STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
STATE BOARD OF INDEPENDENT )
COLLEGES AND UNIVERSITIES, )
)
Petitioner, )
)
vs. ) Case No. 85-3701
) UNION FOR EXPERIMENTING COLLEGES ) AND UNIVERSITIES--MIAMI CENTER, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to Notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer of the Division of Administrative Hearings, on November 12, 1985, in Coral Gables, Florida.
Petitioner State Board of Independent Colleges and Universities was represented by William R. Dorsey, Jr., Esquire, Tallahassee, Florida and Respondent Union for Experimenting Colleges and Universities--Miami Center was represented by Douglas M. Halsey, and Bruce A. Ratzen, Esquires, Miami, Florida.
On September 12, 1985, Petitioner voted to suspend Respondent's temporary license. An Order of Summary Suspension of Licensure was entered on October 1, 1985. On October 11, 1985, Petitioner filed its Administrative Complaint to Suspend or Revoke Licensure. On October 28, 1985, Respondent filed its Request for a Formal Administrative Hearing. By agreement of the parties, this cause was scheduled for final hearing on November 12, 1985. The Administrative Complaint seeks to suspend or revoke the temporary license held by the Respondent to operate a nonpublic postsecondary institution in Florida. Accordingly, the issues for determination are whether Respondent is guilty of the allegations contained in that Administrative Complaint, and, if so, what disciplinary action should be taken against Respondent, if any.
At the beginning of the final hearing, the parties filed a Prehearing Stipulation, and by agreement Joint Exhibits numbered 1-33 were admitted in evidence. C. Wayne Freeberg testified on behalf of the Petitioner and Sheila Costello, Wayne Leaver,
Lauren Millikin, and Robert T. Conley testified on behalf of the Respondent.
Both parties submitted posthearing proposed findings of fact; and Respondent submitted a Reply to Petitioner's Proposed Recommended Order. A ruling has been made on each proposed finding of fact; and those rulings appear in the Appendix to this Recommended Order.
FINDINGS OF FACT
Respondent Union for Experimenting Colleges and Universities--Miami Center (hereinafter "UECU") is a foreign corporation authorized by the Florida Secretary of State to transact business in the State of Florida.
Founded in 1964, UECU is an independent non-profit university incorporated in Ohio and authorized by the Ohio Board of Regents to award Bachelor of Arts, Bachelor of Science and Doctor of Philosophy degrees. UECU first began its graduate program and shortly thereafter started its undergraduate program known as the University Without Walls (hereinafter "UWW"). UECU provides an alternative to campus-based higher education and is geared primarily toward the adult student.
On March 7, 1984, UECU submitted an application to Petitioner State Board of Independent Colleges and Universities (hereinafter "the Board") for a license to operate a student service center in Miami; Florida. At the time of its application to the Board, UECU was a candidate for accreditation with the North Central Association of Colleges and Schools and offered its educational program through student service centers located in Cincinnati and Los Angeles.
In its application, UECU identified Lorenzo Battle, Ph.D., as the Dean/Director of the Miami Center; Sheila Costello as the Administrative Assistant to the Dean; and Wayne Leaver, Ph.D.; and Carolyn Miller as the full-time members of the core faculty.
The relationship between the central office of UECU in Cincinnati and the student service centers was set forth in a memorandum from the National Dean contained in the application:
The Central Office will house all permanent records for all the learners. . . .
Financial Aid will be administered through the Central Office. . . .
Registration forms and materials will be made up in the Central Office and sent to the Student Service Centers to be signed by the students.
Student accounts will be maintained in Cincinnati at the Business Office. . . .
Academic policy and implementation procedures must be designed through the office of the UWW Vice President and National Dean. All policies and procedures must be cleared through this office first, and must have the approval of the national Faculty and Deans.
Student Service Center Deans are to implement these policies through the faculty at their centers.
Thus, the application made clear that the Central Office in Cincinnati had primary responsibility for the academic programs and the finances of the Miami Center.
The application contained a budget for the Miami Center for 1984-85 as well as UECU's audited financial statements for the fiscal year ending June 30, 1983. The application stated the Miami Center " . . . will be funded by student fees and tuitions as well as by the main campus in Ohio."
The Executive Director of the Board, C. Wayne Freeberg, Ed.D., prepared a staff report on UECU's application for the Board's meeting on September 14, 1984, when UECU's application was scheduled to be reviewed. In his report he noted the location of UECU as Cincinnati and in the space designated for "Name/Title of Chief Administrative Official" he listed Dr. Robert R. Conley, President Dr. Sean Warner, Vice President for Academic Affairs; and Battle, Director of the Miami Center.
Freeberg recommended that the Board grant UECU a temporary license subject to two conditions: (1) it file monthly financial reports, and (2) it not include the "Environmental Dimension" in its academic program. The Board followed Freeberg's recommendation, and on September 14, 1984, granted UECU a temporary license to operate a center in Miami, Florida, having determined that UECU met the requirements for temporary licensure.
Although President Conley, Vice President Warner and Miami Director Battle were present at that meeting, on September 17, 1984, Freeberg wrote Battle a letter confirming that the
Board had determined that UECU-Miami Center met the requirements for temporary licensure.
