The Issue The central issue in this case is whether the Respondent is guilty of the violation alleged in the administrative complaint dated August 7, 1989; and, if so, what penalty should be imposed.
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made: The Department is the state agency authorized to regulate and discipline licensees pursuant to Chapters 455 and 473, Florida Statutes. The Respondent is a licensed certified public accountant, license number AC 3214 (election of rights submitted by Respondent). In connection with an investigation of another licensee (not at issue herein), the Respondent submitted to the Department a financial report that Respondent had performed for the entity identified as Moreil Interiors, Inc. (Moreil). That document (Department's exhibit 1) consisted of four pages and represented financial information related to Moreil for a 6 month period ending December 31, 1984. Certified public accounts are required to utilize specific guidelines in the performance of accounting services. Those guidelines are codified in the Statements on standards for Accounting and Review Services (SSARS). The failure to abide by the SSARS guidelines constitutes performance below acceptable accounting standards. The financial report identified in paragraph 3 failed to comply with the SSARS in at least four material ways. The level of service indicated by the Respondent's report is not accepted practice for certified public accountants and has been rejected by the American Institute of Certified Public Accountants. The type and number of the deficiencies in that report constitute negligence on Respondent's part and establish a failure to exercise professional competence and due professional care in the performance of accounting services.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department of Professional Regulation, Board of Accountancy enter a final order requiring the Respondent to complete 24 hours of continuing education regarding compliance with the SSARS guidelines, and placing the Respondent on probation with his work to be reviewed, at his expense, by a consultant or certified public accountant approved by the Board, for a period of one year following completion of the continuing education. DONE and ORDERED this 19th day of July, 1990, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of July, 1990. COPIES FURNISHED: Tobi Pam Senior Attorney Department of Professional Regulation 1940 North Monroe, Suite 60 Tallahassee, Florida 32399-0792 Frank Berman P.O. Box 14156 North Palm Beach, Florida 33408 Martha Willis Executive Director Board of Accountancy Suite 16 4001 Northwest 43rd Street Gainesville, Florida 32606 Kenneth E. Easley General Counsel Department of Professional Regulation 1940 North Monroe, Suite 60 Tallahassee, Florida 32399-0792
Conclusions Having reviewed the Notice of Intent to Impose Fine, and all other matters of record, the Agency for Health Care Administration finds and concludes as follows: 1. The Agency issued the Respondent the attached Notice of Intent to Impose Fine, cover letter and Election of Rights form. (Ex. 1) The Election of Rights form advised of the right to an administrative hearing pursuant to Sections 120.57(1) and 120.57(2), Florida Statutes. The Respondent received the Notice of Intent, cover letter and Election of Rights form on August 13, 2014. (Ex. 2) The Respondent failed to timely file the Election of Rights form or other response with the Agency Clerk. 2. By failing to timely respond, the Respondent waived the right to a hearing and waived the right to contest the allegations within the Notice of Intent. Cann v. Department of Children and Family Services, 813 So.2d 237 (Fla. 2d DCA 2002). The findings of fact, conclusions of law and proposed sanction set forth within the Notice of Intent are adopted and incorporated by reference. Based upon the foregoing, it is ORDERED: 3. An administrative fine of $75,259.00 is imposed on the Respondent. If full payment has ‘already been made, the cancelled check is your receipt and no further payment is required. If full payment has not been made, payment is due within 30 days of the Final Order. Overdue amounts are subject to statutory interest and may be referred to collections. A check payable to the “Agency for Health Care Administration” and containing the AHCA case number should be sent to: Office of Finance and Accounting Revenue Management Unit Agency for Health Care Administration 2727 Mahan Drive, MS 14 Tallahassee, Florida 32308 1 Filed February 18, 2015 2:35 PM Division of Administrative Hearings ORDERED at Tallahassee, Florida, on this _/ “ day of aa, , 2015. KK seyetary e¥ for Hea ‘are Administration
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review, which shall be instituted by filing one copy of a notice of appeal with the Agency Clerk of AHCA, and a second copy, along with filing fee as prescribed by law, with the District Court of Appeal in the appellate district where the Agency maintains its headquarters or where a party resides. Review of proceedings shall be conducted in accordance with the Florida appellate rules. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed. CERTIFICATE OF SERVICE I CERTIFY that a true and correct Bos Final Order was served on the below-named persons by the method designated on this LE ay of fe Gre. a » 2015. Ss SQ) Richard Shoop, Agency Cler! Agency for Health Care Administration 2727 Mahan Drive, Bldg. #3, Mail Stop #3 Tallahassee, Florida 32308-5403 Telephone: (850) 412-3630 Barry Keel Chief Executive Officer Bay Medical Center Sacred Heart Mills Smith, Supervisor Finance Analysis Agency for Health Care Administration 615 North Bonita Avenue (Electronic Mail) Panama City, FL 32401 (U.S. Mail) Facilities Intake Unit Finance & Accounting Agency for Health Care Administration Revenue Management Unit (Electronic Mail) (Electronic Mail)
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent repay Petitioner in accordance with the Final Determination issued on January 26, 1983. DONE and ORDERED this 8th day of June, 1983 in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of June, 1983. COPIES FURNISHED: Chad J. Motes, Esquire Suite 131 - Montgomery Building 2562 Executive Center Circle, East Tallahassee, Florida 32301 Mary M. McDaniel, Esquire 101 East Maud Street Tavares, Florida 32778 Honorable Wallace E. Orr Secretary, Department of Labor and Employment Security Suite 206 Berkley Building 2590 Executive Center Circle, East Tallahassee, Florida 32301
Findings Of Fact Background At all times relevant hereto, petitioner, 45th Street Mental Health Center, Inc. (petitioner or MHCI), was a nonprofit corporation providing community mental health and alcoholic services to various clientele in Palm Beach County, Florida. Petitioner's principal facilities are located at 1041 45th Street, West Palm Beach, Florida. Under the legislative scheme established in 1982, respondent, Department of Health and Rehabilitative Services (HRS), contracted with various district mental health boards throughout the state to provide mental health services to local communities. 1/ The district mental health boards in turn entered into contracts with various subcontractors throughout their respective districts to provide the necessary services. In this proceeding, Mental Health Board No. 9, Inc. was the primary provider in the West Palm Beach district. On September 30, 1982 petitioner and Mental Health Board No. 9, Inc. executed a written one-year contract wherein petitioner generally agreed to provide certain community health services under the Community Mental Health and Alcoholism Programs. 