STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, BOARD OF ACCOUNTANCY, )

)

Petitioner, )

)

vs. ) CASE NO. 90-1626

)

ROBERT E. CARLSON, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter was heard by William R. Dorsey, Jr., the assigned Hearing Officer of the Division of Administrative Hearings, on June 15, 1990, in North Miami Beach, Florida.

APPEARANCES

For Petitioner: Tobi C. Pam, Esquire

Department of Professional Regulation

1940 North Monroe Street Tallahassee, Florida 32399-0792

For Respondent: Victor K. Rones, Esquire

MARGULIES AND RONES

16105 Northeast 18th Avenue North Miami Beach, Florida 33162

STATEMENT OF THE ISSUE

The issue is whether Mr. Carlson is guilty of misconduct in his practice as a certified public accountant by making personal use of trust fund monies or by his firm's issuance of an audit report on a bank while one of the firm's partners was a shareholder in the bank.

PRELIMINARY STATEMENT

A prehearing stipulation was filed at the opening of the hearing along with stipulated exhibits, consisting of the investigative report and accompanying documents. The Hearing Officer questioned counsel on the record to clarify the position of the parties on the agreed facts contained in the prehearing stipulation. Neither party offered any witnesses. The Department also dismissed Count I of the Administrative Complaint, which had alleged that during 1983-84, Mr. Carlson had practiced with a partnership which had not been licensed by the Board of Accountancy.

FINDINGS OF FACT

1. Mr. Carlson has been licensed as a certified public accountant in Florida, holding license #AC0002345. His address is 930 North Chrome Avenue, Suite 2B, Homestead, Florida 33030.

   
   

2. Mr. Carlson became a partner in an accounting firm known as Brown, Carlson, and Derrer in 1985. Prior to Mr. Carlson's association with Richard Brown, one of the partners in that firm, the Islamorada Bank was a major client of Mr. Brown. Brown had issued audit opinions on the financial statements of the bank without disclosing that Brown was a stockholder of the bank, and therefore lacked independence with respect to the bank. Financial statements for the year ending December 31, 1986, were issued on the letterhead of Brown, Carlson, and Derrer, and signed by Richard Brown, along with an audit opinion with respect to the financial statements of the Islamorada Bank. Brown's lack of independence was not disclosed in the audit opinion letter.

   
   

3. Mr. Carlson had specifically asked Mr. Brown on all audits, including the audit of the Islamorada Bank, whether Brown was independent of the client, and Brown unequivocally told Carlson that he (Brown), was independent. Other members of the firm, including Roger Infante, also specifically inquired about Brown's independence and was assured that Brown was independent with respect to the Islamorada Bank. After the audit report on the financial statements of the Islamorada Bank for 1986 was issued, the firm of Brown, Carlson, and Derrer broke up in April, 1987. In connection with the breakup, Carlson discovered that Brown had held stock in the Islamorada Bank, and was not independent with respect to the bank.

   
   

4. At that time, Mr. Carlson's lawyer advised him that:

   
   

   1. If he notified all shareholders of the bank, this would be improper because

      1. Carlson was currently in acrimonious litigation with Brown over the breakup of the accounting firm, and such action could be viewed as harassment;

      2. Brown still denied the lack of indepen- dence despite the appearance of shares in the bank on Brown's personal financial statements, and

         
         

   2. If Carlson failed to notify anyone, he might be guilty of a potential violation of his professional responsibility.

      
      

      Thus, Carlson's lawyer told him that no matter what he did, he could be guilty of wrongdoing. In order to resolve this problem, Carlson reported the situation to the Department of Professional Regulation. He did not attempt to recall the audit that Brown had done on the bank.

      
      

5. A certified public accountant who owns even one share of stock in a company for which he issues financial statements lacks independence. Because Brown lacked independence and the financial statements were issued on the letterhead of Brown, Carlson, and Derrer, the firm also lacked independence.

6. Willard Teft, a client of Mr. Carlson, established an educational trust fund known as a Clifford Trust. Those trust funds were delivered to Mr. Carlson and held in Carlson's trust account. Mr. Carlson failed to post and reconcile the Teft trust account from January 1, 1985 until May, 1988. The failure to perform the posting and reconciliations resulted in overdrafts against the Teft trust. These overdrafts consisted of payments to clients and fees paid to the accounting firm. Only after the Teft trust was reconciled did Mr. Carlson realized he had used money that was not his. The Teft trust should have had a balance of $7,500-10,000 at all times. Mr. Carlson should have known by looking at the balance of his trust account that he was misusing trust fund money. Mr. Carlson's misuse of the trust fund money constitutes misconduct in the practice of public accounting.

   
   

7. The Teft trust account had been reconciled and posted to date before the Department began its investigation. All monies due to the trust because of overdrafts had been returned to the account before the Department's investigation.

   
   

8. Mr. Carlson provided full and complete cooperation in the investigation conducted by the Department.

   
   

   CONCLUSIONS OF LAW

   
   

9. The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes.

   
   

10. A certified public accountant is subject to discipline under Section 473.323(1), Florida Statutes, for a number of acts, including:

    
    

    1. upon proof that the licensee is guilty of fraud or deceit, or negligence, incompetency, or misconduct, in the practice of accounting;

       
       

    2. violation of any rule adopted pursuant to this act or Chapter 455, [Florida Statutes].