The Miami Student Service Center Budget for 1984-85 submitted with the application showed projected enrollment in the summer of 70, in the fall of 110, in the winter of 130, and in the spring of 130; for an average quarterly enrollment of 110 students. It showed a projection of revenue over expenditures of minus $19,635 for summer, plus $2,295 for fall, plus $23,145 for winter, and plus $23,145 for spring, for a fiscal year total revenue over expenditures of plus $28,950 by the end of the first year of operation. Total expected tuition was $572,000. A contingency fund of $50,000 as a "reserve for enrollment fluctuations and unanticipated development expense" was built into that budget.
In compliance with the conditions of temporary licensure, UECU filed financial reports with the Board during its first year of licensure. Conley sent Freeberg the first financial report on October 9, 1984, with a cover letter stating, "If you have any questions on this report, please do not hesitate to call me or drop me a note." Freeberg does not remember calling Conley about that report.
On November 28, 1984, Conley sent Freeberg a letter with an attached financial report. In the letter, Conley stated:
A word of caution in the interpretation of these reports is in order. The monthly report indicates a cash shortfall of $23,082, which is being funded by UECU from its developmental subsidy fund. The Center is new, the enrollment low, and the front-end costs are higher than one might expect in terms of an on-going, established unit. We expect this situation to change overtime as the enrollment grows and the Center matures.
As of September 30, 1984, the end of the first quarter of our 1984-85 fiscal year, UECU had expended 5155,350 in development subsidies supporting the center. At its meeting on December 3, 1984, the Board received the financial reports which Conley had submitted to Freeberg.
On January 2, 1985, Conley sent Freeberg a letter with an attached financial report. Freeberg did not call Conley about this report.
On January 17, 1985, Conley sent Freeberg a letter with an attached financial report. In that letter, Conley stated, "During the first half-year UECU provided developmental funding for the center in the amount of $103,785. We expect that amount to decline over subsequent quarters as the enrollment grows. Dr. Battle's enrollment forecasts have unfortunately, been overly optimistic." Although Freeberg read the report, he did not call Conley to ask him any questions about it.
On February 26, 1985, Conley sent Freeberg a letter with attached financial reports. Freeberg did not call Conley about these reports. In his report to the Board for the March 11, 1985 meeting, Freeberg recommbnded, with respect to the financial reports submitted by Conley on January 2 and January 17, 1985, that they "be received and approved for the record". At the Board's meeting on March 11, 1985, the Board received and approved the financial reports which had been submitted by Conley.
On March 18, 1985, Freeberg wrote Battle a letter stating, "The Board received and approved the Special Report on Standard 5 [sic]; Finance; and noted the financial support provided by the Union." Freeberg sent Conley a copy of this letter.
On April 1, 1985, Conley sent Freeberg a letter with an attached financial report. The letter stated, "If you have any questions concerning this report, please let me know. We would be most happy to supply any additional information that may be needed in clarification." Freeberg did not call Conley about this report.
On April 22, 1985, Conley sent Freeberg a letter with an attached financial report. In the letter Conley stated, "If you have any questions concerning this report, please let me know." Freeberg did not call Conley about this report.
On April 24, 1985, Conley sent Freeberg a letter with an attached interim report concerning UECU's operations in Florida during the period of temporary licensure. Enclosed with the interim report was a copy of the notification of accreditation, dated February 27, 1985, from the North Central Association of Colleges and Schools, Commission on Institutions of Higher Education. North Central is a regional accrediting agency recognized by the United States Department of Education.
Regarding "Standard 6: Finances", UECU reported: "No changes in the sources of revenue have occurred during this period. The Center's operation is funded from essentially two sources: tuition and fee revenues and development funding from
UECU. The current financial situation at the center is a healthy one and moving ahead according to our financial plans." Page 8 of the interim report -showed a development subsidy as of March 31, 1985 in the amount of $195,961 and a fund balance deficit of
$179,930. Freeberg never spoke to Conley about the interim report.
For the Board's meeting on June 7, 1985, Freeberg prepared two staff reports. One contained excerpts from UECU's UECU's annual report. Freeberg's report noted the campus as being in Cincinatti, Ohio and also listed Conley's name first in the space for "Name/Title of Chief Administrative Official". In the staff comment section of the report it is noted that the Board's visit to the Miami Center would occur in early October of 1985. Freeberg recommended " . . . that the Temporary License granted to the Center be continued for three (3) months pending the onsite evaluation report by the visiting committee", and that the Board receive UECU's Annual Report.
interim report, and the other attached the financial information which Conley had submitted on April 1 and April 22, 1985. Both reports listed Conley's name first in the space for "Name/Title of Chief Administrative Official."
On June 17, 1985, Freeberg sent Battle a letter confirming the Board's action at the meeting on June 7, 1985, receiving UECU's interim report and UECU's financial reports. The letter also advised that the Board would conduct an annual review of UECU's temporary license at its meeting on September 12, 1985. Freeberg did not send Conley a copy of this letter or any of the enclosures.