2/ In return, MHCI would be reimbursed for 75 percent of its costs for mental health services rendered to clients in accordance with applicable rules, statutes and regulations. That contract has been received in evidence as petitioner's exhibit 1. Although the district board executed the contract, its terms and conditions were dictated by HRS. Accordingly, HRS may be considered to be the draftsman of the contract. When the contract was executed, MHCI was known as the Palm Beach County Comprehensive Community Mental Health Center, Inc. In early 1983 it changed to its present name. Under paragraphs I.C.6. and 7. and III.D. of the contract, MHCI agreed to the following terms and conditions: To comply with Florida Statutes 394, 396 and Florida Administrative Code, Chapters 10E-3, 10E-4, 10E-5 and Legislative Provision for FY 82-83 (Attachment #11). To comply with all other State standards, provided they are specified in Statute or Administrative Rules, or are incorporated as part of this Agreement. * * * D. Any alterations, variations, modifications, and waivers of provisions of this contract shall be valid only when they have been reduced to writing, duly signed by all parties to the contract, approved by the Board and DHRS District Administrator, and attached to the original contract. Finally, paragraph III.C. allowed either party to terminate the contract, with or without cause, upon "no less than thirty (30) days' notice in writing to the other party." When the contract was executed, Chapter 10E-4, Florida Administrative Code, was in effect. That chapter authorized a provider to utilize available matching funds from other providers within the district to offset any audit pay back liability determined by HRS. In other words, one subcontractor within a district could offset any deficiency in expenditures with an excess of expenditures or matching funds by another subcontractor within the same district. Thus, the thirteen subcontractors could consolidate their deficiencies on a district wide basis, and apply any left over excess funds to offset that deficiency. This concept is more commonly referred to as "district wide match" and was embodied in Chapter 10E-4. During the 1982 legislative session the Legislature amended Chapter 394, effective October 1, 1982. Among other things, the new law required HRS to prepare a line-item budget for presentation to the Legislature. Its purpose was to provide more accountability on the part of providers. Since Chapter 10E 4 did not require line item budgets, HRS interpreted the new law to no longer allow reimbursement for mental health services under Chapter 10E-4. Therefore, HRS promulgated an emergency rule which became effective on October 1, 1982. It expired ninety days later, or around January 1, 1983. HRS then adopted new Chapter 10E-14, Florida Administrative Code, which became effective on February 23, 1983. Among other things, it required providers to itemize their entire operating budgets. To be reimbursed for program services, a provider had to comply with the new rules. Of particular significance was new Rule 10E 14.03(7) which specifically eliminated the district wide matching concept. 3/ Although various amendments to the contract were executed by MHCI and the district board throughout the year, none made specific reference to the change in rules which occurred during the life of the contract. One amendment executed on October 1, 1982 did require the district board to furnish the provider with copies of any changes in HRS rules that affected MHCI within thirty days after the board received the same from HRS. 4/ Whether copies of the emergency rule and Chapter 10E-14 were provided to MHCI was not disclosed. However, MHCI acknowledged it was aware of such rules, and that they materially altered the method of reimbursement from HRS. Indeed, MHCI would have had to modify its budget requests submitted to HRS after October 1, 1982 in order to establish eligibility for reimbursement under the new reimbursement rules. MHCI also acknowledged that it was aware of the change in substantive law (Chapter 394) when the contract was signed. Even so, MHCI took the position at final hearing that it relied upon the belief that Chapter 10E-4 rules applied during the entire contract year. Conversely, HRS took the position at final hearing that no reference to the new rules was necessary since the contract automatically was covered by any new rules adopted after the contract was executed. In actuality, the issue was never raised by either party until 1984 or 1985 when both recognized that it played a major role in determining petitioner's audit liability. The Agency Audit In 1984, respondent undertook an audit of all subcontractors who provided services during the year ending June 30, 1983 under contract with Mental Health Board No. 9, Inc. Between July and September, 1984 HRS field auditors focused their attention on petitioner's books and records to determine whether petitioner's reimbursements from the district board (and ultimately HRS) for program services during the fiscal year in question were justified. Under the terms of its contract, petitioner was subject to such an audit on an annual basis. As a guide to determining the reasonableness of various expenditures, the auditors used Office of Management and Budget Circular A-122 (OMB A-122), a federal publication which contains cost principles for nonprofit organizations. Of particular relevance are subparagraphs A. 2., 3. and 4. of Attachment A of OMB A-122. They provide in relevant part: Factors affecting allowability of costs. To be allowable under an award costs must meet the following general criteria: g. Be adequately documented. * * * Reasonable Costs. A cost is reasonable if, in its nature or amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the costs .... In determining the reasonableness of a given cost, consideration should be given to: Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the organization or the performance of the award. The restraints or requirements imposed by such factors as generally accepted sound business practices, arms length bargaining .... * * * Allocable Costs. a. A cost is allocable to a particular cost objective, such as a grant, project, service, or other activity in accordance with the relative benefits received... * * * These same principles have been codified in Rule 10E-14.17(2)(c) and (d), Florida Administrative Code. Former Rule 10E-4.17(4)(f)(3), Florida Administrative Code, since repealed, provided that "compensation for employees is allowable up to the maximum for comparable positions listed in the Florida Career Service Plan". Despite its repeal, HRS has continued the practice of comparing a provider's employee benefits to career service benefits on the ground the state should not purchase a service at a cost greater than that incurred if the state were to provide the service itself. This measure of reasonableness was utilized by HRS auditors in this case in determining the reasonableness of certain expenditures. The use of said policy was not seriously questioned. 5/ The provider (MHCI) uses a September 30 fiscal year. HRS programs are funded, and audits accordingly made, using a June 30 fiscal year. Because of this "mismatch", HRS auditors extrapolated nine months data (October 1982 through June 1983) from one fiscal year's data plus three months from another fiscal year (July through September 1982) to give it a full twelve months of data toe review. Such data was taken from two sets of MHCI's financial statements prepared by its outside auditors. Normally, an HRS audit case is not unusually complicated and involves only the usual disputed adjustments. However, several factors have changed this case into a most complex matter. First, HRS adopted new rules (an emergency rule and then Chapter 10E-14) governing community alcohol, drug abuse and mental health funds beginning in the second quarter of the fiscal year. Had no change occurred, petitioner would have no audit pay back liability. But, HRS seeks to apply the new rules to the latter three-fourths of the fiscal year and the old rules to the first quarter. By doing so, difficult allocation and legal problems arise. Secondly, mental health audits involve a confusing set of financial compliance statements and terminology. For example, the term "unallowable expenditures" suggests just that--an improper expenditure by a provider that must be repaid to HRS. But in this case, unallowable expenditures during the first quarter do not create a liability while those in quarters two, three and four do. Moreover, audited statements of compliance prepared to show operating results during the fiscal year are markedly different from conventional financial statements. Indeed, many items on the statements could not be fully explained by even the accountants who used them. Third, HRS chose to apply a new methodology for determining audit liability which is not referred to in any rule or statute. The method basically computes the deficiency in two different ways, and assesses the liability based on the lower of the two figures. Fourth, the provider participates in a number of different programs, some of which are funded by various federal and state grants and programs, and some from private sources. The audit here covers only the community mental health, alcoholism and Bakers Act programs. Consequently, the question arises as to whether any of the disallowed expenditures should be allocated to other grants and programs, and if so, how much. Finally, petitioner has raised the broad issue of whether Medicaid funds are a "fee