Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the arguments of counsel and the entire record compiled herein, the following relevant facts are found. Gary L. Wheeler, Respondent, is a graduate of Bob Jones University, having received a Bachelor of Science degree therefrom in accounting in 1974. On July 27, 1979, Respondent received his California certificate as a certified public accountant. Thereafter, Respondent filed an application to obtain a reciprocal C.P.A. certificate in Florida based on his certificate issued by the State of California (Certificate No. E-28234). His application was denied by the Petitioner on October 26, 1979, for the following reason: Applicant failed to satisfy the requirements set forth in Section 7(3)(b), Chapter 79-202, Laws of Florida, inasmuch as the license issued to Gary L. Wheeler in California is not issued under criteria substantially equivalent to that in effect in Florida at the time the California license was issued. Bob Jones University was not recognized as an accredited university in Florida by the Board when Respondent received his California certificate inasmuch as it was not listed among the institutions of postsecondary education by the Council on Postsecondary Accreditation (COPA). During September, 1976, Petitioner adopted the COPA list of schools as the schools from which it would accept graduates to sit for its examination. This was done for the avowed purpose of ensuring minimum competence and technical fitness among the ranks of Florida accountants. Douglas H. Thompson, Jr., the Petitioner's Executive Director since 1968, is the Board's chief operating officer and carries out its functions respecting applications for licensure. As such, Mr. Thompson was the person charged with examining Respondent's application pursuant to his California certificate to determine whether the Respondent's certificate was issued under criteria "substantially equivalent" to Florida's licensing criteria. Respondent's application was considered by the Board on two (2) occasions and rejected because Respondent's alma mater, Bob Jones University, is not listed among the accredited schools and universities by COPA. See Sections 473.306; 473.307 and 473.308, Florida Statutes, as amended; and Chapter 21A-28.06, Florida Administrative Code. As an aside, it was noted that the Board, in adopting its procedure for evaluating the criteria for applicants who were seeking to obtain certificates based on the reciprocal qualifications guidelines also adopted other equivalency procedures which provide Respondent an alternative method for which he may obtain a Florida certificate. In this regard, Respondent is only approximately six (6) quarter hours away from obtaining his certificate under the alternative equivalency procedures established by the Board. See Chapters 21A-9.01 through 9.04(4), Florida Administrative Code.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that Respondent's appeal of the Board's action in denying his application for a reciprocal license to practice public accounting based on the issuance of his California certificate be DENIED. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 26th day of March, 1980. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675
Findings Of Fact In January, 1985, Petitioner was convicted of thirteen felony counts involving 12 fraudulent applications for FHA and VA loans, obstruction of justice, add failure to report income for federal income tax purposes. For the counts involving a conspiracy to defraud agencies of the federal government in connection with loan applications, obstruction of justice, and falsifying an income tax return, Petitioner received a sentence of two years. This sentence was later modified, and Petitioner was given five years' probation for all counts. Petitioner's probation ends in about two years. The criminal acts concerning the loan applications were done in order to assist a real estate brokerage firm in Illinois owned by Petitioner and his wife, who was also named in the indictment, to sell homes with VA and FHA guaranteed and insured financing. Petitioner was convicted of knowingly causing the making of loan applications showing inflated purchase prices and nonexistent gifts as sources of downpayments. The net effect of these practices was to leave the mortgage lender undersecured. On or about November 2, 1987, Petitioner submitted an application for licensure as a real estate salesman. In his application, he disclosed the above felony convictions, the revocation of his Illinois real estate broker's license which took place as a result of the convictions, and the denial of an earlier application for Florida licensure as a real estate salesman which denial was due to his convictions and the revocation of his Illinois broker's license. By letter filed December 2, 1987, Respondent notified Petitioner that his application for licensure as a real estate salesman had been denied because he failed to meet the requirements that he be "honest, truthful, trustworthy, and of good character, and shall have a good reputation for fair dealing." The letter cited as reasons for this determination the same reasons cited in the earlier denial plus a recommended order filed on July 27, 1987, in DOAH Case No. 87-2018, in which it was recommended that the application be denied. Although Petitioner has not regained his Illinois real estate broker's license, he received an Illinois real estate salesman's license in the fall of 1986. Since his conviction, Petitioner has taken various educational programs useful in the real estate business. On March 17, 1987, Petitioner graduated with a Bachelor of Science degree in Business Administration from California Coast University. On November 1, 1987, Petitioner completed the Florida Real Estate Commission Course #1 sponsored by the Gold Coast School of Real Estate. By letter dated November 30, 1987, L. Edward Holmes, a licensed real estate broker, notified Respondent that he was willing to supervise personally Petitioner if he were granted a license. By letter dated March 10, 1987, V. A. Indovina, M.D., who is staff psychiatrist with the DuPage County (Illinois) Health Department, notified Respondent that he (or she) felt that Petitioner has learned the consequences of his past behavior and will not engage in illegal behavior in the future. On or about November 24, 1987, Petitioner applied for a Florida contractor's license with the Construction Industry Licensing Board. He clearly disclosed his convictions in the application. Shortly prior to the hearing, the Construction Industry Licensing Board informed Petitioner that he was eligible to take the next contractor's examination. Respondent entered a final order on August 19, 1987, adopting the recommended order of June 17, 1987, in DOAH Case No. 87-2018, and denying Respondent's earlier application for licensure as a real estate salesman.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a Final Order be entered denying the application of Petitioner for licensure as a real estate salesman. DONE and RECOMMENDED this 10th day of May, 1988, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of May, 1988. COPIES FURNISHED TO: LAWRENCE S. GENDZIER, ESQUIRE ASSISTANT ATTORNEY GENERAL DEPARTMENT OF LEGAL AFFAIRS 400 WEST ROBINSON STREET ROOM 212 ORLANDO, FLORIDA 32801 ROGER WOZNIAK 14 HICKORY HILL ROAD TEQUESTA, FLORIDA 33469 DARLENE F. KELLER EXECUTIVE DIRECTOR FLORIDA REAL ESTATE COMMISSION POST OFFICE BOX 1900 400 WEST ROBINSON STREET ORLANDO, FLORIDA 32801 WILLIAM O'NEIL GENERAL COUNSEL DEPARTMENT OF PROFESSIONAL REGULATION 130 NORTH MONROE STREET TALLAHASSEE, FLORIDA 32399-0750
