- The Washington Times - Wednesday, October 6, 2004


The former Fannie Mae accountant who raised questions about the mortgage giant’s bookkeeping said yesterday that he took his concerns directly to Chief Executive Officer Franklin Raines in 2002 and asked him to investigate.

The disclosure by Roger Barnes, who left Fannie Mae last November, came as Mr. Raines and Chief Financial Officer Timothy Howard defended the company’s accounting and told Congress that regulators’ charges of earnings manipulation represent an interpretation of complex rules.

The regulators have said that information provided by Mr. Barnes was important to their investigation of the government-sponsored company’s accounting.

“I urged Mr. Raines and Mr. Howard to investigate the issues identified,” Mr. Barnes said in written testimony submitted for a hearing by the House Financial Services subcommittee that oversees Fannie Mae and Freddie Mac, its smaller rival in the multitrillion-dollar home mortgage market.

“Neither Mr. Raines nor Mr. Howard, nor anyone from their staffs, investigated these concerns or took corrective action,” he said. “Thus, the practices I had identified continued, and I faced continuing reprisal for raising concerns about these issues.”

Mr. Barnes, who was a manager in the Controller’s Division, said that he anonymously sent the two executives a memo on Sept. 23, 2002, calling himself a finance division manager. The information he provided was “easily traceable” to him because he was among only a small number of managers who had detailed data on the company’s process for accounting for expenses over time, said Mr. Barnes.

At Fannie Mae, he said, “The atmosphere and culture, particularly within the Controller’s Division, is one of intimidation, restraint of dissenting opinions and pressure to be part of the ‘team.’” giving Mr. Raines and Mr. Howard the numbers they sought to please the markets.

Mr. Raines and Mr. Howard were making their first public appearance since news of the charges and a Securities and Exchange Commission inquiry into government-sponsored Fannie Mae surfaced on Sept. 22.

“These accounting standards are highly complex and require determinations over which experts often disagree,” Mr. Raines said in testimony prepared for his appearance before the panel.

The hearing turned sharply partisan, with some Republicans making it clear they do not have confidence in the leadership of Mr. Raines and other executives.

Many Democrats, meanwhile, challenged Office of Federal Housing Enterprise Oversight Director Armando Falcon’s harsh assessment of Fannie Mae’s accounting practices.

Several black lawmakers questioned the motives of investigators, who they said were on a “witch hunt,” or worse.

“This hearing is about the political lynching of Franklin Raines,” said Rep. William Lacy Clay, a black Democrat from Missouri.

Mr. Raines, 55, is a prominent Democrat and one of the best known blacks in the business world.

He served as the White House budget director under President Clinton, and his name often is floated as a possible Treasury secretary in any future Democratic administration.

In his written testimony, Mr. Raines noted that Fannie Mae’s outside auditor, KPMG, had endorsed the company’s application of accounting rules.

Some of the findings by the Office of Federal Housing Enterprise Oversight “involve highly detailed issues that I would not normally focus on in my role as CEO,” Mr. Raines said.

OFHEO Director Armando Falcon, testifying under oath at the hearing, asserted that Fannie Mae improperly put off booking income to a future reporting period “to create a cookie jar reserve that it could dip into whenever it best served the interests of senior management.” Those interests included smoothing out volatility in earnings from quarter to quarter and meeting earnings-per-share targets linked to bonuses for executives, Mr. Falcon said.

Mr. Raines disputed the regulators’ contention that in one instance in 1998, accounting rules were deliberately violated so that top executives could get full bonuses.

“This is a serious allegation, and we strongly disagree with it,” said Mr. Raines.

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