for service" or a "grant dollar". If it is a fee for service, petitioner does not have to provide 25 percent local matching dollars for its Medicaid fees earned or received during the fiscal year. If it is a grant dollar, petitioner must match those Medicaid dollars received with local funds, or be subject to a pay back liability. If petitioner prevails on this issue, its pay back liability is only reduced by $990. However, resolution of the issue has far greater implications on future audits of petitioner, and other providers, and it presumably has been raised for that purpose. As a result of the audit, HRS proposed to disallow certain expenditures incurred by MHCI during the twelve months ending June 30, 1983. The disputed items include insurance expense, interest expense, certain annual leave expenses of various employees required under the provider's union contract, severance pay given to a former executive director, a small portion of the executive director's salary and benefits, and expenses related to a settlement paid to a discharged executive director. In addition, HRS proposed that Medicaid fees not be deducted from funds requiring local match contributions. In all, the pertinent disputed adjustments amounted to $69,875. They are based upon the field audit and were incorporated into an audit report issued by HRS on October 18, 1985. In determining the potential liability of petitioner, HRS proposed to base any audit liability upon the lower of controllable-unallowable expenditures or any deficiency in expenditures or matching funds. 6/ Therefore, it computed the total unallowed expenditures and the deficiency due to a lack of matching funds, and compared the two. In this case unallowables amounted to $69,875, which was lower than the $178,905 deficiency due to a lack of matching funds. This comparative methodology was developed unknown Tallahassee "supervisors" ostensibly to comply with the changes in Chapter 394 which became effective on October 1, 1982. However, HRS representatives could cite no rule or statute which specifically authorized its use. 7/ Adjustments in Question Computation Of First Quarter Expenses Petitioner questions the manner in which the agency calculated its first quarter expenditures in three respects. The issue arises because a change in HRS rules occurred midway through petitioner's fiscal year. First, petitioner contends that HRS did not follow procedures outlined in an agency memorandum containing instructions on how to make allocations of expenditures incurred under both the new and old rules. Secondly, it contends an interest expense adjustment was erroneously computed. Finally, it asserts that disallowed health insurance expenditures were overstated. Because Chapter 10E-14 was adopted midway through the fiscal year of many providers, and created allocation problems, HRS' audit services administrator, Roy J. McCaslin, issued a memorandum on July 11, 1984 setting forth certain procedures to be followed by HRS auditors when auditing mental health and alcohol programs administered by district mental health boards for fiscal years ending June 30, 1983 and 1984. The memorandum read in relevant part as follows: Audits of mental health and alcohol programs administered by District Mental Health Boards of FYE's 6/30/83 and 6/30/84 will treat liabilities and match as follows: Department funding in excess of total expenditures is a priority liability not subject to pooling of match. Liabilities created by unallowable expenditures when match is not met are priority liabilities not subject to pooling of match. Potential liabilities due to shortage of match may be reduced through the pooling of excess match available within the Board District. The attached examples show the application of these procedures. For FYE 6/30/83, these procedures will apply to the period 10/1/82 through 6/30/83. The first three months will be treated under the old rules. Except for unallowable costs such as interest, we should attempt to simply split expenditures and revenues 3:9. There will be no need to perform any allocations where the provider has sufficient match for the year. Stated in more understandable language, the memorandum basically instructed HRS auditors to apply the 10E-14 procedures to the 1982-83 fiscal year except for the first quarter when Chapter 10E-4 procedures, including the district wide match, would apply. Therefore, it required that nonallowable expenditures relating to the first quarter be removed. 8/ After conducting their audit, HRS auditors proposed to disallow $93,193 in unallowable expenditures. However they reduced this amount by 25 percent to remove that portion which related to the first quarter. This resulted in a pay back liability of $69,895. But under then-existing matching principles for funding the programs, HRS and petitioner participated on a 75:25 basis, with petitioner supplying 25 percent of total expenditures. Therefore, petitioner was under no obligation to repay the portion of unallowable expenditures representing local match. Because HRS failed to remove the local match from unallowable expenditures, that amount should be further reduced by 25 percent. 9/ Under the old rules, interest expense was not allowed. HRS accordingly determined interest expense for the entire fiscal year and removed 25 percent of that amount on the theory this represented the appropriate amount attributable to the first quarter. This was consistent with the McCaslin memorandum which directed that unallowable expenditures related to first quarter activities be removed. However, petitioner has correctly pointed out that the note on which the interest in question accrued pertained wholly to the first quarter. As such, all interest relating to the note was unallowable and should have been removed. Although HRS contended otherwise, its auditor did not know the origin of the interest, and petitioner's testimony that it occurred during the first quarter is more credible and persuasive. Therefore, petitioner's suggestion that the HRS adjustment be further reduced by 75 percent is appropriate, and should be made. 10/ HRS has proposed to disallow certain health insurance costs, and in doing so, assumed that they were incurred ratably over the entire fiscal year. Therefore, it first calculated allowable expenditures for the year, and deducted that amount from total insurance costs. It then applied a 70.6 percent factor to that amount, which represented that portion relating to community mental health programs, and proposes to disallow the resulting amount. But health insurance costs were not incurred ratably over the year and therefore HRS' calculation did not assign the appropriate percentage of health insurance costs to the first quarter. Therefore, an adjustment should be made to remove excess first quarter insurance costs in a manner consistent with the schedule found on page 2 of petitioner's exhibit 10. Allocation Of Expenses To Other Grants And Programs In addition to providing mental health and alcoholism services during the fiscal year in question, petitioner also provided services funded by other federal and state grants and programs. In its audit report, HRS failed to allocate any portion of unallowable expenditures relating to the last three quarters of the fiscal year to other grants and programs even though it had made a similar allocation in an audit of another subcontractor in the same district. HRS did not do so here because, unlike the other subcontractor, when the audit was made its auditors could not separate petitioner's income and expenses between the various grants and programs. Instead, HRS merely identified inpatient and outpatient costs, and assigned the applicable portion of disallowed expenditures to each. This resulted in assigning 100 percent of all disallowed expenditures to the three audited programs. At final hearing petitioner demonstrated without contradiction that 12.2 percent of all general expenditures related to other grants and programs. Therefore, it is appropriate to allocate 12.2 percent of all disallowed expenditures to other grants and programs. Such an adjustment is consistent with paragraph A.4.a. of Attachment A of OMB A-122 which requires that costs be allocable to grants in accordance with the benefits received. Executive Director's Salary Using the previously established policy of comparing provider employee benefits with those granted to career services employees, HRS's then district supervisor of field auditors reviewed the salary of MHCI's executive director. Finding no executive director position listed in the Career Service Plan, he made reference