and taxes due to the lack of bank closings in 2018.

• Outside Service – Other expenditures were approximately $819,000, or 62 percent, more than budgeted due to significant expenses related to insurance and communications expenses for one failed bank receivership.

• Equipment expenditures were $13,000, or one percent, more than budgeted. This was primarily attributable to higher-than-anticipated costs for the maintenance of one software application by DIT.

• The Corporate Unassigned contingency reserve had approximately $24 million in unused budget authority remaining at the end of the year in the Receivership Funding budget component. That unused budget authority lapsed on December 31, 2018.

Office of Inspector General

The Office of Inspector General (OIG) budget component had a significant spending variance in one of the seven major expense categories.  Equipment expenditures were $972,000, or 63 percent, more than budgeted due to investment in additional hardware to refresh the OIG’s existing data center equipment, enhance data storage and backup capacity, and purchase new hardware and software for the Electronic Crimes Unit Laboratory to support forensic and investigative work.

Significant Spending Variances by Division/Office ¹

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

• DRR spent $39 million, or 16 percent, less than budgeted, largely due to under-spending of $24 million and $5 million in the Outside Services – Personnel and Other Expenses expense categories, respectively, due to the lack of bank closings last year, and almost $5 million in the Salaries and Compensation expense category due to vacancies in budgeted positions.

• DOA spent $30 million, or 11 percent, less than budgeted, largely due to under-spending in the Salaries and Compensation, Buildings, and Outside Services – Personnel expense categories in the Ongoing Operations budget component. DOA spent $17 million less-than-budgeted for Buildings due to unexpected technical, contractual, and personnel issues that delayed Headquarters building projects, deferral of the SFRO improvement project until decisions can be reached on the proper way to implement the project, lower-than-expected building operating and utilities expenses, and lower-than expected costs for relocating field offices.

• The Legal Division spent $23 million, or 12 percent, less than budgeted, mostly due to underspending of about $4 million in the Salaries and Compensation expense category of the Ongoing Operations budget component and $15 million in the Outside Services – Personnel expense category in the Receivership Funding budget component. The variance in the Salaries and Compensation expense category was due to vacancies in budgeted positions and slower-than-projected hiring to fill those vacancies.  In the Receivership Funding budget component, the variance was mostly due to under-spending of almost $15 million in the Outside Services – Personnel expense category due to lower-than-anticipated costs for outside legal counsel for receivership and resolution activities.

¹Information on division/office variances reflects variances in the FDIC Operating Budget.