On July 18, 1985, Conley submitted to Freeberg an annual report for the UECU Miami Center. According to the financial information included in the annual report: as of April 30, 1985 the developmental subsidy was $157,198 and the fund balance deficit was $114,819 as of May 31, 1985, the developmental subsidy was $152,686 and the fund balance deficit was $134,943 as of June 30, 1985, the developmental subsidy was
$158,647 and the fund balance deficit was $159,208.
Regarding "Standard 6: Finances", UECU stated in the annual report, "No changes in the sources of revenue have occurred during this period. The Center's operation is funded from essentially two sources: tuition and fee revenues and developmental funding from UECU. The current financial situation at the center is a healthy one and moving ahead according to our financial plans."
Although Freeberg had some concern about the completeness of the information submitted in the annual report,
no "completeness summary" or other written request for additional information was ever submitted to UECU with respect to UECU's annual report.
In connection with the Board's meeting on September 12, 1985, Preeberg prepared a staff report regarding UECU's annual report. Freeberg's report noted the campus as being in Cincinatti, Ohio and also listed Conley's name first in the space for "Name/Title of Chief Administrative Official." In the staff comment section of the report it is noted that the Board's visit to the Miami Center would occur in early October of 1985. Freeberg recommended ". . . that the Temporary License granted to the Center be continued for three (3) months pending the onsite evaluation report by the visiting committee," and that the Board receive UECU's Annual Report.
In none of his staff reports to the Board during the term of UECU's licensure, including his written report to the Board for its meeting on September 12, 1985, did Freeberg advise that UECU had violated any standard for temporary licensure or that UECU's temporary license should be revoked or suspended.
At the end of June, 1985, UECU placed Battle on probation and an addendum was attached to his employment contract for unsatisfactory performance. Battle retained legal counsel in connection with his dispute with UECU regarding the terms of his continued employment. In July, 1985, Freeberg received a call from the UECU Cincinnati office in which the National Dean asked Freeberg if he had any concerns about the Miami Center under Battle. After that call, however, Freeberg never contacted the main office of UECU about any concerns he
may have had about the operation of the UECU Miami Center.
Battle caused a letter to be delivered on September 12, 1985, to the office of the Rev. Dr. Patrick H. O'Neill, at St. Thomas University in Miami where the Board's meeting was being held. O'Neill, President of St. Thomas University and the Chairman of the Petitioner Board, gave the letter to Freeberg.
Though hand-delivered on September 12, 1985, the letters bears the date of September 3, 1985. Freeberg read the letter to the Board. The letter states:
Fr. O'Neill:
Please inform the Board that I have notified President Conley of my resignation as Dean of UECU Miami Center. Consequently, I am no longer the official agent in the State of
Florida for UECU of Cincinnati, Ohio. Thank you for your support in the past.
Very truly yours. Lorenzo Battle III September 3, 1985
Freeberg concluded from his review of Battle's letter that Battle had resigned as the Dean of the UECU Miami Center as of September 3, 1985. Freeberg did not call the Cincinnati office of UECU to find out whether Battle had notified the Cincinnati office of his resignation or whether Battle's resignation was effective as of September 3, 1985. No representative of UECU was present at the Board's meeting. The main office of UECU had not been notified of the Board's meeting.
At the meeting Board Chairman O'Neill stated, "The program's obviously bankrupt here." This statement is incorrect. UECU presented unrebutted testimony that there are no unpaid obligations at the UECU Miami Center.
At the meeting O'Neill also stated, "It doesn't have students." This statement is also incorrect. As set forth in Freeberg's report to the Board, there were 63 students enrolled in the UECU Miami Center at the time of the Board's meeting on September 12, 1985.
In response to a comment by Freeberg about UECU " . . . not having a person there to head the thing up," Board member Peterson queried, "When you say no one there to head it up, is that just on the basis of the fact that no one was identified there?" Chairman O'Neill responded, "No one is there." O'Neill's statement was incorrect. UECU presented unrebutted testimony that the Administrative Assistant to the Dean was there at the time of the Board meeting and core faculty were there regularly throughout the month of September.
After further discussion, and notwithstanding the recommendation of Freeberg's staff report that UECU's temporary license be continued for three months pending an onsite evaluation report by the visiting committee, the Board voted to suspend immediately the temporary license of the UECU--Miami Center on the basis of alleged violations of standards relating to finances and administrative organization, set forth in Rules 6E-2. 04 (3) (a) and 6E-2. 04 (6) (a), Florida Administrative Code.
In response to the Board's action, on September 20, 1985, Conley sent Freeberg a letter informing him that at the time Battle delivered his letter to O'Neill on September 12,
1985, he had not told UECU that he had resigned. In fact, Battle's resignation letter to UECU, though dated September 3, 1985, was not delivered to Conley until September 16, 1985.
Furthermore, the letter states, "My resignation will be effective upon resolution of details with Attorney Robert Beatty."
Although Freeberg and apparently the Board concluded on September 12 that Battle had resigned on September 3, 1985, Conley's letter further advised that "it is not correct that Dr. Battle had relinquished his tasks or his responsibilities. "
Battle was in and out of the UECU Miami Center during the first two weeks of September. When he was not there he left a telephone number where the Administrative Assistant to the Dean could reach him. Battle also called into the UECU Miami Center during the first two weeks of September to check in on operations.
