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
The Issue Whether Respondent Corporation, Southern Insight, Inc., failed to secure payment of workers' compensation coverage as required by Chapter 440, Florida Statutes, and the Florida Insurance Code, and if so, whether the Department of Financial Services, Division of Workers' Compensation (Department) has lawfully assessed the penalty against Respondent in the amount of $27,805.11.
Findings Of Fact The Department is the state agency responsible for enforcing Section 440.107, Florida Statutes, which requires that employers secure the payment of workers' compensation coverage for their employees and otherwise comply with the workers' compensation coverage requirements under Chapter 440, Florida Statutes. Respondent has been a Florida corporation, actively involved in the construction industry providing framing services, during the period of February 16, 2006, through August 17, 2007 (assessed penalty period). At all times material, Respondent has been an "employer," as defined by Chapter 440, Florida Statutes. At all times material, John Cauley has been Respondent's president and sole employee. At no time material did Respondent obtain workers' compensation insurance coverage for John Cauley. On August 17, 2007, Department Investigator Lynise Beckstrom conducted a random workers' compensation compliance check of a new home construction site in Palm Coast, Florida. At that time, Ms. Beckstrom observed four men, including John Cauley, framing a new home. Utilizing the Department's Compliance and Coverage Automated System (CCAS) database, which contains all workers' compensation insurance policy information from the carrier to an insured and which further lists all the workers' compensation exemptions in the State of Florida, Ms. Beckstrom determined that for the assessed penalty period, Respondent did not have in effect either a State of Florida workers' compensation insurance policy or a valid, current exemption for its employee, John Cauley. During the assessed penalty period, Respondent paid remuneration to its employee, John Cauley. John Cauley admitted that during the assessed penalty period he was not an independent contractor, as that term is defined in Section 440.02(15)(d)(1), Florida Statutes. Section 440.05, Florida Statutes, allows a corporate officer to apply for a construction certificate of exemption from workers' compensation benefits. Only the named individual on the application is exempt from workers' compensation insurance coverage. On or about April 15, 2006, John Cauley, as Respondent's President, applied for such an exemption. That application was denied. Mr. Cauley received neither an exemption card nor a denial of exemption from the Department. During the assessed penalty period, Respondent was a subcontractor of the contractor, Mass Builders, Inc. 9. Sections 440.107(3) and 440.107(7)(a), Florida Statutes, authorize the Department to issue stop-work orders to employers unable to provide proof of workers' compensation coverage, including proof of a current, valid workers' compensation exemption. Based on the lack of workers' compensation coverage and lack of a current, valid workers' compensation exemption for Respondent corporation's employee, John Cauley, the Department served on Respondent a stop-work order on August 17, 2007. The stop-work order ordered Respondent to cease all business operation for all worksites in the State of Florida. Immediately upon notification by Investigator Beckstrom of his lack of valid exemption, Mr. Cauley submitted a new exemption application, which was granted, bringing Respondent corporation into compliance. However, in order to have the stop-work order lifted so that he can work as a corporation again, Mr. Cauley must pay a percentage of the penalty assessment and enter into a payment plan with the Agency. In the meantime, Mr. Cauley cannot pay the percentage required by the Department if he cannot find work as someone else's employee, which he had been unable to do as of the date of the hearing. Herein, it is not disputed that Respondent was inadvertently out of compliance. Mr. Cauley seeks merely to reduce the amount of the penalty assessment so that removal of the stop-work order against Respondent corporation can be negotiated. On the day the stop-work order was issued, Investigator Beckstrom also served Respondent with a "Request for Production of Business Records for Penalty Assessment Calculation," in order to determine a penalty under Section 440.107(7), Florida Statutes. Pursuant to Florida Administrative Code Rule 69L-6.015, the Department may request business records for the three years preceding the date of the stop-work order. Logically, however, Ms. Beckstrom only requested business records dating back to February 14, 2006, Respondent's date of incorporation in Florida. The requested records included payroll, bank records, check stubs, invoices, and other related business records. Ms. Beckworth testified that, "Business records requests usually consist of payroll, bank records, taxes, check stubs, invoices, anything relating to that business." This is a fair summation of a much more detailed listing of records required to be kept pursuant to Rule 69L-6.015, Florida Administrative Code, which was in effect at all times material. In response to the Request for Production, Respondent provided Southern Insight Inc.'s corporate bank statements for the assessed penalty period, detailing corporate income and expenses through deposits and bank/debit card purchases. However, Investigator Beckworth did not deem the corporate bank statements produced by Respondent to be an adequate response, and she did not base her calculations for penalty purposes thereon. Mr. Cauley expected that the Department would, and has argued herein that the Department should, have subtracted from the total deposits to Respondent's corporate account (the minuend) the total corporate business expenses (the subtrahend) in order to determine the Respondent's payroll to Mr. Cauley (the difference), upon which difference the Department should have calculated his workers' compensation penalty. In fact, the Department, through its investigator, did not utilize the total amount deposited to Respondent's corporate account, because some deposits "could" have come from a family member of Mr.Cauley. That said, there are no individual names on the account; the account is clearly in the name of the Respondent corporation; and there is no proof herein that any deposits to Respondent's corporate bank account were derived from anyone other than Mr. Cauley, as Respondent's President. Ms. Beckstrom testified that if the Agency had accepted the total of the deposits to this corporate account for the assessed penalty period as Respondent's payroll, the result would have been more than the total amount actually determined by her to constitute Mr. Cauley's payroll, but that statement was not demonstrated with any specificity. The Department also did not use any of the subtracted amounts shown on the corporate bank statements, even though the bank statements listed the same information as would normally be found on a corporate check, including the transaction number, recipient of the money, the date, and the amount for each bank/debit card transaction. All that might be missing is the self-serving declaration of the check writer on the check stub as to what object or service was purchased from the recipient named on the bank statement. Ms. Beckstrom testified that if Mr. Cauley had provided separate receipts for the transactions recorded on the bank statements as bank/debit card entries, she could have deducted those amounts for business expenses from the corporation's income, to arrive at a lesser payroll for Mr. Cauley. In other words, if Mr. Cauley had provided separate receipts as back-up for the transactions memorialized on the corporate bank statements, the Department might have utilized the bank/debit card transactions itemized on Respondent's corporate bank statements as the amount deducted for Respondent corporation's business expenses, so as to obtain the payroll (difference) paid to Mr. Cauley. It is the amount paid to Mr. Cauley as payroll, upon which the Department must calculate the workers' compensation penalty. The reason Ms. Beckworth gave for not using Respondent's bank statements was that without more, the transactions thereon might not be business expenses of the corporation. However, she also suggested that if, instead of submitting bank/debit card statements, Mr. Cauley had submitted checks payable to third parties and if those corporate checks showed an expenditure for a deductible business expense, like motor vehicle fuel, she might have accepted the same expenditures in check form (rather than the statements) in calculating Respondent's payroll. Ultimately, Ms. Beckworth's only reasons for not accepting the bank statements showing recipients, such as fuel companies like Amoco, was "agency policy," and her speculation that Amoco gas could have been put into a non-company truck or car. She also speculated that a prohibition against using bank statements showing deductions might possibly be found in the basic manual of the National Council on Compensation Insurance (NCCI) or in a rule on payrolls (Rule 69L-6.035) which became effective October 10, 2007, after the assessed penalty period. However, the NCCI manual was not offered in evidence; a rule in effect after all times material cannot be utilized here; and no non-rule policy to this effect was proven-up. In addition to not using Respondent's bank statements to calculate a penalty, the Department also did not "impute" the statewide average weekly wage