The Issue Whether Petitioner, Bans N. Persaud, should be awarded a passing grade on the "Financial Accounting" part of the Certified Public Accounting examination given on May 7-8, 1997.
Findings Of Fact Petitioner, Bans N. Persaud, took the Certified Public Accountant Exam in May of 1997. The Department of Business and Professional Regulation's Bureau of Testing notified Petitioner by Examination Grade Report dated August 4, 1997, that he had earned a score of 75.00 which was a passing grade on three parts of the exam: Audit, Accounting & Reporting, and Law Exam. The report informed him that, "CREDIT ON PASSED PARTS HAS BEEN GRANTED." The report also informed Mr. Persaud that he had failed the Financial Accounting Part of the exam. On that part, he received a score of 62.00 when a minimum passing score was 75. Petitioner, "very certain that [he] passed this examination," filed a letter of appeal with the Department, treated by the Department as request for a formal administrative hearing. During the course of pre-hearing procedures, Mr. Persaud requested that he be allowed to audit the grading of the examination. The Department responded by pointing to Section 455.217(2), Florida Statutes, which states in pertinent part, The board . . . shall make available an examination review procedure for applicants . . . . Unless prohibited or limited by rules implementing security or access guidelines of national examinations, the applicant is entitled to review his examination questions, answers, papers, grades, and grading key . . . and the following language of Rule 61-11.012(6), Florida Administrative Code: In order to preserve the security and integrity of the examination, such candidate shall be permitted to review only the questions and answers missed on the examination. Furthermore, the Department pointed to the following excerpt of Section 119.07(3)(a), a provision of the public records law, Examination questions and answer sheets of examinations administered by a governmental agency for the purpose of licensure, certification, or employment are exempt from the provisions of subsection (1) and s.24(a), Art. I of the State Constitution [provisions which require disclosure of public record]. In light of the response, the ruling was made at hearing that the Department was not required to allow Petitioner to conduct the requested audit. In fact, it was determined that the requested audit was a prohibited act under the force of law through the operation of Rule 61-11.012(6), Florida Administrative Code. Mr. Persaud claimed that without an audit, he would not be able to prove that he had, in fact, passed the examination. The examination was developed by the American Institute of Certified Public Accountants, a national organization of certified public accountants whose function it is to develop, prepare and grade the "in-force CPA exam." (Tr. 74). As such, the exam is considered a "national examination," id., developed by a national organization. About such exams, the following is stated in the rules of the Department of Business and Professional Regulation, Bureau of Testing: If the examination being challenged is an examination developed by or for a national board, council, association or society, (hereinafter referred to as national organization) the Department shall accept the development and grading of such examination without modification. Rule 61-11.012(1), Florida Administrative Code. The examination consisted of six questions, two of which (Questions five and six) were essays. Mr. Persaud received 36 points out of the 60 points available for question one, 2.15 out of five points available for question two, 4.38 out of five available for question three, 3.68 out of five for question four, 8.5 out of ten for question five, and 5.5 out of ten for question six, for a total of 62 points. Mr. Persaud pointed to his background as a person of Indian descent (that is, from the subcontinent of India) who immigrated from Georgetown, Guyana, to the United States where, in 1984, he received U.S. citizenship. Mr. Persaud felt that lack of points on the essay for English composition, grammar and expression were due to prejudice and incorrect because of the excellent state of his English. During the hearing, it was obvious that Mr. Persaud's spoken English, although at times difficult to understand because of pronunciation, is otherwise of high quality. Whatever the state of his written English, however, had he received all points available for the essay questions he still would have failed the Finance and Accounting part of the exam with a score of 68 when a passing score of 75 was necessary. It was therefore incumbent on Mr. Persaud to show more than just that improper grading of English (which he did not show) in the essay portion of the exam led to the failing grade. Mr. Persaud made no attempt to do so. To the contrary, Mr. Persaud did not show that the examination was faulty, or that it was arbitrarily worded, or that the answers to challenged questions were capriciously graded or that he was arbitrarily denied credit through a grading process of the challenged questions devoid of logic or reason. In fact, Mr. Persaud does not appear to have ever identified the questions among those that he missed that were under challenge. He simply insisted that he had passed the exam. Rather than challenge specific questions for which he was not given credit or the grading of the answers to those questions, Mr. Persaud took a different tack. He testified that immediately after passing parts 3 and 4 of the CMA in 1996, he was suddenly bombarded on a daily basis by the noise of planes from the international Airport who were assisted in some way by a Village Inn not far from his house. When he complained to the authorities, they stated that they did not fly anywhere near his house. He complained of other noises and pressures to which he was subject while trying to study and identified them as "[p]lanes at four o'clock," (Tr. 48) and a "12 part air conditioner." Id. He also complained that his computer had been sabotaged and produced documents he had composed where the word "and" appeared in a sentence when his choice, and the more appropriate word, would have been "but." (Tr. 55). After this line of the challenge to the exam had been exhausted at hearing, Mr. Persaud was asked to identify the questions among those he missed that he now challenges as well as any of their answers. Aside from testimony about written English on the Essay questions, Mr. Persaud made no reference to individual questions. He chose to maintain his position that he had passed the test.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that a final order be entered denying Petitioner's challenge to the grade he received on the Financial Accounting part of the CPA Exam administered in May of 1997. DONE AND ORDERED this 16th day of September, 1998, in Tallahassee, Leon County, Florida. DAVID M. MALONEY 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 Filed with the Clerk of the Division of Administrative Hearings this 16th day of September, 1998. COPIES FURNISHED: R. Beth Atchison, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-1007 Bans N. Persaud 310 Ninety-Second Avenue North St. Petersburg, Florida 33702 Lynda L. Goodgame, General Counsel Office of the General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Martha Willis, Executive Director Division of Certified Public Accounting Department of Business and Professional Regulation 4001 Northwest 43rd Street, Suite 16 Gainesville, Florida 32606
The Issue The basic issue in this case is whether the Petitioner's application for CON Number 6220 should be withdrawn from consideration or processed to conclusion on the merits. The disposition of this issue turns on the nature of the financial information submitted in support of the application.
Findings Of Fact The Petitioner, Support Systems Services Corporation (hereinafter "SSSC"), is a Florida corporation. It is a subsidiary of, and is wholly owned by, John Knox Village of Florida, Inc. (hereinafter "JKV"). JKV is a regulated continuing care retirement center. SSSC currently provides home health services to non-Medicare residents of John Knox Village. SSSC seeks to become a Medicare-certified provider of such services. On March 23, 1990, SSSC filed a timely application for a certificate of need ("CON") to establish a Medicare certified home health agency. The SSSC application included audited consolidated financial statements for the years ending December 31, 1988, and December 31, 1989, for an entity described in the audit report as "John Knox Village of Florida, Inc., and Subsidiary." The audited consolidated financial statements submitted as part of the application are consolidated financial statements of both JKV and SSSC. The first paragraph of the notes to the consolidated financial statements includes the following: "The consolidated financial statements include the accounts of the subsidiary. All significant intercompany transactions and balances have been eliminated." The independent financial status of SSSC cannot be determined from the consolidated financial statements submitted with the application. On April 12, 1990, the Department of Health and Rehabilitative Services (hereinafter "DHRS") sent a so-called "omissions letter" to SSSC. The letter described four elements of the application that had been omitted from the application. The omitted element relevant to this case was described in the letter of April 12, 1990, as follows: Audited financial statements were not provided for Support System Services, Inc., (the applicant) in accordance with 381.707(3), Florida Statutes. Please submit the correct audited financial statements for the previous two fiscal years. The letter of April 12, 1990, also included the following information: Section 381.709, Florida Statutes, requires that you respond to the above omissions by May 14, 1990. Failure to provide responses by this date will result in your application being deemed incomplete and administratively withdrawn from further consideration. By letter dated May 7, 1990, SSSC submitted its response to the omissions letter. With regard to the financial statements, SSSC responded, in pertinent part: Section 381.707(3): Pursuant to our conversation of April 30, 1990, please find enclosed the excerpted audited financial statements by Coopers & Lybrand for fiscal year 1988 and 1989. Attached to SSSC's letter of May 7, 1990, were six pages of financial information regarding SSSC. The information consisted of balance sheets for December 31, 1988, and December 31, 1989, statements of revenue and expenses for the years ending December 31, 1988, and December 31, 1989, and consolidating statements of cash flow for the years ending December 31, 1988, and December 31, 1989. The financial information submitted with SSSC's letter of May 7, 1990, did not contain any information from which it could be determined whether those financial statements had been examined by an independent certified public accountant. The financial information submitted with SSSC's letter of May 7, 1990, was not accompanied by an opinion of a certified public accountant as to the fairness with which the financial statements presented financial position, results of operations, and cash flows. The financial information submitted with SSSC's letter of May 7, 1990, was not an audited financial statement. At the time SSSC filed its CON application there were no audited financial statements in existence that addressed only the financial status of SSSC. By letter dated May 15, 1990, DHRS advised SSSC, inter alia: In accordance with the provisions of Sections 381.707 and 381.709(3), Florida Statutes, you were given until May 14, 1990, to respond satisfactorily to the omissions noted in the correspondence from this office dated April 12, 1990, relative to your proposal to initiate a Medicare certified home health agency in Broward County. Because of your failure to provide separate and complete audited financial statements for Support Systems Services Corporation (the applicant and license holder) as required by Section 381.707(3), Florida Statutes, your proposal has been withdrawn from further consideration effective May 14, 1990. The letter of May 15, 1990, also advised SSSC of its right to invoke administrative hearing proceedings, which rights were timely invoked by SSSC. In the February 17, 1989, issue of the Florida Administrative Weekly, the DHRS published a "Notice To All Potential Certificate Of Need Applicants." That notice was for the purpose of informing future applicants regarding the need to include an audited financial statement "of the applicant." The DHRS procedure manual for processing certificate of need applications addresses, in Chapter 11, the need for an audited financial statement "of the applicant." Neither the F.A.W. notice of February 17, 1989, nor Chapter 11 of the manual specifically mention consolidated statements, but both emphasize that the required audited financial statement must be that "of the applicant." The purpose for the requirement of an audited financial statement of the applicant is two-fold. First, where there are competing applicants, it assists the DHRS in making its determination with respect to which applicant is the better candidate for a CON. Second, the audited financial statement provides an objective source of evidence (through the independent opinion of the auditor) as to the applicant's financial condition and capabilities. These purposes are not fulfilled by the financial information submitted by SSSC with its application or in its response to the omissions letter.