Battle's intermittent presence in the office during the first two weeks of September is, in any event, of no consequence because no students came into the office requesting to see Battle at a time when he was not there. The Administrative Assistant to the Dean, who testified she was at the Miami Center office from 9
a.m. to 5 p.m. during the first two weeks of September, did not know of any student who came into the Miami office with a problem or question which was not answered or addressed because of Battle's absence from the office.
In addition to the Administrative Assistant to the Dean, Wayne Leaver, Ph.D., one of the core faculty members, was also physically present in the UECU Miami Center until September 10, 1985, when he left for a National Faculty Meeting at UECU in Cincinnati.
Leaver saw Battle physically present at the Miami Center on September 3, 4, 6 and 9. Further, the chronological file at the UECU Miami Center shows memos and letters under Battle's signature were sent out on the 5th, 6th, 11th and 12th of September. Battle last worked for UECU on September 16, 1985, and he was present in the Miami Center office on that day.
As a member of the core faculty, Leaver's usual hours were between 1:00 p.m, and 8:00 p.m. The other core faculty member at the time, Carolyn Miller, worked primarily from 9:00
a.m. until 4:00 p.m. Carolyn Miller and Wayne Leaver attempted to schedule their hours so one member of the core faculty was in the office and available to the learners at all times.
No student problems arose between September 3 and September 9, 1985, which could not be resolved because of Battle's absence.
At no time was UECU's provision of educational services to students registered at the Miami Center interrupted because of Battle's resignation. During the period of September 3, 1985 through October 1, 1985 the UECU Miami Center office functioned properly and the learners were served.
Leaver has been the Acting Administrator at the Miami Center since approximately October 1, 1985. Leaver holds two doctoral degrees and has prior experience serving as an administrator.
On September 13, 1985, Lauren Millikin, Ph.D. the Acting National Dean, first learned of Battle's alleged resignation, and she immediately advised Conley. Conley flew to Miami on September 15, 1985 and was at the UECU Miami Center office until Wednesday, September 18, 1985. Also present at the Miami Center the week of September 16 was Dr. Catherine Cannon, Cincinnati's Dean. During the week of the 23rd, UECU's Vice President for Institutional Advancement directed the Miami Center, and Dr. Cannon returned to spend the following week training Leaver for his new duties. Additionally, Acting National Dean Milliken spent three days at the Miami Center during the week of the 23rd while the Vice President for Institutional Advancement was there. Accordingly, the UECU Miami Center was properly staffed at all times for September 16, 1985 through the appointment of the new Acting Administrator on approximately October 1, 1985.
When the Board met on September 12, 1985, it had no proof that Battle's resignation had interfered with the delivery of educational services to the students registered at the UECU Miami Center. At the final hearing in this matter, the Board offered no proof that Battle's resignation had in any way interfered with the delivery of educational services to students registered at the UECU Miami Center.
In July, 1978, UECU filed a petition for an arrangement pursuant to Chapter 11 of the Federal Bankruptcy Act. The Court approved a plan of reorganization under which UECU agreed to pay the 511 claimants, composed primarily of faculty and students.
In 1980 and 1981, UECU continued to operate at a deficit. By July, 1982, UECU had amassed debts of $1,577,000. At this point, the Trustees of UECU hired Conley.
The financial problems Conley faced at that time included: payment of creditors under the Chapter 11 Plan of Reorganization: a $1,039,168 Department of Education claim for matters of noncompliance regarding financial aid transactions for
the two year period ended June 30, 1978 a high rate of uncollectible accounts receivable and an unrestricted fund deficit of $730,078.
Within six months Conley's administration was able to turn UECU's financial problems around. During fiscal 1983 UECU reduced its unrestricted fund deficit by $628,606, from $730,078 to $101,472.
UECU included in its application for licensure by the Board a copy of its audited financial statements and the auditor's opinion letter for the fiscal years ending June 30, 1983 and June 30, 1982. UECU's audited financial statements disclosed the financial difficulties challenging Conley's administration. The application advised the Board of UECU's 1978 Bankruptcy, financial aid matters of noncompliance, the high rate of uncollectible accounts receivable, and the unrestricted fund deficits. Significantly, UECU's auditors' opinion letter for the fiscal year ended June 30, 1983, contained a qualification "as to the Institution's ability to continue operations on a going concern basis."
On September 14, 1984 the Board granted UECU a temporary license, concluding on the basis of the information provided in UECU's application, that UECU satisfied the temporary licensure standard relating to finances.
During the fiscal years ending June 30, 1984 and June 30, 1985, UECU's financial condition improved dramatically. Ironically, UECU's financial condition was much better at the time the Board summarily suspended its license than it was a year earlier when the Board concluded UECU had met the financial standard for temporary licensure.
UECU disclosed its 1978 bankruptcy in its application for a Florida license. The face value of the Chapter 11 claims at the time UECU filed its application with the Board was
$156,707. As of the date of the final hearing; the total face value of the Chapter 11 claims of UECU was $97,000.
