Freddie Mac 2015 Annual Report Download - page 333

Controls and Procedures
Freddie Mac 2015 Form 10-K 331
CONTROLS AND PROCEDURES
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, 2015. 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 to 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 circumstances of conservatorship. 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