Findings Of Fact Tooze holds certificate number R-0434 as a Certified Public Accountant practicing in the State of Florida and held such certificate in good standing on January 1, 1974. At that time, Tooze was subject to professional certification requirements set forth in Chapter 473, Florida Statutes. The records of the Board reflect that Tooze provided no evidence of the completion of any courses or studies that would give him credits toward the reestablishment of his professional competency in the period between January 1, 1974, and April 2, 1977. On October 15, 1976, Tooze sat for an examination which was approved by the Board and given to practicing Certified Public Accountants pursuant to applicable law requiring re- establishment of professional competency. Tooze received a score of 64 out of a possible score of 100. The established passing grade for the examination is 75. Tooze received nine credit hours for the examination he took. On May 13, 1977, the Board suspended Tooze's certificate R-0434 as a Certified Public Accountant for failing to comply with requirements for the reestablishment of his professional knowledge and competency to practice public accounting. The questions to be answered in the uniform written professional examination administered to Tooze on October 15, 1976, were based upon "Current Authoritative Literature" which included Accounting Principles Board's Opinions, Accounting Research Bulletins, Statements and Interpretations of the Financial Accounting standards Board, Statements on Auditing standards, and the Laws and Rules of the Florida State Board of Accountancy. Tooze challenges sixteen of these one hundred questions on the grounds that the approved answers are incorrect and that the answer selected by Tooze is the proper choice. The questions attacked by Tooze are numbers 13, IS, 18, 51, 56, 61, 63, 67, 72, 74, 78, 80, 82, 95, 96 and 99. The title of the uniform written professional examination is "Examination of Current Authoritative Accounting and Auditing Literature and Rules of the Florida State Board of Accountancy. The approved answer to each of the questions on the examination is that which is mandated by the "Current Authoritative Literature." The examination does not purport to seek answers outside of the requirements of the Current Authoritative Literature. Each of the approved answers in the sixteen questions listed above are consistent with the demands of the Current Authoritative Literature. Each of Tooze's answers is contrary to the provisions of the Current Authoritative Literature. Accordingly, the answers selected by Tooze are not the best answers and were properly graded incorrect on his examination answer sheet.
Findings Of Fact Petitioner is A graduate of the University of the East in Manila, Philippines. Petitioner is the holder of the state of Illinois C.P.A. Certificate No. 18012. On July 11, 1979, Petitioner filed an application to obtain a reciprocal certified public accountant certificate in Florida (licensure by endorsement) based upon his certificate issued by the State of Illinois. On December 14, 1979, the Board denied Petitioner's application for a reciprocal certificate for the reason that Petitioner had not graduated from an accredited four-year college or university and, accordingly, failed to satisfy the requirements set forth in Section 7(3)(b), Chapter 79-202, Laws of Florida, now codified as Section 473.308(3)(b), Florida Statutes (1979) The University of the East in Manila, Philippines, is not recognized by the Board as an accredited university in Florida and was not so recognized at the time that Petitioner received his certificate as a certified public accountant in the State of Illinois. The University of the East is not listed among the institutions of post secondary education by the Council on Postsecondary Accreditation, the official listing of accredited colleges and universities adopted by the Board to ensure the minimum competence of public accounting practitioners. Additionally, the University of the East in Manila, Philippines, has not been accredited by any of the regional accrediting agencies recognized by the Board. Douglas H. Thompson, Jr., the Respondent's Executive Director since 1968, is the Board's chief executive officer and, as such, carries out the Board's functions respecting applications for licensure. Mr. Thompson examined Petitioner's application pursuant to Petitioner's Illinois certificate to ascertain whether Petitioner's certificate was issued under criteria substantially equivalent to Florida's licensing criteria and determined that the criteria were not substantially equivalent. Petitioner's application was considered by the Board on two occasions and was rejected.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED THAT: Petitioner's application for a reciprocal certified public accountant certificate be denied. RECOMMENDED this 10th day of June, 1980, in Tallahassee, Florida. LINDA M. RIGOT Hearing Officer Division of Administrative Hearings Collins Building Room 101 Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of June, 1980. COPIES FURNISHED: Samuel Hankin, Esquire Commerce Building 226 South Main Street Gainesville, Florida 32602 Mr. Marianito Manalo Ilagan 9020 S.W. 56th Street Cooper City, Florida 33328 Ms. Nancy Kelley Wittenberg Secretary Department of Professional Regulation The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301
Findings Of Fact Dwight S. Cenac, Respondent, holds certificate No. 3639 as a Certified Public Accountant in the State of Florida. On 2 September 1977 he requested an exemption from the continuing education program required of public accountants to retain their certificate (Exhibit 2). Therein he stated he was not practicing public accounting, the exemption was granted and Respondent's registration card has been endorsed with a statement that Respondent's certificate to practice public accounting in Florida is inoperative. Following his graduation from college in 1970 Respondent worked for the accounting firm of Ernst and Ernst for two years and attained his certificate in 1973. He was employed with Blue Cross of Florida from 1973 until 1977 when he was employed by a health care provider in Puerto Rico to help set up their procedures to improve Medicare and Medicaid payments for services they provided. His understanding of the Medicare regulations and procedures acquired while working at Blue Cross, coupled with the conditions he found in Puerto Rico, led Respondent to believe that many health care providers had need for special consulting in conjunction with their financial record keeping. Health Care Management Consulting, Inc. (HCMC) was formed in 1977 with Respondent as the sole shareholder. In order to acquaint providers with the services he proposed, Respondent prepared a proposal (Exhibit 1) which was sent to health care providers. As a certified public accountant he could not do this without violating the laws and regulations proscribing