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Growth of Financial Manager's Power 'Undermined' Checks and Balances
Then-Fannie Mae Chairman Franklin D. Raines, left, and J. Timothy Howard, then-chief financial officer, at a hearing on Capitol Hill in 2004.
(By Dennis Cook -- Associated Press)
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The controller's office under Spencer was hit hard by Rudman's report. The 230-employee division was the main compiler of financial data at the company, key to the accuracy of financial reports both internal and to investors. Yet Rudman found it was woefully understaffed and had a paucity of qualified staff. It also had inadequate systems to do its work. Both of these assertions were central to allegations made by a former comptroller's office employee, Roger L. Barnes, who first raised questions about Fannie's accounting policies in 2003 and is considered a whistle blower by the Office of Federal Housing Enterprise Oversight, the government agency that oversees Fannie Mae and Freddie Mac. Barnes quit in 2003 and threatened to sue Fannie for racial discrimination; he and Fannie Mae reached a settlement.
Spencer had been at the company since 1991 in a variety of financial reporting positions. The office had "morale issues," Rudman said, citing numerous employee surveys that cited a fear of open, frank discussion, and a perception that dissension from the company line could mean punishment. "You're either on the team or you're not," one comptroller's office employee said in an employee survey.
Spencer, who ran the comptroller's office from 1999 until she left the company last year, was not a certified public accountant. Her attorney, David Krakoff, said last night that he and his client "vigorously dispute" the report's allegations. "Ms. Spencer worked tirelessly to maintain accurate accounting records for the company," he said. "The complex accounting judgments were the product of widespread consensus, based on the advice of internal experts and the review of the external auditors."
"Clearly, one of the lessons learned is separation of duties between financial and business aspects," Fannie chairman and 10-year board member Stephen B. Ashley said yesterday in an interview. But under Howard, those two aspects of Fannie Mae's business were mixed in a way that brought one of the country's largest financial institutions to a state of crisis before Howard was fired in December 2004.
The report confirms publicly what many current and former executives at Fannie Mae have long described in private: a culture in which dissent was frowned upon, arrogance ruled, information was hoarded. To some extent, it was a culture that predated Franklin D. Raines, who became chief executive in 1999 after James Johnson retired. In fact, some of the accounting irregularities date to Johnson's watch.
The report found that key areas of the company under the sole authority of Howard -- compliance, risk management, accounting -- were so lacking in written procedures that even if the board had asked for them, he couldn't have produced them.
Staff writer Annys Shin contributed to this report.
