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Wednesday, December 29, 2004

KPMG told Fannie Mae of 'weaknesses'

From Financial Times

KPMG raised concerns about Fannie Mae's internal financial reporting controls and accounting records shortly after a damning report was released by the mortgage finance provider's regulator in September, Fannie disclosed yesterday.

The accounting firm, which has worked for Fannie since 1969 but which was dismissed last week, has not publicly commented on its auditing practices as a scandal has unfolded over the finance provider's accounting practices during the past three months.

Yesterday, Fannie said in a filing to the Securities and Exchange Commission that KPMG had notified the company of "material weaknesses" in internal controls related to its financial reporting as well as "deficiencies" in some of its accounting processes.

Some of these concerns relate to Section 404 of the Sarbanes-Oxley Act, which requires management to take responsibility for maintaining sound financial reporting procedures. The disclosure comes as the SEC investigates whether Fannie's former management violated the Act by certifying the accuracy of Fannie's accounts.

Franklin Raines, Fannie's chairman and chief executive, and Timothy Howard, its chief financial officer - who were ousted last week - had certified the company's 2002 and 2003 accounts "fairly present[ed] in all material respects" its financial condition in statements filed with the SEC.

Fannie said yesterday it was "assessing" KPMG's observations and was looking at whether any of its concerns comprised "significant deficiencies or material weaknesses, either individually or in the aggregate".

Terms "material weaknesses" and "significant deficiencies" are used by accountants to describe faults in a company's controls that could damage its ability to record financial data accurately. Fannie's board has not publicly identified any wrongdoing by its former executives.

posted by Brian Moran @ 4:05 PM   0 comments

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