WASHINGTON, DC-"Grossly inadequate" internal accounting procedures put in place by now ousted executives that led to Fannie Mae's $11 billion restatement of earnings, an official external study has concluded. The nearly 2,700-page Report to the Special Review Committee of the Board of Directors of Fannie Mae--spearheaded by one-time Sen. Warren Rudman and the law firm of Paul, Weiss, Rifkind, Wharton & Garrison--was based upon a nearly 18-month investigation. For previous GlobeSt.com coverage, click here.

The report finds that Fannie Mae former chief financial officer Timothy Howard and former controller Leanne Spencer instituted negligent accounting practices leading back to 2001. In 2004, the Office of Federal Housing Enterprise Oversight raised a series of questions about Fannie Mae's accounting and internal governance in its own investigation.

As per the Rudman report, Howard and Spencer "put undue emphasis on avoiding earnings volatility and meeting EPS targets and growth expectations." The report also concluded that Howard and Spencer made "incomplete and misleading disclosures to the board."

In response to the investigation's conclusions, Stephen B. Ashley, Fannie Mae chairman of the Board of Directors, expresses his disappointment, but commits to restructuring the company. "These findings are disturbing, disappointing and very serious. But big problems brought to light can teach big lessons." He adds that Fannie Mae "acknowledge we have a lot of work to do to restore faith in Fannie Mae, and we are committed to doing that. We will continue to implement the improvements and move the company forward."