While the NCUA Board didn’t have an August meeting, I wanted to follow-up up on one of the major agenda items from the July meeting: the 2019 Mid-Session Budget Review.
Like many businesses, the agency does a re-cast of their annual budget after the first six months of every budget year. This year’s report was more interesting because the operating expense for pay and benefits was reported to be $4.2 million lower than budget, which is an unusually large variance.
Normally, we’d all say great, right? But don’t automatically assume that the year-end result will be $4.2 million less than budgeted since $0.6 million had already been reprogrammed prior to this report using delegated authorities. That leaves us with $3.6 million, of which $2.4 million will be reallocated to four individual operating budgets: employee relocation, legal services, Asset Management and Assistance Center (AMAC) servicing systems, and contract support and training.
It’s the reprogramming of the remaining $1.2 million to the capital budget which raised my eyebrows. It seems that the 2019 capital budget is $2.7 million underfunded. The aforementioned $1.2 million and an additional $1.5 million, which is coming from lower priority projects and “unspent” balances from completed projects, are being rerouted to the capital budget. The $1.5 million includes $300 thousand unspent from a recently concluded NCUA website project which was in the 2018 capital budget for $1.2 million and was delivered for $900 thousand. That’s right, $300 thousand from the 2018 budget is being pushed into the 2019 budget for a completely unrelated project. The $2.7 million is being reallocated to three projects: CU Online, GENISIS/FOMIA, and MERIT.
If you watched the meeting, you neither saw nor heard any questions from the board as to why certain budgets are under plan and others over plan. No questions about why those three projects are so far over budget or why $300 thousand from 2018 is available again in 2019. What would have been done to solve the problem with the capital budget had the $4.2 million not been available from the operating budget? Who’s responsible for the excessive salary and benefits budget? Who’s responsible for the shortage in the capital budget? Shouldn’t we expect that budgets, paid for in the main by the earnings from the NCUSIF, exhibit a higher degree of accuracy?
While I’ve been studying NCUA governance in some detail for the last 15 years, and I’ve worked in the credit union industry my whole career, trying to track capital budget allocations, expenditures, and return is extremely difficult. I don’t know if it’s just the nature of government accounting, but quantum physics makes more sense to me.
Here’s an example: the three capital projects getting the repurposed $2.7 million addressed above are not even mentioned in the 2019-2020 Budget Justification document dated 11/15/2018. Not a single mention of CU Online which is getting a $1.3 million infusion. Why? Most of us know that AIRES is being replaced by MERIT and that ESS (Examination and Supervision Solution) is a nebulous all-encompassing IT project, but I think that project acronyms are changed as often as passwords in order to confuse the tracking of capital expenditures.
The September meeting includes a review of the NCUSIF, let’s hope that we get a clearer picture of how the $14 billion of credit union capital is being managed by the same folks who give us the “chia pet” budget: just a little water and it keeps on growing.
