oversight

Fannie Mae's and Freddie Mac's Participation in the 2011 Mortgage Bankers Association Convention and Exposition

Published by the Federal Housing Finance Agency, Office of Inspector General on 2012-03-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

TO:                Jeffrey Spohn,
                   Senior Associate Director, Office of Conservatorship Operations




FROM:              George Grob,
                   Deputy Inspector General for Evaluations


SUBJECT:           Evaluation Survey Report 2012-004
                   Fannie Mae’s and Freddie Mac’s Participation in the 2011 Mortgage Bankers
                   Association Convention and Exposition


DATE:              March 22, 2012


The purpose of this memorandum is to report the results of FHFA-OIG’s survey of FHFA’s
oversight of Fannie Mae’s and Freddie Mac’s business and travel-related expenses associated
with their participation in the 2011 Mortgage Bankers Association Convention and Exposition
(the Convention).

Collectively, Fannie Mae and Freddie Mac (collectively, the Enterprises) spent over $600,000 in
order to participate in the Convention. Although this sum represents a modest portion of the
Enterprises’ annual expenditures, the topic has attracted considerable attention. In light of
ongoing concern over the Enterprises’ expenditures, FHFA-OIG initiated this survey to review
the Agency’s oversight of the Enterprises’ travel-related expenses. The details of FHFA-OIG’s
analysis can be found in the Attachment.
Findings

In summary, FHFA-OIG found:

      The Enterprises’ registration and travel-related expenses (e.g., airfare, hotel, and per
       diem) of $256,458, when viewed on a per capita basis, were comparable to those that
       would have been allowable for federal employees;
      However, other expenses were open to question, including:
          o $140,000 for sponsorships of the Convention; and
          o $140,415 for business meals and hosted dinners.

Thus, of over $600,000 expended by the Enterprises on the Convention, $280,415, or almost one
half, was of questionable value.

New FHFA Directive and Guidance

Prior to FHFA-OIG’s completion of the field work for this survey, the FHFA Acting Director
issued a letter directing the Enterprises that payments for conference sponsorships should no
longer be allowed, and that expenditures on food at business meetings should be stopped to the
extent they still exist. On January 25, 2012, the Acting Director issued additional guidance to
the Enterprises regarding the implementation of the previously announced controls on
conference sponsorships and expenditures for food. In light of the new directive, FHFA-OIG has
concluded that there is no need to conduct additional evaluative work in this area. However,
FHFA-OIG will monitor FHFA’s implementation of the directive and the recommendation made
herein.

Recommendations

FHFA-OIG recommends, in accordance with the Agency’s January 25 guidance to the
Enterprises, that:

   1. FHFA should ensure that the Enterprises conduct a comprehensive review of their travel
      and entertainment policies, and revise them in a manner consistent with the January 25
      guidance; and
   2. FHFA should review the Enterprises’ proposed revisions to ensure that they are drafted in
      a manner consistent with the guidance provided by FHFA and that the Enterprises have
      established appropriate controls to monitor compliance.

The details of FHFA-OIG’s analysis can be found in the Attachment to this memorandum
entitled, “The Enterprises’ Participation in the 2011 Mortgage Bankers Association Convention
and Exposition.” FHFA agreed with FHFA-OIG’s recommendations, and its response can be
found in its entirety at Appendix A to the Attachment.




                                                2
This study was conducted by Assistant Inspector General David M. Frost with assistance from
Director of Fraud Prevention and Program Management Angela Choy. FHFA-OIG appreciates
the cooperation of FHFA and Enterprise staff, as well as the assistance of all those who
contributed to the preparation of this report.

