07/31/2012 07:32 pm ET Updated Aug 01, 2012

Oakland Police Department Racist Photos Emerge As Troubled Agency Stands On Brink Of Federal Takeover (VIDEO)

SAN FRANCISCO -- For nearly a decade, the city of Oakland's ability to maintain control over its own police force has been hanging by a thread.

And things just took a turn for the worse.

On Monday, the independent monitor appointed by a federal judge to oversee the Oakland Police Department issued a report questioning whether its leadership had either the ability or willingness to make drastic and necessary reforms. The report also expressed dismay over a pair of racially insensitive photos posted at OPD headquarters.

In an incident that monitor Rober Warshaw found "troubling," an OPD employee reported to a lieutenant that photographs of an elected city official and a federal judge had been defaced "in a manner that [the] Internal Affairs Division found to be racist, insulting and inappropriate."

The photos were taken down within two days. However, the report charges that "defacing in a racially offensive manner of the photographs of public officials--or, for that matter, anyone--in the police administration building strikes at the heart of the negotiated settlement agreement [under which Warshaw has been evaluating the law enforcement agency]."

While the report doesn't reveal identities of the elected official or federal judge in question, sources familiar with the matter told the San Francisco Chronicle that the photos were of Chinese-American Oakland Mayor Jean Quan and African-American Judge Thelton Henderson, the latter of whom holds the department's ultimate fate in his hands.

In the early 2000s, a group of Oakland residents filed a class action lawsuit against OPD for allowing a handful of rogue officers, calling themselves the "Rough Riders," to plant evidence, use excessive force and falsify police reports. As part of a negotiated settlement, the department was required make 51 specific steps toward reform or else see be placed into federal receivership.

In the eyes of both Henderson and Warshaw, Oakland has failed to make acceptable progress on said reforms. As such, the pair has begun taking more aggressive action.

"Despite years of involvement in this negotiated settlement agreement, the department remains behind: almost stagnant," wrote Warshaw in his latest report.

Warshaw, a former deputy U.S. drug czar, signed on to monitor OPD in early 2010 at Henderson's request. He's the second such individual to hold this position.

Earlier this year, Henderon struck a significant blow against OPD leadership when he required all major decisions, such as staffing and awarding promotions, be given Warshaw's stamp of approval before moving forward.

This October, attorneys are scheduled to file a motion asking Henderson to move the department out from city's operational control.

"There's still no progress. Right now, we have to move forward with the motion," civil rights lawyer John Burris, who filed the initial class suit in the "Rough Riders" case, told the Oakland Tribune.

This setback for the department comes on the heels of a federal lawsuit filed by the family of an African-American teenager shot by officers earlier this year.

The department was also plagued by reports of significant failure of its communication system when President Barack Obama was in town for a fundraiser this month.

Harry Stern, an attorney representing the police officer's union, argued that the cost of the independent monitor--$1.78 million in 2012 and 2013 alone--makes the actual work of policing more difficult.

"Students of Greek mythology will recall Sisyphus," Stern told the Chronicle. "The monitors are actively, in my opinion, tossing the boulder down the hill. The real issue in Oakland is the undeniable connection between the money squandered on the monitors and the tremendous increase in crime."

Warshaw is the not the only investigator to spend time looking into OPD's practices of late.

Earlier this summer, the city of Oakland hired an independent police consulting firm headed by former Baltimore Police Chief Thomas Frazier to examine the department's handling of last year's Occupy Oakland protests that exploded into a shocking frenzy of violence.

Frazier's report argued that the problems manifested by the handling of the Occupy protest were systematic to the department as a whole. "Years of diminishing resources, increasing workload and failure to keep pace with national current standards and preferred practices led to the cascading elements resulting in the flawed responses," he wrote.

Last year, OPD chief Anthony Batts abruptly resigned, saying that he was unable to run a department where he had "limited control but full accountability."

Batts had butted heads with both Quan and members of the Oakland City Council. His departure came on the heels of a highly critical report slamming the department for lackluster progress in implementing the post-Rough Rider reforms.

For her part, Quan doesn't hesitate to defend Oakland's institution.

"We're really not afraid of the truth," the mayor, who strongly opposes a court takeover of OPD, explained to the Tribune . "We know it's hard. We know the city has been struggling with reforming some parts of the police department for decades. But I believe that this chief has the courage to make those changes, and we'll stand behind him to make those changes."