Freddie Mac 2009 Annual Report Download - page 324

responsible. For example, FHFA may formulate certain intentions with respect to the conduct of our business that, if known
to management, would require consideration for disclosure or reflection in our financial statements, but that FHFA, for
regulatory reasons, may be constrained from communicating to management. As a result, we did not maintain effective
controls and procedures designed to ensure complete and accurate disclosure as required by GAAP as of December 31,
2009.
Because of this material weakness, we have concluded that internal control over financial reporting was not effective as
of December 31, 2009, based on criteria in Internal Control — Integrated Framework issued by COSO. The effectiveness of
the company’s internal control over financial reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears
herein.
Mitigating Actions Related to the Material Weakness in Disclosure Controls and Procedures
As described under “Management’s Report on Internal Control Over Financial Reporting,” we have not remediated the
material weakness related to our disclosure controls and procedures as of December 31, 2009. Given the structural nature of
this weakness, we believe it is likely that we will not remediate this material weakness while we are under conservatorship.
However, both we and FHFA have continued to engage in activities and employ procedures and practices intended to permit
accumulation and communication to management of information needed to meet our disclosure obligations under the federal
securities laws. These include the following:
• FHFA has established the Office of Conservator Affairs, which is intended to facilitate operation of the company with
the oversight of the Conservator.
• We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also
have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and
comment prior to release.
• FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this annual report
on Form 10-K, and engaged in discussions regarding issues associated with the information contained in those filings.
Prior to filing this annual report on Form 10-K, FHFA provided us with a written acknowledgement that it had
reviewed the annual report on Form 10-K, was not aware of any material misstatements or omissions in the annual
report on Form 10-K, and had no objection to our filing the annual report on Form 10-K.
• The Acting Director of FHFA has been in frequent communication with our Chief Executive Officer, typically
meeting (in person or by phone) on a weekly basis.
• FHFA representatives have held frequent meetings, typically weekly, with various groups within the company to
enhance the flow of information and to provide oversight on a variety of matters, including accounting, capital
markets management, external communications and legal matters.
• Senior officials within FHFA’s accounting group have met frequently, typically weekly, with our senior financial
executives regarding our accounting policies, practices and procedures.
In view of our mitigating activities related to the material weaknesses, we believe that our consolidated financial
statements for the year ended December 31, 2009, have been prepared in conformity with GAAP.
Changes to Internal Control Over Financial Reporting During the Quarter Ended December 31, 2009
We evaluated the changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2009 and concluded that the following matters have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Remediation of Material Weakness — Counterparty Credit Risk Analysis
During the quarter ended December 31, 2008, we identified a material weakness related to our counterparty credit risk
analysis processes. Our counterparty credit risk analysis processes impact significant estimates and judgments in our
financial reporting affecting single-family loan loss reserves and other-than-temporary impairments of available-for-sale
securities. The controls over these processes had not been adequately designed or documented to mitigate the significantly
increased risks associated with the processes.
We took a number of actions during the first nine months of 2009 to remediate this material weakness, including
implementing new controls. As of December 31, 2009, we completed our governance procedures over the changes we made
to ensure completeness of our remediation, including evaluating the adequacy of the changes and testing the effectiveness of
the new controls we implemented. Based on these activities, we concluded that we remediated this material weakness as of
December 31, 2009.
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