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III.
Budget Results -
Third Quarter 2007
Approved
Budget Modifications
All divisions and offices completed a mid-year review of their 2007
operating budgets in July, including assessments of YTD spending
and projected funding requirements for the remainder of the year.
Based
on that review, the Chief Financial Officer (CFO) approved reallocations
among the operating budgets of several divisions and offices, in
accordance with the authority delegated by the Board of Directors
in the 2007
Budget Resolution. In addition, funds were realigned internally
within the operating budgets of several organizations. None of these
realignments changed the total 2007 Corporate Operating Budget, but
they did result in changes in the amounts budgeted for most major
expense categories:
- At
the corporate level, the budgets for the Travel and Other
Expense
categories were increased, the budget for the Buildings category
was unchanged, and the budgets for the remaining expense
categories were decreased. Funding for the approved budget
increases was made available from excess funding in the Salary
and Compensation budgets of the Legal Division, the Division
of Information Technology (DIT), the Division of Insurance
and Research (DIR), and the Division of Resolutions and Receiverships
(DRR).
- The
Corporate University (CU) budget was increased by over $4.4
million to pay for salaries, travel, and other expenses for
Corporate Employee Program (CEP) participants and detailees
from other FDIC organizations. Funding for the salaries and
benefits of detailees was originally budgeted in their home
organizations. Funding had to be increased for the CEP because
a decision was made in early 2007 to hire more employees
than originally budgeted in order to fill examiner vacancies
in the Division of Supervision and Consumer Protection (DSC)
more quickly. The funding for this increase was also made
available from excess funding in the Salary and Compensation
budgets of the other organizations referenced above.
- Most
of the funds included in the DSC budget for the interagency
Shared National Credit (SNC) Modernization
Project were realigned from the Outside Services-Personnel
category to the Travel category to cover higher-than-expected
travel costs for the examination program. These funds were
available for reallocation because the start of the SNC Modernization
Project was postponed until 2008.
- The
budgets for the Outside Services-Personnel and Equipment
categories within the internal operations portion
of DIT’s budget were increased, while the budget for
the Outside Services-Other category was reduced. Within the
systems development, operations, and maintenance portion of
the DIT budget, the budgets for the Outside Services-Personnel
and Outside Services-Other categories were increased, while
the budget for the Equipment category was reduced. The latter
changes were made in accordance with recommendations from the
CIO Council.
The 2007 spending
estimates for several multi-year Investment Budget projects
were also updated during the third quarter. In
addition, the DIT Director in September approved the reallocation
of funds among several approved IT projects funded from DIT’s
2007 operating budget to reflect changes in estimated project
costs and schedules, in accordance with recommendations of the
CIO Council. These reallocations provided funding for the early
start of three projects originally planned to begin in 2008,
but did not change the total amount of the DIT budget.
The CFO approved two changes in authorized staffing during the
third quarter, in accordance with authority delegated by the
Board:
- DIT’s authorized year-end 2007 staffing target
was increased by two positions to correct an error made in the
Board case requesting approval of the 2007 budget in December
2006. As a result of the change, DIT’s year-end 2007 staffing
target is now consistent with its authorized staffing throughout
2007. There was no impact on DIT’s 2007 operating budget.
- A request from
the Office of the Inspector General to transfer one authorized
2007 position to CU was approved.
There was no impact on CU’s 2007 operating budget.
Status
of Spending for the Implementation of Deposit Insurance
Reform
The 2007 Corporate Operating Budget approved by the Board of
Directors in December 2006 included funding for the continued
implementation of Deposit Insurance Reform. Excluding internal
Salaries and Compensation expenses, $4.9 million was spent for
this purpose in 2006 on system changes, and $1.8 million was
spent on printing and distribution costs. Through the third quarter
of 2007, an additional $3.9 million (excluding internal salaries
and compensation expenses) was spent as follows:
- Approximately
$3.4 million was spent for system development and enhancement
activities. It is anticipated that an additional $1.2 million
will be spent in 2007 to complete modifications to the Assessment
Information Management System (AIMS) and the Risk Related
Premium System (RRPS). A total of $4.8 million is budgeted
in 2007 for systems work related to deposit insurance reform
implementation.
- Approximately
$525,000 was spent for printing and distribution of updated
deposit insurance brochures through
the third quarter of 2007. It is anticipated that up to an
additional $100,000 will be spent revising the English versions
of Insuring Your Deposit and Your Insured Deposit during 2007.
In addition,
two new employees were hired in July by DIR to support deposit
insurance pricing, as authorized by the Board. The additional
cost for these employees through September 30, 2007, was about
$85,000.
