Findings Of Fact Petitioner in this proceeding is Lykes Memorial Hospital, Inc., (Lykes) a separate, albeit subsidiary, corporation from its parent, Lykes Health Systems, Inc. Lykes is a 166 bed, not-for-profit general acute care community hospital located in Brooksville, Florida. On or about May 30, 1990, Lykes timely filed CON Application No. 6266 to add 30 hospital-based, extended care beds through renovation of existing space. On or about June 14, 1990, Respondent requested Lykes to provide certain items of information omitted from the original application. One of the items requested in Respondent's written omissions request was an audited financial statement of the applicant for Lykes' most current fiscal years, 1988 and 1989. Lykes responded by providing two audits: an audit of Lykes Memorial Hospital, Inc., for the year ending September 30, 1988, and an audit of Lykes Health Systems, Inc., for the years ending September 30, 1989 and 1988 (the consolidated audit). By letter dated July 25, 1990, Respondent notified Lykes that its CON application was being withdrawn from consideration due to the failure of Lykes to submit audited financial statements of Lykes for the most recent fiscal year of operation which ended September 30, 1989. The submission of an audit containing the most current audited financial information is necessary for Respondent to determine an applicant's current financial condition and assess the proposed project's financial feasibility. Such analysis is crucial to a determination of whether the applicant will continue to be an ongoing corporation providing its best services to patients over a long-term period. Respondent's analysis is limited to the audited financial statement of the applicant. To permit an applicant to meet the requirement for an audited financial statement by providing an audited financial statement from an entity different than the applicant opens the door to submission of varying and discretionary types of financial information. Such a practice could result in unfair comparisons of financial information in the process of comparative review with regard to financial information analysis. There are three essential parts to an audited financial statement. Those parts are an independent auditor's opinion; financial statements; and notes to the financial statements. Although Lykes' submission of an audited financial statement for the year ending September 30, 1988, meets requirements contained in Section 381.707(3), Florida Statutes, mandating submission of such a statement by an applicant, the submitted audit was not for the most current fiscal year of operation. Rather, the audit submitted is for the year before. For existing health care facilities such as Lykes, Section 381.707(3), Florida Statutes, also requires the submission of a balance sheet and a profit- and-loss statement for the previous two fiscal years' operation. Respondent has interpreted Section 381.707(3), Florida Statutes, to require an applicant's submission of the most current year's audit. When the application is submitted by an existing health care facility, Respondent requires submission of an audited financial statement for the two most current fiscal years. This requirement is contained in Chapter 11-3, part 6, of Respondent's Certificate of Need Policy Manual. Personnel involved in the preparation of Lykes' application were aware of this requirement. While the audited financial statement of Lykes for the year ending September 30, 1988, provides an auditor's opinion on the financial condition of Lykes, the applicant, at that time; no such opinion is contained in the audit of Lykes Health Systems, Inc., for the years ending September 30, 1988, and 1989, which is specific to Lykes apart from the parent corporation. Respondent does not have access to an applicant's financial records and is therefore dependent upon disclosures or notes to an audited financial statement to provide fair disclosure of the financial statements and identify specific areas of concern. Without such note disclosures, a proper financial analysis cannot be performed. Notes in the consolidated audit of Lykes Health Systems, Inc., are not complete note disclosures for Lykes, the applicant. Further, notes in the consolidated audit were prepared for the consolidated group of businesses operating under the umbrella of Lykes Health Systems, Inc., and not for any individual entity within the group. It is not possible to isolate information applicable to Lykes from the auditor's notes to the consolidated audit. The consolidated audit included statements of revenues and expenses, fund balances, and a balance sheet for Lykes for the fiscal years ending September 30, 1989, and September 30, 1988. However, no decision should be made with regard to those financial statements in the absence of note disclosures specific to Lykes, assuring that an auditor has specifically analyzed that entity and reached an opinion with regard to it. While a note to the consolidated audit contains a breakdown of capital assets for the consolidated group, this is not a specific breakdown of capital assets for Lykes, the applicant. Hence, Respondent cannot determine the applicant's capital assets breakdown. Further examples of the lack of specificity afflicting the consolidated audit include notes which fail to provide a specific breakdown of bonds payable for Lykes; a specific breakdown of or disclosure of contributions by Lykes to the pension plan; and no specific breakdown for Lykes with regard to patient service revenues. Instead, everything is grouped together. The consolidated audit does not contain all of the notes which would appear in an audit of Lykes, the applicant. Additional financial statements included with the consolidated audit contain no notes. The report must be interpreted in relation to Lykes Health Systems, Inc., taken as a whole. The audit of Lykes Health Systems, Inc., cannot be considered a specific audit of Lykes, the applicant. 1/ Rather, the consolidated audit expresses an opinion with regard to the parent corporation.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a Final Order be entered withdrawing Petitioner's application for CON No. 6266 from further consideration. DONE AND ENTERED this 14th of January, 1991, in Tallahassee, Leon County, Florida. DON W. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of January, 1991. APPENDIX The following constitutes my specific rulings, in accordance with Section 120.59, Florida Statutes, on findings of fact submitted by the parties. Petitioner's Proposed Findings 1-6. Adopted in substance, though not verbatim. 7-9. Rejected, unnecessary. Adopted in substance. Rejected, unnecessary. Adopted by reference. Rejected, cumulative. Rejected, argumentative. 1st sentence addressed, remainder rejected as unnecessary. 16-17. Rejected, argument. 18-19. Rejected, not supported by weight of the evidence. 20-22. Rejected, argument. 23. Rejected, relevance. 24-25. Rejected, unnecessary and argumentative. Respondent's Proposed Findings 1-3. Adopted in substance, not verbatim. 4. Adopted by reference. 5-15. Adopted in substance, though not verbatim. 16-17. Adopted by reference. COPIES FURNISHED: Stephen A. Ecenia, Esq. Suite 400 First Florida Bank Building Tallahassee, FL 32301 Edward G. Labrador, Esq. Assistant General Counsel Department of Health and Rehabilitative Services 2727 Mahan Dr., Suite 103 Tallahassee, FL 32308 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700
The Issue At issue is whether respondent committed the offenses alleged in the administrative complaint and, if so, what disciplinary action should be taken.
Findings Of Fact Petitioner, Department of Business and Professional Regulation, Division of Real Estate (Department), is a state government licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular Section 20.165, Florida Statutes, and the rules promulgated pursuant thereto. Respondent, Phillip Bantu Gilbert, is now and was at all times material hereto a licensed real estate broker in the State of Florida, having been issued license number 0460883. Respondent's licensure status On May 13, 1992, respondent applied to the Department for licensure as a real estate broker. As part of that application, respondent was required to make an election with regard to whether, upon successful completion of the examination, he would be actively employed or preferred an inactive broker's license. Specifically, the application provided: EMPLOYMENT INFORMATION You must select one of the following options for your first license which automatically will be mailed as notice of passing the exam- ination, together with your examination score. The receipt of either license will establish your broker's status. You may immediately file a request to change employer, register as a real estate broker (sole proprietorship), or become a broker-member of a corporation or partnership, at no additional charge. [ ] I will continue my present employment as a broker-salesman. (ATTACH COPY of your current salesman's license or Validated Confirmation Slip.) [x] I wish to be issued an inactive broker's license and understand that it may be converted to a broker's or broker-sales- man's license if I file and request same when notified that I have passed the examination. Respondent elected the second option, to be issued an inactive broker's license. Respondent successfully completed the examination, and on December 21, 1992, was issued his broker license. Such licenses do not carry any legend reflecting active or inactive status; however, due to his election, which evidenced no current real estate employment or place of business, respondent's status was inactive. Following licensure, respondent began to actively operate as a broker, under the name Bantu Enterprises, at 150 Northwest 56th Street, Miami Shores, Florida. Bantu Enterprises, of which respondent is president and founder, is a Florida corporation, and has never been registered as a trade name or real estate brokerage company by the Department. Respondent's license continued in a voluntary inactive status until, following the investigation hereinafter discussed, he applied to the Department for active status. That application, filed March 1, 1994, identified the name and business address of the owner/broker as Phillip B. Gilbert, 150 Northwest 56 Street, Miami, Florida. The Morong transaction On or about June 14, 1993, Chester Morong and Lynette Morong, his wife, submitted an offer to purchase certain real property located at 700 Northwest 55 Avenue, Plantation, Florida, to the Department of Veterans Affairs (VA) for $177,250.00. Such offer was submitted through Bantu Enterprises, with Phillip B. Gilbert noted as the principal broker and sales person, and reflected an earnest money deposit of $1,500.00 being held by the broker. On June 30, 1993, respondent was advised by the VA that the Morong offer had been accepted for processing, and respondent was accorded three business days to present the Morongs to an authorized VA lender to process their offer. Respondent apparently complied with such requirement, and on August 4, 1993, the VA advised respondent that the Morongs had been approved to purchase the property and a closing date of August 13, 1993, was established. On August 9, 1993, the VA sent by overnight express to respondent, as the broker of record, the closing package. Under established procedure, respondent was to close the transaction, and then return to the VA, within 10 days of the closing, the closing package, the proceeds due the VA, and a recording receipt for any legal instruments that were recorded. On August 13, 1993, Mr. Morong requested of respondent that the closing be postponed for fourteen days. According to Mr. Morong, a hurricane had destroyed his parents' home in Trinidad the previous weekend, and he had been required to use the closing monies, among others, to provide them assistance. Respondent assured Mr. Morong that the time for closing could be extended; and on some date between August 13 and August 16, 1993, secured the Morongs' signatures to the closing documents in anticipation of closing. Among those documents was a mortgage deed to secure the repayment of the VA financing and a mortgage note in the sum of $175,750.00. On August 16, 1993, the VA contacted respondent's office and advised that there