Attachment: Evaluation Survey Report 2012-004 – The Enterprises’ Participation in the 2011
Mortgage Bankers Association Convention and Exposition.

cc: Mark Kinsey, Chief Financial Officer
    Bruce Crandlemire, Senior Advisor




                                             3
                                                ATTACHMENT




          Evaluation Survey Report No. 2012-004




     Fannie Mae’s and Freddie Mac’s Participation in
the 2011 Mortgage Bankers Association Annual Convention
                    and Exposition




               Federal Housing Finance Agency
                 Office of Inspector General
                      March 22, 2012
Table of Contents

Purpose............................................................................................................................................ 2
Background ..................................................................................................................................... 2
   I. Introduction .............................................................................................................................. 2
   II. The Convention ...................................................................................................................... 3
   III. Costs of the Convention ........................................................................................................ 4
   IV. Overall Analysis .................................................................................................................. 12
Findings......................................................................................................................................... 13
Recommendations ......................................................................................................................... 13
Appendix A – FHFA’s Response to Findings and Recommendation .......................................... 15
Appendix B – Objective, Scope, and Methodology ..................................................................... 16
Additional Information and Copies .............................................................................................. 17
         Fannie Mae’s and Freddie Mac’s Participation in
    the 2011 Mortgage Bankers Association Annual Convention
                        and Exposition

Purpose
The Federal Housing Finance Agency (FHFA or the Agency), Office of Inspector General
(FHFA-OIG) conducted a survey to assess FHFA’s oversight of business and travel-related
expenses associated with the participation of the Federal National Mortgage Association (Fannie
Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) in the 2011 Mortgage
Bankers Association (MBA) Annual Convention and Exposition (the Convention).

Background
I. Introduction

The MBA held its Convention at the Hyatt Regency, Chicago, from October 9 - 12, 2011. Every
year, MBA’s conventions attract some 3,000 executives who work in mortgage finance.
Attendees typically include senior managers from national and regional lenders, full service
mortgage companies, mortgage brokers, mortgage service providers, affordable housing groups,
and state and local associations. FHFA personnel have also attended at Agency expense.

FHFA did not approve or review (prior to the event) the Enterprises’ participation in the
Convention, or their decisions to sponsor it. Both FHFA and the Enterprises viewed the matter
as entirely within the authorities delegated by FHFA to Fannie Mae and Freddie Mac.

Collectively, the Enterprises spent over $600,000 to participate in the Convention. Although this
sum represents a relatively small portion of the Enterprises’ annual expenditures, it attracted
media and congressional attention.1

On December 13, 2011, approximately one month after FHFA-OIG announced this survey,
FHFA’s Acting Director issued a letter to the Enterprises requiring them to scrutinize all general
and administrative expenses to ensure that they were consistent with the direction and goals of
the conservatorship. The Acting Director’s letter made it clear that expenses like those involving
meals, complimentary food, and similar items deserve special scrutiny and that, generally, they

1
 See, e.g., Morgenson, “Fannie and Freddie, Still the Socialites,” New York Times (Oct. 16, 2011), at
p. BU1; Letter from Hon. Randy Neugebauer to FHFA Acting Director Edward J. DeMarco, dated October 13,
2011.


                                                    2
should be stopped. The letter went on to specifically restrict such items as paying for meals to
host meetings. The Acting Director did not ban business and travel expenses, but insisted that
caution and prudence be exercised. He further stated that sponsorship of conferences would be
considered an inappropriate expense without prior approval from FHFA. Finally, the Acting
Director promised that the conservator would take a more active role in monitoring the
Enterprises’ controls and practices surrounding travel and business expenses.

In a subsequent letter, issued on January 25, 2012, the Acting Director required the Enterprises to
implement additional guidance. The guidance requires each Enterprise to establish controls, and
implement monitoring and reporting mechanisms, to ensure compliance with the December
directive.

FHFA-OIG notes that the Acting Director’s new directive rendered significant portions of this
survey academic. Accordingly, rather than continue with the process, FHFA-OIG concluded the
survey based on the work performed to date. The fieldwork and analysis completed by FHFA-
OIG on this matter are sufficient to reach the conclusions and recommendations set forth in this
report.

The report focuses on the reasonableness of the various costs incurred by the Enterprises for
participating in the Convention.2 The conclusions and recommendations in this report are
consistent with, elaborate on, and promote compliance with the Acting Director’s directive.