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, 2007, are defined
as those that either (1) exceed the YTD budget by $1 million
and represent more than two percent of the major expense
category or total division/office budget; or (2) are under
the YTD budget by $2 million and represent 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 four major expense categories in which a significant
spending variance occurred through the third quarter in the Ongoing
Operations component of the 2007 Corporate Operating Budget:
- Outside
Services-Personnel expenditures were $28 million, or 21
percent, less than budgeted. The variance was largely due
to lower-than-budgeted payments to the Department of Justice
for litigation services, delays in starting several IT
projects, lower net costs for the Student Residence Center
(because of increased proceeds derived from outside use
of the facility), and lower-than-budgeted spending on human
resource contractual services.
- Travel expenditures were $3 million, or 8 percent,
less than budgeted. Overall corporate travel costs were lower
because staff from DRR participated in fewer compliance examinations
than projected and Dallas rotations for some CEP participants
were rescheduled to later in the year. In addition, lower-than-projected
travel costs were incurred for supervision, field oversight
and litigation in the Legal Division.
- Equipment
expenditures were almost $3 million, or 9 percent,
less than budgeted. A large portion of
this variance was because furniture, fixtures,
and equipment purchases and security equipment and
software
acquisitions originally budgeted in the first three
quarters of 2007 were rescheduled to the fourth
quarter.
- Other
Expenses were $3 million, or 35 percent, less than
budgeted. This variance was largely due
to the lack of spending by employees from their
new Professional Learning Accounts and the charging
of
a portion of the expenses for off-site conferences
to the Travel category rather than the Other
Expenses category.
Receivership
Funding The Receivership
Funding component of the Corporate Operating Budget includes
budgeted funding for overtime and non-personnel expenses that
are incurred in conjunction with an institution failure and
the management and disposition of the assets and liabilities
of the ensuing receivership. There were three major expense
categories in which a significant spending variance occurred
for the first nine months of the year in the Receivership Funding
component of the Corporate Operating Budget. All of these variances
were attributable to the limited receivership and resolution
activity that occurred during the year. The major expense categories
were:
- Salary and Compensation 2($2 million, or 86 percent,
less than budgeted).
- Outside Services-Personnel ($42 million, or
91 percent, less than budgeted).
- Travel
($3 million, or 73 percent, less than budgeted).
Significant
Spending Variances by Division/Office3
There were
six organizations that had a significant spending variance
through the third quarter:
- DRR
spent $40 million, or 55 percent, less than budgeted. This
variance was fully attributable to under spending in the
Receivership Funding component of DRR’s operating
budget due to the limited receivership and resolution activity
that occurred through the third quarter.
- The
Legal Division spent nearly $14 million, or 21 percent,
less than budgeted. This variance was largely attributable
to under spending in the Receivership Funding component
of its operating budget, primarily due to the limited receivership
and resolution activity that occurred through the third
quarter.
- DIT
spent $12 million, or 8 percent, less than budgeted. Approximately
one-half of the variance occurred in the Outside Services-Personnel
category of the Ongoing Operations component of the Corporate
Operating Budget and was caused by delays in systems development,
operations, and maintenance efforts. In addition, DIT had
a larger-than-anticipated number of personnel vacancies
and filled its vacancies more slowly than expected. Security
equipment and software purchases were also rescheduled
to the fourth quarter.
- The
Division of Administration spent nearly $7 million, or
6 percent, less than budgeted. This variance
was largely attributable to (a) lower-than-anticipated
net costs for the Student Residence Center as a result
of higher-than-projected
proceeds received in connection with use of the facility
by outside parties, and (b) reduced spending for compensation
and consulting services on human resource matters.
- DIR spent nearly $3 million, or 10
percent, less than budgeted. This variance was attributable
to the large
number of budgeted positions that remain vacant and a
significant reduction in the FDIC’s share of the
costs for enhancements to the Central Deposit Repository
under
the cost sharing
agreement with the other bank regulatory agencies.
- CU spent
$2 million, or 9 percent, less than budgeted. This
variance was attributable to delays in both the IT
training and DRR commission initiatives and the
re-scheduling of Dallas rotations for some CEP participants
to later
in the year.
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2Overtime
is the only account budgeted in the Salary and Compensation
expense category of the Receivership Funding component of the
Corporate Operating Budget in 2007. All staff salaries are
budgeted and expensed in the Ongoing Operations budget component.
3Information
on division/office variances reflects variances in both the Corporate
Operating and Investment Budgets.
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