might be a title problem, and that the closing might have to be postponed to see if the problem could be resolved. According to the VA, respondent's office manager informed them that Mr. Gilbert told her to inform the VA that the sale had closed. In fact, the sale had not closed at that time. At or about 2:30 a.m., August 17, 1993, respondent telephoned Mr. Morong and stated he had received a call from the VA and that if he didn't have the closing costs the next day he (respondent) would quit claim the property to another person. On August 17, 1993, Mr. Morong telephoned the VA and learned that there might be a title problem with the property, associated with a bankruptcy. Acting on that advice, Mr. Morong delivered a letter to Mr. Gilbert that same day, which letter stated: Without prejudice I would like to formally withdraw my offer to close on the purchase of the above captioned property. This decision though saddening for us . . . was arrived at due to the attending problems with the property. I would like the urgent return of my $1500 earnest money. I also would like to bid on another property. On August 19, 1993, Mr. Morong was given a check, post-dated for August 21, 1993, on the account of Bantu Enterprises, in the sum of $1,500.00, for return of his escrow deposit. That check was subsequently negotiated and paid. Respondent did not advise the VA of Mr. Morong's withdrawal of the offer to purchase or his return of Mr. Morong's earnest money deposit. Had he done so, the closing on this property would not have occurred and the VA would have offered the property to the next highest bidder (offeror). Under such circumstances, respondent would have lost the six percent commission he anticipated from the transaction. Subsequent to Mr. Morong's withdrawal of his offer to purchase on August 17, 1993, respondent proceeded to close on the property, without the Morongs' consent. In so doing, respondent caused the special warranty deed from the VA to the Morongs, as well as the mortgage previously executed by the Morongs, to be recorded in the public records of Broward County, Florida. Thereafter, on August 26, 1993, respondent caused a quit claim deed, dated August 18, 1993, between Chester Morong and Lynette Morong, his wife, as grantors and Beverly A. Henry, a single woman, as grantee, to be recorded in the public records. That quit claim deed, prepared by respondent's brokerage, is a fraudulent document since the signatures affixed to the quit claim deed purporting to be those of Mr. and Mrs. Morong are forgeries, as the Morongs never executed any such document. On August 23, 1993, the VA received the closing package back from respondent, along with the settlement proceeds. Facially, the documents reflected that the sale had closed on August 13, 1993, and that Chester Morong and Lynette Morong, his wife, were the owners of the property. No reference was made to the transfer to Ms. Henry, and no request was made, at the time, for an assumption of mortgage package. The investigation of respondent's records and escrow accounts Following a complaint from Mr. Morong, after he discovered that the closing had occurred as heretofore discussed, a Department investigator commenced an audit of respondent's business practices. Among the items addressed by the investigator with respondent on his initial visit was a request to audit respondent's account to ascertain when Mr. Morong's $1,500.00 deposit was placed in escrow, and into what escrow account it was placed. To adequately conduct such an audit, the investigator would need respondent's bank deposit slips, monthly bank statements, case files and broker's monthly reconciliations. Respondent advised the investigator that he did not have the documents available at the time. Subsequently, on February 16, 1994, the investigator served a subpoena on respondent to compel production of the documents. That subpoena commanded that respondent produce on February 21, 1994, the following: For the period Jan. 1, 1993 to present, all sale/purchase agreements, contracts, leasing or rental agreements either closed, pending or null and void including monthly bank state- ments and cancelled checks plus monthly reconciliations of all escrow accounts and bank deposit slips. In response to the subpoena, respondent produced some bank statements and cancelled checks on an account for Bantu Enterprises, but no banking information for accounts in his name. As for the documents produced, they were fragmentary and not inclusive of the audit period, no contracts or case files were produced, and no written monthly reconciliations, as required by Rule 61J2-14.012, Florida Administrative Code, were produced. Consequently, a complete picture of respondent's activities was not presented, and the audit could not be completed. As of the date of hearing, respondent had still failed to produce the documentation requested by the subpoena, and the audit could not be completed.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be rendered which finds respondent guilty of Counts I and III through VII of the administrative complaint, and which dismisses Count II of the administrative complaint. As a penalty for such violations, respondent's broker's license should be revoked. DONE AND ENTERED this 30th day of May 1996 in Tallahassee, Leon County, Florida. WILLIAM J. KENDRICK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of May 1996.
The Issue The issues are as follows: (a) whether Respondent Department of Corrections (the Department) properly determined that there were no responsive proposals to the Request for Proposals entitled Mental Healthcare Services in Region IV, RFP #08-DC-8048 (the RFP); (b) whether the Department's intended award of a contract to provide mental healthcare services to inmates in Region IV to Intervenor Correctional Medical Services, Inc. (CMS), pursuant to Section 287.057(6), Florida Statutes (2008), is unlawful; and (c) whether Petitioner MHM Correctional Services, Inc. (MHM), has standing to challenge the Department's intended award of a contract to CMS pursuant to Section 287.057(6), Florida Statutes (2008).
Findings Of Fact The RFP Process The Department issued the RFP on February 5, 2009. Two addendums were issued to the RFP, the first on February 6, 2009, and the second on March 11, 2009. The Department did not receive any protest of the RFP or addendums from MHM or any other proposer within the statutorily set time limit of 72 hours from the issuance of the RFP. At the time of issuance of the RFP, MHM was the incumbent provider of mental health services to inmates in Region IV. At that time, MHM was providing the services at a rate of $77.62 per month/per inmate. MHM's contract to provide mental health services in Region IV was the result of a prior vendor being financially unable to perform the contract at its agreed rate. The RFP sought proposals from vendors to provide comprehensive mental healthcare services for inmates located at 14 correctional institutions located in the southern part of the State beginning on July 1, 2009. The Department’s contract with MHM for those services was set to expire on June 30, 2009. The Department had previously attempted another procurement for replacement of those services in late 2008. Proposals to the RFP were received and opened in a public meeting on March 23, 2009, from CMS, MHM, the University of Miami's Department of Psychiatry and Behavioral Sciences (the University of Miami), and Wexford Health Sources, Inc. (Wexford). The Department’s Bureau of Procurement and Supply (BPS) was responsible for overseeing the RFP. The Procurement Manager for the RFP was Ana Ploch. Ms. Ploch’s duties included drafting the proposal with the assistance of the Office of Health Services, managing the procurement process by coordinating release of documents, conducting related meetings (such as proposers’ conferences, proposal opening, and price opening), conducting site visits, supervising the evaluation process, and keeping records of the process through completion of a summary report of the procurement. Once the Department received the proposals, it began the eight-phased review and evaluation process as set forth in Section 6 of the RFP. Phase 1 of the review and evaluation process began with the public opening of the proposals that took place on March 23, 2009. Phase 1 also included the review of the proposals to determine if they met mandatory responsiveness requirements. Determination of meeting mandatory responsiveness requirements was made by BPS staff. Mandatory Responsiveness Criteria or “fatal criteria” is described in Section 5.1 of the RFP as requirements that must be met by a proposer for the proposal to be considered responsive. A failure to meet any one of the three following criteria would result in an immediate finding of non- responsiveness and the rejection of the proposal: (a) the subject proposal must be received by the Department by the date and time specified in the RFP; (b) the proposal must include a signed and notarized Certification Attestation Page for Mandatory Statements; and (c) the price proposal must be received by the Department by the date and time specified in the RFP and must be in a separate envelope or package in the same box or container as the project proposal. There is no dispute that all four proposals met these mandatory responsiveness/fatal criteria. In addition to the fatal criteria, a proposal could be found to be non-responsive for failing to conform to the solicitation requirements in all material respects. The RFP, Section 1.20, clearly set forth the definition of a “material deviation” and the basis for rejecting a proposal as follows: 1.20 Material Deviations: The Department has established certain requirements with respect to proposals to be submitted by vendors. The use of shall, must or will (except to indicate simple futurity) in this RFP indicates a requirement or condition which may not be waived by the Department except where any deviation therefrom is not material. A deviation is material if, in the Department’s sole discretion, the deficient proposal is not in substantial accord with this RFP’s requirements, provides an advantage to one proposer over other proposers, or has a potentially significant effect on the quantity or quality of items or services proposed, or on the cost to the Department. Material deviations cannot be waived and shall be the basis for rejection of a proposal. (Emphasis in original.) A Responsive Proposal is defined in the RFP Section 1.29 as “[a] proposal, submitted by a responsive and responsible vendor that conforms in all material respects to the solicitation.” A minor irregularity is defined in Section 1.26 of the RFP as: 1.26 Minor Irregularity: A variation from the RFP terms and conditions which does not affect the price proposed or gives the proposer an advantage or benefit not enjoyed by the other proposers or does not adversely impact the interests of the Department. Phase 2 consisted of a review of the business/corporate qualifications and technical proposal/service delivery narratives contained in the proposals. This phase was completed individually by evaluation team members. The evaluation team, which consisted of 5 employees from the Department’s Office of Health Services, met with Ms. Ploch on March 24, 2009, for instruction on how to proceed with the evaluation. The team members were given the evaluation materials on that date. Evaluation and scoring of the proposals was done separately by each individual without discussion among the members. At the March 31, 2009, bid tabulation meeting, which occurred after the team members scored the proposals, Ms. Ploch told the team members that MHM and the University of Miami were non-responsive to the RFP. Then the scores for the different categories were recorded as announced by each member of the evaluation team. All four proposals were scored for the three categories listed in RFP Section 5.3 (business/corporate experience), Section 5.5 (project staff) and Section 5.6 (technical proposal and service delivery narrative). There is no allegation that the scores assigned to the proposals were done in error or that they were not in compliance with Department rules or procedures. Phase 3 of the review and evaluation process was completed at the same time as Phase 2 and 4, by Ms. Ploch and