to Respondent for Mr. Cauley. Ms. Beckworth testified that to impute the statewide average weekly wage would have resulted in a higher penalty to Respondent. As to the amount of the statewide average weekly wage, she could only say she thought the statewide average weekly wage was "about $1,000.00". Instead of using Respondent's corporate bank statements or imputing the statewide average weekly wage, Investigator Beckstrom determined that Mass Builders, Inc., was the prime contractor on the jobsite being worked by Respondent, and that Mass Builders, Inc., had not produced proof of securing workers' compensation coverage for Respondent, its sub- contractor. Therefore, she sought, and received, Mass Builders, Inc.'s "payroll records" of amounts paid by the prime contractor, Mass Builders, Inc., to Respondent Southern Insight, Inc., via a separate site-specific stop-work order and business records request directed to Mass Builders, Inc. The only "payroll records" that Mass Builders, Inc., offered in evidence were Mass Builders, Inc.'s check stubs, which Ms. Beckstrom utilized to come up with an income/payroll amount for Respondent Southern Insight, Inc. Mr. Cauley did not know until the hearing that Mass Builders, Inc.'s check stubs had been utilized in this fashion by the Department. However, he ultimately did not dispute the accuracy of the check stubs and did not object to their admission in evidence. In calculating Respondent's total payroll for the assessed penalty period, Investigator Beckstrom considered only the total of the check stubs from Mass Builders, Inc. It is unclear whether or not she reviewed Mass Builders, Inc.'s actual cancelled checks. No one from Mass Builders, Inc., appeared to testify that the stubs represented actual cancelled checks to Respondent or Mr. Cauley. The Department also did not deduct from the total of Mass Builders, Inc.'s check stubs any of the bankcard deductions made by John Cauley from Respondent's corporate bank account, for the same reasons set out above. Mr. Cauley testified, without refutation, that some of the expenses noted on Respondent's bank statements, paid by bank/debit card, most notably expenses for gasoline for his truck, constituted legitimate business expenses of Respondent corporation, which should have been deducted from either the bank statement's total income figure or from the amounts paid by Mass Builders, Inc., to Respondent corporation, before any attempt was made by the Department to calculate the amount paid by Respondent corporation to Mr. Cauley as payroll. Utilizing the SCOPES Manual, which has been adopted by Department rule, Ms. Beckstrom assigned the appropriate class code, 5645, to the type of work (framing) performed by Respondent. In completing the penalty calculation, Ms. Beckstrom multiplied the class code's assigned approved manual rate by the payroll (as she determined it) per one hundred dollars, and then multiplied all by 1.5, arriving at an Amended Order of Penalty Assessment of $27,805.11, served on Respondent on August 22, 2007. Subsequent to the filing of its request for a disputed-fact hearing, in an effort to have the penalty reduced, Respondent provided the Department with additional business records in the form of portions of Southern Insight, Inc.'s 2006 and 2007 U.S. Income Tax Returns for an S Corporation (2006 and 2007 income tax returns). However, neither itemized deductions nor original receipts for Respondent's business expenses were provided to Ms. Beckworth at the same time, and she determined that without itemized deductions, there was no way to calculate Respondent's legitimate business deductions so that they could be deducted from the total of Mass Builders, Inc.'s, check stubs to determine a lesser payroll applicable to Mr. Cauley. Investigator Beckstrom testified that the tax returns, as she received them, did not justify reducing Respondent's payroll used in calculating the penalty. The vague basis for this refusal was to the effect that, "The Internal Revenue Service permits different business deductions than does the Department." Itemization pages (schedules) of Respondent's income tax returns were not provided until the de novo disputed-fact hearing. Confronted with these items at hearing, Ms. Beckworth testified that ordinary business income is not used by the Department to determine payroll, but that automobile and truck expense and legitimate business expenses could be deducted, and that she would probably accept some of the deductions on Respondent's 1020-S returns. Also, if Respondent's bank statement corresponded to the amount on the tax form, she could possibly deduct some items on the bank statements as business expenses before reaching a payroll amount. However, she made no such calculations at hearing. Ms. Beckworth testified that if she had Respondent's checks or "something more" she could possibly deduct the motor fuel amounts. Although Respondent's 2006, and 2007, income tax returns reflected Respondent corporation's income minus several types of business deductions, Ms. Beckstrom testified that the tax deductions were not conclusive of the workers' compensation deductions, because the Internal Revenue Service allows certain deductions not permissible for workers' compensation purposes, but she did not further elaborate upon which tax deductions were, or were not, allowable under any Department rule. She did not "prove up" which deductions were not valid for workers' compensation purposes. Respondent's 2006, tax deductions for "automobile and truck expense" were $2,898.00, and for 2007, were $4,010.00. There was no further itemization by Respondent within these categories for fuel. Other business deductions on the tax returns were also listed in categories, but without any further itemization. The only supporting documentation for the tax returns admitted in evidence was Respondent's bank statements. Respondent believed that the tax returns and possibly other documentation had been submitted before hearing by his accountant. It had not been submitted. The Department never credibly explained why it considered a third party's check stubs (not even the third party's cancelled checks) more reliable than Respondent's bank statements or federal tax returns. Even so, at hearing, the Department declined to utilize the business deductions itemized on Respondent's tax forms or any bank/debit card deductions on its bank statements so as to diminish the amount arrived-at via the Mass Builders, Inc.'s check stubs, and ultimately to arrive at a difference which would show a lesser payroll to Mr. Cauley. Although Mr. Cauley's questions to Ms. Beckstrom suggested that he would like at least all of the fuel company deductions on his bank statements to be considered as business deductions of Respondent Southern Insight, Inc., and for those fuel company expenditures to be subtracted from either the total deposits to the corporate bank account or deducted from the payroll total as calculated by Ms. Beckstrom from Mass Builders, Inc.'s check stub total, he did not testify with clarity as to which particular debits/charges on the bank statements fell in this category. Nor did he relate, with any accuracy, the debits/charges on the bank statements to the corporate tax returns. Upon review by the undersigned of Respondent's bank statements admitted in evidence, it is found that the bulk of Respondent's bank/debit card deductions during the assessed penalty period were cash withdrawals or ATM debits which cannot be identified as being paid to fuel companies or purveyors of construction material. As Investigator Beckstrom legitimately observed, "Big Al's Bait" is not a likely source of motor fuel. "Publix" and "Outback Steak House" are likewise unlikely sources of fuel or construction material, and cannot stand alone, without some other receipt to support them, as a legitimate corporate business entertainment expense. Other debits/charges on the bank statements are similarly non-complying, ambiguous, or defy categorization. However, the undersigned has been able to isolate on the corporate bank statements purchases from the known fuel distributors "Amoco" and "Chevron" on the following dates: 7/09/07, 7/10/07, 6/04/07, 6/04/07, 6/11/07, 5/03/07/ 4/09/07, 4/10/07, 4/13/07, 4/16/07, 3/02/07, 3/05/07, 3/13/07, 3/15/07, 3/20/07, 1/29/07, 5/01/06, 6/02/06, 8/02/06, 11/03/06, totaling $556.98.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers' Compensation, that affirms the stop-work order and concludes that a penalty is owed; that provides for a recalculation of penalty to be completed, on the basis set out herein, within 30 days of the final order; and that guarantees the Respondent Southern Insight, Inc., a window of opportunity to request a Section 120.57 (1) disputed-fact hearing solely upon the recalculation. DONE AND ENTERED this 1st day of July, 2008, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 1st day of July, 2008. COPIES FURNISHED: Anthony B. Miller, Esquire Department of Financial Services Division of Workers' Compensation 200 East Gaines Street Tallahassee, Florida 32399-4229 John Cauley, President Southern Insight, Inc. Post Office Box 2592 Bunnell, Florida 32110 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue The issue proposed in the Department's "Recommended Order" is: Whether the Department was substantially justified in bringing this action, or that special circumstances exist which would make an award of attorney's fees unjust, pursuant to Section 57.111, Florida Statutes (1983). As Respondent, the Department has not contested Ms. Fieber's allegations of standing as a "prevailing small business party" nor the reasonableness of the fees and costs claimed by Ms. Fieber.
