WASHINGTON — The Consumer Financial Protection Bureau needs to improve its practices related to employee diversity and the inclusion of women, according to a report issued this week by the Office of the Inspector General of the Federal Reserve.

The watchdog agency said the CFPB has made some progress since American Banker first revealed internal documents a year ago that showed minorities were being rated lower than white employees in performance reviews. Still, the report makes 17 recommendations to the CFPB on how it can improve its efforts, suggesting better training and accountability for managers and improvements to the employee dispute systems.

"Our report contains recommendations designed to improve the monitoring and the promotion of diversity and inclusion at the CFPB, as well as to strengthen related controls," said Fed Inspector General Mark Bialek in the report. "In its response to our draft report, the CFPB concurred with our recommendations and outlined planned, ongoing, and completed activities related to analyzing performance management data, performance management training, and tracking of [Equal Employment Opportunity] and non-EEO complaints."

(Because the CFPB receives its funding from the Federal Reserve, the Fed IG handles investigations into the consumer agency.)

The report is in response to a request made last year by Democrats on the House Financial Services' oversight subcommittee, who asked the inspector generals for the top federal financial agencies to look into employee practices related to diversity and inclusion. Several of those reports have already come out, including for the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. Those two reports largely focused on a lack of diversity in senior-level positions.

But the investigations were spurred by the CFPB after internal documents showed white employees were twice as likely to be rated higher than minority employees. Several employees also testified of retaliation by management during congressional hearings that followed throughout the year.

Since the revelations became public, the CFPB has scrapped its employee evaluation system and agreed to refund more than $5 million to certain affected employees. The OIG report acknowledges a number of efforts the agency has made, but said the CFPB has not made diversity and inclusion a mandatory part of training for employees, supervisors and senior managers. Since then, CFPB Director Richard Cordray issued a memo in January to make such training mandatory for all employees.

The OIG also said there were "data quality issues" related to how the CFPB tracks complaints and grievances filed by employees as well as identifying trends in certain performance management data "that could be indicative of potential diversity and inclusion issues."

Another concern highlighted in the report was that the CFPB has not finalized its strategic plan related to diversity and inclusion. The OIG added that the CFPB could strengthen the accountability of supervisors, senior managers and human resources in implementing such policies.

"Finally, the CFPB would benefit from a formal succession planning process to help ensure that it will have a sufficient and diverse pool of candidates for its senior management positions," the report said.

A spokesman for the CFPB said the agency has already been working towards meeting the recommendations.

"The report contains specific suggestions regarding additional policies, procedures, and other enhancements to the CFPB's diversity and inclusion efforts. We concur with its recommendations," said CFPB Director Richard Cordray, in a letter responding to the OIG. "The CFPB has made significant progress in addressing the recommendations since the close of the evaluation review period in October 2014. We will be taking steps to adopt and implement all of the recommendations as we move forward in expanding our diversity and inclusion efforts."

Republicans have seized on the employee evaluation disparities in multiple hearings as proof that there are flaws in the CFPB's structure.

"The CFPB is a very troubled bureaucracy and these findings lend credence to what dozens of whistleblowers have told our committee. Bureau managers seem to have a real problem when it comes to how they treat minority employees," said Rep. Jeb Hensarling, R-Tex., chairman of the House Financial Services Committee, in a statement. "The report found that even the CFPB's Office of Minority and Women Inclusion, set up specifically to promote a diverse workplace, is failing to follow the law. Each day it becomes more apparent that the CFPB is an unaccountable Washington bureaucracy in need of real reforms."

Rep. Maxine Waters, the panel's lead Democrat, who co-signed the letter to the OIG offices requesting the report, said she will be releasing a "detailed analysis" based on all the OIG reports on diversity and inclusion practices at the federal financial regulators "in the coming months."

"While the findings confirm anecdotal suspicions, I am pleased to see that the CFPB has agreed with every recommendation made by the Inspector General and has already begun taking significant steps to address the diversity and inclusion issues within its ranks," Waters said in an emailed statement to American Banker. "Unlike our Republican colleagues, who have refused to hold hearings on diversity issues facing any other regulator, Democrats support women and minorities at all of our federal agencies — not just the one created by Dodd-Frank."

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