[Federal Register Volume 87, Number 192 (Wednesday, October 5, 2022)]
[Notices]
[Pages 60446-60492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21457]
[[Page 60445]]
Vol. 87
Wednesday,
No. 192
October 5, 2022
Part II
National Credit Union Administration
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The NCUA Staff Draft 2023-2024 Budget Justification; Notice
Federal Register / Vol. 87 , No. 192 / Wednesday, October 5, 2022 /
Notices
[[Page 60446]]
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NATIONAL CREDIT UNION ADMINISTRATION
[NCUA-2022-0145]
The NCUA Staff Draft 2023-2024 Budget Justification
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice.
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SUMMARY: The NCUA's staff draft, ``detailed business-type budget'' is
being made available for public review as required by federal statute.
The proposed resources will finance the agency's annual operations and
capital projects, both of which are necessary for the agency to
accomplish its mission. The briefing schedule and comment instructions
are included in the SUPPLEMENTARY INFORMATION section.
DATES: Requests to deliver an in-person statement at the budget
briefing must be received on or before October 12, 2022. Written
statements and presentations for those scheduled to appear at the
budget briefing must be received on or before 5 p.m. Eastern, October
14, 2022.
Written comments without public presentation at the budget briefing
may be submitted by October 28, 2022.
ADDRESSES: You may submit comments by any of the following methods
(please send comments by one method only):
In-person presentation at public budget briefing: submit
requests to deliver a statement at the briefing to
[email protected] by October 12, 2022. Include your name, title,
affiliation, mailing address, email address, and telephone number. Your
statement must be submitted to the same email address by 5 p.m.
Eastern, October 14, 2022. The NCUA Board Secretary will inform you if
you have been approved to make a presentation, and you will be allotted
five minutes during the budget briefing to deliver your remarks. Your
presentation must be delivered in person at the public budget briefing.
Written comments without an in-person presentation: submit
written comments by October 28, 2022, through the Federal eRulemaking
Portal: http://www.regulations.gov. The docket number is NCUA-2022-
0145. Follow the instructions for submitting comments.
Copies of the NCUA Draft 2023-2024 Budget Justification
and associated materials are also available on the NCUA website at
https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
FOR FURTHER INFORMATION CONTACT: Eugene H. Schied, Chief Financial
Officer, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6571.
SUPPLEMENTARY INFORMATION: The following itemized list details the
documents attached to this notice and made available for public review:
I. The NCUA Budget in Brief
II. Introduction and Strategic Context
III. Key Themes of the 2023-2024 Budget
IV. Operating Budget
V. Capital Budget
VI. Share Insurance Fund Administrative Budget
VII. Financing the NCUA Programs
VIII. Appendix A: Supplemental Budget Information
IX: Appendix B: Capital Projects
Section 212 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act amended 12 U.S.C. 1789(b)(1)(A) to require the NCUA
Board (Board) to ``make publicly available and publish in the Federal
Register a draft of the detailed business-type budget.'' Although 12
U.S.C. 1789(b)(1)(A) requires publication of a ``business-type budget''
only for the agency operations arising under the Federal Credit Union
Act's subchapter on insurance activities, in the interest of
transparency the Board is providing the agency's entire staff draft
2023-2024 Budget Justification (staff draft budget) in this Notice.
The staff draft budget details the resources required to support
NCUA's mission. The staff draft budget includes personnel and dollar
estimates for three major budget components: (1) the Operating Budget;
(2) the Capital Budget; and (3) the Share Insurance Fund Administrative
Budget. The resources proposed in the staff draft budget will be used
to carry out the agency's operations in 2023 and 2024. This document is
a draft, staff-level budget proposal made available to the NCUA Board
members and the public for their consideration and comment. The NCUA
Board directed the NCUA Executive Director to develop the staff draft
budget under delegated authority. The staff draft budget may change
based on public comments, Board member decisions, and staff's ongoing
consideration of estimates and programs that impact the budget.
The NCUA Chief Financial Officer will present the staff draft
budget at a budget briefing open to the public and scheduled for
Wednesday, October 19, 2022, at 10:00 a.m. Eastern at the NCUA
headquarters building, 1775 Duke Street, Alexandria, Virginia 22314.
Interested parties unable to attend in person may visit the agency's
homepage (www.ncua.gov) to access the provided webcast link.
If you wish to participate in the briefing and deliver a statement,
you must email a request to [email protected] by October 12,
2022. Your request must include your name, title, affiliation, mailing
address, email address, and telephone number. Statements must be
delivered in person at the briefing. The NCUA will work to accommodate
as many public statements as possible at the October 19, 2022 budget
briefing. The Board Secretary will inform you if you have been approved
to make a presentation and you will be allotted five minutes during the
budget briefing to deliver your remarks. A written copy of your
statement must be delivered to the Board Secretary via email at
[email protected] by 5 p.m. Eastern, October 14, 2022. In
addition to delivering their remarks at the budget briefing, registered
presenters will be provided the opportunity to ask questions of NCUA
staff about the staff draft budget. The initial round of questions will
be limited to 5 minutes per presenter, and one subsequent round of
questions, limited to 5 minutes per presenter, may be permitted by the
Chairman if time allows.
Written comments on the staff draft budget without an in-person
presentation will also be accepted by October 28, 2022, through the
Federal eRulemaking Portal: http://www.regulations.gov. The docket
number is NCUA-2022-0145. Commenters should follow the portal
instructions for submitting comments.
All comments should provide specific, actionable recommendations
about the staff draft budget rather than general remarks. The Board
will review and consider any comments from the public prior to
approving the NCUA 2023-2024 budget.
By the National Credit Union Administration Board on September
29, 2022.
Melane Conyers-Ausbrooks,
Secretary of the Board.
I. The NCUA Budget in Brief
Proposed 2023 and 2024 Budgets
The National Credit Union Administration's (NCUA) 2022-2026
Strategic Plan sets forth the agency's goals and objectives that form
the basis for determining resource needs and allocations. The annual
budget provides the resources to execute the strategic plan, to
implement important initiatives, and to undertake the NCUA's major
programs: examination and supervision, insurance, credit union
[[Page 60447]]
development, consumer financial protection, and asset management.
[GRAPHIC] [TIFF OMITTED] TN05OC22.000
The NCUA's 2023-2024 budget justification includes three separate
budgets: the Operating Budget, the Capital Budget, and the National
Credit Union Share Insurance Fund (Share Insurance Fund) Administrative
Budget. Combined, these three budgets total $367.0 million for 2023,
which is 3.8 percent lower than the initial 2023 funding level approved
by the NCUA Board as part of the two-year 2022-2023 budget, and 8.1
percent higher than the comparable level funded by the Board for 2022.
Three significant factors, when combined, account for the majority
of the 8.1 percent increase in the total budget between 2022 and 2023:
1. A proposed net increase of 25 positions in permanent agency
staffing compared to 2022, which will support critical areas necessary
to operate as an effective federal financial regulator capable of
addressing emerging issues. Included within these proposed new
positions are 10 net new positions added to NCUA regional staff to
increase the number of specialist examiners and supervisory
specialists, four positions for the Office of Examination and Insurance
to strengthen its credit and bank secrecy programs, two new positions
for the Office of Consumer and Financial Protection to expand its
consumer financial protection function, and two positions for the
Office of Credit Union Resources and Expansion to support credit unions
by providing technical advice about chartering and field of membership
matters.
2. An increase of $8.9 million for current employee compensation in
2023 compared to 2022. This increase accounts for pay raises for the
NCUA's employees as required by the current Collective Bargaining
Agreement or successor agreements and expected inflationary cost
increases for employee benefits.
3. An increase of $5.0 million in travel funding for 2023 compared
to 2022. The agency expects a sustained reduction in remote and offsite
examinations during the first half of 2023 with onsite examinations and
related travel resuming. In addition, per trip costs are expected to be
marginally higher in 2023 based on the impact of widely-reported price
inflation affecting lodging, airfare, and car rentals. Overall, the
travel budget for 2023 is funded at approximately 75 percent of pre-
pandemic travel levels. The agency anticipates that travel will occur
at a lower overall level than in previous years due to lessons learned
during the pandemic about remote work and offsite examination and
supervision procedures.
Recent economic trends, including higher inflation and robust labor
markets, have also contributed to increased costs for the NCUA to
conduct its work without a significant degradation in agency
capabilities or staffing levels. Staffing levels for 2023 and 2024
reflect the agency's current staffing requirements and proposed
staffing enhancements related to agency programs and initiatives.
Operating Budget
The proposed 2023 Operating Budget is $350.8 million. Staffing
levels would increase by a net 25 positions compared to the 2022 Board-
approved budget.
The 2023 Operating Budget increases approximately $30.7 million, or
9.6 percent, compared to the 2022 Board-approved budget. The Operating
Budget estimate for 2024 is $388.2 million and includes 22 additional
positions compared to the 2023 level.
The following chart presents the major categories of spending
supported by the 2023 budget, while specific adjustments to the 2022
Board-approved
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budget are discussed in further detail in the following paragraphs.
[GRAPHIC] [TIFF OMITTED] TN05OC22.001
Total Staffing. The Operating Budget includes 1,221 positions in
2023. This is a net increase of 25 positions compared to the 2022
levels approved by the Board. Additional staff are requested in several
areas as discussed later in this document. Despite significant credit
union asset growth, total NCUA staffing has remained within a
relatively narrow range since 2017, as shown in the chart below.
[GRAPHIC] [TIFF OMITTED] TN05OC22.002
The 2023-2024 budget reflects NCUA staffing levels as positions in
order to simplify the presentation of current and proposed employee
levels. The budget also makes permanent several previously authorized
positions within the total NCUA staffing plan in order to ensure
transparency about overall staffing levels. In past years, the NCUA
reflected budgeted staffing levels as full-time equivalents (FTEs),
which is a presentation that accounts for staffing vacancies, part-time
schedules, and other variability in employee levels.
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Pay and Benefits. Pay and benefits increase by $12.9 million in
2023, or 5.1 percent compared to 2022, for a total of $267.3 million.
The cost of new positions included in the 2023 budget makes up $4.0
million of the $12.9 million increase.
The 2023 budget recommends a net increase of 25 new positions
compared to 2022 staffing levels. Within this total, 10 net new
positions are added to the NCUA regional staff to increase the number
of specialist examiners and supervisory specialists. In addition, the
budget funds two new positions for a new Office of the Ombudsman to
provide a resource for issues facing credit unions and other public
stakeholders, two new positions for the Office of Consumer and
Financial Protection to expand its consumer financial protection
function, three positions for the Office of Examination and Insurance
to better align the office's operating divisions and strengthen its
credit and bank secrecy programs, one new position for the Office of
General Counsel to support regulatory and legislative functions, one
new position for the Office of Minority and Women Inclusion to support
the agency's special emphasis programs, and one new position for the
Office of the Chief Financial Officer to strengthen planning and budget
formulation processes.
The budget also makes permanent five positions previously
authorized within the total NCUA staffing plan: one position for the
Office of National Examination and Supervision to strengthen data
modeling capabilities, two positions for the Office of Credit Union
Resources and Expansion to support credit unions by providing technical
advice about chartering and field of membership matters, one position
in the Office of Examination and Insurance to strengthen analysis of
risks within the credit union system, and one position for the Office
of Ethics Counsel to consolidate the regional ethics program.\1\
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\1\ The 2024 Staff Draft budget recommends an additional 22 new
positions, including 17 regional specialists to complete the build-
out of that program, one position for the Office of the Ombudsman,
which is proposed to be established in 2023, and making permanent
four Office of National Examination and Supervision positions
previously authorized within the total NCUA staffing plan.
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Travel. The travel budget increases by $5.0 million in 2023, or
27.5 percent compared to 2022, for a total of $23.0 million. The
increase in travel does not represent a typical annual travel
adjustment because the 2022 budget was lower due to restricted travel
during the pandemic. The 2023 budget assumes that travel will return to
approximately 75 percent of its pre-pandemic levels. The NCUA will
continue to seek to contain travel costs by use of offsite examination
procedures and virtual options for training when suitable for the
desired outcomes. Additionally, the NCUA plans to hold a national
training conference for its staff in 2023 and more internal and
external meeting events than in 2022.
