Fannie Mae 2013 Annual Report Download - page 167

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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, 2013. In
making its assessment, management used the criteria established in the original Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 1992. Management’s
assessment of our internal control over financial reporting as of December 31, 2013 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, 2013 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, 2013. 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, 2013 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 2008 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
2008 Reform Act, which places us under the “control” of FHFA (as that term is defined by securities laws), 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 our shareholders
and other stakeholders, and could significantly affect our financial performance or our continued existence as an
ongoing business. Although we and FHFA attempted to design and implement disclosure policies and procedures that
would account for the conservatorship and accomplish the same objectives as a disclosure controls and procedures
policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test
or operate effective disclosure controls and procedures. As both our regulator and our conservator under the 2008