AIG 2008 Annual Report Download - page 331

Comptroller. The status of remediation was reviewed with the Audit Committee who was advised of issues
encountered and key decisions reached by AIG management.
As of December 31, 2007, AIG did not maintain effective controls over the fair value valuation of the AIGFP
super senior credit default swap portfolio and oversight thereof. Specifically, AIG had insufficient resources to
design and carry out effective controls to prevent or detect errors and to determine appropriate disclosures on a
timely basis with respect to the processes and models introduced in the fourth quarter of 2007. As a result, AIG had
not fully developed its controls to assess, on a timely basis, the relevance to its valuation of all third-party
information. Also, controls to permit the appropriate oversight and monitoring of the AIGFP super senior credit
default swap portfolio valuation process, including timely sharing of information at the appropriate levels of the
organization, did not operate effectively. As a result, controls over the AIGFP super senior credit default swap
portfolio valuation process and oversight thereof were not adequate to prevent or detect misstatements in the
accuracy of management’s fair value estimates and disclosures on a timely basis.
During 2008, AIG management took the following actions to remediate this material weakness:
• Created a framework, including allocation of roles and responsibilities, for the valuation and oversight for
the valuation of the super senior credit default swap portfolio (the portfolio).
• Designed and implemented enhanced controls over the valuation of the portfolio including assessing the
relevance and impact of available third-party information and additional segregation of duties.
• Ensured improved oversight and governance, including increased interaction with Corporate finance and
risk management functions.
• Enhanced communication by establishing formal reporting lines between key AIGFP functions and AIG
Corporate counterparts.
• Implemented a valuation control group within AIGFP to perform the controls, with appropriate allocation of
qualified resources.
• Developed new systems and processes to reduce the reliance on manual controls.
• Documented the process and controls over the valuation approach.
• Assessed the design and tested the operating effectiveness of the key controls over the fair value valuation
process.
AIG continues to develop further enhancements to its controls over the fair value valuation of the AIG super
senior credit default swap portfolio. Based upon the significant actions taken and the testing and evaluation of the
effectiveness of the controls, AIG management has concluded the material weakness in AIG’s controls over the
AIGFP super senior credit default swap portfolio valuation process and oversight thereof no longer existed as of
December 31, 2008.
Continuing Improvements to Internal Control over Financial Reporting
AIG management recognizes the importance of continued attention to improving its internal controls related to
the period end financial reporting and consolidation processes, investment accounting, income tax, and valuation
processes. Additionally, in carrying out its restructuring plan, AIG is committed to ensuring that the manual controls
that have been established remain effective and sustainable. To maintain effective and sustainable controls, AIG has
implemented retention programs to seek to keep its key employees and has engaged third-party resources to
supplement the efforts of AIG financial personnel. Furthermore, where consistent with the direction of its asset
disposition plan, AIG is investing in new systems and processes which will allow it, over time, to reduce its reliance
on manual controls.
Changes in Internal Control over Financial Reporting
Changes in AIG’s internal control over financial reporting during the quarter ended December 31, 2008 that
have materially affected, or are reasonably likely to materially affect, AIG’s internal control over financial reporting
have been described above.
AIG 2008 Form 10-K 325
American International Group, Inc., and Subsidiaries