This memorandum is the U.S. Department of Housing and Urban Development, Office of Inspector General’s (OIG) response to the Government National Mortgage Association’s (Ginnie Mae) official restatement notification, dated September 16, 2015.  We are issuing this memorandum because we believe Ginnie Mae did not completely and adequately disclose the severity of the misstatements identified to allow report users who rely on Ginnie Mae’s financial statements to understand their impact.

In accordance with the American Institute of Certified Public Accountants’ Codification of Statements on Auditing Standards, AU-C 560.18, OIG has a responsibility to take appropriate action to prevent reliance on an auditor’s report that OIG believes is inaccurate.  This action is taken to protect the integrity of our work product, especially in circumstances in which we believe the financial statements need to be restated.

On September 16, 2015, Ginnie Mae published a restatement notification regarding material misstatements identified in its fiscal year 2014 financial statements (see attachment).  However, we believe the disclosures included in the restatement notification were not sufficient to enable report users to fully understand the significance and magnitude of the issues reported.  Additionally, Ginnie Mae did not properly caution the report users to not rely on its financial statements and the related audit reports until it has issued a future restatement.  This failure to follow our recommendations occurred despite our repeated requests for Ginnie Mae to make the appropriate adjustments.  Accordingly, this letter addresses the deficiency in the restatement notification to ensure that accurate and complete information is disclosed.    
 
Material misstatements in Ginnie Mae’s financial statements were identified during our fiscal year 2014 audit.  These misstatements were due to the improper (1) accounting for Federal Housing Administration (FHA) reimbursable costs as an expense rather than an asset in its books and (2) accounting treatment and inadequate disclosure of the mortgage escrow funds held in trust by Ginnie Mae for the borrowers in its defaulted issuers’ portfolio.  In our assessment, these errors may have affected Ginnie Mae’s fiscal years 2011 to 2014 financial statements.  Therefore, we caution report users to not rely on these statements and the audit opinions accompanying these statements until a restatement has been made.