Background

Congress has authorized two different models for governing financial  regulatory agencies: a single-director and board. Among financial  regulators, single directors head the Office of Thrift Supervision (OTS), the  Office of the Comptroller of the Currency (OCC), and the Office of Federal  Housing Enterprise Oversight (OFHEO). In contrast, boards or  commissions run FHFB, the Fed Board, NCUA, SEC, CFTC, FDIC, and  FCA. Advantages and disadvantages exist for both models. In the single- director model, the director is responsible for making all the decisions at  the agency, without the potential hindrance of having to consult or get the  approval of board members. The primary advantage of the board model is  that it provides the potential to benefit from the diverse perspectives and  experiences of board members. However, one potential disadvantage of the  board model is that consultation among board members could create  inefficiencies in running the agency.
To overcome the potential inefficiencies associated with the board model,  responsibilities for policy and day-to-day administration are divided  between the board and chair at many regulatory agencies. Policy decisions  include making rules and regulations or authorizing enforcement actions.  Day-to-day administration might include directing staff, overseeing safety  and soundness examinations, and expending funds as authorized by the  board. Administrative responsibilities that are often considered to be more  significant (that is, not day-to-day) include the hiring and removal of senior  officials and restructuring the agency.
FHFB has a five-member board of directors. The Secretary of the  Department of Housing and Urban Development (HUD) serves as an ex  officio member, and the remaining four full-time directors are appointed by  the President with the advice and consent of the Senate for 7-year terms.  Each of the four appointed directors must have experience or training in  housing finance or a commitment to providing specialized housing credit.  Not more than three of the five members can be from the same political  party. The President designates one of the four appointed members to serve  as chair. As discussed in this report, since 1990 the board has operated  under a resolution that delegated most administrative functions to the  chair.
The FHFB board operated with all appointed members serving on a full- time basis for the first time in December 2001. From 1990 to 1993, the  board operated with four appointed members who served on a part-time  basis. Beginning in January 1994, FHFB board membership became full  time. However, from 1994 through 2001, the board operated with at least  one vacant seat and sometimes two or three. In December 2001, the  President appointed FHFB’s new chair, and the board operated with four  full-time appointed members plus the HUD designee throughout 2002.
As of September 2002, FHFB’s 104 staff members were organized into four  program offices:  Office of Supervision (OS) – The office is responsible for conducting on- site examinations of the FHLBanks and the FHLBank System’s Office of  Finance and conducting off-site monitoring and analysis. OS is also  responsible for overseeing the FHLBanks’ implementation of their risk- based capital plans. In addition, OS is responsible for providing expert  policy advice and analyzing and reporting on the economic, housing  finance, community investment, and competitive environments in which  the FHLBank System and its members operate.
Office of General Counsel (OGC) - The General Counsel is FHFB’s chief  legal officer and is responsible for advising the board, the chair, and  other officials on interpretations of law and regulation. OGC prepares all  legal documents on behalf of FHFB and prepares opinions, regulations,  and memorandums of law. The office represents FHFB in all  administrative adjudicatory proceedings before the board and in all  other administrative matters involving FHFB. Also, OGC represents  FHFB in judicial proceedings in which the agency’s supervisory or  regulatory authority over the FHLBanks is at issue.
Office of Management (OM) - The OM director is the principal advisor to  the FHFB chair on management and organizational policies and is  responsible for the agency’s technology and information systems,  finance and accounting, budget, personnel, payroll, contracting and  procurement, and facilities and property management.
Office of Inspector General (OIG) - OIG is responsible for conducting  and supervising audits and investigations of FHFB’s programs and  operations.
The costs of FHFB’s operations are financed through assessments on the  FHLBanks. In fiscal year 2003, FHFB’s operating budget was about $27  million.

	FHFB Chair Has Greater Authority to Make Key Administrative Decisions Than the Chairs of Most Other Financial Regulators

The FHFB chairs’ authority to administer the agency is broader than that of  the chairs of the other financial regulators included in our review, with the  exception of the FDIC. Under a delegation of authority, the chair can make  important administrative decisions that may have policy implications (such  as appointing senior officials) without obtaining the approval of other  board members. Over the years, some FHFB board members have  complained that the delegation of authority allows the chair to act  unilaterally, and it has been the source of disputes among board members.    On January 29, 2003, the FHFB board considered and rejected by a 3 to 2  vote a proposal to revise the delegation and limit the chair’s authority.

		FHFB and FDIC Chairs Have Broad Administrative Powers

The FHFB and FDIC chairs have broader authority to make key  administrative decisions than the chairs of other financial regulators (see  fig. 1). Specifically, at FHFB and FDIC, the chairs can appoint senior  officials without a board vote or approval. At each of the other financial  regulators we reviewed, appointments of most senior officials require a  vote or the approval of a majority of the board. However, in some cases,  agency chairs can appoint Schedule C officials to run certain staff offices,  which is discussed in more detail later in this report and in appendix II. We  also note that at some agencies, such as CFTC, the chair or other senior  career agency officials appoint staff responsible for carrying out the  agencies’ functions.
As also shown in figure 1, at four of the regulators we reviewed, including  FHFB, the chair can reorganize the agency without seeking board  approval. While CFTC officials said that the chair has authority to  reorganize the agency, the practice has been to submit such proposals to  the commission for a vote. At three agencies, major reorganization  proposals must be submitted to the board or commission for a vote or  approval. For example, the Fed Board has a two-tier process by which  reorganizations that meet specific criteria may require the approval of the  entire board. At FCA, the board must approve major organizational  changes, but the chair has the authority to make organizational changes  within particular units.

		Delegations of Authority Serve as Basis for FHFB and FDIC Chairs’ Powers

The basis for the FHFB chair’s significant administrative power is a  delegation of authority approved by the board in 1990 and 1993. According  to former FHFB Chair, Dan Evans, the 1990 delegation of authority  facilitated the administration of the agency due in part to the fact that  board members served on a part-time basis. According to the FHFB former  managing director who served under Evans, the agency’s part-time board  members spent most of their time in geographic locations across the  United States and came to Washington several days each month to conduct  the agency’s business, particularly policy issues. According to Evans and  the former managing director, the 1990 delegation facilitated the  administration of FHFB as convening the part-time board members for  administrative decisions was challenging. The 1990 delegation of authority  authorizes the chair to “. . . effect the overall management, functioning, and  organization . . .” of the FHFB. Although FHFB’s statute authorizes the  board to employ and set the compensation of agency staff, the delegation  of authority ceded appointment, removal, and pay authorities to the chair.  The delegation of authority included a provision that allowed board  members to challenge decisions made under the delegation, obligating the  chair to call a special session of the board to consider any matter or  business at the request of any two or more board members.
In November 1993, FHFB’s part-time board made technical revisions to the  1990 delegation of authority that allowed the HUD secretary to serve as the  chair in the absence of a chair or vice chair. Otherwise, the terms of the  1993 delegation are substantially similar to the 1990 delegation and grant  significant administrative authority to the FHFB chair (see fig. 2).    According to a 1996 FHFB OGC memorandum that discusses the basis for  the delegation and FHFB’s former managing director, some of the part-time  board members did not continue on the board as full-time members. The  FHFB memorandum states that the part-time board members were  concerned that the agency would not be able to function in the absence of  the chair and other board members. The 1993 delegation of authority has  remained in effect because it has not been overturned by a majority vote of  the board.
The FDIC board has also voted to give significant administrative authority  to its chair through its bylaws and a delegation of authority. Through its  bylaws, the FDIC board delegated certain appointment authority as well as  reorganization authority to the chair. On January 29, 2002, the board  members voted unanimously to delegate additional authority to the chair.  The delegation expanded the chairs’ authority to appoint senior officials  without a board vote. In contrast to FHFB’s delegation of authority,  FDIC’s delegation expires when the current chair leaves office and the  rules for administrative decision making revert to the rules in place prior to  the revised delegation.

		FHFB Chairs’ Exercise of Administrative Authority under Delegation Has Contributed to Conflicts among Board Members

Disagreements among board members about the chair’s use of the  delegation of authority to make unilateral administrative decisions have  historically caused tensions between the chair and other board members.  In a recent example of the disputes among FHFB board members,  Democratic members stated that the current Chair did not consult them in  any significant way prior to announcing a major agency reorganization on  August 7, 2002 (the specifics of the reorganization are discussed later in  this report). As done in 10 previous FHFB reorganizations under the  delegation of authority, the Chair did not seek board approval. According  to the Chair, he notified other board members about the key points of the  reorganization several weeks prior to the announcement. However, other  board members have stated that they were not involved in the planning of  the reorganization and did not receive details about the reorganization until  it was announced. For example, at the September 2002 board meeting, one  member stated “. . . we’ve just had a major restructuring that wasn’t done  by the board, that there wasn’t advance notice, which had a real impact on  the office.”
FHFB board members who served under former Chair Morrison also stated  that he used the delegation of authority to exclude other board members  from key administrative decisions.   For example, one board member stated  that Morrison appointed senior officials and reorganized the agency  without any consultation. The board member stated that he disagreed with  these decisions and believed that they undermined FHFB’s regulatory  effectiveness. Morrison said that his actions were consistent with the  administrative powers authorized to the chair under the delegation.
Morrison also said that he met frequently with other board members to  explain his actions and that other board members never called special  board meetings to question his decisions, as permitted under the  delegation.
FHFB board members have also complained that chairs have used their  delegated authority as the basis for unilateral actions on policy, which is  the responsibility of the board as a whole. For example, two board  members said that the current Chair acted unilaterally in selecting  FHLBank public interest director candidates in 2002 and had minimal  consultation on these selections with other board members. In past years,  FHFB approved public interest director candidates by notational vote. In  2002, these two board members requested that the vote on the candidates  take place in an open meeting, and they expressed their concerns at this  public meeting about not having been consulted. FHFB officials said that  the current Chair has initiated actions to improve the selection of public  interest directors. In particular, the Chair developed new criteria governing  the appointment of public interest directors. The new criteria require  public interest directors to have an understanding of such issues as  finance, political awareness, and corporate governance. On January 29,  2003, the FHFB board voted unanimously to approve the appointment of 28  public interest directors.
Disputes about the FHFB’s powers under the delegation of authority also  took place during Chair Morrison’s tenure, between 1995 and 2000. For  example, in a letter sent to Members of Congress, a former board member  alleged that “Mr. Morrison has used and expanded the delegation of  authority to unilaterally implement his policy objectives by thwarting  Board consideration of issues where there may be disagreement with the  Chairman by the independent directors.”   Morrison said that his decisions  under the delegation were proper and did not stray into policy matters  reserved for the board.

