Annual Report Budget Review 2013
Appendix A: Federal Reserve Budget Processes
The budgets for the Board of Governors, the Federal Reserve Banks, and currency are separate, and each has its own budget process.
Board of Governors
The Board's budget covers one calendar year, and the budget process is as follows:
- The Board's budget is structured by division, office, or special account (see appendix B, table B.1).
- The Board establishes a base budget to support current operations.
- Each division identifies new initiatives required to achieve its objectives for the next budget cycle as well as potential savings from its ongoing operations.
- The Board's chief operating officer, chief financial officer, and the Executive Committee of the Board evaluate each new initiative and proposed savings in the context of the Board's strategic framework.
- New initiatives not aligned with the themes identified in the strategic framework require savings offsets.
- Staff submits the proposed budget to the Committee on Board Affairs (CBA) for review.
- The CBA submits the budget to the Board for review and final action.
- Monthly expenses are compared with budgets by division and accounting classification. Variances are analyzed and reported.
The Board's Office of Inspector General (OIG), in keeping with its statutory independence, prepares its proposed budget apart from the Board's budget. The OIG presents its budget directly to the Chairman for action by the Board.
Federal Reserve Banks
The Reserve Banks' budgets cover one calendar year. Annually, each Reserve Bank establishes major operating goals for the coming year, devises strategies for attaining those goals, estimates required resources, and monitors results. The Reserve Banks' budgets are structured by operational area, with support and overhead attributable to each area and charged to that area.
The financial performance of the Reserve Banks are monitored throughout the year by way of a cost-accounting system, the Planning and Control System (PACS). Under PACS, the costs of all Reserve Bank functions are grouped by operational area, and the associated costs of support and overhead are charged to these areas accordingly. Apart from the budget approval process, the Reserve Banks must submit proposals for major capital acquisitions and projects to the Board for further review and approval.
Following is a summary of the Reserve Bank budget process:
- Business area leaders provide budget guidance to the Reserve Banks for the upcoming budget year.
- The Reserve Banks develop early budget projections that incorporate the business leader guidance provided. The budgets are reviewed by senior leadership in the Reserve Banks for consistency with the System direction.
- The Reserve Banks submit preliminary budget information to the Board for review, including documentation to support the budget request.
- Board staff analyzes the Banks' budgets, both individually and in the context of Systemwide initiatives and other Banks' plans.
- The Committee on Federal Reserve Bank Affairs (BAC) reviews the Bank budgets.
- The Reserve Banks make any requested or needed changes to the budgets, and the revised projections are submitted to the Board.
- Staff submits the proposed budgets to the BAC for review and the Board for review and final action.
- Throughout the year, Reserve Bank and Board staff compare actual performance to budgeted projections.
The currency budget covers one calendar year. On a monthly basis, Board staff monitors payments of currency to and receipts of currency from circulation and the number of unfit notes destroyed at the Reserve Banks. Board staff estimates the number of notes the Board will order from the Bureau of Engraving and Printing (BEP) to meet demand based on monthly monitoring and forecasts of growth rates for payments of currency to circulation and receipts of currency from circulation. Historically, more than 90 percent of the notes that the Board orders each year replace unfit currency that Reserve Banks receive from circulation.
The currency budget process is as follows:
- Each August, based on Board staff's assessment of currency demand, the director of the Division of Reserve Bank Operations and Payment Systems submits a fiscal year print order for currency to the director of the BEP.
- Each December, Board staff estimates expenses for the currency budget, including printing expenses (based on estimated production costs provided by the BEP); certain other BEP costs; and expenses for the currency education program, currency transportation, and counterfeit-deterrence research.
- The BAC reviews the new currency budget.
- Board staff makes any requested or needed changes to the new currency budget and the revised budget is submitted to the Board.
- Staff submits the proposed new currency budget to the BAC for review and to the Board for final action.
- Throughout the year, Board staff compares actual performance to budgeted projections.