Rent, Communications, and Utilities. The budget for rent,
communications, and utilities increases by $1.1 million in 2023, or
21.8 percent compared to 2022, for a budget of $6.3 million. This
funding pays for space-related costs, telecommunications services, data
capacity contracts, and information technology network support. The
2023 increase is driven by the cost of a new office lease for the
Southern Region office. The NCUA determined it would be more effective
and offer more flexibility over the long term to sell the Southern
Region facility and move its operations to a leased facility.
Administrative Expenses. Administrative expenses increase by $0.6
million in 2023, or 10.8 percent compared to 2022, for a budget of $6.7
million. The increase to the administrative expenses budget category
largely results from an increase in the need for supplies, materials,
printing, and subscription expenses expected as employees return to
onsite work in 2023.
Contracted Services. The budget for contracted services increases
by $11.1 million in 2023, or 30.3 percent compared to 2022, for a total
budget of $47.6 million.\2\ About $5 million of this increase is the
result of a lower offset for 2023 than 2022 of unspent budget amounts
from the prior year. The remaining $6.1 million of the increase
reflects a combination of inflationary pressures on the cost of
contracted services and some additional initiatives described in more
detail later in this document. Contracted services funding pays for
products and services acquired in the commercial marketplace and
includes critical mission support services such as information
technology hardware and software support, accounting and auditing
services, and specialized subject matter expertise. The majority of
funding in the contracted services category supports the NCUA's robust
supervision framework and includes funding for tools used to identify
and resolve risk concerns such as interest rate risk, credit risk, and
industry concentration risk. Further, funding within contracted
services is used to address new and evolving operational risks such as
cybersecurity threats.
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\2\ The total budget for Contracted Services in 2023 before
offsets of prior year unspent funds is estimated to be $65.6
million.
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Capital Budget
The proposed 2023 Capital Budget is $11.2 million.
The 2023 Capital Budget is $1.8 million lower than the 2022 Board-
approved budget.
The Capital Budget fully supports the NCUA's ongoing effort to
modernize its information technology infrastructure and applications.
The 2023 budget for capital projects decreases largely because the NCUA
budgeted to replace its laptop computer fleet in 2022 and does not
require additional investments for laptops in 2023. Additionally,
funding in the Capital Budget for the MERIT examination system is lower
in 2023 than 2022 and provides funding for routine maintenance and
other modest system enhancements. Other information technology
investments proposed in the 2023 Capital Budget include ongoing
enhancements to information security, upgrades to decades-old legacy
systems, refresh of the agency's mobile communications devices, and
various hardware investments to refresh agency networks and ensure
staff have the tools necessary to achieve the agency's mission.
The Capital Budget also includes $1.5 million for NCUA's
facilities.
Share Insurance Fund Administrative Expenses
The proposed 2023 Share Insurance Fund Administrative Budget is
$4.9 million.
The 2023 Share Insurance Fund Administrative Budget is $0.1 million
higher than the preliminary 2023 funding level approved by the Board in
December 2021, but $1.3 million lower than the 2022 Board-approved
budget. The Share Insurance Fund Administrative Budget funds the tools
and technology used by the Office of National Examinations and
Supervision (ONES) to oversee credit union-run stress testing for the
largest credit unions, travel for state examiners attending NCUA-
sponsored training, audit support for the Share Insurance Fund's
financial statements, and certain insurance-related expenses for Asset
Management and Assistance Center (AMAC) operations. The decrease in the
Share Insurance Fund Administrative Budget is primarily driven by a
reduction to the budget for state examiner travel and the completion of
a one-time study by AMAC that was funded in the 2022 budget.
[[Page 60450]]
Additionally, the budget for the corporate resolution program continues
to decrease in 2023 compared to 2022.
2023 Operating Budget--Use of Prior Year Surplus Funds
The ongoing impact of the COVID-19 pandemic resulted in lower-than-
planned spending on NCUA employee travel in 2022, as the agency largely
continued remote and offsite examinations and work. Additionally, the
NCUA's vacancy rate for the first half of 2022 was higher than the past
two years, and the robust labor market has contributed to hiring
challenges. As presented in the 2022 midsession budget update at the
July 2022 open meeting of the NCUA Board, the NCUA estimates that the
agency will end 2022 having underspent the Board-approved budget by
approximately $18.0 million. The 2023 budget proposes using the $18.0
million projected 2022 budget surplus to offset the costs of planned
contracted services spending in 2023, reducing the agency's overall
2023 budget by the same amount.
Budget Trends
As shown in the following chart, the relative size of the NCUA
budget (dotted line) has generally decreased when compared to balance
sheets at federally insured credit unions (FICU, solid line).
[GRAPHIC] [TIFF OMITTED] TN05OC22.003
This trend illustrates the relative spending constraint the NCUA
has attained in the last several years relative to the size of the
credit union system and spending by other federal financial regulators
(dotted line compared to dashed line).
Federal Compliance Costs
As a federal agency, the NCUA is required to devote significant
resources to numerous activities required by federal law, regulations,
or, in some cases, Executive Orders. These requirements drive how many
of the agency's activities are implemented and the associated costs.
These compliance activities affect the level of resources needed in
areas such as information technology acquisitions and management, human
capital processes, financial management processes and reporting,
privacy compliance, and physical and cybersecurity programs.
Financial Management
Federal law, regulations, and government-wide guidance promulgated
by the Office of Management and Budget (OMB), the Government
Accountability Office (GAO), and the Department of the Treasury place
numerous requirements on federal agencies, including the NCUA,
regarding the management of public funds. Government-wide financial
management compliance requirements address topics such as financial
statement audits, improper payments, prompt payments, internal
controls, and procurement audits, enterprise risk management, strategic
planning, and public reporting of financial and other information.
Information Technology
There are numerous laws, regulations, and required guidance
concerning information technology used by the federal government. Many
of the requirements cover information technology security, such as the
Federal Information Security Modernization Act. Other requirements
cover records management, paperwork reduction, information technology
acquisition, cybersecurity spending, accessible technology, and
continuity.
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Human Capital and Equal Opportunity
Like other federal agencies, the NCUA is subject to an array of
human capital-related laws, regulations, and other mandatory guidance
issued by the Office of Personnel Management, the Equal Employment
Opportunity Commission, and OMB. Human capital compliance requirements
include procedures related to hiring, management engagement with public
unions and collective bargaining, employee discipline and removal
procedures, required training for supervisors and employees, employee
work-life and benefits programs, equal employment opportunity and
required diversity and inclusion programs, and storage and retention of
human resource records. The NCUA is also required by law to maintain
comparability with other federal bank regulatory agencies when setting
and adjusting the total amount of compensation and benefits for
employees.
Security
The NCUA's security posture is driven by numerous legal and
regulatory requirements covering the full range of security functions.
The NCUA is required to comply with mandatory requirements for
personnel security, physical security, emergency management and
continuity, communications and information security, and insider threat
standards. In addition to meeting specific legislative mandates, as a
federal agency the NCUA is required to follow guidance from, but not
limited to, the Office of the Director of National Intelligence, the
Department of Defense, the Office of Personnel Management, and the
Federal Emergency Management Agency.
Other Compliance Activities
The NCUA also has other general compliance activities that cut
across numerous offices. For example, the NCUA expends resources
complying with the Privacy Act, the Freedom of Information Act, the
Government in the Sunshine Act, multiple laws and regulations related
to government ethics standards, and various reporting and other
requirements set forth by the Federal Credit Union Act and other
statutes.
BILLING CODE 7535-01-P
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[GRAPHIC] [TIFF OMITTED] TN05OC22.005
BILLING CODE 7535-01-C
II. Introduction and Strategic Context
History
For more than 100 years, credit unions have provided financial
services to their members. Credit unions are not-for-profit financial
cooperatives created to serve a membership with a common bond.
President Franklin Roosevelt signed the Federal Credit Union Act
into law in 1934 during the Great Depression. The law's goal was to
make credit available to Americans and promote thrift through a
national system of nonprofit, cooperative credit unions.
The NCUA is the independent federal agency established in 1970 by
the U.S. Congress to regulate, charter, and supervise federal credit
unions. With the backing of the full faith and credit of the United
States, the NCUA operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of the account holders in all
federal credit unions and the vast majority of state-chartered credit
unions.
As of June 30, 2022, the NCUA is responsible for the regulation and
supervision of 4,853 federally insured credit unions, which have
approximately 132.6 million members and more than $2.1 trillion in
assets across all states and U.S. territories.\3\
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\3\ Source: The NCUA quarterly call report data, Q2 2022.
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Authority
Pursuant to the Federal Credit Union Act, authority for management
of the NCUA is vested in the NCUA Board. It is the Board's
responsibility to determine the resources necessary to carry out the
NCUA's responsibilities under the Act.\4\ The Board is authorized to
expend such funds and perform such other functions or acts as it deems
necessary or appropriate in accordance with the rules, regulations, or
policies it establishes.\5\
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\4\ See 12 U.S.C. 1752a(a).
\5\ See 12 U.S.C. 1766(i)(2).
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Upon determination of the budgeted annual expenses for the agency's
operations, the Board determines a fee schedule to assess federal
credit unions. The Board gives consideration to the ability of federal
credit unions to pay such a fee and the necessity of the expenses the
NCUA will incur in carrying out its responsibilities in connection with
federal credit unions.\6\ In December 2020, the Board approved a final
rule with changes to its regulation and methodology for determining the
fees due from federal credit unions.\7\
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\6\ See 12 U.S.C. 1755(a)-(b).
\7\ See https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
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Pursuant to the law, fees collected are deposited in the agency's
Operating Fund at the Treasury of the United States, and those fees are
expended by the Board to defray the cost of carrying out the agency's
operations, including the examination and supervision of federal credit
unions.\8\ In accordance with its authority \9\ to use the Share
Insurance Fund to carry out its insurance-related responsibilities, the
Board approved an Overhead Transfer Rate methodology and authorized the
Office of the Chief Financial Officer to transfer resources from the
Share Insurance Fund to the Operating Fund to account for insurance-
related expenses.
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\8\ See 12 U.S.C. 1755(d).
\9\ See 12 U.S.C. 1783(a).
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Mission, Goals, and Strategy
The staff draft budget for 2023-2024 supports the agency's second
year implementing its 2022-2026 Strategic Plan. Throughout 2023 and
2024, the NCUA will continue fulfilling its mission of ``protecting the
system of cooperative credit and its member-owners through effective
chartering, supervision, regulation, and insurance.'' The agency's
three strategic goals are:
1. Ensure a safe, sound, and viable system of cooperative credit
that protects consumers.
2. Improve the financial well-being of individuals and communities
through access to affordable and equitable financial products and
services.
3. Maximize organizational performance to enable mission success.
The NCUA's strategic plan is the foundation for the agency's
performance management and resource allocation processes. The annual
performance plan functions as the agency's operational plan for each
calendar year. It outlines the annual or short-term objectives,
strategies, and corresponding performance goals and activities that
contribute to the accomplishment of the agency's strategic goals. The
NCUA budget provides the resources necessary for the agency to
implement its strategic priorities and related programs and activities,
to identify key challenges facing the credit union industry, and to
leverage agency strengths to help credit unions address those
challenges.
Appendix A provides additional information about how the budget
aligns to the NCUA's strategic goals.
Organization and Structure
The NCUA operates its headquarters in Alexandria, Virginia, to
administer and oversee its major programs and support functions. The
NCUA's AMAC is located in Austin, Texas, and is responsible for
liquidating credit unions and managing asset management estates. The
three regional offices and Office of National Examinations and
Supervision carry out the agency's supervision and examination program.
The NCUA has credit union examiners responsible for a portfolio of
credit unions covering all 50 states, the District of Columbia, Guam,
Puerto Rico, and the U.S. Virgin Islands.
The following organizational chart \10\ reflects the agency's
currently approved structure. The staff draft budget includes a
proposal for the Office of the Ombudsman to report directly to the
Chairman. In addition, on January 1, 2023, AMAC will operate
independently of the Southern Region. The map shows each region's
geographical alignment.
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\10\ The Board Secretary is an organizational component of the
NCUA Board.
