III. Budget Results - Third Quarter 2014

Approved Budget Modifications

The 2014 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials the authority to make certain modifications to the 2014 Corporate Operating Budget.  The following budget reallocations were approved during the third quarter in accordance with the authority delegated by the Board of Directors.  None of these modifications changed the total 2014 Corporate Operating Budget as approved by the Board in December 2013:

• In September, the CFO approved the reallocation of $800,000 in budget authority in the Salaries and Compensation expense category within the Ongoing Operations component from the Division of Insurance and Research (DIR) to the Office of Communications (+$100,000), the Office of Corporate Risk Management (+$100,000), and Corporate University - Corporate Employee Program (+$600,000), for salary and fringe benefit costs that were greater than previously projected.

• In September, the CFO also separately approved the reallocation of $168,128 in budget authority within the Ongoing Operations budget from the Corporate Unassigned reserve to the Division of Depositor and Consumer Protection (DCP) to provide funding for FDIC-sponsored conference costs.

Following these reallocations, the amounts remaining available within the Corporate Unassigned budgets for the Ongoing Operations and Receivership Funding budget components were $28,842,810 and $2,742,619, respectively.

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, 2014, are defined as those that either (1) exceed the YTD budget by $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 $2 million and represents 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 significant spending variances in all major expense categories in the Ongoing Operations component of the 2014 Corporate Operating Budget through the third quarter.

• Salaries and Compensation ($49 million, or 5 percent, less than budgeted).  The most significant variances in this expense category were in the Division of Risk Management Supervision (RMS) ($16 million), the Legal Division ($7 million), the Division of Information Technology (DIT) ($4 million), the Division of Resolutions and Receivership (DRR) ($4 million), DCP ($3 million), and DIR ($3 million).  Under spending in this expense category was largely attributable to vacancies in budgeted positions.

• Outside Services – Personnel ($29 million, or 16 percent, less than budgeted).  The Division of Administration (DOA) spent $7 million less than budgeted, largely due to lower-than-anticipated expenses for the nationwide print-shop and mail-room services contract; delays in starting the workforce development initiative; lower-than-anticipated contract costs resulting from high turnover among contractor employees and delays in completing background investigations of replacement employees; and delays in expenses associated with the nationwide rollout of the Identity Credentials and Access Management initiative.  The CIO Council spent $5 million less than budgeted, largely due to lower-than-planned spending on discretionary systems development projects and the Information Management and Compliance (IMAC) project.  DRR spent $4 million less than budgeted for planning related to the possible orderly liquidation of a systemically important financial institution.  The Legal Division spent $3 million less than budgeted, largely due to lower-than-projected expenses related to FOIA and Privacy Act requests, defensive litigation, and other legal fees.  In addition, Corporate University-Corporate (CU-Corporate) spent $2 million less than budgeted, largely due to lower-than-projected expenses for various training and development projects.

• Travel expenditures ($10 million, or 13 percent, less than budgeted).  This variance was largely due to vacancies in non-permanent field examination positions in RMS and DCP that led to lower-than-projected regular duty and relocation travel expenses.  Spending in this category by the Office of Complex Financial Institutions (OCFI) was also $1 million lower than anticipated for regular duty travel and relocation costs.

• Building expenditures ($6 million, or 8 percent, less than budgeted).  This variance was largely due to delays in the Student Residence Center pipe replacement project and various office moves and lower-than-projected expenses related to field office lease renewals.  Some of these expenses are expected to be incurred later in the year.

• Equipment expenditures ($20 million, or 32 percent, less than budgeted).  DIT spent $14 million less than budgeted primarily because of delays in planned purchases of hardware and software, including hardware/software from its technical refresh allowance.  Those purchases are expected to occur in the fourth quarter.  In addition, DOA spent $6 million less than budgeted due to intentional deferral of furniture purchases until later in the year.

• Outside Services – Other expenditures ($2 million, or 16 percent, less than budgeted).  This variance was largely due to lower-than-budgeted insurance premiums, catering expenses for conferences, and costs for mail related services.

• Other Expenses ($3 million, or 25 percent, less than budgeted).  This variance was mostly due to substantial underutilization of the Professional Learning Accounts by employees and lower-than-projected corporate office supply purchases by DOA.

