STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND ) PROFESSIONAL REGULATION, ) BOARD OF ACCOUNTANCY, )

)

Petitioner, )

)

vs. ) Case No. 98-5208

)

JOHN E. CALHOON, )

)

Respondent. )

)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing in St.

Petersburg, Florida, on April 9, 1999.

APPEARANCES

For Petitioner: Charles F. Tunnicliff

Senior Attorney

Department of Business and Professional Regulation

1940 North Monroe Street Tallahassee, Florida 32399-0792

For Respondent: John E. Calhoon, pro se

Post Office Box 40806

St. Petersburg, Florida 33743-0806 STATEMENT OF THE ISSUE

The issue is whether Respondent has been found guilty of a crime directly relating to the practice of public accounting, in violation of Section 473.323(1)(d), Florida Statutes; or performed a fraudulent act while licensed to practice public

accounting, in violation of Section 473.323(1)(k), Florida Statutes.

PRELIMINARY STATEMENT

By Administrative Complaint dated October 20, 1998, Petitioner alleged that, on January 31, 1995, Respondent was found guilty of eight counts of false statements and three counts of mail fraud in the United States District Court for the Middle District of Georgia. The Administrative Complaint alleges that the false statements involve Respondent's responsibility for the signing of Medicare cost reports claiming amounts that Respondent knew were not reimbursable. The Administrative Complaint alleges that the mail fraud involves Respondent's use of the mail in connection with false Medicare cost reports.

The Administrative Complaint alleges that Respondent was found guilty of a crime directly relating to the practice of public accounting or the ability to practice public accounting, in violation of Section 473.323(1)(d), Florida Statutes, and performed a fraudulent act while licensed to practice public accounting, in violation of Section 473.323(1)(k), Florida Statutes. (At the hearing, Petitioner dropped an allegation that Respondent committed an act of fraud, negligence, incompetency, or misconduct in the practice of public accounting, in violation of Section 473.323(1)(g), Florida Statutes.)

Respondent timely requested a formal hearing.

At the hearing, Petitioner called two witnesses and offered into evidence four exhibits. Respondent called one witness and offered into evidence three exhibits. All exhibits were admitted.

The court reporter filed the Transcript on April 23, 1999.

At the request of Respondent, and without objection by Petitioner, the Administrative Law Judge gave the parties until September 1, 1999, within which to file proposed recommended orders. The purpose of this extended period of time was to give Respondent time to obtain a ruling from federal court on a motion for reconsideration.

FINDINGS OF FACT

1. At all material times, Respondent has been licensed as a certified public accountant, holding license number 0012093. He has been licensed in Florida for 16 years. The record reveals no prior discipline. Respondent received his bachelor of arts degree in accounting from the University of South Florida.

2. From 1983-84, Respondent was employed by Hospital Corporation of America. From 1984-90, he was employed by Charter Medical Corporation (Charter). Since 1990, he has been

   self-employed. Respondent's legal problems arose while he was employed at Charter.

3. Charter is a for-profit corporation that owns about 94 hospitals. Except for 8-10 medical/surgical hospitals, Charter operates psychiatric hospitals. Charter is a parent corporation.

   Each of the 94 hospitals is owned by a different corporation, of which Charter is the sole shareholder. Charter is the sole shareholder of another 100 corporations that are also involved in medical services.

4. Respondent earned several promotions while employed at Charter. He started as a reimbursement manager. Two years later, he became a senior manager. In February 1988, Respondent became a senior director. As a senior director, Respondent assumed significant responsibilities in, among other areas, the Medicare cost reimbursement program for Charter's hospitals east of the Mississippi River. His assignment was to maximize the cost reimbursements paid to Charter or its subsidiaries.

5. Respondent incurred criminal liability due to his participation in the preparation of Medicare cost reports, which Charter submitted to an insurer-intermediary retained by the Health Care Financing Administration for the purpose of receiving and examining Medicare cost reports and paying cost reimbursements.

6. The federal indictment contains 11 counts. The United States dismissed two counts, and the jury found Respondent not guilty on one count. The remaining eight counts contain three counts of mail fraud and five counts of making false statements.

7. The three mail fraud counts allege that Respondent filed, or caused to be filed, false cost reports for three Charter hospitals. These counts charge that Respondent used one

   general ledger to support these cost reports and used an internal general ledger that reflected the true nature of certain expenses contained in the general ledger maintained for cost-reimbursement purposes.

8. The five false statement counts allege that Respondent filed, or caused to be filed, false cost reports for five Charter hospitals. These counts charge that Respondent filed cost reports containing amounts that he knew were not reimbursable.

9. Two of the sources of falsehoods contained in the cost reports involve the improper reporting of transactions, such as the payment of royalties and interest, between related organizations within the Charter family and the improper characterization of advertising as "outreach" expenses.