Findings Of Fact Kimberlee M. Fieber is a licensed mortgage solicitor, having been issued license number HK 0008319 by the Department of Banking and Finance ("Department"). Ms. Fieber was employed by State Capital Corporation in the capacity of a mortgage solicitor commencing in 1983 and ending in August 1984. (Stipulation Agreement filed February 17, 1987; R 53, 132.) The Department began investigating State Capital Corporation in 1982, and in July of that year filed suit against the corporation, its directors, officers and certain named employees (not Kimberlee Fieber), charging eleven counts of securities and mortgage brokerage act offenses. (R 1-24, 160-161) The parties executed stipulations for final judgment, and judgment was entered on April 11, 1983, restraining the defendants from making certain representations to investors and from other specific violations of Chapters 494 and 517 F.S.. 25-28) Anthony Bernardo lives in Ft. Myers, Florida. Sometime in early 1983 he saw a State Capital Corporation advertisement regarding investment opportunities. He contacted the company and on June 27, 1983, Kimberlee Fieber came to his house to answer his questions. After about one hour Mr. Bernardo gave Ms. Fieber a check for $5,000.00 to invest as a loan yielding 18 percent interest, secured by a mortgage on commercial property. (R 30-32, 68-80) This was the first and only contact he had with Ms. Fieber. (R 74) Approximately two weeks later, the Bernardos received the papers related to their investment, including a Mortgage Deed, described in boldfaced print on the first page as a first mortgage of equal dignity with other first mortgages to be given in the total amount of $260,000.00, on a motel in Ft. Lauderdale. (R 32, 73) The Bernardos began receiving their $75.00 per month interest payments; in November 1983, they exercised an option to continue the investment for an additional twelve months at the same interest rate. (R 38) After reading some adverse articles about State Capital Corporation in the newspaper, Anthony Bernardo decided not to continue his loan beyond the term ending December 31, 1984. He informed the company in writing. (R 50, 83-85) When he did not receive his $5,000.00, he began calling the company on January 7, 1985. (R 84) He sent a letter dated January 16, 1985, to Gary Allen at State Capital Corporation demanding the return of his $5,000.00 with interest from January 1, 1985. He sent a copy of that letter to Gerald Lewis, State Comptroller. (R 50) On January 31, 1985, John Willard, an investigator for the Office of the Comptroller, interviewed Anthony Bernardo by telephone. The investigator's notes of that interview reflect the facts described in paragraphs 3 and 4, above, but also note that during Ms. Fieber's explanation of the investment, she did not explain to the Bernardos what equal dignity mortgages were, nor did she disclose that the Comptroller's Office had taken action against State Capital Corporation. The investigator noted that Bernardo told him that Ms. Fieber suggested he call the Comptroller's Office as a reference. (R 51-52) On February 14, 1985, Anthony Bernardo received his $5,000.00 from State Capital Corporation along with full interest. (R 85-86) John Willard never interviewed nor contacted Anthony Bernardo again, nor did he ever interview Ms. Fieber or anyone else regarding the Fieber case. He conducted interviews with other investors. He had some general discussion with an attorney in the Comptroller's Office about solicitors who had been employed by State Capital Corporation who may have committed misrepresentations regarding the sale of equal dignity mortgages. (R 170-173) He told the attorney, John Root, that the only thing they had in the file on Ms. Fieber was the memorandum of his interview with Anthony Bernardo. (R 174) Nothing in the record suggests that any other investigation of Ms. Fieber was done. On April 2, 1986, the Department served Kimberlee M. Fieber, as individual Respondent, a Notice of Intention to Suspend and Administrative Charges and Complaint which provided, in pertinent part: * * * STATEMENT OF FACTS Under the Provisions of Chapter 494, Florida Statutes (1983), the Department is charged with the responsibility and duty of administering and enforcing the provisions of the ACT, which includes the duty to suspend the licenses of those persons registered under the ACT for violations of the terms therein, as set forth in Section 494.05, Florida Statutes (1983). Kimberlee M. Fieber is a mortgage solicitor, who has been issued license number HK 0008319 by the DEPARTMENT. Formerly, Respondent was a mortgage solicitor for State Capital Corporation. As authorized by Section 494.071(1), Florida Statutes (1983), the DEPARTMENT conducted an investigation of the affairs of State Capital Corporation under the ACT. During that investigation, the DEPARTMENT took a statement from A. G. Bernardo. Mr. Bernardo stated that he had first heard of State Capital Corporation through its advertisements in the newspaper, to which he responded. After Mr. Bernardo contacted State Capital in answer to the advertisements, Respondent went to his home to attempt to persuade him to invest. During her sales talk, Respondent failed and neglected to explain the concept of equal dignity mortgages to Mr. Bernardo. Respondent also failed and neglected to disclose to Mr. Bernardo that the DEPARTMENT had taken legal action against State Capital and, in fact, suggested that Mr. Bernardo call the Department as a reference. Based on Respondent's representations, Mr. Bernardo invested $5,000.00 with State Capital Corporation. In return for his investment, Mr. Bernardo received an equal dignity first mortgage on a small motel. Mr. Bernardo's note became due after six months, and he renewed his investment for another period, this time of a year. When the one year renewal period had expired, Mr. Bernardo had decided not to renew his investment because of newspaper articles telling of State Capital's financial difficulties, and he notified State Capital of his decision and made demand on it for the return of his investment. Said mortgage note was due to be paid in December, 1984. However, payment was not made to Mr. Bernardo at that time, nor within a reasonable time thereafter.
Findings Of Fact At all times pertinent to the issues herein, the Petitioner, Board of Accountancy was the state agency responsible for the certification and licensing of public accountants and the regulation of the public accounting profession in Florida. Respondent, Gerald E. Shaw, was licensed as a certified public accountant, (CPA), in Florida and operated a public accounting practice in Florida as Gerald E. Shaw, P.A. During the period between December 31, 1990 and April 20, 1991, Respondent was retained to audit the financial books and records of High Point of Fort Pierce Condominium Association Section I, Inc. His audit report and allied papers were submitted to the membership of the association by letter dated April 20, 1991. In his letter he indicated he had conducted his audit in accordance with generally accepted auditing standards, (GAAS), and he opined therein that the financial statements he prepared, "present fairly, in all material respects, the financial position of the [Association] as of December 31, 1990 and the results of its operations for the year then ended in conformity with generally accepted accounting principles." At some point thereafter, the Department/Board of Accountancy received the financial statements prepared by the Respondent which contained apparent deficiencies on the face, particularly the lack of adequate note disclosure. Thomas F. Reilly, C.P.A., an expert in public accounting and an individual who had, on previous occasions, conducted similar investigations for the Board of Accountancy, was retained to conduct an investigation to ascertain the facts related to the instant financial statements prepared by the Respondent. By letter dated October 4, 1991, the Department notified Respondent that the investigation would take place and the subject matter thereof. Mr. Reilly thereafter met with the Respondent and discussed the financial statements and work papers in issue with him. Though Respondent was initially reluctant to participate in the investigative process unless he was provided, ahead of time, with a list of the reported deficiencies, he later agreed to a review of his work product. When he had completed his investigation, Mr. Reilly prepared a report in which he stated his opinions regarding the sufficiency of the financial statement prepared by Respondent which he determined to be inadequate. His opinion was based on his findings that there were a significant number of departures from the accounting standards called for in Statement of Accounting Standards, (SAS), 58 developed and promulgated by the American Institute of Certified Public Accountants, (AICPA). Mr. Reilly also found there were no references in the Financial Statement prepared by Respondent to footnotes as required by Accounting Principles Board, (APB), Statement 4. There also was no summary of significant accounting policies as required by APB Statement 22. All of this was determined from the hierarchy of accepted auditing principles as found in SAS 5. APB Statement 22 is at the top of the hierarchy and indicates that a failure to follow generally accepted accounting principles is a significant deviation. Among the deviations Mr. Reilly found were included: Cash in reserve funds was incorrectly referred to as a current asset. Reserve funds should not be considered current assets. (See APB Statement 43). Leases should be disclosed and here these were significant. (See FASB 13, Section L-10). Related party disclosures are not mentioned in the notes as they should be. Here there were 3 separate condominium associations and this financial statement related to only one of them. Since the 3 associations were related, however, the statement should have referred to the others within the complex shared by them all. Because of their interrelationship, disclosure was important. There was no allocation of expenses among the three different associations. There were some invoices paid which may have been allocated among the 3 associations and this was not discussed. It could be significant. Rule 7D-23, F.A.C., requires disclosure of common property and the costs of repair thereof. This requires reserves be maintained for future repair, and the method of allocation, or the waiver thereof, should be explained. This can be very significant, and it was not done by Respondent here. Among the work papers submitted some things which should have been shown were not in evidence. These included: A written audit program should have outlined as required by SAS 22 and SAS 41. This is very significant. A client representation letter should have been obtained as called for in SAS 19. Without it, a limitation on the audit is imposed. This is very significant. A review of related party transactions was not shown to have been done as required by SAS 45. Because of the related organi- zations, this was a material deviation. There appeared to be no review of the internal control structure, (policies, pro- ceedings, etc. relating to the accounting practices of the organization). The auditor should look at this and understand it so he can plan his audit, as required by SAS 55. Here, the audit report did not show it was done and this is significant. A preliminary judgement of materiality levels, as required by SAS 47 was not done. There was no showing that planning had been done as required by SAS 22 and 47, or analytical procedures used in planning the nature, timing and extent of other audit procedures, as required by SAS 56. Each of these alone might not be significant, but taken together, they all are significant. There appeared to be no consideration given to applicable assertions in develop- ing audit objectives as required by SAS 31. An attorney's letter was not in the file as required since the books showed an attorney had been used during the year. This is called for by SAS 12 and is used to check on the status of the legal work and any potential liability of the client. No check was made to see if any test- ing had been done to insure the association was in compliance with Rule 7D-23, FAC. No inquiry was made to see if the client was in compliance with the laws and regulations of the state in general, as called for by SAS 63. The work papers contained a lot of unnecessary bills and statements not norm- ally included. These should not have been there in that form without a showing they were used in the audit. (See SAS 41) There was no showing that any tests were done to insure a correct expense all- ocation among the 3 entities. There was no reporting disclosure checklist. While not required, such a list is common practice to insure all required disclosures pertinent to condo associations were made. The failure to do this is, in Reilly's opinion, practice below commonly accepted standards. The checklists are available from many sources readily access- ible to accountants. There is nothing secret or exclusive about them. Accounting competency standards are found in Rule 21A-22.001 - 21A- 22.003, F.A.C. In Mr. Reilly's opinion, based on, among other discrepancies, the matters outlined above, Respondent deviated from these standards to a point below the standard for a reasonably prudent certified public accountant. He defines "generally accepted accounting practices", (GAAP), as a source of knowledge that exists as defined within the parameters of SAS 5. Certified public accountants keep current in literature pertinent to their professional practice by attendance at continuing education courses, conferences, by performing quality and peer reviews, by doing investigations for the Board of Accountancy, and by networking with other CPA's. These are, of course, not the sole methods of maintaining currency but the ones used mostly by active practitioners, to the best of Mr. Reilly's knowledge. In his report of investigation, Mr. Reilly notes that Respondent is not a member of either the Florida Institute of Certified Public Accountants or the American Institute of Certified Public Accountants and does not participate in the peer review or quality review programs of either organization. His continuing professional education, as reported by him, consisted mainly of self study programs published by Accounting Publications, Inc., and though his practice is related, to a substantial degree to condominium associations, he has not attended any recognized continuing professional education course in that area. Mr. Felsing, also a CPA, heard Mr. Reilly's testimony at the hearing and reviewed his report of investigation. He agrees with Mr. Reilly concerning Respondent's report and he also considers Respondent's departure from generally accepted accounting standards to be significant. He notes that the Respondent here expressed a "clean" opinion regarding the status of the association which he should not have done because of the deficiencies in his