Management Report:

Opportunities for Improvements in FHFA's Internal Controls and Accounting Procedures

GAO-10-587R: Published: Jun 3, 2010. Publicly Released: Jun 3, 2010.

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In November 2009, we issued our opinion on the fiscal year 2009 financial statements of the Federal Housing Finance Agency (FHFA). Our report also included our opinion on the effectiveness of FHFA's internal control over financial reporting as of September 30, 2009, and our evaluation of FHFA's compliance with provisions of selected laws and regulations for the fiscal year ended September 30, 2009. The Housing and Economic Recovery Act of 2008 (HERA) created FHFA and gave it responsibility for, among other things, the supervision and oversight of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the 12 federal home loan banks. Specifically, FHFA was assigned responsibility for ensuring that the regulated entities operate in a fiscally safe and sound manner, including maintenance of adequate capital and internal controls, in carrying out their housing and community development finance mission. HERA requires FHFA to annually prepare financial statements, and requires GAO to audit these statements. HERA established FHFA as an independent agency on July 30, 2008. HERA also abolished, effective within 1 year of the act's enactment, the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB). During fiscal year 2009, OFHEO's and FHFB's personnel, property, and mission responsibilities were transferred to FHFA, and the assets, liabilities, and financial transactions of OFHEO and FHFB became FHFA's responsibility. While FHFA was in existence prior to the start of fiscal year 2009, this was its first full year of operations and the first year for which it prepared financial statements. Prior to July 1, 2009, FHFA processed transactions using the separate accounting systems of FHFB and OFHEO. On July 1, 2009, FHFA began using its own accounting system. The purpose of this report is to present issues identified during our audit of FHFA's fiscal year 2009 financial statements regarding certain internal controls and accounting procedures and to recommend actions to address those issues.

During our audit of FHFA's fiscal year 2009 financial statements, we identified four internal control issues that could adversely affect FHFA's ability to meet its internal control objectives. We do not consider them to be material weaknesses or significant deficiencies in relation to FHFA's financial statements. Nonetheless, we believe that they warrant management's attention and action. These issues concerned necessary controls to ensure (1) undelivered orders balances were calculated accurately, (2)receipt and acceptance of services provided or goods delivered was completed and documented prior to payment, (3) amounts were accurately recorded for goods received or services rendered but not yet paid at the end of an accounting period, and (4) costs were properly classified and recorded. These issues increase the risk of FHFA not preventing or promptly detecting and correcting (1) misstatements in asset, liability, expense, and undelivered orders accounts, (2) misappropriation of assets as a consequence of improper expenditures, and (3) misstatements in the financial statements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: During our work during the fiscal year 2013 financial audit, we evaluated the status of the recommendation we made to FHFA in GAO-10-587R. Specifically, we found that FHFA completed updates to their Administrative Accounting Manual to include accrual, deobligation, invoice and payment procedures and FHFA conducted invoice approver training. During our testing of undelivered orders, we did not find any errors related to the review of contract balances.

    Recommendation: The Acting Director of the FHFA should direct the Chief Financial Officer to enhance FHFA's Administrative Accounting Manual by incorporating specific, detailed steps for the Contracting Officer Technical Representatives (COTR) review of contract balances, including the use of the open obligations report provided by BPD in the COTR review process.

    Agency Affected: Federal Housing Finance Agency

  2. Status: Closed - Implemented

    Comments: During our work on the fiscal year 2013 financial audit, we evaluated the status of the recommendation we made to FHFA in GAO-10-587R. Specifically, we found that FHFA completed updates to their Administrative Accounting Manual to include accrual, deobligation, invoice and payment procedures and FHFA conducted invoice approval and accrual training for the Contracting Officer's Technical Representatives (COTRs) and invoice approvers. During our testing of undelivered orders, we did not find any errors related to the proper obligation and deobligation of contract amounts.

    Recommendation: The Acting Director of the FHFA should direct the Chief Financial Officer to enhance FHFA's Administrative Accounting Manual by including specific, detailed steps on when and how to properly account for obligating and deobligating contract amounts.

    Agency Affected: Federal Housing Finance Agency

  3. Status: Closed - Implemented

    Comments: During our audit of FHFA's FY 2010 financial statements, we found that FHFA had appropriately revised its Administrative Accounting Manual to include specific, detailed steps for obtaining and maintaining documentation as evidence of receipt and acceptance. In addition, our testing of FHFA's procurement transactions identified no instances of transactions lacking supporting documentation as evidence of receipt and acceptance of services provided or goods delivered.

    Recommendation: The Acting Director of the FHFA should direct the Chief Financial Officer to revise FHFA's Administrative Accounting Manual to provide for specific, detailed steps for obtaining and maintaining documentation as evidence of receipt and acceptance.

    Agency Affected: Federal Housing Finance Agency

  4. Status: Closed - Implemented

    Comments: During our fiscal year 2013 engagement, we evaluated the status of the recommendation we made to FHFA in GAO-10-587R. We found that FHFA provided contract accrual training to employees in December 2009 and March 2010 that included examples of expenses that should and should not be accrued at the end of an accounting period. FHFA also updated their Accrual and Deobligation Procedures as of April 25, 2012. We continued to monitor and test accruals during the fiscal year 2013 audit and found no reportable issues. As a result, we consider this recommendation closed.

    Recommendation: The Acting Director of the FHFA should direct the Chief Financial Officer to enhance FHFA's training materials related to accruals to include examples of expenses that should and should not be accrued at the end of an accounting period.

    Agency Affected: Federal Housing Finance Agency

  5. Status: Closed - Implemented

    Comments: Our audit of FHFA's FY 2010 financial statements found that FHFA had developed oversight procedures for the identification of capitalized assets and included them in its Administrative Accounting Manual. In addition, our testing of FHFA's property and equipment expense transactions identified no instances of misclassified transactions.

    Recommendation: The Acting Director of the FHFA should direct the Chief Financial Officer to issue a memorandum reiterating policies surrounding the accurate recording and review of transactions to all staff involved in the process.

    Agency Affected: Federal Housing Finance Agency

  6. Status: Closed - Implemented

    Comments: Our audit of FHFA's FY 2010 financial statements found that FHFA had updated its Administrative Accounting Manual to include the roles and responsibilities of the Manager of Financial Management Operations and secondary reviewers in identifying and recording capitalized transactions. In addition, our testing of FHFA's property and equipment and expense transactions identified no instances of misclassified transactions.

    Recommendation: The Acting Director of the FHFA should direct the Chief Financial Officer to update FHFA's Administrative Accounting Manual to include the roles and responsibilities of the Manager of Financial Management Operations and secondary reviewers regarding the identifying and recording of capitalized transactions.

    Agency Affected: Federal Housing Finance Agency

 

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