|| September 2, 2005|
|| Stephen M. Beard|
| Deputy Assistant Inspector General for Audits|
|FROM:|| Fred Selby|
| Director, Division of Finance|
|| Comments on Draft Report Entitled Follow-up Evaluation of|
| The FDIC’s Corporate Planning Cycle (Assignment No. 2005-010)|
We have reviewed the draft report entitled Follow-up Evaluation of the FDIC’s Corporate
Planning Cycle (Assignment No. 2005-010). This follow-up evaluation was conducted
at the request of the Chief Financial Officer, who was primarily interested in determining
whether the Division of Finance (DOF) had been successful in reducing the resources
devoted to the Corporation’s annual planning and budget formulation process and in
integrating the planning and budget formulation processes.
We were pleased to note that your report confirmed that DOF had been successful in
meeting both of these objectives:
- Page 7 of your draft report notes that DOF “reduced the cycle time for the budget
formulation exercise from over six months for the 2001 budget to three months
for the 2005 budget” and that “most divisions and offices reported that they had
dedicated fewer resource” to the 2005 planning and budget formulation process
than in prior years.
- Page 20 of your draft report states that the FDIC in 2005 “used a more integrated
planning and budget process that was an improvement over the process used in
2001 wherein the staffing, budgeting, and planning processes overlapped and
were not well integrated.”
As you know, the Chief Financial Officer has publicly indicated on several occasions
that he believes that the FDIC has been a leader in integrating its planning, budget, cost
management, and performance management activities, consistent with the President’s
Management Agenda (PMA), despite the fact that the Corporation is not subject to the
formal PMA reporting requirements of the Office of Management and Budget.
I am attaching our responses to the specific recommendations in the draft report. In
addition, we have provided you separately a set of corrections to specific references in
If you have questions, please contact Thomas E. Peddicord at X62427.
Comments on Draft Recommendations
Revise DOF budget instructions to divisions and offices to more clearly describe
the detailed support and methodology for developing the Non-CIRC IT allocation;
the procedure for communicating the approved allocations to divisions and
offices: and the requirement that divisions and offices obtain DIT concurrence
and signature to approve (a) reductions of the maintenance/Sustaining base and
(b) proposed initiatives to be pursued by each division/office with its discretionary
Although the 2006 planning and budget formulation process was initiated prior to
receipt of the draft report, DOF has devoted considerable effort this year to
improved communications with both DIT and divisions/offices regarding how non-
CIRC IT allocations were developed and the procedures to be followed by
division/office in reviewing them and determining how they will be used. This
was particularly complex because of a number of unique factors that affected the
2006 non-CIRC IT allocations. Numerous meetings were held with division/office
budget contacts, selected division/office IT liaison staff, and DIT representatives
for this purpose, and the requirement for DIT concurrence on the division/office
submission was emphasized. Although the actual budget instructions were not
substantially revised, we believe that these steps have fully addressed the OlG’s
concerns in this area.
Revise DOF budget instructions to more clearly describe the detailed support
and methodology for developing the external training allocation and the
procedure for communicating approved allocations to divisions/offices.
Due to the widespread discontent with the process used to determine 2005
external training allocations, DQF and the CFO had initially decided to integrate
the funding for external training back into the general baseline budget allocations,
which would have permitted all divisions/offices to determine their own budgetary
requirements for external training. However, the Corporate University (CU)
Governing Board on July 25, 2005, approved, in concept, a proposal to fully
phase out all Type I and 2 training by 2007, to be replaced by a new Personal
Learning Account program that will be governed by procedures to be issued by
CU. Accordingly, we do not think this recommendation is applicable any longer.
Nonetheless, as with non-CIRC IT allocations, DOF has devoted considerable
effort to effective communications with divisions/offices regarding this new
initiative and its impact on their proposed 2006 budgets.
Provide the division and office planning and budget representatives the results
and accompanying benefits of the plus/minus 10-percent exercise for the 2004
and 2005 budget cycles, provide more detailed guidance for identifying budget
increase or decrease proposals for future budget cycles, and revise DOF budget
instructions to describe how the approved plus/minus proposals will be
communicated to the division and office planning and budget representatives.
The plus/minus 10-percent exercise was designed to ensure that senior
management carefully considered possible significant changes in corporate
spending priorities during the annual budget formulation process. The concept
was “borrowed” from the Federal Reserve Board as a device to stimulate
discussion of overall corporate spending priorities, since the baseline budgeting
methodology would otherwise result in little or no change in those priorities from
year-to-year. These proposals were, by definition, beyond what divisions/offices
felt they needed to accomplish their basic missions (any shortfall in funding for
that purpose should be submitted as a requested adjustment to the DOF-
proposed budget). Hence, there was never an expectation that there would be a
detailed accounting for each proposal.
The exercise was employed with only limited success during the 2004 planning
and budget formulation process, as documented in the DOF post-mortem on that
process. The process was revised somewhat for the 2005 process, based on
discussion at the Operating Committee. In addition, prior to the 2005 Planning
and Budget Conference, the Chief Operating Officer and the CFO culled through
the ideas submitted by divisions/offices and selected those that they felt were the
most significant and worthy of discussion at the conference. As the draft report
notes, these decisions were communicated in writing by DOF to divisions/offices
prior to the conference.
Thus, this recommendation appears to address only the need for post-
conference communications with division/office planning and budget
representatives. As we advised the OIG evaluation team, DOF believes that
primary responsibility lies with division/office directors attending the conference
to communicate to their staffs the results of the conference discussions.
Nonetheless, following the 2006 Planning and Budget Conference, DOF will
issue a summary of the disposition of the ideas submitted in response to the
plus/minus 10-percent exercise. However, we see no purpose in reconstructing
such documents for the 2004 and 2005 conferences, nor do we see the need for
any revisions to the budget instructions as they relate to the plus/minus 10-
Develop and issue a corporate directive that establishes management’s
expectations for the corporate planning and budget process.
As the draft report notes, DOF issued detailed written guidance to divisions and
offices on both the 2004 and 2005 planning and budget processes. Thus, this
recommendation relates only to the absence of a formal directive within the
Corporation’s directives system. Such a directive would necessarily be very high
level, and we do not believe that it would significantly enhance division/office
understanding of the process or their roles and responsibilities in it.
Nevertheless, by the end of the first quarter of 2006, DOF will prepare and
circulate for comment a draft directive on the planning and budget process that
will cover all or most of the recommended content. This will continue to be
supplemented by detailed annual instructions for divisions/offices.