Federal Deposit
Insurance Corporation

III. Budget Results - Fourth Quarter 2007

Approved Budget and Staffing Modifications

During the fourth quarter of 2007, three modifications were made to the 2007 Corporate Operating Budget, in accordance with the authority delegated by the Board of Directors in the 2007 Budget Resolution:

• In October 2007, the Chief Financial Officer approved a reallocation of $3.7 million and $0.5 million, respectively, from the Salaries and Compensation expense category in the ongoing operations components of the budgets of the Division of Supervision and Consumer Protection (DSC) and the Division of Information Technology (DIT) to the Equipment expense category in DIT’s budget. The additional $4.2 million in equipment funding was required to support the procurement of application software and equipment for the new Java/Unix platform and to upgrade or replace obsolete equipment. This funding reallocation reduced DIT’s projected 2008 budget requirements. Funds were available for reallocation in the DSC and DIT Salary and Compensation budgets because a large number of vacancies in those organizations were not filled as quickly as projected.

• In October 2007, funding was reallocated within the individual budgets for the Executive Offices to better align those budgets with projected personnel, travel, and other expenses for each office. There was no net change to the total budget for any major expense category in the combined Executive Offices budget.

• In December 2007, DIT reallocated $343,000 within the ongoing operations component of its budget from the Equipment expense category to the Buildings expense category in order to properly account for expenses related to the installation of a wireless antenna at the Seidman Center. These expenses were initially budgeted in and charged to the Equipment category, but it was subsequently determined that they should have been charged to the Buildings category and treated as a capital improvement to the complex. This reallocation resulted in no net change to the total approved DIT budget.

A 2007 Investment Budget spending projection for the Legal Information Management System (LIMS) project was also revised during the quarter. The 2007 spending estimate for LIMS was reduced by $206,380, to be consistent with a revised project plan for the project. That amount will remain available for use by the LIMS project in 2008, in accordance with approved Investment Budget procedures.

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 on systems changes required in conjunction with Deposit Insurance Reform in 2006, and $1.8 million was spent on printing and distribution costs. During 2007, an additional $4.9 million (excluding internal salaries and compensation expenses) was spent to support Deposit Insurance Reform implementation, as follows:

• Approximately $4.3 million was spent for system development and enhancement activities. All of the targeted systems have now been upgraded and are fully functional for the deposit insurance reform implementation.

• Approximately $0.6 million was spent for additional printing and distribution of updated deposit insurance brochures. All updates of printed materials that were required to support the implementation of deposit insurance reform were completed and distributed by year-end 2007.

In addition, DIR hired in mid-2007 two new employees to support deposit insurance pricing on an ongoing basis, as authorized by the Board in March 2006. Estimated 2007 Salary and Compensation expenses for these employees were approximately $170 thousand.

All requirements for the initial implementation of Deposit Insurance Reform, as outlined in the case presented to the Board in March 2006, have now been completed. Accordingly, this will be the final quarterly report on expenses incurred in connection with those requirements. As of December 31, 2007, the Corporation had spent a total of approximately $9.8 million over two years to support the initial implementation of Deposit Insurance Reform (excluding Salary and Compensation expenses for the two new DIR employees).¹

Spending Variances

Significant spending variances by major expense category and division/office for the year ending December 31, 2007, are discussed below. Significant spending variances are defined as those that either (1) exceed the annual budget; or (2) are under the total annual budget by $1 million or more and represent more than three 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 there were significant spending variances for the year in the Ongoing Operations component of the 2007 Corporate Operating Budget:

• Outside Services-Personnel expenditures were $29 million, or 16 percent, less than budgeted. The variance was largely due to lower-than-budgeted payments to the Department of Justice for litigation services; less-than-anticipated spending for IT-systems development, operations, and maintenance support; 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 resources contractual services.

