Freddie Mac 2014 Annual Report Download - page 245

240 Freddie Mac
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the
information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is
accumulated and communicated to management of the company, including the company’s Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure controls
and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and we must apply judgment in implementing possible
controls and procedures.
Management, including the company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of our disclosure controls and procedures as of December 31, 2014. As a result of management’s evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not
effective as of December 31, 2014, at a reasonable level of assurance, because we have not been able to update our disclosure
controls and procedures to provide reasonable assurance that information known by FHFA on an ongoing basis is
communicated from FHFA to Freddie Mac’s management in a manner that allows for timely decisions regarding our required
disclosure under the federal securities laws. As discussed below, we consider this situation to be a material weakness in our
internal control over financial reporting. Based on discussions with FHFA and the structural nature of this continuing weakness,
we believe it is likely that we will not remediate this material weakness while we are under conservatorship.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer and effected by the Board of Directors, management
and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It is
a process that involves human diligence and compliance and is, therefore, subject to lapses in judgment and breakdowns
resulting from human error. It also can be circumvented by collusion or improper management override. Because of its
limitations, there is a risk that internal control over financial reporting may not prevent or detect, on a timely basis, errors that
could cause a material misstatement of the financial statements.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making our
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or
COSO, in Internal Control — Integrated Framework (2013 Framework). A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by a
company’s internal controls. Based on our assessment, we identified a material weakness related to our inability to update our
disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of
information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including
disclosures affecting our consolidated financial statements.
We have been under conservatorship of FHFA since September 6, 2008. FHFA is an independent agency that currently
functions as both our Conservator and our regulator with respect to our safety, soundness and mission. Because we are in
conservatorship, some of the information that we may need to meet our disclosure obligations may be solely within the
knowledge of FHFA. As our Conservator, FHFA has the power to take actions without our knowledge that could be material to
investors and could significantly affect our financial performance. Although we and FHFA have attempted to design and
implement disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives
as disclosure controls and procedures for a typical reporting company, there are inherent structural limitations on our ability to
design, implement, test or operate effective disclosure controls and procedures under the current circumstances. As our
Conservator and regulator, FHFA is limited in its ability to design and implement a complete set of disclosure controls and
procedures relating to us, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated entity,
we are limited in our ability to design, implement, operate and test the controls and procedures for which FHFA is 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
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