work. Mr. Felsing did not review Respondent's work papers, but based on his understanding of Reilly's testimony, he identified what he considers to be significant departures from standard. These include: There should have been a work program developed as required by SAS 22. This is very significant. There should have been a client representation letter as required by SAS 19. This is significant because the failure to have it requires a qualification of the report. SAS 45 requires a review of all related parties and this was not done here even though related parties existed. Respondent's failure to document his thought processes on understanding on internal control standards is indicative of Respondent's attitude toward those standards. Felsing generally concurs with the opinions given by Mr. Reilly right down the line. He concludes that the Respondent's demonstrated lack of planning raises a question as to the effectiveness of the audit since one cannot determine if all required tasks were done. Generally accepted accounting standards require the use of analytical procedures as a valuable tool. Failure to use them would be a significant departure from accepted standards since they all relate to the planning of the engagement and without documentation, a reviewer of the audit report cannot tell if the required tasks were performed. The mere inclusion of client documents in the work papers is not acceptable proof that the work was done. The significance of the disclosure checklist lies in the fact that it is the only way to insure that all required items are included in the financial statement. After a review of all the evidence available to him, Mr. Felsing concluded that Respondent failed to use due diligence as a CPA in this audit. In the aggregate, the information available shows Respondent was either not aware of or chose to disregard the applicable professional standards pertinent here. In his defense against the charge of failing to conform to generally accepting accounting standards, Respondent refers to SAS 5 and AU 411.02 and 411.05. These authorities basically outline the standards against which accounting practice is measured. He notes that the term, "generally accepted accounting practices" includes not only pronouncements but also concept statements of the Financial Accounting Standards Board and "broad conventions and rules" which are not pronouncements. Respondent urges that a practitioner has to follow generally accepted accounting practices when performing an audit. There are two subgroups of these practices which pertain to (1) profit and nonprofit organizations, and (2) governmental entities. According to the AICPA interpretation of Conduct Rule #3, there are reasons to depart from GAAP when appropriate. One is the evolution of a new form of business transaction and another is new legislation requiring a departure. In either case, a certified public accountant might legitimately deviate from GAAP. Since, he claims, GAAP is somewhat fluid in application, the auditor has the responsibility and the right not to act as a robot but to see that the audit properly serves the purpose of the entity being audited so as to promote decision making and to identify net income and net worth. Respondent asserts that GAAP are not an end in themselves but a tool in making business decisions. The usefulness of the financial information should be the primary quality to be sought. Usefulness deals with relevance and reliability. In the instant case, Respondent claims that the concept of condominium ownership of realty is so new and so different, and governed by such new legislation that GAAP which have been in use over the past 10 or 15 years and developed to deal with the condominium association are not pertinent. Here, he claims, he had to modify. His position, however, is not well taken. The audit report in issue was to be read by the condominium owners who are interested in the stewardship of the condominium board and the net worth of the association. Respondent contends they are not interested in profit or tradable net worth. A condominium association has a clear and stated purpose which is the management and maintenance of the condominium property. Therefore, an accountant who goes into an audit of a condominium association without having these concepts in his mind is, in his opinion, not doing a good job. Turning to the specifics of the allegations made by Petitioner's witnesses and in the report of investigation, while he accepts some of the comments as valid so far as they allege a particular action, he also claims, in those cases, that the alleged inadequacy has no significant effect on the financial statements. For example, on page C-1 of Mr. Reilly's report, under the heading, Financial Statements, he refers to audits (plural) when only one year is reported on. On the other hand, Respondent disagrees with Reilly's comments regarding an "unorthodox" practice of presenting separate operating statements for the general and reserve funds. Respondent claims there is no definition of "unorthodoxy" for a condominium association and, as evidenced by the 1990 budget of the association, there were more than one reserve account indicated on the financial statement. In his opinion, the accountant should honor that segregation of funds. Respondent agrees that his financial statements do not contain a general reference to the accompanying notes, but he cannot see where any damage was done to a reader of those statements because the footnotes were there without a separate reference. He disagrees that it is generally accepted to record changes in financial position as a basic part of the financial statement when dealing with condominium associations. They are "new animals" and as the accountant, he has the right, he claims, to decide if that information is necessary to the reader of the financial statement. Here, he concluded it was not and, in fact, could be a source of confusion. Respondent also disagrees the Reilly's comment regarding the information regarding reserve funds. He believes that if the financial reporter feels there is a need for segregation of funds, he has to present that segregation in detail. In this case, Respondent believes there is no orthodoxy for condominium reporting and it would be useful to the reader of the statement to see total assessments from all sources so as to determine the justification for his monthly assessment. He also disagrees with Reilly's conclusion that the financial statements do not contain a summary of significant accounting policies. There are, he claims, no alternatives to the way he presented them. Respondent has difficulty responding to Reilly's seventh assertion which is to the effect that cash in reserve funds was inappropriately reflected as a current asset since the reserves are long term. Mr. Shaw believes that if the cash is there, it is available to the board whether it is used or not. This appears to be a matter of semantics and not an issue particularly related to the accounting for condominium associations. While it is true the reserve asset is current and available, it is a dedicated asset and the better accepted accounting practice, as indicated by both experts, is to treat it more as a long term asset. It is so found. Respondent also disagrees with Reilly's conclusion that his terminology in Sections 2 and 3 of the balance sheet is unorthodox. He asserts that those sections do not have to be defined anywhere in the financial statements and are not related to Section 1. He contends that any reader of the audit report would know what is what and be able to understand it. With regard to the "missing" note disclosures, he disagrees with all allegations. He claims that disclosures under FASB #13 and #96 clearly do not apply to condominium associations but relate to investor owned leaseholds. Review of the pertinent bulletin does not necessarily support Respondent's position. He also claims that since there are no related parties none need be disclosed as regards the property management company or the other Sections. The same, he contends, relates to disclosure of potential allocation of expense between the three associations in the same complex. He also does not accept the need to disclose the allocation of interest income between funds utilized by the association. As to disclosures related to reserves and the funding for major repairs and replacements, he contends there is no GAAP that requires this disclosure. Only the state requires it. If a practice is called for in either a statute or rule governing a business activity, whether the profession agrees or not, that requirement must be met and one who fails to do so omits at his peril. In general, those things omitted from his audit, such as a cash flow statement, were not requested by the client, he claims. Had he been asked for them, he would have provided them. Respondent also seeks to rebut some of Mr. Reilly's comments regarding his work papers. He has no complaint with the first two which are not critical of his audit, and he admits he may be in violation of GAAP with regard to Reilly's finding that certain required documentation was not included therewith. However, if, as he alleged, the financial statement conforms to GAAP, there is no harm done when the supporting work papers are not exactly as they should be. He contends, as well, that several, such as SAS #22 which refers to assistants, do not apply. Admitting to a violation of SAS #19 which calls for a client representation letter, he claims to have cured that defect by subsequently getting one and thereafter saw no reason to change the financial statement. Again, as with his response to the complaints regarding the financial statement, he claims any alleged failure regarding related parties is invalid since, he asserts, there are none. With regard to the remaining alleged defects in the supporting documentation to the work papers, he claims there was a search for unrecorded liabilities but because there was no mention made of it, Reilly could not tell this from the documents. Admitting there was no documentation regarding understanding of the internal control structure, as required by SAS #55, Respondent claims he understood it. He alleges he did accomplish an assessment of control risk as required by SAS #55 but admits there is no record of it in the work papers. The preliminary judgement of materiality levels, planning, and analytical procedures in planning the nature, timing and extent of other audit procedures, as required by SAS #'s 22,47 and 56 were all accomplished, he claims, but admits they were not included in the work papers. He also admits he did not get an attorney's letter and that this is a violation. However, he claims he did test to determine if the association was in compliance with pertinent statutes and rules, but it was not written down in the work papers, and he claims that confirmation of accounts receivable was not necessary because there were none except from Sections 2 and 3, which he did verify. In this latter assertion, it appears he was correct. Mr. Shaw refers to allegations 4 - 6 regarding work papers as mere statements of fact with which he takes no issue. A closer look at the report, however, reveals that numerous omissions were noted here as well. He admits that a financial statement reporting checklist was not in evidence but relates he deemed it not necessary. Mr. Reilly disagreed and his opinion is more supportable. There is little to disagree with in Mr. Reilly's item 8 under work papers when he asserts that the omission of an overall index of the work papers made them difficult to review and void of audit methodology. Taken together, the evidence demonstrates that Respondent's audit did not sufficiently conform to GAAP and was less than required under the circumstances.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is recommended that a Final Order be entered in this case placing Respondent, Gerald E. Shaw's, license as a certified public accountant in Florida on probation for a period of three years under such terms and conditions relating to practice and continuing education as are deemed appropriate by the Board of Accountancy. RECOMMENDED this 12th day of October, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK, 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 12th day of October, 1992. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-3420 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of fact submitted by the parties to this case. FOR THE PETITIONER: Accepted and incorporated herein except as they relate to the treatment of reserve accounts as long term assets. FOR THE RESPONDENT: None submitted. COPIES FURNISHED: Charles F. Tunnicliff, Esquire Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Gerald E. Shaw 10780 South US 1 Port St. Lucie, Florida 34952 Jack McRay General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Martha Willis Executive Director Department of Professional Regulation/Board of Accountancy Suite 16 4001 Northwest 43rd Street Gainesville, Florida 32606
The Issue Case No. 56-1336 commenced with the Department's Administrative Charges And Complaint with Notice of Rights, dated February 19, 1986. The Department's charges and complaint informed Structured Shelters Financial Management, Inc., ("SSFM") and Structured Shelters Securities, Inc., ("5551") of the Department's intention to revoke the registrations of these two corporations for various violations of Chapter 517, Florida Statutes, and violations of rules of the Department, which violations were alleged with specificity in the Department's charges and complaint. The two corporations filed a request for hearing in which they assert that there have been no violations, and in which they dispute both factual allegations and legal conclusions set forth in the Department's charges and complaint. Case No. 86-1553 commenced with the Department's Cease and Desist Order and Notice of Rights dated February 19, 1986. The Department's cease and desist order has the effect of ordering Structured Shelters Financial Management, Inc., ("SSFM"), Structured Shelters Securities, Inc., ("5551"), Robert Iles, and Monica Iles to cease and desist from various activities which are alleged to be violations of Chapter 517, Florida Statutes. The two corporations and the two individuals filed a request for hearing in which they assert that there have been no violations, and in which they dispute both factual allegations and legal conclusions set forth in the Department's cease and desist order. Following the hearing in these consolidated cases, a transcript of the proceedings at the hearing was filed on October 20, 1956, and on November 10, 1986, all parties filed proposed recommended orders containing proposed findings of fact and conclusions of law. The parties' proposed recommended orders have been carefully considered in the preparation of this Recommended Order. A specific ruling on each finding of fact proposed by each party is contained in the Appendix which is attached to and incorporated into this Recommended Order.