solicitation by Florida practitioners. In order to overcome this potential problem, Respondent, on 2 September 1977, (by Exhibit 2), notified Petitioner that he was no longer performing public accounting. As the owner and principal operator of HCMC, Respondent does not hold himself out as a CPA, such information is not included in his letterhead or business cards, office or telephone directory or in any public place. His certificates as a Certified Public Accountant are hanging on the wall of his office, but none of his clients ever visit his office. In addition to Respondent, HCMC employs two other consultants who previously worked for Blue Cross, as well as a secretary. Neither of the other two consultants is a certified public accountant, but both perform services for clients similar to those services performed by Respondent. They, as well as Respondent, obtained the special expertise they offer to health care providers while working in the intermediary field between the government and the provider. HCMC provides specialized services not provided by public accountants such as setting up books and records for health care providers, preparing cost reports, providing assistance in setting rates and general familiarity with Medicare rules and regulations. Many of the services provided by HCMC, inasmuch as they involve financial records, are the same type services provided by Florida practitioners. Respondent, by submitting the HCMC Proposal to hospitals, nursing homes and other health care providers is both advertising and soliciting business. HCMC has submitted copies of its Proposal (Exhibit 1) to over 300 hospitals in Florida, and has obtained business previously performed by Florida practitioners. In the Proposal (Exhibit 1) HCMC offers services on a contingent fee basis. These services offered include reimbursement and recoupment of Medicare funds, and the fee paid HCMC is a percentage of the additional funds obtained as a result of the services provided by HCMC. Many of HCMC's services involve increasing reimbursement to the health care provider from Medicare and Medicaid sources. No audits unrelated to Medicare or Medicaid are performed, and financial statements prepared by HCMC do not refer to generally accepted accounting principles and generally accepted auditing standards, nor do they purport to express or disclaim an opinion as to the fairness of the presentation. The work performed by Respondent as an employee of HCMC would not constitute the practice of public accounting if performed by a non-certified person. The other employees of HCMC providing consulting services to health care providers similar to that provided by Respondent, are not in violation of Chapter 473, Florida Statutes.
The Issue The issue in this case is whether Respondent, David McQuay, Jr., committed the violations alleged in a four-count Amended Administrative Complaint issued by Petitioner, Department of Business and Professional Regulation, Board of Accountancy, on February 6, 2008, and, if so, what penalty should be imposed.
Findings Of Fact Petitioner, the Department of Business and Professional Regulation, Board of Accountancy (hereinafter referred to as the "Department"), is the state agency charged with the duty to regulate the practice of certified public accountants in Florida and to prosecute administrative complaints pursuant to Section 20.165, and Chapters 120, 455, and 473, Florida Statutes. At all times relevant to the allegations of the Complaint, Respondent David McQuay, Jr., has been licensed in Florida as a certified public accountant. Mr. McQuay's license number is R 1736, and his address of record is 110 North Lincoln Avenue, Tampa, Florida 33609-2908. Thomas Reilly, an expert in public accounting and auditing, reviewed an audit that Mr. McQuay performed for the Mid-Florida Center, a non-profit organization, for the financial year ending September 30, 2002. The audit was completed on July 18, 2003. Mr. Reilly prepared a report of his findings, dated September 5, 2005. He filed a subsequent report dated June 25, 2007, to include copies of various accounting standards and reference materials that were cited in the original report. In preparing his original report, Mr. Reilly met with Mr. McQuay and reviewed Mr. McQuay's complete set of working papers. Mr. Reilly testified that he billed the Department $3,444.00 for his services. No billing statements, invoices, or other documents were entered into evidence to support the amount of Mr. Reilly's fee. No expert testimony was offered to establish the reasonableness of the fee. As indicated in the Preliminary Statement above, Mr. Reilly identified four issues relating to the financial statements. First, Mr. Reilly found that the audit did not include certain statements that are required by government auditing standards. The "Yellow Book" contains the authoritative auditing standards issued by the federal Governmental Accountability Office ("GAO"). Amendment No. 2 to the auditing standards, adopted in July 1999, requires that certain language be included in the auditor's report on the financial statement. In particular, Section 5.16.1 of Amendment No. 2 provides: When auditors report separately (including separate reports bound in the same document) on compliance with laws and regulations and internal control over financial reporting, the report on the financial statements should also state that they are issuing those additional reports. The report on the financial statements should also state that the reports on compliance with laws and regulations and internal control over financial reporting are an integral part of a GAGAS [Generally Accepted Government Accounting Principles] audit, and, in considering the results of the audit, these reports should be read along with the auditor's report on the financial statements. Mr. McQuay's report on the financial statements did not contain a statement calling the reader's attention to the fact that a separate report on internal control and compliance is included elsewhere in the audit report. Mr. Reilly stated that the quoted language from the Yellow Book is mandatory, and that the GAO felt that the issue was important enough to call for the issuance of Amendment No. 2 to emphasize the revised mandate. In response, Mr. McQuay pointed to his reliance on a commercially produced practice guide that did not include the revised language of Amendment No. 2. While conceding the error, Mr. McQuay continued to contend that the practice guide's position was reasonable: that the statement is required only when the reports on compliance with laws and regulations and internal control over financial reporting are issued separately from the report on financial statements. In Mr. McQuay's case, the reports were issued under a single cover. Given that the express language of Amendment No. 2 references "separate reports bound in the same document," Mr. McQuay's response to the charge is insufficient. The Department has demonstrated that Mr. McQuay's audit report deviated from professional standards as to its failure to include the mandatory Yellow Book language. The deviation is ameliorated by the fact that all of the reports referenced in Amendment No. 2 were in fact contained in Mr. McQuay's audit report. There was no indication that Mr. McQuay's failure to include