to pay grade 27 of the state career service job classifications, and concluded that an executive director was comparable to that pay grade. He accordingly reduced the executive director's salary to make it compatible with pay grade 27. That individual no longer works at HRS, and his successor, who testified at final hearing, gave no rationale for using that pay grade other than to say it was done by his former supervisor. After criticizing HRS's salary comparison policy, MHCI equated an executive director to a senior management position (administrative services director II) in state government and found no adjustment to salary necessary. It further contended the salary was reasonable given the size of the facility and the responsibilities of the employee. In view of the lack of any basis to utilize pay grade 27, or any other persuasive evidence that the salary was excessive, it is found the executive director's salary was reasonable, and that MHCI should be reimbursed for the entire amount. Severance Pay During the audited fiscal year one of many former executive directors of MHCI (Joseph Amato) terminated employment to take a job at a mental health center in Belle Glade. Amato had worked less than a year in the position when he left MHCI. Even so, the board of directors authorized severance pay to Amato. HRS auditors disallowed this payment on the grounds severance pay is not customary, that it constituted a bonus to the employee, and was unreasonable under the circumstances since Amato had another position waiting for him. Petitioner did not seriously dispute the agency's findings, but simply argued that if Chapter 10E-4 applied, disallowance was improper, or in the alternative, that it should be reduced by 37.2 percent, which factor is derived from the adjustments proposed by petitioner in findings of fact 16 and 19. The undersigned has previously found those adjustments to be appropriate, and accordingly the severance pay adjustment should be reduced by 37.2 percent. Settlement With Former Employee When another former executive director (Patrick Holland) was dismissed by MHCI in mid-1981, Holland filed a $250,000 lawsuit against his former employer. The suit was ultimately settled by the parties for $18,000 on September 15, 1982, and a portion of the settlement was charged to the audited fiscal year expenses. HRS proposes to disallow this expense on the theory there was insufficient documentation given to the field auditors to justify the settlement, and because it was "unreasonable" in amount and was "unnecessary". During the audit itself, only a copy of the court order approving the settlement was given to the auditors. Through testimony MHCI characterized the settlement expense as a very common expenditure for a business and one that is both reasonable and prudent. This was not credibly contradicted. Upon advice of counsel, and having weighed the cost of litigating the suit and its potential exposure, MHCI elected to settle the suit for $18,000. Since the expense was ordinary and necessary, and the result of arms-length bargaining, the expenditure is consistent with OMB Circular A-I 22 and should be allowed. Annual And Sick Leave During the audited fiscal year, many of MHCI's employees were represented by the United Food and Commercial Workers Union. Its annual and sick leave policy for employees was accordingly dictated by a union contract which expired on October 1, 1982. Although the provider had been audited every year since 1971-72, HRS had never before proposed to disallow annual leave expenses since the excess was "immaterial". However, in this audit HRS auditors again compared provider leave benefits with those allowed state employees and proposed to disallow the excess. MHCI contended it was bound by a union contract and had no choice except to honor the agreement. It further contended the contract was an arms- length transaction. However, its present executive director conceded the contract was generous, and that after it expired, he negotiated a new contract with less liberal leave provisions. Therefore, it is found the disallowance of such benefits was appropriate. However, it should be reduced by 37.2 percent to conform with the adjustments approved in findings of fact 16 and 19. Other Adjustments After making the foregoing adjustments, the resulting unallowable expenditures should be multiplied by 75 percent to determine the portion funded by HRS. This is necessary because of the funding ratio of 75:25 prescribed by law. Medicaid Adjustment Most of the testimony at hearing, and much of the post hearing arguments of counsel, were devoted to the Medicaid issue raised by petitioner. If resolved in petitioner's favor, it will reduce its pay back liability by only $990. Obviously, petitioner's chief concern is the effect a favorable ruling will have on future audits. The issue is complicated, but in simplest terms, involves the question of whether Medicaid is a "fee for service" or a "grant dollar". If it is treated as a fee for service, as petitioner urges, then petitioner does not have to provide 25 percent local matching funds for Medicaid dollars received from the State. If it is a grant dollar, as HRS now treats it, petitioner must obtain local matching funds in order to retain its Medicaid reimbursements. 11/ In other words, Medicaid dollars from HRS must be matched by the provider from local funds on a 75:25 basis, or else they are treated for audit purposes an an unallowable expenditure and therefore are subject to repayment. The problem arises whenever the provider cannot obtain sufficient contributions from private sources, or the local county government refuses to appropriate funds to meet the 25 percent local match. The provider is then forced to reimburse HRS for unmatched Medicaid funds previously advanced. It is for this reason that petitioner disputes the manner in which HRS has treated Medicaid funds. By way of background, the State of Florida is a participant in the federal Medicaid Plan. The plan basically provides medical aid for the indigent. Under the plan, which is a formula grant, the federal government pays participating states a percentage share of their expenditures for services rendered. In the case of Florida, it receives 56 cents for every dollar expended in providing services. In order to participate, a state must file an approved plan with the federal Department of Health and Human Services (HHS). In the case of Florida, HRS, through its Medicaid Program Office, has filed a "state plan" with HHS which details the method of reimbursement to local providers such as nursing homes, hospitals and clinics. The plan is considered to be a contract between the state and federal government and provides a broad outline of what the state is required to do. Among other things, the plan provided that the state shall reimburse mental health centers and clinics on a fee for service basis during the fiscal year in question. This was confirmed by testimony from a HHS section chief. HRS acknowledged that the state plan provides that Medicaid be treated as a fee for service, but asserted that this was included in the plan only because HHS requires it for purposes of computing the federal rate of payment. However, there is no prohibition against HRS utilizing a different method for calculating the rate of payment to local providers. In this regard, HHS has never cited HRS for violating the terms of the state plan even though HRS treats Medicaid funds as a grant dollar in the reimbursement process. If such a violation of the plan has indeed occurred, it is the federal government that has the responsibility of making that determination. There is extensive testimony concerning interpretation of HRS rules and general law on the disputed matter, as well as the sub-issues of whether a provider actually "earns" a Medicaid dollar if no match occurs, whether a provider can be over reimbursed if Medicaid is treated as a fee, and whether HRS' position results in a less efficient and more costly delivery of services by the provider. The undersigned has accepted the testimony of the agency to be more credible and persuasive, and it is accordingly found that HRS properly treated Medicaid funds as a grant dollar, and that no adjustment is required.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's audit liability for the fiscal year ending June 30, 1983 be modified from that proposed by respondent consistent with the adjustments approved in the findings of fact portion of this order. DONE AND ORDERED this 23rd day of October, 1986, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of October, 1986.
