Federal Reserve Board (OIG Audit 2015-MO-B-006): Inspector General Issues Audit Report on Board’s Diversity and Inclusion Processes; Board’s Claim of Total “Independence” Unjustified

The Office of Inspector General (OIG) for the Federal Reserve Board (Board), responding to a 2014 Congressional request (Appendix A of the OIG’s report), performed an audit of the Board’s diversity and inclusion processes. On March 31, 2015, the OIG issued a report.

Authors of Board OIG Audit Report, 2015-MO-B-006
Name Title
Anna Saez OIG Manager
Kimberly Perteet Senior Auditor and Project Lead
Sopeany Keo Senior Auditor
Brian Murphy Auditor
Sean Newman Auditor
Timothy Rogers Senior OIG Manager for Management and Operations
Melissa Heist Associate Inspector General for Audits and Evaluations

Overall, I am disappointed with the overall stagnation of the Board; a situation caused by institutional zeal for broad independence through the Board’s citation of 12 U.S.C. section 244. And, I could understand an argument for only the Federal Open Market Committee and only monetary policy making.

But it is unreasonable to expect the people of the United States of America to accept an “independence” stance that requires the Board, a federal agency, to be free from federal employment statutes that were adopted into law long after 1913, including civil rights laws and Title 5 of the U.S. Code. Asking any citizen in the present day to respect employment law from 1913 or to allow the Board to choose which statutes it will follow (or comply with) is totally unacceptable.

The money that the Board, on which it conducts monetary policy, comes from the people of the United States of America, which has a government that possesses authority to govern through the consent of its people. Once the government loses that consent, authority is lost. The Board, in its quest to protect a nebulous independence for non-monetary-policy administrative activities, forgets this bedrock principle and risks institutional failure.

[Author’s note:  Congressional amendment of 12 U.S.C. section 244 is necessary regardless of the history of frustration with the Board. (I am aware of past difficulty with this subject. (See Auerbach, Robert D. (2008), Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank, Austin: University of Texas Press, pages 122-124.))]

The Board must come into compliance with all civil rights laws and regulations and conform its policies to Title 5 in order to have full legitimacy. The Board’s “independent” behavior does not inspire confidence for the Board. For example, with the long case (18+ years as of the date of this post) involving employment discrimination, in Artis v. Bernanke or Artis v. Yellen or another employment discrimination case discussed in Auerbach, Robert D. (2008), Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank, chapter 8, where an African American employee, holding a position of statistical assistant, ultimately had to sue for a promotion. Successful with the litigation, the affected employee won the promotion, back pay, and compensatory damages.

Litigation is expensive, and most employees cannot afford it. So to expect a rank-and-file employee to have an expensive legal process as the sole procedure to argue against the Board (which has all of its legal expenses are covered by the taxpayer (as the paper money comes from the economic activity of the country, not the Board)) is manifestly unreasonable.

Furthermore, I question the Board’s maintenance for broad statutory compliance exclusions when it fails to voluntarily evaluate its employment practices to ensure a fair and equitable workplace, separate from the Equal Employment Opportunity complaint context. When the outside consultant determined possible disparate impact, the Board argues that focus should be on a narrower ground–job level (page 99 of the report, memorandum from Don Hammond, Board Chief Operating Officer (COO), third full paragraph (citing Wal-Mart Stores v. Dukes, 131 S. Ct 2541, 2555 (2011)). [Author’s note: The Board is a fraction of the size of the Wal-Mart Company; the case does not prevent proactive, introspective inquiry.]

This point from the Board COO might have been a valid point except for the data in figure 4. In figure 4, most of the Black/African American employees are in the lower level of the agency. Also, in terms of performance ratings (Appendix F of the OIG’s report) between White and Black employees, White employees overall get the higher average performance ratings than Black employees. Certainly, an inquiry as to what factors lead to that result and whether bias enters anywhere into the performance appraisal process would be reasonable, if the goal is to maintain a truly fair and equitable workplace.

In addition, the Board’s COO reflects an obstinate attitude because if an agency is interested in a fair and equitable workplace, any receipt of possible disparity should initiate a voluntary, intra-agency inquiry as to whether any of its practices are causing any disparity (and providing any remedies), without waiting for an employee complaint. Such an adversarial attitude causes further distrust of the Board and demonstrates why more accountability to (and compliance with) all U.S. statutes regarding civil rights and federal employment is needed.