Recommendation Based on all of the foregoing, it is RECOMMENDED that the Department of Health and Rehabilitative Services issue a final order in this case deeming the Petitioner's application to be incomplete and withdrawing the application from further consideration. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 3rd day of December 1990. MICHAEL M. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of December, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-4448 The following are my specific rulings on all proposed findings of fact submitted by all parties. Findings proposed by Petitioner: Paragraphs 1, 2, 3, 4, and 5: Accepted in substance. Paragraph 6: First sentence accepted in substance. Second sentence rejected as contrary to the greater weight of the evidence. Paragraph 7: Rejected as subordinate and unnecessary details. Paragraphs 8 and 9: Accepted in substance. Paragraph 10: Rejected as subordinate and unnecessary details. Paragraph 11: First sentence accepted. The remainder is rejected as, for the most part, subordinate and unnecessary details; portions are also contrary to the greater weight of the evidence. Paragraph 12: Rejected as irrelevant. Paragraph 13: Accepted in substance, without the editorial implications. Paragraphs 14 and 15: Accepted in substance. Paragraphs 16, 17, and 18: Rejected as subordinate and unnecessary details. Paragraphs 19 and 20: Rejected as contrary to the greater weight of the evidence. Paragraph 21: Rejected as constituting argument or subordinate and unnecessary details. Paragraph 22: Rejected as constituting argument or conclusions of law, rather than proposed findings. Paragraphs 23, 24, and 25: Rejected as irrelevant. Paragraph 26: Accepted in substance. Paragraph 27: Rejected as contrary to the greater weight of the evidence. Findings proposed by Respondent: Paragraph 1: Rejected as constituting conclusions of law, rather than proposed findings of fact. Paragraphs 2, 3, 4, 5, 6, 7, and 8: Accepted in substance, with some subordinate and unnecessary details omitted. Paragraph 9: Rejected as subordinate and unnecessary details. Paragraph 10: Accepted in substance. Paragraph 11: For the most part rejected as unduly repetitious or as subordinate and unnecessary details. Paragraphs 12, 13, 14, and unnumbered paragraph at end: Rejected as constituting argument, rather than proposed findings of fact. COPIES FURNISHED: Alisa S. Duke, Esquire DYKEMA GOSSETT 790 East Broward Boulevard Suite 400 Fort Lauderdale, Florida 33301 Edward Labrador, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 2727 Mahan Drive Fort Knox Executive Center Tallahassee, Florida 32308 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Linda K. Harris, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Findings Of Fact Pabrey holds certificate number R-0211 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, Pabrey was subject to professional certification require- ments set forth in Chapter 473, Florida Statutes. The records of the Board reflect that Pabrey provided no evidence of the completion of any courses or studies that would give him credit towards the reestablishment of his professional competency in the period between January 1, 1974, and April 2, 1977. On October 15, 1976, Pabrey sat for an examination which was approved by the Board and given to practicing Certified Public Accountants pursuant to applicable law requiring reestablishment of professional competency. Pabrey received a score of 57 out of a possible score of 100. The established passing grade for the examination is 75. On December 31, 1976, Pabrey tendered his check to the Board in the amount of forty dollars ($40.00) as the required license fee. On May 13, 1977, the Board suspended Pabrey's certificate R-0211 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 check was returned to Pabrey by the Board on May 18, 1977, along with a copy of the Administrative Complaint and Order of Suspension. The questions to be answered in the uniform written professional examination administered to Pabrey 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. Pabrey challenges thirty-six of these one hundred questions on the grounds that the approved answers are incorrect and that the answer selected by Pabrey is the proper choice. The questions attacked by Pabrey are numbers 5, 7, 11, 15, 18, 19, 22, 28, 29, 30, 31, 35, 36, 37, 42, 45, 53, 54, 55, 57, 59, 62, 63, 65, 66, 70, 72, 74, 76, 78, 86, 87, 88, 91, 92, and 98. 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 thirty-six questions listed above are consistent with the demands of the Current Authoritative Literature. None are vague, misleading, unfair or improper. Each of Pabrey's answers is contrary to the provisions of the Current Authoritative Literature. Accordingly, the answers selected by Pabrey are not the best answers and were properly graded incorrect on his examination answer sheet.
The Issue Whether Respondents violated the statutes and rules alleged in the Second Amended Administrative Complaint; and, if so, what is the appropriate penalty to be imposed against Respondents.
Findings Of Fact OFR is the state agency charged with administering and enforcing chapter 560, Florida Statutes, including part II related to money services businesses. At all times material hereto, Payservices has been a foreign corporation and part II licensee pursuant to chapter 560, specifically a "money services business," as defined in section 560.102(22), and "money transmitter," as defined in section 560.102(23).4/ At all times material hereto, Mr. Danenberg has been the chief executive officer, compliance officer, and an owner of Payservices. As such, Mr. Danenberg is an "affiliated party" and a "responsible person" as defined in sections 560.103(1) and 560.103(33). Count I Licensees, such as Payservices, are required to annually file a financial audit report within 120 days after the end of the licensee's fiscal year. The financial audit report is prepared by a certified public accountant and is used to demonstrate to OFR that the licensee has the financial health to conduct its business and transmit funds within the State of Florida. Payservices' fiscal year ends December 31st. Respondents were required to provide Payservices' 2016 financial audit report to OFR by no later than May 1, 2017. On December 20, 2017, William C. Morin, Jr., OFR's Chief of the Bureau of Registration, contacted Payservices by email with regard to Payservices' failure to timely file a financial audit report within 120 days after the 2016 fiscal year ended. Mr. Danenberg responded by email that same day, telling Mr. Morin that Payservices' accountant had prepared a financial audit report "many months ago," and that it was his "impression" that it had been uploaded to the REAL system "at some point when we filed the quarterly reports." Mr. Danenberg attached to his December 20, 2017, email what OFR accepted as the financial audit report that same day. Notably, the document indicated it was prepared by a certified public accountant on June 15, 2017, after the May 1, 2017, deadline. In any event, Mr. Morin reviewed the REAL system regarding Payservices and determined there were no problems with the REAL system's ability to accept uploaded documents. Mr. Morin testified that he could see on the REAL system that Payservices successfully uploaded a quarterly report and Security Device Calculation Form on January 26, 2017, which created a transaction number. Mr. Morin also observed that Payservices started to upload its financial audit report, which would create a transaction number, but no financial audit report was actually attached and uploaded to the REAL system on January 26, 2017, under that transaction number. According to Mr. Morin, Payservices may have attempted to start to file a financial audit report on January 26, 2017, but it did not complete the transaction because no financial audit report was attached. At hearing, Mr. Morin acknowledged that: "When I looked at the Financial Audit Report transaction, nothing was attached. And I also know that the functionality of the REAL system will kind of allow for the transaction to be completed and nothing attached." Tr. p. 100. Mr. Morin testified that Mr. Danenberg was cooperative when he was contacted on Decemeber 20, 2017, and submitted the financial audit report. The persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not submit their financial audit report to OFR until December 20, 2017, almost eight months after the May 1, 2017, deadline. Count II Licensees, such as Payservices, are required to annually file Form OFR-560-07, Security Device Calculation Form, by January 31st of each calendar year for the preceding calendar year. The Security Device Calculation Form requires licensees to report to OFR the dollar amount of transactions with Florida consumers. The dollar amount of transactions identified in the form is then utilized by OFR to determine if additional collateral is necessary to protect Florida consumers in the event a claim is made against the collateral for monies that were not properly transmitted by the licensee. Andrew Grosmaire, OFR's Chief of Enforcement in the Division of Consumer Finance, acknowledged at hearing that a licensee has 60 days to amend the face value of its surety bond, should an increase be required, and that at all times material hereto, the value of Payservices' surety bond has been correct for the minimum amount required. Nevertheless, Mr. Morin testified that Respondents did not file Form OFR-560-07, Security Device Calculation Form, until February 10, 2018, ten days late. The persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not file Form OFR-560-07, Security Device Calculation Form, until February 10, 2018, ten days late. Count III Licensees, such as Payservices, are required to update information contained in an initial application form, or any amendment to such application, within 30 days after the change is effective. In Payservices' initial application dated September 25, 2015, Respondents identified Corporate Access, Inc., as its registered agent with an address for service of process at 236 East 6th Avenue, Tallahassee, Florida 32303. According to the Department of State, Division of Corporation's records, on January 10, 2017, Mr. Danenberg was appointed as Payservices' registered agent with a new address for service of process at 300 West Palmetto Park Road, A210, Boca Raton, Florida 33432. Respondents filed an amended license application with OFR on August 28, 2017, which still listed Corporate Access, Inc., as the registered agent for service of process. On February 26, 2018, Respondents amended their registered agent information with the Department of State listing a new address for Mr. Danenberg at 14061 Pacific Pointe Place, No. 204, Delray Beach, Florida 33484. Mr. Morin testified that at no time have Respondents updated their initial application with OFR to reflect Mr. Danenberg as the registered agent for Payservices and his address as the registered agent.5/ Mr. Morin and Mr. Grosmaire testified that the reason a licensee needs to update a change in the registered agent's name and address is so that OFR may effectuate service of process against the licensee. Yet, Mr. Grosmaire acknowledged that OFR has access to the Division of Corporation's records. Nevertheless, the persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not update their initial application with OFR to reflect Mr. Danenberg as the registered agent for Payservices and his address as the registered agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that OFR impose an administrative fine against Respondents in the amount of $6,000. DONE AND ENTERED this 16th day of December, 2019, in Tallahassee, Leon County, Florida. S DARREN A. SCHWARTZ 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 16th day of December, 2019.
The Issue The issue in these consolidated cases is whether disciplinary action should be taken against Respondent's license to practice as a certified public accountant in the state of Florida based upon the alleged violations of Chapter 473, Florida Statutes, set forth in the Amended Administrative Complaints filed by Petitioner.