the mandatory statement was intended to mislead a reader of the audit report, or that his failure to comply with the strict language of Amendment No. 2 had any practical effect on the soundness of the audit report. The second allegation as to the financial statements is that necessary disclosures were missing in the notes to the financial statements. Mr. Reilly stated that the notes to the financial statements did not disclose the entity's capitalization policy for capital assets. The American Institute of Certified Public Accountants ("AICPA") Audit and Accounting Guide for Not-for-Profit Organizations requires disclosure of the entity's capitalization policy. Mr. Reilly testified that it is important for a reader of the audit to understand the dollar threshold at which the entity has decided to capitalize fixed assets, and that the professional standards require the disclosure in the audit report. In response, Mr. McQuay contended that the audit report did disclose the capitalization policy, citing to the following paragraph: Property donated to the Center is stated at its estimated fair market value. Depreciation expense is computed by use of the straight-line method of the estimated economic life of the respective assets. Maintenance and repairs are expensed as incurred. Extraordinary repairs that significantly extend the useful lives of the related assets are capitalized and depreciated over the assets' remaining economic useful life. This response is insufficient because the quoted language does not address the dollar threshold for capitalizing fixed assets, which is required under the standards for audits of nonprofit organizations. Mr. Reilly stated that the notes also failed to include a required statement as to lease commitments. Where the entity has operating leases that commit the entity for more than one year, professional standards require disclosure of the amount of the future commitments for each of the first five years subsequent to the date of the statement of financial position. Mr. McQuay's audit notes indicate that Mid-Florida Center had leases ranging as far as three years into the future, but do not disclose the amount of those lease commitments. Mr. McQuay responded that audit standards provide that immaterial items need not be disclosed, and that it was his professional judgment that the leases in question were not material. Mr. Reilly replied that the audit report gives the reader no basis for making an independent judgment as to the materiality of the leases. Mr. Reilly's view is more consistent with the specific standard regarding lease disclosure, though Mr. McQuay's exercise of independent professional judgment in this instance was not so unreasonable as to constitute a violation of professional standards. Mr. Reilly stated that the notes to the financial statements also omitted a statement of cash flows. However, Mr. McQuay's audit report properly identified this omission as a departure from generally accepted accounting principles ("GAAP"), rendering irrelevant any further discussion of the definition of cash equivalents. In summary, as to the second allegation, the evidence proved that Mr. McQuay violated the standards by failing to address the dollar threshold for capitalizing fixed assets, but did not prove any other violations of the disclosure requirements. The third allegation as to the financial statements was that the Statement of Activities and Statement of Functional Expenses should not contain captions of "Memorandum Only" for their "total" columns. Mr. Reilly contended that the "Memorandum Only" caption was inaccurate and misleading. Historically, the term "memorandum only" was used frequently on local government financial statements, where the auditor must give an opinion on different types of columns. Some of the columns were on a modified accrual basis and others on an accrual basis. Because these are two different bases of accounting, the "total" column was irrelevant. Mr. Reilly pointed out that the only time an auditor would use the "memorandum only" terminology as to a nonprofit organization's audit would be in presenting comparative financial statements, or where the prior year's audit included a summary total that was not in accordance with GAAP. In those situations, an auditor would use the "memorandum only" caption, as well as other disclosures, in the notice of the financial statements and the auditor's report. However, the Mid-Florida Center audit involved a single year's financial statement. Mr. Reilly opined that the total column on these financial statements was extremely significant, and that the "memorandum only" caption was extremely misleading. Mr. McQuay responded that the decision was made to use the "memorandum only" caption because this was the initial audit for Mid-Florida Center, and that the caption does not materially change any substantive aspect of the financial statement and is therefore not misleading. Mr. Reilly's position that the inclusion of the "memorandum only" caption was misleading and a violation of the standards cited in his report was correct, and Mr. McQuay's response was insufficient. The fourth allegation as to the financial statements was that donations of long-lived depreciable assets should not be reported as "Permanently Restricted Net Assets." Mr. Reilly conceded that this was a very complicated issue for which Mr. McQuay had "quite a bit of support." Mid-Florida Center purchased land and some equipment from the Highlands County School Board. The fair value of the property exceeded the price paid by Mid-Florida Center. Under GAAP, the difference between the price paid and the value would be recorded as a donated asset. The dollar amount recorded in the financial statement was $330,000, but there was no documentation showing how that number was arrived at, and no documentation showing the breakout between the land and the equipment. Mr. Reilly testified that when he looked at the fixed assets, he found a $280,000 item for land but could not be certain whether the item was part of this land or another piece of property referenced elsewhere in the notes. However, $330,000 was shown in a column called "permanently restricted." Mr. Reilly did not take issue with placing the land in that column. However, he thought that the equipment, i.e., the depreciable portion of that asset, should not be placed in the "permanently restricted" column. Mr. Reilly testified that an item such as an endowment fund is the only thing that should be placed in a "permanently restricted" column. Once an asset is placed in service and begins depreciating, it must be placed in the "unrestricted" column. In his response, Mr. McQuay referenced a reversionary clause in the purchase agreement, whereby if Mid-Florida Center gave up its 501(c)(3) nonprofit status, the property would revert to the School Board. Mr. Reilly testified that this is a standard clause in government contracts, and is not a reason to classify the item as permanently or temporarily restricted. While his report took issue with the placement of depreciable assets in the "permanently restricted" column, Mr. Reilly conceded that the relevant Statement of Financial Accounting Standards is not crystal clear and that he used non- authoritative practice guides to arrive at his conclusion. Mr. Reilly believed