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BILLING CODE 7535-01-P
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[[Page 60455]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.007
BILLING CODE 7535-01-C
The NCUA uses an extended examination cycle for well-managed, low-
risk federal credit unions with assets of less than $1 billion.
Further, the NCUA's examiners perform streamlined examination
procedures for financially and operationally sound credit unions with
assets less than $50 million. The Office of National Examinations and
Supervision examines corporate credit unions and large consumer credit
unions with assets over $15 billion.\11\
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\11\ Effective January 1, 2023. See https://www.ncua.gov/files/agenda-items/asset-threshold-final-rule-20220721.pdf.
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Budget Process--Strategy to Budget
The NCUA's budget process starts with a review of the agency's
strategic framework, including its goals and objectives. The strategic
framework sets the agency's direction and guides resource requests,
ensuring the agency's resources and workforce are allocated and aligned
to agency priorities and initiatives.
Each regional and central office director at the NCUA develops an
initial budget request identifying the resources necessary for their
office to support the NCUA's mission, goals, and objectives. These
budgets are developed to ensure each office's requirements are
individually justified and remain consistent with the agency's overall
strategic framework.
One of the primary inputs in the development process is a
comprehensive workload analysis that estimates the amount of time
necessary to conduct examinations and supervise federally insured
credit unions in order to carry out the NCUA's dual mission as insurer
and regulator. This analysis starts with a field-level review of every
federally insured credit union to estimate the number of workload hours
needed for the budget year. The workload estimates are then refined by
regional managers and further reviewed by NCUA executive leadership for
the annual budget proposal. The workload analysis accounts for the
efforts of over 66 percent of the NCUA workforce and is the foundation
for the budgets of the regional offices and ONES.
In addition to the workload analysis, from which central office
budget staff derive related personnel and travel cost estimates, each
NCUA office submits estimates for fixed and recurring expenses, such as
for employee travel, rental payments for leased property, operations
and maintenance for owned facilities or equipment, supplies,
telecommunications services, major capital investments, and other
administrative and contracted services costs.
Because information technology investments impact all offices
within the agency, the NCUA has established an Information Technology
Oversight Council (ITOC). The ITOC considers, analyzes, and prioritizes
major information technology investments to ensure they are aligned
with the NCUA's strategic framework. These focused reviews result in a
mutually agreed-upon budget recommendation to support the NCUA's top
short-term and long-term information technology needs and investment
priorities.
Once compiled for the entire agency, all office budget submissions
undergo thorough reviews by the responsible regional and central office
directors, the Chief Financial Officer, and the NCUA's executive
leadership. Through a series of presentations and briefings by the
relevant office executives, the NCUA Executive Director formulates an
agency-wide budget recommendation for consideration by the Board.
The NCUA Board has an ongoing commitment to transparency around the
agency's finances and budgeting processes. As such, the Office of the
Chief Financial Officer has made draft budgets available for public
comment on the agency's website and solicited public comments before
presenting final
[[Page 60456]]
budget recommendations for the Board's approval. Furthermore, Section
212 of the Economic Growth, Regulatory Relief, and Consumer Protection
Act, Public Law 115-174, enacted May 24, 2018, requires that the NCUA
``make publicly available and publish in the Federal Register a draft
of the detailed business-type budget.'' To fulfill this requirement,
the Board delegated to the Executive Director the authority to publish
the draft budget before submitting it for Board approval.
This 2023-2024 staff draft budget justification document includes
comparisons to the Board approved 2022-2023 budget and describes the
major spending items in each budget category to provide transparency
and promote understanding of the use of budgeted resources. Estimates
are provided by major budget category, office, and cost element.
The NCUA also posts supporting documentation for its budget request
on the NCUA website to assist the public in understanding its budget
development process. The staff draft budget for 2023 represents the
NCUA's projections of operating and capital costs for the year and is
subject to approval by the Board.
Commitment to Financial Stewardship
The NCUA funds its activities through operating fees levied on all
federal credit unions and through reimbursements from the Share
Insurance Fund, which is funded by both federal credit unions and
federally insured, state-chartered credit unions. The Overhead Transfer
Rate calculation determines the annual amount that the Share Insurance
Fund reimburses the Operating Fund to pay for the NCUA's insurance-
related activities. At the end of each calendar year, the NCUA's
financial transactions are subject to audit in accordance with
Generally Accepted Government Auditing Standards.\12\
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\12\ See 12 U.S.C. 1783(b) and 1789(b).
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The Board and the agency are committed to providing transparency
and sound financial stewardship. In recent years, the NCUA Chief
Financial Officer, with support and direction from the Executive
Director and Board, has worked to improve the NCUA's financial
management, financial reporting, and budget processes. These efforts
have resulted in the NCUA being recognized by the Association of
Government Accountants with a Certificate of Excellence in
Accountability Reporting for each of its past four annual reports.
The NCUA is the only Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA) agency that publishes a detailed draft budget
in the Federal Register and solicits public comments on it at a meeting
with its Board and other agency leadership.
The NCUA's 2023-2024 staff draft budget justification conforms with
federal budgetary concepts, which increases transparency of the
agency's planned financial activity. The NCUA first revised its
financial presentations for such consistency in its 2018-2019 budget.
The NCUA works diligently to maintain strong internal controls for
financial transactions, in accordance with sound financial management
policies and practices. Based on the results of the NCUA's assessments
conducted through the course of 2021, the agency provided an unmodified
Statement of Assurance (signed February 15, 2022) that its management
had established and maintained effective controls to achieve the
objectives of the Federal Managers Financial Integrity Act and OMB
Circular A-123. Specifically, the NCUA supports the internal control
objectives of reporting, operations, and compliance, as well as its
integration with overarching risk management activities. Within the
Office of the Chief Financial Officer, the Internal Controls Assessment
Team continues to mature the agency-wide internal control program,
strengthen the overall system of internal controls, promote the
importance of identifying risk, and ensure the agency has identified
appropriate responses to mitigate identified risks. The agency's
internal controls are designed and operated in accordance with the
requirements of the GAO's Standards for Internal Controls in the
Federal Government (Green Book).
Enterprise Risk Management
The NCUA uses an Enterprise Risk Management (ERM) program to
evaluate various factors arising from its operations and activities
(both internal to the agency and external in the industry) that can
impact the agency's performance relative to its mission, vision, and
performance outcomes. Agency priority risks include both internal
considerations, such as the agency's control framework and information
security posture, and external factors such as credit union
diversification risk. All of these risks can materially impact the
agency's ability to achieve its mission.
The NCUA's ERM Council provides oversight of the agency's
enterprise risk management activities. Through the ERM program,
established in 2015, the agency is identifying, analyzing, and managing
risks that could affect the achievement of its strategic objectives.
Overall, the NCUA's ERM program promotes effective awareness and
management of risks, which, when combined with robust measurement and
communication, are central to cost-effective decision-making and risk
optimization within the agency. This holistic evaluation of how the
agency pursues its goals and objectives is guided by the agency's
appetite for risk and considers resource availability or limitations.
In addition, the agency's risk appetite helps the NCUA's employees
align risks with opportunities when making decisions and allocating
resources to achieve the agency's strategic goals and objectives.
The NCUA most recently published its enterprise risk appetite
statement in its 2022-2026 Strategic Plan.13 The enterprise
risk appetite statement is part of the NCUA's overall management
approach.
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\13\ See https://www.ncua.gov/files/agenda-items/strategic-plan-20220317.pdf.
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The NCUA recognizes that risk is unavoidable and sometimes inherent
in carrying out the agency's mandate. The NCUA is positioned to accept
greater risks in some areas than in others; however, the risk appetite
establishes boundaries for the agency and its programs.
III. Key Themes of the 2023-2024 Budget
Overview
The 2023-2024 budget includes funding for the NCUA to increase
permanent staffing in critical areas necessary to operate as an
effective federal financial regulator capable of addressing emerging
issues and responding to changes in economic conditions that may impact
the credit union system. The NCUA employees are the agency's most
valuable resource for achieving its mission, and the agency is
committed to a workforce with integrity, accountability, transparency,
inclusivity, and proficiency. The agency will continue investing in its
workforce through training and development, ensuring employees have the
skills they need to do their work effectively.
The 2023-2024 budget proposes investments across a range of agency
priorities, including:
Expanded and ongoing efforts to ensure robust
cybersecurity in the credit union system and at the agency.
Specialized examination staff dedicated to areas of
emerging
[[Page 60457]]
complexity and risk in the credit union system. The 2023-2024 draft
budget includes adding two new regional specialist programs, consumer
compliance and bank secrecy, to the existing cadre or regional
specialists.
Resources for the NCUA's Advancing Communities through
Credit, Education, Stability, and Support (ACCESS) initiative, which is
focused on improving financial inclusion.
Program and staff resources to provide greater assistance
to small credit unions.
Additional staff for continued enhancements to the NCUA's
fair lending program.
Increased offsite examination work and use of data
analytics through the Virtual Examination project.
Critical investments in new information technology systems
and infrastructure, including enhancements to the agency's data
reporting services and Model Examination and Risk Identification Tool
(MERIT).
The efficiency and effectiveness of the agency's workforce depends
upon the availability of modern analytical tools and the resiliency of
the NCUA's information technology systems. The NCUA is committed to
implementing its new technology responsibly and delivering secure,
reliable, and innovative solutions. The investments funded in the
NCUA's Capital Budget will provide the tools and technology the
workforce needs to achieve the NCUA mission.
In November 2017, the NCUA Board approved funding to explore
methods to conduct more examination work offsite--referred to as the
Virtual Examination project. The project team continues its work to
identify new and emerging data sources and methods to access the data,
assessing advancements in analytical techniques, and considering how
other technologies can be harnessed to automate or streamline various
aspects of the examination process.
Since March 2020, the NCUA staff have conducted the majority of
examination work while fully offsite, with only a few exceptions for
the most problematic and challenging cases. The Virtual Examination
project team is building upon this work by integrating lessons learned
during the offsite posture. These lessons will help guide near-term
changes to examination approaches and help inform areas needing further
development by credit unions and the NCUA.
Cybersecurity
The NCUA's cybersecurity program focuses on two main efforts:
supervision of credit union cybersecurity programs and protection of
the agency's systems, assets, data, and mission capabilities. The
combined 2023 budget for these efforts is approximately $21.3 million,
which funds the costs of NCUA examiners and employees who carry out
cybersecurity responsibilities, contract support for the agency's
cybersecurity initiatives, and capital investments in cybersecurity
tools and enhancements.
Cyberattacks continue to pose significant risks to the financial
system. Because of continued attacks on the nation's financial sector
and the broader national critical infrastructure, the NCUA places
credit union cybersecurity as a top supervisory priority and enterprise
risk objective.
The 2023 budget includes approximately $7.3 million for the costs
of the NCUA's examination and support staff to administer its
information technology and security examination program. These amounts
include funding for the associated costs of the national program and
policy office staff located in the Office of Examination and
Insurance's Critical Infrastructure Division. In addition, the budget
includes approximately $0.8 million for the costs of cybersecurity risk
research, assessments, and information technology and security
examination support tools.
The NCUA engages in interagency cybersecurity preparedness as
members of the Federal Financial Institutions Examination Council
(FFIEC) and the Financial and Banking Information Infrastructure
Committee. The NCUA monitors cyber threats identified by federal and
non-federal sources and shares relevant information about them with the
credit union industry and financial sector partners.
In 2022, the NCUA piloted a new and updated information security
examination program. The NCUA established a working group of regional
and headquarters staff to review and incorporate changes into the
program to be scalable to the institution's complexity and size. The
NCUA is providing initial examiner training in the fourth quarter of
2022 and will deploy the improved program with the 2023 examination
cycle.
Enhanced and continuing examiner training related to information
security and evolving cyber risks is planned for 2023.
To help ensure credit union cybersecurity preparedness, the NCUA
employs highly trained regional information security officers and other
examination staff who evaluate credit union cybersecurity programs and
protections.
The NCUA's approach to agency cybersecurity is based on
requirements established by Federal statute such as the Federal
Information Security Management and Federal Information Security
Modernization Acts, and government-wide policy such as the National
Institute of Standards and Technology's (NIST) Cybersecurity Framework
(CSF), and Executive Order 14028, Improving the Nation's Cybersecurity.