Findings Of Fact Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: At all times pertinent to these proceedings, Respondent was licensed to practice as a certified public accountant ("CPA") in the state of Florida, having been issued license number AC0001638. Respondent's most recent business address was 224 North Federal Highway, Suite #4, Fort Lauderdale, Florida 33301. Petitioner has presented evidence of a number of Final Orders entered by the Florida Board of Accountancy (the "Board") against Respondent as a result of prior disciplinary action initiated by Petitioner. While the records presented are somewhat confusing and bear several different case numbers, it appears that, as a result of the various cases, Respondent has been on probation for approximately the last 12 years. According to the records presented, the first action taken against Respondent's license is reflected in a Final Order dated December 31, 1981 and filed on February 8, 1982 in DPR Case Number 0000499. That Final Order indicates that a stipulation executed by Respondent "as to facts, law and discipline" was accepted by the Board "with no changes." The stipulation referenced in that Final Order was not included with the exhibits entered into evidence in this proceeding. Thus, the "facts, law and discipline" are not of record in this case. Next, the Board entered a Final Order dated May 11, 1982 and filed on May 17, 1982 in DPR Case Numbers 16369, 16370 and 15399 imposing a $1,000 fine against Respondent and suspending his license for eighteen (18) months. An Amended Final Order dated September 3, 1982 was filed in DPR Case Numbers 16369, 16370 and 15399 on September 15, 1982. That Amended Final Order accepted a signed stipulation dated July 30, 1982 and modified the Final Order entered on May 11, 1982. In lieu of the fine and suspension imposed in the May 11 Final Order, the Amended Final Order placed Respondent on probation for five years with a requirement for a review of Respondent's practice at the end of each year by a CPA selected by the Department at Respondent's expense. The independent certified public accountant was supposed to submit written and oral reports to the Board and the Department regarding Respondent's compliance with the applicable statutes and rules governing the accounting profession. The Stipulation which was incorporated into the Amended Final Order specifically required Respondent to comply "with all provisions of Chapter 455 and 473, Florida Statutes, and the rules promulgated pursuant thereto." The Stipulation provided in part as follows: The Board shall determine at a public hearing whether [Respondent] has complied with Chapters 455 and 473, F.S. and the rules promulgated thereto. The Board may restrict or prohibit [Respondent's] practice of public accountancy during his period of probation as it deems necessary to protect the public safety and welfare. It is clearly understood and agreed that, in the event the DEPARTMENT, the BOARD or the BOARD'S Probable Cause Panel find sufficient evidence to believe reasonable cause exists that [Respondent] has violated any of the conditions of probation as outlined above, a notice of said violation shall be sent to [Respondent], by certified mail, setting forth the nature of the alleged violation and an emergency hearing will be held by the BOARD or the BOARD'S Probable Cause Panel, and upon a find [sic] of probable cause, [Respondent's] probation may be vacated and his license to practice accountancy in the State of Florida, subject to automatic suspension, with further disciplinary proceedings, pursuant to Chapters 455 and 473, F.S. If Respondent has not complied with all the terms and conditions of this joint stipulation and final order of the BOARD, the BOARD shall enter an Order imposing such further terms and conditions of probation pursuant to the statutory powers set forth in 473.323(1)(3), F.S., and shall further cause said matter to be referred to the BOARD'S Probable Cause Panel or such other jurisdictional authority as may be established for purposes of determining probable cause and initiating further administrative and/or judicial action against the Respondent. * * * [Respondent] expressly waives all further procedural steps and expressly waives all rights to seek judicial review of, or to otherwise challenge or contest the validity of a joint stipulation of facts, conclusions of law and imposition of discipline, and the final order of the BOARD incorporating said stipulation. At a meeting on January 21, 1985, the Florida Board of Accountancy reviewed a report from the consultant hired to conduct the inspection and review of Respondent's public accountancy practice in accordance with the terms of the Amended Final Order entered on September 15, 1982. Based upon its review of the consultant's report, the Board imposed an additional condition of probation that all audits, reviews and compilations prepared by Respondent were to be reviewed prior to their issuance by a CPA selected by Respondent at Respondent's expense. This additional aspect of Respondent's probation was incorporated in a Final Order dated February 15, 1985 and entered on February 28, 1985 in DPR Case Number 0016369. In an Administrative Complaint dated December 4, 1985, Petitioner charged Respondent with violating the terms of his probation by issuing compilations without prior review by another CPA. This Administrative Complaint was assigned DPR Case Number 0063064. As reflected in a Final Order dated February 23, 1987 and filed on March 10, 1987 in DPR Case Number 0063064, Respondent's probation was extended until September 1988 based upon a signed Stipulation dated November 16, 1986 which was accepted by the Board during its meeting on January 30, 1987. As a result of the March 10, 1987 Final Order extending Respondent's probation, Respondent was required to continue to obtain review and approval by an independent CPA prior to issuance of any audited financial statements, reviewed financial statements and compiled financial statements and related accountant's reports. In an Administrative Complaint dated December 7, 1989 in DPR Case Number 0063064, Petitioner charged Respondent with violating Section 473.323(1)(g), Florida Statutes, as a result of his issuance of financial statements without prior review by a CPA as required by the previous Final Orders entered against Respondent. The Complaint did not specify any date(s) or specific financial statements involved. At a meeting on February 22, 1990, the Board accepted a Counter- Settlement Stipulation signed by Respondent on March 26, 1990 in Case Number 0063064. The Board entered a Final Order dated April 4, 1990 and filed on April 10, 1990 confirming its acceptance of the Counter-Stipulation. 2/ The Counter- Settlement Stipulation incorporated in the April 1990 Final Order extended Respondent's probation "until the terms of probation have been met." The terms of probation were stated to be: That the Respondent shall not violate the provisions of Chapters 455 or 473, Florida Statutes or the rules promulgated pursuant thereto or the terms and conditions of this joint stipulation. A Department of Professional Regulation Certified Public Accountant consultant shall interview the Respondent's clients to determine the type of work product they are receiving from the Respondent. A Department of Professional Regulation Certified Public Accountant Consultant shall conduct a review of the Respondent's tax practice along with work papers at the Respondent's expense. The Counter-Stipulation further provided that: Respondent and the Department fully understand that this Stipulation, and the subsequent Final Order incorporating same, will not in any way preclude additional proceedings by the Board and/or Department against the Respondent for acts or omissions not specifically detailed in the investigative findings of the Department upon which a finding of probable cause was made. Respondent and the Department expressly waive all further procedural steps, and expressively waives [sic] all rights to seek judicial review of or to otherwise challenge or contest the validity of the joint stipulation and the Final Order of the Board, if said stipulation is accepted by the Board and incorporated in the Final Order.... In early 1991, Marlyn Felsing, a CPA retained as a consultant to conduct a review of Respondent's work pursuant to the terms of his probation, met with Respondent and reviewed financial statements, work papers and various tax returns prepared by Respondent for his clients. Felsing reviewed the financial statements and/or business tax returns for approximately four of Respondent's business clients and reviewed the personal income tax returns for approximately three of Respondent's clients who were business owners. He also reviewed all of the related work papers and discussed his review with Respondent. Felsing prepared a report dated April 23, 1991 detailing several problems and deficiencies he found during his review. A copy of Felsing's report was offered into evidence in this case and he testified at the hearing regarding many of those findings. This evidence was offered in support of the charges in the First DOAH Complaint (DOAH Case Number 92-3421) as amended. Neither Felsing's report nor any of his findings are specifically alleged in the First DOAH Complaint. That Complaint referenced a probation report which "revealed deficiencies which were brought before the Probable Cause Panel, and it was determined that Respondent had violated the terms of the Final Order." As noted in the Preliminary Statement above, the First DOAH Complaint was filed on January 23, 1992. As reflected in a Final Order dated June 19, 1991, and filed on July 1, 1991 in DPR Case Number 0063064, the Board reviewed a probation report during its meeting on May 21, 1991 and approved a settlement stipulation extending the probation imposed by the April 4, 1990 Final Order for a period of one (1) year. The settlement stipulation referenced in this July 1, 1991 Order has not been offered into evidence in this proceeding. As best can be determined from the evidence presented in this case, the Final Order entered in DPR Case Number 0063064 on July 1, 1991, was entered after review of the probation report prepared by Marlyn Felsing on April 23, 1991. Thus, it appears that the Board has already taken final action with respect to the deficiencies found in Felsing's report. During the Board Meeting on May 21, 1991, the Board also considered whether disciplinary action should be taken against Respondent with respect to another Administrative Complaint filed against Respondent on January 7, 1991. That new Administrative Complaint was assigned DPR Case Number 95979 and contained allegations that Respondent "was associated with personal financial statements for Michael Raybeck which did not meet the appropriate standards." As reflected in a Final Order dated June 19, 1991 and filed on July 1, 1991 in DPR Case Number 95979, the Board during its May 21, 1991 meeting accepted a settlement stipulation signed by Respondent on April 15, 1991. In that settlement stipulation, Respondent admitted the allegations in the Administrative Complaint in DPR Case Number 95979. The Settlement Stipulation provided as follows: * * * Stipulated Disposition 2. Respondent's license to practice public accounting is currently on probation in case number 63064. Probation in this case shall run concurrently with the probation in case number 63064. The same CPA consultant who is assigned to review the Respondent's practice in Case Number 63064 shall also review the personal financial statements the Respondent's office prepares. The consultant shall also review the Respondent's records to determine whether he is accepting commissions. These additional terms shall also be paid for by the Respondent. * * * 5. Respondent and the Department fully under- stand that this Stipulation, and the subsequent Final Order incorporating same, will not in any way preclude additional proceedings by the Board and/or Department against the Respondent for acts or omissions not specifically detained [sic] in the investigative findings of the Department upon which a finding of probable cause was made. * * * 8. This Settlement Stipulation is [sic] an admission of any liability on behalf of the Respondent and is being entered into merely to resolve a dispute. It shall not be admissible in any court of law or any subsequent adminis- trative proceeding for any purpose. As reflected in an Order dated September 29, 1992 and filed on September 30, 1992 in DPR Case Number 90-95979, the Board reviewed a probation report during its September 24, 1992 meeting and determined "that the probation imposed upon Respondent by the Final Order dated July 1, 1991, shall be extended and/or modified as follows: extend probation and defer action until Case Number 90-13254 is resolved." Case Number 90-13254 is the Second DOAH Complaint, which was filed on July 6, 1992 (DOAH Case Number 92-5696). The Second DOAH Complaint includes specific allegations against Respondent based upon his purported preparation of misleading financial statements for American British Enterprises, Inc. and Federal Restaurants, Inc. The Second DOAH Complaint The evidence presented in this case established that Respondent provided a number of accounting services to American British Enterprises, Inc. and Federal Restaurants, Inc. The exact nature and scope of the services provided by Respondent are not entirely clear. Respondent's records of his engagement include a balance sheet of Federal Restaurants as of August 17, 1987; Consolidated Financial Statements of American British Enterprises, Inc. as of August 25, 1987; Interim Compiled Financial Statements, American