Findings Of Fact Based on the exhibits received in evidence and on the testimony of the witnesses at the hearing, I make the following findings of fact. SSFM is an investment advisor holding License Number 53839, issued by the Department effective December 13, 1982. SSFM is not registered as a dealer pursuant to Section 517.12, Florida Statutes, to sell securities in Florida. Robert E. Iles, Sr., is the President and Director of SSFM and Monica Iles is the Treasurer and Director of SSFM. Robert Iles, Sr., is a Director of 5551 and Monica Iles is the Secretary and Treasurer of 5551. The Department only reviewed the records and files of SSFM. No review was made of any records of 5551. No formal complaints have ever been filed with the Department against SSFM or 5551. No one has requested that SSFM refund the purchase price of any of the corporate business plans. SSFM's books, records, and financial statements were current through July 31, 1984. SSFM did not provide any investment advisor services subsequent to July 31, 1954. Since July 31, 1954, SSFM has not maintained its books and records in accordance with Department rules. SSFM also did not maintain customer files or copies of advertising materials. SSFM has failed to keep certain records required by applicable rules promulgated by the Department, and certain records that are required have not been kept current, as is also required. Specifically, the cash receipts and disbursements journal, general ledger, and trial balance have not been made current since July 31, 1984. No records have been kept in the following categories: correspondence with clients concerning recommendations, receipts, disbursements, or placing of orders, in the clients' files and advertising and promotional materials. The purpose of these requirements is to assure that the investment adviser can meet its obligations to creditors and customers. The principal reason SSFM has not maintained up-to-date books and records since July 31, 1954, is that it has had no business activity since that date other than some efforts to collect accounts receivable. SSFM does not advertise. SSFN does not maintain customer files because it renders no investment advice. There is no evidence that SSFM has not met all of its obligations to creditors and customers. Capital Requirement Because SSFM did not maintain books and records since July 31, 1984, the Department could not determine whether SSFM maintained net capital of $2,500. The purpose of the net capital requirement is to protect clients of the investment adviser. There have been no formal complaints filed by clients of SSFM. SSFM has suspended its investment adviser operations since July 31, 1984. SSFM has in fact maintained net capital of at least $2,500 since July 31, 1984. Annual Report SSFM did not file its annual financial report due within 90 days of July 31, 1984, as required by Department rules. The purpose of this requirement is to monitor compliance with the net capital requirements since the Department cannot audit all investment advisers each year. SSFM did not provide investment advice during the year for which it did not file the annual report. Since SSFN is inactive, the certified public accountants have given active companies a priority in filing tax returns and making other financial reports. Registered Principal SSFM's registered principal withdrew November 21, 1983, and no new principal has been registered. SSFM has not provided investment advice since that time. Civil, Criminal and Administrative Actions SSFM was incorporated as a Delaware corporation in October of 1982 and is not a successor to any other corporation. SSFM has not reported to the Department any civil, criminal, or administrative charges filed against it relating to its activities as an investment adviser. The states of Idaho, Kansas, Missouri, and Pennsylvania had responded to SSFM's application for an investment adviser license by noticing an intent to deny such permit. None of those states served any complaint of any civil, criminal, or administrative charges against SSFM independently or in connection with those applications. Three civil actions have named SSFM a Defendant. The alleged actions giving rise to the Tax Awareness of New Mexico, Inc., complaint occurred on June 22, 1982. The action filed by Harold J. St. Clair, et al., in Ohio involved alleged actions occurring prior to July 9, 1982. David Elsworth and James Morrison filed a complaint involving alleged actions which occurred between February and July 1982 and in fact does not name SSFM as a Defendant. All of the alleged actions giving rise to the three civil actions occurred prior to SSFM's coming into existence. Those actions do not directly or indirectly relate to SSFM's activities as an investment adviser. The legal actions appear to be frivolous as to SSFM because SSFM was not in existence at the time of the events alleged in the legal actions. Corporate Business Plans At one time SSFM marketed corporate business plans called Super Swirl, Inc., Random Processing Services, Inc., and Children's Classic Cassette Master Recordings. No purchaser of any of these corporate business plans has lost any money or filed any legal actions against SSFM. SSFM, which was originally domiciled in Cincinnati, Ohio, contacted the regional office of the Securities and Exchange Commission prior to marketing the corporate business plans and was told that the plans were not securities. All of the plans were prepared prior to 1984. SSFM has not sold a plan since 1984. SSFM moved to Florida in September 1984. No business plans have been formed in Florida. SSFM sold no business plans in Florida. Changes in tax laws have made the business plans obsolete and they could no longer be offered. One client was invoiced to a Florida address. That client was an Ohio resident who purchased the plan while SSFM was domiciled in Ohio and who in fact picked up the business plan and invoice from SSFM in Ohio. For the convenience of the Ohio resident, SSFM put a Florida billing address on the invoice. Neither the invoice nor the business plan was delivered in Florida by SSFM. There is no evidence that a Mr. Benjamin was a Florida resident when he purchased his business plan. SSFM prepared its corporate business plans at the request of various professionals such as attorneys, accountants, and financial planners who would use them for their clients. No business plan is dependent upon another, although subsequent plans were an outgrowth of the first one. The type of entity to be used is up to the purchaser of the plan. The purchaser does not have to follow the plan and SSFN has no control over modifications. Super Swirl Sales, Inc. In this plan it is made clear that the incorporator (purchaser of the plan) is responsible for its implementation, and the success of the plan is contingent upon his proper administration. Under this plan, the purchaser is to purchase frozen confection machines and lease them to various retail establishments. The corporation established under the business plan would not have to purchase its machines from a particular vendor. The corporation would determine the location for the machines. The corporation would also decide how many machines to purchase. The Super Swirl machines were manufactured by a company unrelated to SSFM. The corporation determines the amount of capital to raise. It is the responsibility of the corporation to determine whether the offering of its stock is a transaction that requires registration. The plans only recommend services of other companies, some of which may be affiliated with SSFM, but do not require them. Random Processing Services Under this plan the purchaser (dealer) would set up a computer based financial management system and would obtain retail clients. The in-house computer would be tied into a larger computer system operated by Random Processing Services, Inc. The purchaser does not have to use Random Processing Services, Inc., and could go to someone else for those services. The dealer determines the amount to charge his clients depending upon what the local market will bear. The efforts of the dealer determine his share of the market, with his knowledge and desire to service clients as the most important aspect for penetrating the market place. The geographical area to be served by dealer is his decision. Dealers do not depend upon leads for clients from any other entity. Children's Classic Cassette Master Recordings Under this plan the purchaser would establish a business to prepare a master recording of a children's classic book (stories that are no longer covered by a copyright) and to lease that recording for retail distribution. The success of the plan is contingent upon proper administration by the corporation. It is the corporation's responsibility to determine if the offering of its stock is regulated. The plan provides: The plan is a guideline and is not intended to be a set of rules or regulations that are not subject to approved changes. Changes are at the discretion of the incorporator and his advisers. They can change or totally eliminate part of the entire plan if they deem it necessary. As such, the incorporator or elected officers are solely responsible for the implementation of the plan. Actual cost of the properties and overhead expenses are determined by the purchaser of the plan, as is the sale price of the stock. The purchaser determines which title to make into the master cassette, picks the script writer, and picks the person to do artwork. All of the business plans require substantial efforts on behalf of the purchaser.
