STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, BOARD OF )

ACCOUNTANCY, )

)

Petitioner, )

)

vs. ) CASE NO. 90-0510

)

MARC M. HARRIS, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter came on for hearing in Tallahassee, Florida, before Robert T. Benton, II, Hearing Officer of the Division of Administrative Hearings, on August 14, 1990. The Division of Administrative Hearings received a hearing transcript on October 9, 1990.

Petitioner, but not respondent, filed a proposed recommended order, including proposed findings of fact. Petitioner's proposed findings of fact have been adopted, in substance, insofar as material, unless the findings of fact indicate otherwise.

APPEARANCES

For Petitioner: Charles F. Tunnicliff, Esquire

Tobi C. Pam, Esquire Department of Professional

Regulation

1940 N. Monroe Street Tallahassee, Florida 32399-0792

For Respondent: Pro se

STATEMENT OF THE ISSUE

Whether petitioner should take disciplinary action against respondent for the reasons alleged in the administrative complaint?

PRELIMINARY STATEMENT

By administrative complaint filed October 7, 1989, petitioner alleged that respondent "permitted his name to be associated with, and . . . did issue, accountants reports and related financial statements, for MMH Equity Fund, Inc.

. . . [but] did not comply with the applicable generally accepted auditing standards and did not present the financial statements in conformity with generally accepted accounting principles, with said statements taken as a whole

. . . [and so] failed to exercise professional competence and due professional care . . . [and] violated Section 473.323(1)(a), (g) negligence and misconduct

1. , Florida Statutes, and Rules 21A-22.001, Florida Administrative Code; and that, although "[r]espondent was an officer and director of MMH Equity Fund, Inc. . . . [his] lack of independence was not disclosed on the accountant's compilation report on [sic] the financial statements of MMH Equity Fund, Inc. .

   . . [so that he] violated Section 473.315(1), and 473.323(1)(a), (g) negligence and misconduct and (h), Florida Statutes and Rules 21A-21.001, Florida Administrative Code."

   
   

   Despite correspondence from respondent and his wife contending that maintenance of the present proceedings against respondent violates international law, Panamanian law and perhaps Florida law, the hearing went forward as scheduled, without respondent's presence and without anybody present on his behalf. Respondent's appearance in the proceeding, like that of Ms. Pam, consisted solely of written submissions.

   
   

   Respondent's failure to respond to requests for admission resulted in all matters as to which requests were made being deemed admitted. At hearing, petitioner offered the financial statements in question as a composite exhibit and called Louis Dooner, a certified public accountant, as an expert witness. Copies of pertinent accounting standards were submitted with the proposed recommended order.

   
   

   FINDINGS OF FACT

   
   

   1. Respondent Marc M. Harris holds a license to practice certified public accounting in Florida, No. AC 16869.

      
      

   2. Respondent compiled, permitted his name to be associated with, and issued a balance sheet or statement of financial position, including notes, for MMH Equity Fund, Inc., purporting to represent the company's position as of March 31, 1988. Petitioner's Exhibit No. 1; Petitioner's Request for Admissions Nos. 4, 5 and 6.

      
      

   3. The body of respondent's letter accompanying the balance sheet or statement of financial position reads:

      
      

      We have compiled the accompanying balance sheet of MMH Equity Fund, Inc., as of

      March 31, 1988, except as noted in the last paragraph, in accordance with the standards established by the American Institute of Certified Public Accountants.

      
      

      A compilation is limited to presenting in the form of financial statements information that is the representation of the individual. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any form of assurance on them.

      
      

      MMH Equity Fund, Inc., has elected to use the equity method to report its holdings in majority-owned subsidiaries. If the consolidated disclosures were included in the financial statements, they might influence the user's conclusions about the Fund's financial

      position. Accordingly, these financial statements are not intended for those who are not informed about such matters.

      
      

      Petitioner's Exhibit No. 1 (Emphasis supplied.) Dated April 15, 1988, the letter evinces an intention to qualify the balance sheet or statement of financial position.

      
      

   4. But the balance sheet or statement of financial position does not contain a reference to the accountant's report or to the notes. Petitioner's Request for Admissions Nos. 32 and 33; Petitioner's Exhibit No. 1; T. 26. While the letter refers to a "balance sheet," the document itself is styled a statement of financial position.