		FHFB Board Considered and Rejected a Proposal to Revise the Delegation of Authority

On January 29, 2003, while a draft copy of this report was with FHFB for  official comment, the board debated and rejected by a 3 to 2 party-line vote  a proposal to revise the existing delegation of authority and limit the chair’s  administrative authorities. FHFB’s Chair placed the proposal on the  agenda for meeting at the request of the agency’s two Democratic board  members. Although FHFB board members’ staff said that they exchanged  proposed language to revise the delegation of authority prior to the board  meeting, they did not engage in substantive discussions over the proposal  during that period. The proposed revisions to the delegation discussed at  the January 29 board meeting would have allowed the FHFB board to  approve the appointment of the agency’s office directors and  reorganizations down to the office level. A board member who proposed  the revision said that the current delegation had been “misused” by FHFB  chairs and used as a basis to usurp the policy-making responsibilities of the  board. Among other statements, FHFB’s Chair denied that he had  “misused” his authority under the delegation and stated that the delegation  was appropriate, among other reasons, because organizations need a single  individual to direct operations to ensure efficient administration.

	Certain FHFB Reduction-in-Force Actions Were Not Fully Consistent with Applicable Federal Age Discrimination Statutes and Regulations

On August 7, 2002, the FHFB Chair announced a major reorganization, and  the agency sent RIF notices to nine staff members. Although FHFB  provided significant financial compensation and career transition services  to affected employees, certain FHFB actions in connection with the RIFs  do not appear fully consistent with federal age discrimination statutes,  regulations, or court decisions. We have informed EEOC of our findings in  this area. In addition, FHFB placed each of the affected staff on  administrative leave during the 60 day advance notice period (the period  from the RIF notification on August 7 until actual separation from federal  service). While OPM regulations require federal agencies to keep  employees on active duty status during the advance notice period, FHFB  officials said the agency had statutory authority to place the staff on  administrative leave.

		FHFB Reorganization Included a RIF

According to the FHFB Chair and Director of Management, the August 2002  reorganization was focused on improving supervision of the FHLBank  System. Through a review of the organizational structure of FHFB, the  Chair concluded that the agency dedicated too few resources to FHLBank  supervision and too many resources to support functions and public and  congressional relations. Accordingly, the Chair decided to eliminate the  Office of Managing Director and the Office of Communications and merge  OS with the Office of Policy, Research, and Analysis (OPRA) (see figs. 3  and 4). The Chair also decided to shift resources and positions from the  eliminated offices to OS. In addition, FHFB changed the title of the Office  of Resource Management to the Office of Management. The Chair and the  Director of Management assumed responsibility for the day-to-day  administrative duties formerly carried out by the Managing Director and, as  is discussed later in this report, the Chair’s personal staff assumed  responsibility for the Office of Communication’s public and congressional  affairs functions.
As part of the reorganization, FHFB notified nine employees that they were  subject to the RIF and that they would be separated from the federal  service in 60 days (referred to as the advance notice period). To minimize  the effect on the employees, FHFB hired an outplacement firm to help  them prepare resumes and develop job search strategies. FHFB also  notified each employee that he or she would receive federal severance and  accrued annual leave benefits. Further, FHFB presented each of the  affected employees with a “Negotiated Settlement Agreement” that offered  3 to 6 months salary (depending upon employment status) in exchange for  agreement not to file any administrative actions or lawsuits against the  FHFB, its chair, directors, or employees in connection with the employees’  employment with the agency or involuntary separation. According to  documentation provided by FHFB, the agency gave the affected employees  47 days to decide whether to sign the settlement agreement. According to  FHFB officials, eight of the nine affected employees signed the settlement  agreements.

		FHFB Settlement Agreement Waiver Provisions Not Fully Consistent with Age Discrimination Requirements

FHFB’s settlement agreements included provisions that waived employees’  rights to file lawsuits based on the Age Discrimination in Employment Act  (ADEA), as amended. Waivers of rights under ADEA are valid and  enforceable only if the waiver is knowing and voluntary, and courts have  generally required employers to strictly comply with ADEA standards  regarding waivers. Although FHFB took steps to comply with ADEA and  EEOC regulations, certain provisions in the settlement agreements are not  consistent with requirements. First, the settlement agreements required  that employees waive their rights to file complaints, charges, or appeals  with EEOC, which is not consistent with statutory and regulatory  requirements. Second, FHFB did not advise each affected employee in  writing to consult an attorney prior to signing the agreements and waiving  his or her ADEA rights. Third, FHFB did not provide required information  to the affected employees to assist them in determining whether to waive  their rights under ADEA.
The Older Workers Benefit Protection Act (OWBPA) includes detailed  provisions that deal with the validity of releases and waivers under ADEA,  and sets forth minimum requirements for a knowing and voluntary release  of claims under the ADEA. EEOC regulations implementing OWBPA apply  to waivers of rights and claims under ADEA, and the regulations provide  specifically that they apply to all waivers of ADEA rights and claims,  regardless of whether the employee is employed in the private sector or  public sector, including federal employment. The statute and regulations  require that the agreement be in writing, refer specifically to claims under  ADEA, be given in exchange for consideration that is above and beyond  any benefit to which the employee is already entitled, and give the  employee adequate time to consider the waiver before signing it.
The settlement agreements appear designed to comply with several of  these requirements. For example, employees were given 47 days to  consider the waiver and the settlement agreement refers specifically to  claims under ADEA. As required by ADEA, the settlement agreements  also provided affected employees over 40 years of age 7 days after signing  the agreement to revoke the agreement. In addition, the settlement  agreements included payments above and beyond what the employees  were entitled to receive by statute. That is, FHFB agreed to pay each  affected employee 3 to 6 months salary in exchange for agreeing to sign the  settlement agreement.
However, a provision in the settlement agreements requiring employees to  waive their rights to file charges, complaints, or appeals with EEOC does  not appear to be consistent with OWBPA requirements and EEOC  regulations. OWBPA provides that “No waiver agreement may affect the  Commission’s rights and responsibilities to enforce this chapter. No waiver  may be used to justify interfering with the protected right of an employee to  file a charge or participate in an investigation or proceeding conducted by  the Commission.” The EEOC regulations provide that “no waiver  agreement may include any provision prohibiting any individual from “. . .  (i) Filing a charge or complaint, including a challenge to the validity of a  waiver agreement, with EEOC, or (ii) Participating in any investigation or  proceeding conducted by EEOC.”
The settlement agreements also do not appear consistent with OWBPA  requirements and EEOC regulations that require employers to notify  employees in writing to consult with an attorney prior to agreeing to waive  their rights under ADEA. The courts have determined that employers must  specifically advise employees to consult an attorney. In FHFB’s settlement  agreements, the relevant provision states that the “employee understands  that he has had the opportunity to contact a representative of his choice to  discuss the terms and conditions of this Negotiated Settlement Agreement.  . .” An FHFB attorney stated that agency officials pointed out this statement  in the settlement agreements to the affected employees. However, the  settlement agreement does not advise the employees in writing to consult  an attorney before agreeing to waive their rights under ADEA, and FHFB  did not provide any other written advice for employees to consult an  attorney.
In addition, FHFB did not provide information to the affected employees as  is required under OWBPA and EEOC regulations. Employers that offer  additional benefits to a group of involuntarily terminated employees in  exchange for a waiver of claims under ADEA must satisfy additional  requirements. These employers must provide detailed written information  to employees describing the group termination program, including a listing  of the job titles and ages of the employees selected for the program, and  similar information for individuals who were not selected. This information  is designed to permit older workers to make more informed decisions  concerning waiver of ADEA rights. FHFB’s settlement agreements were  part of a group termination program (e.g., a RIF). However, FHFB officials  said that while the names of the terminated employees were provided,  written information on the job titles and ages of all employees who were  offered the settlement agreement was not provided. According to FHFB,  the EEOC regulations do not require that this information be provided if  the employer decides to eliminate all of the positions in a particular unit, as  FHFB did with respect to the Office of the Managing Director and the  Office of Communications. However, OWBPA and EEOC regulations do not  distinguish between situations where employers terminate selected  positions in a particular unit and others where all positions are terminated.
Employers are required to provide information on employee ages and job  titles under either circumstance.

