Fannie Mae 2009 Annual Report Download - page 194

SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to
provide reasonable assurance that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our required
disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management was required to apply its judgment in
evaluating and implementing possible controls and procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our
Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as in effect as of December 31, 2009, the end of the period covered by this report. 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 at a reasonable assurance level as of December 31, 2009
or as of the date of filing this report.
Our disclosure controls and procedures were not effective as of December 31, 2009 or as of the date of filing
this report for two reasons:
• Our disclosure controls and procedures did not adequately ensure the accumulation and communication to
management of information known to FHFA that is needed to meet our disclosure obligations under the
federal securities laws; and
• we had a material weakness in our internal control over financial reporting with respect to our controls
over the change management process we apply to applications and models we use in accounting for
(1) our provision for credit losses and (2) other-than-temporary impairment on our private-label mortgage-
related securities.
As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of
December 31, 2009 or as of the date of this filing, and we continue to have two material weaknesses in our
internal control over financial reporting. These material weaknesses are described in more detail below under
“Description of Material Weaknesses.”
We intend to design, implement and test new controls to remediate the material weakness in the design of our
controls over the change management process we apply to applications and models we use in accounting for
(1) our provision for credit losses and (2) other-than-temporary impairment on our private-label mortgage-
related securities by December 31, 2010. However, based on discussions with FHFA and the structural nature
of the weakness in our disclosure controls and procedures, it is likely that we will not remediate the weakness
in our disclosure controls and procedures relating to information known to FHFA while we are under
conservatorship.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Overview
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is
a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer
and effected by our Board of Directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets;
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