    
    

11. Under Rule 21A-21.001(1)(a)1., Florida Administrative Code,

    
    

    A licensee shall not express an opinion on financial statements of an enterprise or on the reliability of an assertion by one party for use by another (third) party unless he and his firm are independent with respect to such enterprise or the party making the assertion. Independence will be considered to be impaired if, for example: (a)during the period of his engagement, or at the time of expressing his opinion, he or his firm:

    1. had or was committed to acquire any direct financial interest or material indirect finan- cial interest in the enterprise.

    
    

12. The firm of Brown, Carlson, and Derrer was not independent with respect to the Islamorada Bank at the time the financial statements and audit opinion were issued for the firm by Mr. Brown for the bank's fiscal year ending December 31, 1986. There is no evidence, however, that Mr. Carlson knew of Brown's lack of independence, or that Carlson failed to take appropriate

    measures to determine whether Brown was independent with respect to the bank. The only evidence is that both Carlson and Mr. Infante, another certified public accountant in the firm, made appropriate inquiries, but that Brown lied to them. There is no evidence that there were other circumstances which should have put Carlson on inquiry notice to go behind Brown's statement that he was independent with respect to the Islamorada Bank.

    
    

13. There is no basis for finding Mr. Carlson guilty of fraud, deceit, negligence, incompetency, or misconduct in the practice of public accounting based upon the failure of Mr. Brown to acknowledge his lack of independence with respect to the Islamorada Bank. The allegations made in the Administrative Complaint attempt to hold Mr. Carlson liable for Brown's deceit merely because he was a partner in a firm which issued an audit opinion on a bank's financial statements in violation of Rule 21A-21.001(1)(a)1., Florida Administrative Code. Such strict liability is unwarranted. It is unreasonable to subject a licensee who is a partner in accounting firms to discipline because another partner has violated principles of independence, when the licensee himself was guilty of no wrong doing. Count II of the Administrative Complaint should be dismissed.

    
    

14. That Mr. Carlson took no steps to recall the audit after Brown's lack of independence came to light is irrelevant, because the Administrative Complaint contains no such charge of misconduct. Celaya v. Department of Professional Regulation, So.2d , 15 F.L.W. D1205 (Fla. 3d DCA 1990).

    
    

15. Mr. Carlson's failure to post and reconcile the Teft trust account in January, 1985 to May, 1988, constitutes negligence. His failure to appreciate that his trust account should have always had a balance in excess of $7,500- 10,000, and that any time his trust account balance fell below that amount he was using the monies entrusted to him by Mr. Teft for his own purposes also constitutes negligence in the practice of public accounting.

    
    

16. Mr. Carlson has agreed to cease use of trust accounts by him or his firm, now or in the future, to insure that no further problems with timely posting or reconciliation of trust accounts will reoccur.

    
    

17. The stipulated facts do not give rise to an inference that Mr. Carlson's handling of the Teft trust rose to the level of fraud or deceit; the facts show no more than negligence. Under the penalty guidelines of the Board of Accountancy, the penalty for negligence ranges from a letter of guidance to a reprimand and one year probation, including continuing education, a review of the licensee's practice at the licensee's expense and possible limitation on the licensee's area of practice. Rule 21A-36.004(2)(i), Florida Administrative Code. No evidence with respect to aggravation or mitigation was presented at the hearing. See, Rule 21A-36.004(3), Florida Administrative Code. The stipulated facts are relevant to the following mitigation factors found in Board Rule 21A-36.004(3)(b), Florida Administrative Code, however:

    
    

    1. Restitution was made after the failure to post and reconcile the account came to Mr. Carlson's attention, and this occurred before any investigation by the Department. Rule 21A-36.004(3)(b)3., Florida Administra- tive Code.

       
       

    2. Mr. Carlson has agreed to refrain from handling trust accounts in the future, which will ensure that a similar violation will not

       occur in the future. Rule 21A-36.004(3)(b)5., Florida Administrative Code.

       
       

    3. Mr. Carlson has cooperated with the Board and the Department of Professional Regulation in its investigation, and has admitted the facts making out the violation with respect to his trust account. Rule 21A-36.004(3)(b)7., Florida Administrative Code.

       
       

18. Based upon these mitigating factors, and the Board's own penalty guidelines, a Final Order should be entered reprimanding Mr. Carlson, and placing him on probation for a period of one year. The standard probationary terms should be included in the Final Order as outlined in Rule 21A- 36.004(1)(b), which provide for a review of Mr. Carlson's practice, including an analysis of selected financial statements, at Mr. Carlson's expense. Additional continuing education may be required if this review reveals deficiencies in an area of practice. If the review fails to reveal deficiencies in any other area of practice, the probation should be lifted at the conclusion of one year.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered finding Mr. Carlson guilty of violation of Section 473.323(1)(g), Florida Statutes, that he be reprimanded, and placed on probation with the usual probationary terms for a period of one year.

RECOMMENDED this 22nd day of June, 1990, at Tallahassee, Florida.

WILLIAM R. DORSEY, JR.

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 22nd day of June, 1990.

COPIES FURNISHED:

Tobi C. Pam, Esquire

Department of Professional Regulation 1940 North Monroe Street

Tallahassee, Florida 32399-0792

Victor K. Rones, Esquire MARGULIES AND RONES

16105 Northeast 18th Avenue

North Miami Beach, Florida 33162

Kenneth E. Easley, General Counsel Department of Professional Regulation 1940 North Monroe Street

Tallahassee, Florida 32399-0792

Martha Willis, Executive Director Department of Professional Regulation Board of Accountancy

Suite 16

4001 Northwest 43rd Street Gainesville, Florida 32606

Docket for Case No: 90-001626

Orders for Case No: 90-001626