On February 21, 1985, UECU was accredited by the North Central Association of Colleges and Schools. Prior to granting accreditation to UECU, an evaluation team from the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools visited UECU. The North Central evaluation team reviewed UECU's books and records, financial statements, accounting work papers, and met with UECU's accountants and attorneys. The evaluation team spent three days analyzing and reviewing UECU's financial status.
The evaluation team published a report which addressed the financial resources of UECU as well as the effects of the July 1978 Chapter 11 bankruptcy. The evaluation team's report, which recommended accreditation for UECU, stated, "Today the Chapter XI proceedings are substantially a matter of history. . .
. From an original gross amount of $442,122, the balance of the indebtedness had, as of June 30, 1984, been reduced to $120,556.
. . .".
The Board's reliance upon UECU's 1978 bankruptcy as a ground for revoking UECU's license is specious.
In UECU's application for a Florida license it
notified the Board of its auditors' "going concern" qualification in the audited financial statement filed with the Board for the fiscal year ended June 30, 1983.
UECU's audited financial statements for the fiscal year ended June 30, 1984, which Conley submitted to Freeberg in October, 1984, do not contain a "going concern" qualification. Rather, the auditors' opinion states, "The financial statements of the Institution as of June 30, 1984 and for the year then ended, indicate an overall improvement in the financial position and operations of the Institution such that the continued existence of the Institution is apparent. Accordingly, our present opinion on the 1983 financial statements, as presented herein, is different from that expressed in our previous report." UECU's audited financial statements for the fiscal year ended June 30, 1985 also contain no "going concern" qualification.
The Board granted UECU a temporary license at a time when the auditors' opinion contained a "going concern" qualification yet, it summarily suspended UECU's temporary license when the "going concern" qualification had been removed and there was no longer a question as to the continued existence of the Union.
The State Board's reliance upon UECU's auditors' opinions as a basis for revoking UECU's temporary license is unjustified.
In its application, UECU notified the Board of certain contingent liabilities regarding federal financial aid matters. The contingent liabilities represent matters of alleged noncompliance resulting from a Department of Health and Human Services audit of UECU's Federal Education Grants. In response, UECU has done a re-audit of the financial aid accounts for the periods of 1978, 1982 and 1984 and has retained an attorney to negotiate these items with the government.
Conley's uncontradicted testimony was that UECU's potential liability for the exceptions noted by the Department of Education will be between $75,000 to $150,000. Indeed, the North Central evaluation team concluded, "The data made available to the visiting team support this optimistic prognosis. The financial aid office has made a case-by-case analysis of the student files to which exceptions had been taken. Over 90% of the missing documentation which was the basis for the exceptions has been located. This alone would support [UECU's] prognosis." In recent years, there has been a dramatic improvement in the administration and documentation of the federally supported student aid program at UECU.
If in the auditors' opinion the contingent liabilities threatened the continued existence of UECU the auditors would have maintained the "going concern" qualification in their opinion letter. Instead, they eliminated it in 1984.
The existence of the financial aid contingent liabilities was made known to the Board when UECU applied for a license. Yet Freeberg never asked to review UECU's audits of the 1978, 1982, and 1984 financial aid accounts, and the Board approved UECU's application. The Board's reliance on the contingent liabilities as a basis for license revocation is unjustified.
In its application to the Board, UECU showed a large allowance for doubtful accounts as a se :off to its accounts receivable. Since the date of its application, UECU's collectability of accounts receivable has dramatically improved.
Outside users of UECU's financial statements should not be concerned with the write-off of bad debts. The write-off of doubtful accounts is a conservative practice which serves to fairly state accounts receivable.
A large allowance for doubtful accounts in budget or financial statement is no basis for finding financial instability. The Board failed to show that UECU's practice of characterizing as doubtful a large percentage of its account receivables was anything other than a conservative, prudent practice.
The financial report contained in UECU's application to the Board showed an unrestricted fund deficit as of June 30, 1983 of $101,472. UECU's unrestricted fund balance as of June 30, 1985 was a positive $123,660. Conley testified the fund balance as of September 30, 1985 was a positive $233,000.
The Board failed to introduce any evidence showing that UECU's current fund balance was in any way "inadequate." The audited financial statements submitted to the Board during the first year of licensure and the Statement of Change in Fund Balance prepared at the final hearing clearly show that there has been improvement in UECU's financial position.
Accounting for non-profit colleges and universities is not comparable to accounting for for-profit corporations. According to the Industry Audit Guide For Audits of Colleges and Universities, "Service, rather than profits is the objective of an educational institution: thus, the primary obligation of accounting and reporting is one of accounting for resources received and used rather than for the determination of net income." And, as Dr. Conley testified, "In fact, fund balances as they go are generally not built up to be huge dollar values. In fact, from my experience in institutions of higher education, you don't like to have large fund balances recorded. [I]t
does not behoove an institution to publish a large fund balance. It's bad politics." Conley's testimony was unrefuted.
One of the grounds for revocation identified by the Board in the statement of its position in the Prehearing Stipulation is UECU's failure to provide the Board with a budget for fiscal year 1985-86. But the Board never requested a copy of the budget from the UECU Cincinnati office where all the financial reports including the budget had been prepared.