the BPS staff. That review of the proposals included a determination as to whether the proposers were in compliance with Section 5.3 “Business/Corporate Qualifications.” At that point in the review process, BPS determined that the University of Miami’s proposal was non-responsive in that the proposer did not have the necessary business experience. This finding has not been disputed by any party. An independent Certified Public Accountant (CPA) completed Phase 4 of the review and evaluation process. The Department hired the CPA to review the financial requirements of Section 5.4 of the RFP. The CPA, Richard Law, was given all the proposals, including the financial documentation, on March 24, 2009. He conducted his review separately from the Department's reviews in Phases 2 and 3. Mr. Law has been a licensed CPA for over 30 years. His major practice area is conducting audits for state governments, as well as private businesses. With more than 10 years of experience reviewing financial documentation for the Department and assisting on the setting of financial benchmarks for numerous procurements, he is highly qualified to perform the evaluation and assessment of these basic financial criteria. The financial requirements and the financial documentation and information that the proposers had to submit are set out in Section 5.4 of the RFP. That section is entitled “Financial Documentation,” and provides as follows in pertinent part: Tab 4-Financial Documentation The Proposer shall provide financial documentation that is sufficient to demonstrate its financial viability to perform the Contract resulting from this RFP. Three of the following five minimum acceptable standards shall be met, one of which must be either item d, or item e, below. The Proposer shall insert the required information under Tab 4 of the Proposal. Current ratio: = .9:1 or (.9) Computation: Total current assets ÷ total current liabilities Debt to tangible net worth: = 5:1 Computation: Total liabilities ÷ net worth Dun and Bradstreet credit worthiness (credit score): = 3 (on a scale of 1-5) Minimum existing sales: = $50 million Total equity: = $5 million NOTE: The Department acknowledges that privately held corporations and other business entities are not required by law to have audited financial statements. In the event the Proposer is a privately held corporation or other business entity whose financial statements ARE audited, such audited statements shall be provided. If the privately held corporation or other business entity does not have audited financial statements, then unaudited statements or other financial documentation sufficient to provide the same information as is generally contained in an audited statement, and as required below, shall be provided. The Department also acknowledges that a Proposer may be a wholly-owned subsidiary of another corporation or exist in other business relationships where financial data is consolidated. Financial documentation is requested to assist the Department in determining whether the Proposer has the financial capability of performing the contract to be issued pursuant to this RFP. The Proposer MUST provide financial documentation sufficient to demonstrate such capability including wherever possible, financial information specific to the Proposer itself. All documentation provided will be reviewed by an independent CPA and should, therefore, be of the type and detail regularly relied upon by the certified public accounting industry in making a determination or statement of financial capability. To determine the above ratios, the most recent available and applicable financial documentation for the Proposer shall be provided. This financial documentation shall include: The most recently issued audited financial statement (or if unaudited, reviewed in accordance with standards issued by the American Institute of Certified Public Accountant). All statements shall include the following for the most recently audited (immediate past) year. auditors’ reports for financial statements; balance sheet; statement of income; statement of retained earnings; statement of cash flows; notes to financial statements; any written management letter issued by the auditor to the Proposer’s management, its board of directors or the audit committee, or, if no management letter was written, a letter from the auditor, stating that no management letter was issued and that there were no material weaknesses in internal control or other reportable conditions; and a copy of the Dun & Bradstreet creditworthiness report dated on or after February 5, 2009. (Emphasis in original) The RFP provided as follows in Section 5.4.2: If the year end of the most recent completed audit (or review) is earlier than nine (9) months prior to the issuance date of this RFP, then the most recent unaudited financial statement (consisting of items b, c, d and e above) shall also be provided by the Proposer in addition to the audited statement required in Section 5.4.1. The unaudited financial data will be averaged with the most recent fiscal year audited (or reviewed) financial statement to arrive at the given ratios. Throughout Section 5.4 of the RFP, the emphasis is on the need for audited financial statements. The use of unaudited financial statements alone does not apply to MHM pursuant to the terms of the RFP, but they did apply to other proposers. Both audited and unaudited financial statements were averaged to determine ratios for CMS and Wexford, where their audited financial statements were older than 9 months. This was clearly permissible under Section 5.4.2. MHM’s proposal included audited financial statements dated September 30, 2008, and also additional information, including unaudited financial statements and a financial narrative in which it admitted that its current ratio as of September 30, 2008, was 0.82 and that it had a negative equity of $24.8 million dollars. MHM was fully aware that it could have difficulty meeting the financial ratios before the Department issued the RFP. As early as January 2008, MHM was considering a stock repurchase. MHM knew its existing contract would come up for rebid. MHM also knew that the Department sometimes used financial criteria and financial ratios as pass/fail ratios. MHM was concerned that the stock repurchase would trigger one of those ratios, causing them to lose the contract. In January 2008, Susan Ritchey, MHM's Chief Financial Officer, and Steve Wheeler, MHM's President and Chief Operating Officer, contacted Mr. Law. Ms. Ritchey and Mr. Wheeler wanted to discuss their concerns regarding financial ratios that the Department might require in the future. During the hearing, Mr. Wheeler denied that the contact with Mr. Law had anything to do with the instant RFP. There is no persuasive evidence that Mr. Law gave Ms. Ritchey and Mr. Wheeler inappropriate advice. The independent review by Mr. Law of MHM’s financial documentation resulted in the finding that MHM only met two of the minimum acceptable standards required by Section 5.4 of the RFP. Mr. Law set out his conclusions on a Department form entitled “Phase IV, Financial Documentation Review to Be Completed by Independent CPA.” That sheet reflected that MHM had failed the current ratio with a score of .819, when a ratio of = 9:1 or (.9) was required (item a). Likewise, MHM failed the “Debt to tangible net worth” and the “total equity” criteria (items b and e, respectively), since MHM had a negative equity of $22 million dollars. MHM passed the two remaining criteria. First, it met the minimum existing sales (item d) with sales at $217 million (greater than or equal to $50 million). Second, it met the requirement of the Dun & Bradstreet creditworthiness score (item c), which needed to be less than or equal to 3, with a score of The Dun & Bradstreet score was not noted on the Department review form because MHM had already failed three of the financial minimum acceptable financial standards. MHM disputes the finding that it failed the “Debt to tangible net worth” requirement (item b) which was a ratio of = 5:1 or “less than or equal to 5 to 1, a whole number.” Net worth is the same as equity. Following proper accounting practices and a commonsense reading of this mathematical phrase required that both numbers be whole numbers, neither could be a negative. Put simply, a proposer could only have a maximum of five dollars in debt for every one dollar in net worth to pass this minimum acceptable standard. So, for purposes of evaluating this ratio, once it was determined that MHM had a negative equity of $22 million dollars, there was no way for MHM to pass this critical requirement. The “Debt to tangible net worth” criteria, was meant to be “Debt to net worth.” The computation set out below the criteria reflects the proper calculation needed to find debt to net worth, not debt to tangible net worth. Mr. Law performed the computation for debt to net worth as set out in the description of the computation, which was more advantageous to proposers than debt to “tangible net worth,” and resulted in a more favorable ratio. The ratio of “-1.77,” reflected on MHM's financial documentation review sheet is a mistake because Mr. Law used the number he reached averaging the audited and unaudited financial statements. The correct number is “-2.16,” which is based only on MHM's audited financial statement of September 30, 2008. That is, it was a greater negative number, but still negative. Either way, MHM fails this criteria. MHM had no dollars in net worth as of the issuance date of the RFP. Instead, MHM had a negative net worth of $24,785,000.00 as of the end of its fiscal year on September 30, 2008, as reflected in its audited financial statement. As to item “a”, “Current ratio,” a finding of .819 was reached by taking the total current assets ($23,493) and dividing into that number the total current liabilities ($28,692), both reflected on the MHM’s audited financial statement of September 30, 2008. These numbers taken from MHM’s audited financial statements for total current liabilities; total current assets and total equity represent millions, rounded for accounting purposes. MHM reached a similar finding of .82 using its September 30, 2008, audited financial statements. On the date the RFP was issued, February 5, 2009, MHM’s audited financial statement of September 30, 2009, was indisputably less than 9 months old and was the only financial statement under Section 5.4.2 of the RFP that could be used to compute the ratios in Section 5.4.2. Even if the unaudited financial statement submitted by MHM were averaged with the most recent audited financial statement, as demonstrated by Mr. Law’s attempts to do so, MHM would still not have met the current ratio. Nowhere in the RFP does it allow for the use of unaudited financial statements alone when there are existing audited financial statements. Mr. Law’s completed Phase 4 review of the financial documentation. He returned it to the Department on March 30, 2009. The Department conducted Phase 5 of the review and evaluation process, the Public Opening of the price proposals, on April 2, 2009, in a properly noticed meeting. At that time, the Department knew that there were only two responsive proposals (CMS and Wexford). No public announcement regarding the status of the other proposals had been made at that time. The RFP contained a price cap of $70.00 per inmate per month as reflected in Section 5.11.2 of the RFP and the Price Information Sheet. The intent of the price cap of $70 per month was to achieve a price savings for the Department over what it was then paying for mental healthcare services in Region IV, which was nearly $78.00. The goal of $70 was considered to be possibly unrealistic, but the true intent was to keep from exceeding the current rate of $78.00. At the price opening, the following prices were announced: (a) MHM’s price was $70.00 per inmate per month; (b) the University of Miami’s price was $69.49 per inmate per month; (c) CMS’s price was $74.49 per inmate per month; and (d) Wexford’s price was $95.00 per inmate per month. It was later determined that CMS had also submitted an alternative price sheet. However, the alternative price sheet did not affect the responsiveness of CMS's proposal or the Department's subsequent decision. Based on the fact that CMS’s and Wexford’s proposed