that it was misleading to label equipment in operation as "permanently restricted," but also conceded that the notes to the financial statement fully disclosed the issue. Mr. McQuay insisted that his audit did distinguish between the land and equipment in the fixed assets and depreciation schedules. While his treatment of the item was subject to dispute, Mr. McQuay cannot be found to have violated professional standards as to this issue. As indicated in the Preliminary Statement above, Mr. Reilly identified six issues relating to the working papers. The first allegation is that there was no evidence of a reporting and disclosure checklist for not-for-profit organizations. Mr. Reilly opined that it is common practice to include such a checklist, and that Mr. McQuay should have used one on this audit because nonprofits have unique disclosure requirements and Mid-Florida Center was the only nonprofit organization that Mr. McQuay was auditing at the time. Mr. Reilly noted that failure to use a checklist does not violate a particular auditing standard, but could be held to violate the more general professional standard of due care. Mr. Reilly believed that due professional care mandates that a CPA use a checklist when auditing a nonprofit organization, and that a CPA "would be a fool" not to use one. A typical checklist is 70 pages long, and an accountant needs the list to jog his memory as to the many unique requirements of nonprofits. Mr. Reilly thought that Mr. McQuay might have avoided some of the cited deficiencies if he had used a checklist. Mr. McQuay responded that professional standards do not require the use of a checklist. Moreover, he asserted that his auditing software contains the functional equivalent of a disclosure checklist. While conceding that this was the only nonprofit he audited during the year in question, Mr. McQuay testified that he has been auditing nonprofit organizations for over 36 years and that his previous firm conducted 35 to 40 such audits annually. A checklist would be of no assistance out in the field, where the auditor is examining the client's working papers. Mr. McQuay stated that he does use a checklist when he is reviewing the work of a staff auditor, but that he did not need a checklist here because he was performing the audit himself. Even after hearing Mr. McQuay's response, Mr. Reilly continued to hold that it was foolish not to complete a disclosure checklist. The fact that Mr. McQuay was the only person working on the audit provided all the more reason for the use of a checklist. Accepting Mr. McQuay's testimony that his auditing software contained the equivalent of a checklist, it is found that his failure to use a paper checklist was not a violation of auditing standards or of due professional care. The second allegation relating to the working papers was a lack of audit evidence for fraud risk factors or planning materiality. Statement on Auditing Standards No. 82 states that the auditor "should specifically assess the risk of material misstatement of the financial statements due to fraud and should consider that assessment in designing the audit procedures to be performed." The auditor should consider fraud risk factors relating to misstatements arising from fraudulent financial reporting and from misappropriation of assets. Statement on Auditing Standards No. 47 provides that the auditor should consider audit risk and materiality in planning the audit and designing auditing procedures and in evaluating whether the financial statements "taken as a whole are presented fairly, in all material respects, in conformity with generally accepted accounting principles." Mr. Reilly found nothing in Mr. McQuay's working papers documenting that an assessment in conformance with Statement on Auditing Standards No. 82 was made, or that an audit risk and materiality assessment was made in accordance with Statement on Auditing Standards No. 47. Mr. McQuay responded that a separate section in his work papers dealt with fraud risk factors and materiality. He testified that his firm is careful in selecting clients and looks carefully at management capabilities and the risks involved in the representation. Mr. Reilly reviewed Mr. McQuay's response and concluded that it did not come close to meeting professional standards. As to this issue, it is found that Mr. McQuay did violate professional standards as to documentation, though he may well have performed the assessments in question. The third allegation relating to the working papers was that the management representation letter omitted the specific representations relative to the single audit and the referenced schedule of uncorrected misstatements in the management representation letter. The "single audit" is an Office of Management and Budget ("OMB") A-133 audit of an entity that has received $500,000 or more of Federal assistance for its operations. Mr. Reilly found the omissions in the management representation letter constituted a violation of professional standards. Mr. Reilly testified that the standards require that on every audit, the auditor obtain a management representation letter signed by the appropriate levels of management. Statement on Auditing Standards No. 85 contains the basic requirements for management representations. Mr. McQuay obtained a management representation letter from Mid-Florida Center in compliance with this basic requirement. However, because this was a single audit, additional representations were required in the management representation letter over and above those found in a generic audit. AICPA's Statement of Position 98-3, "Audits of States, Local Governments, and Not-for-Profit Organizations Receiving Federal Awards," paragraph 6.68 requires the auditor conducting an OMB A-133 audit to obtain written representations from management about matters related to federal awards. Paragraph 6.69 of the same document lists 22 items for which the auditor should consider obtaining written representations in a single audit. Mr. Reilly testified that most of these items were applicable in this case, but that none of them were included in the Mid-Florida Center's management representation letter. In response, Mr. McQuay pointed to his engagement letter with the client. The engagement letter states that this would be an OMB A-133 audit, and that Mr. McQuay has explained to the client and the client has understood that management is responsible for compliance with the OMB A-133 audit requirements. Mr. McQuay did not think he needed to include the detailed representations of paragraph 6.69 when he already had an extensive engagement letter that covered these areas of management responsibility. Mr. Reilly replied that the engagement letter and the management representation letter are two entirely different things. The engagement letter spells out the scope of representation to the client at the outset of the engagement; completely different standards require the auditor to obtain written representations from management regarding elements spelled out in the standards, at the conclusion of the engagement. The engagement letter is irrelevant for purposes of the single audit's requirement that representations be obtained from management about matters related to federal awards. None of the specific statements referenced by Mr. McQuay