Management Report:

Opportunities for Improvement in the Federal Housing Finance Agency's Internal Controls and Accounting Procedures

GAO-11-398R: Published: Apr 29, 2011. Publicly Released: Apr 29, 2011.

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In November 2010, we issued our opinion on the Federal Housing Finance Agency's (FHFA) fiscal years 2010 and 2009 financial statements. Our report also included our opinion on the effectiveness of FHFA's internal control over financial reporting as of September 30, 2010, and our evaluation of FHFA's compliance with provisions of selected laws and regulations for the fiscal year ended September 30, 2010. 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. The purpose of this report is to present additional information on the internal control and accounting procedure issues we identified during our audit of FHFA's fiscal year 2010 financial statements and to provide our recommended actions to address those issues. We are making three recommendations for strengthening FHFA's internal controls and accounting procedures. In addition, we are providing an update on the status of recommendations we made to address internal control issues identified during our audit of FHFA's fiscal year 2009 financial statements as reported in our June 3, 2010, management report on internal controls and accounting procedures and our April 30, 2010, report on controls related to information security.

During our audit of FHFA's fiscal years 2010 and 2009 financial statements, we identified two internal control issues that could adversely affect FHFA's ability to meet its internal control objectives. We do not consider these issues to represent material weaknesses or significant deficiencies in relation to FHFA's financial statements. Nonetheless, we believe they warrant management's attention and action. These issues concern necessary controls to ensure (1) completing proper documentation and obtaining approval prior to disposing of capitalized assets and (2) verifying vendor invoices for accuracy prior to payment. These issues increase the risk of FHFA not preventing or promptly detecting and correcting misappropriation of assets or misstatements in its financial statements. At the end of our discussion of each of these issues in the sections that follow, we present our recommendations for strengthening FHFA's internal controls over disposals of capitalized assets and vendor invoice payment processing. These recommendations are intended to improve management's oversight and controls and minimize the risk of misappropriation of assets and misstatements in FHFA's accounts and financial statements. As of the completion of our fiscal year 2010 audit on November 9, 2010, FHFA had taken action to fully address 6 of the 22 internal control-related recommendations from our fiscal year 2009 audit. FHFA also took action to address the three internal control and accounting procedures-related recommendations that remain open, but more work is needed to fully resolve the underlying control issues. For the 13 recommendations related to information systems controls that remain open, FHFA had actions in process as of November 9, 2010, intended to address the related control issues. We did not identify any new weaknesses concerning information security controls during our fiscal year 2010 audit. In its comments, FHFA agreed with our recommendations and described actions it has taken, or plans to take, to address the control issues described in this report. At the end of our discussion of each issue in this report, we have summarized FHFA's related comments. We will evaluate the effectiveness of FHFA's corrective actions as part of our fiscal year 2011 audit. We recommend that the Acting Director of FHFA direct the Chief Financial Officer to (1) establish a mechanism to monitor compliance with policies and procedures surrounding the proper disposal of capitalized property and equipment and (2) update the Property Management Policy to include procedures for how to properly document approval before disposal of FHFA assets. We recommend that the Acting Director of FHFA direct the Chief Financial Officer to enhance FHFA's Invoice and Payment Desktop Procedures to include detailed instructions on how to verify the accuracy of invoice amounts prior to payment.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Acting Director of FHFA should direct the Chief Financial Officer to establish a mechanism to monitor compliance with policies and procedures surrounding the proper disposal of capitalized property and equipment.

    Agency Affected: Federal Housing Finance Agency

    Status: Closed - Implemented

    Comments: GAO confirmed that FHFA established a mechanism to monitor compliance with policies and procedures for the proper disposal of capitalized assets.

    Recommendation: The Acting Director of FHFA should direct the Chief Financial Officer to update the Property Management Policy to include procedures for how to properly document approval before disposal of FHFA assets.

    Agency Affected: Federal Housing Finance Agency

    Status: Closed - Implemented

    Comments: GAO confirmed that FHFA updated its property management policy to include procedures for properly documenting approval before disposing of FHFA assets.

    Recommendation: The Acting Director of FHFA should direct the Chief Financial Officer to enhance FHFA's Invoice and Payment Desktop Procedures to include detailed instructions on how to verify the accuracy of invoice amounts prior to payment.

    Agency Affected: Federal Housing Finance Agency

    Status: Open

    Comments: The results of our FY 2012 and 2011 audits of FHFA show that problems remain with the verification of the accuracy of invoice amounts.

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