The Issue Whether Commercial Carrier Corporation (Petitioner), has the financial strength necessary to ensure the timely payment of all current and future workers' compensation claims in the State of Florida; Whether Petitioner has maintained a net worth of at least $1 million during the period 1999 to 2004; and Whether Petitioner shall post an additional qualifying security deposit to remain qualified to self-insure and the amount of the additional security deposit to be posted.
Findings Of Fact Upon careful consideration, it is found and determined as follows: Petitioner, Commercial Carrier Corporation, is a privately-owned trucking company headquartered in Auburndale, Florida, which has been in business for over 50 years. Petitioner is one of five operating subsidiaries of Comcar Industries, Inc. (Comcar), whose primary business is truckload transportation of general and specialized commodities in the continental United States. Comcar routinely prepares consolidated financial statements reflecting the operations of all five subsidiary companies. Although Petitioner is the nominal Petitioner, Comcar is the de facto Petitioner in this proceeding. All of Comcar’s subsidiaries operate as self- insured in Florida. Petitioner has been self-insured for workers’ compensation in Florida since January 1, 1973. Pursuant to Florida law, Respondent has jurisdiction over Petitioner as a self-insured employer for purposes of workers’ compensation. Under Florida law, the general requirement is that employers must obtain and maintain workers’ compensation insurance coverage. The exception of this general requirement is found in Subsection 440.38(1)(b), Florida Statutes (2004), whereby an employer can seek to qualify to self-insure by "furnishing satisfactory proof to the Florida Self-Insurers Guaranty Association, Inc., . . . that it has the financial strength necessary to ensure the timely payment of all current and future claims[.]" FSIGA is a not-for-profit corporation established by Section 440.385, Florida Statutes (2004), to guarantee payment of the covered workers’ compensation claims by employees of self-insurers that become insolvent. Other than governmental entities and public utilities, all self-insurers, including Petitioner, must be members of FSIGA. FSIGA pays the covered claims of current and former insolvent self-insurer members to the extent an insolvent self-insurer’s security deposit is insufficient. An insolvency fund is established and managed by FSIGA for the purpose of meeting the obligations of insolvent members after exhaustion of any security deposit. The insolvency fund is funded by assessments from members of FSIGA. Accordingly, FSIGA and all of its members share an interest in ensuring adherence to the legislative standard that only financially strong employers are granted the privilege to self- insure. To maintain self-insurer status, an employer must submit annual financial statements no later than four months following the end of the self-insured’s fiscal year and furnish satisfactory proof to FSIGA that it has the financial strength necessary to ensure timely payment of all current and future claims. The financial statements that must be submitted to FSIGA for financial analysis must be prepared in accordance with the United States Generally Accepted Accounting Principles (GAAP). GAAP-prepared financial statements must show, at all times, a net worth of $1 million. The requirements of furnishing proof of the requisite financial strength and maintaining a net worth of at least $1 million, as shown on the employer’s financial statements, are continuing annual requirements to become and remain qualified to self-insure, and those requirements are applied equally to applicants and current members. FSIGA is required to review the financial strength of its current members. It makes recommendations to Respondent regarding the members’ continuing qualification to self-insure and the amount of security deposit that should be required of each member. If FSIGA determines that a current member does not have the financial strength necessary to ensure the timely payment of all current and estimated future claims, it may recommend that Respondent require an increase in the member’s security deposit. FSIGA operates under a statutorily-approved plan of operations. FSIGA’s plan of operation provides that its executive director has the responsibility to make FSIGA’s recommendations to Respondent. FSIGA’s recommendations are based upon a review of the financial information collected from member employers. It may include recommendations regarding the appropriate security deposit amount necessary for a self-insured employer to demonstrate that it has the financial strength to ensure timely payment of all current and future claims. Respondent is required to accept FSIGA’s recommendations unless it finds, by clear and convincing evidence, that the recommendations are erroneous. 