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Fannie Mae Accounting Scandal - Case Study Example
Fannie Mae is a company in the US that is involved in the business of mortgage and loans. It has been operating since 1938, and is the second largest firm in the respective industry following Citigroup Inc in the US. It is also considered as the ninth largest firm in the respective industry on the global scale…
In 2004, the Office of Federal Housing Enterprise Oversight (OFHEO) found out that the firm Fannie Mae was violating the Generally Accepted Accounting Principles (GAAP). This practice, as per the government investigation took place from 1998-2004, while in the year 1998, the management over stated revenues and understated the expenses. In accordance with a report that has been recently presented by OFHEO, there was involvement of high level executives that led to the misinterpretation and violation of accounting standards, which was a massive scale 'organized-accounting-robbery' mounting the dollar amount to 11 billion. The director of OFHEO took an immediate note and directed correction, which was turned down by Fannie Mae making an excuse that it could have been an end-user issue as the company is not fully automated.
What truly went improper was the fact that loans and mortgage are fairly risky games and there are always chances of customers defaulting, alongside the interest rate risk makes the venture further riskier. For securing their investment and giving better return to stakeholders, Fannie Mae undertook risky ventures and investment for better returns and compensating the main stream line of business. ...