Findings Of Fact On or about July 1, 1979, the Volusia County Drug Council, Inc. (VCDC) entered into a contract with respondent Department of Health and Rehabilitative Services (DHRS), wherein DHRS agreed to fund VCDC for contract services rendered pursuant to the 409 Drug Program. The contract expired on June 30, 1980. Under the 409 program, DHRS administers federal grant monies to contractors such as VCDC for drug abuse prevention. On or about July 1, 1980, a second contract was entered into by VCDC and DHRS wherein DHRS agreed to fund VCDC for contract services pursuant to the 410 Drug Program. This contract expired on June 30, 1981 and involved federal grant monies for drug abuse treatment. Because of impending insolvency, VCDC merged with petitioner, Human Resources Center, Inc. (HRC) on February 1, 1982. Under the merger agreement, HRC agreed to assume all liabilities of VCDC, including those owed to DHRS. The two contracts were modified from time to time by various addenda which have been received in evidence as petitioner's exhibits 1 and 2. Prior to the merger, representatives of VCDC met with representatives of DHRS seeking advice on the desirability of such a merger. Because of the financial crisis, only three alternatives were available: (a) insolvency, a merger with another entity, and (c) reorganization of the existing organization. The DHRS District 4 alcohol and drug abuse mental health supervisor recommended a merger as being the most feasible alternative and one that was least disruptive to the continued provision of services to the community. Although some members of VCDC's board of directors were under the impression that DHRS would forgive it for all liabilities if a merger occurred, there was no representation by DHRS that such liabilities would be forgiven. A field audit of VCDC was conducted by DHRS field auditors in the latter half of 1981 for both fiscal years, 1980 and 1981. The audit entailed a review of approximately 4,000 items and was completed with great difficulty due to the poor state of the records of VCDC. Because of this, the results of the audit were not finalized until after the merger occurred. Pursuant to Rule 10E-14.03(2), Florida Administrative Code, an exit conference was held on January 21, 1983 by representatives of DHRS ,and HRC for the purpose of discussing the various adjustments. They reflected a liability of $28,305 on the part of VCDC. HRC requested and was given an opportunity to file additional documentation to satisfy and counter the adjustments. However, it merely filed a letter and a schedule on March 18, 1983 which generally stated HRC's position and asked several questions. DHRS did not respond to the letter or the questions. DHRS later formalized its audit report without any changes and noted that HRC was liable to the State in the amount of $28,305. That prompted the instant proceeding. The principal item in dispute for fiscal year 1980 involved an expenditure of $24,417 under a contract with the University of Miami. The contract was executed, allegedly funded and certified forward in fiscal year 1979, but the actual expenditure was not made nor work performed there until fiscal year 1980. The contract term was subsequently extended on September 28, 1979 from June 30 to September 30, 1979 by the Sixth Addendum to the agreement. The funding of the contract was not provided by DHRS to VCDC until September 28, or two days before the contract was to expire. Because of DHRS's extension of the agreement, and tardiness in providing the funds which made it impossible for VCDC to perform during fiscal year 1979, the expenditure was properly recorded in fiscal year 1980. A large number of items were disallowed by DHRS auditors on the ground such expenditures were "undocumented". In so doing, DHRS relied upon OMB Circular A-122 as authority for disallowing the same. That circular was adopted by the Office of Management and Budget and contains cost principles applicable to federal grant dollars. As such, it applies in the case at bar. As is pertinent here, Attachment A, Section A.g. of the Circular provides that in order for costs to be allowable, they must "[b]e adequately documented." HRC submitted various cancelled checks to support the expenditures in question. However, cancelled checks alone are insufficient auditing evidence since invoices must also be provided. Indeed, the petitioner's own expert agreed with this principle. Therefore, the disallowance of items in fiscal years 1980 and 1981 for being "undocumented" was proper. Petitioner has agreed that the adjustments related to health insurance, miscellaneous expenses, and IRS penalties and interest were proper. Respondent has agreed that the "amount received" ($323,430) on the statement of participation for fiscal year 1981 was overstated and should be reduced by $4,796. The record is unclear as to whether the offset used by DHRS for 410 grant expenditures for both fiscal years was in accordance with the formula prescribed in Section 394.76, Florida Statutes. The statement of participation should be restated in accordance with that formula.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's liability to respondent for fiscal years 1980 and 1981 be recalculated in accordance with the specific findings and conclusions herein. All other relief should be DENIED. DONE and ENTERED this 9th day of November, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER, Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of November, 1983. COPIES FURNISHED: Wayne L. Hogenboom, Esquire Post Office Box 4319 South Daytona, Florida 32021 Joseph L. Shields, Esquire Department of Health and Rehabilitative Services Building One, Room 406 1323 Winewood Boulevard Tallahassee, Florida 32301 Alicia Jacobs, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 David H. Pingree, Secretary Department of Health and Rehabilitative Services 1321 Winewood Boulevard Tallahassee, Florida 32301
The Issue The issue in this case is whether Respondent, Florida A & M University Board of Trustees (“Board of Trustees”), improperly reassigned Petitioner, Dale Cassidy, to an alternative position at Florida A & M University (“FAMU” or the “University”); and, if so, whether Petitioner is entitled to damages or other relief.
Findings Of Fact Petitioner is a former employee of the University. He was hired in 2014 as vice president of Finance and Administration/Chief Financial Officer (“vice president of Finance/CFO”). He assumed the position at a starting annual salary of $195,000. In August 2015, he assumed additional duties and his salary was increased to $220,000 in recognition of the additional responsibilities. Petitioner served as vice president of Finance/CFO until March 14, 2017. Respondent is the Board of Trustees for FAMU, a university within the State University System. FAMU is a nationally known, historically black college located in Tallahassee, Florida. On Friday, March 11, 2016, Petitioner was visited in his office at FAMU by two individuals: Jimmy Miller and Santoras Gamble. The two came into his office as emissaries of the then-President of FAMU, Elmira Mangum. Miller was President Mangum’s chief of staff; Gamble was a “special assistant” to the President. The purpose of Miller and Gamble’s visit was to hand-deliver to Petitioner a letter signed by the President notifying Petitioner of a “change-in-assignment.” Specifically, Petitioner was being removed from his position as vice president of Finance/CFO and reassigned to the newly created position of Chief External Compliance and Ethics Officer (referred to herein as the “Ethics Officer”). His annual salary in that position would be reduced to $176,000 and he would receive normal (as opposed to enhanced) fringe benefits.1/ He would no longer be eligible to participate in the Executive Service pay plan which existed for certain high-level administrative and professional (“A&P”) staff. Petitioner’s change in assignment was to take effect the following Monday, March 14, 2016. Petitioner read the letter from President Mangum and dropped it on his desk. The two emissaries asked if he had any questions about the letter. He either told them he did not have any questions or he told them, “[no questions] that you can answer.” Either way, that was the end of the discussion between Petitioner and the two representatives of President Mangum. Miller, Gamble, and Petitioner then left Petitioner’s office and toured Lee Hall, purportedly looking for a new office for Petitioner once he assumed his new role. President Mangum’s office is also located in Lee Hall. Petitioner was ultimately moved to an office in the Foote-Hilyer building. On the day after the reassignment took effect, Jimmy Miller, as President Mangum’s chief of staff, issued a memorandum to the Board of Trustees. The memorandum outlined the changes in senior leadership assignments, including Petitioner’s reassignment to the position of Ethics Officer.2/ Over the next couple of weeks, Petitioner made his displeasure with the reassignment made known to a number of people. He was, however, especially unhappy that news of his reassignment (and presumptive demotion) was reported in the Tallahassee Democrat, the local newspaper. Petitioner moved into his new office on the fourth floor of the Foote-Hilyer building, in a suite of offices occupied by the vice president of