The 2023 budget includes approximately $13.2 million for the cost of
compliance with and implementation of these requirements, of which $3.6
million is budgeted for capital investments. It is important to note
that many government cybersecurity requirements are not necessarily
expected of non-governmental entities; however, as a federal agency the
NCUA is obligated to carry them out.
The 2023 budget invests in risk-based cybersecurity resources and
technologies expected to enhance several of the NCUA's CSF functional
areas and continue implementing the Executive Order through the
following efforts:
Implementing multi-factor authentication.
Establishing a zero-trust architecture.
Migrating identified databases to a secure cloud provider.
Strengthening cyber threat and information sharing
capabilities.
Continuing maturity of agency-wide cybersecurity
governance.
Support for Small Credit Unions
Small credit unions with less than $100 million in assets and
Minority Depository Institutions (MDIs) are uniquely positioned to
improve financial inclusion by offering their communities access to
credit and other services. In 2022, the NCUA implemented a Small Credit
Union and MDI Support Program designed to support and preserve these
credit unions. This program provides dedicated resource hours for field
staff to conduct this important work, and the 2023 staff draft budget
proposes additional hours for the program.
Program assistance focuses on identifying available resources,
providing training and guidance, and supporting credit union management
in their efforts to address operational matters. Additional benefits of
the program are expected to include:
Greater awareness of the unique needs of small credit
unions and MDIs
[[Page 60458]]
and their role serving underserved communities.
Expanded opportunities for these credit unions to receive
support through NCUA grants, training, and other initiatives.
Furthering partnerships with organizations and industry
mentors that can support small credit unions and MDIs.
Fair Lending
Fair and equitable access to credit is vital to the credit union
system and members of credit unions. The NCUA uses onsite examinations,
supervision contacts, and data analysis to ensure credit unions comply
with fair lending laws and regulations. The staff draft budget proposes
two additional positions for 2023 to continue to enhance the NCUA's
fair lending program. Fair lending violations continue to be uncovered,
and the additional staff dedicated to fair lending have helped conduct
these reviews and ensure corrective actions are implemented.
ACCESS and Financial Inclusion
The financial services industry--of which credit unions are an
important part--plays a key role in helping families achieve financial
freedom by building generational wealth, helping entrepreneurs to get
their small businesses off the ground, and helping to create jobs and
strengthen communities. The NCUA has a role to play in making sure that
credit unions can support overlooked or underserved areas.
The NCUA's ACCESS initiative--Advancing Communities through Credit,
Education, Stability, and Support--began by reviewing NCUA regulations,
processes, and procedures to expand opportunities for greater access to
savings, credit, and other financial services provided by credit
unions.\14\ In 2022, the NCUA hired a dedicated ACCESS Coordinator to
support this initiative. In addition, for the first time the ACCESS
initiative is a part of the NCUA's 2022 annual summit focused on
diversity, equity, and inclusion (DEI) in the credit union system. The
summit will bring together professionals from credit unions and other
financial inclusion industries to promote the value of DEI, share DEI
and financial inclusion best practices, and discuss solutions to
industry-specific challenges.
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\14\ https://www.ncua.gov/access.
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For 2023, the NCUA's ACCESS initiative will build on the work done
in 2022 and continue to actively engage credit union industry leaders
and stakeholders to identify additional ways to help new, small, low-
income-designated, and MDI credit unions to grow and prosper.
NCUA Organizational Changes
In 2022, the NCUA Board approved two organizational changes that
will take effect on January 1, 2023. First, the Board transferred
responsibility for credit unions in the state of Ohio from the Eastern
Region to the Southern Region. This transfer will help ensure that
workloads remain generally consistent among the NCUA's three regional
offices. Second, the Board separated the Asset Management Assistance
Center (AMAC) from the Southern Region, reestablishing it as a distinct
office led by the AMAC President. These changes are reflected in the
office budget tables provided in Appendix A.
The 2023 staff draft budget also proposes creation of a new,
distinct Office of the Ombudsman, which will better ensure effective
outreach and engagement with credit unions and the NCUA's external
stakeholders, such as the general public, trade associations, and other
regulatory agencies. Appendix A includes a separate table illustrating
the budget recommended for the Office of the Ombudsman.
Regulatory Improvements
The NCUA has undertaken a series of regulatory improvements in
recent years and will continue to update and improve regulations to
maintain a modern and effective regulatory framework. The NCUA's
website includes additional detailed information about all proposed and
final rules for the past several years.\15\
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\15\ See https://www.ncua.gov/regulation-supervision/rulemakings-proposals-comment.
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The NCUA's Annual Report includes the results of the regulatory
reviews the agency completes on a yearly basis. The NCUA's current
performance target for regulatory review is to review one-third of the
agency's regulations annually.
IV. Operating Budget
Overview
The NCUA Operating Budget is the annual plan for resources required
for the agency to conduct activities prescribed by the Federal Credit
Union Act. These activities include: (1) chartering new federal credit
unions; (2) approving field of membership applications of federal
credit unions; (3) promulgating regulations and providing guidance; (4)
performing regulatory compliance and safety and soundness examinations;
(5) implementing and administering enforcement actions, such as
prohibition orders, orders to cease and desist, orders of
conservatorship and orders of liquidation; and (6) administering the
National Credit Union Share Insurance Fund.
Staffing
The staffing levels proposed for 2023 reflect the resource
requirements that support the NCUA's continued efforts to improve the
examination process and enhance the efficiency and effectiveness of the
supervisory process. The 2023-2024 budget includes funding for the NCUA
to increase permanent staffing in critical areas necessary to operate
as an effective federal financial regulator capable of addressing
emerging issues.
The 2023 budget supports a total agency staffing level of 1,221
positions.\16\ This is a net increase of 25 positions, or 2.0 percent,
compared to the agency's 2022 staffing level.
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\16\ Does not include five positions assigned to the Central
Liquidity Facility in 2023.
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The proposed changes for the 2023 staffing level include:
Increasing the NCUA regional staff by 10 net new
positions, which includes adding 20 new specialist examiner positions
and reducing 10 general examiner positions.
Adding two positions to establish a new Office of the
Ombudsman with dedicated staff and resources to facilitate better
stakeholder understanding of NCUA's processes and more effective
resolution of issues.
Increasing by two positions the Office of Consumer
Financial Protection to support the consumer financial protection
program.
Increasing by four positions the Office of Examination and
Insurance to support an effective exam and supervision program, and
management of the Share Insurance Fund.
Adding one new position in the Office of Minority and
Women Inclusion to support its mission of promoting diversity, equity,
inclusion, and accessibility.
Adding one new position in the Office of the Chief
Financial Officer to support its performance and risk analysis program
and improve budget formulation and analytic processes.
Making permanent five positions previously authorized
within the total NCUA staffing plan.
The new 2023 positions are described in greater detail in the
following paragraphs, while the chart illustrates the NCUA's staffing
levels in recent years.\17\
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\17\ The 2023-2024 budget reflects NCUA staffing levels as
positions in order to simplify the presentation of current and
proposed employee levels. In past years, the NCUA reflected budgeted
staffing levels as FTEs, which is a presentation that accounts for
vacant positions, part-time work, and other variability in employee
levels. Although the actual number of persons employed at the NCUA
varies throughout the year, using the count of positions is simpler.
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[[Page 60459]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.008
Request for New Staff in 2023: +25 Positions (Net)
The budget includes funding for 25 net new positions in 2023, as
detailed below:
Regional Specialist Examiners +10 Net Positions
The number of large, complex credit unions continues to increase
through mergers and membership growth, which necessitates the need for
a broader array of experts in the field to support the examination and
supervision of these institutions. Two new specialist programs are
needed, regional consumer compliance specialists and regional bank
secrecy specialists. In addition, supervisory specialists are needed to
manage the broader array of regional specialists. In total, the draft
budget proposes 20 new related positions for 2023: eight new regional
consumer compliance specialists, six new regional bank secrecy
specialists, and six new supervisory specialists. As described later in
this section, these new specialists positions will be offset by a
reduction of 10 general examiner positions, reflecting the
contributions that specialists make to the examination process.
Office of the Ombudsman +2 Positions
The 2023 budget proposes a new Office of the Ombudsman led by the
Ombudsman. The Office of the Ombudsman will be responsible for outreach
to credit unions and stakeholders, responding to inquiries and
complaints from the public, and reviewing concerns raised by external
parties. The office will also conduct training for NCUA staff, produce
an annual report, provide feedback to the NCUA Board, and serve as a
visible resource to credit union stakeholders and the public. As
described in additional detail later in this section, the current
Associate Ombudsman position will be reallocated to the new office from
the Office of the Executive Director.
Fair Lending Analysts, Office of Consumer Financial Protection +2
Positions
These two new positions will continue to enhance the NCUA's fair
lending function. The additional staff will focus on leading and
performing fair lending examinations and supervision contacts and
ensuring corrective action when required. They will also serve as
technical advisors and a resource for the regions on fair lending and
other consumer financial protection laws and regulations affecting
credit unions. Additionally, these positions will participate on and
support FFIEC subcommittees as well as other interagency and internal
working groups.
Associate Director, Office of Examination and Insurance (E&I) +1
Position
This new position will enable a more equitable and logical
alignment of the divisions within E&I. By distributing responsibilities
for the office's divisions and its interagency working groups between
the Associate Directors, the
[[Page 60460]]
Deputy Director for E&I will focus on delivering strategic program
outcomes and be better positioned to support the Director. The more
balanced alignment of divisions will also better equip Associate
Directors to lead the office's operations, particularly in those areas
with organizational changes or new management.
Senior Credit Specialist, Office of Examination and Insurance +1
Position
This new position will help address updates to policymaking,
rulemaking, and training materials required for new and emerging issues
in credit markets. In addition, this specialist will develop new
research, analytics, and reporting deliverables focused on credit risk
so the NCUA can meet its objective of measuring, monitoring, and
mitigating credit concentration and other risks in the credit union
system.
Supervisory Bank Secrecy Officer, Office of Examination and Insurance
+1 Position
This new position will ensure E&I can meet the increased workload
demands that result from the Anti-Money Laundering Act of 2020, fulfill
training obligations, and comply with statutory requirements under the
Anti-Money Laundering Act. The Supervisory Bank Secrecy Officer will
also support the work required for interagency Bank Secrecy Act (BSA)
workgroups, maintain and update NCUA's BSA program, and develop and
provide examiner training about BSA matters.
Attorney Advisor, Office of General Counsel +1 Position
This new position will support the Regulations and Legislation
division in the Office of General Counsel, which is responsible for
legislative review and analysis, rulemaking and other regulatory
activities, and interpretative analysis of existing NCUA regulations.
The NCUA's schedule for reviewing all of its regulations results in a
significant and growing workload, and this new position will help
ensure the agency can sustain an effective and responsive regulatory
program.
Senior Diversity and Equity Specialist, Office of Minority and Women
Inclusion (OMWI) +1 Position
This new position will support OMWI's ongoing efforts to promote
diversity, equity, and inclusion by managing the agency's special
emphasis programs. This responsibility will include implementing,
monitoring, and reporting on solutions identified in barrier analysis
findings, coordinating OMWI activities in partnerships with the Office
of Human Resources, developing OMWI policies, and advising OMWI
management.
Budget and Management Analyst, Office of the Chief Financial Officer +1
Position
This new position will support efforts to improve and mature the
NCUA's performance and risk analysis programs and its budgetary
formulation and analytic processes. The position will be responsible
for planning and analytic activities for both performance and budgetary
deliverables, allowing the Office of the Chief Financial Officer to
establish more engaged and responsive relationships with the NCUA's
offices and programs.
Additional Permanent Adjustments to Authorized Staffing, Various
Offices +5 Positions
In addition to the new positions proposed for 2023, the budget also
includes resources to make the following permanent adjustments to the
agency's staffing:
Office of National Examinations and Supervision: one
Senior Data Scientist position to continue the NCUA improvements to its
supervisory stress testing models, strengthen its data-driven
supervision approaches, and expand its risk analyses of ONES credit
unions;
Office of Credit Union Resources and Expansion: two
Consumer Access Analyst positions to support credit unions with
technical advice on field of membership policies and other questions
related to share insurance, bylaws, and credit union membership.