II. The Convention

Combined, 90 Enterprise employees were registered as attendees of the Convention: 48 for
Fannie Mae and 42 for Freddie Mac.3 A review of the promotional materials prepared by MBA
and information received from the Agency and the Enterprises makes it apparent that the
Convention afforded opportunities for the professional development of participants, as well as
opportunities to exchange ideas on significant policies and practices in mortgage banking. The
Convention included committee meetings and presentations on technology, mortgage servicing,
compliance issues, legal concerns, loan production, and the impact of demographic trends on the
mortgage market.

In order to prepare a response to a congressional inquiry concerning the reasons for the
Enterprises’ participation in the Convention, FHFA solicited explanations from both Fannie Mae


2
 For purposes of this report, the Enterprises’ expenditures on the Convention are considered in the following
categories: (1) sponsorship costs; (2) registration and travel costs for employees; (3) on-site expenses, including
meeting rooms and food; and (4) hosted dinners for clientele.
3
 FHFA sent seven of its own employees to the Convention. Apart from the seven FHFA employees who attended
as registered participants, both the Acting Director of FHFA and the Inspector General of FHFA attended and made
presentations at the Convention.

                                                           3
and Freddie Mac. In its reply to FHFA, Freddie Mac stated that the Convention provided the
Enterprise’s “executives with a cost-effective opportunity to educate, inform and engage with
hundreds of mortgage market executives on key issues affecting the housing industry.” Freddie
Mac noted further:

       During the conference [its] executives participated in approximately 200 meetings with
       their counterparts from the community, regional and national institutions of many of the
       industry’s most critical business issues.

In its memorandum to the Agency, Fannie Mae advised:

       The presence of a significant portion of the industry in a single location permits Fannie
       Mae to use the conference to meet with its customers and counterparties in a single place
       to address the challenges faced in this market and the work we are doing to provide
       liquidity to the market, help distressed families and create value for taxpayers. Prior to
       the conference, Fannie Mae scheduled over 200 meetings with customers to occur during
       the event, the majority of which were with community banks or small, independent
       mortgage companies. These scheduled meetings do not include other informal meetings
       that occur frequently between Fannie Mae employees and lenders at the conference.

In its response to the congressional inquiry, FHFA stated that “attendance and active
participation at the MBA Conference by Fannie Mae and Freddie Mac officials satisfies core
business needs for each company.” It added that decisions by the Enterprises to participate in the
Convention were “considered normal operating decisions,” and, as such, were within the
discretion afforded the Enterprises by FHFA as conservator.

Both Enterprises chose to send additional personnel to Chicago without registering them for the
Convention, in order to conduct business meetings with industry executives attending the
Convention.

III. Costs of the Convention

The Enterprises’ overall Convention expenses exceeded $600,000. Travel-related costs and
registration expenses accounted for slightly more than $256,000. The Enterprises also spent
$140,000 on Convention sponsorships, $140,000 on business meals and entertainment costs, and
approximately $70,000 on other costs. These costs are summarized in Figure 1, below.




                                                4
Figure 1: Enterprise Convention Costs
                    Registration         Travel                  Business    Other
                       Costs            Expenses   Sponsorship    Meals     Expenses       Total
Fannie Mae             $38,219          $106,636     $60,000     $47,823    $14,639      $267,317
Freddie Mac            $29,820          $81,783      $80,000     $92,592    $55,989      $340,184
Total                  $68,039          $188,419    $140,000     $140,415   $70,628      $607,501


Travel and Registration Expenses. At the inception of the conservatorships of Fannie Mae and
Freddie Mac, FHFA reviewed and approved the Enterprises’ respective policies pertaining to
travel and entertainment expenses. These FHFA-approved policies were in effect at the time of
the Convention.