Research, within two weeks of receiving the job change notice. On the day before he moved into his new office, Petitioner drafted a memorandum to his personnel file concerning his reassignment. The memo included the statement, “I accept this new role and pledge to perform the related duties . . . to the best of my ability.” On the day he assumed the new position, Petitioner wrote another memo that he asked to be placed in his personnel file. In the memo, Petitioner essentially complained that he had not been given any specific reason for the reassignment from the position of vice president of Finance/CFO. The memo did not mention that President Mangum’s emissaries had asked him if he had questions about the letter or that he had no questions for them. Petitioner did not point to any requirement in University regulations (or otherwise) that the President was required to give him a specific reason for the transfer. In fact, all A&P employees serve at the pleasure of the President and could have their employment terminated at any time, with or without cause. Petitioner received a request from President Mangum for him to meet with her concerning the change in assignment. The meeting was held (albeit on a day other than proposed by the President, pursuant to Petitioner’s request). At the meeting, ultimately held on March 21, 2016, Petitioner was presented with his new employment contract for the Ethics Officer position. He refused to sign the contract, citing his reasons, to wit: 1) He had not been told specific reasons why he could no longer serve as vice president of Finance/CFO; and 2) the President had not shared with him her vision of how she expected him to perform his duties in the new role. By not signing the employment contract, he knew that President Mangum would be within her rights to terminate his employment altogether. Petitioner seems to acknowledged that President Mangum “consulted” him about the new job classification at the meeting. He maintains, however, that it was too late to hold the consultation at that time. He provided no support or rationale for his stance. Petitioner then attempted to negotiate a different job description for the position to which he had been assigned. He asked for more salary, that the position be “interim” in nature, and that he retain his Executive Service benefits. President Mangum informed him that the University’s human relations department had “market priced” the salary and that it would not be changed. There is no evidence the other issues he raised were discussed at that time (or later, for that matter). As noted, Petitioner moved into his new office space on March 14, 2016, and by all appearances, assumed his duties as the Ethics Officer. He nevertheless maintains he did not believe he had ever formally served in that capacity. This testimony contravenes a memo he wrote on the day of his meeting with President Mangum. The memo, written to his personnel file, said, “I currently plan to accept the role [of Ethics Officer].” On June 21, 2016, Petitioner attended a seminar in Orlando relating to ethics and compliance officer regulations. In his travel request form, Petitioner identifies himself as “Officer, Compliance” and affirmed that the seminar constituted official business. His travel was approved and he attended the seminar. At final hearing, Petitioner said he attended the seminar as “an employee of the university” but not as the Ethics Officer. There is no evidentiary support for that contention and it seems unlikely in light of his travel documents. From March 14, 2016, until his resignation from employment, effective December 29, 2016, Petitioner was considered by the University to be its Ethics Officer. He performed duties associated with that position, operated out of the office assigned to that position, and accepted compensation for serving in that position. The University human resources officer (who was called as a witness by Petitioner at final hearing) opined that Petitioner’s actions clearly confirmed that he had accepted the position. A further example: On August 19, 2016, Petitioner issued a report on matters relating to his position as Ethics Officer. He signed the report, noting his position as “Acting Chief Compliance & Ethics Officer.” Petitioner said he signed the report that way because FAMU did not have “acting” administrative employees; they were either permanent or interim. However, Regulation 10.106(1)(b) states, “A&P employees who are appointed to established positions with an appointment status modifier or type, other than Regular (for example, Acting, Temporary or Visiting) are not entitled to a notice of non- reappointment.” Granted that section is referring to non- reappointment and addresses established positions, neither of which is relevant to the instant matter, but it does show that “Acting” is a nomenclature used by FAMU for A&P employees. Petitioner is seeking the difference in pay and benefits he received as Ethics Officer versus what he had been making as vice president of Finance/CFO, for the time period March 14 through December 29, 2016. He asserts that since he never signed the contract to be Ethics Officer, he never officially served in that position. The Personnel Action Request (“PAR”) in Petitioner’s personnel file was signed by President Mangum, the appropriate vice president (Ronica Mathis), and the HR Officer; and it clearly reassigns Petitioner to the position of Ethics Officer, effective March 14, 2017. The PAR, which sets out the employee’s current position, proposed new position, salary and other information, need not be signed by the employee. He or she would only be provided a copy of the PAR if they requested to review their personnel file. When asked what services he performed during his tenure as Ethics Officer, Petitioner responded, “Whatever the President, as my supervisor, asked me to do, which was largely nothing.” Petitioner did not provide further elucidation as to how doing “largely nothing” warranted additional payment from the University. Petitioner maintains he was not properly advised of his proposed reassignment pursuant to relevant University regulations. He cites to Regulation 10.209, Change-In- Assignment of Faculty and Administrative and Professional Employees, which states in pertinent part: The President or President’s designee may for the best interest of the University, at any time, assign a Faculty or Administrative and Professional (A&P) employee to other institutional assignments only after consultation with the employee and the departments or other units affected. Regardless of the change-in-assignment, however, the University is committed to compensate the employee. Despite being asked by the President’s designees (Miller and Gamble) on March 11, 2016, whether he had any questions about the reassignment, Petitioner maintains he had no “consultation” as required by the regulation. Rather, he posits, all he received was “notice” of the reassignment. Petitioner points out that the dictionary definitions of consultation and notice are different and they do not share the same synonyms. From Petitioner’s perspective, consultation would involve some degree of give and take between the President and the employee. Or, as he stated in his PRO filed in this case, the synonym for consultation is “asked to discuss or exchange views” of a matter. Petitioner says that Miller and Gamble asking him if he had any questions was not sufficient “consultation” on the matter. Petitioner provided no other support for his position. Further, Petitioner points out that Richard Givens, vice president of Audit and Compliance, was not notified about Petitioner’s reassignment. Petitioner maintains that Givens’ office was affected by the reassignment and thus should have been consulted as well. Givens stated at final hearing that his office “could have been affected” by the reassignment, but ultimately it had not been affected. Timothy Moore, vice president of Research, maintains that consultation means nothing more than a letter, email, phone call or other means of transmitting the fact to an employee. Clearly, Petitioner was provided notice of the reassignment and had opportunity to consult with the President’s representatives, but he refused to do so. Givens received notice of the reassignment when he read about it in the local newspaper. He does not remember being advised by anyone at FAMU concerning the change before it occurred, but received written notice on the day Petitioner started his new position.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by Respondent, Florida A & M University Board of Trustees, upholding the employment action as to Petitioner, Dale Cassidy, and denying Petitioner’s claim for damages or other relief. DONE AND ENTERED this 13th day of April, 2017, in Tallahassee, Leon County, Florida. S R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 13th day of April, 2017.
The Issue The issue is whether the guidelines set forth in the Specialty Product Administration Field Examination Policy Procedures (SPA Field Exam Policy), Viatical Settlement Provider Examination Manual (VSP Manual), Viatical Settlement Provider Examination Procedures (VSP Exam Procedures), and notice-of- examination letters constitute agency statements defined as rules but not adopted as such, in violation of Section 120.54, Florida Statutes.