prices exceeded the amount set by the RFP, their proposals were deemed non-responsive to the RFP. Consequently, as of April 2, 2009, there were no responsive proposers to the RFP. BPS staff prepared a final score and ranking sheet as required by Section 6.2.7 of the RFP. The scoring and ranking included just the two proposals, CMS and Wexford, that were responsive going into the Phase 5 Price Opening. BPS staff did not perform further scoring and ranking of the two proposals that were non-responsive prior to the Price Opening. Department of Corrections’ Procedure 205.002, entitled “Formal Service Contracts,” addresses the Department’s procedures, terms, and conditions for soliciting competitive offers for certain types of services. The Procedure has separate sections for Invitations to Bid, Requests for Proposals, Invitations to Negotiate and general sections that address all three. There is no requirement in the procedure that addresses the specific situation facing the Department in the mental healthcare procurement. The section of Procedure 205.002 that Petitioner points to, Section (5)(r)3., applies only to instances when the Department is seeking to single source a procurement or negotiate with a single responsive bidder. The section reads as follows in pertinent part: (r) Receipt of One or Fewer Responsive Bids, Proposals or Responses: * * * 3. If the department determines that services are available only from a single source or that conditions and circumstances warrant negotiation with the single responsive bidder, proposer, or respondent on the best terms and conditions, the department’s intended decision will be posted in accordance with section 120.57(3), F.S., before it may proceed with procurement. This section of the procedure is clearly inapplicable in the instant case since there were no responsive proposals. Section 287.057(6), Florida Statutes (2008) Faced with no responsive proposers, the Department considered its options. The Department then decided to negotiate for a contract on best terms and conditions pursuant to Section 287.057(6), Florida Statutes (2008), in lieu of going through a third competitive solicitation. The Department’s decision to negotiate was ultimately made by the Assistant Secretary for Health Services in the Department's Office of Health Services. The BPS staff and legal counsel advised Assistant Secretary Dr. Sandeep Rahangdale about the options available to the Department. Dr. Rahangdale had the following three options: (1) to reject all proposals and begin what would be the third competitive procurement for mental healthcare services in less than 8 months; (2) to negotiate a contract on best terms and conditions under Section 287.057(6), Florida Statutes (2008), since there were less than two responsive proposals to the RFP; or (3) to use the statutory exemption for health services under Section 287.057(5)(f), Florida Statutes (2008), and enter into a contract with any vendor the Department selected. Option 1, to begin a new procurement was time-barred because the Department needed a new contract in place by July 1, 2009. Dr. Rahangdale’s primary concern was to insure that the Department provided constitutionally mandated health care, including mental healthcare to all inmates in its custody. In making the decision to negotiate, Dr. Rahangdale reasonably chose to begin negotiations with CMS. He made this decision because, of the two proposers who were responsive except for exceeding the price cap, CMS’s price was closest to the $70.00 per inmate per month goal. Wexford, the other proposer that was responsive except for price, had submitted a price of $95.00 per inmate per month. Thus, the Department had a reasonable belief there was a better chance of reaching its $70 goal through negotiations with CMS. Additionally, CMS was the highest scored technical proposal of the only two responsive proposals prior to the Price Opening. Thus, CMS was a better choice for the Department from a delivery of services standpoint. The Department made a reasoned decision to not abandon all the criteria of the RFP that had to do with qualifications, such as business experience (failed by University of Miami) or financial viability (failed by MHM). Dr. Rahangdale considered and determined that the nature of MHM’s and the University of Miami’s failure to be responsive could not be changed or cured in the negotiation process unless the Department lowered its expectations regarding performance and corporate viability. Negotiations were conducted between April 7, 2009, and April 9, 2009, by Jimmie Smith of the Office of Health Services. Dr. Rahangdale instructed Mr. Smith to undertake negotiations with CMS on best terms and conditions, and to strive to get as close as possible to a price of $70.00 per inmate per month in the negotiations. Mr. Smith is a Registered Nurse working in the Department’s Office of Health Services. His working job title is Assistant Program Administrator/Contracting. He has the responsibility to contact potential vendors for health-related services and commodities and to ensure that formal contracts or purchase orders are issued for the required health-related services and commodities. Mr. Smith typically is charged with making initial contact with vendors, handling negotiations for exempt health service contracts, and coordinating the procurement of the services with BPS. He is also a contract manager for healthcare services and advises other contract managers. Mr. Smith was eminently well qualified to negotiate this contract for mental healthcare services on behalf of the Department. Prior to beginning his negotiations, Mr. Smith obtained a complete copy of CMS’s proposal, including the price proposal. He contacted CMS'S Senior Director of Business Development, Frank Fletcher, by telephone to conduct the negotiations. Emails dated April 9, 2009, between the Department and CMS’s representative reflect an offer by CMS to perform the scope of work described in the RFP at a capitated rate of $70.00 for the first year of service, with a $2.50 escalator per year for a five-year non-renewal contract term. CMS also proposed adding a 30-day period for correction of performance measures, prior to the imposition of liquidated damages. The Department counter-offered with a requirement that any failure to correct the performance measure violation within the 30-day period would result in retroactive imposition of liquidated damages to the day of the violation. These terms and conditions were presented to Dr. Rahangdale who approved them. Dr. Rahangdale considered the $2.50 escalator, but decided he was satisfied with the initial year price of $70, a 10% savings for the Department over its current contract and a savings of three million over the life of the contract. On April 10, 2009, Mr. Smith confirmed the tentative agreement to Mr. Fletcher by email. CMS understood that the agreement was tentative until the Department posted a notice of agency decision. The BPS staff prepared an Agency Action Memo, the Summary Report, and the Notice of Intent to Award. The Agency Action Memo contained a recommendation for award and an option of non-award. The Agency Action Memo stated as follows in part: The Department made the determination that it was in the best interest of the State to proceed with negotiations as authorized by Section 287.057(6), Florida Statutes. The Department negotiated with the highest- ranked Proposer on the best terms and conditions for the resulting Contract. Based upon the results of the negotiation conducted, it is recommended that the Department awards a Contract to Correctional Medical Services, Inc. A Summary Report was attached to the Agency Action Memo. The report explained the RFP process in detail. It explained the reasons for finding MHM and the University of Miami non-responsive. It explained that CMS and Wexford were non-responsive because they exceeded the price cap. 55.. The report charted the results of the Phase 5--Public Opening of Price Proposals as follows in abbreviated form: PROPOSER UNIT PRICE ANNUAL COST FINANCIAL EXPERIENCE CMS $74.59 $16,536,780 Passed Passed Wexford $95.00 $21,090,000 Passed Passed U. of M. $69.49 $15,426,780 Passed Failed MHM $70.00 $15,540,000 Failed Passed The report set forth the Department's reasons for negotiating on best terms and conditions pursuant to Section 287.057(6), Florida Statutes (2008), in pertinent part as follows: Phase 8--Notice of Agency Decision The procurement of Mental Healthcare Services in Region IV was under competitive solicitation for over eight (8) months, via two (2) different solicitations (ITN and RFP). The companies that submitted proposals in response to this RFP also submitted responses to the previous ITN. Pursuant to Section 287.057(6), Florida Statutes, the Department negotiated with the highest-ranking proposer on the best terms and condition and in the best interest of the state, in lieu of resoliciting competitive proposals for a third time. The last page of the report charted the Final Score and Ranking for CMS and Wexford. The first chart showed the actual points received by the proposers, the highest points received by any proposal, and the awarded points. The second chart showed the proposed unit price, the lowest verified price, and the awarded points. The third chart showed the total response points, with CMS having 500 and Wexford having 454.64. MHM and the University of Miami were non-responsive as to RFP requirements that the Department, in its sole discretion, determined were non-negotiable. Therefore, the Department properly determined that CMS was the highest-ranking proposer after the Price Opening. As Bureau Chief, Mr. Staney was ultimately responsible for verifying that the four proposals were non-responsive. He and Dr. Rahangdale signed the Agency Action Memo, recommending an award to CMS. On April 15, 2009, Mr. Staney sent the documents to his supervisor, Director of Administration Millie J. Seay. The BPS staff briefed Ms. Seay regarding the Agency Action Memo. Ms. Seay questioned whether the Department should negotiate with Wexford. The BPS staff explained that Dr. Rahangdale had considered negotiating with Wexford but that he was satisfied with the negotiated rate and the higher technically-scored proposal from CMS. On Monday, April 20, 2009, Ms. Seay signed the Agency Action Memo. The next day the Department posted its intent to award a contract to CMS. The Department's Notice of Agency Decision announced the intent to award a contract for Mental Healthcare Services in Region IV to CMS as follows: DEPARTMENT OF CORRECTIONS NOTICE OF AGENCY DECISION RFP #08-DC-8048 MENTAL HEALTHCARE SERVICES IN REGION IV Pursuant to the provisions of Chapter 287.057(6), Florida Statutes, the Department of Corrections announces its intent to award a contract for MENTAL HEALTHCARE SERVICES IN REGION IV to the following vendor: Correctional Medical Services, Inc. This announcement gave all interested parties notice that the Department was taking some action with regard to the referenced RFP. The Notice also contained the statutorily required language giving all interested parties a point of entry to challenge the Department’s intent to award. Accordingly, no proposers were denied an opportunity to inquire into the details of the process that led to an award under the referenced statute, including the evaluation of the proposals and the Department’s decision to wait until it had completed Section 287.057(6), Florida Statutes (2008), negotiations to post the intended agency decision. 63 MHM timely filed its Formal Bid Protest Petition with the Department on May 4, 2009.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is Recommended: That the Department enter a final order awarding the contract for Mental Healthcare Services in Region IV to CMS and dismissing the protest of MHM. DONE AND ENTERED this 27th day of July, 2009, in Tallahassee, Leon County, Florida. S SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of July, 2009.
The Issue The issue in these consolidated cases is whether disciplinary action should be taken against Respondent's license to practice as a certified public accountant in the state of Florida based upon the alleged violations of Chapter 473, Florida Statutes, set forth in the Amended Administrative Complaints filed by Petitioner.