UECU prepared a budget for fiscal year 1985-86 in February, 1985. Academic personnel and officers were appropriately involved in the preparation of the budget. The budget was reviewed and approved by the Board of Trustees on April 9, 1985. Had the Petitioner Board requested a copy of the budget, Conley would have immediately provided it. In fact, Conley prepared an updated Miami Center budget during his testimony.
In suspending UECU's temporary Iicense the Board in part relied upon UECU's alleged failure to set aside funds for the Miami Center. The evidence showed, however, that UECU has, within its budget, provided for funds for the Miami Center.
The funds expended by UECU for the development of the Miami Center are accounted for by a "developmental subsidy."
UECU had estimated the development of the Miami Center would cost
$250,000. As of April 30, 1985, UECU had expended approximately
$155,000 of the developmental subsidy for the development of the Miami Center. The balance of approximately $95,000 was budgeted for the 1985-86 fiscal year.
In addition to the approximate $95,000, UECU budgeted an additional $12,000 for a total development fund for the fiscal year ending June 30, 1986 of $107,000. The budgeting of these funds is substantiated by the budget worksheet entitled "2/11/85 Expense Forecast--Program Expense".
As shown by the monthly financial reports Conley filed during the period of licensure, the developmental subsidy operates like a revolving line of credit, increasing or decreasing during the course of the year depending upon cash flow at the Center.
Freeberg testified he would have been more comfortable if the developmental subsidy for the UECU Miami Center had been shown as a separate line-item in the restricted fund of UECU's financial statements although he admitted he did not know whether that would have been in accord with generally accepted accounting principles.
In fact, it would have been improper for UECU to account for the developmental subsidy in a restricted fund. The Industry Audit Guide, published by the American Institute of Certified Public Accountants is the authoritative promulgation of generally accepted accounting principles and generally accepted auditing standards applicable to colleges and universities.
The Industry Audit Guide provides at page 16:
The restricted current funds group consists of those funds expendable for operating purposes but restricted by donors or other outside agencies as to the specific purpose for which they may be expended. Such externally imposed restrictions are to be contrasted with internally created designations imposed by the governing board on unrestricted funds. Nevertheless,
the distinction between the balances of externally restricted and internally designated, but otherwise unrestricted funds, must be maintained in the accounts and disclosed in the financial reports.
The $107,000 budgeted for the Miami Center developmental subsidy is an internal allocation made by the UECU Board of Trustees. There are no external restrictions imposed on the Miami Center developmental subsidy by either donors or government agencies. Therefore, UECU properly accounted for these funds in the unrestricted fund. The accounting for the subsidy which Freeberg would have felt more comfortable with
would have conflicted with generally accepted accounting principles.
In the event student enrollment is not as large as anticipated, UECU has budgeted $107,000 in the form of a developmental subsidy to support the Miami Center during fiscal 1985-86. In addition to the developmental subsidy, UECU has about $250,000 in contingency reserves, and a $100,000 line of credit which could be used to fund the Miami Center. In total, UECU has approximately $457,000 available to provide prospective students reasonable assurance that the Miami Center's program will be offered as planned, in the event student enrollment is not as large as anticipated.
The Board in its Order of Summary Suspension of Licensure stated, "A substantial negative working capital is no indication of financial health" and cited to a deficit of
$159,208. The Board continues to rely upon the $159,000 fund deficit as a basis for revoking UECU's license. The Board has misinterpreted the information contained in the June 30, 1985, Miami Center financial report.
The Miami Center "Balance Sheet" as of June 30, 1985, is not a balance sheet as that term is typically understood. The report is actually a cost center report and reflects UECU's investment in the Miami Center.
The Board interpreted the Miami Center Balance Sheet as reflecting a negative net working capital of $159,208. This was an incorrect interpretation because the financial statement made no attempt to reflect working capital. The working capital of the Miami Center as of June 30, 1985 is accurately reflected by the Statement of Working Capital. The Statement of Working Capital reflects a net negative working capital position as of June 30, 1985, of $561.00, an insignificant amount. As of the final hearing UECU had no unpaid obligations for its Miami Center.
Although Conley had advised as early as November, 1984, that "A word of caution in the interpretations of these reports is in order," the Board, without: (A) calling Conley about the financial reports: (B) consulting a CPA about their proper interpretation or (C) conducting the scheduled on-site evaluation which might have disabused the Board of its misconceptions about the Miami Center, summarily suspended UECU's license on an emergency basis in order to protect the public from this "financially embarrassed" institution.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties hereto and the subject matter hereof. Section 120.57(1), Florida Statutes.
The parties have stipulated (and the law is clear) that a license revocation must be supported by competent substantial evidence, and the Board has the burden of proving that UECU's license should be revoked.
Contrary to the Board's position stated in the Prehearing Stipulation, at the final hearing, and in its Proposed Recommended Order, the Administrative Complaint to Suspend or Revoke Licensure filed herein only charges UECU with violations of Rules 6E-2.04(3)(a) and 6E-2.04(6)(a), Florida Administrative Code. Section 6E-2 .04 (3) (a) provides:
Standard 3: Administrative organization.
