An internal investigation at the Federal National Mortgage Association (FNMA, or Fannie Mae) laid the blame for $11 billion worth of accounting errors, according to published accounts.
The exhaustive report, which took 16 months to compile and runs more than 2,600 pages, was assembled by a team headed by former Sen. Warren Rudman (R-N.H.). Although it uncovered “no major new accounting problems,” reported the Associated Press, it did reveal additional connections between Fannie Mae’s accounting and the compensation of its executives.
For example, wrote the AP, the report cited documents showing that in 1998, top management deferred $200 million in expenses, and Fannie Mae employees falsified signatures, so the company could meet earnings targets. By making earnings, the report noted, executives were able to collect full rather than partial bonuses, to the tune of $27 million.
According to Bloomberg, the report stated that former chief financial officer Timothy Howard was “primarily responsible” for deviating from GAAP. The AP also noted that although former chief executive officer Franklin Raines did not know the extent of the errors, “Raines contributed to a culture that improperly stressed stable earnings growth….he was ultimately responsible for the failures that occurred on his watch.”
Howard and Raines were ousted by Fannie Mae’s board of directors in 2004, shortly after the Securities and Exchange Commission ordered the company to restate its financials.