Travel expenses for federal employees, including FHFA personnel, are subject to regulation. 4
However, Enterprise personnel are not considered federal employees and, thus, they are not
subject to federal travel regulations nor are they entitled to federal discount rates. Nevertheless,
a comparison between the travel costs incurred by the FHFA federal employees attending the
Convention and those incurred by Enterprise employees attending it is useful as a rough gauge of
the reasonableness of the Enterprises’ expenditures, as well as a general assessment of their
travel policies. The comparison is particularly significant in light of the use of taxpayer funds to
cover losses incurred by the Enterprises.

Registration costs were determined by the management of the Convention. Variations in the per-
person registration costs paid by the two Enterprises and the Agency were the result of several
factors, including a certain number of free registrations given to sponsors, discounts for early
registration and membership, and reduced rates for individuals asked to speak at the Convention.

Total registration costs for the 48 Fannie Mae employees who attended the Convention were
$38,219. Total travel and related expenses for these employees, as well as for another 68 Fannie
Mae employees who traveled to Chicago without registering for the Convention (in order to take
advantage of the opportunities for meetings and interactions with industry executives) amounted
to $106,636.

For Freddie Mac, registration of 42 employees attending the convention cost $29,820. Travel
and related expenses for these employees, as well as for 16 additional Freddie Mac employees
(who did not register for the Convention, but who utilized the opportunity presented by the
Convention to conduct business meetings) totaled $81,783.

The Agency expended $7,068 registering seven (federal) employees for the Convention. Travel
and per diem expenses for these seven employees totaled $8,602.

4
    See 41 C.F.R. Chapters 300 – 304.

                                                      5
FHFA-OIG reviewed the Enterprises’ travel policies applicable at the time of the Convention,
and compared them to the federal government’s travel policies. The policies, although not
identical, contain similar requirements and appear to be oriented toward cost savings. Some of
the salient provisions of the Enterprises’ respective policies, as well as corresponding federal
travel policies, are set forth below in Figure 2.

Figure 2: Enterprise and Federal Government Travel Policies
                       Fannie Mae           Freddie Mac                                  Federal Government

                         Must use preferred
                                                           Must choose airlines based
                         carriers; consider lowest
                                                           on cost, regardless of
                         fare; accept lowest cost
                                                           airline or airport
                         booking within a 4 hour
Air Travel                                                 preference; arrangements      Must use contract carrier
                         window around preferred
                                                           should be made in advance
                         departure; accept alternate
                                                           to take advantage of early
                         airport within 50 miles or
                                                           booking discounts
                         1 hour to save $300

                                                                                         Coach or economy class
                                                           Coach or economy class        required except for flights
                         Must accept most effective
                                                           except when flying time is    of over 14 hours, including
                         coach class—business
Air Travel (business                                       over six hours; senior vice   stopovers, with origin or
                         class allowed only for
or first class)                                            presidents and above may      destination outside the
                         flights of six or more
                                                           travel in business or first   continental U.S.; some
                         hours of flight time
                                                           class at their discretion     security- or health-related
                                                                                         exceptions apply

                                                                                         Preference given to
                         Must stay at preferred                                          government lodging
                         hotels when possible;                                           agreement programs;
                                                           Stay at preferred hotels
Hotels                   standard accommodations;                                        standard rate ($190 for
                                                           whenever possible
                         no reimbursement for spa,                                       Chicago at the time of the
                         health clubs, etc.                                              Convention); exceptions
                                                                                         where this is unavailable




                                                       6
Daily Meal
Allowance (Chicago,      $70                              $65                          $71
Oct. 2011)

                                                          Must use Corporate Travel
Making Travel            Must use Fannie Mae                                           Must use agency’s E-Gov
                                                          online booking tool or the
Arrangements             online booking tool                                           travel service
                                                          Freddie Mac travel office

                                                          Managerial approval
                         Expenses must be                                              Must have written
                                                          required; managers to be
Reimbursement            approved by a director, or                                    authorization prior to
                                                          proactive in controlling
                         above                                                         travel
                                                          travel expenses

                         May be provided for a            “No absolute limits” $65 -
                         business purpose, but may        $100 per person is a
Entertainment            not exceed $100 per              “reasonable guideline;”      Not authorized
                         person without                   prior management
                         management approval              approval required