      
      

   5. Statements on Standards for Accounting and Review Services (SSARS), which have been adopted by Florida's Board of Accountancy, require that the balance sheet contain a reference to the accountant's report and notes to the financial statement, if any. Petitioner's Request for Admission No. 34; T. 26-

1. This is particularly important when the report contains significant qualifications.

   
   

   Lack of Independence Undisclosed

   
   

   1. Respondent Harris was an officer and/or a director of MMH Equity Fund, Inc. Petitioner's Request for Admission No. 41. A company's officer or director is not independent of the company.

      
      

   2. In evaluating financial assets, liabilities and equity or net worth, certified public accountants offer three levels of service: audit, review and compilation. Certified public accountants are forbidden to undertake audits or reviews for entities with respect to which they are not independent.

      
      

   3. In contrast, nothing prohibits a certified public accountant's performing a compilation, despite a lack of independence. But the lack of independence must be disclosed:

      
      

      If the accountant is not independent, he should specifically disclose the lack of independence . . . When the accountant is not independent, he should include the following as the last paragraph of his report:

      
      

      I am . . . not independent with respect to XYZ Company.

      
      

      Statements on Standards for Accounting and Review Services, (SSARS) Section

      100.22 (Jan. 1, 1987). The respondent's lack of independence was not disclosed in the accountant's report, on the statement of financial position, or in the notes. Petitioner's Exhibit No. 1; Petitioner's Request for Admission No. 42; T. 30, 31.

      Accepted Principles Disregarded

      
      

   4. A provision in SSARS 1 requires the accountant "to read the financial statements and make certain that there are no obvious deviations from generally accepted accounting principles." T. 29. This requirement applies specifically to compilations, to prevent disregard for generally accepted accounting principles. Petitioner's Exhibit No. 7; T. 29.

      
      

   5. Respondent did not adhere to applicable generally accepted accounting principles or exercise due professional care in compiling and issuing the March 31, 1988, statement of financial position for MMH Equity Fund, Inc.

      
      

   6. Assets should equal equity plus liabilities. T. 11. On the compiled balance sheet or statement of financial position, total liabilities and stockholders' equity do not add up to the amount stated as total assets. The document reflects a discrepancy of $100,000. Petitioner's Exhibit No. 1; T. 11.

      
      

   7. The balance sheet or statement of financial position puts total assets at $13,171,000 but, as stated individually, they add to $13,216,000. Petitioner's Exhibit No. 1; Petitioner's Request for Admissions Nos. 9 and 10.

      
      

   8. The balance sheet or statement of financial position shows investment in operating affiliates in the amount of $6,234,000. But there is no further disclosure as to who or how many those affiliates are; as to how much of the

      $6,234,000 is invested in any one entity; or as to what percentage of ownership MMH Equity Fund, Inc. has in any one entity. Petitioner's Exhibit No. 1; T. 18.

      
      

   9. With respect to investments accounted for by the equity method, Accounting Principles Board Statement No. 18 requires that the name of each investee and the percentage of the investor's ownership of common stock, if significant, be disclosed in the notes. Petitioner's Request for Admissions No. 25; Petitioner's Exhibit No. 4; T. 17-20.

      
      

   10. If the certificates of deposit were held by related parties, they should have been disclosed in the notes. T. 22. Financial Accounting Standards Board Statement No. 57 requires that the name and amount or amounts due to or from related parties be disclosed. Petitioner's Exhibit No. 5; T. 23.

       
       

   11. The notes do not disclose the balances of major classes of depreciable assets by nature or function. Petitioner's Requests for Admissions Nos. 15 and 16; Petitioner's Exhibit No. 1; T. 15. Accounting Principles Board Statement No. 12 requires that depreciable assets be broken down by class together with the accumulated depreciation thereon. T. 16; Petitioner's Exhibit No. 3.