Findings Of Fact Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: At all times pertinent to these proceedings, Respondent was licensed to practice as a certified public accountant ("CPA") in the state of Florida, having been issued license number AC0001638. Respondent's most recent business address was 224 North Federal Highway, Suite #4, Fort Lauderdale, Florida 33301. Petitioner has presented evidence of a number of Final Orders entered by the Florida Board of Accountancy (the "Board") against Respondent as a result of prior disciplinary action initiated by Petitioner. While the records presented are somewhat confusing and bear several different case numbers, it appears that, as a result of the various cases, Respondent has been on probation for approximately the last 12 years. According to the records presented, the first action taken against Respondent's license is reflected in a Final Order dated December 31, 1981 and filed on February 8, 1982 in DPR Case Number 0000499. That Final Order indicates that a stipulation executed by Respondent "as to facts, law and discipline" was accepted by the Board "with no changes." The stipulation referenced in that Final Order was not included with the exhibits entered into evidence in this proceeding. Thus, the "facts, law and discipline" are not of record in this case. Next, the Board entered a Final Order dated May 11, 1982 and filed on May 17, 1982 in DPR Case Numbers 16369, 16370 and 15399 imposing a $1,000 fine against Respondent and suspending his license for eighteen (18) months. An Amended Final Order dated September 3, 1982 was filed in DPR Case Numbers 16369, 16370 and 15399 on September 15, 1982. That Amended Final Order accepted a signed stipulation dated July 30, 1982 and modified the Final Order entered on May 11, 1982. In lieu of the fine and suspension imposed in the May 11 Final Order, the Amended Final Order placed Respondent on probation for five years with a requirement for a review of Respondent's practice at the end of each year by a CPA selected by the Department at Respondent's expense. The independent certified public accountant was supposed to submit written and oral reports to the Board and the Department regarding Respondent's compliance with the applicable statutes and rules governing the accounting profession. The Stipulation which was incorporated into the Amended Final Order specifically required Respondent to comply "with all provisions of Chapter 455 and 473, Florida Statutes, and the rules promulgated pursuant thereto." The Stipulation provided in part as follows: The Board shall determine at a public hearing whether [Respondent] has complied with Chapters 455 and 473, F.S. and the rules promulgated thereto. The Board may restrict or prohibit [Respondent's] practice of public accountancy during his period of probation as it deems necessary to protect the public safety and welfare. It is clearly understood and agreed that, in the event the DEPARTMENT, the BOARD or the BOARD'S Probable Cause Panel find sufficient evidence to believe reasonable cause exists that [Respondent] has violated any of the conditions of probation as outlined above, a notice of said violation shall be sent to [Respondent], by certified mail, setting forth the nature of the alleged violation and an emergency hearing will be held by the BOARD or the BOARD'S Probable Cause Panel, and upon a find [sic] of probable cause, [Respondent's] probation may be vacated and his license to practice accountancy in the State of Florida, subject to automatic suspension, with further disciplinary proceedings, pursuant to Chapters 455 and 473, F.S. If Respondent has not complied with all the terms and conditions of this joint stipulation and final order of the BOARD, the BOARD shall enter an Order imposing such further terms and conditions of probation pursuant to the statutory powers set forth in 473.323(1)(3), F.S., and shall further cause said matter to be referred to the BOARD'S Probable Cause Panel or such other jurisdictional authority as may be established for purposes of determining probable cause and initiating further administrative and/or judicial action against the Respondent. * * * [Respondent] expressly waives all further procedural steps and expressly waives all rights to seek judicial review of, or to otherwise challenge or contest the validity of a joint stipulation of facts, conclusions of law and imposition of discipline, and the final order of the BOARD incorporating said stipulation. At a meeting on January 21, 1985, the Florida Board of Accountancy reviewed a report from the consultant hired to conduct the inspection and review of Respondent's public accountancy practice in accordance with the terms of the Amended Final Order entered on September 15, 1982. Based upon its review of the consultant's report, the Board imposed an additional condition of probation that all audits, reviews and compilations prepared by Respondent were to be reviewed prior to their issuance by a CPA selected by Respondent at Respondent's expense. This additional aspect of Respondent's probation was incorporated in a Final Order dated February 15, 1985 and entered on February 28, 1985 in DPR Case Number 0016369. In an Administrative Complaint dated December 4, 1985, Petitioner charged Respondent with violating the terms of his probation by issuing compilations without prior review by another CPA. This Administrative Complaint was assigned DPR Case Number 0063064. As reflected in a Final Order dated February 23, 1987 and filed on March 10, 1987 in DPR Case Number 0063064, Respondent's probation was extended until September 1988 based upon a signed Stipulation dated November 16, 1986 which was accepted by the Board during its meeting on January 30, 1987. As a result of the March 10, 1987 Final Order extending Respondent's probation, Respondent was required to continue to obtain review and approval by an independent CPA prior to issuance of any audited financial statements, reviewed financial statements and compiled financial statements and related accountant's reports. In an Administrative Complaint dated December 7, 1989 in DPR Case Number 0063064, Petitioner charged Respondent with violating Section 473.323(1)(g), Florida Statutes, as a result of his issuance of financial statements without prior review by a CPA as required by the previous Final Orders entered against Respondent. The Complaint did not specify any date(s) or specific financial statements involved. At a meeting on February 22, 1990, the Board accepted a Counter- Settlement Stipulation signed by Respondent on March 26, 1990 in Case Number 0063064. The Board entered a Final Order dated April 4, 1990 and filed on April 10, 1990 confirming its acceptance of the Counter-Stipulation. 2/ The Counter- Settlement Stipulation incorporated in the April 1990 Final Order extended Respondent's probation "until the terms of probation have been met." The terms of probation were stated to be: That the Respondent shall not violate the provisions of Chapters 455 or 473, Florida Statutes or the rules promulgated pursuant thereto or the terms and conditions of this joint stipulation. A Department of Professional Regulation Certified Public Accountant consultant shall interview the Respondent's clients to determine the type of work product they are receiving from the Respondent. A Department of Professional Regulation Certified Public Accountant Consultant shall conduct a review of the Respondent's tax practice along with work papers at the Respondent's expense. The Counter-Stipulation further provided that: Respondent and the Department fully understand that this Stipulation, and the subsequent Final Order incorporating same, will not in any way preclude additional proceedings by the Board and/or Department against the Respondent for acts or omissions not specifically detailed in the investigative findings of the Department upon which a finding of probable cause was made. Respondent and the Department expressly waive all further procedural steps, and expressively waives [sic] all rights to seek judicial review of or to otherwise challenge or contest the validity of the joint stipulation and the Final Order of the Board, if said stipulation is accepted by the Board and incorporated in the Final Order.... In early 1991, Marlyn Felsing, a CPA retained as a consultant to conduct a review of Respondent's work pursuant to the terms of his probation, met with Respondent and reviewed financial statements, work papers and various tax returns prepared by Respondent for his clients. Felsing reviewed the financial statements and/or business tax returns for approximately four of Respondent's business clients and reviewed the personal income tax returns for approximately three of Respondent's clients who were business owners. He also reviewed all of the related work papers and discussed his review with Respondent. Felsing prepared a report dated April 23, 1991 detailing several problems and deficiencies he found during his review. A copy of Felsing's report was offered into evidence in this case and he testified at the hearing regarding many of those findings. This evidence was offered in support of the charges in the First DOAH Complaint (DOAH Case Number 92-3421) as amended. Neither Felsing's report nor any of his findings are specifically alleged in the First DOAH Complaint. That Complaint referenced a probation report which "revealed deficiencies which were brought before the Probable Cause Panel, and it was determined that Respondent had violated the terms of the Final Order." As noted in the Preliminary Statement above, the First DOAH Complaint was filed on January 23, 1992. As reflected in a Final Order dated June 19, 1991, and filed on July 1, 1991 in DPR Case Number 0063064, the Board reviewed a probation report during its meeting on May 21, 1991 and approved a settlement stipulation extending the probation imposed by the April 4, 1990 Final Order for a period of one (1) year. The settlement stipulation referenced in this July 1, 1991 Order has not been offered into evidence in this proceeding. As best can be determined from the evidence presented in this case, the Final Order entered in DPR Case Number 0063064 on July 1, 1991, was entered after review of the probation report prepared by Marlyn Felsing on April 23, 1991. Thus, it appears that the Board has already taken final action with respect to the deficiencies found in Felsing's report. During the Board Meeting on May 21, 1991, the Board also considered whether disciplinary action should be taken against Respondent with respect to another Administrative Complaint filed against Respondent on January 7, 1991. That new Administrative Complaint was assigned DPR Case Number 95979 and contained allegations that Respondent "was associated with personal financial statements for Michael Raybeck which did not meet the appropriate standards." As reflected in a Final Order dated June 19, 1991 and filed on July 1, 1991 in DPR Case Number 95979, the Board during its May 21, 1991 meeting accepted a settlement stipulation signed by Respondent on April 15, 1991. In that settlement stipulation, Respondent admitted the allegations in the Administrative Complaint in DPR Case Number 95979. The Settlement Stipulation provided as follows: * * * Stipulated Disposition 2. Respondent's license to practice public accounting is currently on probation in case number 63064. Probation in this case shall run concurrently with the probation in case number 63064. The same CPA consultant who is assigned to review the Respondent's practice in Case Number 63064 shall also review the personal financial statements the Respondent's office prepares. The consultant shall also review the Respondent's records to determine whether he is accepting commissions. These additional terms shall also be paid for by the Respondent. * * * 5. Respondent and the Department fully under- stand that this Stipulation, and the subsequent Final Order incorporating same, will not in any way preclude additional proceedings by the Board and/or Department against the Respondent for acts or omissions not specifically detained [sic] in the investigative findings of the Department upon which a finding of probable cause was made. * * * 8. This Settlement Stipulation is [sic] an admission of any liability on behalf of the Respondent and is being entered into merely to resolve a dispute. It shall not be admissible in any court of law or any subsequent adminis- trative proceeding for any purpose. As reflected in an Order dated September 29, 1992 and filed on September 30, 1992 in DPR Case Number 90-95979, the Board reviewed a probation report during its September 24, 1992 meeting and determined "that the probation imposed upon Respondent by the Final Order dated July 1, 1991, shall be extended and/or modified as follows: extend probation and defer action until Case Number 90-13254 is resolved." Case Number 90-13254 is the Second DOAH Complaint, which was filed on July 6, 1992 (DOAH Case Number 92-5696). The Second DOAH Complaint includes specific allegations against Respondent based upon his purported preparation of misleading financial statements for American British Enterprises, Inc. and Federal Restaurants, Inc. The Second DOAH Complaint The evidence presented in this case established that Respondent provided a number of accounting services to American British Enterprises, Inc. and Federal Restaurants, Inc. The exact nature and scope of the services provided by Respondent are not entirely clear. Respondent's records of his engagement include a balance sheet of Federal Restaurants as of August 17, 1987; Consolidated Financial Statements of American British Enterprises, Inc. as of August 25, 1987; Interim Compiled Financial Statements, American British Enterprises, March 31, 1988; Financial Statements of American British Enterprises, Inc. November 30, 1988; and Financial Statements of American British Enterprises, Inc., December 31, 1988. The Second DOAH Complaint, as amended, alleges that the financial statements referenced in paragraph 19 above were included in due diligence packages for American British Enterprises and were distributed to broker- dealers. No persuasive evidence was presented regarding any such distribution. The Second DOAH Complaint also alleges that "Respondent distributed misleading financial statements to brokers with the purpose of driving up the price of the stock so they could sell shares they controlled at a profit." No evidence was presented to support this allegation. Respondent's counsel suggested that all of the financial statements in question were simply drafts and were not intended to be issued. The evidence established that Respondent executed a letter in connection with the August 17, 1987 Balance Sheet of Federal Restaurants which provided as follows: I have examined the accompanying Balance Sheet of Federal Restaurants, Inc., as of August 17, 1987 whose sole Assets are Cash and [sic] Purchase Deposit. My examination was made in accordance with standards established by the American Institute of Certified Public Accountants and accordingly, included such procedures as I considered necessary in the circumstances. In my opinion the enclosed Balance Sheet represents the financial position of Federal Restaurants, Inc., as of August 17, 1987 in accordance with generally accepted accounting principals. Similarly, Respondent's records include a signed letter to the Board of Directors of American British Enterprises in connection with the August 28, 1987 Consolidated Balance Sheet. That letter provides that Respondent conducted an examination "in accordance with generally accepted auditing standards and accordingly, included such tests of the accounting records and such other auditing procedures as I considered necessary in the circumstances." The letter further opines that the financial statements "present fairly the Consolidated Financial Position...