10. On February 5, 1995, following the issuance of a jury verdict of guilty on eight counts, the federal district court judge entered a judgment imposing a 15-month prison sentence, which was the minimum sentence in the sentencing range. The judge waived any fine due to Respondent's inability to pay. As a result of the loss of his job and the period of incarceration, Respondent has declared bankruptcy. The judgment notes a monetary loss (presumably to the United States) of $20,001 to

    $50,000.

    
    

11. At the hearing, Respondent testified that he had filed a motion for reconsideration that was still pending before the federal district court judge. However, Respondent candidly

    revealed after the hearing that, on May 11, 1999, the judge denied the motion. This post-hearing disclosure was consistent with Respondent's candid and cooperative behavior at and prior to the hearing.

12. However, the preparation of cost reports is part of the practice of accounting. Petitioner has proved by clear and convincing evidence that Respondent's convictions in connection with his role in the preparation of several cost reports relate the practice of accounting.

13. Petitioner has also proved by clear and convincing evidence that Respondent committed a fraudulent act in the practice of accounting. Several counts of the indictment charge that Respondent knew that the cost reports contained false information, and Respondent was convicted on these counts.

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the subject matter. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes. All references to Rules are to the Florida Administrative Code.)

15. Section 473.323(1) provides that the Board of Accountancy may impose discipline for the following acts:

    (d) Being convicted or found guilty of, or entering a plea of nolo contendere to, regardless of adjudication, a crime in any jurisdiction which directly relates to the practice of public accounting or the ability to practice public accounting.

    (k) Performance of any fraudulent act while holding a license to practice public accounting.

    
    

16. Petitioner must prove the material allegations by clear and convincing evidence. Department of Banking and Finance v. Osborne Stern and Company, Inc., 670 So. 2d 932 (Fla. 1996) and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

17. Petitioner has proved by clear and convincing evidence violations of Sections 473.323(1)(d) and (k).

18. Rule 61H1-36.004(2)(c) sets the penalty guidelines for a criminal felony conviction related to the practice of accounting as from a one-year suspension, two-year probation, and

    $5000 fine to revocation and a $5000 fine. Rule

    
    

    61H1-36.004(2)(g) sets the penalty guidelines for fraud or deceit from a reprimand, one-year suspension, two-year probation, and a

    $5000 fine to revocation and a $5000 fine.

    
    

19. Aggravating circumstances include the number--eight--of cost reports involved in the case. Mitigating factors include the lack of prior discipline and the financial distress already suffered by Respondent due to his participation in the preparation and filing of the false cost reports.

20. In its proposed recommended order, Petitioner states: "While Petitioner is not necessarily interested in punishing Respondent to the maximum allowed by Board rule, it is deeply concerned that Respondent fails to acknowledge any wrongdoing in the acts for which he was convicted in the U.S. District Court."

    Citing Respondent's "lack of remorse or apparent understanding of the moral implications" as an indication of the likelihood of a repetition of the same acts that led to his incarceration, Petitioner asks for an order of revocation.

21. The Administrative Law Judge does not share the concern that Respondent is likely to repeat the same acts that led to his 15-month incarceration. To the contrary, Respondent appeared contrite and somewhat frightened at the final hearing; he did not appear stubborn, combative, or oppositional. His failure to concede explicitly wrongdoing is attributable in part to the fact that he was still trying to have the federal conviction set aside. Respondent appears to be convinced that he is not guilty of the charges on which he was convicted and that he was convicted of a crime for which he was not charged. Although these beliefs lose their credibility over time, they do not constitute a belief that an accountant may engage in the actions and omissions of which Respondent was found guilty and escape criminal liability. Better than any of his peers, Respondent knows the foolishness of such a belief.

RECOMMENDATION

It is

RECOMMENDED that the Board of Accountancy enter a final order finding Respondent guilty of violating Sections 473.323(1)(d) and (k), Florida Statutes, and suspending his license for one year from the date of the final order, placing

his license on probation for a period of five years following the expiration of the suspension, and restricting his license for the first two years of the probation so that he may not participate in the preparation of Medicare cost reports.

DONE AND ENTERED this 10th day of September, 1999, in Tallahassee, Leon County, Florida.

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 10th day of September, 1999.

COPIES FURNISHED:

Charles F. Tunnicliff Senior Attorney

Department of Business and Professional Regulation

1940 North Monroe Street Tallahassee, Florida 32399-0792

John E. Calhoon

Post Office Box 40806

St. Petersburg, Florida 33743-0806

William Woodyard, General Counsel Department of Business and

Professional Regulation 1940 North Monroe Street

Tallahassee, Florida 32399-0792

Martha Willis, Executive Director Division of Certified Public Accounting Department of Business and

Professional Regulation

2610 Northwest 43rd Street, Suite 1A Gainesville, Florida 32606

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order must be filed with the agency that will issue the final order in this case.

Docket for Case No: 98-005208

Orders for Case No: 98-005208