       
       

   12. Neither the gross amount of assets in the balance sheet nor the accumulated amortization for the assets recorded under capital leases is disclosed in the notes. Petitioner's Requests for Admission Nos. 26 and 27; Petitioner's Exhibit No. 1; T. 24. The notes do not disclose accumulated depreciation by class nor do the notes disclose total accumulated depreciation. Petitioner's Requests for Admissions Nos. 18 and 19; Petitioner's Exhibit No. 1;

       T. 15 and 16.

       
       

   13. Neither the aggregate cost nor the market value of marketable securities is disclosed on the balance sheet or statement of financial position or in the notes. Petitioner's Requests for Admissions Nos. 29 and 30;

       Petitioner's Exhibit No. 1; T. 25. The requirement is that both the original cost and market value be disclosed. Petitioner's Request for Admissions No. 31; T. 25.

       
       

   14. No allowance for doubtful accounts is disclosed on the balance sheet or statement of financial position or in the notes, and no explanation is offered why such an allowance might be unnecessary. Petitioner's Request for Admissions No. 21; Petitioner's Exhibit No. 1; T. 16. Accounting Principles Board Statement No. 12 requires either that allowance for doubtful accounts be made or that an explanation as to why one is not needed be included in the notes. Petitioner's Request for Admissions No. 22; Petitioner's Exhibit No. 3; T. 16, 17.

       
       

   15. Neither the March 31, 1988, compiled balance sheet or statement of financial position for MMH Equity Fund, Inc. nor the notes disclose any maturity schedule for long term notes. But these long term notes represent indebtedness of $11,000, or less than one thousandth of total assets, and the omission of a maturity schedule is immaterial.

       
       

       CONCLUSIONS OF LAW

       
       

   16. Since the Department of Professional Regulation referred respondent's hearing request to the Division of Administrative Hearings, in accordance with Section 120.57(1)(b)3., Florida Statutes (1989), "the division has jurisdiction over the formal proceeding." Section 120.57(1)(b)3., Florida Statutes (1989).

       
       

   17. The Board of Accountancy is authorized to revoke or suspend licenses, impose administrative fines, issue reprimands, place accountants on probation or restrict the scope of their practice "[w]hen the board finds any licensee guilty of any of the grounds set forth in subsection (1)," Section 473.323(3), Florida Statutes (1989), including violating other provisions of Chapter 473, Section 473.323(1)(a), Florida Statutes (1989), or violating "any rule adopted pursuant to Chapter 455 [or 473]." Section 473.323(1)(g), Florida Statutes (1989). Disciplinary action against licensees is also authorized "[u]pon proof that the licensee is guilty of . . . negligence, incompetency, or misconduct in the practice of public accounting." Section 473.323(1)(g), Florida Statutes (1989).

       
       

   18. License revocation proceedings have been said to be "'penal' in nature." State ex rel. Vining vs. Florida Real Estate Commission, 281 So.2d 487, 491 (Fla. 1973); Kozerowitz vs. Florida Real Estate Commission, 289 So.2d

       391 (Fla. 1974); Bach vs. Florida State Board of Dentistry, 378 So.2d 34 (Fla. 1st DCA 1979) (reh. den. 1980). Strict procedural protections apply in disciplinary cases, and the prosecuting agency's burden is to prove its case clearly and convincingly. Ferris vs. Turlington, 510 So.2d 292 (Fla. 1987).

       See Addington vs. Texas, 441 U.S. 426 (1979); Ferris vs. Austin, 487 So.2d 1163 (Fla. 5th DCA 1986); Anheuser-Busch, Inc. vs. Department of Business Regulation,

       393 So.2d 1177 (Fla. 1st DCA 1981); Walker vs. State Board of Optometry, 322 So.2d 612 (Fla. 3rd DCA 1975); Reid vs. Florida Real Estate Commission, 188 So.2d 846, 851 (Fla. 2nd DCA 1966). A licensee's breach of duty justifies revocation only if the duty has a "substantial basis," Bowling vs. Department of Insurance, 394 So.2d 165, 173 (Fla. 1st DCA 1981) in the evidence, unless applicable statutes and rules create a clear duty, which the evidence shows has been breached.

   19. A provision of Chapter 473 petitioner specifically alleges that respondent violated is Section 473.315(1), Florida Statutes (1987), which provides:

       
       

       A certified public accountant shall not express an opinion on the financial statements of an enterprise unless he and his firm are independent with respect to such enterprise.