• Travel expenditures were $3 million, or 5 percent, less than budgeted. Overall corporate travel costs were lower because DRR staff participated in fewer compliance examinations than initially projected and CEP rotation schedules were adjusted, resulting in less travel for CEP participants. In addition, lower-than-projected travel costs were incurred for supervision, field oversight and litigation activities in the Legal Division.

• Outside Services-Other expenditures were almost $2 million, or 10 percent, less than budgeted. This variance reflected successful negotiations to lower insurance rates, lower-than-anticipated outside printing costs, and a reduction in the number of local telephone lines needed for examinations as a result of the deployment of wireless data cards to examiners.

• Other Expenses were $3 million, or 28 percent, less than budgeted. This variance was largely due to (a) lower-than-projected spending by employees under the first year of the new Professional Learning Accounts program; and (b) charges of expenses for some off-site conferences to the Travel expense category rather than the Other Expenses expense category.
  

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. There were four major expense categories in which significant spending variances occurred during the year in the Receivership Funding component of the 2007 Corporate Operating Budget:

• Salary and Compensation ²($2 million, or 71 percent, less than budgeted).
• Outside Services-Personnel ($49 million, or 79 percent, less than budgeted).
• Travel ($4 million, or 64 percent, less than budgeted).
• Buildings ($0.2 million, or 7 percent, more than budgeted).

Variances in the first three expense categories were attributable to the limited receivership and resolution activity that occurred during the year. The overspending variance in the Buildings category was due to incorrect coding of charges totaling $1.7 million (the expenses should have been charged to the Outside Services-Personnel category).

Significant Spending Variances by Division/Office³

There were significant spending variances from total approved 2007 budgets for nine organizations during the year:

• DRR spent $43 million, or 43 percent, less than budgeted. This variance was mostly 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 year.

• The Legal Division spent $18 million, or 20 percent, less than budgeted. This variance was largely 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 year.

• DIT spent $11 million, or 5 percent, less than budgeted for 2007. DIT spent $8.6 million less than budgeted in the ongoing operations component of its budget, primarily due to lower-than-projected spending for application development, operations, and maintenance activities. It also spent $2.6 million less than estimated in 2007 from the approved Investment Budget projects that are monitored and reported to the Board separately by the CIRC. These latter variances were attributable primarily to delays in project schedules.

• The Division of Administration spent $7 million, or 5 percent, less than budgeted. This variance was largely attributable to (a) lower-than-anticipated net costs for the Student Residence Center (due to higher-than-projected proceeds received in connection with use of the facility by outside parties), and (b) less use of compensation and consulting services on human resource matters than originally projected for 2007.

• DIR spent $3 million, or 9 percent, less than budgeted. This variance was attributable to the large number of budgeted positions that were vacant during the year 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.

• The Inspector General spent $2 million, or 8 percent, less than budgeted. This variance was primarily attributable to the fact that the OIG’s on-board staffing was below its authorized staffing level throughout the year.

• DOF spent $2 million, or 6 percent, less than budgeted. This variance was largely attributable to a larger-than-projected number of vacancies due to unanticipated management and staff departures during the year.

• Executive Support Offices spent nearly $2 million, or 10 percent, less than budgeted. This variance was largely attributable to budgeted positions that were vacant during the year in the Office of Diversity and Economic Opportunity and the Office of the Ombudsman.

• CU spent $1 million, or 4 percent, less than budgeted. This variance was attributable to (a) lower-than-budgeted spending for travel as a result of adjustments to the travel requirements for CEP participants; and (b) reduced spending for contractor services as a result of performance issues with a contractor related to the development of the DRR training and commissioning program, which have since been resolved.
  
  

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¹ Additional systems development work will be required after the Board completes rulemaking on the payment of dividends from the new Deposit Insurance Fund (currently projected to occur no sooner than the first half of 2009). At such time as those requirements are defined, they will be funded through DIT’s annual ongoing operating budget for information technology projects and will be accounted for as a separate project.
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.