Fannie Mae 2012 Annual Report Download - page 169

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Our disclosure controls and procedures were not effective as of December 31, 2012 or as of the date of filing this report
because they 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. As a result, we were not able to rely upon
the disclosure controls and procedures that were in place as of December 31, 2012 or as of the date of this filing, and we
continue to have a material weakness in our internal control over financial reporting. This material weakness is described in
more detail below under “Description of Material Weakness.” Based on discussions with FHFA and the structural nature of
this material weakness, 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
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;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and our Board of Directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In
making its assessment, management used the criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment of our internal
control over financial reporting as of December 31, 2012 identified a material weakness, which is described below. Because
of this material weakness, management has concluded that our internal control over financial reporting was not effective as of
December 31, 2012 or as of the date of filing this report.
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on our internal control
over financial reporting, expressing an adverse opinion on the effectiveness of our internal control over financial reporting as
of December 31, 2012. This report is included below.
Description of Material Weakness
The Public Company Accounting Oversight Board’s Auditing Standard No. 5 defines a material weakness as 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.
Management has determined that we continued to have the following material weakness as of December 31, 2012 and as of
the date of filing this report:
• Disclosure Controls and Procedures. We have been under the conservatorship of FHFA since September 6, 2008.
Under the Regulatory Reform Act, FHFA is an independent agency that currently functions as both our conservator
and our regulator with respect to our safety, soundness and mission. Because of the nature of the conservatorship
under the Regulatory Reform Act, which places us under the “control” of FHFA (as that term is defined by securities