Office of Examination and Insurance: one position to
strengthen analysis of risks within the credit union system as a whole
and increase cross-training, rotation coverage, and allow for improved
succession planning for potential retirements.
Office of Ethics Counsel: one position to support
consolidation of the regional ethics program.
Staff Realignments for Organizational Changes
The office position counts shown in the 2023 budget also reflect
several organizational changes, as described below. These staff
realignments do not alter the total position count for the agency.
The Eastern Region will realign 19 existing positions to
the Southern Region to support the transfer of examination and
supervision responsibility for credit unions in the state of Ohio to
the Southern Region.
The Southern Region will realign 22 existing positions to
a separate AMAC Office.
The Office of the Executive Director will realign one
existing position to the new Office of the Ombudsman.
Like any government agency, the NCUA manages its changing workload
within its overall authorized budgetary and staff resource levels. The
NCUA Board delegated to the Executive Director the authority to adjust
staffing within total allocated resources to best respond to changing
agency priorities and trends within the credit union system. The
Executive Director must maintain total NCUA staffing at or below the
resource levels approved within the budget, and promptly inform the
Board of any significant changes to the agency's staffing allocations
within the approved resource totals.
Special Surge Workforce
In 2021, the NCUA Board approved temporary COVID-19 hiring
authority to respond to uncertainties in the credit union system by
hiring and retaining for a term appointment, without a reduction to
their federal annuity, individuals who have retired from federal
service into a position classified in the Credit Union Examiner 0580
occupational series. The Board extended this authority through 2024,
allowing those hired under the authority to serve for a maximum of four
years. In addition, the National Defense Authorization Act, 5 U.S.C.
8344(l)(7), grants authority for the NCUA to hire retired annuitants on
a part-time basis through December 31, 2024.
When combined, these authorities allow the NCUA to add staff who
are already trained and have experience examining depository financial
institutions so as to be better prepared to respond to any elevated
levels of problem institutions that occur in 2023 and 2024. The agency
anticipates hiring no more than 30 individuals using these temporary
authorities and plans to fund these positions in 2023 by using unspent
Operating Budget funds available from vacancies elsewhere in the
organization.
Budget Category Descriptions and Major Changes
There are five major expenditure categories in the NCUA budget.
This section explains how these expenditures support the NCUA's
operations and presents a transparent overview of the Operating Budget.
[[Page 60461]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.009
Actual expenses for the Operating Fund are reported monthly in the
Operating Fund Financial Highlights posted on the NCUA website. Share
Insurance Fund financial reports and statements, which are also posted
to the NCUA website, detail reimbursements made to the Operating Fund.
Salaries and Benefits
The budget includes $267.3 million for employee salaries and
benefits in 2023. This change is a $12.9 million, or 5.1 percent,
increase from the 2022 Board-approved budget. Salaries and benefits
costs make up approximately 76 percent of the annual NCUA operating
budget. There are three primary drivers of increased costs in 2023 for
the salaries and benefits category:
Merit and locality pay increases for the NCUA's employees
are paid in accordance with the agency's current Collective Bargaining
Agreement (CBA) and its merit-based pay system.
Contributions for employee retirement to the Federal
Employee Retirement System (FERS), which are set by the Office of
Personnel Management and cannot be negotiated or changed by the NCUA.
The mandatory FERS contribution rate increases total NCUA benefits
costs by 2.6 percent in 2023 compared to 2022.
Contributions for employee health insurance are also set
by the Office of Personnel Management and cannot be negotiated or
changed by the NCUA. The mandatory contribution increases total NCUA
benefits costs by 5.5 percent in 2023 compared to 2022.
In 2023, the NCUA's compensation levels will continue to ``maintain
comparability with other federal bank regulatory agencies'' as required
by the Federal Credit Union Act.\18\ The salaries
[[Page 60462]]
and benefits budget includes all employee pay raises for 2023, such as
merit and locality increases, and those for promotions, reassignments,
and other changes, as described below.
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\18\ The Federal Credit Union Act states that, ``In setting and
adjusting the total amount of compensation and benefits for
employees of the Board, the Board shall seek to maintain
comparability with other federal bank regulatory agencies.'' See 12
U.S.C. 1766(j)(2).
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Consistent with other federal pay systems, the NCUA's compensation
includes base pay and locality pay components. Under the current CBA,
staff will be eligible to receive an average merit-based increase of
3.0 percent, and an additional locality adjustment ranging from 1.0
percent to 3.0 percent, depending on the geographic location. The
salaries and benefits budget also accounts for potential increases
associated with a new CBA being negotiated.
The first-year cost of the 25 net new positions added in 2023 is
estimated to be $4.0 million. Specific increases to individual offices'
salaries and benefits budgets will vary based on current pay levels,
position changes, and promotions.
Personnel compensation at the NCUA varies across every office and
region depending on work experience, skills, years of service,
supervisory or non-supervisory responsibilities, and geographic
locations. More than 85 percent of the NCUA workforce has earned a
bachelor's degree or higher, compared to approximately 35 percent of
the private-sector workforce. Attracting a well-qualified workforce
requires the agency to pay competitive salaries.
The Office of Personnel Management's assumptions for actuarial
valuation of FERS remain unchanged in 2023, but remain a significant
cost driver for the agency's salaries and benefits growth. Because the
NCUA must contribute 18.4 percent of employee salaries to the
retirement fund in 2023, the estimated impact on the NCUA budget is an
increase of approximately $818,000 in mandatory payments, or
approximately 6.0 percent of the salary and benefits growth compared to
2022 levels.
The average health insurance costs for the Federal Employees Health
Benefits (FEHBP) program for 2023 are consistent with historical actual
expenses. The annual Office of Personnel Management estimate for the
2023 government share of FEHBP premiums is expected to be released in
October 2022, and the budget will be updated if there is any material
change to estimated FEHBP costs. The employee salary and benefits
category also includes costs associated with other mandatory employer
contributions such as Social Security, Medicare, transportation
subsidies, unemployment, and workers' compensation.
In past years, the NCUA adjusted its budget downward by an expected
vacancy rate for positions because of a time lag between employee
separations and hiring new staff. The NCUA continues to closely monitor
the hiring and attrition trends within its workforce. In anticipation
of the need for a full complement of staff in 2023, and because of
ongoing efforts to accelerate the agency's hiring time, the 2023 budget
does not include a vacancy adjustment.
The 2024 budget request for salaries and benefits is estimated at
$285.7 million, an $18.5 million increase from the 2023 level. Included
within this total is the full-year cost impact of new positions
proposed for 2023 (approximately $5.3 million), $1.4 million for 17
additional regional specialists positions expected for 2024, $1.0
million to convert four existing ONES analyst positions to permanent
staff positions, $125,000 for an additional Ombudsman position, merit
and locality pay increases consistent with the CBA (approximately $7.4
million), and associated increases in benefits for all employees
(approximately $3.3 million).
Travel
The 2023 budget includes $23.0 million for travel. This change is a
$5.0 million, or 27.5 percent, increase to the 2022 Board-approved
budget.
There are three primary reasons for the significant travel budget
increase compared to the 2022 levels. First, the 2022 travel budget of
$18.1 million was lower than historic travel spending levels because of
the agency's budgeting assumption that pandemic-related travel
restrictions would continue for part of 2022. Therefore, comparisons
between 2022 and 2023 travel levels are not representative of typical
annual travel adjustments.
Second, the NCUA expects the agency's staff will travel at a rate
of approximately 75 percent of pre-pandemic levels in the upcoming
year. Additionally, although fewer trips and events are planned, per
trip costs are expected to be marginally higher based on the impact of
widely-reported price inflation affecting lodging, airfare, and car
rentals.
Finally, the NCUA plans to hold a national training conference for
all NCUA staff in 2023 to support professional development and employee
engagement. Each NCUA office has budgeted the expected travel-related
costs.
The travel cost category includes expenses for employees' airfare,
lodging, meals, auto rentals, reimbursements for privately owned
vehicle usage, and other travel-related expenses. These are necessary
expenses for examiners' onsite work in credit unions. Close to two-
thirds of the NCUA's workforce is comprised of field staff who spend
part of their time traveling to conduct the examination and supervision
program.
During the COVID-19 pandemic, the agency and its employees
successfully transitioned to an offsite examination posture, developing
new procedures and processes to continue examination and supervisory
work. In 2023, the NCUA will continue to evaluate how it can conduct
portions of examinations offsite, which should help constrain the
growth of future travel budgets.
The NCUA staff also travel for routine and specialized training. In
2023, the NCUA expects its staff will attend a combination of in-person
and virtual training to help reduce travel expenses.
The 2024 budget request for travel is estimated to be $22.9
million, or a 0.8 percent decrease compared to the 2023 level. This
budget level reflects an expectation for modest travel-related cost
inflation offset by a reduction to the 2024 travel budget for the
national training conference planned for 2023.
Rent, Communications, and Utilities
The 2023 budget includes $6.3 million for rent, communications, and
utilities. This is a $1.1 million increase, or 21.8 percent more than
the 2022 Board-approved budget. The rent, communications, and utilities
budget funds the agency's telecommunications and information technology
network expenses and facility rental costs.
Telecommunication charges include leased data lines, domestic and
international voice (including mobile), and other network charges.
Telecommunication costs also include the circuits and any associated
usage fees for providing voice or data telecommunications service
between data centers, office locations, the internet, and any customer,
supplier, or partner.
The primary increase to the 2023 rent, communications, and
utilities budget is for a new office lease for the Southern Region
office. After a condition assessment of the NCUA-owned building in
Austin and an analysis of the area's commercial real estate market, the
NCUA determined it would be more effective and offer more flexibility
over the long term to move its operations to a leased facility. The
NCUA Board will make a final determination about the
[[Page 60463]]
future real estate plan for the Southern Region office.
The rent, communications, and utilities budget category also
includes the cost of the office utilities, meeting space rental for
offsite events, postage expenses, and the office building lease for the
Western Region, which is approximately $500,000 in 2023. The annual
utility costs for the headquarters and regional offices are estimated
at $461,000 for 2023.
The 2023 budget also includes approximately $1.0 million for
examiner group meetings, credit union examiner training events, and
event space and equipment rental costs for the national training
conference.
The 2024 budget request for the rent, communications, and utilities
category is estimated to be $6.0 million, or a 4.1 percent decrease
compared to 2023. The $260,000 decrease is primarily due to a reduction
in the 2024 budget for the national training conference to be held in
2023.
Administrative Expenses
The 2023 budget includes $6.7 million for administrative expenses.
This is an increase of $647,000, or 10.8 percent, compared to the 2022
Board-approved budget. Recurring costs in the administrative expenses
category include the annual reimbursement to the FFIEC, employee
relocation expenses, recruitment and advertising expenses, shipping,
printing, subscriptions, examiner training and meeting supplies, office
furniture, and employee supplies and materials.
As part of the FFIEC, the NCUA shares in costs for certain joint
actions and services that affect the financial services industry. The
staff draft budget will be updated for the final FFIEC budget estimate
if it is available at the time the final budget is prepared.
The 2023 budget includes $1.3 million for employee relocations, an
increase of $250,000 compared to the 2022 budget. Relocation costs are
paid by the NCUA to employees who are competitively selected for a
promotion or new job within the agency in a different geographic area
than where they live.
The 2024 budget request for administrative services is estimated to
be $6.5 million, or a 2.9 percent decrease primarily due to a reduction
in the 2024 budget for the national training conference to be held in
2023.
Contracted Services
The 2023 budget includes $47.6 million for contracted services.
This is an $11.1 million increase, or 30.3 percent, compared to the
2022 Board-approved budget. Similar to 2022, $18.0 million of unspent
budget amounts from prior years will be used to pay for 2023 contracted
services expenses. Therefore, the total planned amount for contracted
services in 2022 is approximately $65.6 million.
The contracted services budget category includes the agency's costs
incurred when products and services are acquired in the commercial
marketplace. Acquiring specific expertise or services from contract
providers is often the most cost-effective way for the NCUA to
accomplish its mission. Such services include critical mission support
such as information technology equipment and software development,
accounting and auditing services, and specialized subject matter
expertise that enable staff to focus on executing core mission
requirements.
