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III.
Budget Results -
First Quarter 2007
Modifications
to Approved Budgets/Authorized Staffing
During the first quarter of 2007, three modifications were made to
the 2007 Corporate Operating Budget and/or authorized staffing, in
accordance with the authority delegated by the Board of Directors
in the 2007 Budget Resolution:
- The
Chief Financial Officer approved the reallocation of $2,208,024
within the Ongoing Operations component of the approved 2007
Corporate Operating Budget from the Division of Resolutions
and Receiverships (DRR) to the Division of Finance (DOF).
The reallocation was made in conjunction with a reorganization
that transferred the deposit insurance compliance function,
along with the 13 authorized positions, from DRR to DOF.
- Two divisions, the Division of Information Technology
(DIT) and the Division of Supervision and Consumer Protection
(DSC), made minor reallocations among the major expense categories
of their respective operating budgets. The total of these adjustments
increased Outside Services – Other by $642,868, Outside
Services – Personnel by $398,881, and Other Expenses
by $196,846. This was offset by decreasing Equipment by $709,997
and Travel by $528,598.
Status
of Spending for the Implementation of Deposit Insurance
Reform
The 2007 Corporate Operating Budget approved by the Board of
Directors included funding for the continued implementation of
Deposit Insurance Reform. Excluding internal salaries and compensation
expenses, $4.9 million was spent on system changes and $1.8 million
was spent on printing and distribution costs in 2006. During
the first quarter of 2007, an additional $1.8 million (excluding
internal salaries and compensation expenses) was spent as follows:
- Approximately
$1.4 million was spent for system development and enhancement
activities. In addition,
about $0.6 million
was approved by the Change Control Board for additional work
that will be undertaken later in the year. A total of $4.7
million is budgeted in 2007 for systems work related to deposit
insurance reform implementation.
- Approximately $1.8 million was spent through December
31, 2006, for printing and distribution of updated deposit
insurance brochures. Additional funds to further update the
brochures following the completion of all rulemaking for deposit
insurance reform are included in the 2007 Corporate Operating
Budget approved by the Board on December 5, 2006.
- Approximately $0.4 million was spent for printing
and distribution of updated deposit insurance brochures during
the first quarter of 2007. Up to $0.8 million more will be
spent revising the Spanish, Korean, and Chinese versions of
Insuring Your Deposit and Your Insured Deposit later this year.
No funds have been spent in 2006 or 2007 for the additional
staff in the Division of Insurance and Research (DIR) that the
Board authorized to support deposit insurance pricing. DIR continues
to defer hiring for those positions until final determinations
are made about the new deposit insurance assessment system. Spending
Variances Significant
spending variances by major expense category and division/office
are discussed below. Significant spending variances for the
three months ending March 31, 2007, are defined as those
that either (1) exceed the YTD budget by $3 million and represent
more than five percent for 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 $5 million and represents more than ten percent
of the major expense category or total division/office budget.
Significant
Spending Variances by Major Expense Category
Ongoing
Operations
- There
was only one major expense category in which a significant
spending variance occurred during the first quarter
in the Ongoing Operations component of the Corporate
Operating Budget:Outside
Services-Personnel expenditures were $7 million, or
18 percent, less than budgeted.
Approximately half
of this variance was due to information technology (IT) project
schedule changes and a decision by DIT management during its
ongoing review of corporate IT priorities to scale back selected
DIT internal activities. This made approximately $1.6 million
available for reallocation to support continued expansion of
the new Unix operating environment for projects under development,
bringing to $5.0 million the total funds now planned to be
spent for this purpose in 2007. The Chief Information Officer
determined in February 2006 that Unix would provide a more
modern and cost effective technological environment and designated
it as the target architecture for the Corporation’s IT
infrastructure; initial purchases of equipment and software
for the new environment were made during the fourth quarter
of 2006, as previously reported to the Board. As additional
funds are available, DIT plans to continue to expand the Unix
environment to support new applications that can efficiently
and effectively use this technology.
- In
addition to the variance in IT contract spending, lower-than-budgeted
first quarter spending
for government
litigation being handled by the Department of Justice contributed
$1 million to the first quarter variance in the Outside Services-Personnel
category. Another $0.8 million of the variance was the result
of a delay in the award of a contract for the Identity Theft
Media Campaign and the fact that DSC inadvertently neglected
to accrue for IT support received from the FFIEC to meet
Home Mortgage Disclosure Act/Community Reinvestment Act reporting
requirements.
Receivership
Funding The Receivership
Funding component of the Corporate Operating Budget includes
funds budgeted for 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 was one major expense category in the Receivership
Funding component in which a significant spending variance
occurred during the first quarter:
- Outside Services-Personnel expenditures were $14
million, or 93 percent, less than budgeted, primarily due
to the limited
receivership and resolution activity that occurred during
the quarter.
Significant
Spending Variances by Division/Office1
There were
two organizations that had
a significant spending variances for
the first quarter:
- DRR
spent $13 million, or 53 percent, less than budgeted. This
variance was fully attributable to under spending in the
Receivership Funding component of DRR’s operating budget
primarily due to the limited receivership and resolution
activity that occurred during the quarter.
- DIT
spent $6 million, or 12 percent, less than budgeted. This
was due largely to IT project schedule changes and a decision
by DIT management to scale back selected DIT internal activities
in order to reallocate funds to continue expansion of the
new Unix operating environment, as described above. In addition,
within the Corporation’s Investment Budget, a major
software purchase planned for the Claims Administration System
investment project in March was delayed.
Other Matters
In accordance with the requirements of the 2007 Budget Resolution,
an analysis of 2007 funding requirements for employee salaries
and fringe benefits was completed after the close of the first
quarter. The analysis determined that those costs had been
over-estimated by approximately $2.6 million during the preparation
of the 2007 Corporate Operating Budget. This represents only
about four-tenths of one percent of the 2007 budget for Salaries
and Compensation and could be affected by other factors during
the remainder of the year, such as timing of actions to fill
authorized vacancies. Accordingly, no action is being taken
by the CFO to modify the 2007 budget for Salaries and Compensation
that was approved by the Board in December 2006.
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1Information
on division/office variances reflects variances in both the
Corporate Operating and Investment Budgets.
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