                                                          Travel expenses of
                         Can be authorized for            immediate family
Spousal Travel           “bona fide business              members can be               Not authorized
                         reason”                          authorized for business
                                                          reasons



Although both of the Enterprises maintain policies that, like those of the federal government, are
oriented toward cost savings (e.g., the use of an internal travel service and specially negotiated
rates for carriers or hotels), they allow particular expenses (e.g., spouse or domestic partner
travel and entertainment expenses) that would not be permissible under federal travel
regulations. Nonetheless, as applied to the Enterprises’ travel and registration expenses for the
Convention, the Enterprises’ policies rendered results comparable to federal travel policies.
Figure 3, below, illustrates the approximate per person costs of registration and travel for the
Enterprises and FHFA.




                                                      7
Figure 3: The Enterprises’ Per Capita Cost Is Comparable to FHFA’s Costs


    1400

    1200

    1000

    800
                                                                                          Registration
    600                                                                                   Travel, etc.

    400

    200

      0
               Fannie Mae            Freddie Mac          FHFA-- Federal
                                                        Travel Regulations


As reflected in Figure 3, Fannie Mae spent approximately $796 per person on registration and
$919 per person on travel. Freddie Mac spent approximately $710 per person on registration and
$1,410 per person on travel. The Agency spent nearly $1,010 per person on registration5 and
approximately $1,229 per person on travel. Regarding per-person travel costs, using the federal
travel regulations as a benchmark, FHFA-OIG concluded that the per-person travel costs
incurred by the Enterprises were comparable to FHFA’s costs. Indeed, Fannie Mae was able to
manage travel expenses for a lower per-person cost than the Agency and is to be commended for
its diligence in this regard. Moreover, as stated above, both Fannie Mae and Freddie Mac sent
employees to Chicago during the MBA Convention without registering them, in order to conduct
business meetings with customers who were attending the Convention. FHFA-OIG notes that
this reflects positive efforts at cost containment by the Enterprises.

Convention Sponsorship. The web site for the Convention lists 24 entities as “sponsors,”
including both Fannie Mae and Freddie Mac. Sponsorship of the Convention entails the
payment of a sum of money in exchange for the receipt of specified levels of recognition and
benefits.



5
  The Enterprises’ per-person registration costs were lower than the Agency’s. This was due, in part, to the free
registrations given to sponsors of the Convention. However, both Enterprises also took advantage of early
registration discounts. It appears that, in most instances, the Agency did not avail itself of this discount.


                                                          8
At the Convention, Freddie Mac joined three other companies as sponsors at the “Platinum”
level.6 Platinum level sponsorship costs $80,000. Fannie Mae joined six other companies as
sponsors at the “Gold” level, which costs $60,000.7 According to the MBA:

           Sponsorship of MBA’s 98th Annual Convention & Expo is a highly visible, cost-
           effective way to place your company’s name before key decision makers in the mortgage
           banking industry. As the premier event in residential real estate finance, MBA’s Annual
           Convention & Expo is attended by a cross-section of key industry professionals – all
           looking for the latest information on business trends, critical issues, new products and
           services and emerging technology. The various levels of convention sponsorship present
           excellent opportunities to tailor a visibility program that meets your specific marketing
           needs while positioning your company as a leader in the industry.

Various benefits were extended to sponsors, depending on their level. For the Enterprises, these
benefits included:

          “A banner at the Hyatt Regency Chicago and a high-rotation ad on the convention web
           site;”
          Six “complimentary sponsor registrations;”
          A full-page display advertisement in the convention program;
          Opportunities to attend a luncheon with a noted humor writer or a “tailgate party;” and
          Space at the Convention (which, the Enterprises state, they would otherwise have been
           obliged to rent).