British Enterprises, March 31, 1988; Financial Statements of American British Enterprises, Inc. November 30, 1988; and Financial Statements of American British Enterprises, Inc., December 31, 1988. The Second DOAH Complaint, as amended, alleges that the financial statements referenced in paragraph 19 above were included in due diligence packages for American British Enterprises and were distributed to broker- dealers. No persuasive evidence was presented regarding any such distribution. The Second DOAH Complaint also alleges that "Respondent distributed misleading financial statements to brokers with the purpose of driving up the price of the stock so they could sell shares they controlled at a profit." No evidence was presented to support this allegation. Respondent's counsel suggested that all of the financial statements in question were simply drafts and were not intended to be issued. The evidence established that Respondent executed a letter in connection with the August 17, 1987 Balance Sheet of Federal Restaurants which provided as follows: I have examined the accompanying Balance Sheet of Federal Restaurants, Inc., as of August 17, 1987 whose sole Assets are Cash and [sic] Purchase Deposit. My examination was made in accordance with standards established by the American Institute of Certified Public Accountants and accordingly, included such procedures as I considered necessary in the circumstances. In my opinion the enclosed Balance Sheet represents the financial position of Federal Restaurants, Inc., as of August 17, 1987 in accordance with generally accepted accounting principals. Similarly, Respondent's records include a signed letter to the Board of Directors of American British Enterprises in connection with the August 28, 1987 Consolidated Balance Sheet. That letter provides that Respondent conducted an examination "in accordance with generally accepted auditing standards and accordingly, included such tests of the accounting records and such other auditing procedures as I considered necessary in the circumstances." The letter further opines that the financial statements "present fairly the Consolidated Financial Position...[of the companies] in conformity with generally accepted accounting principals." Respondent's records also include a signed letter regarding both the November, 1988 and December, 1988 Financial Statements for American British Enterprises indicating that Respondent had conducted an audit in accordance with generally accepted auditing standards and that, in his opinion, the financial statements "present fairly, in all material respects, the financial position" of the company as of the stated date. There is no indication on any of these financial statements that they were drafts that were not to be issued. Aside from the letters noted in paragraph 22, the only evidence presented that any of the financial statements listed in paragraph 19 above were issued was the testimony of one of Petitioner's experts who suggested that the statements had to have been issued since they were found in the SEC's files. However, no direct evidence was presented to establish that any investors or potential investors received the financial statements. Moreover, no evidence was presented that any such investors suffered a loss as a result of their reliance upon the financial statements. Certified public accountants 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. Petitioner has presented testimony from two experts regarding the deficiencies in the various financial statements referenced in paragraph 19 above. Many of the problems cited by Petitioner's experts relate to alleged deficiencies in Respondent's work papers. Respondent's expert has challenged some of those alleged deficiencies. Because the work papers have not been offered into evidence, it is impossible to resolve some of the conflicts in the experts' opinions. Nonetheless, the evidence was sufficient to clearly and convincingly demonstrate that Respondent's work was not in accordance with generally accepted accounting principals in several respects and the financial reports identified in paragraph 19 failed to comply with the SSARS in several ways. The August 17, 1987 balance sheet of Federal Restaurants indicates that the only assets of the company were cash and a purchase deposit on a contract to acquire a restaurant. The balance sheet of Federal Restaurants as of August 17, 1987 has no notes to it. Accounting Principals Board ("APB") Opinion 22 provides that a description of all significant accounting policies of the reporting entities should be included as an integral part of the financial statements. In this particular instance, the omission of accounting policies is of minor importance since the balance sheet only reflects two assets: cash being held in escrow and a deposit on a contract to purchase a restaurant (the "Purchase Contract"). As discussed below, none of the financial statements prepared by Respondent disclosed the terms of the Purchase Contract. Furthermore, it appears from other documents in Respondent's records that the corporation is wholly owned by American British Enterprises and/or is jointly controlled, but there is no disclosure of that relationship in the financial statements. These omissions are significant deficiencies which have not been explained. Statement of Auditing Standards ("SAS") 41 requires work papers to support the conclusions of an audit. According to SAS 41, the work papers constitute the principal record of the work that the auditor has done and the conclusions that he has reached concerning significant matters. Respondent's records do not include work papers for the August 17, 1987 audit. SAS 22 provides guidance to an independent auditor making an examination in accordance with generally accepted auditing standards on the considerations and procedures applicable to planning and supervision, including preparing an audit program, obtaining knowledge of the entity's business, and dealing with differences of opinion among firm personnel. While there is conflicting evidence as to what was included in Respondent's work papers, the evidence was clear that Respondent's records for the August 17, 1987 audit do not comply with the requirements of SAS 22, because there was no clearly identified planning memos or audit programs. In fact, there is not even an engagement letter. SAS 19 requires an independent auditor to obtain certain written representations from management as part of an examination made in accordance with generally accepted auditing standards and provides guidance concerning the representations to be obtained. Petitioner's experts contend that Respondent's work papers do not include an appropriate representation letter from management for any of the Financial Statements. Respondent's expert contends there was such a letter with respect to the August 27, 1987 Consolidated Financial Statements. While it is not clear what is contained in the records, it is clear that the records do not clarify conflicting documentation in Respondent's work papers regarding the relationship between Federal Restaurants and American British Enterprises. Furthermore, Respondent's records do not include a clear statement from management regarding the terms of the Purchase Contract and the apparent contingencies involved with that Contract. Consequently, Respondent has failed to comply with SAS 19 and SAS 45 (which addresses related-party disclosures). The August 27, 1987 Consolidated Financial Statements are not properly consolidated in accordance with Accounting Research Bulletin ("ARB") 51. In addition, the consolidated Financial Statements do not include the disclosures required by Accounting Principals Board Opinion 22. Respondent's expert contends that the statements were mistakenly entitled and they should have been captioned as "combined" rather than consolidated financial statements. Even if this after the fact justification is accepted, the statements do not adequately disclose the relationship between the companies. Respondent's expert suggests that the August 25 Consolidated Financial Statement for American British Enterprises and Federal Restaurants reflects a voidable acquisition of Federal Restaurants by American British Enterprises. If this interpretation is accepted, the August 17, 1987 Balance Sheet for Federal Restaurants was not necessarily misleading for failure to disclose its relationship with American British Enterprises. However, the August 25, 1987 Consolidated Financial Statements are incomplete since the transaction is not fully explained. Moreover, there is no disclosure that the companies were apparently under common control or ownership. With respect to the November, 1988 balance sheet of American British Enterprises, the evidence established that there was a discrepancy between the amount reflected in the financial statement for a note receivable which was the major asset of the corporation and the confirmation in the work papers regarding that asset. While this discrepancy may have been due to a discount and/or accrued interest, no explanation is provided. The discrepancy constitutes a violation of SAS 1, Section 331, which addresses the appropriate background information for receivables, and SAS 1, Section 530 which addresses the dating of the auditor's report. If the discrepancy is due to a discount, Respondent failed to comply with APB Opinion 6, paragraph 14 which requires unearned discounts to be shown as a deduction from the related receivable and/or APB Opinion 21, paragraph 16 which provides for the discount or premium to be reported on the balance sheet as a direct deduction from or addition to the face amount of the note. The work papers for the November audit do not include a reconciliation between the 1982 financial statements of the predecessor corporation and the 1987 statements. There is no documentation of efforts to communicate with the prior auditor nor is there any discussion of the consistency of application of accounting principals between the two statements. As a consequence, the statements do not conform with SAS 7 which addresses communications with a prior auditor. The work papers fail to reflect any audit work being performed on the appraisal for the equipment collateralizing the note. In addition, the work papers include a confirmation from the stock transfer agent that doesn't agree with the number of shares reflected on the financial statement. There is no explanation for this discrepancy nor is there any clear indication of the audit work performed. The financial statements also include a footnote referencing a joint venture agreement. Respondent's records do not include any evidence of audit work performed with respect to this venture agreement. The deficiencies noted in paragraph 33 also appear in the December 31, 1988 financial statements for American British Enterprises. Furthermore, Respondent's records do not contain an audit file for this December statement. The November 30, 1988 and the December 31, 1988 audits of American British Enterprises do not contain a segregation between current and noncurrent assets. This deficiency is relatively insignificant since the company was essentially just a holding company. However, it does constitute a violation of ARB 43. Similarly, the cash flows in the financial statements were not presented in the appropriate format or style required by Statement of Financial Accounting Standards 95. However, it appears that all of the necessary information was present. The deficiencies found in the financial statements prepared for Federal Restaurants and American British Enterprises constitute negligence on the Respondent's part and establish a failure to exercise professional competence and due professional care in the performance of accounting services. On or about June 14, 1990, the Securities and Exchange Commission ("SEC") filed a civil lawsuit against Respondent and three other defendants alleging the preparation of false and misleading financial statements for American British Enterprises, Inc. On August 5, 1991, Respondent executed a Consent of Edwin Tunick to the Entry of a Final Judgement of Permanent Injunction in the civil action initiated by the SEC. On September 2, 1991, a Final Judgement of Permanent Injunction as to Edwin Tunick was entered by the United States District Court for the Southern District of Florida (Fort Lauderdale Division) in Case Number 90-6483CIV-ZLOCH. That Final Judgment "permanently restrained and enjoined" Respondent from violating Section 17(a) of the Securities Act, 15 U.S.C. 77q(a) and Section 10(b) of the Exchange Act, 15 U.S.C 78 (j)b and Rule 10b-5 promulgated thereunder. The Final Judgment did not include any specific findings of any violations of the federal securities laws.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Board of Accountancy enter a Final Order dismissing the Administrative Complaint filed in DOAH Case Number 92-3421 (DPR Case Number 91-09729); finding Respondent guilty of violating Sections 473.323(1)(a), (g) and (h), Florida Statutes, and Rules 21A-22.0001, 21A-22.0002, and 21A-22.003, Florida Administrative Code, as alleged in the Administrative Complaint filed in DOAH Case Number 92-5696 (DPR Case Number 90-13254) and dismissing the other charges in that Complaint. As penalty for the violations, Respondent should be fined $1,000, and his license should be suspended for three years. Before resuming practice, Respondent should be required to complete such mandatory continuing education courses as may be mandated by the Board and he should be placed on probation for three (3) years. DONE and ENTERED this 14th day of November, 1994, at Tallahassee, Florida. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of November, 1994.