		FHFB Placed Staff Subject to the RIF on 60 Days of Administrative Leave

FHFB restricted the access of employees subject to the RIF to the agency’s  headquarters during the 60-day advance notice period—the period from the  RIF notification on August 7, 2002, until actual separation from federal  service—and placed them on administrative leave. FHFB’s decision to  restrict staff access during the advance notice period was not consistent  with OPM regulations, but FHFB officials said that the agency had  statutory authority to take this action.
OPM regulations that apply to RIFs state that, when possible, employees  should remain in active-duty status during the advance notice period. When  in an emergency the agency lacks work or funds for all or part of the notice  period, it may place employees on annual leave with or without their  consent, leave without pay without their consent, or nonpay status without  consent. While no statute governs the use of administrative leave, OPM  regulations and federal administrative decisions have established  standards for its use. These regulations and decisions have permitted  agencies, in certain situations, to excuse an employee for brief periods  without a loss of pay. However, agencies generally may not place  employees on administrative leave for long periods unless their absence  furthers an agency’s mission.
FHFB officials said that the agency’s authorizing statute provides authority  to place employees on administrative leave during the advance notice  period. FHFB officials said that the statute allows the agency to set the  compensation of its employees without regard to the statutes affecting  other agencies. FHFB officials said that all forms of leave, including  administrative leave, are forms of compensation, and therefore, the agency  was authorized to place the affected staff on administrative leave. Further,  FHFB officials said that (1) placing the staff on administrative leave  allowed them to take full advantage of the job placement services that the  agency offered and (2) requiring the employees to report to the agency  during the advance notice period when there was insufficient work for  them to do was not cost effective. Although FHFB’s statute provides broad  authority to set compensation of its employees, we note that the scope of  FHFB’s authority and whether it appropriately supercedes OPM’s RIF  regulations has not been established.

	FHFB Has Announced Plans to Improve Its FHLBank Examination Program

Although we identified weaknesses in FHFB’s examination program in a  1998 report, FHFB did not address these weaknesses, and they persisted  for several years. In August 2002, FHFB announced plans that could  significantly improve its examination program and more than double the  number of examiners.   However, because FHFB has just started to revise  its examination program, it is too early to evaluate the effectiveness of  these plans.

		FHFB Did Not Fully Address Examination Program Weaknesses

Our 1998 report identified limitations in FHFB’s examination program,  which raised questions about the agency’s ability to help ensure that  FHLBanks operate in a safe and sound manner. For example, the report  found that FHFB examiners did not thoroughly review FHLBank internal  control systems. Internal controls are defined as arrangements, such as  procedures, organization structure, and technical methods, designed to  provide reasonable assurance that (1) assets are protected from  unauthorized use or disposition; (2) transactions are in compliance with  law, regulation, FHFB policy, and the policy directives of the FHLBank’s  director and management; and (3) financial reporting is accurate.  According to our report, in September 1996, FHFB examinations stated  that internal control reviews were “limited.” FHFB officials cited the  limited number of examiners, 8 to 10 individuals, as one explanation for not  conducting thorough internal control evaluations.
From 1998 through 2001, FHFB did not develop an examination program to  ensure that each FHLBank has established an adequate internal control  system. We reviewed all 36 FHFB bank examinations conducted in 1999 to  2001. Each of the 36 examinations stated that the review of internal  controls was “limited in scope and did not involve a comprehensive review  of the entire system of controls.” As of late July 2002, FHFB had 10  examiners, or the same number as in 1998. Moreover, from 1998 through  2002, direct mortgage acquisition programs added risks to the FHLBank  System and the FHLBanks developed increasingly complex approaches to  manage these risks.
Further, our 1998 report noted that FHFB examination workpapers did  not adequately document corporate governance reviews or indicate that  such reviews were conducted. Board of director and management  oversight are essential elements of the corporate governance of financial  institutions and financial and other risk management. At the September  2002 FHFB board meeting, discussion among board members suggested a  concern about the lack of emphasis on corporate governance in the  examinations. One board member stated that he believes the FHLBanks’  corporate governance is “uneven” and that FHFB’s examinations have not  devoted sufficient attention to this critical area. The Chair and the other  board member discussed directing FHFB’s examination staff to conduct an  audit of corporate governance in the FHLBank System. The next section  discusses this audit.
Our 1998 report noted that off-site monitoring in the FHFB examination  program was weak and conducted in an uncoordinated manner. Off-site  monitoring involves the analysis of financial data to monitor bank financial  performance and to identify risks. Off-site monitoring can serve as an  effective means to supplement the work of examiners working on-site.  Regular monitoring between examinations, which generally take place on  an annual basis, is important because the FHLBanks’ financial conditions  and risks can change significantly in a short period. The 1998 report noted  that OS off-site monitoring consisted of four periodic reports as well as  monthly reviews of various bank information. While these reports were  potentially beneficial, FHFB suspended them in 1997 due to staff  constraints in OS. The 1998 report also noted that coordination between  OPRA and OS on off-site monitoring activities was lacking.
We found that FHFB’s off-site monitoring program is still limited. For  example, FHFB’s OS director said that in July 2002 that only one individual  performs off-site monitoring functions. Rather than assess the financial  performance of the FHLBanks, the director said that the individual tracks  FHLBank compliance with existing examination recommendations.  Although this function is important, it does not provide FHFB with  information about safety and soundness issues, such as changes in the  FHLBanks’ financial condition. A more comprehensive off-site monitoring  program could help alert FHFB officials to the need for an on-site  examination.

		FHFB Has Initiated Steps to Significantly Revise the FHLBank Examination Program

In August 2002, FHFB’s Chair announced that FHFB would significantly  increase the resources devoted to OS. FHFB set the fiscal year 2003 budget  for OS at $9.7 million, a $2.8 million increase from fiscal year 2002 funding  levels. FHFB also hired a new OS director and deputy director, both of  whom have experience in examinations at other financial regulatory  agencies. FHFB also plans to increase the number of examination staff  from 10 to 24 by fiscal year 2004 and to open satellite locations in different  parts of the country in which to base examiners. Under the previous  examination approach, 8 to 10 examination staff spent 6 to 7 months on  travel each year. FHFB officials said satellite locations would reduce travel  demands on the examination staff and aid in hiring and retaining qualified  staff. At the time of our review, OS was in transition; however, FHFB had  increased the number of examiners. As of February 5, 2002, there were 14  examiners on staff at FHFB, an increase of 4.
According to the OS Director, FHFB also plans to significantly change its  approach to conducting examinations to obtain a fuller understanding of  FHLBank operations as FHLBank System business becomes more  complex. Prior to September 2002, FHFB assigned its examiners to teams  that included 4 to 5 members. In general, each examiner was responsible  for conducting annual examinations at 6 of the 12 FHLBanks. According to  FHFB officials, the examination teams reviewed different banks from year  to year, and their membership was rotated as well. Therefore, an FHFB  examiner might work on a particular bank’s examination one year but not  the next. Moreover, FHFB examiners did not necessarily specialize in the  areas (e.g., credit risk, interest rate risk, or affordable housing programs)  that are examined on an annual basis. Instead, an examiner might review  a bank’s interest rate risk operations at one examination and review  another bank’s affordable housing program at the next examination.
The OS Director said that under the revised examination approach, by the  fourth quarter of fiscal year 2003, FHFB plans to have three examination  teams in place. Each team will consist of 8 members, with each team  responsible for 4 of the 12 FHLBanks for 3 to 4 years. In addition, each  examiner will focus on a particular area, such as interest rate risk or  affordable housing compliance, at each of the four FHLBank examinations  for which the individual is responsible annually. For example, the OS  Director said that two recent hires on the examination staff have expertise  in the area of corporate governance. According to FHFB, as of February  2003, OS had completed ten targeted corporate governance reviews at the  FHLBanks, and expects to complete a final report on all 12 banks’  corporate governance by March 2003.
The OS Director also said that FHFB plans to develop a proactive and risk- based management approach to conducting FHLBank examinations. Prior  to FHFB’s recently announced changes to its examination program,  examiners might examine a particular FHLBank as of June 30 of a  particular year. The examiners would then assess whether the bank was  operated in a safe and sound manner and complied with all laws and  regulations as of that date. Under the new risk management approach, the  OS director said that the examination staff would try to identify the future  risks facing each FHLBank and develop plans to help ensure that FHLBank  management establish systems and controls to adequately manage those  risks.
Overall, FHFB’s planned examination program is similar to the  examination program of OFHEO, which regulates Fannie Mae and Freddie  Mac. Fannie Mae and Freddie Mac are large government-sponsored,  privately owned and operated corporations chartered by Congress to  enhance the availability of mortgage credit across the nation during good  and bad economic times. Similar to FHFB’s proposed examination  program, OFHEO has established a risk-based examination program that  assesses the controls Fannie Mae and Freddie Mac use to manage  significant risks. In addition, OFHEO assigns staff with specialized skills,  such as interest rate risk management, to its examination teams. OCC,  FDIC, OTS and the Fed Board have also implemented similar risked-based  examination programs.
FHFB has plans to expand off-site monitoring. Specifically, as of October  21, 2002, an FHLBank analyst was assigned to each FHLBank in an effort to  enhance the OS off-site monitoring program. According to the OS Director,  the recently announced merger between OS and OPRA (see figs. 3 and 4)  provides opportunities for FHFB to enhance its off-site monitoring  capability. In particular, examination and OPRA staff will now work in the  same unit, which should allow better coordination of their activities.