The majority of funding in the contracted services category
supports the NCUA's robust supervision framework and includes funding
for tools used to identify and resolve risk concerns such as interest
rate risk, credit risk, and industry concentration risk, as well as by
addressing new and evolving operational risks such as cybersecurity
threats. Growth in the contracted services budget category results
primarily from new operations and maintenance costs associated with
capital investments, such as the Examination and Supervision Solution
system commonly known as MERIT. Other costs include core agency
business operation systems such as accounting and payroll processing,
and various recurring costs, as described in the following seven major
categories:
Information Technology Operations and Maintenance (53.2
percent of contracted services)
[cir] Information technology network support services and help desk
support
[cir] Contractor program and web support and network and equipment
maintenance services
[cir] Administration of software products such as Microsoft Office,
SharePoint, and audio-visual services
Administrative Support and Other Services (14.2 percent of
contracted services)
[cir] Examination and supervision program support
[cir] Technical support for examination and cybersecurity training
programs
[cir] Equipment maintenance services
[cir] Legal services and other expert consulting support
[cir] Other administrative mission support services for the NCUA
central office
Accounting, Procurement, Payroll, and Human Resources Systems
(7.9 percent of contracted services)
[cir] Accounting and procurement systems and support
[cir] Human resources, payroll, and employee services
[cir] Equal employment opportunity and diversity programs
Building Operations, Maintenance, and Security (6.7 percent of
contracted services)
[cir] Headquarters facility operations and maintenance
[cir] Building security and continuity programs
[cir] Personnel security and administrative programs
Information Technology Security (9.6 percent of contracted
services)
[cir] Enhanced secure data storage and operations
[cir] Information security programs
[cir] Security system assessment services
Training (5.3 percent of contracted services)
[cir] Examiner staff, technical and specialized training and
development
[cir] Senior executive and mission support staff professional
development
Audit and Financial Management Support (3.2 percent of
contracted services)
[cir] Annual audit support services
[cir] Material loss reviews
[cir] Investigation support services
[cir] Financial management support services
The following pie chart illustrates the breakout of the seven
categories for the total 2023 contracted services budget of $65.6
million, of which $18.0 million is funded from prior year available
balances.
[[Page 60464]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.010
Major programs within the contracted services category include:
Training requirements for the examiner workforce. The
NCUA's most important resource is its highly educated, experienced, and
skilled workforce. It is important that staff have the proper
knowledge, skills, and abilities to perform assigned duties and meet
emerging needs. Each year, examiners complete a wide range of training
classes to ensure their skills and industry knowledge are kept up to
date, including in core areas such as capital markets, consumer
compliance, and specialized lending. Major training deliverables for
2023 include classes offered by the FFIEC, professional development
training at the national training conference, and updated examiner
training courses. As part of lessons learned from managing training
requirements during the COVID-19 pandemic, the NCUA is controlling
training costs with a blended schedule of both in-person and virtual
sessions.
Contracted service providers, in partnership with the NCUA subject
matter experts, will develop and design training classes for examiners
and continue the ongoing review of the NCUA's examiner course
curriculum. In addition, the NCUA will partner with the Office of
Personnel Management to develop and certify principal examiner
assessments that reflect current regulations and examination processes.
The NCUA's Talent Management System will continue to be updated to
include a Career Resource Center. Additionally, contracted service
providers and central office staff will continue providing
organizational development, leadership development programs, and
teambuilding training.
Information security program. This NCUA program supports
ongoing efforts to strengthen the agency's cybersecurity and ensure its
compliance with the Federal Information Security Modernization Act and
other standards for federal agencies.
Agency financial management services, human resources
technology support, and payroll services. The NCUA contracts for these
back-office support services with the U.S. Department of
Transportation's Enterprise Service Center (DOT/ESC) and the General
Services Administration. The NCUA's human resource system, HR Links,
also adopted by other federal agencies, is a shared solution that
automates routine human resource tasks and improves time and attendance
functionality.
Audit. The NCUA Office of Inspector General contracts with
an accounting firm to conduct the annual audit of the agency's four
permanent funds. The results of these audits are posted annually on the
NCUA website and are included as part of the agency's Annual Report.
A significant share of the budget for contracted services finances
ongoing information technology infrastructure support for the agency.
The 2023 budget includes the third year of funding for operations and
maintenance of the MERIT system, which replaced the legacy AIRES
examination system in 2021. Several other of the NCUA's core
information technology systems and processes also require additional
contract support in 2023, which results in increase costs for
contracted services, as described below.
Within the budget for the Office of Chief Information Officer
(OCIO), an additional $2.7 million compared to the 2022 budget level is
required for:
Information technology infrastructure services and
operations and maintenance labor support for the new MERIT system and
NCUA legacy systems.
Application tools that support the new MERIT system and
other mission critical and business applications.
Cybersecurity capabilities and implementing the provisions
of Executive Order 14028, Improving the Nation's Cybersecurity.
Within the Office of the Executive Director, the contracted
services budget increases by $500,000 compared to the 2022 budget level
for support of the ongoing work on the Virtual Examination project.
Within the Office of Human Resources, contracted services increase
by $802,000 compared to the 2022 budget level, primarily for the
national
[[Page 60465]]
training conference, program support for human resource capital and
workforce programs, including enhanced recruitment efforts, and other
training support and management systems.
The Office of Minority and Women Inclusion's contract budget
increases by $117,000 compared to the 2022 budget level. These funds
will help OMWI achieve the goals established in the agency's Diversity
and Inclusion Strategic Plan to promote diversity and inclusion within
the agency and the credit union industry and ensure equal opportunity
in accordance with the mandates of Section 342 of the Dodd-Frank Act.
OMWI expects to host an in-person Diversity, Equity, and Inclusion
Summit in 2023 to bring together credit union professionals to promote
the value of diversity, equity, and inclusion for credit unions; share
best diversity, equity, and inclusion practices; and develop solutions
to industry-specific challenges in this arena.
Within the Office of Ethics Counsel, contracted services increase
by $65,000 compared to the 2022 budget level. The increase will support
the competitive solicitation and initial start-up costs for a financial
disclosure reporting system. The NCUA is required to comply with this
annual federal ethics reporting requirement.
Within the Office of Business Innovation, contracted services
increase by $316,000 compared to the 2022 budget level. These funds
will provide contract support for the agency's information system
security processes and fund a third-party-administered survey about
credit unions' examination experiences.
Within the Office of Continuity and Security Management, contracted
services increase by $153,000 compared to the 2022 budget level. The
increase is primarily associated with operations and maintenance of the
physical access control system for the NCUA's facilities and the
increased costs of secure communications systems compliance with new
federal standards.
Within the Office of Consumer Financial Protection, contracted
services increase by $289,000 compared to the 2022 budget level. The
increase is primarily associated with a review and analysis of
MyCreditUnion.gov to evaluate future plans for the consumer website and
its financial literacy and outreach programs.
Within the Office of Examination and Insurance, contracted services
increase by $467,000 compared to the 2022 budget level. These funds
will be used primarily for Automated Cybersecurity Evaluation Toolbox
enhancements, cybersecurity research and advisory services, and expert
support to help automate internal manual processes.
Within the Office of the Chief Financial Officer, 2023 contracted
services increase $646,000 compared to the 2022 budget level. The
increases include annual accounting and procurement support provided by
the Department of Transportation, Enterprise Service Center, project
management support to assist with the agency transition to a new budget
system, financial audit support services inflationary growth,
competitive solicitation and award of a new travel reimbursement
support contract, and a consolidated janitorial and maintenance
contract for the headquarters and the Southern Region facilities.
Contracted services spending for 2024 is estimated at $67.1
million. Excluding the $18.0 million carryover in 2023, this is a net
increase of $1.6 million, or approximately 2.4 percent. The net
increase of $1.6 million supports $1.1 million for operations and
maintenance costs for newly transitioned capital projects, $400,000 for
a planned NCUA leadership conference, and $150,000 to support the new
Ombudsman office.
V. Capital Budget
Overview
Annually, the NCUA carries out a rigorous review process to
identify the agency's needs for information technology, facility
improvements and repairs, and other multi-year capital investments. The
NCUA staff review the agency's inventory of owned facilities,
equipment, information technology systems, and information technology
hardware to determine what requires repair, major renovation, or
replacement. The staff then make recommendations for prioritized
investments to the NCUA Board.
The NCUA's 2023 capital budget is $11.2 million. The capital budget
funds the NCUA's long-term investments. The 2023 capital budget
provides $10.8 million for information technology development projects
and investments. The NCUA facilities require $472,000 for central
office building minor construction and maintenance projects.
Information technology systems and hardware require significant
capital expenditures for modern organizations. The 2023 budget
continues the NCUA's multi-year investment in current and replacement
information technology systems and hardware. The budget fully supports
the NCUA's effort to modernize its information technology
infrastructure and applications through the Information Technology
Infrastructure, Platform and Security Refresh project and makes
investments to improve the agency's management and analysis of data
through the Data Reporting Solution project and the Enterprise Data
Program. The budget also continues investment in the agency's new MERIT
examination system. In addition, several other capital investment
projects will help ensure the agency's cybersecurity posture complies
with Executive Order 14028 and improve quality controls for application
development projects.
Routine repairs and lifecycle-driven property renovations are also
necessary to properly maintain investments in the NCUA-owned
properties. The NCUA assesses the agency's properties to determine the
need for essential repairs, replacement of building systems that have
reached the end of their engineered lives, or renovations required to
support changes in the agency's organizational structure or address
revisions to building standards and codes. In 2022, the NCUA reached
the conclusion of several years of space consolidation and major
renovation at its Alexandria headquarters. The 2023 budget funds
maintenance requirements for the agency's headquarters.
[[Page 60466]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.011
Detailed descriptions of all 2023 capital projects, including a
discussion of how each project helps the agency achieve its goals and
objectives, are provided in Appendix B.
Summary of Capital Projects
Executive Order on Improving the Nation's Cybersecurity ($3.1 Million)
The purpose of this capital investment is to ensure the NCUA
complies with Executive Order 14028, Improving the Nation's
Cybersecurity. The project will enable the appropriate applications to
use multi-factor authentication, implement a zero-trust architecture
for the NCUA's infrastructure and applications, and shift compute and
storage resources to a cloud service provider.
Continuous Diagnostics and Mitigation ($0.5 Million)
The objective of this project is to enhance the overall security
posture of the NCUA with expanded capabilities to monitor
vulnerabilities and threats in near real-time. This is achieved by
implementing capabilities and technical controls to identify what is on
the network, who is on the network, what is happening on the network,
and to protect data in use, transit, and at rest. This increased
situational awareness will allow the NCUA to prioritize actions to
mitigate or accept cybersecurity risks based on the potential impact to
the NCUA's mission.
Information Technology Infrastructure, Platform and Security Refresh
($3.1 Million)
The purpose of this project is to replace outdated or end-of-life
network and platform hardware, as well as to prepare the NCUA for cloud
computing adoption. This investment helps ensure business continuity
and efficient operations by improving system availability and
stability. Projects for 2023 include refreshing hardware and software
and acquiring the professional services required to migrate and harden
information technology systems for production readiness.
Examination and Supervision Solution and Infrastructure Hosting ($0.7
Million)
In 2021, the NCUA deployed the NCUA Connect and MERIT systems to
NCUA staff, state supervisory authorities, and credit unions. In 2022,
MERIT officially replaced AIRES for all NCUA examination and
supervision contacts. After a year of use by staff, additional
opportunities for enhancing MERIT's functionality and performance have
been identified and the NCUA remains committed to delivering tools that
maximize efficiency and generate the best results possible.
In 2023, the NCUA will make additional MERIT data available to
staff to enhance field operations and enable future self-service
reporting. Additionally, 2023 capital investments will be used to
transition the legacy state supervisory authority Partner Gateway to
NCUA Connect, eliminating service duplication and streamlining state
supervisory authority access to NCUA systems while enhancing and
expanding security controls to meet FedRamp standards.
Data Reporting Solution (DRS) ($0.8 Million)
DRS is focused on implementing a business intelligence (BI)
solution for enhanced data access, integrity, analytics, and reporting.