Findings Of Fact Petitioner is the governmental agency responsible for issuing real estate licenses and regulating licensees on behalf of the state. Respondent, Gregory T. Franklin ("Franklin"), is licensed in the state as a real estate broker; license number 0314387. The last license issued was as a real estate broker, c/o Equity Realty of South Florida, Inc., t/a Equity Realty, 5809 Southeast Federal Highway #200, Stuart, Florida 34997. Respondent, Equity Realty of South Florida, Inc. ("Equity"), is a corporation registered as a real estate broker; license number 0229264. Respondent, Franklin, is the qualifying broker for Respondent, Equity. On or about January 26, 1990, Mr. Robert Warren (the "buyer") entered into a contract to purchase real estate from Ms. J. Zola Miller and Ms. Adrianne Miller Hill (the "sellers"). The buyer gave Respondent an earnest money deposit in the amount of $1,000. On or about April 17, 1990, a second contract was executed by the buyer and sellers. The buyer gave Respondents a second earnest money deposit in the amount of $24,000. Both earnest money deposits were timely deposited to Respondents' escrow account, number 0194101404, Florida Bank, Stuart, Florida. The buyer and sellers had difficulty in closing the contract due to disagreements concerning conditions in the contract. At the buyer's request, Respondents used the earnest money in the amount of $25,606.04 to purchase a certificate of deposit ("CD") in the name Robert Warren Century 21 Equity Realty Escrow Account #050-215-76, located at the First Marine Bank of Florida, Palm City, Florida ("First Marine"). Respondents received the sellers' verbal approval, but not written approval, for the purchase of the CD. Respondents notified the Florida Real Estate Commission (the "Commission") on August 28, 1990, that there were conflicting demands for the $25,000 earnest money deposit. Respondents stated their intent to claim a portion of the earnest money as an earned commission and stated that they were preparing to file an interpleader action to resolve the parties' dispute over the earnest money deposit. The Commission acknowledged Respondents' notification. Negotiations between the buyer and sellers continued until December 12, 1990. At that time, the parties reached an impasse, and each made written requests for the escrow deposit. Respondents maintained the earnest money in the CD until February 8, 1991. On February 8, 1991, Respondents were notified by First Marine that the buyer was attempting to obtain the escrow monies directly from First Marine. Respondents opened a CD in the name of Robert Warren Escrow Account for Equity Realty by Gregory Franklin, Account #200-517-7320, First Union Bank of Florida, Stuart, Florida. When the CD matured on May 15, 1991, the amount of the deposit was $25,989.57. On May 15, 1991, Respondents removed the earnest moneys and invested them in CD #10696954 at Community Savings Bank. On June 19, 1991, Respondents withdrew $500, paid a penalty of $6.21, and closed the CD. The remaining balance was used to open CD #10707413 at Community Savings Bank. On June 21, 1991, Respondents withdrew $600 and paid a penalty in the amount of $8.67. Respondents used half of the $600 withdrawal to pay an attorney to initiate a civil interpleader action without the knowledge or consent of either the buyer or seller. On August 23, 1991, Respondents closed the CD and withdrew the balance. On August 23, 1991, Respondents opened CD 310725647 in the name of Equity Realty, Inc., with the balance at Community Savings Bank. On October 30, 1991, Respondents made a withdrawal in the amount of $175. On November 23, 1991, the CD was renewed. The account was closed on November 27, 1991, with a balance of $25,456.94, and deposited into the court registry. The interpleader action was ultimately resolved pursuant to a settlement agreement between the parties. Respondents obtained the consent of both parties, though not the written consent of both parties, before placing the escrowed funds into an interest bearing account on August 15, 1990. The uncontroverted testimony of Respondent, Franklin, concerning this issue was credible and persuasive. Neither the sellers nor the buyer ever revoked their consent. Respondents deposited the earnest moneys into an interest bearing account without designating who was to receive the interest from such an account without the consent of both parties. Respondents took appropriate action to resolve the conflicting demands made upon the earnest moneys deposited with Respondents but failed to take such action in a timely manner.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondents guilty of placing escrow funds in an interest bearing account without designating who is to receive the interest in violation of Florida Administrative Rule 21V- 14.014. It is further recommended that Petitioner should issue a written reprimand to Respondents and require Respondent, Franklin, during the next 12 months, to document to the satisfaction of Petitioner that he has completed 14 hours of the Brokerage Management Course. RECOMMENDED this 22nd day of January, 1993, in Tallahassee, Florida. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of January, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-3323 Petitioner's Proposed Findings Of Fact. 1.-6. Accepted in Finding 1. 7.-8. Accepted in Finding 2. 9.-11. Accepted in Finding 3. Accepted in Finding 4. Accepted in Finding 5. Accepted in Finding 3. Accepted in Finding 6. Accepted in Finding 7. 17.-20. Accepted in Finding 8. 21.-22. Accepted in Finding 9. 1.-6. Accepted in Finding 1. 7.-8. Accepted in Finding 2. 9.-11. Accepted in Finding 3. 12. Accepted in Finding 4 13. Accepted in Finding 5. 14. Accepted in Finding 3. 15. Accepted in Finding 6. 16. Accepted in Finding 7 17.-20. Accepted in Finding 8. 21.-22. Accepted in Finding 9. 23.-24. Accepted in Findings 10.-11. Respondents' Proposed Findings Of Fact. 23.-24. Accepted in Findings 10.-11. COPIES FURNISHED: Darlene F. Keller, Director Division of Real Estate Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801 Jack McRay, Esquire General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 James H. Gillis, Esquire Department of Professional Regulation, Division of Real Estate Legal Section - Suite N 308 Hurston Building North Tower 400 West Robinson Street Orlando, Florida 32801-1772 Gregory T. Franklin, pro se %Equity Realty of South Fla., Inc. 5809 S.E. Federal Highway, #200 Stuart, Florida 34997 APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-3323 All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
The Issue Whether the proposal Petitioner submitted in response to Respondent's Invitation to Negotiate No. 03-01/02/C was non- responsive.
Findings Of Fact Stipulated Facts In December of 2001, Petitioner timely responded to ITN Number 03-01/02/C issued by the Department. The ITN sought in part, proposals for the provision of advertising and related services in a category entitled "Spanish Language Hispanic Market Advertising." On March 21, 2002, Petitioner was notified that its proposal was deemed non-responsive for the following reason: "Financial information for Publicis USA Holdings, Inc. was not provided (SEC 4.9)." In determining Petitioner non-responsive to the ITN for failing to submit financial statements for Publicis USA Holdings, Inc., the Department assumed that Publicis, Sanchez & Levitan, LLC, was the product of a merger between Sanchez & Levitan, Inc., and Publicis USA Holdings, Inc., and thus was required under the second paragraph of Section 4.9 of the ITN to submit financial statements or federal income tax returns for pre-merger entities. Petitioner is a Delaware limited liability company authorized to do business in Florida. Petitioner was created on March 14, 2002, under the name Sanchez & Levitan, LLC. At the time of its creation, Petitioner was owned 100% by Sanchez & Levitan, Inc., a Florida corporation. On March 16, 2001, Publicis USA Holdings, Inc., a Delaware corporation, acquired a minority ownership of 49% of Petitioner. The ownership of the controlling majority interest of 51% was retained by Sanchez & Levitan, Inc. On June 18, 2001, Petitioner amended its name from Sanchez & Levitan, LLC, to its current name, Publicis Sanchez & Levitan, LLC. Sanchez & Levitan, Inc., continues to own the controlling majority interest of 51%, while Publicis USA Holdings, Inc., continues to own a minority interest of 49%. For the past several years, Petitioner's parent company, Sanchez & Levitan, Inc., a Florida corporation incorporated on October 10, 1985, was a contractor to the department providing Spanish language Hispanic market advertising and related services. Petitioner is a separate company created in 2001 and is not the product of a merger. Petitioner is a subsidiary of its parent company, Sanchez & Levitan, Inc. Because Petitioner was created in March of 2001, and its response to the ITN was submitted on December 5, 2001, it had neither certified financial statements nor federal income tax returns for the past two years. Similarly, Petitioner's parent company, Sanchez & Levitan, Inc., did not have consolidated financial statements for the past two years because Petitioner, the subsidiary, did not exist for 1999 and 2000. In response to Section 4.9 of the ITN, Petitioner submitted federal income tax returns for calendar years 1999 and 2000 for Petitioner's parent company, Sanchez & Levitan, Inc. Findings of Fact Based on the Evidence of the Record While Petitioner's parent company provided Spanish language Hispanic market advertising to the Department for the past several years, that contract was assigned to Petitioner in August 2001. The Department acknowledged that at the time Petitioner submitted its proposal to the ITN, Petitioner was performing essentially identical services in a successful and financially responsible manner. Section 5.2 of the ITN specifies that the evaluation of responses for each category of the ITN will be conducted in two phases. All responsive proposals will be reviewed in Phase I by an evaluation committee. Those proposers scoring 90% or more of the total possible points for Phase I will be invited to participate in Phase II as a finalist. Thus, this case only involves whether or not Petitioner's proposal should be evaluated in Phase I. Section 2.1 of the ITN specifies that the Department has established certain mandatory requirements which must be included as part of any proposal and that the use of the words "shall", "must", or "will" in the ITN indicates a mandatory requirement. The language of the ITN is clear in informing potential proposers that non-compliance with material requirements will have harsh consequences. Section 2.2 of the ITN provides in pertinent part: 2.2 NON-RESPONSIVE PROPOSALS, NON- RESPONSIBLE RESPONDENTS Proposals which do not meet all material requirements of this ITN or which fail to provide all required information, documents, or materials, or are conditional will be rejected as non-responsive. Material requirements of the ITN are those set forth as mandatory, or without which an adequate analysis and comparison of proposals is impossible, or those which affect the competitiveness of proposals or the cost to the State. The Lottery reserves the right to determine which proposals meet the material requirements of the ITN. The section of the ITN which is at issue in this controversy is Section 4.9 and is a material requirement. As amended,1/ it reads in pertinent part as follows: 4.9 Financial Statements Respondents and substantial subcontractors in all categories will be required to submit certified financial statements in conformity with generally accepted accounting principles for the last two years including an auditor's report for both years and any management letters that have been received, or Federal Income tax returns for the past two years if certified financial statements are unavailable. If financial statements are not yet completed for the most recently completed fiscal year, the entity must submit statements for the two (2) prior years and subsequently submit the most recently completed fiscal year statement immediately upon its issuance. If a Respondent does not have certified financial statements, or if applicable, Federal Income tax returns, as a result of a merger of other entities, each pre-merger entity must submit certified financial statements, or if applicable, Federal Income tax returns, for the two most recent years. Certified financial statements or, if applicable, Federal Income Tax returns for the Respondent that are available must be submitted with its proposal, and any that become available during the procurement process must be submitted immediately upon issuance. Certified financial statements must be the result of an audit of the entity's records in accordance with generally accepted auditing standards by a certified public accountant (CPA). The financial statements must include balance sheets, income statements, statements of cash flows, statements of retained earnings, and notes to the financial statements for both years. Respondents or substantial subcontractors who are CMBE's may provide for the two (2) years most recently completed, the information