Freddie Mac 2008 Annual Report Download - page 277

the Board of Directors’ and Audit Committee’s oversight of our financial reporting process in order for us to consider
this material weakness remediated as of the date of this filing.
•Policy Updates — We have been under conservatorship of FHFA since September 6, 2008. Under the 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 we are in conservatorship, 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 investors and could significantly affect our financial
performance. Although we and FHFA have attempted to design and implement disclosure policies and procedures that
would account for the conservatorship and accomplish the same objectives as disclosure controls and procedures for a
typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate
effective disclosure controls and procedures under the current circumstances. As our Conservator and regulator under
the Reform Act, FHFA is limited in its ability to design and implement a complete set of disclosure controls and
procedures relating to us, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated
entity, we are limited in our ability to design, implement, operate and test the controls and procedures for which
FHFA is responsible. For example, FHFA may formulate certain intentions with respect to conduct of our business
that, if known to management, would require consideration for disclosure or reflection in our financial statements, but
that FHFA, for regulatory reasons, may be constrained from communicating to management.
Due to these circumstances, we have not been able to update our disclosure controls and procedures in a manner
that adequately ensures the accumulation and communication to management of information known to FHFA that is
needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our
consolidated financial statements. As a result, we did not maintain effective controls and procedures designed to
ensure complete and accurate disclosure as required by GAAP either as of December 31, 2008 or as of the date of
filing this report.
Given the structural nature of this weakness, we believe it is likely that we will not remediate this material
weakness while we are under conservatorship.
However, both we and FHFA have continued to engage in activities and employ procedures and practices
intended to permit accumulation and communication to management of information needed to meet our disclosure
obligations under the federal securities laws. These include the following:
• FHFA has established the Office of Conservator Affairs, which is intended to facilitate operation of the
company with the oversight of the Conservator.
• We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing.
We also have provided drafts of external press releases, statements and speeches to FHFA personnel for their
review and comment prior to release.
• FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including our annual
report on Form 10-K, and engaged in discussions regarding issues associated with the information contained in
those filings. Prior to filing our annual report on Form 10-K, FHFA provided us with a written
acknowledgement that it had reviewed the annual report on Form 10-K, was not aware of any material
misstatements or omissions in the annual report on Form 10-K, and had no objection to our filing the annual
report on Form 10-K.
• The Director of FHFA and our Chief Executive Officer have been in frequent communication, typically
meeting (in person or by phone) on a weekly basis.
• FHFA representatives have held frequent meetings, typically weekly, with various groups within the company
to enhance the flow of information and to provide oversight on a variety of matters, including accounting,
capital markets management, external communications and legal matters.
• Senior officials within FHFA’s accounting group have met frequently, typically weekly, with our senior
financial executives regarding our accounting policies, practices and procedures.
•Counterparty Credit Risk Analysis — Our plan for remediation of this material weakness includes conducting an in-
depth analysis, re-design and documentation of the counterparty credit risk analysis process, reassessing the design
and operation of related controls and remediating any control gaps we identify. The identification of the counterparty
credit risk analysis as a material weakness is closely related to the deteriorating conditions in the credit markets and a
corresponding increase in the importance of this analysis to the consolidated financial statements. As these conditions
developed, management increased the level of review and oversight over assumptions and judgments employed in the
analysis; however, this increased review and oversight did not keep pace with the increasing risk introduced by the
deterioration in the credit markets. Our remediation efforts will continue to enhance the level of review and oversight,
as well as focus on validating and documenting the analytical tools utilized to model the risk and to create a
274 Freddie Mac