Although FHFA-OIG does not intend to minimize the need for the Enterprises to maintain their
visibility, it is not apparent that the Enterprises need “a highly visible, cost effective way to place
[their names] before key decision makers in the mortgage banking industry.” With control of an
overwhelming majority of the secondary mortgage market, the Enterprises are themselves the
“key decision makers in the mortgage banking industry.” Indeed, the Government National
Mortgage Association (commonly referred to as “Ginnie Mae”), a federal government agency
and another well-known “key decision maker” in the secondary mortgage market, was identified
by its logo and link to its website on the Conference’s website only as a “participant.”8




6
 The other three companies were Lender Processing Services, Inc.; MERS; and ServiceLink, FNF’s National
Lender Program. Two other companies, QBE First and Radian Guaranty, Inc., paid for higher levels of sponsorship.
7
    The other six companies were Chase, Citi, Commerce Velocity, CoreLogic, First American, and Fiserv.
8
    http://events.mortgagebankers.org/98th_annual/sponsorapplicationform.


                                                         9
An internal memorandum from one Enterprise reflects that part of its motivation for sponsoring
the Convention at a particular level was its speculation about the other Enterprise’s likely level
of sponsorship.9

As detailed above, in the wake of the attention directed at Convention expenses, the Acting
Director issued a directive to the Enterprises. Along with requesting heightened scrutiny by the
Enterprises of their general and administrative expenses, the Acting Director stated that
conference sponsorship is not an appropriate expenditure unless the Enterprises first secure the
conservator’s approval.

FHFA-OIG did not find a sufficient justification for the Enterprises’ sponsorship of the
Convention. But in light of the Acting Director’s directive and subsequent guidance to the
Enterprises, further analysis of this topic now appears to be unnecessary. FHFA-OIG commends
the Agency for taking steps to address this issue.

On-Site Costs and Hosted Dinners. While at the Convention, personnel from the Enterprises
conducted business meetings, engaged in outreach to customers and potential customers, and
generally worked to promote the interests of the Enterprises. Attendant costs included meeting
room rentals, food and beverages, and various exhibits. Moreover, each Enterprise sponsored
two separate dinners at the Convention to which selected customers were invited. Although
there is some indication that, at least in the case of Fannie Mae, efforts were made to limit the
size and cost of the dinners, overall costs were still significant.

As was the case with the travel costs, the government’s rules on conferences, although not
explicitly applicable to the Enterprises, may serve as a helpful benchmark. Those rules permit
expenditures such as room rental, computer and telephone access fees, printing costs, and
transportation. But the regulations do not authorize formal meals such as those provided by the
Enterprises at the Convention; rather, they allow only for the provision of “light refreshments,”
such as “coffee, tea, milk, juice, soft drinks, donuts, bagels, fruit, pretzels, cookies, chips or
muffins.”10

Once again, the Acting Director’s December 13 letter to the Enterprises would appear to provide
a basis upon which to resolve a substantial part of the concerns raised about the Enterprises’ on-
site expenses. Regarding expenditures on “meals, complimentary food, and like items,” the




9
 See Memorandum, dated June 1, 2011, entitled “Recommended [Enterprise] Presence and Participation at the 2011
MBA Annual Convention & Expo.”
10
     41 C.F.R. §§ 301-74.2, 301-74.11.


                                                     10
Acting Director stated that such expenditures deserve special scrutiny and generally should be
stopped.11

As reflected in Figures 4 and 5, below, the Enterprises’ costs for participation in the Convention
would have been substantially lower under the guidelines set forth in the Acting Director’s letter
(i.e., without the expenditures on food and sponsorships).

Figure 4: Fannie Mae Convention Expenses                   Figure 5: Freddie Mac Convention Expenses

               Fannie Mae                                                 Freddie Mac
          Total Convention Expenses: $267,317                         Total Convention Expenses: $340,184




                                        Sponsorship                                                Sponsorship


                                        Business                                                   Business
                                        Meals                                                      Meals




Other Conference Costs. In addition to travel-related and registration expenses, sponsorships,
and business meals costs, the Enterprises spent approximately $70,000 on such costs as exhibit
space at the Convention, exhibit costs, communications, audio-visual services, labor, and
meeting room rental.

