Annual Report Budget Review 2012
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 and savings required to achieve its objectives for the next budget cycle.
- The Board's Strategic Planning Group, a committee of senior officers representing major lines of business, evaluates each new initiative and proposed savings in the context of the Board's, as well as the division's, mission.
- Staff submits the proposed budget to the Committee on Board Affairs (CBA).
- 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 operations and 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. PACS facilitates comparison of the financial and operating performances of the Reserve Banks. Apart from the budget approval process, the Reserve Banks must submit proposals for major capital acquisitions and capitalized projects to the Board for further review and approval.
Following is a summary of the Reserve Bank budget process:
- The business leader in each functional area provides budget guidance to the Reserve Banks for the upcoming year.
- The Reserve Banks develop early budget projections that incorporate the business leader guidance. The budgets are reviewed by 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 Board for review and final action.
- Throughout the year, Reserve Bank and Board staff compare actual performance to budgeted projections.
Currency
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, forecasts of growth rates for payments of currency to circulation and receipts of currency from circulation, operational factors, and other policy considerations. Historically, over 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 November, 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 proposed currency budget.
- Staff submits the proposed currency budget to the Board for final action.