Toward the end of the great Mickey Mantle’s career, the famed Yankee slugger was making his last appearance at Detroit’s Tiger Stadium and facing then-ace Tigers hurler Denny McClain.
McClain proceeded to throw Mantle a pitch that could charitably be described as a “lollipop,” which the Mick obligingly smacked into the stadium’s upper rafters.
In truth, how many of us wish we were given a set-up like that in any aspect of our lives — either at work or play?
Well, Sarbanes-Oxley supporters can take heart, because Denny McClain’s glacial change-up of 1968 has morphed into a report from the Office of Federal Housing Enterprise Oversight on troubled mortgage securities concern Freddie Mac.
Freddie Mac, which seemingly has been plagued by accounting problems since Joseph took out a mortgage on a small shelter in Bethlehem, has been ordered to pay some $125 million in penalties and take corrective actions as part of a consent decree to settle charges of management misconduct.
The OFHEO, which oversees Freddie Mac and its larger mortgage rival Fannie Mae, charges that the buyer of home mortgages engaged in “a pattern of inappropriate conduct and improper management of earnings.” Freddie Mac’s conduct, the agency charged, led to the company understating its revenues by $5 billion.
The penalty, by the way, was the largest civil fine ever levied by what is known as a safety and soundness regulator.
Among the OFHEO’s other findings:
• Freddie Mac disregarded accounting rules, internal controls and disclosure standards. Care to guess how many sections of SOX these charges violated?
• The incentive plans for its executives contributed to improper accounting and management practices. Imagine everyone’s surprise at that discovery!
• Weaknesses existed in every aspect of Freddie Mac’s accounting.
• Former management exhibited a disdain for appropriate disclosure standards. Accent on “former.”
Corrective measures recommended by the OFHEO included separating the functions of the chairman and the chief executive; developing financial incentives for employees based on long-term goals, not short-term earnings; and requiring a periodic change of external auditors, not just engagement partners. I wonder if these folks read the recent General Accounting Office report on auditor rotation?
Talk about your set-ups.
Could the need for Sarbanes-Oxley be any more obvious to even its harshest skeptics?
Could students studying accounting fraud be presented with a more telling example of just how freely earnings management and manipulation can spiral out off control?
It’s little wonder that there has been a call for Freddie Mac and Fannie Mae to be overseen by the Treasury.
Should examples of behemoth-sized earnings mismanagement keep surfacing even with SOX, you can be sure that we’ll hear a lot more about oversight being conducted by the folks in our nation’s capital.
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