	Majority of FHLBank Public Interest Directors Made Political Contributions Prior to Their Initial Appointments

Available data indicate that 50 (67 percent) of the 75 public interest  directors that FHFB appointed for the first time from January 1, 1998,  through May 8, 2002, made one or more political contributions in the 8-year  period prior to their initial appointments (see fig. 5). We obtained public  interest director appointment data from FHFB and contribution data from  CRP. CRP provided data that covers all federal election cycles from 1990  through 2002. We organized and presented the CRP contribution data to  cover the tenures of the three FHFB chairs who were in office when FHFB  made public interest director appointments during 1998 to 2002: Bruce  Morrison, June 1995 to July 2000; William Apgar, July 2000 to December  2000; and John T. Korsmo, December 2001 to present. We focused our  analysis on the 8-year period prior to each public interest director’s  appointment to ensure a standard means of comparison between the three  FHFB chairs.
Figure 6 shows that 28 (or 56 percent) of the public interest directors who  reported making contributions prior to their appointments had done so 1 to  10 times while 22 (44 percent) had done so 11 or more times. Of the 5  directors appointed during Apgar’s tenure, all reported making 1 to 10  donations. The public interest directors appointed during the Morrison and  Korsmo tenures were generally divided equally between those who  reported 1 to 10 donations and those who reported giving 11 or more  contributions.
Table 1 summarizes the number of contributions and the total amount of  those contributions that each FHFB public interest director appointee  made prior to his or her appointment. When we totaled each director’s  contributions, we found the median value of those totals ranged from  $3,250 for the 5 appointments made during Apgar’s tenure to $8,364 for the  26 appointments made during Korsmo’s tenure.
As shown in table 2, during the Morrison and Korsmo tenures, FHFB did  not appoint public interest directors who give exclusively to the party that  is not the party of the chair. That is, FHFB did not appoint any public  interest directors who had made contributions exclusively to the  Republican Party during Morrison’s tenure, nor did FHFB appoint any  public interest directors who gave exclusively to the Democratic Party  during Korsmo’s tenure. However, during the Morrison and Korsmo  tenures, FHFB appointed public interest directors who gave to both  parties. During Apgar’s tenure, FHFB appointed three individuals who gave  exclusively to the Democratic Party, one who gave exclusively to the  Republican Party, and one who gave to both parties.
We also analyzed data obtained from Fannie Mae and Freddie Mac to  determine the political contributions of members of their boards of  directors who are appointed by the President. Using CRP data, we  determined the political contributions of Fannie Mae and Freddie Mac  directors appointed from January 1, 1998, through 2002. Our analysis  shows that 18 of the 19 (95 percent) of the Fannie Mae and Freddie Mac  directors appointed during that period had made political contributions in  the 8-year period prior to their initial appointments. The median value of  the total number of contributions for an individual was 11, and the median  of the total preappointment donations was $7,000.

	FHFB’s Use of Schedule C Positions Sometimes Differs from the Practices of Other Financial Regulators

In some cases, FHFB’s use of Schedule C positions differs from the  practices of other financial regulators. At FHFB and five of the six other  financial regulatory agencies that we reviewed, the agencies allot Schedule  C positions to the chair and other board members. Unlike FHFB, four of  these five agencies appoint Schedule C officials to head certain staff  offices, such as Office of Policy or the Office of General Counsel. The  FHFB chair’s personal staff, including a Schedule C appointee, are  responsible for the agency’s public and congressional affairs functions, a  practice unique among the regulatory agencies that we reviewed.

		FHFB Schedule C Positions Are Allotted to the Chair and Other Board Members

Schedule C appointees at FHFB and five other agencies work directly for  the agencies’ policymakers: the chair and other board members (see table  3). Unlike FHFB and CFTC, the other four agencies allot Schedule C  positions to head some staff offices. For example, FCA has Schedule C  appointees in positions such as Director of the Office of Congressional and  Public Affairs, Director of the Office of Policy and Analysis, and Chief  Operating Officer. SEC has Schedule C appointees for three director  positions: Director of the Office of Communications, Director of the Office  of Legislative Affairs, and the Director of Office of Public Affairs. SEC also  allots Schedule C positions to several nondirector-level positions within the  organization.

		FHFB Chair’s Staff is Responsible for Public and Congressional Affair Functions

We compared FHFB’s approach to managing its public and congressional  affairs functions to the approaches of the six other financial regulatory  agencies. Unlike FHFB, each of these six agencies has a separate public  and congressional affairs office, typically staffed by full-time career  employees. At SEC, FCA, and NCUA, the chairs appoint Schedule C  officials to run these offices; while career officials run the offices at the Fed  Board and FDIC. At CFTC, a noncareer and non-Schedule C executive  heads the public and congressional affairs office.
Since FHFB’s August 7, 2002, reorganization, the Chair’s personal staff has  been responsible for the agency’s public and congressional affairs  functions. Specifically, FHFB officials said that a Schedule C appointee  from the Chair’s staff has assumed responsibility for managing media  relations and a career staff member who is also on the Chair’s staff is  responsible for congressional relations. According to the FHFB officials,  the Chair’s personal staff have been able to incorporate the public and  congressional affairs functions into their normal duties. FHFB officials said  that the Chair’s staff have been able to assume these responsibilities  because, with about 100 employees, FHFB is a comparatively small agency  with limited congressional and public affairs responsibilities.

	Conclusions

Due to the delegation of authority, the FHFB chair has relatively broad  administrative power, compared with most financial regulatory chairs, to  appoint senior officials and reorganize the agency without obtaining a  board vote or approval. The delegation prevents the full board from  participating in key administrative decisions that have potential policy  implications. At a January 29, 2003, FHFB board meeting, the board in a  close 3 to 2 vote along party lines rejected a proposal to revise the  delegation of authority that would have required board approval for senior  appointments and major agency reorganizations. Although FHFB board  member staff exchanged proposed language to revise the delegation of  authority prior to the meeting, there was little collaboration among the  staff. While the FHFB board has determined that the delegation remains  the most efficient means to administer the agency, we continue to believe  that the decision potentially frustrates one of Congress’ objectives in  establishing a board to regulate the FHLBank System. That is, the board  structure is designed to help ensure that key decisions benefit from the  experiences and perspectives of all board members. In addition, the FHFB  board’s decision will likely result in the continuation of the sometimes  bitter conflicts that have periodically characterized the relationships  among board members over the past 8 years.
Going forward, the FHFB board would benefit from considering a range of  options that would involve all board members in key administrative  decisions. Some of these options may not involve any changes to the  current delegation of authority. For example, the chair could notify and  brief other board members of key administrative decisions prior to their  implementation and seek other board members’ advice and counsel on  these decisions. Or, the FHFB board could consider practices at other  financial regulatory agencies that provide for board or commission  involvement in key administrative decisions. At CFTC, for instance, the  chair’s authority to reorganize the agency is similar to that of the FHFB  chair, but CFTC’s practice has been for the chair to submit major  reorganization proposals to the commission for a vote. In addition, board  members and their staffs could work together to determine if there are any  areas of agreement on approaches—including revising the delegation of  authority—that would increase board participation in key administrative  decisions while preserving the chair’s authority to administer the agency on  a day-to-day basis. While there is no requirement or guarantee that FHFB  board members agree on all key administrative decisions, establishing  processes and practices to ensure full board participation could enhance  the quality of such decisions and improve relations among board members.
FHFB offered significant financial compensation to staff that received RIF  notices during the August 2002 reorganization. However, provisions in the  settlement agreements do not appear fully consistent with federal age  discrimination statutes and regulations. For example, a provision in the  settlement agreements that required employees to waive their rights to file  charges, complaints, or appeals with EEOC is not consistent with ADEA’s  prohibition against waivers of these rights. FHFB also (1) did not include  required language in the settlement agreements advising employees in  writing to consult with an attorney prior to signing the settlement  agreements and waiving their ADEA rights and (2) failed to provide the  affected staff with information on the job titles and ages of staff, as  required under ADEA and EEOC regulations. We have informed the EEOC  about our findings regarding the FHFB settlement agreement provisions  pertaining to the waiver of ADEA rights.
FHFB did not take actions in a timely way to address FHLBank  examination program weaknesses that we identified in a 1998 report.  However, in 2002, current FHFB Chair Korsmo announced plans and  initiated actions, such as hiring more examiners that have the potential to  improve the quality of the agency’s safety and soundness oversight.  Continued FHFB management focus on the examination program is  essential over the next several years to ensure that the reforms are fully  implemented and their effectiveness evaluated.
We also note that FHFB’s Chair, initiated these changes to the examination  program under the delegation of authority. While these changes hold out  the potential for improving FHFB’s examination program, the unilateral  manner in which they were carried out resulted in further disputes among  board members. Permitting greater board involvement in such key  decisions would provide greater opportunity for consensus without  necessarily delaying any changes. Decisions that have the potential to  affect the critical means by which FHFB ensures FHLBank safety and  soundness merit the attention and consideration of the full board.

	Recommendations

To ensure full board participation in key administrative decisions that have  policy implications, such as senior appointments and major  reorganizations, we recommend that the FHFB board consider a range of  options that could be implemented within the current delegation of  authority. These options include the chair (1) notifying, briefing, and/or  soliciting input from other board members on major administrative  decisions prior to their implementation and (2) submitting key  administrative decisions to the board for a vote or approval. We also  recommend that board members and their staffs hold discussions on  approaches—including potential revisions to the delegation of authority— that would ensure board participation in key administrative decisions while  preserving the chair’s authority to administer the agency on a day-to-day  basis.
We also recommend that FHFB fully comply with applicable federal age  discrimination statutes and regulations in offering settlement agreements  to employees subject to RIFs.