Administrative staff. The organiza- tional structure of the college shall reflect the provisions contained in its corporate charter, bylaws, and other governing documents, and shall provide a clear chain of authority and responsibility. Each administrator shall possess either academic or experiential qualifications, or both, appropriate to his or her assignment. In addition to a narrative statement describing how the college meets this standard, the college shall submit at least the following documentation:
A statement describing the college's board of control, including the manner in which it is constituted and its operating procedures, together with a listing of the members of the board of control, their addresses and occupations.
A copy of the corporate charter (articles of incorporation approved by the Secretary of State), including all amendments, if the college is incorporated.
A chart showing the administrative organization of the college.
Resumes or vitae of all administrators, reflecting each person's qualifications for
holding his or her respective position. For colleges not yet in operation, specify which administrators are already involved, and which administrators might be employed if licensure is granted.
Section 6E-2 .04 (6) (a) provides:
(6) Standard 6: Finances.
(a) The applicant college shall submit a statement setting forth the sources, kinds, and amounts of both current and anticipated financial resources. Reserves shall be adequate to give the prospective students reasonable assurance that the college's program will be offered as planned, in the event that student enrollment is not as large as anticipated. Financial resources, considered in relation both to the gross amount and to the amount per student, shall be evaluated by the board with regard to the purpose of the college, the scope of its programs, the number of its students, and the facilities essential to its program.
These rules set forth informational requirements for applications for licensure. The Board determined that UECU met these requirements based on the information contained in UECU's application for a Florida license and, therefore, issued a temporary license in September, 1984.
Sections 6E-2.04(3)(a) and 6E-2.04(6) a) do not purport to set forth standards for the suspension or revocation of licenses. The Board has promulgated no rules which set forth such standards. Instead, Section 6E-2.061, cited in the Board's Administrative Complaint, merely provides that, "Proceedings to revoke, suspend, or withdraw any license shall be in accordance with Chapter 28-6, FAC, Model Rules of Procedure of the Administration Commission." The Board's sole authority to refuse, suspend or revoke a license is set forth in section 246.111, Florida Statutes (1983), which provides:
Any license required under the provisions of ss. 246.011-246.151 may be refused, revoked, or suspended by the board for cause. The board shall have the power to refuse to issue a license and the power to suspend or revoke a license in any case in which the board finds that the licensee has violated any of
the provisions of ss. 246.011-246.151 or the rules of the State Board of Education pertaining to ss. 246.011-246.151.
Although Rules 6:-2.04(3)(a) and 6E-2.04(6)(a) do set forth- minimum standards for the issuance of a license, they do not set forth operating standards for the conduct of the licensee. The Board may rely on these rules to refuse a license under section 246.11, because these rules concededly do relate to the issuance of licenses. But the Board may not rely on these rules as the basis -for the suspension or revocation of a license previously issued pursuant to these rules because they patently do not set forth standards for the post-licensure conduct of the licensee. Section 246.111 authorizes the Board to refuse, suspend or revoke a license for cause. But the Board has not alleged, much less established, that cause exists for the revocation of UECU's license. Thus, because the rules on which the Board relies do not set forth standards for the suspension or revocation of UECU's license and because the Board alleges no other grounds for revoking UECU's license, the Board's complaint should be dismissed.
Even assuming, arguendo, that sections 6E-2.04(3)(a) and 6E-2.04(6)(a) set forth standards for the revocation of a license, the Board has failed to meet its burden in showing UECU "violated" either the "administrative organization" or "finances" standard. Bowling v. Department of Insurance, 394 So. 2d 165 (Fla. 1st DCA 1981 ).
Based on the letter from Battle to O'Neill hand delivered on the day of the September 12, 1985 Board meeting but dated September 3, 1985, the Board apparently believed that Battle had resigned effective September 3, 1985, that no one had assumed his responsibilities since his resignation and that academic and financial affairs at the UECU--Miami Center were unsupervised. In short, the Board concluded that there was no "clear chain of authority and responsibility" within the meaning of section 6E-2.04(3)(a). It therefore voted to suspend summarily UECU's temporary license. There were no facts before the Board to support its conclusions.
At the final hearing the Board offered no evidence to support its allegation that UECU violated the "administrative organization" standard. The Battle letter, by itself, does not constitute a violation of section 6E-204(3)(a).
The evidence is uncontroverted that Battle did not notify UECU of his resignation until September 16, 1985. Immediately upon learning on September 13 of Battle's alleged resignation, administrative personnel from the UECU Cincinnati
office went to Miami. They were present there continuously until the appointment of one of the core faculty members Dr. Wayne Leaver, as Acting Administrator effective October 1, 1985. It is hard to imagine a more prompt or more responsible reaction to Battle's resignation than that demonstrated by UECU in this case.