Findings Of Fact OIR has the statutory duty to enforce the provisions of the Florida Insurance Code, to investigate any violation of the Florida Insurance Code, and to regulate insurance activity in Florida, including the licensure, examination, and monitoring of insurers and other risk-bearing entities such as VSPs. See § 624.307, Fla. Stat. Petitioner is a foreign corporation, licensed to do business in Florida as a VSP. See § 626.9911(12), Fla. Stat. Therefore, it is subject to OIR's regulation. Section 626.9911(10), Florida Statutes, defines a viatical settlement contract as follows in pertinent part: (10) "Viatical settlement contract" means a written agreement entered into between a viatical settlement provider, or its related provider trust, and a viator. The viatical settlement contract includes an agreement to transfer ownership or change the beneficiary designation of a life insurance policy at a later date, regardless of the date that compensation is paid to the viator. The agreement must establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise, or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider. Section 626.9922, Florida Statutes, provides OIR explicit authority to examine any books and records, without limitation to Florida-only files, of Florida-licensed VSPs. Section 626.9922, Florida Statutes, states as follows in pertinent part: The office or department may examine the business and affairs of any of its respective licensees or applicants for a license. The office or department may order any such licensee or applicant to produce any records, books, files, advertising and solicitation materials, or other information and may take statements under oath to determine whether the licensee or applicant is in violation of the law or is acting contrary to the public interest. The expenses incurred in conducting any examination or investigation must be paid by the licensee or applicant. Examination and investigations must be conducted as provided in chapter 624, and licensees are subject to all applicable provisions of the insurance code. Section 626.9925, Florida Statutes, states as follows: Rules.--The commission may adopt rules to administer this act, including rules establishing standards for evaluating advertising by licensees; rules providing for the collection of data, for disclosures to viators, for the registration of life expectancy providers; and rules defining terms used in this act and prescribing recordkeeping requirements relating to executed viatical settlement contracts. Florida law specifically addresses viatical settlement contracts entered into between a VSP domiciled in Florida and a non-Florida resident in Section 626.99245, Florida Statutes, as follows: A viatical settlement provider who from this state enters into a viatical settlement contract with a viator who is a resident of another state that has enacted statutes or adopted regulations governing viatical settlement contracts shall be governed in the effectuation of the viatical settlement contract by the statutes and regulations of the viator's state of residence. If the state in which the viator is a resident has not enacted statutes or regulations governing viatical settlement agreements, the provider shall give the viator notice that neither Florida nor his or her state regulates the transaction upon which he or she is entering. For transactions in those states, however, the viatical settlement provider is to maintain all records required as if the transactions were executed in Florida. The forms used in those states need not be approved by the office. There is no similar statute that specifically requires a non- domestic VSP, such as Petitioner, to produce records for OIR's review on transactions with viators who are not Florida residents. Nevertheless, OIR reviews out-of-state transactions of licensed VSPs, domestic and non-domestic, to verify compliance with Section 626.99275(1)(d), Florida Statutes, which states as follows: It is unlawful for any person: * * * (d) To knowingly or intentionally facilitate the change of state of residency of a viator to avoid the provisions of this chapter. Except as provided in Section 626.99275(1)(d), Florida Statutes, OIR does not apply Florida law to a foreign VSP's non-Florida transactions. OIR's examiners spend significantly less time reviewing non-Florida transactions, than Florida transactions. The examiners only review non-Florida transactions to determine whether the non-Florida transaction is actually a Florida transaction. Florida transactions, on the other hand, are put through a rigorous review process to ensure compliance with Florida law. There have been instances during an examination of a VSP whereby OIR has discovered a file represented as a Florida file that was actually a non-Florida file. OIR also has discovered instances whereby a file represented to be from another state was later revealed to be a Florida transaction. Alan Buerger, Petitioner's founder, Chief Executive Officer, and Treasurer, provided testimony during deposition and final hearing. During deposition, Mr. Buerger testified there have been instances where Petitioner has misplaced or mislabeled a viator’s state of residence. Section 624.316(1)(c), Florida Statutes, governing examination of insurers, gives the Commission discretion to adopt a specified rule as follows: (c) The office shall examine each insurer according to the accounting procedures designed to fulfill the requirements of generally accepted insurance accounting principles and practices and good internal control and in keeping with generally accepted accounting forms, accounts, records, methods, and practices relating to insurers. To facilitate uniformity in examination, the commission may adopt, by rule, the Market Conduct Examiners Handbook and the Financial Condition Examiners Handbook of the National Association of Insurance Commissioners, 2002, and may adopt subsequent amendments thereto, if the examination methodology remains substantially consistent. The Commission has not exercised its discretion to adopt the NAIC Market Conduct Examiner's Handbook (currently known as the "Market Regulation Handbook") or any other rule relating to procedures or methodologies for market conduct examinations carried out pursuant to Chapter 624, Florida Statutes. Petitioner alleges that the following documents contain statements that should be adopted by a rule: (1) SPA Field Exam Policy, (2) VSP Manual, and (3) VSP Exam Procedures. OIR's examiners receive these documents from their supervisors as guidelines to use in the examination of VSPs. The SPA Field Exam Policy is an internal management memorandum that is a flexible guide used to train examiners. The document does not directly or indirectly require a VSP to comply with any statement contained therein or take any action, and it is not a procedure that is important to the public. It is only directed to OIR's field examiners. The SPA Field Exam Policy includes the following policy statement: "Statement of Policy: Field examination shall be conducted in a professional manner in accordance with statutes governing Specialty Insurers." The SPA Field Exam Policy also states as follows: "Purpose or Objective: To establish policies and procedures governing the travel and conduct of the examinations and the review, issuance and distribution of reports of examinations." Its overall objective "is to verify compliance with the specific statutory requirements governing the type of entity under examination." OIR gives the SPA Field Exam Policy to new and existing examiners to tell them how to conduct an examination. The SPA Field Exam Policy includes the following procedures: (a) scheduling of examination; (b) scope and objective of examination; (c) conduct of examination; (d) working paper standards; (e) draft reports of examination; (f) exit conferences; (g) review and issuance of reports of examination; (h) corrective action plans; and (i) travel and administrative matters. According to the SPA Field Exam Policy, an examiner is required to perform an examination using the standard audit program in effect at the start of the examination unless instructed otherwise. The policy states that the scope of the examination is to correspond to that contained in the engagement letter. The VSP Manual is an internal management memorandum that is directed to OIR's examiners. It is a training tool and guideline for examiners that are conducting examinations of VSPs. The manual includes an outline of items to look for during the examinations. The outline tracks the language in the statute. One purpose of the VSP Manual is to ensure that examiners go through all sections of the statute that relate to VSPs and to make sure they test OIR's issues of concern. The VSP Manual states that "[i]n conducting examinations of VSPs, the examiner will use the current audit program (see Attachment A) and follow the guidance offered in this manual." According to the VSP Manual, examiners should review a list of all in-force policies and select a sample of completed settlement contracts. The sample of in-force contract includes Florida and non-Florida contracts. The VSP Manual directs examiners to review the selected policies to verify compliance with twelve bullet points. The twelve bullet points apply only to Florida policies. Out-of- state policies are reviewed only to determine whether there is a violation of Section 626.99275, Florida Statutes. The examiner may deviate