The Enterprise Data Program provides leadership on business and
governance process needs for DRS. DRS' data-related investments
iteratively build towards the objective of integrating our legacy
enterprise data and new MERIT data into structures that can be
leveraged by the business for self-service development of reporting and
analytic work products. The NCUA's 2020 data maturity assessment
confirmed the need for improved access and functionality in using data,
with a strong desire for a common self-service business intelligence
capability for efficient and effective use by staff. DRS will provide a
modern self-service business intelligence tool for the enterprise, as
well as access to data to enable staff to utilize the tool efficiently
and effectively.
Enterprise Data Program ($0.4 Million)
The purpose of this project is the centralization, organization,
and storage of the NCUA's data. The primary goal is to enable the NCUA
to manage enterprise data as a strategic asset through its full
lifecycle. The program focus is to improve the agency's effectiveness
by maturing data management practices to ensure the use of high-quality
data in operations, reporting, and analytics. This is a highly
collaborative effort to facilitate alignment across offices and
performance of data-related work. Additionally, the Enterprise Data
Program provides the overall business leadership and strategic
direction for the DRS.
Consumer Access Process and Reporting Information System (CAPRIS) ($0.4
Million)
CAPRIS is the application that certain credit unions use to request
changes to their field of membership. CAPRIS replaced the legacy
GENISIS and FOMIA systems. The 2023 budget includes funds for
improvements to the CAPRIS system that will allow the NCUA to process
all occupational and associational common bond groups, regardless of
potential membership size. Currently, credit unions that request
changes to their field of membership exceeding 3,000 individuals must
use paper-based forms, and NCUA staff reviews and processes these
requests manually.
Mobile Device Refresh ($1.0 Million)
This project will replace the outdated or out of support mobile
devices currently used by the NCUA's staff. The new mobile devices will
be more secure and compatible with current technologies.
Enhanced Testing Capability ($0.3 Million)
The purpose of this investment is to improve the quality of the
NCUA's applications and to meet the needs of a growing application
portfolio. The NCUA's applications are developed and
[[Page 60467]]
maintained in accordance with the approved software development
lifecycle and undergo a quality assurance review to ensure end products
meet functional, performance, and security standards. This project will
develop and execute additional test cases for complex and critical
applications in order to strengthen quality assurance reviews.
Independent Verification and Validation (IV&V) Testing Team ($0.5
Million)
The purpose of this investment is to improve the quality of the
NCUA's applications. A separately funded team of IV&V testers will
provide an unbiased review of the requirements and software implemented
on operations and maintenance contracts. The IV&V team will confirm
that requirements are correctly defined and the system adequately
implements required business functionality and security requirements by
performing comprehensive reviews, analyses, and testing.
NCUA Website Development ($0.1 Million)
This project provides ongoing improvements to the website, such as
an improved user experience, and supports the ongoing maintenance needs
of the agency's public websites. In addition, the NCUA will develop a
gated content solution for specific audiences to provide a level of
privacy and security for accessing information, such as conference
materials, by requiring a login and password similar to other remote
and virtual conference systems.
Headquarters Building Minor Construction and Maintenance Projects ($0.5
Million)
The NCUA has developed a 10-year headquarters building improvement
plan that identifies projects that can be completed incrementally. This
approach recognizes ongoing building management and maintenance needs
while reducing the potential budgetary impact of such projects in a
single budget year. The NCUA has 26 projects planned in 2023.
Financial Management Process Automation
The 2023 budget would apply $400,000 previously approved by the
NCUA Board to pay for efforts to implement technology-based solutions
to automate manual financial and budgetary processes. This adds no
additional cost to the budget. The $400,000 was originally approved by
the Board to improve financial integration and automation by evaluating
options for alternatives to the agency's current accounting platform
and service. Since 2020, the accounting system service provider has
improved its systems capabilities and is planning enhancements that
could support automation and integration efforts at the NCUA,
eliminating the need for an alternate provider. Planned process
automation activities in 2023 include optimizing and prioritizing
current processes to prepare for automation, building technical
competencies within finance staff to use business intelligence tools,
establishing a governance and configuration management structure for
these activities, and reducing manual process activity.
VI. Share Insurance Fund Administrative Budget
Overview
The Share Insurance Fund Administrative Budget funds direct costs
associated with authorized Share Insurance Fund activities.\19\ Direct
costs to the Share Insurance Fund include items such as data
subscriptions and technology tools for ONES' analysis of large credit
unions, travel for state examiners attending NCUA-sponsored training,
and audit support for the Share Insurance Fund's financial statements.
Beginning in 2022, the Share Insurance Fund Administrative Budget also
started to include certain insurance-related expenses for AMAC
operations.
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\19\ Direct costs do not include any costs that are shared with
the Operating Fund through the Overhead Transfer Rate, and with
payments available upon requisition by the Board, without fiscal
year limitation, for insurance under section 1787 of this title, and
for providing assistance and making expenditures under section 1788
of this title in connection with the liquidation or threatened
liquidation of insured credit unions as it may determine to be
proper.
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The Share Insurance Fund Administrative Budget also pays for costs
associated with the corporate resolution program and related NCUA
Guaranteed Notes (NGN) program. On June 14, 2021, the last outstanding
NGN Trust matured. Given the significantly reduced size of the legacy
asset portfolio in the corporate asset management estates, the budget
for the corporate resolution program continues to decrease in 2023
compared to the 2022 funding levels.
Budget Requirements and Description
The 2023 Share Insurance Fund Administrative budget is estimated to
be $4.9 million, which is $1.3 million, or 21.5 percent, lower than
2022.
The 2023 budget decrease is primarily driven by the ongoing
completion of corporate resolution program activities, an expected
reduction in travel for state examiners attending NCUA-sponsored
training, as well as the one-time corporate resolution study that was
funded in 2022.
The 2024 requested budget supports similar workload and resources
for the Share Insurance Fund, which are expected to remain the same as
2023 at $4.3 million, and includes no corporate resolution program
related costs.
Share Insurance Fund Direct Expenses
Direct expenses to the Share Insurance Fund are estimated to be
$4.3 million in 2023, a decrease of $0.5 million, or 9.8 percent,
compared to the 2022 budget level.
Direct charges to the Share Insurance Fund include $2.0 million for
operating and maintenance costs of the Asset and Liabilities Management
system (ALM), which allows the NCUA to build internal analytical
capabilities to conduct supervisory stress testing analyses and to
perform other quantitative risk assessments of large credit unions.
In 2023, the Share Insurance Fund will continue to pay for certain
insurance-related activities and expenses of AMAC. The Share Insurance
Fund budget includes $0.2 million for these AMAC activities, such as
consulting expenses necessary to prevent or attempt to prevent a
liquidation or conservatorship and staff travel for consultation on
complex or problem cases.
The 2023 budget also includes funds related to the supervisory
responsibilities that the NCUA shares with state supervisory
authorities. The Share Insurance Fund budget includes $1.0 million for
state examiner travel to NCUA-sponsored training classes, and $0.2
million to ensure that state supervisory authorities can use the full
functionality of the recently deployed MERIT examination system. The
2022 budget included similar amounts for these activities.
Finally, the Share Insurance Fund budget includes $0.8 million for
financial reporting, including the annual financial audit and for
contractor support to ensure effective internal controls for the fund.
Corporate Resolution Program
In 2017, the Board voted to close the Temporary Corporate Credit
Union Stabilization Fund. Since 2018, the Share Insurance Fund has
funded the related costs to include employee pay, benefits, travel, and
contract support required to support the program.
The program budget decreased by 58.2 percent from 2021 to 2022. As
the
[[Page 60468]]
remaining legacy assets are sold and the program comes to a close, the
associated budget continues to decrease and falls by 59.2 percent from
2022 to 2023. The only remaining expenses for the program in 2023 are
$0.4 million for legacy asset waterfall models and $0.2 million for
valuation analysis support and data.
With expected wind-down of the program in 2023, there is no
corporate resolution budget planned for 2024.
BILLING CODE 7535-01-P
[GRAPHIC] [TIFF OMITTED] TN05OC22.012
BILLING CODE 7535-01-C
VII. Financing the NCUA's Programs
Overview
The NCUA incurs various expenses to achieve its statutory mission,
including those involved in examining and supervising federally insured
credit unions. The NCUA Board adopts an Operating Budget, a Capital
Budget, and a Share Insurance Fund Administrative
[[Page 60469]]
Budget each year to fund the vast majority of the costs of operating
the agency.\20\ When formulating the annual budget, the NCUA is mindful
that its funding comes from credit unions. The agency strives to ensure
the agency operates in an efficient, effective, transparent, and fully
accountable manner.
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\20\ Some costs are directly charged to the Share Insurance Fund
when appropriate to do so. For example, costs for training and
equipment provided to State Supervisory Authorities are directly
charged to the Share Insurance Fund.
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The Federal Credit Union Act authorizes two primary sources to fund
the Operating Budget:
1. Requisitions from the Share Insurance Fund ``for such
administrative and other expenses incurred in carrying out the purposes
of [Title II of the Act] as [the Board] may determine to be proper'';
\21\ and
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\21\ 12 U.S.C. 1783(a).
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2. ``fees and assessments (including income earned on insurance
deposits) levied on insured credit unions under [the Act].'' \22\ Among
the fees levied under the Act are annual Operating Fees, which are
required for federal credit unions under 12 U.S.C. 1755 ``and may be
expended by the Board to defray the expenses incurred in carrying out
the provisions of [the Act,] including the examination and supervision
of [federal credit unions].''
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\22\ 12 U.S.C. 1766(j)(3). Other sources of income for the
Operating Budget have included interest income, funds from
publication sales, parking fee income, and rental income.
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Taken together, these authorities effectively require the Board to
determine which expenses are appropriately paid from each source while
giving the Board broad discretion in allocating expenses.
In 1972, the Government Accountability Office recommended the NCUA
adopt a method for allocating Operating Budget costs--that is, the
portion of the NCUA's budget funded by requisitions from the Share
Insurance Fund and the portion covered by Operating Fees paid by
federal credit unions.\23\ The NCUA has since used an allocation
methodology known as the Overhead Transfer Rate to determine how much
of the Operating Budget to fund with a requisition from the Share
Insurance Fund.
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\23\ https://www.gao.gov/products/b-1640314-31.
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The NCUA uses the Overhead Transfer Rate methodology to allocate
agency expenses between these two primary funding sources.
Specifically, the Overhead Transfer Rate is the formula the NCUA uses
to allocate insurance-related expenses to the Share Insurance Fund
under Title II of the Act. Almost all other operating expenses are
funded through collecting annual Operating Fees paid by federal credit
unions.\24\
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\24\ Annual Operating Fees must ``be determined according to a
schedule, or schedules, or other method determined by the NCUA Board
to be appropriate, which gives due consideration to the expenses of
the [NCUA] in carrying out its responsibilities under the [Act] and
to the ability of [federal credit unions] to pay the fee.'' 12
U.S.C. 1755(b).
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Two statutory provisions directly limit the Board's discretion with
respect to Share Insurance Fund requisitions for the NCUA's Operating
Budget and, hence, the Overhead Transfer Rate. First, expenses funded
from the Share Insurance Fund must carry out the purposes of Title II
of the Act, which relate to share insurance.\25\ Second, the NCUA may
not fund its entire Operating Budget through charges to the Share
Insurance Fund.\26\ The NCUA has not imposed additional policy or
regulatory limitations on its discretion for determining the Overhead
Transfer Rate.
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\25\ 12 U.S.C. 1783(a).
\26\ The Act in 12 U.S.C. 1755(a) states, ``[i]n accordance with
rules prescribed by the Board, each [federal credit union] shall pay
to the [NCUA] an annual operating fee which may be composed of one
or more charges identified as to the function or functions for which
assessed.'' See also 12 U.S.C. 1766(j)(3).
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The NCUA conducts a comprehensive workload analysis annually. This
analysis estimates the amount of time necessary to conduct examinations
and supervise federally insured credit unions in order to carry out the
NCUA's dual mission as insurer and regulator. This analysis starts with
a field-level review of every federally insured credit union to
estimate the number of workload hours needed for the year. These
estimates are informed by the overall parameters of the NCUA's
examination program, as most recently updated by the Exam Flexibility
Initiative approved by the Board.\27\ The workload estimates are then
refined by regional managers and submitted to the NCUA headquarters for
the annual budget proposal. The Overhead Transfer Rate methodology
accounts for the costs of the NCUA, not the costs of state regulators.