With regard to the period between September 3, 1985, the date appearing on Battle's letters, and September 15, 1985, the date administrative personnel from Cincinnati arrived in Miami, the UECU--Miami Center was staffed by Sheila Costello, the Administrative Assistant to the Dean and by Dr. Wayne Leaver and Carolyn Miller, the two core faculty members at the Miami Center. In addition, Battle was in and out of the office during the first two weeks of September and was present in the office on September 16, 1985, when he first gave Conley his resignation letter dated September 3, 1985. UECU's witnesses testified there was no interruption of the provision of educational services to the students registered at the UECU--Miami Center as the result of Battle's resignation. This testimony was uncontradicted. The Board offered no evidence that Battle's resignation in any way adversely affected the operation of the UECU Miami Center.
The fact that Battle resigned as the Dean/Director of the UECU--Miami Center cannot, under these circumstances, be deemed a violation of any standard of the Board relating to temporary licensure. The Board cited no authority for the proposition that the mere resignation of a "department" dean requires, without more, the revocation of a temporary license. The Board simply failed to offer any evidence that UECU violated section 6E-2.04(31(a) and that its license should therefore be revoked.
Section 6E-2.04(6)(a) provides, in part, that, "Reserves shall be adequate to give the prospective students reasonable assurance that the college's program will be offered as planned, in the event that student enrollment is not as large as anticipated." As UECU candidly advised the Board as early as January, 1985, the enrollment projections contained in its application were "overly optimistic". Thus, enrollment at the UECU Miami Center for the academic year 1984-85 was not as high as anticipated. The Board offered no evidence to show that UECU's failure to meet enrollment projections prevented it from delivering educational services to its students as planned. All evidence was to the contrary.
UECU offered substantial competent evidence that the budgeted developmental subsidy, UECU's existing contingency reserves, and the line of credit were more than adequate to insure UECU would be able to offer its academic programs in Miami
as planned even if the student enrollment is not as large as anticipated. The Board offered no evidence to the contrary.
UECU furnished the Board with audited financial statements for 1982 through 1985 and with monthly financial reports between September, 1984 and July, 1985. These financial reports were prepared by Conley in Cincinnati and were sent directly from Conley to Freeberg. Although Conley cautioned Freeberg about the interpretation of these reports and repeatedly advised Freeberg of his willingness to respond to questions about the financial reports, Freeberg never called Conley. Freeberg, who is not an accountant, has no educational background in accounting, and is unfamiliar with generally accepted accounting principles, never sent UECU's financial reports to a certified public accountant for analysis. Freeberg's "concerns" regarding UECU's financial condition had no basis.
In view of the marked improvement in UECU's financial condition between the time the Board concluded UECU met the standards for temporary licensure and the entry of the Order of Summary Suspension of Licensure, there is no basis for the Board to contend that UECU's financial condition justifies summary suspension and revocation of licensure. The Board has failed to establish by substantial competent evidence that UECU has violated the "finance standard" set forth in section 6E- 2.04(6)(a).
Based upon the foregoing Findings of Fact and Conclusions of Law, it is, therefore,
RECOMMENDED that a Final Order be entered dismissing the Administrative Complaint filed against Respondent herein and reinstating Respondent's temporary license.
DONE AND RECOMMENDED this 8th day of January, 1986, at Tallahassee, Florida.
LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway Tallahassee, Florida 32301l (904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 8th day of January, 1986.
COPIES FURNISHED:
C. Wayne Freeberg
State Board of Independent Colleges and Universities Department of Education Tallahassee, FL 32301
Ralph D. Turlington Commissioner of Education The Capitol
Tallahassee, FL 32301
William R. Dorsey, Jr. Deputy General Counsel State Board of Education Knott Building Tallahassee, FL 32301
Douglas M. Halsey, Esquire
4900 Southeast Financial Center
200 South Biscayne Boulevard Miami, FL 33131-2363
APPENDIX
Petitioner's proposed findings of fact numbered 1-4, 6 (except for the first sentence), 7-9, and 19 (except for the first sentence) have been adopted verbatim or have been adopted as modified to conform to accuracy or style.
Petitioner's proposed findings of fact numbered 5, 23, and 25-27 have been rejected as being contrary to the evidence.
Petitioner's proposed findings of fact numbered 6 (first sentence), 19 (first sentence), 21, and 22 have been rejected as not being supported by the evidence.
Petitioner's proposed findings of fact numbered 10, and 14-17 have been rejected as being immaterial.
Petitioner's proposed findings of fact numbered 11-13, and 18 have been rejected as being irrelevant.
Petitioner's proposed findings of fact numbered 20 and 24 have been rejected as constituting argument of counsel.
Respondent's proposed findings of fact numbered 1, 2, 3 (first sentence), 4-8, 10-23, 25-72, 73 (except last sentence), and 74-86 have been adopted verbatim or have been adopted as modified to conform to accuracy or style.
Respondent's proposed findings of fact numbered 3 (second sentence), and 9 have been rejected as being irrelevant.
Respondent's proposed finding of fact numbered 24 has been rejected as being redundant.
The last sentence of Respondent's proposed finding of fact numbered 73 has been rejected as constituting a conclusion of law.
| Issue Date | Proceedings |
|---|---|
| Jan. 08, 1986 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Jan. 22, 1986 | Agency Final Order | |
| Jan. 08, 1986 | Recommended Order | Administrative complaint dismissed since no evidence that university violated any administrative, operational, or financial rules and statutes. |