	Agency Comments and Our Evaluation

We received FHFB’s comments on a draft of this report from the Director of  the Office of Management and written comments from FHFB board  members Franz S. Leichter and Allan I. Mendelowitz, which are reprinted in  appendix IV and V, respectively. We also provided relevant excerpts from a  draft of this report to the six other financial regulatory agencies that we  reviewed (SEC, FDIC, NCUA, Fed Board, CFTC, and FCA). FCA’s Chair  provided written comments, which are reprinted in appendix VI.  Representatives from all six regulatory agencies that we contacted  provided oral comments and we received technical comments, which we  have incorporated as appropriate.
FHFB disagreed that the board should revise the delegation of authority to  allow for board participation in key administrative decisions. FHFB agreed  with one of our findings regarding the settlement agreements offered to  employees subject to the 2002 RIF but disagreed with two others. FHFB  also commented on the draft report’s findings regarding the examination  program, public interest director appointments, and Schedule C positions.  Among other statements, Leichter and Mendelowitz agreed with our  recommendation regarding the delegation of authority and expressed  concern about how the agency conducted the RIF. The FCA Chairman’s  comments related to the number of Schedule C positions that are filled at  the agency. Representatives from each of the six agencies that we  contacted agreed with the draft report’s findings regarding their agency’s  operations. The following summarizes FHFB’s comments and, where  appropriate, our evaluation for the five report sections: (1) the delegation  of authority, (2) FHFB’s compliance with age discrimination requirements  in connection with the RIF, (3) FHFB’s examination program, (4) public  interest director appointments, and (5) Schedule C positions at financial  regulatory agencies. We also summarize the comments of Leichter,  Mendelowitz, and the FCA Chairman.

		FHFB Comments and Our Evaluation

			Delegation of Authority

FHFB noted that at the January 29, 2003, meeting the board had  considered, as we recommended in the draft report, and rejected a  proposal to revise the delegation of authority that would have required  board approval for senior appointments and major reorganizations. FHFB  stated that a majority of the board believes that vesting broad  administrative responsibility in the chair is the best method to manage the  agency’s day-to-day operations. However, we continue to believe that full  board participation in key administrative decisions is essential.
FHFB also made several points to support its view that the board should  not revise the delegation of authority. First, FHFB stated that the current  delegation of authority allows individual board members to propose items  to the board for action. Second, FHFB stated that we did not provide  sufficient evidence to support the assertion that there was tension and  conflict among board members regarding the delegation of authority. FHFB  also stated that Congress intended for tension to exist in creating FHFB— due to the divided partisan composition of the board—and that such  tension can serve a “constructive purpose.” Third, FHFB stated that we  made an error in figure 1 of the draft report “ . . . in asserting that the  appointment of senior officials and personnel decisions at the Securities  and Exchange Commission must be made with board approval.”   FHFB  stated that reorganization and top-level appointments at SEC do not require  a board vote. In addition, FHFB included a lengthy attachment to its official  agency comments, which has not been included in this report. The  attachment discussed a range of issues, including a history of the  delegation of authority, theories on management and delegations of  authority at other agencies, and information on FHFB’s examination and  supervision program for the FHLBanks.
Regarding FHFB’s first point, we believe that the provision in the  delegation allowing board members to call board meetings to challenge the  chair’s key administrative decisions does not provide for enhanced board  collegiality and consultation. Rather, the delegation of authority allows the  chair to make and implement such decisions without consulting other  board members and requires any board members who oppose these  decisions to marshal a majority vote to overturn the decision. In our view,  board member collaboration would be enhanced if consultations and votes  or approvals took place before key administrative decisions were made and  implemented. While there is no requirement or guarantee that all board  members would agree to vote for or approve key administrative decisions,  full board participation in the process could serve to improve the decisions  and enhance collegiality.
We disagree with FHFB’s second point and believe that this report offers  significant evidence of tensions and conflicts between board members  resulting from the delegation. Such tension and conflicts have periodically  characterized the board member relations over the past 8 years. We  acknowledge that tension and conflict are inevitable at any board with  divided representation and that such tension can in some cases be  beneficial. However, we note that at FHFB, unlike most other financial  regulatory agencies, there is no appropriate process or forum for board  members to consider key administrative decisions before they are made  and implemented.
We also disagree with FHFB’s final assertion that our report incorrectly  described the process for appointing senior officials at SEC. The report  draft stated that at most other financial regulators boards either vote on or  must give approval for senior appointments. The relevant authority  regarding SEC—Reorganization Plan No. 10 of 1950—states that the  commission is responsible for approving senior appointments. The  commission has established a practice to fulfill this responsibility whereby  the chair obtains the approval of other commissioners prior to making  senior appointments. SEC officials agreed with our report’s statements  regarding the agency’s appointment process.

			FHFB’s Compliance with Age Discrimination and Other Requirements in Connection with the RIF

FHFB said it agreed with one of our findings regarding the settlement  agreements but disagreed with two others. FHFB said it concurs that the  settlement agreements should have advised employees to consult with an  “attorney” rather than a “representative” prior to signing. However, FHFB  also stated that the language in the settlement agreements was not  intended to interfere with EEOC’s enforcement authority. FHFB stated that  any employee was clearly free to challenge the settlement agreement at a  later date. FHFB also stated that it disagreed with a statement in the draft  report that it was required to provide the names, ages, and positions of  employees who were not selected for separation from the agency. FHFB  also stated that since it abolished all of the positions in the former Office of  Communications and the Office of Managing Director, OWBPA and EEOC  requirements on providing information to employees who were offered the  settlement agreement did not apply. Additionally, FHFB disagreed with a  statement in the draft report that FHFB’s decision to place staff subject to  the RIF on administrative leave during the advance notice period was  inconsistent with OPM regulations. FHFB said that its statute authorizes  the agency to pay the compensation of its employees without regard to the  laws affecting federal employees, and that administrative leave is a form of  compensation.
While FHFB agreed with our findings regarding advising employees to  consult with an attorney prior to signing the agreements, we need to clarify  that the problem with the separation agreements was not confined to the  use of the term “representative” rather than the term “attorney.” OWBPA  and EEOC regulations require that the employer advise the employee in  writing to consult an attorney prior to waiving their ADEA rights. FHFB’s  settlement agreements were deficient in that they did not directly advise or  recommend that employees consult with an attorney prior to signing them.  Rather, the settlement agreements used more passive language stating that  each employee had the opportunity to contact a representative to discuss  the terms and conditions of the agreements, which the courts have held  does not meet the statutory requirements. If FHFB had replaced the word  “representative” in the settlement agreement with the word “attorney,” the  agreements still would not have been consistent with OWBPA and EEOC  requirements.
We disagree with FHFB that the settlement agreement provisions  pertaining to EEOC and information requirements were consistent with  applicable requirements. EEOC regulations clearly prohibit any agreement  that interferes with an individual’s right to file a complaint with EEOC or  affects the EEOC’s rights and responsibilities to enforce the ADEA. While  FHFB asserts that employees were clearly free to challenge the agreements  at a later date, the broad language of the settlement agreement states that  employee agrees not to file a complaint or appeal with the EEOC. Such a  broad prohibition could deter an individual from contesting the agreement  and the validity of the waiver of ADEA rights. Additionally, the draft report  stated that FHFB did not provide information on the job titles and ages of  staff offered settlement agreements to all such staff. The draft report did  not state that FHFB should have provided such information for staff who  were not subject to separation. There is also no requirement that  employers provide names of employees, and the draft report did not state  that FHFB should have done so. Nonethless, FHFB’s failure to provide  information on the job titles and ages of employees subject to the RIF to all  such employees was inconsistent with EEOC regulations. While the EEOC  regulations define the scope of the information requirement, the  regulations do not suggest that when all of the positions in a particular  office are eliminated, no information needs to be supplied. The purpose for  providing the information is for employees to have the opportunity to  assess the viability of an age discrimination claim and whether or not to  waive their rights to pursue such a claim. FHFB employees were not  provided with the information necessary to make such a decision.
Regarding FHFB’s comments on placing staff on administrative leave, we  have added language to the report stating that FHFB believes it has  statutory authority to disregard OPM regulations requiring staff to be kept  on active status during the advance notice period. However, we note that  the scope of FHFB’s authority and whether it appropriately supercedes  OPM’s RIF regulations has not been established.

			FHFB’s FHLBank Examination Program

FHFB stated that Chair Korsmo initiated significant changes to enhance the  capabilities of the agency’s FHLBank examination program and that the  draft report did not sufficiently recognize that he was responsible for these  initiatives. FHFB stated that at the start of Korsmo’s tenure in December  2001, the agency’s Office of Supervision was understaffed and insufficiently  focused on the FHLBanks’ risk assessment processes, internal control  systems, and systems of corporate governance. FHFB also listed the steps  that the Chair initiated to improve supervision, including hiring  experienced management for OS and increasing the number of examiners.  FHFB also stated that while it agrees with our assertion that these changes  have the potential to improve the agency’s examination program, it believes  that the changes have already resulted in significant progress.
We agree that Chair Korsmo has initiated important steps to improve its  examination program and have added language to the report describing  these initiatives. However, we continue to believe that additional time and  management oversight is needed to ensure that this critical FHLBank  examination function is improved.

			Public Interest Director Appointments

FHFB stated that the draft report had a narrow focus on the political  contributions of FHLBank public interest directors and that this narrow  focus resulted in an incomplete portrayal of the selection process, recent  improvements in that process, and the critical roles played by public  interest directors. FHFB also stated that the draft report’s focus called into  question the integrity of the appointment process and that political  contributions are a determining factor in the appointment process. FHFB  stated that public interest directors are now appointed in public votes and  that the Chair instituted new criteria for the selection of public interest  directors. FHFB also noted that the board voted unanimously to approve 28  public interest directors at the January 29, 2003, board meeting.
We were asked to provide an analysis of the political contributions of  public interest directors prior to their initial appointments. We did not  conduct a broader review of the appointment process or the qualifications  and capabilities of public interest directors. Our review was not intended to  call into question the appointment process or the integrity or qualifications  of individual public interest directors. We have added language to this  report discussing the Chair’s criteria for appointing public interest  directors and the January 29, 2003, board meeting.