from the guidelines in the VSP Manual without receiving approval from management. The VSP Manual does not confer any requirements upon a VSP. It does not establish a procedure that could be used to impose a penalty on a licensed VSP. The VSP Exam Procedures is an internal management memoranda used as a flexible guide to the examiners on how to conduct an examination in accordance with the statutes. It assists the examiners in determining what steps to perform while doing an examination. However, the examiners are allowed to deviate from the document. The information in the document tracks the language of the statutes. OIR's VSP Exam Procedures is the "current audit program" referenced in the SPA Field Exam Policy and the VSP Manual. The first page of the VSP Exam Procedures sets forth the following objectives: Ensure examinations are conducted in accordance with established policies and procedures (examination procedure step 1), Gain an understanding of the company's operations (steps 2,3 and 5), Verify the viatical settlement provider ("VSP") is complying with the provisions of Chapter 626, Part X, Florida Statutes, and in accordance with the terms of its viatical settlement agreements (steps 4 and 6 through 12), Ensure the company is keeping the Office informed of developments that are of interest to it (steps 4 and 6), and Prepare a Report of Examination available to the public (step 15). In step 8, examiners are instructed to select and review a sample of in-force policies for compliance with twelve bullet points. The twelve-point review would apply only to Florida policies. The VSP Exam Procedures does not direct Petitioner or any other VSP to take any sort of action. It is directed exclusively to OIR's examiners. It does not establish a procedure that could be used to impose a penalty on a VSP. During deposition and final hearing, Mr. Buerger was asked how Petitioner was substantially affected by the OIR’s internal management memoranda. Mr. Buerger testified that the requirement to prepare documents and data on a nationwide—rather than Florida-only basis—had a substantial affect on Petitioner. However, Mr. Buerger could not identify any of Petitioner's private interests that are affected by the SPA Field Exam Policy, the VSP Manual, and the VSP Exam Procedures. Mr. Buerger had not read any of the three documents that Petitioner claims constitute unpromulgated rules. OIR provides courtesy letters to VSPs prior to examinations. OIR uses the engagement letters to advise VSPs about upcoming triennial or market conduct/target examinations and to notify them that an examiner will expect to review all of the company's books and records. Notification of upcoming examinations is not required by statute. The engagement letters do not place any requirements upon VSPs. As early as March 15, 2004, engagement letters have contained requests for certain records. However, requests for information in letters may vary on a case-by-case basis depending on a VSP’s licensure history and business practices. Currently, OIR's financial examiner/analyst supervisor, Janice Davis, drafts the letters. Ms. Davis has prepared the letters using the same format since 2007, but an insurance examiner could draft a letter without supervisory approval. The drafter of the courtesy letters can change the letters at any time without approval from upper management and without internal ramifications from the Office. Ms. Davis's letters request VSPs to have the following records available: Copy of latest audited financial statement, if any. Copy of most recent unaudited financial statements. Chart of accounts. Bank statements along with receipt and disbursement journals for all bank accounts for the past 24 months. Documentation supporting ownership interest in the company, together with the complete corporate record book, minutes, corporate resolutions or similar documentation of organizational meeting and resolutions. Copies of all licenses obtained by the company and status of any pending applications for licensure. Copies of all approved forms, disclosures, and contracts, as well as advertising, sales and investment literature. Copies of all contracts or agreement between the company and all persons (including other entities and investors) related to the conduct of business. Listing of all broker and agent commissions paid during exam scope. All contracts with viators, in which the company participated, in primary or secondary market, whether as provider, broker, originator, agent or purchaser. Database of all policies reviewed or considered for purchase. Insured tracking records and files. Premium payment records and files. All viator files, including but not limited to: applications, offers, contracts or agreements, insurance policies, medical records, etc. All complaint and litigation files (and any resolutions thereto. Because VSPs must pay all expenses associated with examinations, advance listing of the specific records that need to be available facilitates examinations. The letters do not require VSPs to provide documentation in a database or spreadsheet in Excel format. It is an option provided to the company. Ms. Davis' letter to Petitioner dated August 14, 2008, states as follows in relevant part: Additionally, to facilitate an expeditious review of the files, please provide the examiner with a database or spreadsheet file in Excel format including, but not limited to, the following documentation . . . . Please provide the following information on all policies purchased, to date: contract identifier viator name viator State of residence insured name insured State of residence settlement amount original viatical settlement provider broker(s) broker commission(s) date of contract date of closing insurer name policy number policy issue date type of coverage (individual, group, term, whole life, etc.) death benefit life expectancy projected maturity date original premium escrow and current escrow balance current status (active vs. matured, sole vs. available) date of death (if applicable) date death claim filed (if applicable (Emphasis in original). If the licensee is responsible for the payment of premiums, please provide a listing (include: unique viator identifier, insurer, policy number, policy face value, frequency of payment, next payment due date and amount due) for all policies purchased since inception for which premiums are due during the next 12 months. The engagement letters make it clear that OIR expects VSPs to provide information as required by Section 626.9922, Florida Statutes. In giving OIR authority to examine all books and records, the statute does not differentiate between in-state and out-of-state records. If a VSP does not produce documents as requested in the courtesy letters, OIR could take disciplinary action against its license. To date, OIR has not taken any such action against a company for not providing the requested documentation. If the company does not provide a database or Excel spreadsheet, OIR will create a database for the documentation by going though paper files at the VSP's expense. During deposition, Mr. Buerger, Petitioner's corporate representative, was asked if Petitioner preferred not to have a letter that provided notice of an upcoming examination and whether Petitioner would prefer an examiner show up to conduct an examination without prior notice. Mr. Buerger responded: “If we are going to have an exam, we’d like to know when somebody’s coming.” OIR has a pending examination of Petitioner's books and records. OIR expects Petitioner to produce documentation and information listed in the engagement letter, including information relating to out-of-state settlement transactions. In the course of an examination that took place in 2005, OIR advised Petitioner that its license would be suspended summarily under an emergency order if it failed to provide out-of-state information. The requirement to produce in-state and out-of-state records creates a financial burden for Petitioner because the majority of Petitioner's records involve out-of-state transactions. For example, in 2005, Petitioner had approximately 1,760 policies nationwide in the three-year period covered by the examination. Only 13 percent of these policies involved Florida residents. OIR billed Petitioner approximately $33,000 for the examination. Petitioner incurred other expenses associated with the 2005 examination such as the following: (a) legal expenses; internal costs for software engineering, accounting and contract services to prepare the database; and (c) substantial time for staff to coordinate information from various departments to prepare the nationwide information. Petitioner's staff spent six to seven hours of time for each of the approximately 517 hours that OIR billed for the 2005 examination. Finally, the request for out-of-state documents required Petitioner to spend a substantial amount of time and resources to ensure the security of personal financial and health information of viators. OIR currently has issued a second notice of triennial examination to Petitioner. The August 14, 2008, engagement letter requires Petitioner to provide documents and information for its policies on a nationwide basis. For the period covered by the second triennial examination, Petitioner has approximately 4,500 to 4,600 policies. Thus, Petitioner expects a substantial increase in the cost of complying with OIR's document review and data requests from the costs it incurred in 2005.
