Assignment

"Fannie Mae Ex-Officials May Face Legal Action Over Accounting" (The Wall Street Journal, May 24, 2006)

Mr. James B. Lockhart, acting director of the Office of Federal Housing Enterprise Oversight (OFHEO), Fannie Mae's main regulator, denounced what he called an "arrogant and unethical culture" at the second largest borrower in the U.S after the federal government. Specifically, the OFHEO's 340-page report blamed both the board and management for a corporate culture that allowed managers to disregard targets. The company then rewarded executives with huge bonuses for hitting those targets, the OFHEO report said.

With reference to internal auditing, the OFHEO report quotes a speech from Mr. Sam Rogers, a former head of Fannie Mae's auditing office, as telling internal auditors they had a "moral obligation" to strive to meet a goal set by then Fannie Mae CEO, Mr. Frank Raines, in 1999 to double earnings per share to $6.46 by 2003. "By now, every one of you must have $6.46 branded in your brains", the OFHEO report quotes Mr. Rogers as saying. "You must have a raging fir in your belly that burns away all doubts, you must live, breath (sic) and dream $6.46... After all, thanks to Frank, we all have a lot of money riding on it" in terms of bonuses. Given Mr. Roger's responsibility for monitoring compliance with accounting rules, those remarks were "inappropriate," OFHEO said.

What's wrong with this picture? Did Mr. Rogers potentially violate the IIA's Code of Ethics and Standards by making these remarks? Comment on his organizational status, independence, and objectivity as then the Fannie Mae head of internal auditing, and DISCUSS whether there may be a conflict when internal auditor receive stock options and bonuses that are tied to financial performance (*Sam rogers is a fictitious s name