2002 Financial Review of Petitioner Petitioner is currently a member of FSIGA and has posted a qualifying security deposit of $2,500,000.00. On October 2, 2002, Brian D. Gee, C.P.A., who is now FSIGA’s executive director, completed a review of Petitioner’s audited financial statements for 1999, 2000, and 2001. Gee was FSIGA's financial analyst, responsible for conducting financial reviews and developing information for FSIGA's executive director, to determine the financial strength of self-insured members and make recommendations to Respondent. Gee’s review of Petitioner’s financial statement consisted of an assessment of Petitioner’s liquidity, profitability, degree of leverage, liabilities compared to net worth, and cash flow generated by operations. He also reviewed the financial statements to determine if Petitioner was maintaining a net worth of at least $1 million. Gee concluded that Petitioner did not have the financial strength necessary to ensure the timely payment of current and estimated future workers’ compensation claims. On October 8, 2002, FSIGA's executive director forwarded a letter to the Division of Workers’ Compensation, Department of Insurance (now Respondent). He recommended to Respondent that Petitioner be ordered to increase its security deposit to 150 percent of actuarially determined loss reserves. FSIGA’s recommendations were reviewed by Cynthia Shaw, assistant general counsel for the Division of Workers’ Compensation. Shaw drafted a letter for signature by Mark Casteel, General Counsel for Respondent, which adopted FSIGA's recommendations. Casteel signed that letter dated October 28, 2002, without revision or discussion. Shaw, an attorney, has no financial background or expertise. Shaw did not perform any additional financial analysis. Additionally, since Respondent did not have a CPA firm under contract, FSIGA’s recommendation was not reviewed by anyone with financial background before being transmitted to Petitioner. Petitioner responded to the October 28, 2002, directive from Respondent by filing a petition requesting a formal administrative hearing. Petitioner failed to file financial statements with FSIGA within four months following the end of its 2000 and 2001 fiscal years. Petitioner’s failure to timely file financial reports for 2000 and 2001 was due to the fact that it was in default on certain loan covenants and was engaged in negotiations with its lenders. In 1999 and 2000, Petitioner incurred additional long-term debt to finance the purchase of a new fleet of trucks. Petitioner’s creditors had exercised their right for accelerated payment of the outstanding loan balances, which by the end of 2001, was approximately $205 million. In 2001 and 2002, Petitioner entered into negotiations with its creditors to amend and restate its loan agreements. In 2002, Petitioner implemented a business plan calling for the sale of non-core assets, reduction of long-term debt, and transition from purchasing to leasing truck tractors. In July 2002, Petitioner entered into amended and restated loan agreements with its creditors. In order to secure the amended and restated loan agreements, Petitioner was required to pay increased interest, pledge substantially all of its property to secure the loans, pay the lenders $3.3 million, provide certain lenders with warrants to acquire an equity interest in Petitioner under certain conditions and agree to restrictions on how it could use cash generated by its operations and asset sales. Petitioner timely made all principal and interest payments due pursuant to the restated credit agreement and maintained compliance with all required financial ratios and standards. Furthermore, Petitioner continued to timely pay all claims for current and estimated future claims under its workers’ compensation system. Following execution of the amended and restated loan agreements, Petitioner’s auditors prepared the financial statements of 2001, which Petitioner then filed with FSIGA. Separate audited financial statements for 2000 were never filed with FSIGA, although prior-year financial results were shown (without footnotes) on the audited 2001 financial statements. With respect to liquidity, Petitioner’s financial statements showed a current ratio (current assets divided by current liabilities) of 1.41 at December 28, 2001. It did not disclose that Petitioner had any available funds under its revolving credit line as of December 28, 2001. Although Petitioner’s current ratio was acceptable, further analysis raised serious concern regarding Petitioner’s financial strength. With respect to Petitioner’s capital structure, the financial statement review showed that Petitioner’s total liabilities-to-book-equity ratio deteriorated from 4.91 at December 1999 to 30.46 at December 28, 2001. This deterioration reasonably raised concern because Petitioner became much more heavily leveraged from 1999 to 2001, relying much more heavily on debt to fund its operations. FSIGA concluded, Petitioner’s financial statement showed a "very weak