[of the companies] in conformity with generally accepted accounting principals." Respondent's records also include a signed letter regarding both the November, 1988 and December, 1988 Financial Statements for American British Enterprises indicating that Respondent had conducted an audit in accordance with generally accepted auditing standards and that, in his opinion, the financial statements "present fairly, in all material respects, the financial position" of the company as of the stated date. There is no indication on any of these financial statements that they were drafts that were not to be issued. Aside from the letters noted in paragraph 22, the only evidence presented that any of the financial statements listed in paragraph 19 above were issued was the testimony of one of Petitioner's experts who suggested that the statements had to have been issued since they were found in the SEC's files. However, no direct evidence was presented to establish that any investors or potential investors received the financial statements. Moreover, no evidence was presented that any such investors suffered a loss as a result of their reliance upon the financial statements. Certified public accountants are required to utilize specific guidelines in the performance of accounting services. Those guidelines are codified in the Statements on Standards for Accounting and Review Services ("SSARS"). The failure to abide by the SSARS guidelines constitutes performance below acceptable accounting standards. Petitioner has presented testimony from two experts regarding the deficiencies in the various financial statements referenced in paragraph 19 above. Many of the problems cited by Petitioner's experts relate to alleged deficiencies in Respondent's work papers. Respondent's expert has challenged some of those alleged deficiencies. Because the work papers have not been offered into evidence, it is impossible to resolve some of the conflicts in the experts' opinions. Nonetheless, the evidence was sufficient to clearly and convincingly demonstrate that Respondent's work was not in accordance with generally accepted accounting principals in several respects and the financial reports identified in paragraph 19 failed to comply with the SSARS in several ways. The August 17, 1987 balance sheet of Federal Restaurants indicates that the only assets of the company were cash and a purchase deposit on a contract to acquire a restaurant. The balance sheet of Federal Restaurants as of August 17, 1987 has no notes to it. Accounting Principals Board ("APB") Opinion 22 provides that a description of all significant accounting policies of the reporting entities should be included as an integral part of the financial statements. In this particular instance, the omission of accounting policies is of minor importance since the balance sheet only reflects two assets: cash being held in escrow and a deposit on a contract to purchase a restaurant (the "Purchase Contract"). As discussed below, none of the financial statements prepared by Respondent disclosed the terms of the Purchase Contract. Furthermore, it appears from other documents in Respondent's records that the corporation is wholly owned by American British Enterprises and/or is jointly controlled, but there is no disclosure of that relationship in the financial statements. These omissions are significant deficiencies which have not been explained. Statement of Auditing Standards ("SAS") 41 requires work papers to support the conclusions of an audit. According to SAS 41, the work papers constitute the principal record of the work that the auditor has done and the conclusions that he has reached concerning significant matters. Respondent's records do not include work papers for the August 17, 1987 audit. SAS 22 provides guidance to an independent auditor making an examination in accordance with generally accepted auditing standards on the considerations and procedures applicable to planning and supervision, including preparing an audit program, obtaining knowledge of the entity's business, and dealing with differences of opinion among firm personnel. While there is conflicting evidence as to what was included in Respondent's work papers, the evidence was clear that Respondent's records for the August 17, 1987 audit do not comply with the requirements of SAS 22, because there was no clearly identified planning memos or audit programs. In fact, there is not even an engagement letter. SAS 19 requires an independent auditor to obtain certain written representations from management as part of an examination made in accordance with generally accepted auditing standards and provides guidance concerning the representations to be obtained. Petitioner's experts contend that Respondent's work papers do not include an appropriate representation letter from management for any of the Financial Statements. Respondent's expert contends there was such a letter with respect to the August 27, 1987 Consolidated Financial Statements. While it is not clear what is contained in the records, it is clear that the records do not clarify conflicting documentation in Respondent's work papers regarding the relationship between Federal Restaurants and American British Enterprises. Furthermore, Respondent's records do not include a clear statement from management regarding the terms of the Purchase Contract and the apparent contingencies involved with that Contract. Consequently, Respondent has failed to comply with SAS 19 and SAS 45 (which addresses related-party disclosures). The August 27, 1987 Consolidated Financial Statements are not properly consolidated in accordance with Accounting Research Bulletin ("ARB") 51. In addition, the consolidated Financial Statements do not include the disclosures required by Accounting Principals Board Opinion 22. Respondent's expert contends that the statements were mistakenly entitled and they should have been captioned as "combined" rather than consolidated financial statements. Even if this after the fact justification is accepted, the statements do not adequately disclose the relationship between the companies. Respondent's expert suggests that the August 25 Consolidated Financial Statement for American British Enterprises and Federal Restaurants reflects a voidable acquisition of Federal Restaurants by American British Enterprises. If this interpretation is accepted, the August 17, 1987 Balance Sheet for Federal Restaurants was not necessarily misleading for failure to disclose its relationship with American British Enterprises. However, the August 25, 1987 Consolidated Financial Statements are incomplete since the transaction is not fully explained. Moreover, there is no disclosure that the companies were apparently under common control or ownership. With respect to the November, 1988 balance sheet of American British Enterprises, the evidence established that there was a discrepancy between the amount reflected in the financial statement for a note receivable which was the major asset of the corporation and the confirmation in the work papers regarding that asset. While this discrepancy may have been due to a discount and/or accrued interest, no explanation is provided. The discrepancy constitutes a violation of SAS 1, Section 331, which addresses the appropriate background information for receivables, and SAS 1, Section 530 which addresses the dating of the auditor's report. If the discrepancy is due to a discount, Respondent failed to comply with APB Opinion 6, paragraph 14 which requires unearned discounts to be shown as a deduction from the related receivable and/or APB Opinion 21, paragraph 16 which provides for the discount or premium to be reported on the balance sheet as a direct deduction from or addition to the face amount of the note. The work papers for the November audit do not include a reconciliation between the 1982 financial statements of the predecessor corporation and the 1987 statements. There is no documentation of efforts to communicate with the prior auditor nor is there any discussion of the consistency of application of accounting principals between the two statements. As a consequence, the statements do not conform with SAS 7 which addresses communications with a prior auditor. The work papers fail to reflect any audit work being performed on the appraisal for the equipment collateralizing the note. In addition, the work papers include a confirmation from the stock transfer agent that doesn't agree with the number of shares reflected on the financial statement. There is no explanation for this discrepancy nor is there any clear indication of the audit work performed. The financial statements also include a footnote referencing a joint venture agreement. Respondent's records do not include any evidence of audit work performed with respect to this venture agreement. The deficiencies noted in paragraph 33 also appear in the December 31, 1988 financial statements for American British Enterprises. Furthermore, Respondent's records do not contain an audit file for this December statement. The November 30, 1988 and the December 31, 1988 audits of American British Enterprises do not contain a segregation between current and noncurrent assets. This deficiency is relatively insignificant since the company was essentially just a holding company. However, it does constitute a violation of ARB 43. Similarly, the cash flows in the financial statements were not presented in the appropriate format or style required by Statement of Financial Accounting Standards 95. However, it appears that all of the necessary information was present. The deficiencies found in the financial statements prepared for Federal Restaurants and American British Enterprises constitute negligence on the Respondent's part and establish a failure to exercise professional competence and due professional care in the performance of accounting services. On or about June 14, 1990, the Securities and Exchange Commission ("SEC") filed a civil lawsuit against Respondent and three other defendants alleging the preparation of false and misleading financial statements for American British Enterprises, Inc. On August 5, 1991, Respondent executed a Consent of Edwin Tunick to the Entry of a Final Judgement of Permanent Injunction in the civil action initiated by the SEC. On September 2, 1991, a Final Judgement of Permanent Injunction as to Edwin Tunick was entered by the United States District Court for the Southern District of Florida (Fort Lauderdale Division) in Case Number 90-6483CIV-ZLOCH. That Final Judgment "permanently restrained and enjoined" Respondent from violating Section 17(a) of the Securities Act, 15 U.S.C. 77q(a) and Section 10(b) of the Exchange Act, 15 U.S.C 78 (j)b and Rule 10b-5 promulgated thereunder. The Final Judgment did not include any specific findings of any violations of the federal securities laws.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Board of Accountancy enter a Final Order dismissing the Administrative Complaint filed in DOAH Case Number 92-3421 (DPR Case Number 91-09729); finding Respondent guilty of violating Sections 473.323(1)(a), (g) and (h), Florida Statutes, and Rules 21A-22.0001, 21A-22.0002, and 21A-22.003, Florida Administrative Code, as alleged in the Administrative Complaint filed in DOAH Case Number 92-5696 (DPR Case Number 90-13254) and dismissing the other charges in that Complaint. As penalty for the violations, Respondent should be fined $1,000, and his license should be suspended for three years. Before resuming practice, Respondent should be required to complete such mandatory continuing education courses as may be mandated by the Board and he should be placed on probation for three (3) years. DONE and ENTERED this 14th day of November, 1994, at Tallahassee, Florida. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of November, 1994.
The Issue This proceeding commenced upon the Application for Attorneys' Fees and Costs filed by Petitioners pursuant to Section 57.111, Florida Statutes. The Respondent filed an Answer and requested an evidentiary hearing. The Petitioners and Respondent entered into a Prehearing Stipulation identifying the issues of fact to be litigated as (1) whether or not the actions of the Department of Banking and Finance were substantially justified, and (2) whether or not it would be unjust to award attorneys' fees against the Department. The issues of law identified by the Parties were (1) if the actions of the Department of Banking and Finance were not substantially justified, should the attorneys' fees and costs be apportioned between DOAH Case No. 86-1553 and DOAH Case NO. 86-1336, and (2) whether or not Monica Iles and Robert Iles are "small business parties." The Prehearing Stipulation also contains six paragraphs of facts that are admitted by all parties. At the hearing all parties presented testimony and exhibits and following the hearing a transcript of the proceedings was filed with the Hearing Officer. Thereafter, all parties filed proposed orders containing proposed findings of fact and conclusions of law. Specific rulings on all findings proposed by all parties are contained in the Appendix which is attached to and incorporated into this Final Order.
