This is different at every school, and I've never heard of the system you described.
The two grad schools I've gotten a 'behind-the-scenes' look at work like this:
- a team of 3 will review applications
- the applications are split into 3 piles, one pile each
- they rank their pile in order
- the group reconvenes, and they make an argument for their favorites
The one prejudice I've heard of involves the reputation of your undergraduate school. If you weren't from a top-tier place, it would be tough to get onto the top of certain professors' piles.
That part sucks, but I can't corroborate your account of race-based admissions at all. I should also mention that I'm specifically talking about admissions to a graduate research program.