in his engagement letter dealt with the specifics of federal awards. As to this issue, it is found that Mr. McQuay violated professional standards. The fourth allegation relating to the working papers was that no documentation was evident regarding a consideration of a going concern with the entity's financial position. Mr. Reilly testified that it was apparent from a glance at the financial statements that the entity had severe financial problems. It had an adverse current ratio, with assets of $33,000 and liabilities of $138,000, not considering the issue of liability for back pay owed to the executive director. Under Statement on Auditing Standards No. 59, an auditor has the responsibility to evaluate and document any causes for doubt about the continuing viability of the entity, and further to evaluate and document management's plans to turn around the entity. Mr. Reilly saw nothing that came close to meeting this standard. The only items of substance he found were a statement that the Mid-Florida Center was creating a new charter school and that fundraising activities were "ongoing." There were no specifics as to the charter school or the fundraising. Mr. Reilly found these statements "grossly inadequate" to comply with professional standards. Statement on Auditing Standards No. 59 includes specific items that an auditor should evaluate, such as management's specific plans to curb expenditures and increase revenue. Mr. McQuay supplied a document titled "Going Concern Evaluation," but the document provided no specifics as to the evaluation that was performed. Mr. McQuay responded that any startup organization such as the Mid-Florida Center will have poor current ratios. However, the entity had the management wherewithal to raise money and a committed, competent board of directors. The proposed charter school had already received funding for building renovation for the 2003-2004 school year. Mr. McQuay believed that his field work and evaluation of the management plans was sufficient to satisfy the standard. As to this issue, it is found that Mr. McQuay violated professional standards, at least insofar as he failed adequately to document his consideration of a going concern with the entity's financial position in accordance with Statement on Auditing Standards No. 59. The fifth allegation relating to the working papers was that the management representation letter addressed the $158,429 liability owed to the executive director, which was reversed off the books, but failed to justify the removal of the liability from the financial statements by specifically finalizing the matter. Mr. Reilly explained that, as of the balance sheet date, Mid-Florida Center owed several years' salary to its executive director, Dr. Arthur Cox, a significant liability that would make Mid-Florida's poor current ratio even worse. Mid-Florida removed the liability for Dr. Cox' salary from its books. Mr. Reilly did not have a problem with removing the salary, in the amount of $158,429 from the books, provided Mid-Florida had secured a separate, standalone confirmation from Dr. Cox that he was totally relinquishing any rights to those funds. However, the relinquishment issue was addressed in a management representation letter by way of what Mr. Reilly termed "squirrely wording." Rather than completely extinguish any rights Mr. Cox had to the salary, the Mid-Florida Center's board voted to change the liability from deferred compensation to amounts owed for future salary increases. Essentially, the board took the liability off the books at the present time, but left open the possibility of reinstating it when Mid-Florida Center's finances permitted it to pay Dr. Cox the amount he was owed. Mr. McQuay responded that the Form 990 for the year in question had been completed by another CPA and filed prior to his retention. Form 990 is the tax return for organizations exempt from income tax. The working trial balance prepared by the other CPA indicated that the liability for the back pay had been removed, and the Form 990 had been filed with the Internal Revenue Service without including the liability. In reconciling the Form 990 with the working trial balance for purposes of his audit, Mr. McQuay obtained the management representation letter referenced by Mr. Reilly. Mr. McQuay testified that he viewed the letter as firming up the matter that the previous CPA had dropped in his lap. Selvin McGahee, a member of the Mid-Florida Center's board of directors, testified that Dr. Cox founded the Mid- Florida Center, writing the initial grants that got the entity started. Dr. Cox' focus on providing services led him to forego some of the salary that was budgeted for his position, in order to spend the funds on other positions. Mr. McGahee testified that this situation persisted for a couple of years, with Dr. Cox supplementing the organization's revenues by not paying himself. The board ultimately decided to remove the back pay from its books, but had the intention of paying Dr. Cox his back salary if and when the organization generated sufficient unrestricted revenue to do so. As to this issue, it is found that that Mr. McQuay violated professional standards and departed from generally accepted accounting principles. Removing the liability for back salary payments to the executive director should have been accompanied by an unequivocal renunciation of those funds by the executive director. As matters were allowed to stand by Mr. McQuay, Mid-Florida Center's balance sheet was significantly improved in a manner that did not finalize the issue of the possible reinstatement of the back pay liability in the future. The sixth allegation as to the working papers was that, relative to compliance testing, the working papers contained evidence of testing only one monthly invoice/progress report. Mr. Reilly testified that the problem here was a lack of documentation. Though the auditor's judgment is paramount as to compliance testing, there are stated requirements that the auditor must meet. Because this was a single audit, OMB Circular A-133 Compliance Supplement was used. This Circular lists fourteen specific items of testing, each of which should be addressed by the auditor at least to the point of indicating that the auditor has determined the item to be inapplicable to the audit at hand. Mr. Reilly testified that one of the specific issues he was called to investigate involved the lack of documentation regarding a grant that the Mid-Florida Center had obtained from the City of Bartow. The grant required the submission of a monthly invoice/progress report. Mr. Reilly could find evidence that Mr. McQuay had tested only one such invoice. Mr. Reilly conceded that it was "tough to say" what professional judgment demanded in this situation because he was not there when the audit was conducted. Mr. Reilly stated that he would probably have tested more than one invoice, but he could not say how many. The usual practice is to expand the testing if a problem is found with the first invoice. Mr. McQuay found no problems with the one invoice and progress report that he tested, and made the judgment that his examination was adequate. Mr. Reilly believed that, based on the overall scope of problems with Mid- Florida Center's documentation, Mr. Reilly concluded that the entity's invoices and