Findings Of Fact Based on the admissions of the parties and on the evidence received at the hearing, I make the following findings of fact. Findings Based on Admissions The attorney's fees and costs itemized in the petition were for the preparation of both DOAH Case Nos. 86-1336 and 86-1553. DOAH Case Nos. 86-1336 and 86-1553 were consolidated for hearing and were tried together before Hearing Officer Michael M. Parrish. DOAH Case No. 86-1336 resulted in a Final Order suspending the registration of Structured Shelters Financial Management, Inc., (hereinafter "SSFM") and vacating the order revoking the registration of Structured Shelters Securities, Inc. (hereinafter "SSSI"). The Department initiated the administrative action against the two corporations and the two individuals by serving them with a Cease and Desist Order. The case was tried before Hearing Officer Michael M. Parrish. Structured Shelters Financial Management, Inc., and Structured Shelters Securities, Inc., are "small business parties." The Petitioners were the prevailing parties in DOAH Case No. 86-1553. Finding Based on Evidence Presented at Hearing Robert Iles' profession is that of a business consultant. Mr. Iles files a Schedule C with his federal income tax return which identifies his business income and expenses. Mr. Iles' business office is in Edgewater, Florida. Mr. Iles has not more than 25 full-time employees, nor a net worth of more than two million dollars. Monica Iles is a business consultant who files a Schedule C with her federal income tax return separate from that of Robert Iles. Mrs. Iles has no more than 25 full-time employees, nor has she a net worth of more than two million dollars. The attorney for Petitioners submitted an itemized statement of attorneys' fees and costs incurred in defending against Respondent's Cease and Desist Order. The invoices rendered are reasonable and substantiated. The hourly rate of $125.00 per hour billed by the attorney for Petitioners is reasonable. The total amount billed for Petitioner's attorney's fees was $8,375.00, plus costs in the amount of $1,180.73, for a grand total of attorney's fees and costs in the amount of $9,555.73. The Department of Banking and Finance was not a nominal party in DOAH Case No. 86-1553. The initial decision to take action against the Petitioners was made by the Director of the Division of Securities, who in turn referred the case to the Department legal section. The case was then referred to the Orlando office where it was reviewed by Mr. Robert Good. Mr. Good has been with the Department for eight and a half years. He is an attorney in charge of the Department's Orlando office. He is an expert in the field of securities law. In this particular case, Mr. Good initially questioned whether the corporate business plans being sold by the Petitioners were securities. Therefore, he carefully evaluated the evidence presented to him by the Department's securities examiners and investigators in light of the applicable case law. He relied on a Report of Examination and a Report of Investigation in reaching his conclusion that the corporate business plans being sold by the Petitioners were securities. These reports were compiled during investigations of SSFM, SSSI, and Structured Shelters, Inc., by Department securities examiners and investigators. Although the Report of Investigation dealt with a corporation named Structured Shelters, Inc. (a corporation different from the Petitioner corporations), Mr. Good concluded that the report was relevant to the activities of the Petitioners for reasons which included the following. Robert Iles was the President and/or a Director of Structured Shelters, Inc., SSFM, and SSSI. Monica Iles was the Treasurer, Secretary, Director, and/or registered agent of Structured Shelters, Inc., SSFM and SSSI. Structured Shelters, Inc., offered at least one corporate investment program, the children's cassette master recordings, which was very similar to the children's cassette master recording program being offered by SSFM. The Report of Investigation included a Final Order entered by the State of Alaska against Structured Shelters, Inc., and Robert Iles, which Final Order was issued after an administrative hearing at which testimony was presented and the parties were represented by legal counsel. The Alaska Final Order concluded that the children's classic cassette recording program was a security. The Report of Investigation also included an Order from the Ohio Division of Securities against Structured Shelters, Inc. The Ohio Order discussed the children's classic cassette recording program offered by Structured Shelters, Inc., in the State of Ohio and concluded that the program was a security. The programs which were the subjects of the Alaska and Ohio Orders were very similar to the corporate business plans being offered by the Petitioners. The Report of Investigation also contained a letter from the Ohio Division of Securities which listed about 48 investors in the various corporate business plans of Structured Shelters, Inc. Department investigators contacted these investors and received eleven responses indicating that Florida investors had invested in various corporate business plans of Structured Shelters, Inc. Mr. Good also reviewed and relied upon the Report of Examination prepared by the Division of Securities. This report included numerous documents obtained from the business records of the Petitioners which indicated that SSFM, SSSI, Robert Iles, and Monica Iles were selling corporate business plans or offering to sell corporate business plans in the State of Florida. These documents included such things as an Investment Advisory Agreement between investors, SSFM, and SSSI, a description of the children's cassette recording program corporate business plan, the cover letters mailed to potential investors, an SSFM ledger book containing a list of numerous sales of corporate business plans by SSFM to investors in the State of Florida, a memo on the stationery of Monica Iles listing the names of numerous Florida investors, and numerous letters on SSFM's letter head sent to Florida investors. The Report of Examination also included information from the Florida Secretary of State's office which showed that SSFM and SSSI had the same address and that Robert Iles and Monica Iles were both officers and/or directors in both corporations. After reviewing the Report of Investigation and the Report of Examination, Mr. Good researched the applicable law. Based on his review of the information in the two reports and on his legal research, Mr. Good concluded that the corporate business plans being sold through SSFM were "securities" and that those securities were being sold to Florida investors. The Cease and Desist Order was filed against SSFM because all of the sales of the subject business plans were made through that corporation, because the corporation had officers in the State of Florida, and because correspondence, invoices, and the corporate ledger book provided additional documentation that sales were being made from Florida. The Cease and Desist Order was filed against Robert Iles due to the fact that he was actively involved in selling the subject business plans to the investors. The matter of whether to also file the Cease and Desist Order against Monica Iles was a close call and the files were carefully examined to determine whether there was sufficient evidence of sales activity by Monica Iles to warrant including her in the Cease and Desist Order. Based on correspondence and invoices contained in the Report of Examination, Mr. Good concluded there was sufficient evidence of sales activity by Monica Iles to include her in the Cease and Desist Order. The Cease and Desist Order was filed against SSSI on the basis of documents contained within the Report of Examination and Report of Investigation establishing the commonality of corporate officers and directors in SSSI, SSFM, and Structured Shelters, Inc., and on the basis of the investment advisory agreement entered into between investors, SSFM and SSSI. The Investment Advisory Agreement set forth the rights and responsibilities of the investor and SSFM. According to this agreement, SSSI would act as a securities broker for its client, SSFM. It appeared from the agreement that SSFM was able to bind SSSI to perform for SSFM's benefit. The only corporate signature provided for on the agreement was for a signature on behalf of SSFM; no signature appeared on behalf of SSSI. Thus, it appeared that SSFM and SSSI were being operated as one company. Based on the Investment Advisory Agreement and the commonality of corporate officers and directors, it appeared that SSFM had the power to act on behalf of SSSI and, therefore, the Cease and Desist Order was also filed against this corporation. Prior to filing the Cease and Desist Order against SSFM, SSSI, Robert Iles, and Monica Iles, all of the evidence in the possession of the Department was carefully reviewed by Mr. Good, an expert in securities law, to determine whether there was a reasonable basis for taking action against the Petitioners. Mr. Good concluded that the evidence in the possession of the Department was sufficient to warrant the filing of a Cease and Desist Order against the Petitioners. For reasons not clearly explained in the record of this proceeding, the attorney who represented the Department at the formal hearing regarding the Cease and Desist Order (an attorney other than Mr. Good) failed to present all of the evidence the Department had available.
Findings Of Fact Based upon the stipulations of the parties, the following relevant facts are found: On March 5, 1986, the Hendry Corporation filed with the Department of Transportation (DOT) its application for qualification to bid on DOT projects for the year 1986. The audited financial statement submitted with the application was dated 125 days prior to March 5, 1986. By letter dated March 6, 1986, the DOT advised the petitioner that ". . . we are unable to act favorably on the qualification of your corporation with the Department. The audited financial statements submitted are of a date of more that [sic] 120 days prior to the application; therefore, they are unacceptable per Rule Chapter 14-22 and Florida Statutes 337.14." Petitioner was further notified of his right to request an administrative hearing within ten days. Petitioner timely requested a hearing, and the Department of Transportation requested the Division of Administrative Hearings to conduct the proceedings.
The Issue Whether the petitioner should revoke respondent's self-insurance privilege for failure to comply with Rule 38F-5.10(2)(a), Florida Administrative Code.
Findings Of Fact On February 12, 1980, the Department of Labor and Employment Security, through its Bureau of Self-Insurance, notified the Deauville Hotel (respondent) of its intention to revoke respondent's workers' compensation self-insurance privilege for failure to comply with the requirements of Rule 38F-5.10(2)(a), Florida Administrative Code. This Rule requires each se1f-insurer to have on file with the Department a "financial statement of a current date showing a net worth of not less than $250,000 and a current ratio of more than 1 to 1, and a working capital of an amount establishing financial strength and liquidity of the business to pay normal compensation claims promptly". Specifically, petitioner contends the respondent filed financial statements for calendar year 1978 that were not certified by an outside independent accounting firm, and that such statements reflected an unsatisfactory current ratio and net worth in contravention of the Rule. Respondent is a large luxury hotel located in Miami Beach, Florida, and employs more than 400 persons. It is a division of Deauville Operating Corporation. Respondent is now and has been for a number of years a self- insurer under Section 440.38(1)(b), Florida Statutes. The privilege to self- insure is granted by the Department when an employer demonstrates the financial ability to promptly discharge all amounts required to be paid under the provisions of the Workers' Compensation Law as contained in Chapter 440, Florida Statutes. Having once established the requisite financial integrity, an employer must file within six months following the close of each succeeding fiscal year financial statements demonstrating the continued ability to discharge all obligations under the Law. The Department is reposed with the responsibility of reviewing the financial statements to insure compliance with the applicable rules governing self-insurers. When the administrative complaint was issued, respondent had on file financial statements consisting of a balance sheet, statement of income, home office equity, and changes in financial position (Exhibit No. 1). All statements were prepared using the year ending December 31, 1978. Three financial measurements are used by the Department to evaluate the financial integrity of an employer. These are current ratio, net worth and working capital. However, the Department has chosen to rely only upon the first two measurements as a basis for revoking the self-insurance privilege of respondent. The current ratio of a business entity is determined by comparing the ratio of current assets to current liabilities as shown in the most recent financial statement (Rule 38F-5.01 (10), Florida Administrative Code). The owner's equity or net worth is computed by subtracting total liabilities from total assets. Working capital is derived by taking the excess of current assets over current liabilities. (Rule 38F-5.01(16), Florida Administrative Code);. The application of these measurements to the 1978 financial statements of respondent reveals a current ratio of .82 to 1 based upon current assets and liabilities of $667,542 and $816,542, respectively, a negative net worth of $543,112, and a working capital in a negative position. Efforts by petitioner in late 1979 and early 1980 to obtain more current financial statements of respondent were not successful. However, in April and July, 1980, respondent filed certain financial data for calendar year 1979 and the year ending March 31, 1980 (Exhibit Nos. 2, 3, 6 and 7). Exhibit Nos. 2 and 3 pertain to the financial position of the Deauville Operating Corporation at December 31, 1979, and incorporate therein the operating results of the Deauville Hotel. Exhibit No. 2 failed to segregate the Corporation's current assets and liabilities from total assets and liabilities. Therefore, no determination of current ratio or working capital can be made. The Exhibit does show the Corporation had a net worth of $2,643,487. Exhibit No. 3 revised the data shown in Exhibit No. 2 and provided a division of assets and liabilities from which a measurement of current ratio and working capital can be calculated. However, the Corporation improperly classified as a current asset a long-term receivable in the amount of $2 million. Had this asset been properly classified, current liabilities would have exceeded current assets and produced a negative working capital and current ratio of less than 1 to 1. Exhibit Nos. 6 and 7 are financial statements of the Deauville Hotel for calendar year 1979 and the year ending March 31, 1980, respectively. Exhibit No. 6 shows total current assets and liabilities of $495,449 and $1,072,540, respectively, as of December 31, 1979. The resulting current ratio is .46 to 1 while the working capital is in a negative position. Net worth is a negative $394,639. As of March 31, 1980, current assets had increased to $832,763 while current liabilities had slightly decreased to $1,017,636. The current ratio is accordingly less than 1 to 1. At the same time, net worth had increased to a positive amount of $137,901 while working capital remained in a negative position by virtue of current liabilities exceeding current assets (Exhibit No. 7). None of the financial statements are certified by outside independent accounting firms. The audit reports for the set of statements contained in Exhibit Nos. 1, 2, 6 and 7 specifically contain a disclaimer by the accountants that they have "not audited or reviewed the accompanying financial statements, and accordingly, do not express an opinion or any other form of assurance on them". By the same token, the statements encompassed in Exhibit No. 3 include the conspicuous disclaimer by the accountant that such statements are "unaudited".
