Freddie Mac 2011 Annual Report Download - page 322

levels of employee turnover contributed to ineffective management oversight of controls in these areas resulting in these
deficiencies. We believe that these issues aggregate to a material weakness in our internal control over financial reporting.
Because of these material weaknesses, we have concluded that our internal control over financial reporting was not
effective as of December 31, 2011 based on the COSO criteria. PricewaterhouseCoopers LLP, an independent registered
public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2011
and also determined that our internal control over financial reporting was not effective. PricewaterhouseCoopers LLP’s
report appears in “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.”
Mitigating Actions Related to the Material Weaknesses in Internal Control Over Financial Reporting
As described under “Management’s Report on Internal Control Over Financial Reporting,” we have two material
weaknesses in internal control over financial reporting as of December 31, 2011.
Given the structural nature of the material weakness related to our inability 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, 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 Conservatorship Operations, which is intended to facilitate operation of the
company with the oversight of the Conservator.
• We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also
provide drafts of external press releases, statements and speeches to FHFA personnel for their review and comment
prior to release.
• FHFA personnel, including senior officials, review our SEC filings prior to filing, including this annual report on
Form 10-K, and engage in discussions regarding issues associated with the information contained in those filings.
Prior to filing this 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 Acting Director of FHFA is in frequent communication with our Chief Executive Officer, typically meeting (in
person or by phone) on a weekly basis.
• FHFA representatives hold 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 meet frequently, typically weekly, with our senior financial
executives regarding our accounting policies, practices, and procedures.
We have performed the following mitigating actions regarding the material weakness related to our inability to
effectively manage information technology changes and maintain adequate controls over information security monitoring,
resulting from increased levels of employee turnover:
• Reviewed potential unauthorized changes to applications supporting our financial statements for proper approvals.
• Reviewed and approved user access capabilities for applications supporting our financial reporting processes.
• Maintained effective business process controls over financial reporting.
• Filled the vacant positions or reassigned responsibilities within the information change management and
information security monitoring groups.
We also intend to take the following remediation actions related to this material weakness:
• Take select actions targeted to reduce employee attrition in key control areas.
• Assess staffing requirements to ensure appropriate staffing over information security controls and develop cross-
training programs within these areas to mitigate the risk to the internal control environment should we continue to
experience high levels of employee turnover.
• Improve automation capabilities for the identification and resolution of potential unauthorized system changes.
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