progress reports were "lightly tested." As to this issue, it is found that Mr. McQuay did not violate professional standards or generally accepted accounting principles. Mr. Reilly testified that he might have conducted the compliance testing more strenuously than did Mr. McQuay, but he could not state that Mr. McQuay's actions were outside the boundaries of his professional judgment. Petitioner offered the testimony of Allan Nast, an expert in accounting and auditing. Mr. Nast reviewed the audit performed by Mr. McQuay, and also reviewed the reports prepared by Mr. Reilly. Mr. Nast agreed with Mr. Reilly's opinions in every particular. Mr. Nast's opinion has been considered and is respected by the undersigned, but does not change the findings of fact made above. Mr. Nast testified that he billed Department $1,365.00 for his services. No billing statements, invoices, or other documents were entered into evidence to support the amount of Mr. Nast's fee. No expert testimony was offered to establish the reasonableness of the fee. Mr. McQuay testified that he believes he has been singled out for disciplinary action based on business reasons. Mr. McQuay pointed out that the initial complaint in this matter was filed by a competitor who was also the father of an accountant whose firm Mr. McQuay had rejected for work in his role as director of quality assurance for WorkNet Pinellas, Inc. Mr. McQuay, an African-American, also testified as to incidents of racism as he pursued his career in a profession dominated by white men. The undersigned has considered this testimony by Mr. McQuay, but cannot find that these matters had any bearing on the merits of the allegations lodged by the Department in the Complaint after its thorough investigation of the initial complaint. In summary, as to the four allegations regarding the financial statements recited in the Preliminary Statement above, it was found that the first allegation as to missing statements in the audit was proven, though ameliorated by the fact that all of the reports referenced by the missing statements were included in the audit report. As to the second allegation as to missing disclosures, it was found that Mr. McQuay violated professional standards as to only one of several of the alleged omissions. As to the third allegation regarding the "Memorandum Only" statement in the "total" columns, it was found that Mr. McQuay violated the relevant standards. As to the fourth allegation regarding the categorization of long-lived depreciable assets, it was found that Mr. McQuay did not violate professional standards. There were six allegations regarding the working papers recited in the Preliminary Statement above. As to the first allegation regarding the disclosure checklist, it was found that Mr. McQuay did not violate auditing standards or the duty of professional care. As to the second allegation regarding lack of evidence for fraud risk factors or planning materiality, it was found that Mr. McQuay violated professional standards as to documenting his work, though he may have performed the assessments in question. As to the third allegation regarding omissions in the management representation letter, it was found that Mr. McQuay violated professional standards. As to the fourth allegation regarding going concern considerations, it was found that Mr. McQuay violated professional standards. As to the fifth allegation regarding removal of liabilities owed to the executive director, it was found that Mr. McQuay violated professional standards. As to the sixth allegation regarding the sufficiency of compliance testing, it was found that Mr. McQuay did not violate professional standards.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that A final order be entered finding that David McQuay, Jr. committed the violations alleged in Counts One, Two, and Four of the Amended Administrative Complaint and requiring Mr. McQuay to take sixteen hours of Continuing Professional Education beyond the regular requirement, including eight hours related to nonprofit organizations, and placing Mr. McQuay on probation for a period of two years. During the first year of probation, all audits (including financial statements and working papers) will be reviewed by a consultant selected by the Board, at Mr. McQuay's expense. If any audit is deemed deficient upon review by the Board, review of all audits will continue through the second year of Mr. McQuay's probation. DONE AND ENTERED this 27th day of October, 2008, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 27th day of October, 2008. COPIES FURNISHED: Eric R. Hurst, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-2202 David McQuay, Jr. 110 North Lincoln Avenue Tampa, Florida 33609-2908 Veloria A. Kelly, Director Department of Business and Professional Regulations, Board of Accountancy 240 NW 76th Drive, Suite A Gainesville, Florida 32607 Ned Luczynski, General Counsel Department of Business and Professional Regulations Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0793
Findings Of Fact Leslie H. Roth is a licensed CPA in the State of Florida, holding License No. R0004593. He was employed by the CPA firm of Rachlin & Cohen from December 2, 1974, through August 26, 1977. During that period of employment he was paid a salary plus a commission based upon the number of clients he brought to the firm and the fees he generated. The Respondent left that firm on August 26, 1977, and became an employee of Holiday Inn at Calder Race Course in Miami. Upon leaving the firm of Rachlin & Cohen the Respondent signed acknowledgements disclosing the status of the clients' work to which he had been assigned and the related amount of money owed to the firm. When he left that firm, the firm owed him no additional commissions or salaries. The Respondent failed to remit to Rachlin & Cohen the fees collected from their clients for whom he had performed services and when Rachlin & Cohen attempted to collect those fees some of the clients claimed they had already paid the Respondent. Rachlin & Cohen, therefore, filed suit in circuit court and obtained a judgment against the Respondent in the amount of $550 representing the firm's fees collected by the Respondent. In early 1978, while working as a CPA for Holiday Inn at Calder Race Course, the Respondent prepared some unaudited financial statements in order to help the business maintain or keep a loan with a financial institution. These unaudited financial statements are required to comply with applicable generally accepted accounting principles and auditing standards. They contained a technical deficiency because the Respondent failed to disclose an aggregate future minimum lease payment and a potential deficiency in that the notation that the statements were "before final year-end adjustments" did not disclose whether material adjustment needed to be made. The Respondent also was shown to have performed the service of filing a "1120-SK-1 form" for Pro-Management, Inc., while Pro-Management, Inc., was a client of Rachlin & Cohen. Filing s such a form is normally the duty of the regularly retained accounting firm for that company. The Respondent's "reestablishment period" for his CPA license was 1977 through 1979. He was required to file yearly continuing professional education reports related to his reestablishment