Spouses and Entertainment. FHFA-OIG noted that the Enterprises’ travel and entertainment
policies permit certain expenditures that, under comparable federal regulations, would not be
authorized. These include entertainment costs (e.g., theater tickets, sporting events, and the
hosted meals discussed above) and travel by spouses. However, FHFA-OIG’s review of the
Enterprises’ expenses at the Convention found no entertainment-related expenditures apart from
the business meals discussed above. Moreover, FHFA-OIG found only one example of a spouse
travelling at Enterprise expense in order to participate in a Convention-related event –
specifically, the wife of Fannie Mae’s CEO was the co-host of one of the hosted dinners.



11
  The Acting Director’s January 25, 2012 guidance tempers this prohibition somewhat, and allows for limited
expenditure on business courtesies such as onsite refreshments or meals that serve a business purpose. FHFA-OIG
notes, however, that the guidance contemplates such expenditures only as narrow exceptions to the prohibition.
Whether the issue is satisfactorily resolved will depend on the Enterprises’ implementation of the Acting Director’s
guidance. FHFA-OIG will review any revised Enterprise policies ultimately approved by the Agency.

                                                         11
Number of Attendees. The business and professional development opportunities presented at
the Convention appear sufficient to warrant some degree of participation by the Enterprises. The
fact that both Fannie Mae and Freddie Mac sent employees to Chicago without registering them
for the Convention (to take advantage of opportunities to meet with a number of customers who
were attending the Convention) tends to indicate that the Enterprises exercised some discretion
in determining how many employees would be permitted to participate. However, FHFA-OIG
did not find, nor was it able to develop, criteria of its own to determine the number of employees
whose presence at the Convention was appropriate.

Nonetheless, FHFA-OIG notes that the Acting Director’s January 25, 2012, guidance to the
Enterprises stated that any future conference attendance should be strictly limited to employees
whose attendance was required by the business goals of the Enterprise. The Acting Director
further stated that such expenditures should be pre-approved by an appropriate level manager,
and documented. Where multiple business units wish to send employees to the same convention,
the Chief Financial Officer or Chief Administrative Officer of the Enterprise would be
responsible for approval of the proposed attendees.

FHFA-OIG anticipates that, if implemented by the Enterprises, the Acting Director’s guidance
will satisfactorily address current concerns.

IV. Overall Analysis

Of the over $600,000 expended by the Enterprises on the Convention, nearly half (approximately
46%) was accounted for by sponsorships, hosted dinners, and business meals. Although not all
of these expenses would have been eliminated under the Acting Director’s new directive and
subsequent guidance (sponsorship benefits included room rentals and additional benefits that the
Enterprises might otherwise have needed to purchase), it is readily apparent that the Enterprises
would have been able to accomplish their business at the Convention at a substantially lower
cost. FHFA-OIG acknowledges that business custom may often warrant the kinds of
expenditures detailed above, but neither Enterprise was able to articulate tangible benefits
accruing from its sponsorships, hosted dinners, and other business meals that would have
warranted the expenditures – there is no indication that any business conducted by the
Enterprises with their clientele at the Convention could not have been conducted as well without
this largesse.




                                               12
Findings
In light of the foregoing, FHFA-OIG finds that:

      The Enterprises’ registration and travel-related expenses for the Convention (e.g., airfare,
       hotel, per diem) of $282,633, when viewed on a per capita basis, were comparable to
       those that would have been allowable for federal employees; but
      Other expenses were of questionable value, including:
           o $140,000 for sponsorships of the Convention; and
           o $140,415 for business meals and hosted dinners.

Thus, of over $600,000 expended by the Enterprises on the Convention, $280,415, or almost one
half, was of questionable value.

FHFA-OIG has reviewed the Enterprises’ travel and entertainment policies, but, in light of the
new directive and subsequent guidance issued by the Acting Director, has not examined the
policies’ impact in instances other than the Convention prior to the issuance of the directive.
FHFA-OIG concludes that the Acting Director’s new directive and guidance, if effectively
enforced, will provide a solid basis for controlling future business and travel expenses.