       
       

       But, in the letter or accountant's report accompanying the March 31, 1988, balance sheet or statement of financial condition respondent compiled for MMH Equity Fund, Inc., respondent was careful to disclaim any opinion on the statement.

       
       

   20. On the other hand, even though the balance sheet or statement of financial condition was a compilation, as to which respondent expressed no opinion, he was under an obligation to disclose his lack of independence. Because he failed to do so, he deviated from the requirements of Section 100.22 of the Statements on Standards for Accounting and Review Services, adopted by reference in Rule 21A-20.009, Florida Administrative Code, and so violated Rule 21A-22.004, Florida Administrative Code and Section 473.323(1)(h), Florida Statutes (1987).

       
       

   21. In other respects recited in the findings of fact, the evidence clearly and convincingly established departures from generally accepted accounting principles, also incorporated by reference in Rule Chapter 21A-20. Where material, these departures amounted to negligence, in violation of Section 473.323(1)(h), Florida Statutes (1987), or misconduct in violation of Section 473.32(1)(h), Florida Statutes (1987).

RECOMMENDATION

It is, accordingly, recommended that the Board of Accountancy reprimand respondent; and place him on probation, on condition that he not practice in Florida without supervision by another certified public acountant licensed in Florida, until he has practiced in Florida under the supervision of another certified public accountant licensed in Florida satisfactorily for a year; and completed 24 hours of continuing education in generally accepted accounting principles.

RECOMMENDED this 12th day of September, 1990, in Tallahassee, Florida.

ROBERT T. BENTON, II

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1990.

COPIES FURNISHED:

Charles F. Tunnicliff, Esquire Tobi C. Pam, Senior Attorney Department of Professional

Regulation

1940 North Monroe Street Tallahassee, FL 32399-0792

Marc M. Harris Apartado 6-1097 Estafeta El Dorado

Panama, Republica de Panama

Kenneth E. Easley, General Counsel Department of Professional

Regulation

1940 North Monroe Street Tallahassee, FL 32399-0792

Martha Willis Executive Director

Department of Professional Regulation

Suite 16

4001 Northwest 43rd Street Gainesville, FL 32606

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AGENCY FINAL ORDER

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STATE OF FLORIDA DEPARTMENT OF PROFESSIONAL REGULATION

BOARD OF ACCOUNTANCY

DEPARTMENT OF PROFESSIONAL REGULATION,

Petitioner,

vs. CASE NO. 0110479

DOAH CASE NO. 90-0510

MARC M. HARRIS,

Respondent.

/

FINAL ORDER

THIS CAUSE came on to be heard before the Board of Accountancy at a regularly schedule meeting held in Tampa, Florida on November 28, 1990, pursuant to a Recommended Order entered by Hearing Officer, Robert T. Benton, II, on September 12, 1990. After reviewing the entire record, and being otherwise fully advised in the premises, the Board hereby accepts the Findings of Fact and Conclusions of Law of the Hearing Officer, and hereby modifies the Recommended Penalty of the Hearing Officer. The Hearing Officer's Recommended Penalty in effect limits the practice of Respondent in the same manner as that which would occur if Respondent were suspended for the time in question, (see Rule 2A- 20.001(2), F.A.C.). The Board hereby determines that given the apparent desire by the Hearing Officer and the Board, that Repondent, if he returns to Florida to practice, be required to practice only under strict supervision for one year, that a period of SUSPENSION for one year is a more appropriate penalty.

Further, in light of the violations found by the Hearing Officer and the standard Board practice of imposing continuing education hours in addition to those required by Chapter 473 and Rule 21A-33, the Board hereby interprets the

24 hours of continuing education recommended by the Hearing Officer to be an addition to Respondent's already mandated continuing education requirements.

The additional hours shall be completed during the one year SUSPENSION. The remainder of the Hearing Officer1s Recommended Penalty is hereby accepted by the Board.

DONE and ORDERED this 10 day of December, 1990.

Copies furnished to: Marc M. Harris

Tobi C. Pam, Esquire

MR. WILLIAM R. MARTIN CHAIRMAN

Robert T. Benton, Hearing Officer Martha Willis, Executive Director Charles F. Tunnicliff, Esquire

Docket for Case No: 90-000510

Orders for Case No: 90-000510