capital structure." The impact of the increasing reliance on debt was marked by the end of 2001, when the financial statements showed that Petitioner was in default of its debt covenants at December 28, 2001. To address its defaults, Petitioner entered into an agreement to restructure its debt by which the creditors waived the defaults in return for imposing additional restrictions on Petitioner as described in paragraph 20 above. Although Petitioner maintained a net worth of $11.1 million at the end of 2001, Petitioner’s net worth at the end of 2001 was significantly lower than its net worth of $74.8 million at the end of 2000. In addition, the financial statement review showed that Petitioner had incurred net losses of $24.2 million, $39.5 million, and $5.7 million for the years 2001, 2000, and 1999, respectively. These losses were substantial and raised significant concerns about Petitioner’s financial strength. The 2002 financial review of Petitioner also showed a substantial decline in Petitioner’s cash flow from operations, from positive $32.6 million for 1999 to negative $2.1 million for 2001. This meant that in 2001, Petitioner was spending more cash in its operating activities than it was collecting. At the time FSIGA made its recommendation to Respondent, neither FSIGA nor Respondent had current information from Petitioner regarding the amount of Petitioner’s net outstanding liability for workers’ compensation claims in Florida. This is because Petitioner failed to file the Form SI-20 report that had been due on August 31, 2002. From October 2002 until December 14, 2004, FSIGA and Respondent did not have accurate information in regard to the amount of Petitioner’s outstanding liability for workers’ compensation claims in Florida, because Petitioner did not file its required Forms SI-17 and SI-20 reports or provide an actuarial study. At the final hearing, Petitioner did not present evidence disputing the reasonableness of FSIGA’s 2002 assessment of Petitioner’s financial statements or of FSIGA’s conclusions based thereon regarding Petitioner’s lack of financial strength in 2002. Based on FSIGA’s analysis of Petitioner’s 2001 financial statements and the financial statements for the two preceding years, FSIGA reasonably concluded that Petitioner had not demonstrated that it had the financial strength to ensure payment of current and future workers’ compensation claims. Based on the information then available to it, FSIGA made the correct recommendation to Respondent. There was no clear and convincing evidence available to Respondent that demonstrates FSIGA's recommendation was erroneous, instead, the available evidence supports FSIGA’s recommendation. Accordingly, Respondent’s direction to Petitioner to provide an actuarial report and post additional security was reasonable and appropriate. Continuing Financial Review of Petitioner After 2002. In November 2002, Petitioner challenged Respondent’s determination and requested a formal administrative hearing. Petitioner requested that Respondent hold the petition in abeyance. The request was granted, and the petition was not filed with DOAH until July 9, 2004. During this period, Respondent re-examined Petitioner’s financial strength. Following its business plan, on January 16, 2004, Petitioner refinanced its debt. While there was conflicting testimony regarding whether the actual interest on the refinanced debt was lower than on the debt it replaced, it was undisputed that $30 million of the refinanced debt was carrying an interest rate of 19 percent. This is a higher rate than the nine-percent and 11-percent interest applicable to the earlier debt. It is undisputed that substantially all of Petitioner’s property is pledged to secure the 2004 refinanced indebtedness, and there continues to be restrictions on Petitioner’s use of cash generated by its operations. However, the 19-percent interest on a portion of the January 2004 refinancing has now caused Petitioner to go into the lending market to attempt to refinance its debt once again. Nevertheless, the refinancing of its long-term debt has reduced its financing costs. Since Respondent’s 2002 request that Petitioner provide an actuarial report and post an additional security deposit, FSIGA has reviewed Petitioner’s audited financial statements for the years ended December 27, 2002, and December 26, 2003, as well as Petitioner’s unaudited financial statements for the year ended December 31, 2004. The financial information received from Petitioner since the 2002 review has not resulted in FSIGA changing its 2002 recommendations. Petitioner’s 2002, 2003, and 2004 financial statements revealed that Petitioner’s net worth had fallen below the required $1 million in each of those three years. The 2002 and 2003 financial statements also show that Petitioner continued to experience net losses. Petitioner sustained a net loss of $12.1 million for the year ended December 27, 2002, and a net loss of $9.9 million for the year