Recommendation Based on all of the foregoing, it is recommended that the Department enter final orders in these cases to the following effect: In Case No. 86-1336, the final order should dismiss the allegations alleged in Counts I, II, VII, and VIII of the Administrative Charges And Complaint; should find SSFM guilty of the violations alleged in Counts III, IV, V, and VI of the Administrative Charges And Complaint; and should suspend the registration of SSFM until such time as SSFM has corrected the deficiencies of which it has been found guilty. In recommending suspension in lieu of revocation, 1 have given great weight to the fact that there is no evidence that any harm has been suffered by any client or customer of SSFM as a result of the violations proved in this case. In Case No. 86-1553, the final order should dismiss the cease and desist order. DONE AND ENTERED this 18th day of December, 1986, at Tallahassee, Florida. MICHAEL M. PARRISH 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 18th day of December, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-1336, 86-1553 The following are my specific rulings on each of the proposed findings of fact submitted by each of the parties. Rulings on findings proposed by the Department in Case No. 56-1336 Paragraph 1, including its subparagraphs (a), (b), (c), (d), and (e): Rejected because not supported by competent substantial evidence. As noted in Section 120.57(1)(b)7, Florida Statutes, "Findings of fact shall be based exclusively on the evidence of record and on matters officially recognized." The pleadings in this case were not offered in evidence. Paragraph 2: Accepted. Paragraph 3: Accepted. Paragraph 4: Rejected. The statements in this para- graph are conclusions of law and not proposed findings of fact. Paragraph 5: An essentially true statement, but subordinate and unnecessary as a finding of fact. Paragraph 6: Rejected on several grounds. First, it is a summary of testimony rather than proposed findings. Second, it is a conclusion of law rather than proposed findings of fact. Finally, the conclusion is not warranted by the evidence. Paragraph 7: Rejected as constituting a conclusion of law rather than a proposed finding of fact. Also, to the extent this paragraph might be considered to be an opinion-type ultimate fact, it is rejected as contrary to the greater weight of the evidence. Paragraph 5: The first sentence of this paragraph is rejected as constituting a conclusion of law and not a proposed finding of fact. The second sentence of this paragraph is accepted. Paragraph 9: Accepted. Paragraph 10: Accepted. Paragraph 11: The first sentence is accepted in substance up to the first comma in the sentence. (More extensive findings about litigation involving Structured Shelters Financial Management, Inc., have been made.) The portion of the first sentence following the first comma is rejected as constituting a conclusion of law. The second sentence in this paragraph is rejected as constituting commentary about the nature of the record and not constituting proposed findings of fact. Paragraph 12: Accepted. Paragraph 13: Accepted in substance, with modifi-cations in the interest of accuracy. Paragraph 14: Accepted. Paragraph 15: Rejected in part because it is more in the nature of a conclusion of law than in the nature of a finding of fact and rejected in part because it is based on inference not fully supported by the evidence. Paragraph 16: Rejected in part because it is more in the nature of a conclusion of law than in the nature of a finding of fact and rejected in part because not supported by persuasive competent substantial evidence. Rulings on findings proposed by the Department in Case No. 56-1553 Paragraph 1, including its subparagraphs (a), (b), and (c): Rejected because not supported by competent substantial evidence. The pleadings in this case were not offered in evidence. Paragraph 2: Accepted. Paragraph 3: Accepted. Paragraph 4: Rejected. The statements in this paragraph are conclusions of law and not proposed findings of fact. Paragraph 5: An essentially true statement, but sub- ordinate and unnecessary as a finding of fact. Paragraph 6: Rejected on several grounds. First, it is a summary of testimony rather than proposed findings. Second, it is a conclusion of law rather than proposed findings of fact. Finally, the conclusion is not warranted by the evidence. Paragraph 7: Rejected as constituting a conclusion of law rather than a proposed finding of fact. Also, to the extent this paragraph might be considered to be an opinion-type ultimate fact, it is rejected as contrary to the greater weight of the evidence. Paragraph 8: The first sentence of this paragraph is rejected as constituting a conclusion of law and not a proposed finding of fact. The second sentence of this paragraph is accepted. Paragraph 9: Accepted. Paragraph 10: Rejected in part because it is more in the nature of a conclusion of law than in the nature of a finding of fact and rejected in part because it is based on inference not fully supported by the evidence. Paragraph 11: Rejected in part because it is more in the nature of a conclusion of law than in the nature of a finding of fact and rejected in part because not supported by persuasive competent substantial evidence. Rulings on findings proposed by the corporate and individual parties The vast majority of the findings of fact proposed by the corporate and individual parties have been accepted, some with a few minor editorial changes in the interest of clarity and accuracy. The few that have been rejected are listed below along with the reasons for rejection. Proposal 4: Rejected as irrelevant and unnecessary details. Proposal 5: Rejected as irrelevant and unnecessary details. Proposal 75: Rejected as contrary to the greater weight of the evidence; twenty of the plans were sold. COPIES FURNISHED: Martin S. Friedman, Esquire MYERS, KEVIN, LEVINSON & RICHARDS 2544 Blairstone Pines Drive Tallahassee, Florida 32301 Robert K. Good, Esquire Senior Attorney Office of Comptroller Suite 501 400 West Robinson Street Orlando, Florida 32501 Hon. Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301
The Issue The issue in this case is whether Petitioner's application for self-insurance for workers' compensation should be approved.
Findings Of Fact Based upon the observation of the witnesses' testimony and the documentary evidence received into evidence, the following relevant and material facts that follow are determined. The Florida Self-Insurers Guaranty Association, Inc. (Association), is established by Section 440.385, Florida Statutes (2003), and is an organization that provides a guarantee for workers' compensation benefits for companies that are self-insured. The Association pays injured workers their benefits, if the self-insurer becomes insolvent. An insolvency fund is established and managed by the Association, which funds the workers' compensation benefits for insolvent members. The insolvency fund is funded by assessments from members of the Association. Pursuant to Florida Administrative Code Rule 69L-5.102 (formerly Florida Administrative Code Rule 4L-5.102), in order for an employer to qualify for self-insurance under the relevant provisions of law, the applicant must meet the following requirements: (1) have and maintain a minimum net worth of $1,000,000; (2) have at least three years of financial statements or summaries; (3) if the name of the business has changed in the last three years, provide a copy of the Amended Articles of Incorporation; and (4) have the financial strength to ensure the payment of current and estimated future compensation claims when due, as determined through review of their financial statement or summary by the Department. Of the general requirements noted in paragraph 3, above, the only issue in this proceeding regards N.C.M.'s financial strength. An applicant for self-insurance is required to submit in its application audited financial statements for its three most recent years. All financial statements, audits, and other financial information must be prepared in accordance with Generally Accepted Accounting Principles. The Association is required to review each application and the financial documents which are submitted as part of that application to determine if the applicant has the financial strength to ensure the timely payment of all current and future workers' compensation claims. After the Association reviews the application, it makes a recommendation to the Department as to whether the application for self-insurance should be approved or denied. The Department is required by law to accept the Association's recommendations unless it finds that the recommendations are clearly and convincingly erroneous. N.C.M. submitted its application for self-insurance on or about May 6, 2003, and included in its application audited financial statements for its three most recent fiscal years. The statement contained an unqualified opinion from N.C.M.'s accountant. N.C.M. provided information in its application regarding the number of employees, the worker classifications of these employees, and a payroll classification rating that has been established by the National Council on Compensation Insurance. The application made it clear that the Department could use this information to calculate a manual annual rate premium for each worker classification to determine an overall workers' compensation premium based on statewide manual rates. The Association calculated a standard premium of $507,088.75 for N.C.M., after giving credit for its experience modification of .71. N.C.M. confirmed in its application that it was a corporation duly organized and existing in the State of Florida. N.C.M. also supplied information on its corporate officers and copies of its Articles of Incorporation confirming its corporate existence. In its application and at the hearing, N.C.M. agreed that, if accepted for membership, it will maintain security deposits and excess insurance as required by the Department's administrative rules. Upon receipt of N.C.M.'s application, the Association thoroughly reviewed the application and financial statements for the three most recent years. The Association examined the balance sheets to analyze the Company's assets, liabilities, working capital, and equity structure. Additionally, the Association examined N.C.M.'s income statements to analyze the Company's revenues, profits and/or losses, and expenses. The Company's cash flows were examined. The Association calculated various financial ratios for N.C.M. in order to examine, among other things, the company's asset structure, liquidity, total debt to equity structure, and net income or loss as it relates to the company's equity. The analysis and review performed by the Association, as described in paragraph 12, is the same type of analysis the Association performs on every applicant for self-insurance. Because applicants for self-insurance come from various types of industries, it is not useful to establish specific threshold values for various financial ratios in determining financial strength. However, the Association reviews and analyzes the financial statements of each applicant to determine the financial condition of that applicant. The Association's review of N.C.M.'s audited financial statements revealed that the Company had a net loss of $60,937 in the year ending December 31, 2002. The Company also had a loss from