Freddie Mac 2008 Annual Report Download - page 275

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the
information we are required to disclose in our financial reports is recorded, processed, summarized and reported within the
time periods specified by the SEC rules and forms and that such information is accumulated and communicated to senior
management, as appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure controls and
procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and we must apply judgment in implementing possible
controls and procedures. Management, including the company’s Chief Executive Officer and Acting Chief Financial Officer,
conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2008. As a result
of management’s evaluation, our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure
controls and procedures were not effective as of December 31, 2008, at a reasonable level of assurance, for the following
reasons:
• our Board of Directors and Audit Committee, which exercise oversight authority with respect to our disclosure
controls and procedures, were reconstituted by the Conservator on December 18, 2008, but as of December 31, 2008
had not yet begun to exercise their oversight authority over our financial reporting process;
• 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;
• we have identified a material weakness in the design and documentation of controls over our counterparty credit risk
analysis that impacts our significant judgments and estimates for single-family loan loss reserves and other-than-
temporary impairments of available-for-sale securities; and
• we have identified a material weakness in the controls over development of our securities impairment model used in
our determination of other-than-temporary impairments of available-for-sale securities.
As described below, we have identified four related material weaknesses in our internal control over financial reporting,
which management considers an integral part of our disclosure controls and procedures. Subsequent to December 31, 2008,
the Board of Directors and Audit Committee have exercised their oversight responsibilities with respect to the preparation
and filing of this annual report on Form 10-K. As a result, as of the date of this filing in March 2009, we have remediated
the weakness in our disclosure controls and procedures relating to our lack of Board of Directors and Audit Committee
oversight. However, we have not been able to update our disclosure controls and procedures to provide reasonable assurance
that information known by FHFA on an ongoing basis is communicated from FHFA to Freddie Mac’s management in a
manner that allows for timely decisions regarding our required disclosure. Based on discussions with FHFA and the structural
nature of this continuing weakness, it is likely that we will not remediate this weakness in our disclosure controls and
procedures while we are under conservatorship. We have not implemented remediation activities with respect to the material
weakness in either our counterparty credit risk analysis process or our securities impairment model. As a result, we were not
able to rely upon the disclosure controls and procedures that were in place as of December 31, 2008.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting. Internal
control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Acting
Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable
assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes
in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives. It is a process that involves human diligence and compliance and is therefore subject
to lapses in judgment and breakdowns resulting from human error. It also can be circumvented by collusion or improper
override. Because of its limitations, there is a risk that internal control over financial reporting may not prevent or detect on
a timely basis errors or fraud that could cause a material misstatement of the financial statements.
This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over
financial reporting or an attestation report of our independent registered public accounting firm on the effectiveness of our
internal control over financial reporting due to a transition period established by the rules of the SEC for newly public
companies.
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