Washington (March 1, 2004) -- The office of Federal Housing Enterprise Oversight, the federal regulator that oversees home mortgage giants Fannie Mae and Freddie Mac, raised concerns about some of Fannie's Mae's accounting systems and advised the company to automate them or explain why they don’t need to be automated.
In a letter to Fannie Mae chairman Franklin D. Raines, OFHEO director Armando Falcon Jr. said that a review of the events surrounding a $1 billion error in the company's third quarter 8-K filing last fall "raised concerns about the extensive reliance of Fannie Mae on manual systems (otherwise known as end-user computing systems)."
Falcon's letter, dated Feb. 24, noted that such systems carry "significant risk of error." The letter, which noted that Fannie Mae relies on more than 70 end-user systems in the financial reporting area alone, continued, "The lack of a fully automated SFAS 149 accounting process as well as the total number of other end-user computing systems at Fannie Mae raise concern."
The oversight body told Fannie to submit within 30 days a remediation plan that includes a schedule for the development and implementation of a fully automated FAS 149 accounting system; and an assessment of and a plan for automating all financial reporting end-user systems, or an explanation of why the company thinks any of the systems shouldn't be automated.
The OFHEO's examination of Fannie's accounting policies and practices is ongoing. Last month, the regulator awarded a contract worth up to $5.7 million to Deloitte & Touche to supplement the OFHEO’s efforts in conducting the examination, which is expected to take up to a year.
-- WebCPA staff
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