Therefore, there are no calculations made for state examiner hours.
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\27\ The Exam Flexibility Initiative started with the January 1,
2017, examination cycle, and it allows for extended examination
cycles for eligible credit unions. Letters to Credit Unions 16-CU-
12, December 2016.
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Overhead Transfer Rate
There have not been any major changes to the parameters of the
examination program since the current Overhead Transfer Rate
methodology went into effect.\28\ The minor variations in the Overhead
Transfer Rate since 2018 are the result of routine, small fluctuations
in the variables that affect the Overhead Transfer Rate, including
normal fluctuations in the workload budget from one calendar year to
the next.
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\28\ On November 16, 2017, the NCUA Board adopted a new
methodology for calculating the Overhead Transfer Rate starting with
the 2018 Overhead Transfer Rate. 82 FR 55644, November 22, 2017.
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The NCUA Board approved the current methodology for calculating the
Overhead Transfer Rate at its November 2017 open meeting.\29\ In 2020,
the Board published in the Federal Register a request for comment
regarding the Overhead Transfer Rate methodology but did not propose or
adopt any changes to the current methodology.\30\ The Overhead Transfer
Rate is designed to cover the NCUA's costs of examining and supervising
the risk to the Share Insurance Fund posed by all federally insured
credit unions, as well as the costs of administering the fund. The
Overhead Transfer Rate represents the percentage of the agency's
operating budget paid for by a transfer from the Share Insurance Fund.
Federally insured credit unions are not billed for and do not have to
remit the Overhead Transfer Rate amount; instead, it is transferred
directly to the Operating Fund from the Share Insurance Fund. This
transfer, therefore, represents a cost to all federally insured credit
unions.
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\29\ 82 FR 55644 (Nov. 22, 2017).
\30\ https://www.federalregister.gov/documents/2020/08/31/2020-17009/request-for-comment-regarding-national-credit-union-administration-overhead-transfer-rate.
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The Overhead Transfer Rate formula uses the following underlying
principles to allocate agency operating costs:
1. Time spent examining and supervising federal credit unions is
allocated as 50 percent insurance related.\31\
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\31\ The 50 percent allocation mathematically emulates an
examination and supervision program design where the NCUA would
alternate examinations, and/or conduct joint examinations, between
its insurance function and its prudential regulator function if they
were separate units within the NCUA. It reflects an equal sharing of
supervisory responsibilities between the NCUA's dual roles as
charterer/prudential regulator and insurer given both roles have a
vested interest in the safety and soundness of federal credit
unions. It is consistent with the alternating examinations the FDIC
and state regulators conduct for insured state-chartered banks as
mandated by Congress. Further, it reflects that the NCUA is
responsible for managing risk to the Share Insurance Fund and
therefore should not rely solely on examinations and supervision
conducted by the prudential regulator.
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2. All time and costs the NCUA spends supervising or evaluating the
risks posed by federally insured, state-
[[Page 60470]]
chartered credit unions or other entities that the NCUA does not
charter or regulate (for example, third-party vendors and Credit Union
Service Organizations (CUSOs)) are allocated as 100 percent insurance
related.\32\
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\32\ The NCUA does not charter state-chartered credit unions nor
serve as their prudential regulator. The NCUA's role with respect to
federally insured state-chartered credit unions is as insurer.
Therefore, all examination and supervision work and other agency
costs attributable to insured state-chartered credit unions is
allocated as 100 percent insurance related.
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3. Time and costs related to the NCUA's role as charterer and
enforcer of consumer protection and other non-insurance-based laws
governing the operation of credit unions (like field of membership
requirements) are allocated as 0 percent insurance related.\33\
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\33\ As the federal agency with the responsibility to charter
federal credit unions and enforce non-insurance related laws
governing how credit unions operate in the marketplace, the NCUA
resources allocated to these functions are properly assigned to its
role as charterer/prudential regulator.
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4. Time and costs related to the NCUA's role in administering
federal share insurance and the Share Insurance Fund are allocated as
100 percent insurance related.\34\
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\34\ The NCUA conducts liquidations of credit unions, insured
share payouts, and other resolution activities in its role as
insurer. Also, activities related to share insurance, such as
answering consumer inquiries about insurance coverage, are a
function of the NCUA's role as insurer.
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These four principles are applied to the activities and costs of
the agency to determine the portion of the agency's budget that is
funded by the Share Insurance Fund. Based on the Board-approved
methodology and the proposed budget, the Overhead Transfer Rate for
2023 is 30 basis points (0.3 percent) lower than for 2022, and
estimated to be 62.4 percent. Thus, 62.4 percent of the total Operating
Budget is estimated to be paid out of the Share Insurance Fund. The
remaining 37.6 percent of the Operating Budget is estimated to be paid
for by Operating Fees collected from federal credit unions. The
explicit and implicit distribution of total Operating Budget costs for
federal credit unions and federally insured, state-chartered credit
unions is outlined in the table below:
[GRAPHIC] [TIFF OMITTED] TN05OC22.013
To determine the funds transferred from the Share Insurance Fund to
the Operating Fund, the Overhead Transfer Rate is applied to actual
expenses incurred each month. Therefore, the rate calculated by the
Overhead Transfer Rate formula is multiplied by each month's actual
operating expenditures and the product of that calculation is
transferred from the Share Insurance Fund to the Operating Fund. This
monthly reconciliation to actual operating expenditures captures the
variance between actual and budgeted amounts, so when the NCUA's
expenditures are less than budgeted, the amount charged to the Share
Insurance Fund is also less--and those lower expenditures benefit both
federally chartered and federally insured, state-chartered credit
unions.
The use of insured shares in calculating the Overhead Transfer Rate
was eliminated from the Overhead Transfer Rate methodology adopted by
the Board in 2017. However, insured shares are used for informational
purposes to reflect the fundamental economics with respect to how the
implicit costs of the Overhead Transfer Rate are borne by federal and
state-chartered credit unions. Use of insured shares is consistent with
the mutual nature of the Share Insurance Fund and part of the statutory
scheme related to Share Insurance Fund deposits, premiums, and
dividends.\35\ The number, size, and health of federal and state credit
unions affects the NCUA's workload budget, which in turn is one of the
variables in the Overhead Transfer Rate methodology.
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\35\ 12 U.S.C. 1782(c)(2) and (3).
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The primary drivers of the change in the estimated 2023 Overhead
Transfer Rate result from changes in the draft examiner workload budget
and the proposed funding levels in the draft operating and capital
budgets. First, there is a modest decrease in insurance-related time
reflected in the draft examiner workload budget for 2023, as resources
allocated to overseeing the examination and supervision of federal
credit unions increased twice as much as the resources allocated toward
overseeing state-chartered credit unions. Second, there is a modest
decrease in the 2023 budget for the Asset Management and Assistance
Center. The estimated Overhead Transfer Rate cost distribution between
federal credit unions and federally insured, state-chartered credit
unions is projected to be relatively equal and results in an
approximate 15-basis point drop for both from 2022 to 2023. The
distribution of insured shares between federal credit unions and
federally insured, state-chartered credit unions remains virtually
unchanged year-over-year.
CUSOs are at times subject to review during the examination of a
federally insured credit union. The Overhead Transfer Rate methodology
captures CUSO-related time within the scope of the examination and
supervision of federally insured credit unions under Principle 1 for
federal credit unions and Principle 2 for federally insured state-
chartered credit unions. The time designated for separate, standalone
reviews of CUSOs and third-party vendors is accounted for separately in
the NCUA's workload budget and is covered by Principle 2 only. The
standalone review of CUSOs and third-party vendors is to identify and
address risk to federally insured credit unions.
The following chart illustrates the share of the Operating Budget
paid by federal credit unions (68.8%) and federally insured, state-
chartered credit unions (31.2%).
[[Page 60471]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.014
Operating Fee
The Board delegated authority to the Chief Financial Officer to
administer the methodology approved by the Board for calculating the
Operating Fee and to set the fee schedule as calculated per the
approved methodology. In 2020, the Board approved and published in the
Federal Register the current Operating Fee methodology, which forms the
basis for how the Operating Fee is calculated in this section.\36\
Consistent with its triennial schedule for regulatory reviews, the NCUA
expects to request public comment about the Operating Fee methodology
in 2023. Among the issues of interest to the NCUA Board about the
Operating Fee methodology, the agency plans to ask for public views
about how it should determine the asset threshold below which smaller
credit unions are exempt from paying the operating fee, how it should
determine an equitable distribution schedule of operating fee rates
based on credit union size, and whether other factors should be
considered when calculating the fees collected from credit unions.
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\36\ https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
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To determine the annual Operating Fee assessed on natural person
federal credit unions using the current methodology, the NCUA first
calculates the average of total assets reported in the preceding four
calendar quarters available at the time of the calculation, net of any
reported Paycheck Protection Program (PPP) loans. Credit unions with
assets less than $1 million are not assessed an Operating Fee and their
assets are therefore excluded from this calculation.
Based on the Board-approved Operating Fee methodology, which is
summarized in the following tables, the share of the 2023 budget funded
by the Operating Fee is $134.7 million. This equates to 0.0129 percent
of the actual average of natural person federal credit union assets for
the four calendar quarters ending on June 30, 2022. The calculated
Operating Fee rate for 2023 increases 15.4 percent compared to the rate
in 2022, as shown on the table on the following page. It is important
to note, however, that the Operating Fee rate for 2022 was 23.7 percent
lower than the 2021 rates. Therefore, although the 2023 average
Operating Fee rate is projected to increase to 0.0129 percent of
natural person federal credit union assets in 2023, it is still 11.6
percent lower than the average 0.0146 percent rate charged in 2021.
As part of the Board-approved Operating Fee methodology, the NCUA
can adjust the share of the budget funded by the Operating Fee based on
an analysis of the agency's future cash flow requirements compared to
past years' collections that were not spent as planned. Any projected
surplus cash from past years' fee collections not required to finance
agency operations can accordingly be used to lower the Operating Fee
share of the proposed budget. Because such cash surpluses result from
past years' Operating Fee collections, they do not offset the portion
of the budget funded by the Overhead Transfer Rate. As the final 2023-
2024 budget is prepared for consideration by the NCUA Board, the Chief
Financial Officer will evaluate the agency's cash position and make a
recommendation about any surplus cash that can be credited to the
operating fee.
To set the assessment scale for 2023, total growth in natural
person federal credit union assets is calculated as the change between
the average of the four most-current quarters (i.e., the third and
fourth quarters of 2021 and the first two quarters of 2022) and the
previous four quarters (i.e., the third and fourth quarter of 2020 and
the first two quarters of 2021), which is estimated to be 11.6 percent.
Asset level dividing points are likewise increased by this same growth
rate in order to preserve the same relative relationship of the scale
to the applicable asset base.
BILLING CODE 7535-01-P
[[Page 60472]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.015
Operating Fee Scale
To illustrate the rate for each asset tier for which Operating Fees
are charged, the tables below show the effect of the average 15.4
percent increase in the Operating Fee for natural person federal credit
unions. The corporate federal credit union rate scale remains unchanged
from prior years.
[GRAPHIC] [TIFF OMITTED] TN05OC22.016
VII. Appendix A: Supplemental Budget Information
Budget by Strategic Goal
The table below shows the combined total of the 2023 Staff Draft
Operating and Capital Budgets, organized by the NCUA's three current
strategic goals.
[[Page 60473]]
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[[Page 60474]]
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[[Page 60475]]
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[[Page 60484]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.028
[[Page 60485]]
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[[Page 60486]]
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[[Page 60487]]
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[[Page 60488]]
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[[Page 60489]]
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[[Page 60490]]
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[GRAPHIC] [TIFF OMITTED] TN05OC22.035
[[Page 60491]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.036
[[Page 60492]]
[GRAPHIC] [TIFF OMITTED] TN05OC22.037
[FR Doc. 2022-21457 Filed 10-4-22; 8:45 am]
BILLING CODE 7535-01-C