Freddie Mac 2006 Annual Report Download - page 68

Our board of directors approved a dividend per common share of $0.50 for the fourth quarter of 2006 and the Ñrst
quarter of 2007, an increase over the $0.47 per share common dividend that was paid for each of the Ñrst three quarters of
2006 and the fourth quarter of 2005. Our common dividend per share was $0.35 for each of the Ñrst three quarters of 2005
and $0.30 for the fourth quarter of 2004. Our board of directors will determine the amount of future dividends, if any, after
considering factors such as our capital position, and our earnings and growth prospects.
For the fourth quarter of 2004 through the Ñrst quarter of 2007, our board of directors also approved quarterly preferred
stock dividends that were consistent with the contractual rates and terms of the preferred stock. See ""NOTE 9:
STOCKHOLDERS' EQUITY'' to our consolidated Ñnancial statements for information regarding our outstanding
issuances of preferred stock.
RISK MANAGEMENT
We are exposed to risks that include interest-rate and other market risks, operational risks and credit risks, among
others, including those described in ""RISK FACTORS.'' We manage risk through a framework, approved by our board of
directors, that recognizes primary risk ownership and management by our business areas. Within this framework, our
executive management committees and divisions responsible for independent risk oversight, which include Enterprise Risk
Oversight, Corporate Compliance and Internal Audit, monitor performance against our risk management strategies and
established risk limits, identify and assess potential issues, and provide oversight regarding changes in business processes and
activities. Oversight of risk management is also provided by our board of directors and its committees. Together, these
groups assess the adequacy and eÅectiveness of the risk management functions across the company.
While we consider both our day-to-day and long-term management of interest-rate and other market risks and credit
risks to be satisfactory, we identiÑed weaknesses in prior years in our overall risk governance framework. We created an
executive management enterprise risk committee in June 2006 to provide a company-wide view of risk and have formed Ñve
subcommittees to focus on credit, market, models, operational and regulatory risks. Our board of directors has also assigned
primary responsibility for oversight of enterprise risk management to the Governance, Nominating and Risk Oversight
Committee of the board of directors. We have taken steps to strengthen our capacity in four important areas: risk
governance, risk identiÑcation, risk measurement and assessment and related education and communication. Accordingly,
we believe we have reduced the severity of the deÑciencies in our risk governance framework so that they no longer
represent a signiÑcant deÑciency in our internal control over Ñnancial reporting.
Operational Risks
Operational risks are inherent in all of our business activities and can become apparent in various ways, including
accounting or operational errors, business interruptions, fraud, failures of the technology used to support our business
activities and other operational challenges from failed or inadequate internal controls. We face a number of signiÑcant
operational risks, including material weaknesses and other signiÑcant deÑciencies in our internal control over Ñnancial
reporting. These operational risks may expose us to Ñnancial loss, may delay or interfere with our ability to return to and
sustain timely Ñnancial reporting, or may result in other adverse consequences. Governance over the management of our
operational risks takes place through the enterprise risk management framework described above. Business areas retain
primary responsibility for identifying, assessing and reporting their operational risks.
Our business processes are highly dependent on our use of technology and business and Ñnancial models. We face
challenges in the areas of system security, change management and information technology application and general controls.
See ""Internal Control Over Financial Reporting'' for more information concerning material weaknesses related to our
systems. In recent years, we have strengthened our processes to validate model assumptions, code, theory and the system
applications that utilize our models. We are currently improving our model oversight processes and enhancing our staÇng
both within the business areas and in our risk oversight functions.
We continue to make signiÑcant investments to build new Ñnancial reporting systems and move to more eÅective and
eÇcient business processing systems. Until those systems are implemented, we continue to remain more reliant on end-user
computing systems than is desirable and we are challenged to eÅectively and timely deliver integrated production systems.
Reliance on certain of these end-user computing systems increases the risk of errors in some of our core operational
processes and increases our dependency on monitoring controls. In the near term, we are mitigating this risk by improving
our documentation and controls over these systems and placing certain key end-user systems into a change management
process controlled by our information technology group.
Our eÅorts to develop and deploy new Ñnancial reporting and business process systems have limited our Öexibility to
release new products and other business initiatives in response to competitive market forces. We manage this risk through a
management committee that monitors key projects and allocates resources to development eÅorts.
56 Freddie Mac