Fannie Mae 2004 Annual Report Download - page 217

for determining, monitoring, disseminating, implementing and updating accounting policies that complied
with accounting principles generally accepted in the United States of America.
•Financial Reporting Process—The Company did not maintain an effective, timely and accurate financial
reporting process, including a lack of timely and complete financial statement reviews, effective disclosure
controls and procedures, general ledger and journal entry controls, and appropriate reconciliation
processes.
•Information Technology Applications and Infrastructure—The Company did not maintain effective internal
control related to information technology applications and infrastructure, including access controls, change
management controls, and controls over end user computing including spreadsheets.
•Independent Model Review Process—The design of internal control did not provide for independent
review that accounting related models and assumptions were appropriate and that outputs were calculated
accurately according to model specifications.
•Treasury and Trading Operations—The design of internal control was inadequate with respect to the
process of authorizing, approving, validating, and settling trades, including inadequate segregation of
duties among trading, settlement, and valuation activities within both the treasury and trading operations.
•Pricing and Independent Price Verification Processes—The design of internal control was inadequate with
respect to the process used to price assets and liabilities, and did not maintain appropriate segregation of
duties between the pricing function and the function responsible for independently verifying such prices.
•Wire Transfer Controls—The design of internal control was insufficient with respect to the initiation,
authorization, segregation of duties and anti-fraud measures related to wire transfer transactions and with
respect to the reconciliation of cash balances and wire transfer activity.
Due to the nature of these weaknesses: the consolidated financial statements for the years ended December 31,
2003 and 2002 were restated to correct numerous significant misstatements related to debt and derivatives,
commitments, investments in securities, trust consolidation and sale accounting, financial guaranties and
master servicing, amortization of cost basis adjustments, and other items; the consolidated financial statements
for the year ended December 31, 2004 and the quarter ended September 30, 2004 were not filed timely; and,
there is more than a remote likelihood that a material misstatement to the Company’s financial statements
might not be detected and prevented by the Company’s internal controls over financial reporting. These
material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our
audit of the consolidated financial statements as of and for the year ended December 31, 2004, of the
Company and this report does not affect our report on such consolidated financial statements.
Because of the limitation on the scope of our audit described in the second paragraph of this report, the scope
of our work was not sufficient to enable us to express, and we do not express, an opinion on management’s
assessment referred to above. In our opinion, because of the effect of the material weaknesses, summarized
above and described in Management’s Report on Internal Control over Financial Reporting, on the
achievement of the objectives of the control criteria and the effects of any other material weaknesses, if any,
that we might have identified if we had been able to perform sufficient auditing procedures necessary to form
an opinion on management’s assessment, the Company has not maintained effective internal control over
financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended December 31, 2004, of the
Company and have issued our report dated December 6, 2006 that expressed an unqualified opinion on those
financial statements and included an explanatory paragraph relating to the restatement of the Company’s 2002
and 2003 consolidated financial statements.
/s/ Deloitte & Touche LLP
Washington, DC
December 6, 2006
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