Receivership Funding

The Receivership Funding component of the 2014 Corporate 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 and related expenses for permanent employees assigned to the receivership management function.

There were significant spending variances in this budget component in four of the seven major expense categories through the third quarter.

• Outside Services-Personnel ($44 million, or 15 percent, less than budgeted).  This variance was attributable to less costly resolutions expenses and lower-than-anticipated asset management and marketing costs incurred under contracts for receivership assistance, due diligence, owned real estate management, loan servicing, review of shared-loss agreements, and securitizations.

• Travel ($3 million, or 36 percent, less than budgeted).  This variance was attributable to lower-than-budgeted failed bank activity.

• Buildings ($6 million, or 29 percent, less than budgeted).  This variance was attributable to lower-than-budgeted failed bank activity.

• Other Expenses ($9 million, or 49 percent, more than budgeted).  This variance was due to $10 million paid in conjunction with receivership litigation judgments.

 Significant Spending Variances by Division/Office¹

Fourteen organizations had significant spending variances through the end of the third quarter 2014:

• DRR ($40 million, or 10 percent, less than budgeted).  Approximately $32 million of this under spending was in the Receivership Funding Budget component due to lower-than-anticipated resolutions and receivership expenses and workload.

• DIT ($25 million, or 14 percent, less than budgeted).   This variance was largely attributable to delays in hardware and software purchases, lower-than-budgeted support costs for failed financial institutions, and vacancies in budgeted positions.

• DOA ($26 million, or 13 percent, less than budgeted).  This variance was largely attributable to lower-than-anticipated expenses in the Outside Services-Personnel, Buildings, and Equipment expense categories, as previously explained.

• Legal Division ($22 million, or 10 percent, less than budgeted).  This variance was due to under spending of approximately $12 million in the Outside Services – Personnel category, largely due to lower-than-projected outside counsel expenses for receivership-related litigation, and $10 million in the Salaries and Compensation category ($7 million in the Ongoing Operations budget component and $3 million in the Receivership Funding budget component), mostly due to vacancies in budgeted non-permanent positions and slower-than-projected hiring to fill those vacancies.

• RMS ($21 million, or 5 percent, less than budgeted).  This variance was largely attributable to vacancies in budgeted non-permanent field examination positions and lower-than-budgeted examination travel expenses associated with those vacancies.

• DCP ($6 million or 5 percent less than budgeted).  This variance was primarily attributable to vacancies in budgeted field examination and Washington office positions and lower-than-budgeted spending for regular duty and relocation travel associated with those vacancies.

• CIO Council ($5 million, or 11 percent, less than budgeted).  This variance was largely due to lower-than-planned spending on discretionary systems development projects and the IMAC project.

• DIR ($5 million, or 14 percent, less than budgeted).  This variance was primarily attributable to vacancies in budgeted positions and slower-than-projected hiring to fill those vacancies.

• OCFI ($4 million, or 26 percent, less than budgeted).  This variance was largely attributable to vacancies in budgeted positions and lower-than-budgeted spending for contractual services and relocation travel.

• The combined Executive Support Offices ($4 million, or 9 percent, less than budgeted).  This variance was mostly attributable to slower-than-projected hiring to fill budgeted positions in the Office of Minority and Women Inclusion and the Office of the Ombudsman.

• CU-Corporate ($3 million, or 17 percent, less than budgeted).  This variance was primarily due to lower-than-budgeted expenses for various training and development projects and vacancies in permanent positions.

• OIG ($3 million, or 13 percent, less than budgeted).  This variance was attributable to vacancies in budgeted positions and lower-than-projected travel expenses.

• The Division of Finance (DOF) ($2 million, or 8 percent, less than budgeted).  This variance was attributable to vacancies in budgeted positions and slower-than-expected hiring to fill those vacancies.

• The Executive Offices ($2 million, or 21 percent, less than budgeted).  This variance included approximately $2 million in under spending for Outside Services-Personnel due to lower than anticipated expenses to date for the GAO audit work.

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¹Information on division/office variances reflects variances in both the Ongoing Operations and Receivership Funding components of the 2014 Corporate Operating Budget.