ended December 26, 2003. Petitioner’s cash flow statement shows a $4.8 million decrease in cash in 2002 and a $2 million decrease in cash in 2003. Petitioner’s 2004 unaudited financial statements indicate net income of $4.1 million for 2004. However, because the 2004 financial statements are unaudited, whether adjustments may be necessary following the audit are unknown at this time. Financial statements prepared without footnotes are not prepared in accordance with GAAP. Even if the unaudited results are confirmed in audited financial statements, 2004 would be the first year that Petitioner has recognized net income since 1998, following a five-year string of annual losses totaling $90 million. Petitioner’s Financial Status Evidenced at Final Hearing At the final hearing, to demonstrate that it had the financial strength necessary to ensure the timely payment of current and future workers’ compensation claims, Petitioner presented testimony of its expert witness, Lawrence Hirsh, C.P.A. He posited that Petitioner's financial strength should be measured by determining its ability to generate cash flow through a calculation of its earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA is a measure commonly used by financial institutions to evaluate the ability of a company to generate cash flows and in determining whether to extend credit or to make investments. Petitioner’s lenders evaluated its EBITDA before deciding to refinance its credit facility in 2002 and to refinance its long-term debt in 2004. However, EBITDA is not a calculation provided for under GAAP. GAAP provides a method for determining cash flows and that method is used in preparing the portion of a GAAP- compliant financial statement called the "Statement of Cash Flows." Evidence presented by Respondent demonstrated that EBITDA has many limitations and is not a good proxy for cash flow. Application of EBITDA to Petitioner’s known financial performance in the past consistently overstates Petitioner’s ability to generate cash flow from operations. In every year from 1999 through 2003, Petitioner’s cash flow from operations, as shown on Petitioner’s cash flow statement that was prepared in accordance with GAAP, was significantly lower than the amount calculated for EBITDA by Hirsh: Year Petitioner's Cash Flow From Operations as Shown on GAAP-Compliant Cash Flow Statement EBITDA 1999 $32.6 million $61.1 million 2000 $344,000 $21.2 million 2001 ($2.1 million) $40.3 million 2002 $11.9 million $54.8 million 2003 $12.3 million $42.3 million Petitioner's unaudited 2004 cash flow statement showed $18.1 million in cash flow from operations. This is significantly lower than the $52.9 million in EBITDA calculated for 2004. Similarly, each year from 1999 to 2003, Hirsh's EBITDA's calculation grossly exceeds Petitioner's net loss as shown on its financial statements that were prepared in accordance with GAAP: Petitioner's Cash Flow From Operations as Year Shown on GAAP-Compliant Cash Flow Statement EBITDA 1999 (5.7 million) $61.1 million 2000 ($39.5 million) $21.2 million 2001 ($24.2 million) $40.3 million 2002 ($12.1 million) $54.8 million 2003 ($9.9 million) $42.3 million EBITDA is also misleading because it includes gain from the sale of assets. To the extent that Petitioner is selling its operating assets, such as trucks, Petitioner will have to expend cash to replace the assets, either by lease or purchase. To the extent that Petitioner is selling non-core assets, such as its unused real property, Petitioner cannot continue this practice indefinitely. Petitioner will soon run out of assets to sell. Therefore, cash generated from the sale of operating assets and non-core assets should not be considered in determining Petitioner's ability to generate cash from operating activities. Petitioner sought to bolster its evidence of its financial strength through testimony that it had received a credit rating in November 2003 from Standard & Poor's of B-plus. However, a B-rating is not an investment grade rating. It means that while a company currently has the capacity to meet its debt obligations, adverse business, financial, or economic conditions likely will impair the obligor's capacity or willingness to meet its financial commitment on the obligations in the future. In addition, Petitioner received a lower credit rating of B-3 from Moody's Investment Services. A B-3 rating from Moody's Investment Services is equivalent to a B minus rating from Standard & Poor's. The Standard & Poor's and Moody's credit ratings do not effectively demonstrate that Petitioner has the financial strength necessary to ensure the payment of current and future workers' compensation claims. Respondent's expert witness, Dr. Sondhi, disputed Petitioner's calculation of its EBITDA interest coverage ratio because Petitioner's calculation was based on interest paid as opposed to interest expense, and it failed to adjust for non-recurring items. Petitioner's interest expense is greater than the