provided to become a certified minority business enterprise (CMBE) including the supporting documentation used to arrive at the financial information. If the CMBE has not been a CMBE for two (2) years, it must provide the information submitted with its current CMBE application and similar information for the preceding year, as well as any other documentation which may substantiate the CMBE's financial responsibility. If a Respondent submits a consolidated financial statement of its parent corporation, the parent corporation must serve as financial guarantor of Respondent. Parent corporations that serve as financial guarantors of the subsidiary firms shall be held accountable for all terms and conditions of the ITN and resulting Contract and shall execute the Contract as guarantor. The Lottery shall hold all firms jointly and severally responsible for carrying out all activities required by the Contract. * * * Financial statements must be submitted with Respondents' proposals. There is nothing in the record to indicate that Petitioner challenged the terms of Section 4.9 of the ITN as being too restrictive at a time it could have done so. David Faulkenberry, Director of Finance and Budget for the Department, was responsible for determining whether or not proposals were in compliance with Section 4.9 of the ITN. He analyzed each submittal received to determine whether the proposer achieved compliance through any of the methods set forth in Section 4.9 of the ITN. When initially reviewing Petitioner's proposal, he assumed that Petitioner had been the product of a merger and applied the language of the second paragraph of Section 4.9. Petitioner was found to be non-responsive because neither the certified financial statements or federal income tax returns of pre-merger entities had been submitted. This conclusion resulted in the Department's posting of the Notice of Responsiveness and Responsibility that Petitioner was non- responsive because, "financial information for Publicis USA Holdings, Inc. was not provided (Sec.4.9)". After the posting of the Notice of Responsiveness and Responsibility, Mr. Faulkenberry became aware that Petitioner was not the product of a merger. As a result, Mr. Faulkenberry then reviewed the financial information submitted by Petitioner to determine whether it was responsive to Section 4.9. He reviewed the submission of Petitioner in light of each avenue of compliance provided in Section 4.9 of the ITN and determined that the proposal was non-responsive: Q As a result of that understanding, did you go back and review the financial information submitted by Publicis to determine whether indeed it was responsive to Section 4.9? A Yes. I looked at what they submitted and examined each of the avenues in Section 4.9 that a respondent could take. And, again, they did not submit--if you look at route 1, the respondent could submit certified financial statements, or, if they--those aren't available, federal income tax returns. They did not do that. So they were not--they did not pass that test. The next test was the merger outlet. We now understand that it was not a merger, so that outlet was closed. We knew they weren't a CMBE contractor respondent, so that paragraph did not apply. And then the last outlet was a respondent could have their parent submit consolidated financial statements. We did not receive consolidated financial statements of the parent, so that outlet or avenue was not met. And based on those outlets they, again, were found non-responsive. The information submitted by Petitioner in response to Section 4.9 of the ITN did not meet any of the avenues specified in that section. The Department applied Section 4.9 of the ITN to all proposers in the same manner as it did to Petitioner.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED: That the Department of the Lottery enter a final order dismissing Petitioner's protest. DONE AND ENTERED this 18th day of October, 2002, in Tallahassee, Leon County, Florida. BARBARA J. STAROS 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 18th day of October, 2002.
The Issue The issue is whether respondent's certified public accountant's license should be disciplined for the alleged violations set forth in the administrative complaint.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Respondent, Flanagan & Baker, P. A. (respondent or firm), was a certified public accounting firm having been issued license number AD 0006179 by petitioner, Department of Professional Regulation, Board of Accountancy (Board). When the events herein occurred, the firm's offices were located at 2831 Ringling Boulevard, Suite E-118, Sarasota, Florida, and John R. Flanagan and Michael L. Baker, both certified public accountants (CPA), were partners in the firm. In addition, Thomas A. Menchinger, also a CPA, was a junior partner. The firm has since been dissolved, and Flanagan and Menchinger have now formed a new firm known as Flanagan & Menchinger, P. A., at the same address. It is noted that Flanagan, Baker and Menchinger are not named as individual respondents in this proceeding, and at hearing respondent's representative assumed that only the firm's license was at risk. Whether license number AD 0006179 is still active or valid is not of record. In 1987, respondent, through its partner, Flanagan, accepted an engagement to prepare the 1986 calendar year financial statements for Ballantroe Condominium Association, Inc. (BCA or association), an owners' association for a fifty unit condominium in Sarasota. Financial statements are a historical accounting of what transpired for an entity during a particular period of time as well as the status of its assets, liabilities and equity on a given date. They are prepared for a variety of persons who rely upon them to see what transpired during that time period. If the statements are not properly prepared, the possibility exists that harm or other problems may accrue to the users of the statements. After the statements were prepared and issued, a unit owner made inquiry with respondent in August 1987 concerning two items in the statements. When he did not receive the desired response, the owner wrote the Department in September 1987 and asked for assistance in obtaining an opinion regarding the two items. Eventually, the matter was turned over to a Board consultant, Marlyn D. Felsing, and he reviewed the statements in question. Although Felsing found no problems with the two items raised by the owner, he noted what he perceived to be other errors or irregularities in the statements. This led to the issuance of an administrative complaint on September 29, 1988 charging the firm of Flanagan & Baker, P. A., with negligence in the preparation of the statements and the violation of three Board rules. That precipitated the instant controversy. The engagement in question represented the first occasion that the firm had performed work for BCA. The association's annual financial statements from its inception in 1980 through calendar year 1983 had been prepared by Touche Ross & Company, a national accounting firm, and for the years 1984 and 1985 by Mercurio and Bridgford, P. A., a Sarasota accounting firm. Some of these statements have been received in evidence. As a part of the Board investigation which culminated in the issuance of a complaint, Felsing visited respondent's firm, interviewed its principals, and reviewed the work papers and financial statements. A formal report reflecting the results of his investigation was prepared in June 1988 and has been received in evidence as petitioner's exhibit 1. In preparing his report, Felsing relied upon a number of authoritative pronouncements in the accounting profession which underlie the concept of generally accepted accounting principles (GAAP). These included various opinions issued by the Accounting Principles Board (APB), Statements on Auditing Standards (SAS) issued by the Auditing Standards Board, and Accounting Research Bulletins (ARB) issued by the Committee on Accounting Procedure. The three organizations are a part of the American Institute of Certified Public Accountants (AICPA). With regard to the concept of materiality, which requires an accountant to consider the relative importance of any event, accounting procedure or change in procedure that affects items on the statements, Felsing did not exclude any matters on the ground they were immaterial. Rather, he included all possible irregularities, regardless of their materiality, on the theory that the probable cause panel (for which the report was initially prepared) should consider all items in the aggregate. According to Felsing, a number of irregularities or errors were found in the financial statements prepared by respondent. These are discussed separately in the findings below. The first alleged deficiency noted by Felsing concerned a change by the association from accelerated to the straight-line method of depreciation. According to APB 20, such a change is considered to be significant, and "the cumulative effect of changing to a new accounting principle on the amount of retained earnings at the beginning of the period in which the change is made should be included in net income of the period of the change." In other words, APB 20 requires the cumulative effect of the change to be reported in the net income of the current year. However, respondent accounted for the change as a prior period adjustment on the statement of members' equity. Respondent justified its treatment of the item on the ground the prior year's statements prepared by Mercurio and Bridgford, P. A., did not show any accumulated depreciation. Thus, respondent asserted it was merely correcting an error because the other firm had not reported depreciation on the balance sheet. In addition, respondent noted that the effect on the balance sheet was only $721, deemed the item to be immaterial, and concluded its treatment of the item was appropriate. However, APB 20 requires the auditor to address the cumulative effect of the change ($2,072) rather than the effect of only the current year ($721), and therefore the cumulative effect should have been reported in current income. By failing to do so, respondent deviated from GAAP. The association had designated several cash accounts as being reserve accounts for deferred maintenance and replacements. Under ARB 43, such accounts must be segregated in the balance sheet from other cash accounts that are available for current operations. This would normally be done in a separate classification called "other assets" so that the user of the statements would be aware of the fact that the reserves were not available for current operations. However, the statements reflect that three such reserve accounts were placed under the classification of current assets. It is noted that these accounts totaled $25,514, $18,550 and $30,927, respectively. While respondent recognized the difference between cash available for current operations and reserves for future use, and the requirements of ARB 43, it noted that the association's minute book reflected the association regularly withdrew funds from the accounts throughout the year to cover current operations. Also, the prior year's statements prepared by Mercurio and Bridgford, P. A., had classified the item in the same fashion. Even so, if respondent was justified in classifying the accounts as current assets, it erred by identifying those accounts as "reserves" under the current assets portion of the balance sheet. Therefore, a deviation from GAAP occurred. One of the most important items in a condominium association's financial statements is how it accounts for the accumulation and expenditure of reserves, an item that is typically significant in terms of amount. The accounting profession does not recommend any one methodology but permits an association to choose from a number of alternative methods. In this regard, APB 22 requires that an entity disclose all significant accounting policies, including the choice made for this item. This disclosure is normally made in the footnotes to the financial statements. In this case, no such disclosure was made. Respondent conceded that it failed to include a footnote but pointed out that when the statements were prepared by Touche Ross & Company, one of the world's largest accounting firms, that firm had made no disclosure on the basis of immateriality. However, reliance on a prior year's statements is not justification for a deviation from GAAP. It is accordingly found that APB 22 is controlling, and footnote disclosure should have been made. The financial statements contain a schedule of sources and uses of cash for the current fiscal year. According to APB 19, all transactions in this schedule should be reported at gross amounts irrespective of whether they utilize cash. However, respondent reported all transactions in the schedule at their net amount. In justifying its action, respondent again relied upon the prior years' statements of Touche Ross & Company and Mercurio and Bridgford, P. A., who reported the transactions in the same manner. It also contended the item was immaterial and that a detailed explanation of the item is found in the statement of members' equity. Despite these mitigating factors, it is found