period. These were due by January 15, of each following year, reporting on his level of compliance with continuing professional education (CPE) requirements for the preceding year. In 1977, when the period started, the CPE requirements were 30 hours per year, with at least 8 hours of accounting and auditing. If not completed the first year and any time during the 3-year period, he would have to completed 120 hours of CPE courses, including at least 32 hours of accounting and auditing. In October, 1977, the law changed and licensees could choose to complete the old requirements or the new ones which were 24 hours per year including at least 64 hours of auditing and accounting, but licensees could not use a combination of those. If a licensee files such a form substantially late it must be accompanied by a verification of attendance at the subject CPE courses. The CPA is also required to maintain documentation of CPE courses attended for 3 years following his reestablishment period. The Respondent filed a CPE education report for 1977 on January 1, 1978. It was reviewed and returned February 1, 1978, with a letter by the Board explaining that the Respondent had reported one course incorrectly for "accounting and auditing" when it was only half-approved for that category. He also was informed by the Board that he reported 7 hours of accounting and auditing credit for Dade County, Florida Institute of CPA Monthly Meetings, but with no dates and no titles of sessions attended. The Respondent returned the 1977 form to the Board's office January 7, 1980, along with the 1978-1979 CPE report forms, approximately 2 years late with regard to the 1977 form and 1 year late with regard to the 1978 reporting period. The forms filed by the Respondent reflected that in 1977 he had obtained 22 hours of accounting and auditing and 34 hours total CPE. He still supplied no dates for the meetings of the Dade County Chapter of FICPA, nor had he apportioned hours properly. He reported 15 hours accounting and auditing and 37 hours total CPE for 1878, but again he included FICPA monthly meetings for 4 hours of his accounting and auditing requirement and 4 hours for "other." Under the category "Accountants for Public Interest," he reported 3 hours accounting and auditing and 10 hours "other," but with no itemization of the programs attended on his 1979 form. The 1979 form was, however, timely filed. The hours reported by the Respondent which were verified still did not fulfill the continuing professional education requirements imposed by the Board for the years involved. The staff of the Board attempted to notify the Respondent of the deficiencies in his reporting and requested verification of his courses attended. The Board received no response from the Respondent. In view of his lack of response and the deficiency in reporting CPE courses attended, the Continuing Education Committee recommended to the Board of Accountancy that the Respondent's license be reverted to inactive status. The Respondent was accordingly notified on March 1, 1980, that his continuing professional education appeared deficient and he was given 30 days to correct the situation. The Respondent did not respond and on May 1, 1980, he was informed by the Continuing Professional Education Committee that it would recommend to the Board that it relegate his license to inactive status. On July 30, 1980, the Respondent was sent another letter with essentially the same information giving him an additional period of time to resolve his difficulty. Finally, at the August, 1980, meeting of the Board of Accountancy the reversion to inactive status was accomplished. The Respondent's license has thus legally been inactive since August 20 of 1980. Since May of 1980, to the date of the hearing, the Respondent has been employed by Gerson, Preston & Co., a CPA firm, where he has utilized his accounting skills and worked as a staff accountant. He has thus practiced as a CPA since August 20, 1980.
Recommendation Having considered the foregoing findings of fact, conclusions of law, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is RECOMMENDED that the Respondent, Leslie H. Roth, be found guilty of the charges in the Administrative Complaint herein and that his License No. ROOO4593 be placed in a suspended status for 3 months from the date of the final order herein; that his licensure then be returned to active status, but that he be placed on probation for 3 years and be required to complete 120 hours of continuing professional education, including at least 32 hours of accounting and auditing and that he be fined the sum of $1,000. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 5th day of October, 1981. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of October, 1981. COPIES FURNISHED: Drucilla E. Bell, Esquire Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Leslie H. Roth Post Office Box 9174 Pembroke Pines, Florida 33024
Findings Of Fact The Petitioner completed an academic program in accounting at the University of South Florida in March, 1976. She applied to sit for the May, 1976 Certified Public Accountant's examination, and paid her fee. There are four sections to the examination: Auditing, Law, Theory, and Practice. At the May, 1976 examination the Petitioner passed the Law section, but failed the sections on Auditing, Theory and Practice. Accordingly, under the Board's rules, the Petitioner was not credited with having passed any sections of the examination, and needed to take the entire test again. She applied to sit for the November, 1976 examination, paid her application fee, and sat for the examination. On this occasion she passed the Theory and Practice sections of the examination but failed the Auditing and Law sections. Under the Board's rules the Petitioner at this juncture was credited with having passed the Theory and Practice sections, and would be allowed to sit for the next three consecutive examinations in order to pass the remaining two sections. She applied to sit for the May, 1977 examination, paid her fee and sat for the examination. She passed the Law section and failed Auditing. At this juncture she needed to pass only the Auditing section, and had two examinations within which to accomplish that. She applied to sit for the November, 1977 examination. The deadline for making application was September 1, 1977. The Petitioner, through her own mistake, was lake in making application, and her application was rejected. She was not permitted to sit for the November examination. She did timely apply for the May, 1978 examination. She again failed the Auditing section with a score of 69. Under the Board's rule her application for certification as a CPA was considered she would need to being again the testing process, without being credited with having passed any sections. She applied for a regrading of the May, 1978 examination. The examination was regraded, but her score was not changed. The Petitioner is seeking, through this proceeding, an opportunity to retake the Auditing section of the examination, while continuing to receive credit for having passed the Law, Theory, and Practice sections. Under the Board's interpretation of its rules, she would not receive credit for having passed the sections, but would need to begin the testing procedure as a new applicant.