operations in its most recent year in the amount of $74,897, or negative .62 of its revenues. This was a significant factor to the Association because it revealed N.C.M.'s lack of profitability for its most recent year. Petitioner's tax return of 2002 showed a profit for the Company. However, the tax returns are not meant to reflect the economic profit of a business and are not prepared in accordance with Generally Accepted Accounting Principles. Rather, the audited financial statements provide more accurate information about the Company’s financial health. N.C.M.'s 2002 net worth was $1,218,895, which exceeded the $1,000,000 minimum net worth requirement established in the applicable rule cited in paragraph 3 above. However, the Association was concerned about N.C.M.'s net worth when taken as a percentage of its workers' compensation premiums, calculated by using the payroll classification information in N.C.M.'s application. The analysis of N.C.M.'s net worth as a percentage of workers' compensation premiums is important because workers' compensation claims can accrue each year and be paid out over a long period of time by the self-insurer. A company with equity that is relatively low in comparison to its workers' compensation exposure might, over time, owe its injured workers as much as, or more than, the equity in the company. This would increase the risk for the injured worker. Upon completing its financial analysis, the Association recommended that N.C.M.'s application for self- insurance be denied. Brian Gee, the executive director of the Association, conveyed the recommendation of denial to the Department in two letters, one dated May 12, 2003, and the other one dated June 19, 2003. The letters were virtually identical, except that the June 19, 2003, letter referred to the specific statute at issue and statutory language that N.C.M. did not have the financial strength necessary to ensure timely payment of all current and future claims. Attached to both the May 12, 2003, and June 19, 2003, letters was a copy of the Association's summary of N.C.M.'s audited financial statements for the years ended December 31, 2002, 2001, and 2000. Based on the review of the financial data, the Association made the following four findings, which it listed in both letters: The Company received unqualified audit opinions on its December 31, 2002, 2001, and 2000 financial statements from Rust & Christopher, P.A. Liquidity - The current ratio has decreased from 1.34 at December 31, 2000 to 1.13 at December 31, 2002. Capital Structure - The total liabilities to book equity ratio has increased since December 31, 2000 from 1.39 to 1.99 at December 31, 2002. Results of Operations - The Company's gross profit margin has negative 0.62 for the year ended December 31, 2002. The Company reported a net loss of $60,937 for the year ended December 31, 2002. Although the above-referenced letters listed findings relative to the Company's liquidity and capital structure, Mr. Gee did not believe that those findings were of "major significance." The Association's letters and accompanying financial data were submitted to the Department for a final decision to be made by the Department. The Department received and reviewed the Association's letters of recommendation and the accompanying documentation. Based on its review of the letter, the Department noted that the Association appeared to have concerns about the Company's liquidity, liabilities, and profitability. However, there was nothing in the letters which indicated that the Association did not consider the findings related to the Company's liquidity and liabilities (capital structure) to be of major significance. The Department sent N.C.M.'s application, which included the financial statements, to an outside CPA firm for review. The outside CPA performed a financial analysis, calculated various financial ratios on N.C.M., and provided a report to the Department. The outside CPA correctly noted in her report that N.C.M.'s gross profit margin for the year ended December 31, 2002, was 15.4 percent. In Finding No. 4 of its letters of recommendation to the Department, the Association had mistakenly mislabeled the Company's net profit margin as the gross profit margin. As a result of that mislabeling in the letters, the finding incorrectly stated that N.C.M.'s gross profit margin was a negative 0.62 percent for the year ending December 31, 2002. In fact, it was the Company's net profit margin for the year ending December 31, 2001, that was negative 0.62 percent. Notwithstanding the incorrect mislabeling of this item in the letters, the financial summary attached to the letters accurately reflected the Company's gross profits and revenue. The financial statement of N.C.M. also reflected that for the year ending 2002, the Company had a gross profit of $1,877,076, and for that same period had a loss from operations of $74,897, or negative .62 percent. The outside CPA also compared various financial information on N.C.M. to an industry average and concluded that "some of the Company's ratios are below the industry ratios." In making these comparisons, the outside CPA researched two companies she believed were in a business similar to N.C.M. The research on these companies provided an industry average for various financial information on companies in the same industry as the two reference companies. In this case, the two reference companies were primarily producers or sellers of concrete products, as opposed to construction companies like N.C.M. Accordingly, the industry ratios contained in the outside CPA's report may be different than the construction industry and not an appropriate basis with which to compare N.C.M. The report of the outside CPA stated that N.C.M. pays approximately $1,000,000 a year in workers' compensation insurance. That figure is higher than the premiums calculated by the Association using statewide manual rates. Instead of using those rates, the outside CPA based her figure on a newspaper article, which stated that Mr. DelDuca, president of N.C.M., pays $1,000,000 for workers' compensation insurance. In her report, the outside CPA cited N.C.M.'s lack of profitability for the year ending 2002 and correctly noted that for that year, the Company reported a net loss of $60,937. The outside CPA notified the Department that she concurred with the Association's recommendation to deny N.C.M.'s application to become self-insured because the Company had not demonstrated it has the financial strength to ensure timely payment of workers' compensation claims. The Department reviewed the outside CPA's report and noted the concerns about the company's debt equity and lack of profitability. Based on the outside CPA's report, the Department correctly determined that the report contained no information that the Association's recommendation was clearly and convincingly erroneous. As a result of its determination that the Association's recommendation to deny N.C.M.'s application for self-insurance was not clearly or convincingly erroneous, the Department denied the application.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department issue a final order denying N.C.M. of Collier County, Inc.'s application for self-insurance. DONE AND ENTERED this 26th day of February, 2004, in Tallahassee, Leon County, Florida. S CAROLYN S. HOLIFIELD 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 26th day of February, 2004. COPIES FURNISHED: John M. Alford, Esquire 542 East Park Avenue Tallahassee, Florida 32301 Cynthia A. Shaw, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-4229 Mark B. Cohn, Esquire McCarthy, Lebit, Crystal & Liffman Co., L.P.A. 1800 Midland Building 101 West Prospect Avenue Cleveland, Ohio 44115-1088 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue The central issue in this case is whether the Respondent is guilty of the violation alleged in the administrative complaint dated August 7, 1989; and, if so, what penalty should be imposed.
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made: The Department is the state agency authorized to regulate and discipline licensees pursuant to Chapters 455 and 473, Florida Statutes. The Respondent is a licensed certified public accountant, license number AC 3214 (election of rights submitted by Respondent). In connection with an investigation of another licensee (not at issue herein), the Respondent submitted to the Department a financial report that Respondent had performed for the entity identified as Moreil Interiors, Inc. (Moreil). That document (Department's exhibit 1) consisted of four pages and represented financial information related to Moreil for a 6 month period ending December 31, 1984. Certified public accounts are required to utilize specific guidelines in the performance of accounting services. Those guidelines are codified in the Statements on standards for Accounting and Review Services (SSARS). The failure to abide by the SSARS guidelines constitutes performance below acceptable accounting standards. The financial report identified in paragraph 3 failed to comply with the SSARS in at least four material ways. The level of service indicated by the Respondent's report is not accepted practice for certified public accountants and has been rejected by the American Institute of Certified Public Accountants. The type and number of the deficiencies in that report constitute negligence on Respondent's part and establish a failure to exercise professional competence and due professional care in the performance of accounting services.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department of Professional Regulation, Board of Accountancy enter a final order requiring the Respondent to complete 24 hours of continuing education regarding compliance with the SSARS guidelines, and placing the Respondent on probation with his work to be reviewed, at his expense, by a consultant or certified public accountant approved by the Board, for a period of one year following completion of the continuing education. DONE and ORDERED this 19th day of July, 1990, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of July, 1990. COPIES FURNISHED: Tobi Pam Senior Attorney Department of Professional Regulation 1940 North Monroe, Suite 60 Tallahassee, Florida 32399-0792 Frank Berman P.O. Box 14156 North Palm Beach, Florida 33408 Martha Willis Executive Director Board of Accountancy Suite 16 4001 Northwest 43rd Street Gainesville, Florida 32606 Kenneth E. Easley General Counsel Department of Professional Regulation 1940 North Monroe, Suite 60 Tallahassee, Florida 32399-0792
Findings Of Fact The Petitioner is not a graduate of at least a four-year accredited college or university course, and has not qualified for a degree with a major in accounting. The Petitioner has not completed such courses as would constitute a major in accounting. The Petitioner has not satisfied all of the legal requirements to take the Florida examination or to receive a Reciprocal Certificate from the Respondent. The Petitioner has practiced accountancy for more than fifty years, and he holds Certified Public Accountant Certificates from the state of New York and the Commonwealth of Massachusetts. The Petitioner has also been admitted to practice before the United States Treasury Department and the United States Tax Court. The Petitioner has performed meritorious work as a Certified Public Accountant, and as also performed many important civic services.