that the schedule was inconsistent with APB 19, and a deviation from GAAP occurred. Felsing's next concern involved the language used by respondent in footnote 6 to the statements. That footnote pertained to the unfunded reserve and read as follows: NOTE VI - UNFUNDED RESERVE As of December 31, 1986, the Association reserves amounted to $103,953 consisting of $18,931 as a reserve for depreciation and statutory reserves of $85,022. The amount funded was $95,422 leaving an unfunded balance of $8,531 due to the reserves from the operating funds. Felsing characterized the footnote as "confusing" because it referred to depreciation as a part of a future reserve for replacements. Felsing maintained the footnote contained inappropriate wording since depreciation relates to assets already placed in service and not to their replacements. Respondent agreed that the footnote, taken by itself, might be confusing. However, it contended that if the user read the preceding footnote, which he should, there would be no possible confusion. That footnote read as follows: NOTE V - RESERVE FOR DEPRECIATION The Association funds the reserves for depreciation through its operating budget. These funds are to be used for the replacement of property and equipment as the need arises. As previously noted, the Association changed its method of computing depreciation to conform with generally accepted accounting principles. As of December 31, 1986, the reserve for depreciation totaled $18,931. According to respondent, the above footnote made clear to the user that the firm was not referring to depreciation as a reserve but rather was setting aside funds equal to depreciation in an effort to have sufficient cash to purchase assets in the future. While the deficiency here is highly technical and minute in nature, it is found that the footnote is not sufficiently clear and that the user might be confused. Felsing next observed that the footnotes did not disclose how the association accounted for lawn equipment or other capital assets. According to APB 22, such a choice is considered a significant accounting policy and, whatever policy is utilized, the same must be disclosed in the footnotes to the statements. In response, Flanagan pointed to a footnote in Note I of the statements which read in part as follows: Property and Equipment and Depreciation Property and equipment capitalized by the Association is stated at cost. During 1986, the Association changed its method of depreciation from the accelerated cost recovery method to a straight line method in which property and equipment is depreciated over its estimated useful life in accordance with generally accepted accounting principles. According to respondent, this footnote was adequate in terms of explaining the method of depreciation. Also, a number of other statements were introduced into evidence to show that other entities routinely used a corresponding footnote. Flanagan's testimony is accepted as being the most credible and persuasive evidence on this issue, and the footnote is accordingly deemed to be adequate disclosure on this policy. In the statement of members' equity, there is an item in the amount of $1,730 described as "capitalization of lawn equipment expensed in previous year." Although Felsing did not question the amount shown, he faulted respondent for not properly describing whether the item was a change in accounting principle or an error correction. According to APB 20, the disclosure of an error correction is required in the period in which the error was discovered and corrected. Although respondent considered the footnote described in finding of fact 11 to constitute adequate disclosure, it is found that such disclosure falls short of the requirements of APB 20. Work papers are records and documentary evidence kept by the accountant of the procedures applied, tests performed, information obtained and pertinent conclusions reached in the engagement. They serve the purpose of documenting the work performed and provide verification for the accountant. In addition, another important, required tool is the audit program, a written plan for how the auditor intends to perform the audit. The plan serves the purpose of documenting the accountant's mental process of deciding what procedures are necessary to perform the audit and to communicate those procedures to the persons actually conducting the audit. The audit plan should include in reasonable detail all of the audit procedures necessary for the accountant to perform the audit and express an opinion on the financial statements. Although a variety of checklists have been prepared by the AICPA and other organizations, each audit program must be tailored to fit the needs of a particular client. Felsing noted what he believed to be a number of deficiencies with respect to respondent's work papers, audit program, and engagement planning. In reaching that conclusion, Felsing relied upon various SAS pronouncements which govern that phase of an auditor's work. Those pronouncements have been received in evidence as petitioner's exhibits 7-14. Although the work papers themselves were not introduced into evidence, Felsing stated that his review of them reflected they were "deficient" in several respects. For example, he did not find a planning memorandum, time budget, checklist or other evidence that planning procedures were performed as required by SAS 22. In this regard, Flanagan corroborated the fact that no formal planning memorandum to the file was prepared. Although respondent's audit program was written for a condominium association, Felsing found it "extremely brief" and was not tailored to this particular client. He opined that such a program should have included reasonable detail of all audit procedures necessary to accomplish the audit and to express an opinion on the financial statements. In particular, it was noted that some required procedures were not on the list while some procedures actually used by respondent were not included. Through conversations with respondent's members, Felsing learned that much of the audit work was performed by Menchinger, the junior partner in the firm. In addition, "a few" other work papers were prepared by an unknown assistant. Although Menchinger reviewed all work performed by the assistant, Felsing found no evidence that the papers were reviewed by the supervising partner, Flanagan. Such review, which is a required step in the audit process, is generally evidenced by the supervising partner placing check marks or initials on the individual work papers. Felsing noted further that the decision to rely on the testing of internal controls was not documented in the work papers by respondent. He added that the amount of time budgeted by respondent for this engagement (around thirty hours) was inadequate given the fact that it was the first year the firm had prepared this client's statements. Finally, Felsing concluded that the violations were not peculiar to a condominium association but were applicable to all enterprises. Respondent pointed out that the association was a small client with less than five hundred line items, and the audit program and engagement planning were planned within that context. Respondent introduced into evidence its audit program which contained the steps taken by the firm in planning for the engagement. Testimony that all steps contained therein were followed was not contradicted. Similarly, Flanagan testified without contradiction that he reviewed all work performed by Menchinger but did not evidence his review with tick marks on each page. According to Flanagan, on a small audit such as this, he considered the signing of the tax return and opinion letter evidence that he had reviewed the work papers. However, Flanagan acknowledged that someone examining the papers would not know they had been reviewed by the supervising partner. Based upon the above findings, and after reconciling the conflicting testimony, it is found that respondent violated GAAP by failing to have a planning memorandum, time budget, and evidence of testing of internal controls within its work papers. All other alleged violations are found to without merit. Respondent has continued to represent the association since the Board issued its complaint. Indeed, Flanagan noted that the association is pleased with the firm's work, and this was corroborated by a letter from the association's board of directors attesting to its satisfaction with the firm. There was no evidence that the association or any other third party user of the statements was injured or misled by relying on the statements.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of the violations discussed in the conclusions of law portion of this Recommended Order, and that license number AD 0006179 be given a reprimand. All other charges should be dismissed. DONE and ENTERED this 30th day of October 1989, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of October 1989.
Findings Of Fact The parties Petitioner, Department of Professional Regulation, Division of Real Estate (Department), is a state government licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular Section 20.30, Florida Statutes, Chapters 120, 455, and 475, Florida Statutes, and the rules promulgated pursuant thereto. Respondent, Linda B. Schumacher, is now and was at all times material hereto a licensed real estate broker in the State of Florida, having been issued license number 0171642 in accordance with Chapter 475, Florida Statutes. The last license issued was as a broker, c/o Linda B. Schumacher, Inc., 155 Worth Avenue, Palm Beach, Florida 33480. Respondent, Linda B. Schumacher, Inc., is now and was at all times material hereto a corporation registered as a real estate broker in the State of Florida having been issued license number 0237256 in accordance with Chapter 475, Florida Statutes. The last license issued was at the address of 155 Worth Avenue, Palm Beach, Florida 33480. At all times material hereto, respondent Linda B. Schumacher was licensed and operating as a qualifying broker and officer for Respondent Linda B. Schumacher, Inc. The Brokerage While respondent, Linda B. Schumacher (Schumacher) was a qualifying broker and officer of respondent, Linda B. Schumacher, Inc. (the "Brokerage"), at all times material hereto, the proof also demonstrates that one Marion Jones (Jones), a licensed real estate broker in the State of Florida, was also an officer of the Brokerage and duly licensed to manage its affairs during times pertinent to this proceeding. Regarding Jones' involvement in the Brokerage, the proof demonstrates that in 1988, Schumacher had accepted a proposal of marriage from one Peter Widner, and contemplated moving to Wyoming, the state of Mr. Widner's residence, and selling the Brokerage. Consequently, in or about October 1988, with the mutual expectation that acceptable terms could be negotiated with Jones for the purchase of the Brokerage, Schumacher employed Jones to operate and manage the Brokerage. Incident to such employment, Jones acquired signature authority for the escrow and operating accounts of the Brokerage, and operated the Brokerage on a daily basis from November 1988 until March 13, 1989. From November 1988 to mid-January 1989, Schumacher resided in Wyoming with her finance and from mid-January 1989, to March 13, 1989, following the breach of her engagement, she resided in Miami, Florida. During such periods, Schumacher occasionally visited the Brokerage, but the day-to-day responsibility for its operation was reposed in Jones. On March 13, 1989, Schumacher terminated discussions with Jones concerning the proposed sale of the Brokerage, and also terminated Jones' employment as manager of the Brokerage. The predicate for such action was Schumacher's belief that Jones was diverting staff and customers of the Brokerage to her own business, and the consequent belief that Jones no longer intended to purchase the Brokerage. At the time of Jones' termination, she claimed that Schumacher owed her approximately $4,000.00 for management fees, as well as $4,000.00 for the deposit she paid Schumacher toward the purchase of the Brokerage. Schumacher disputed such sums in light of the matters set forth in paragraph 8, supra. Schumacher, concerned with the possibility that Jones might attempt to access the escrow account of the Brokerage to satisfy her claims against Schumacher, closed the escrow account of the Brokerage at Florida National Bank on March 13, 1989, and contemporaneously opened a new escrow account at that institution, over which she alone had signature authority. All funds that existed in the old escrow account were deposited into the new account. 1/ When Schumacher changed escrow accounts, a number of checks were outstanding on the old account. To address such problem, Schumacher promptly drew replacement checks on the new account, and promptly forwarded such checks to most of the affected persons. Here, there is no persuasive proof that any such person was seriously inconvenienced by the change in escrow accounts or failed to receive the monies due them. 2/ While all outstanding checks were replaced with reasonable promptness, the Department points to the return of three checks drawn on the old account as evidencing some impropriety. In this regard, the proof demonstrates that on March 3, 1989, Jones drew three checks on the old escrow account, two payable to Michael Gretschel (Gretschel) in the sum of $102.50 and $57.84, and one payable to Janet Lebedeker (Lebedeker) in the sum of $341.71. 