The Acting Director’s guidance to the Enterprises states that the Enterprises’ “updated policies
should be shared, following Enterprise approval, with FHFA’s Office of Conservatorship
Operations.” The guidance also requires quarterly reporting to FHFA’s Office of
Conservatorship Operations of expenditures related to the categories outlined in the guidance.
FHFA-OIG agrees, in light of congressional and public concerns over the Enterprises’
administrative expenditures, that the updated policies and quarterly expense reporting should be
reviewed and monitored by FHFA.

Recommendations
FHFA-OIG recommends, in accordance with the Agency’s January 25, 2012 guidance to the
Enterprises, that:

       1. FHFA should ensure that the Enterprises conduct a comprehensive review of their
          travel and entertainment policies, and revise them in a manner consistent with the
          January 25 guidance; and




                                                13
         2. FHFA should review the Enterprises’ proposed revisions to ensure that they are
            drafted in a manner consistent with the guidance provided by FHFA and that the
            Enterprises have established appropriate controls to monitor compliance.12

FHFA-OIG will monitor the Agency’s implementation and oversight of these recommendations.




12
   Because FHFA-OIG’s study was limited to the Enterprises’ participation in the 2011 MBA Convention, certain
aspects of the Enterprises’ travel and entertainment policies (e.g., international travel, entertainment costs, spousal
travel, etc.) were either unrelated or only peripherally related to the substance of this report. Nonetheless, the
comprehensive review of the Enterprises’ travel and entertainment policies recommended herein should embrace all
aspects of those policies to ensure that they are consistent with the goals and direction of the conservatorships.



                                                          14
Appendix A – FHFA’s Response to Findings and Recommendation




                             15
Appendix B – Objective, Scope, and Methodology

The objective of this study was to evaluate the reasonableness of the Enterprises’ costs of
participation in the 2011 Mortgage Bankers Association Convention and Exposition.

To address this objective, FHFA-OIG:
    Reviewed documentation and lists of expenses submitted by the Enterprises to FHFA;
    Reviewed public information published by the MBA concerning its annual conventions;
    Reviewed the Enterprises’ and federal travel policies with respect to:
           o The scope of approved travel;
           o Expenses allowed for travel, hotels, meals, and incidental expenses;
           o Procedures for authorizing travel; and
           o Procedures for approving travel vouchers;
    Reviewed the Enterprises’ travel and related costs for attending the Convention and
       compared them to those that would have been allowable under federal travel policies and
       procedures; and
    Interviewed an executive from the Agency’s Office of Conservatorship Operations and
       conducted telephone conferences with Enterprise executives.

FHFA-OIG was unable to develop criteria to determine the appropriate number of attendees at
the Convention.

Enterprise travel and entertainment policies also allow for expenditures on items such as outings
with clients to sporting events, symphonies, or similar entertainment. Because it does not appear
that such outings took place during the MBA Convention, FHFA-OIG has not considered the
propriety of such expenditures in this report. Nevertheless, in light of Acting Director
DeMarco’s letter, FHFA-OIG anticipates that the provisions of the Enterprise policies allowing
for such expenditures will receive careful scrutiny at both the Enterprise and conservator levels.




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Additional Information and Copies

For additional copies of this report:

       Call the Office of Inspector General (FHFA-OIG) at: 202-730-0880

       Fax your request to: 202-318-0239

       Visit the FHFA-OIG website at: www.fhfaoig.gov



To report alleged fraud, waste, abuse, mismanagement, or any other kind of criminal or
noncriminal misconduct relative to FHFA’s programs or operations:

       Call our Hotline at: 1-800-793-7724

       Fax us the complaint directly to: 202-318-0358

       E-mail us at: oighotline@fhfa.gov

       Write to us at: FHFA Office of Inspector General
                       Attn: Office of Investigations – Hotline
                       400 Seventh Street, S.W.
                       Washington, DC 20024




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