			Schedule C Positions

FHFB noted that the report did not identify any Schedule C practices at  FHFB that violated OPM rules and that Chair Korsmo has instituted  changes to correct past practices that improperly categorized employees  who should have had Schedule C appointments. FHFB stated that all of the  agency’s Schedule C officials serve as confidential advisers to board  members. FHFB also reiterated that the small size of the agency serves as  an appropriate basis for assigning its public and congressional affairs  functions to the Chair’s personal staff.

		Comments of Board Members Leichter and Mendelowitz

In their comments, Leichter and Mendelowitz said that because the FHFB  board did not consider or vote on an agency response to our draft report,  there is no official agency response to the report. We have not attempted to  resolve this dispute among FHFB officials, and we treat the response from  FHFB’s Director of Management as the agency’s official response.
Regarding the major issues discussed in the draft report, Leichter and  Mendelowitz made the following comments:  Delegation of Authority: Leichter and Mendelowitz stated that the  delegation of authority (1) resulted in conflicts between board  members; (2) was contrary to FHFB’s authorizing legislation, which  vests agency management in the board rather than the chair; and (3) was  “anachronistic” because it was enacted when the board had a part-time  membership. In response to a comment from Leichter and Mendelowiz  regarding changes that the FHFB board made to the delegation of  authority in 1993, we have added language to the report.
FHFB Actions in Connection with the RIF: Leichter and Mendelowitz  said that they were “deeply concerned” about the way in which FHFB  conducted the RIF and expressed concern about the elimination of the  Office of Managing Director because the action impeded  communication between board members and agency staff. They also  raised concern that the draft report did not discuss other procedures  that FHFB followed in conducting the RIF. Such an analysis was outside  the scope of this review.
Public Interest Director Appointments: Leichter and Mendelowitz said  that the appointment of public interest directors has become  increasingly “political,“and they expressed concerns that public interest  directors lack expertise in the FHLBanks increasingly sophisticated  financial practices. As discussed previously, our review was limited to  an analysis of public interest director political contributions prior to  their initial appointments.
Schedule C Practices: Leichter and Mendelowitz questioned whether it  was “appropriate” for one board member’s staff to perform functions  that the former Office of Communications previously performed for the  entire board. While the FHFB Chair’s staff currently performs these  functions, we note that at other agencies (SEC, CFTC, NCUA) the chairs  can appoint and remove the Schedule C officials who run public or  congressional affairs offices. Therefore, it is not clear that the FHFB  Chair exercises greater control over these functions than is the case at  the other agencies.

		Comments of the FCA Chairman

The FCA Chairman stated that of the agencies’ 12 Schedule C positions, 6  are currently held by career staff.
We will send copies of this report to Chairman of the Senate Committee on  Banking, Housing and Urban Affairs; the Chairman of the House Financial  Services Committee; and the Ranking Minority Member of the  Subcommittee on Capital Markets, Insurance, and Government Sponsored  Enterprises of the House Committee on Financial Services. We will also  send copies to FHFB, NCUA, FCA, CFTC, SEC, FDIC, and the Fed Board.  We will also make copies available to others upon request. In addition, this  report will be available at no charge on the GAO Web site at http://  www.gao.gov.
Please contact Mathew J. Scire at (202) 512-6794 if you or your staff have  any questions concerning this report. Key contributors to this report were  Rachel M. DeMarcus, M’Baye Diagne, Nadine Garrick, Ayeke Messam, Marc  W. Molino, Andy Pauline, Wesley M. Phillips, Mitchell B. Rachlis, and  Barbara M. Roesmann.

Objectives, Scope, and Methodology

As discussed with your staff, our report objectives are to (1) compare the  Federal Housing Finance Board (FHFB) chair’s administrative authorities  to those of the chairs of other financial regulators and discuss the basis for  that authority; (2) assess FHFB’s compliance with selected applicable  statutes and procedural requirements in connection with a reduction-in- force (RIF) that was carried out as part of an agency reorganization  announced on August 7, 2002; (3) assess FHFB’s progress in enhancing its  Federal Home Loan Bank (FHLBank) safety and soundness examination  program; (4) provide data showing the political contributions of FHLBank  public interest directors prior to their appointments; and (5) compare  FHFB’s use of Schedule C appointments and the organization of its public  and congressional affairs functions with the practices of other financial  regulatory agencies.
To study the source of the FHFB chairs’ administrative authorities and how  they compare to those of other financial regulators, we reviewed the  Federal Home Loan Bank Act, the Financial Institutions Reform, Recovery,  and Enforcement Act of 1989, and FHFB’s delegation of authority to its  chair. We also reviewed the legislation, regulations, delegations of  authority, and other legal documents that govern or describe the scope and  limitations of each chair’s authority at six other selected financial  regulators. We interviewed officials from each of the selected financial  regulators, including former FHFB officials, to obtain their views on the  authorities of chairs and board members at each of these entities. Using  this information, we compared the FHFB chairs’ administrative authorities  to those of the selected financial regulators.
To study FHFB’s compliance with required Reduction-in-Force (RIF) and  other procedures, we reviewed the Age Discrimination in Employment Act,  as amended, the Older Workers Benefits Protection Act, applicable Equal  Employment Opportunity Commission (EEOC) and Office of Personnel  Management (OPM) regulations, and case law. We also contacted senior  FHFB officials regarding the RIF. Our review did not include an analysis of  the “bumping rights” procedures that FHFB followed in carrying out the  RIF.
To study FHFB’s progress in enhancing its FHLBank safety and soundness  examination program, we assessed whether FHFB addressed  recommendations about its examination program that we made in a 1998  report. We reviewed 1999 to 2001 examination reports for the 12  FHLBanks. We also interviewed FHFB officials, as well as officials at  OFHEO, to which we compared FHFB’s examination program.
To study the data showing the political contributions of FHLBank public  interest directors prior to their appointments, we obtained public interest  director appointment data from FHFB for 1998 to 2002 and contribution  data from the Center for Responsive Politics (CRP) for 1990 to 2002. CRP  organizes and provides political contribution data that is initially reported  to the Federal Election Commission (FEC). To ensure a standard  comparison, we determined whether directors made a political  contribution in the 8-year period prior to their appointment.  We matched  and merged the two data sets and analyzed the data to determine the  number of public interest directors who made contributions prior to their  initial appointments. We also collected data from Fannie Mae and Freddie  Mac on the names and appointment dates of board members who received  their initial presidential appointments from 1998 through 2002. We obtained  data from CRP to determine the Fannie Mae and Freddie Mac directors’  political contributions in the 8-year period prior to their appointments.
We took several steps to assess the reliability of the CRP data and  concluded that the data were sufficiently reliable for our purposes. First,  we interviewed CRP officials to determine their data management  procedures and the approach that they followed to match the list of public  interest directors that we provided to the CRP contribution database.  Second, we reviewed the matched data set that CRP provided and  corrected erroneous matches between directors and contributors. Third, in  performing our analysis, we conducted basic tests on the data we used. In  performing our analysis, however, we did not verify the accuracy of the  FEC political contribution data on which CRP records are based. Our  review did not include an analysis of FHFB’s appointment process or the  integrity and qualifications of individual board members.
To study FHFB’s use of Schedule C appointments and organization of the  public and congressional affairs functions and compare it with the other  financial regulatory agencies, we interviewed agency officials at each of the  selected financial regulators, and reviewed documents that described the  allocation of Schedule C appointments, as well as the management and  staffing structure of the agencies’ public and congressional functions.
We conducted our review in Washington, D.C., San Francisco, and Seattle  from April 2002 through February 2003 in accordance with generally  accepted government auditing standards.

Administrative Powers of Financial Regulatory Chairs

We compared FHFB to six other regulatory boards and commissions. We  reviewed each board or commission’s statute and policies relating to the  administrative authority of the chair. We focused on two administrative  areas: appointment of senior officials and reorganization decisions. In  cases where the chair is authorized to make key administrative decisions  without board approval, we also determined whether board members had  authority to review decisions made by a chair in these circumstances.
We reviewed the following seven agencies:   Commodity Futures Trading Commission (CFTC),  Farm Credit Administration (FCA),  Federal Deposit Insurance Corporation (FDIC),  Federal Housing Finance Board (FHFB),  Board of Governors of the Federal Reserve System (Fed Board),  National Credit Union Administration (NCUA), and  Securities and Exchange Commission (SEC).

	Commodity Futures Trading Commission

The commission consists of five members, appointed by the President with  the advice and consent of the Senate, and each serve staggered 5-year  terms.
General Administrative Powers of the Chair: According to the statute that established CFTC, the chair is the chief  administrative officer. Executive and administrative functions are generally  exercised solely by the chair, according to budget categories, plans,  programs, and priorities established and approved by the commission.
Key Administrative Powers of the Chair:  Appointment of Senior Officials: According to the statute establishing  CFTC, the chair’s appointment of heads of major administrative units is  subject to approval of the commission.
Reorganizations: While the chair is generally authorized to reorganize the  staff of the agency pursuant to his or her power over executive and  administrative functions, as a practice the commission votes on agency  reorganizations.

