Fannie Replaces Audit Leader
Saturday, May 20, 2006
The board of Fannie Mae has replaced the head of its audit committee as federal regulators prepare to release a report on the company's $10.8 billion accounting scandal.
Thomas P. Gerrity, a professor of management and former dean of the Wharton School of the University of Pennsylvania, is stepping down as audit committee chairman after seven years. He will leave the board, which he joined in 1991, at the end of the year, the District-based mortgage finance company said yesterday.
Replacing him is Dennis R. Beresford, former head of the Financial Accounting Standards Board, the independent body that sets financial accounting rules. Beresford teaches at the J.M. Tull School of Accounting at the University of Georgia in Athens and chairs the audit committees of Kimberly-Clark Corp. and Legg Mason Inc.
Gerrity, who was reached at his home last night, declined to comment.
Fannie Mae Chairman Stephen B. Ashley said in a statement that Gerrity "indicated that . . . this is the right moment to step down and allow the board to bring on new leadership talent and energy to guide the Audit Committee forward."
Since the scandal broke in 2004, corporate governance watchdogs have called on Fannie Mae to replace its audit committee, which is responsible for overseeing the company's accounting and financial practices and the performance of its outside auditor.
Most of the committee has turned over in the past two years. Xerox chairman and chief executive Anne M. Mulcahy left in September 2004. Thayer Capital Partners' Frederic V. Malek retired from the board at the end of last year. Presidential appointees William R. Harvey and Taylor C. Segue III were not reappointed. Joe K. Pickett, a mortgage banker and director since 1996, remains on the committee.
Fannie Mae is a government-chartered, shareholder-owned company created by Congress to keep money flowing into the housing market. It does this mainly by buying mortgages from banks and other lenders and pooling them into securities for sale to investors.
On Tuesday, the company's chief regulator, the Office of Federal Housing Enterprise Oversight, is expected to release the findings of its nearly three-year investigation into Fannie Mae's accounting scandal, which led to the ouster of chairman and chief executive Franklin D. Raines and chief financial officer J. Timothy Howard. OFHEO first uncovered the accounting problems in 2004 and issued preliminary findings in September 2004.
A board-commissioned investigation into the accounting scandal released in February largely absolved the board of responsibility. The report, prepared by former senator Warren Rudman (R-N.H.), concluded that management didn't keep the board adequately informed; it laid most of the blame for the accounting problems on Howard and former comptroller Leanne G. Spencer, a charge they both deny.
However, Rudman's report also cited several instances in which it appears the audit committee was warned about potential accounting problems, including a February 1999 meeting where outside auditor KPMG LLP told the committee it had recorded an "audit difference" with Fannie Mae related to certain expenses.
Alarms did not go off because board members were told that the matter was "immaterial," Robert P. Parker, a lawyer who worked on the report, told The Post shortly after the report was released.