Recommendation Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends that petitioner Department revoke the privilege of respondent to be a self-insurer under Section 440.38(1)(b), Florida Statutes. DONE AND ENTERED this 15th day of August, 1980, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of August, 1980. COPIES FURNISHED: Douglas P. Chanco, Esquire Suite 131, Montgomery Building 2652 Executive Center Circle East Tallahassee, Florida 32301 William Wade Hampton, Esquire Post Office Box 355 Gainesville, Florida 32602
The Issue Whether the Florida Department of Financial Services (the Department) has grounds to deny the application for an "All- Lines Public Adjuster's" license filed by Jeffrey Carl Pellet (Mr. Pellet) as alleged in the Department's Notice of Amended Denial and Notice of Permanent Bar dated January 19, 2012. Specifically, two grounds for denial were at issue. First, whether Mr. Pellet's action in litigating a subpoena served on him in 2008 by the Department constitutes grounds to deny his application. Second, whether Mr. Pellet's criminal history disqualifies him from licensure.
Findings Of Fact The Department is the state agency that regulates the practice of insurance in the State of Florida. On April 20, 2011, Mr. Pellet filed with the Department an application for an "All-Lines Independent Adjuster's" license. CRIMINAL HISTORY On October 13, 1987, Mr. Pellet entered a plea of nolo contendere to three counts of insurance fraud and three counts of grand theft. Adjudication of guilt was withheld. He was ordered to serve six months of community control to be followed by 2.5 years of probation. Mr. Pellet's term of probation was terminated May 24, 1989.3/ CHANGE IN THE LAW Before it was invalidated in April 2010, Florida Administrative Code Rule 69B-211.042(8)(a) contained a 15-year waiting period before a person with Mr. Pellet's criminal history would become eligible for the type license at issue in this proceeding.4/ Section 6 of chapter 2011-174, Laws of Florida, created subsection 626.207(3), Florida Statutes. That provision became effective on July 1, 2011, and provides as follows: (3) An applicant who commits a felony of the first degree; a capital felony; a felony involving money laundering, fraud, or embezzlement; or a felony directly related to the financial services business is permanently barred from applying for a license under this part. This bar applies to convictions, guilty pleas, or nolo contendere pleas, regardless of adjudication, by any applicant, officer, director, majority owner, partner, manager, or other person who manages or controls any applicant. Section 626.207(1) defines the term "financial services business" to include any financial activity regulated by the Department of Financial Services, Office of Insurance Regulation, or Office of Financial Regulation. The foregoing provision is applicable to the type of application submitted by Mr. Pellet. The foregoing provision is applicable to Mr. Pellet's application because his application was pending when the provision became law. Section 18 of chapter 2011-174, Laws of Florida, provides as follows: The amendments to s. 626.207, Florida Statutes, made by this act do not apply retroactively and apply only to applicants whose applications are pending or submitted on or after the date that the amendments to s. 626.207, Florida Statutes, made by this act become law. This section shall take effect upon this act becoming a law. PRIOR LICENSE In compliance with the then existing 15-year waiting period, Mr. Pellet waited until December 18, 2003, to file with the Department an application for licensure as an "Independent Adjuster." That application disclosed Mr. Pellet's criminal history. On July 9, 2004, the Department granted Mr. Pellet's application and issued an "Independent Adjuster" license to him.5/ He held that license until he converted it to a "Public Adjuster Apprentice" license in August 2009. Mr. Pellet's "Public Adjuster Apprentice" license expired February 11, 2011.6/ Mr. Pellet held no license from the Department as of the date of the formal hearing. SUBPOENA Prior to February 12, 2008, the Department received complaints that Mr. Pellet was performing services beyond the scope of his licensure. At that time, Mr. Pellet was an owner and operator of a business known as Professional Insurance Estimating & Appraisals. On February 12, 2008, the Department served an investigative subpoena on Mr. Pellet by leaving the subpoena with an employee of Mr. Pellet at Mr. Pellet's office. The subpoena was directed to Mr. Pellet and to an associate of Mr. Pellet who is not involved in this proceeding. The subpoena cited the following authority for the subpoena: sections 624.307, 624.310, 624.317, 624.318, 624.321, 626.561, 626.601, 626.748, and 626.9561. The subpoena demanded that Mr. Pellet produce to the Department: the complete claim files for seven named consumers "including the contracts entered with each of these consumers, communications with these consumers and or their insurers, the request for appraisal for each of these consumers, the companies settlement checks, the consumer check made payable to Pellet or Professional Insurance Estimating & Appraisals, and the bank account name and number for Professional Estimating & Appraisals' bank account." Mr. Pellet did not comply with the subpoena. Instead, Mr. Pellet filed "Motion for a Protective Order and to Quash Subpoena" (Motion to Quash) in Broward circuit court. The Motion to Quash was heard by a magistrate who denied the Motion to Quash as it related "to non-testimonial production of files, records, documents, etc." The magistrate's report ordered Mr. Pellet and his associate to comply with the subpoena within 30 days unless they filed an objection and requested a hearing before the circuit judge within the 30-day period. On February 18, 2009, the circuit judge denied the Motion to Quash and also denied the exceptions to the magistrate's report that had been filed on behalf of Mr. Pellet. The circuit judge ratified and "approved in all respects" of the magistrate's report. On March 10, 2009, Mr. Pellet, through counsel, offered to produce two of the seven consumer files demanded by the subpoena and asserted that the other five consumer files had been shredded before the subpoena was issued. No offer was made as to the banking information demanded by the subpoena. The Department rejected that offer. Mr. Pellet appealed the order denying the Motion to Quash to the Fourth District Court of Appeal. On May 19, 2010, the court affirmed the order denying the Motion to Quash. Mr. Pellet filed a motion for re-hearing, which was denied by the court on June 16, 2010. During the course of the formal hearing before the undersigned Mr. Pellet repeated the offer to produce two of the seven consumer files demanded by the subpoena and asserted that the other five consumer files had been shredded before the subpoena was issued. No offer was made as to the banking information demanded by the subpoena. The Department rejected that offer. Mr. Pellet's action in litigating the subpoena impeded the Department's investigation into his alleged wrongdoing. Mr. Pellet has paid the fee and passed a pre-licensure examination, which are pre-requisites for the license he seeks.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Financial Services enter a final order denying Mr. Pellet's application for license as an "All-Lines Public Lines Adjuster." DONE AND ENTERED this 11th day of July, 2012, in Tallahassee, Leon County, Florida. S CLAUDE B. ARRINGTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 11th day of July, 2012.
Findings Of Fact The Florida State Board of Accountancy authorized the publication of Florida Accounting News and in May 1977 the first issue appeared in newspaper format. The publication was intended to provide information of interest to the accounting profession and principally to those certified by the Board. The Executive Director of the Board served the general function of editor of this publication. Among the items considered of interest to the profession and included in this edition of the paper were several Declaratory Statements of the Board promulgated pursuant to Section 120.565 Florida Statutes. The Executive Director of the Board of Accountancy is a full-time employee who runs the day-to-day operations of the Agency, processing applications for certification and renewal of certification, responding to inquiries addressed to the Board, and in general maintaining the records required to be kept by the Agency. He has no authority to formulate Board policies or to make policy decisions on behalf of the Board. Among the Declaratory Statements contained in the May 1977 issue of the News was D.S. 75-01 and D.S. 76-02. The former held that "a person who does not profess to the public that he is a certified public accountant, and thus is more qualified to render these services than unlicensed persons performing similar services, is not a person 'practicing as a certified public accountant or as a public accountant.'" D.S. 76-02, on the other hand, and despite a disclaimer that a Petition for Declaratory Statement is not applicable, held that even though the Petitioner does not hold himself out to the public as a CPA, nor does his business card or letterhead reflect the fact that he is a CPA, and that financial statements are issued without certificate of expression or disclaimer of opinion, nevertheless the holding out as an accounting service available for accounting, bookkeeping and tax work in newspaper ads and in mailings to new and existing business notices constituted the practice as a CPA or as a public accountant. The Executive Director, aware of the existence of D.S. 76-02 inserted a note following D.S. 75-01 reading as follows: NOTE: The interpretation that a person practicing as a certified public accountant must be construed to mean "a person who is holding himself out as a CPA and offering to perform, performing, etc." has been subse- quently reversed to later matters. The current position of the Board is a certified public accountant offering, on his own behalf or through a firm of which he has ownership interest, only services involving the use of accounting skills will be deemed to be engaging in the practice of public accounting and would be subject to all provisions of Chapter 473, Florida Statutes and Chapter 21A Florida Administrative Code, whether or not said person holds himself out as a certified public accountant. It is this NOTE which petitioner claims is a rule and invalid because not adopted in accordance with the provisions of Chapter 120 Florida Statutes. One other significant difference between the facts in D.S. 75-01 and 76-02 was that in the former one principal function performed by the association, in addition to accounting work, was the sale of insurance while in the latter the party performed only those services generally performed by accountants, such as accounting, bookkeeping and tax work.
