Fannie Mae Accounting Scandal Essay

An accounting scandal is described as a business scandals that stems from intentional manipulation of financial statements with the disclosure of financial misdeeds by trusted executives of corporations or governments. Inappropriate accounting practices more often than not amount to fraud. These fraudulent acts are investigated by government agencies and often change the reputation, structure, and prosperity of a company.
Fannie Mae (Federal National Mortgage Association, or FNMA) was established in 1938 during the Great Depression as part of the New Deal. FNMA is a government sponsored enterprise (GSE) - a publicly traded company which operates under a Congressional charter. Fannie Mae was created to stimulate homeownership and expand the

The corporation had widespread accounting errors, including shifting of losses. This report opened up the examination of FNMA.
The senior managers at Fannie Mae repeatedly engaged in questionable acts. FNMA completed two transactions through investment banking firm Goldman Sachs Group Inc., where $107 million of Fannie Mae’s earnings were improperly pushed into future years. This technique shaped the company's books to appear as if the company had reached earnings targets. The appearance of higher earnings prompted its executives, including Franklin Raines (former CEO), Timothy Howard (former CFO) and others, to receive the maximum payout possible. (Day)
The Office of Federal Housing Enterprise Oversight (OFHEO) report found significant problems with the way Fannie Mae’s accounting results were generated and reviewed. Individuals involved in the process were burdened by “heavy workloads, weak technical skills, and a weak review environment.”(Cristie, 17) Under the reported conditions, OFHEO found that accounting operations relied on a few individuals with widespread discretion. In this type of environment, the process for developing new accounting policies is ineffective, and internal controls are weak or non-existent. The company was governed by a weak board of directors, who failed to install basic internal controls and

In both cases, Fannie Mae recognized that the company was departing from GAAP, but it failed to consider whether the departures were quantifiable. Senior management defended the company’s accounting practices by saying there was simply a disagreement over FASB (Financial Accounting Standards Board) accounting standards.