3/ Lebedeker deposited her check on March 13, 1989, when she knew that escrow account had been closed, and Gretschel deposited his checks on March 15, 1989. These checks were returned by the bank because of the closure of that account. Such checks were, however, replaced with reasonable promptness and, under the circumstances of this case, no impropriety is found in Schumacher's change of escrow accounts, and the consequent return by the bank of these checks. The Department's attempt to audit the Brokerage accounts On Friday, March 24, 1989, the Department's investigator, Sharon Thayer (Thayer) contacted Schumacher to schedule an audit of the Brokerage's escrow accounts. At that time, Schumacher agreed to make her books and records available during regular business hours on Monday, March 27, 1989. Later, on March 24, 1989, Schumacher, apparently uneasy least the escrow records not be in order following Jones' departure, contacted her attorney, G. Michael Keenan (Keenan). Keenan telephoned Thayer and told her that she had no authority to inspect the subject records. In response, Thayer directed Keenan to the legal authority for such inspection, and Keenan thereupon accused her of practicing law without a license, threatened to report her to the Bar Association, told her that she had no authority to review such records on Monday, and that she could see such records "when we're ready to let you see them." 4/ Notwithstanding the advice given the previous Friday by Schumacher's attorney that the records would not be produced, Thayer, along with another investigator, presented herself at the Brokerage at approximately 9:00 a.m. and again at 2:30 p.m., March 27, 1989, to conduct the audit. On each occasion the office was locked, and the person in attendance denied admission. On April 5, 1989, the Department, having been denied access to the records of the Brokerage, issued a Subpoena Duces Tecum to Florida National Bank to obtain copies of any trust account records that it might possess. Such subpoena was served by Thayer on April 10, 1989. 5/ By letter of May 8, 1989, Florida National Bank's counsel notified Thayer that it was customary to advise a customer of a request to produce bank records, and that unless she could provide the bank with legal authority to the contrary, the records could not be produced absent such notification. Apparently not receiving any authority to the contrary, Florida National Bank advised Schumacher of the pending subpoena and by letter of May 12, 1989, her counsel advised Thayer that: By means of this letter, please be advised that Linda B. Schumacher, Inc. and Linda B. Schumacher Real Estate, Inc. hereby object to the service of the Subpoena Duces Tecum on Florida National Bank and to the request that monthly bank statements for September, 1988 through March, 1989 on any and all trust accounts and escrow accounts in the name of Linda B. Schumacher, Inc. and/or Linda B. Schumacher Real Estate, Inc. be produced. Further, the undersigned on behalf of Linda B. Schumacher, Inc. and Linda B. Schumacher Real Estate, Inc. have advised Florida National Bank of their objection and directed Florida National Bank not to produce any said documents to the Department of Professional Regulation. As in the past, Linda B. Schumacher, Inc. and Linda B. Schumacher Real Estate, Inc. remain ready, willing and able to permit the Department of Professional Regulation to review their monthly bank statements for September, 1988 through March, 1989 for any and all trust accounts and escrow accounts upon being provided reasonable notice as to the time and date the Department wishes to make the inspection. In the event you wish to make the necessary arrangements to schedule an inspection, please do not hesitate to contact the undersigned immediately inasmuch as my clients remain willing to cooperate with the Department of Professional Regulation. While her counsel's letter of May 12, 1989, references Schumacher's past willingness to make her records available on "reasonable notice," the proof in this case is to the contrary. Rather, the proof supports the conclusion that Schumacher wanted to delay any audit until she could have the records reviewed to insure that they were in order following Jones' departure. 6/ As to her then willingness to produce the records, the proof supports the conclusion that she was then amenable to producing her records; however, the Department delayed contacting her until after May 31, 1989, when Schumacher withdrew her objection to the subpoena served on First National Bank. The audit The First National Bank records were delivered to Thayer on June 2, 1989. Between June 6 and 20, 1989, Thayer audited, with Schumacher's cooperation, the books and records at the Brokerage. The audit of such escrow accounts identified three transactions which the Department contends were improper: a deposit of $2,000.00 made by Val Gabaldon on November 17, 1988, which the Department asserts was not timely returned; a security deposit of $1,500.00 made by Mr. and Mrs. Marvin Silverman on December 2, 1988, which the Department asserts was not timely returned; and, a withdrawal of $50.00 by Schumacher on May 5, 1989, from the escrow account for petty cash. Regarding the Val Gabaldon (Gabaldon) deposit, the proof demonstrates that on November 17, 1988, Gabaldon placed in escrow with the Brokerage a $2,000.00 deposit toward the purchase of a unit at the Palm Beach Hotel. On January 17, 1989, and again on January 25, 1989, Lebedeker, an associate employed by the Brokerage, executed "escrow request forms" seeking the return of the deposit to Gabaldon ostensibly because the contact had been cancelled since financing had not been secured. However, such forms also reflect that on February 2, 1989, Jones, who was then managing the Brokerage, instructed that the deposit not be returned to Gabaldon. At hearing, the Gabaldon purchase agreement was not offered in evidence, Gabaldon did not testify, and no explanation was offered as to why Jones felt it necessary not to disperse the deposit as requested by Lebedeker. Accordingly, there was no competent proof as to the terms of the purchase agreement, when or how it was cancelled, and when the deposit became due to be returned to Gabaldon. The proof does, however, demonstrate that on March 15, 1989, two days after Schumacher regained control of the Brokerage and changed the escrow accounts, that she issued a check to Gabaldon for the return of his deposit, but because the Brokerage had the wrong address for Gabaldon he did not receive his deposit until April 25, 1989. Here, there was no complaint by Gabaldon that his deposit was not returned in accordance with the terms of his purchase agreement, and no impropriety shown regarding Schumacher's handling of this deposit. Regarding the deposit of Mr. and Mrs. Marvin Silverman (Silverman), the proof demonstrates that on or about December 2, 1988, they placed in escrow with the Brokerage a $1,500.00 security deposit under a "memorandum to enter into a lease" of property from Martin and Linda Perlmutter (Perlmutter). That memorandum agreement provided: 7. THIS MEMORANDUM SHALL NOT HAVE THE EFFECT OF A LEASE. THE PARTIES' RIGHTS HEREUNDER ARE CONTINGENT ON (A) FINALIZATION AND EXECUTION OF THE LEASE AGREEMENT WHICH IS CONTEMPLATED BY THIS MEMORANDUM, AND (B) IF APPLICABLE, APPROVAL BY THE CONDOMINIUM BOARD (ASSOCIATION). At hearing, the Department failed to offer the lease agreement ultimately executed by the parties, and consequently the terms of that agreement are not of record. The proof does, however, demonstrate that on March 27, 1989, Perlmutter wrote a letter to Schumacher advising her that the Silvermans had fulfilled their lease agreement, and requesting that their security deposit of $1,500.00 be released to them in full. On May 11, 1989, Schumacher returned the Silvermans' deposit. At hearing, no proof was offered as to when the Perlmutter letter was received by the Brokerage (it was apparently mailed from Nashville, Tennessee), or the reason for the delay, if any, in refunding the deposit. As importantly, neither the Perlmutters nor the Silvermans offered any testimony in these proceedings, and the lease agreement was not offered in evidence. Consequently, there is no competent proof that the deposit was not returned in accordance with the terms of the parties' agreement. Regarding the withdrawal of $50.00 by Schumacher on May 5, 1989, from the escrow account for petty cash, the proof demonstrates that such transaction was inadvertent on her part, in that it should have been withdrawn from her operating account, and that upon such transaction being pointed out to her during the audit of June 6, 1989, by Thayer that Schumacher promptly replaced such funds. Previous disciplinary proceedings Here, there was no suggestion or proof that Schumacher or the Brokerage had previously been the subject of any prior disciplinary proceeding.
Recommendation Based on the foregoing findings fact and conclusions of law, it is RECOMMENDED that a final order be entered finding respondents guilty of having violated the provisions of Section 475.25(1)(e), Florida Statutes, for having failed to produce their records as required by Rule 21V-14.12, Florida Administrative Code, that respondents be reprimanded for such failure, and that all other charges be dismissed. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 9th day of September 1991. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of September 1991.
Findings Of Fact Basic is a general contractor specializing in asphalt resurfacing and related construction activities. Its principal offices are in Orlando, Florida. Basic is not currently qualified to bid on construction projects to be let by DOT. Its certificate of qualification expired on June 30, 1984. Until the expiration, Basic had been continuously qualified by DOT to bid on such jobs since 1975. During the time it was qualified, Basic successfully performed approximately fifty state jobs. In early September, 1984, Basic received its annual audited financial statement from its accountants, Fox and Company (Fox), which reflected Basic's financial condition for the year ending on March 31, 1984. On or about September 14, 1984, Basic filed its application for renewal of its certificate of qualification. With the application, Basic filed the audited financial statement prepared by Fox and Company and an additional financial statement prepared by Basic's new accountants, Colley, Trumbower and Howell (Colley). This Colley financial statement was merely a compilation and covered the period April 1, 1984 through June 30, 1984. The audited statement of Fox contained the opinion of a certified public accountant; the compilation of Colley contained no opinion. The audited statement preceded the date of filing by approximately 170 days. DOT reviewed the application and denied it on the ground that the financial statements submitted were of a date more than 120 days prior to the application DOT did not perform a fiscal analysis or further review of the application after it determined that the application did not contain what it believed to be the necessary financial statements. In response to the denial, Basic had Colley prepare an additional financial statement which reflected its financial condition through September 30, 1984. This financial statement was a review and did not contain an opinion of a certified public accountant (See transcript p 47, lines 22 and 23). DOT declined to accept this review. An "audited" financial statement is a financial statement that has been subjected to full audit scrutiny and verification. A compiled financial statement is merely a compilation of financial information as supplied by the client. A reviewed financial statement consists of inquiries and compilation of financial data with application of analytical procedures and is less in scope than an audited financial statement. An "opinion" is a term of art in the field of accounting and refers to an opinion that the basic financial information taken as a whole is fairly stated in all material respects and is in accordance with generally accepted accounting principals. A qualified opinion is subject to the same definition and level of scrutiny, but is qualified as it relates to one or more items in the financial statement. DOT only accepts audited financial statements which express an opinion. The financial information in the reviewed financial statement, when read in conjunction with the audited financial statement reflects that Basic is in an adequate financial situation with positive current rates and a substantial adjusted net worth. Basic is making a profit.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered denying the application of Basic for a certificate of qualification. DONE and ORDERED this 8th day of February, 1985, in Tallahassee, Florida. DIANE K. KIESLING 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 February, 1985.