Recommendation That the application of Philip M. Percus for a Reciprocal Certificate allowing him to practice as a Certified Public Accountant in Florida be denied. Recommended this 6th day of May, 1977, in Tallahassee, Florida. G. STEVEN PFEIFFER Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Laurence J. Marchbanks, Esquire 301 W. Camino Gardens Boulevard Boca Raton, Florida 33432 Attorney for Petitioner James S. Quincey, Esquire P.O. Box 1090 Gainesville, Florida 32602 Attorney for Respondent Douglas N. Thompson, Jr. Executive Director Florida State Board of Accountancy Post Office Box 13475 Gainesville, Florida 32604
Findings Of Fact Brooks and Wilt is a fictitious name for a general partnership established by Mr. Wilt and his wife in either late 1989 or early 1990. Brooks and Wilt evolved as a part-time enterprise as a result of Mr. Wilt's relationship with various individuals who requested that Mr. Wilt assist them in preparing tax returns or maintaining bookkeeping records for their businesses. The activities of Mr. Wilt's wife were not at issue in this proceeding. At no time has Brooks and Wilt or Wayne E. Wilt been registered with the Petitioner as an investment adviser. For the three years preceding the formal hearing, Mr. Wilt was a full time employee of James Hartley, an architect with offices in Hollywood, Florida. Mr. Wilt's duties for Mr. Hartley include bookkeeping and accounting. When Brooks and Wilt was formed, Mr. Wilt was providing strictly bookkeeping, accounting, and tax work for his clients. In August 1991, Mr. Wilt completed a two-year correspondence course from the College of Financial Planning and was awarded a certificate of completion. On March 30, 1992, Mr. Wilt applied for registration as a financial adviser with the United States Securities and Exchange Commission (SEC). Mr. Wilt received notification dated April 22, 1992, from the SEC that he had been approved for registration. An applicant for registration as an investment adviser in the State of Florida must first be registered with the SEC. At the time Mr. Wilt applied for registration with the SEC, he called the SEC to inquire about registration with the State of Florida. Mr. Wilt was told in response to his inquiry that the SEC would notify the State of Florida upon his becoming registered with the SEC. The Petitioner receives quarterly reports from the SEC which list each person who resides in Florida and is registered with the SEC as an investor adviser. Petitioner received notification of Mr. Wilt's registration with the SEC and sent to Mr. Wilt a letter dated June 22, 1992, which informed him of the information it had received from the SEC, specifically advised him that Florida law required registration, and inquired as to his intentions to register with the State of Florida as an investment adviser. This letter also elicited certain information from Respondents. Mr. Wilt considered the letter from Petitioner to be part of the registration process and responded to the questions accordingly. Mr. Wilt did not realize that the letter was part of an investigation into suspected violation of the Florida Securities and Investor Protection Act, which generally requires registration with Petitioner of all persons who engage in the business of investment adviser in the State of Florida. In his response to the Petitioner's letter dated June 22, 1993, Mr. Wilt sent a letter that was received by the Petitioner on July 13, 1992. This July letter responded to the questions raised by Petitioner's June letter. The last paragraph of Mr. Wilt's July letter provided as follows: "I will wait to hear from the appropriate office as to how to complete the registration process." Petitioner's June letter asked for the following information: Provide a list of 'all' services offered or rendered to the general public by the firm. Mr. Wilt's July letter responded with the following list of services: Bookkeeping/Accounting Tax Return Preparation Financial Planning Money Management Petitioner's June letter asked for the following information: Has the firm or its associated persons provided investment advisory services for compensation from offices in this state or with persons of this state? Mr. Wilt's July letter responded with the following: "Services for compensation? YES". Petitioner's June letter asked for the following information: Has the firm or its associated persons held themselves out to the general public as an investment adviser? Mr. Wilt's July letter responded with the following: "Hold out to public? YES". Petitioner's June letter asked for the following information: "If the firm has provided investment adviser business from offices in this state or with persons of this state, provide all methods in which the firm holds itself out to the general public and provide documentation representing all methods and forms utilized. Methods used to hold oneself out include, but are not limited to document letterhead, business cards, advertising, transcripts, telephone and business directory listings, building directories, etc." Mr. Wilt's July letter responded with the following: "Methods (copies enclosed): Business Cards Brochures" Mr. Wilt enclosed a copy of his brochure and a copy of his business card. Petitioner's June letter asked for the following information: "If the firm has conducted investment adviser business from offices in this state or with persons of this state, provide the total number of clients (accounts) in this state in which those services have been rendered within the last twelve (12) months." Mr. Wilt's July letter responded with the following: "This state accounts: Six (6)". Petitioner's June letter asked for the following information: "If the firm claims it is exempt from registration as an investment adviser with the Department, indicate which exemption(s) to registration the firm is claiming and provide proof to the Department that the firm met or is meeting the requirements of the exemption(s) claimed." Mr. Wilt's July letter responded with the following: "No Exemption Claimed". Petitioner's June letter asked for the names, addresses, and fees charged to each client to whom Brooks and Wilt had provided investment adviser services. Mr. Wilt's July letter responded with the following names: Elsa Johnson, Joanne Boren, Frank Kostek, Abe Oquendo, Karen Hartley, and James Hartley. The response also reflected that Mr. Oquendo had been paid a fee of $100.00 and that Mr. Hartley had paid a fee of $1,026.50. The business card that was enclosed with Mr. Wilt's July letter was printed in March 1992. This card identified Mr. Wilt as being a registered investment adviser. Mr. Wilt testified that he had ordered these cards in anticipation of being registered and that the only one of these cards he had given to anyone was the one he enclosed with his July letter to Petitioner. It is found that Mr. Wilt did not distribute any of these business cards to the public at any time pertinent to this proceeding. In addition to the business cards, Brooks and Wilt had a brochure prepared in August or September of 1991. This brochure represented that Brooks and Wilt offered "customized financial planning" and contained the following statement: "We specialize in asset allocation among a broad spectrum of investment vehicles, including all types of mutual funds. Millions of dollars under current management." Mr. Wilt testified at the formal hearing he did not hire anyone to distribute his brochure and that he undertook to distribute the brochure as follows: "Only to people that I knew, my friends, my coworkers, family, . . . an occasional tax client. If they had a bookkeeping need . . . it would come up in discussion and I would hand them this (the brochure) . . . in the privacy of my house, my home office." Based on Mr. Wilt's testimony, it is found that Respondents' distribution of the brochures was limited and was not made to the general public. Since 1988, Mr. Wilt has discussed mutual funds and retirement planning with six individuals. Each of these individuals was either a coworker, a relative of a coworker, or a friend. Elsa Johnson was a coworker of Mr. Wilt's, who in 1988, asked Mr. Wilt some questions about how mutual funds worked and whether investing in mutual funds was a good idea. Mr. Wilt calculated the amount of income Ms. Johnson would require to maintain the retirement life-style she wanted. He also calculated the amount of the investment she would have to make to attain that retirement income. Mr. Wilt recommended several different mutual funds to Ms. Johnson as possible investments. Mr. Wilt answered Ms. Johnson's questions, but he did not charge her a fee for that information. Joanne Boren is a coworker of Mr. Wilt's wife, and a family friend, who in mid 1991 was dissatisfied with the mutual fund in which she had invested. Mr. Wilt recommended to her several mutual funds as possible investments. Mr. Wilt answered Ms. Boren's questions, but he did not charge her a fee for that information. Frank Kostek is a longtime friend of Mr. Wilt's who asked how mutual funds worked and whether investing in mutual funds was a good idea. Mr. Wilt answered Mr. Kostek's questions and recommended several mutual funds as possible investments, but he did not charge him a fee for that information. Abe Oquendo is a coworker and a friend of Mr. Wilt's who asked Mr. Wilt about mutual funds and whether they would be an appropriate investment. On November 1, 1991, Mr. Wilt answered the questions Mr. Oquendo had posed and helped Mr. Oquendo complete an application to purchase mutual funds that Mr. Oquendo had selected. It was not established that Mr. Wilt advised Mr. Oquendo as to the mutual funds to purchase or the amounts that he should purchase. For explaining mutual funds to him and helping complete the application, Mr. Oquendo paid Mr. Wilt the sum of $100. Karen Hartley is the daughter of Mr. Wilt's employer, James Hartley. On one occasion, Ms. Hartley asked Mr. Wilt general questions by telephone about mutual funds. Mr. Wilt answered Ms. Hartley's questions, but he did not charge her a fee for that information. In 1989, Mr. Wilt explained how mutual funds worked to his employer, James Hartley, and he recommended several mutual funds as possible investments. Following his discussions with Mr. Wilt, Mr. Hartley invested a large sum of money in mutual funds. That money had previously been invested by Hartley in certificates of deposit. Mr. Hartley also hired Brooks and Wilt to monitor his mutual fund portfolio. That monitoring consisted of tracking the value of the various mutual fund investments Mr. Hartley had made. For work performed in monitoring Mr. Hartley's mutual fund portfolio in 1992, Brooks and Wilt was paid the sum of 1,026.50. For work performed in monitoring Mr. Hartley's mutual fund portfolio in 1993, Brooks and Wilt was paid the sum of 1,095.00. Mr. Wilt testified that he would give general financial advice to these six individuals if he were asked to do so.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order which dismisses this proceeding. DONE AND ENTERED this 3rd day of November, 1993, in Tallahassee, Florida. CLAUDE B. ARRINGTON 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 3rd day of November, 1993.