	Farm Credit Administration

The board consists of three members, appointed by the President with the  advice and consent of the Senate, and each serve staggered 6-year terms.
General Administrative Powers of the Chair: The President designates one of the members as chairman, and the  chairman serves as the agency’s chief executive officer (CEO). The powers  of the chair as CEO that are necessary for day-to-day management may be  exercised and performed by the chairman through such other officers and  employees of the FCA as the chair shall designate. Policy Statement 64,  originally adopted by the board of FCA in 1994 and revised as recently as  September 24, 1999, provides rules for the transaction of business (Rules)  and operational responsibilities of the board.
Key Administrative Powers of the Chair:  Appointment of Senior Officials: According to the statute that established  the FCA, the appointment of the heads of major administrative divisions is  subject to the board’s approval. Under Policy Statement 64, the board  interprets “heads of major administrative divisions” to mean the chief  operating officer and career office directors. However, in some cases, such  as the Director of the Office of Congressional and Public Affairs, the chair  can appoint Schedule C officials to run these offices.
Reorganizations: Under Policy Statement 64, the board approves the FCA  organizational chart down to the office level along with relevant functional  statements for each office. Under Policy Statement 64, the authority to  make organizational changes within any division rests with the CEO.
Review of Decisions Made by Chair:  As noted in Article V and Article IX of Policy Statement 64, Special  Meetings of the board may be called: 1. by the Chairman; 2. by any two members; or  3. if there is at the time a vacancy on the board, by any member.
Any call for a Special Meeting shall set forth the business to be transacted  and shall state the place and time of such a meeting. Except with the  unanimous consent of all members, no business shall be brought before a  Special Meeting that has not been specified in the notice of call of such a  meeting.
Section 1. The business of the Board shall be transacted in accordance with  these Rules (Policy Statement 64) as the same may be amended from time  to time: Provided, however, that upon agreement of at least two members  convened in a duly called meeting, the Rules may be waived in any  particular instance, except that action may be taken on items at a Special  Meeting only in accordance with Article V, Section (3) b, hereof.
Section 2. These Rules may be changed or amended by the concurring vote  of at least two members upon notice of the proposed change or  amendments having been given at least 30 days before such vote.

	Federal Deposit Insurance Corporation

The President with the advice and consent of the Senate appoints three  members of the five-member board for a term of 6 years. In addition to the  three appointive directors, there are two ex officio members of the FDIC  board: the Comptroller of the Currency and the Director of the Office of  Thrift Supervision.
General Administrative Powers of the Chair:  One of the appointive directors shall be designated by the President, with  the advice and consent of the Senate, to serve as chair of the board for a  term of 5 years. The chair serves as the CEO. The board has delegated to  the chair the authority to manage the FDIC’s day-to-day operations and the  general powers and duties usually vested in the office of the CEO of a  corporation.
Key Administrative Powers of the Chair:  Appointment of Senior Officials: A delegation of authority to chair,  approved on January 29, 2002, gave authority to the chair to appoint and  remove senior officers.
Reorganizations: Under the delegation of authority, the chair has authority  to reorganize the agency.
Challenging Administrative Decisions Made under Delegation:  Two or more board members may initiate a review of any decision made  under the delegation of authority.

	Federal Housing Finance Board

The board consists of four members appointed by the President with the  advice and consent of the Senate and each serve staggered 7-year terms,  and the fifth member is an ex-officio member, the Secretary of Housing and  Urban Development.
General Administrative Powers of the Chair:  The President designates an appointed director as chair. The board has  adopted a delegation of authority that authorizes the chair to effect the  overall management, functioning, and, organization of the board.
Key Administrative Powers of the Chair:  Appointment of Senior Officials: Under the delegation of authority, a chair  can appoint agency personnel without a board vote or obtaining board  approval.
Reorganizations: Under the delegation of authority, a chair can reorganize  the agency without a board vote or consent.
Challenging Administrative Decisions Made under Delegation:  Under the delegation of authority, the chair must call a special session of  the board to consider any matter of business on the request of any two or  more board members.

	Board of Governors of the Federal Reserve System

The board consists of seven members appointed by the President with the  advice and consent of the Senate. The full term of a board member is 14  years, and the seven terms are staggered so that one expires in each 2-year  period.
General Administrative Powers of the Chair:  The chair, subject to board supervision, serves as its “active executive  officer.”
Key Administrative Powers of the Chair:  Appointment of Senior Officials: The board votes on the appointment of  senior officials.
Reorganizations: The board votes on major administrative reorganizations,  which are defined as those that involve changing officers (appointing or  removing an officer).

	National Credit Union Administration

The NCUA has a full-time, three-member board, which is appointed by the  President with the advise and consent of the Senate.
General Administrative Powers of the Chair:  The Federal Credit Union Act provides that the chair is the spokesperson  for the board and implements policies and regulations adopted by the  board.
Key Administrative Powers of the Chair:  Appointment of Senior Officials: The board votes on the appointment of  senior officials. However, in some cases, such as the directors of the Office  of Congressional and Public Affairs, the chairs can appoint Schedule C  officials to run it.
Reorganizations: The board votes on reorganizations of the agency.

	Securities and Exchange Commission

Five members serve staggered 5-year terms, and are appointed by the  President with the advice and consent of the Senate.
General Administrative Powers of the Chair:  There is no statutory reference to the selection of a chair. However, under  section 3 of the Reorganization Plan No. 10 of 1950, the function of the  commission, with respect to choosing a chair from among the members  was transferred to the President. The Reorganization Plan also transferred  to the chair from the commission the administrative and executive  functions of the commission, including appointment and supervision of  personnel, the distribution of business, and the use and expenditure of  funds. Appointment by the chair of the heads of the major administrative  units is subject to the approval of the commission. However, in some cases,  such as the Director of the Office of Public Affairs, the chair can appoint  Schedule C officials to run these offices.
Key Administrative Powers of the Chair:  Appointment of Senior Officials: Under Reorganization Plan No. 10 of 1950,  the board approves the appointment of senior officials.
Reorganizations: Under Reorganization Plan No. 10, the chair can  reorganize the agency.

Waivers of Rights Under the Age Discrimination in Employment Act

While employees generally may agree to waive rights to pursue  employment related claims if the waiver is knowing and voluntary, special  considerations apply to waivers of rights under the Age Discrimination in  Employment Act (ADEA). Title VII of the Civil Rights Act of 1964 (Title  VII) does not include age as a basis for illegal discrimination in the  workplace. However, in 1967, Congress enacted the ADEA to promote the  employment of older persons based on their ability rather than age, to  prohibit arbitrary age discrimination, and to help employers and employees  find ways of meeting problems arising from the impact of age on  employment. The ADEA forbids arbitrary discrimination against workers  on the basis of age in hiring, promotion, terms of employment and  discharge. The ADEA was enacted with characteristics of both Title VII and  the Fair Labor Standards Act of 1928 (FLSA); while Title VII’s substantive  prohibitions on discrimination were included, the enforcement  mechanisms of FLSA were also incorporated.
This structure caused controversy over waivers of rights under ADEA  because Title VII waivers are treated differently from FLSA waivers. Title  VII rights may be waived without government supervision so long as the  waiver is knowing and voluntary. In contrast, rights provided by the FLSA  cannot be waived without government supervision. Waivers must be  supervised by the Secretary of Labor or under a federal court-supervised  settlement of a lawsuit filed pursuant to FLSA.
On August 27, 1987, EEOC issued a final rule that allowed unsupervised  waivers if the waiver was knowing and voluntary and provided that a valid  ADEA waiver may not release prospective claims and may not be in  exchange for consideration that includes employee benefits to which the  employee was already entitled. The EEOC rule also listed several factors  as being relevant to determining whether a waiver is knowing and  voluntary. These factors included whether the employee was encouraged to  consult with an attorney. However, Congress suspended the rule, citing  concerns that the rule was contrary to public policy and, in the spring of  1988, held hearings concerning waivers of ADEA rights and EEOC’s  regulation.
In October 1990, the Older Workers Benefit Protection Act (OWBPA)  amended ADEA to add specific requirements for releases of ADEA claims.  The legislative history of OWBPA provides that the legislation is intended  to protect individuals covered by ADEA, and it further provides that the  legislation establishes minimum requirements that must be satisfied before  a court can proceed to determine factually whether a waiver was knowing  and voluntary. All of the requirements are necessary independent of the  knowing and voluntary considerations. The informational requirements are  designed to permit older workers to make more informed decisions and to  determine whether an employment termination program gives rise to a  valid claim under ADEA.
OWBPA requires that no individual may waive any right or claim under  ADEA unless the waiver is knowing and voluntary. OWBPA specifies the  minimum requirements for a knowing and voluntary release of claims  under ADEA. The waiver must, at a minimum, comply with the following  requirements: 1. Be written in a manner calculated to be understood by the average  individual eligible to participate, 2. Specifically refer to rights and claims arising under ADEA, 3. Not waive rights and claims that may arise after the date the waiver is  4. Provide for consideration in addition to anything of value to which the  individual already is entitled, 5. Advise the individual in writing to consult with an attorney prior to  6. Give an individual a period of at least 21 days within which to consider  the agreement, and 7. Provide that the individual may revoke the agreement for a period of at  least 7 days following the agreement’s execution.
A waiver in settlement of a charge filed with EEOC or a court action must  meet the first five factors listed above, and the individual must be given a  reasonable period of time within which to consider the agreement.  Additional informational requirements apply in the case of a waiver  requested in connection with an exit incentive or other employment  termination program offered to a group or class of employees. The  employer must inform the individual in writing as to the following: 1. Any class or group of individuals covered by the program, and 2. The job titles and ages of all individuals, eligible or selected for the  program, and the ages of all individuals in the same job classification or  organizational unit who are not eligible or selected for the program.
In addition, the individual must be given at least 45 days within which to  consider the agreement. These additional requirements were added  because, in the case of group termination programs, additional protections  are required for individuals from whom a waiver is sought. More time is  provided to weigh options, understand the program, and consult with an  attorney. Employers are required to provide detailed, written information  describing the group termination program.
The OWBPA also mandates that a waiver not affect EEOC’s rights and  responsibilities to enforce ADEA and further states that “ waiver may  be used to justify interfering with the protected right of an employee to file  a charge or participate in an investigation or proceeding conducted by the  Commission.”
In June 1998, EEOC published final regulations that provide guidance on  all waivers of ADEA rights and claims, regardless of whether the employee  is employed in the private or public sector, including employment by the  United States.

	OWBPA Compliance Requires Strict Adherence to Terms of Statute

“The OWBPA implements Congress’ policy via a strict, unqualified statutory stricture on  waivers, and we are bound to take Congress at its word. Congress imposed specific duties  on employers who seek releases of certain claims created by statute. Congress delineated  these duties with precision and without qualification: An employee ‘may not waive’ an  ADEA claim unless the employer complies with the statute . . . The OWBPA governs the  effect under federal law of waivers or releases on ADEA claims and incorporates no  exceptions or qualifications.”
Other courts have used similar language in describing the operation of  OWBPA. “Since the OWBPA establishes minimum or threshold  requirements, absolute technical compliance with its provisions is  required. The absence of even one of the OWBPA’s requirements invalidates  a waiver.” Butcher v. Gerber Products Company, 8 F. Supp. 2d 307, 314  (S.D.N.Y. 1998). “Under the OWBPA, a release cannot be deemed knowing  and voluntary unless all of the requirements of the OWBPA have first been  satisfied.” Collins v. Outboard Marine Corp., 808 F.Supp. 590, 594 (N.D. Ill.  1992). “When an employee signs a purported release of claims arising under  the ADEA, that release will not bar an ADEA claim unless the release  strictly complies with the statutory requirements of the OWBPA.” Thiessen  v. General Electric Capital Corporation, 232 F.Supp.2d 1230, 1233 (D. Kan.  2002).

	Waiver of the Right to File an EEOC Complaint

While an employee can waive the right to recover from an employer based  on a claim of age discrimination under ADEA, OWBPA provides that a  waiver may not affect the EEOC’s rights and responsibilities to enforce  ADEA. In addition, no waiver may be used to justify interfering with the  protected right of an employee to file a charge or participate in EEOC  investigations or proceedings.   EEOC regulations also provide that no  waiver agreement may include any provision imposing any limitation  adversely affecting any individual’s right to file a charge or complaint,  including a challenge to the validity of the waiver, with the EEOC.
According to EEOC guidance, the OWBPA language is evidence that  Congress reaffirmed the public policy against interference with EEOC  enforcement efforts. EEOC’s guidance cites the legislative history of  OWBPA, which states that the provision is intended as a clear statement of  support for the principle that the elimination of age discrimination in the  workplace is a matter of public as well as private interest, and that no  waiver agreement may be permitted to interfere with the achievement of  that goal.
In connection with the OWBPA’s statutory prohibition, the Senate  Committee report expresses support for the holding and reasoning of the  Fifth Circuit in EEOC v. Cosmair, Inc., 821 F. 2d 1085 (5th Cir. 1987). In  Cosmair, the court found that a waiver of the right to file a charge with the  EEOC is void as against public policy in part because the public interest in  private dispute settlement is outweighed by the public interest in EEOC  enforcement of ADEA. Allowing the filing of charges to be obstructed by  enforcing a waiver of the right to file a charge could impede EEOC  enforcement of the civil rights laws. The court found that the EEOC  depends on the filing of charges to notify it of possible discrimination. The  court determined that an employer and an employee cannot agree to deny  to the EEOC the information it needs to advance the public interest in  preventing employment discrimination. However, an employee can waive  the underlying cause of action and the right to recover from the employer  in a lawsuit.

	Employee Must be Advised in Writing to Consult an Attorney

Both the OWBPA and EEOC regulations provide that an employee must be  advised in writing to consult an attorney. Courts analyzing waivers have  applied the requirement strictly.   In American Airlines v. Cardoza- Rodriguez, 133 F. 3d 111 (1st Cir. 1998), the court considered a waiver of  rights offered to certain employees in connection with an early retirement  program. The First Circuit found that language contained in the release that  stated “I have had reasonable and sufficient time and opportunity to  consult with an independent legal representative of my own choosing  before signing this . . . ” was insufficient because employer did not  advise employees to consult with counsel before executing the release.
In Thiessen, the court considered a release stating “the Company advised  the employee in writing to consult with a lawyer before signing this  Agreement.” The court found that this language suggests that the Company,  at some previous time, advised the employee to consult with an attorney  and determined that this language, standing alone, does not comply with  OWBPA’s requirement that an employer advise the employee in writing to  consult an attorney prior to executing the release. The court also said,  however, that the employee could have complied with the statute by  providing the employee with prior written advice so that the statement in  the release was factually accurate.
In Cole v. Gaming Entertainment, L.L.C., 199 F. Supp. 2d 208 (D. Del.  2002), the court considered a provision in a written release of employment  claims that the “mployee acknowledges that he/she has been advised to  consult with an attorney prior to executing this Agreement.”   The court  found that the language was insufficient to satisfy the requirements of  ADEA. Citing American Airlines, the court found that the passive language  used by the release was insufficient under current case law. However, the  court found that the release language might have met OWBPA standards if  the employer’s representatives had advised the employee of his right to  counsel as contemplated by the release language.

	OWBPA Informational Requirements

The OWBPA provides that a waiver cannot be considered knowing and  voluntary unless, at a minimum, if the waiver is requested in connection  with an exit incentive or other employment termination program offered to  a group or class of employees, the employer informs the individuals in  writing in a manner calculated to be understood by the average individual  eligible to participate, as to (1) any class, unit, or group of individuals  covered by the program; any eligibility factors for such program; and any  time limits applicable to such program and (2) the job titles and ages of all  individuals eligible or selected for the program and the ages of all  individuals in the same job classification or organizational unit who are not  eligible or selected for the program.
The EEOC regulations provide that “other employment termination  program” as set out in OWBPA usually means a group or class of employees  who were involuntarily terminated and who are offered additional  consideration in return for their decision to sign a waiver. The regulations  go on to state that the existence of a program will be determined based  upon the facts and circumstances of each case. A “program” exists when an  employer offers additional consideration for the signing of a waiver  pursuant to an exit incentive or other employment termination (e.g., a  reduction in force) to two or more employees. The regulations also state  that typically, an involuntary termination program is a standardized  formula or package of benefits that is available to two or more employees.  The terms of the program are generally not subject to negotiation between  the parties. The regulations make clear that the number and identity of  employees who must be provided with the information will depend on how  the employer chose persons who would be offered consideration for  signing a waiver. In some cases, the information requirement extends to all  employees within a certain job category; and in some cases, extends to all  employees within a particular division or to all employees in the employer’s  facility.
The legislative history of OWBPA indicates that group termination  programs raise additional issues and require additional protection for  individuals from whom a waiver is sought. These informational  requirements are designed to permit older workers to make more informed  decisions in group termination programs. The employees affected by these  programs have little or no basis to suspect that action is being taken based  on their individual characteristics. The Senate Report explains that the  principal difficulty encountered by older workers in these circumstances is  their inability to determine whether the program gives rise to a valid claim  under ADEA and that the need for adequate information and access to  advice before waivers are signed is especially acute.

Comments from the Federal Housing Finance Board

Comments from FHFB Board Members Franz S. Leichter and Allan I. Mendelowitz

Comments from the Farm Credit Administration

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	Public Affairs

Summary:
Why GAO Did This Study

The Federal Home Loan Bank System (System) faces additional risks due to the development of new products such as direct mortgage purchase programs. Responding to concern about the methods used for administrative decisionmaking, and the ability of the Federal Housing Finance Board (FHFB) to fulfill its critical mission to regulate the safety and soundness of the System, GAO was asked to (1) compare the FHFB chair's administrative authorities with those of other financial regulators and discuss the basis for that authority, (2) assess FHFB's compliance with selected statutes and regulations in connection with an August 2002 reduction-in-force (RIF) carried out as part of an agency reorganization, and (3) assess FHFB's progress in enhancing its FHLBank safety and soundness examination program.

What GAO Found

FHFB's chair has greater authority to make key administrative decisions than the chairs at five of the six other financial regulators GAO reviewed. FHFB's chair has the authority to appoint and remove officials and reorganize the agency without a vote by the board. In contrast, statutes, regulations, and practices limit the chairs' authorities at most other regulators. In particular, the boards or commissions at these agencies approve most senior-level appointments and several boards approve major reorganizations. The basis for the FHFB chair's comparatively broad administrative authority is a delegation of authority, which the board passed in 1990 and 1993. The delegation allows the chair to make and implement key decisions without obtaining or benefiting from the views of all board members and has contributed to sometimes bitter conflicts among board members over the past 8 years. Although FHFB provided significant financial compensation to staff subject to the RIF, its procedures were not fully consistent with all applicable federal age discrimination statutes and regulations. For example, FHFB presented a settlement agreement to separated staff that offered 3 to 6 months salary in exchange for, among other things, the employees agreeing to waive their rights to file charges, complaints, or appeals with the Equal Employment Opportunity Commission (EEOC). EEOC regulations implementing the Age Discrimination in Employment Act do not permit waivers of employees' rights to file charges or complaints with EEOC. In addition, FHFB did not advise the affected employees in writing to consult an attorney prior to signing the agreements as is required. Although for several years FHFB did not take steps to correct weaknesses in its FHLBank examination program that GAO identified in a 1998 report, FHFB's current Chair has recently undertaken several steps to improve its examinations. In 1998, and again in 2002, GAO found that FHFB performed limited reviews of FHLBank functions that are critical in managing the banks' financial and operational risks. Among other changes announced in 2002, FHFB plans to increase the number of examiners from 10 to 24 and revise its examination approach to focus on the major risks and quality of controls at each FHLBank. Although these changes have the potential to improve FHFB's examination program, it is too soon to assess their effectiveness.