interest paid partly because Petitioner's loan agreement provides that a portion of the interest payments will accrue monthly with payments deferred until the final prepayment date or other principal payment milestone dates. Petitioner's calculation of the EBITDA interest coverage ratio was not performed in accordance with Standard & Poor's formula for determining the EBITDA interest coverage ratio. Even if the calculation of EBITDA interest coverage ratio was an appropriate measure of Petitioner's financial strength, the formula used by Petitioner to calculate the ratio overstates the results and shows greater financial strength than would be shown if the Standard & Poor's formula had been used. For the reasons noted above, Petitioner's EBITDA calculations are rejected as an inappropriate, overstated method to assess whether a company has the financial strength necessary to ensure the payment of current and future workers' compensation claims. Petitioner also argued that it had the required financial strength because it has paid all workers' compensation claims to-date and because, at the end of 2004, it had a cash balance of $26.6 million in the bank. The ability to currently pay workers' compensation claims does not demonstrate the financial strength to ensure the payment of workers' compensation claims in the future. Current capacity to pay is only part of the statutory standard, which is a risk-based standard requiring a company to ensure payment into the future because of the long period of time that workers' compensation claim payments continue. Likewise, having cash in the bank in the amount of $26.6 million at the end of 2004, does not demonstrate the required financial strength. Current cash balance is not an indicator, by itself, of financial strength to ensure payment in the future. Given Petitioner's extensive operating expenses, $26.6 million represents a very small amount of operating expenses. Petitioner’s consolidated balance sheets list its assets at historical or book cost, the cost at which those assets were purchased, and not at their current fair market value. Petitioner argues that adjusting the book values of assets to current market value would provide the most accurate assessment of Petitioner's net worth. To demonstrate that it has maintained a net worth of $1 million, Petitioner presented testimony that when determining net worth, the fair market value of its assets should be considered in place of the book value of its assets that is reflected on its balance sheet. However, GAAP does not permit the value of assets to be shown at fair market value and instead, requires that assets be shown at book value. Even if GAAP permitted the use of fair market value of assets to be used on a balance sheet, Petitioner did not offer any admissible evidence to prove the current fair market value of its assets for 2002, 2003, and 2004. Consequently, it cannot be determined whether the use of the current fair market value of assets would result in Petitioner's financial statements showing a net worth at all times of at least $1 million. Respondent has interpreted the term "net worth," as it is used in Florida Administrative Code Rule 69L-5.106, to mean the total assets of a company as reflected on the balance sheet, minus the total liabilities of the company as reflected on the balance sheet. Respondent's interpretation of the term "net worth" is a reasonable interpretation, consistent with the interpretation given to the term by accountants and financial analysts. The more credible expert testimony is that net worth appears on the balance sheet as stockholders' or shareholders' equity. Based on the above interpretation of Florida Administrative Code Rule 69L-5.106, for each year from 2002 through 2004, Petitioner has failed to maintain a net worth of at least $1 million. The preponderance of evidence demonstrates Petitioner's net worth was negative $976,000, and negative $10.8 million for the years ended December 27, 2002, and December 26, 2003, respectively. In addition, Petitioner's unaudited financial statements for 2004 show that Petitioner maintained a negative net worth of $6.7 million as of December 31, 2004. Although Petitioner's financial condition has strengthened significantly from year end 2001 to year end 2004, based on the evidence, Petitioner does not now have the financial strength necessary to ensure payment of current and future workers' compensation claims, nor has Petitioner maintained a net worth of at least $1 million. Therefore, an additional security deposit is required for Petitioner to remain qualified as a self-insurer. In May 2002, Thomas Lowe was employed by Petitioner as its vice-president in charge of Risk Management. Lowe instituted a number of risk management practices which have significantly reduced the number and costs of Petitioner's workers' compensation claims. In 2001, Petitioner's workers' compensation claims were adjusted by three separate third-party administrators (TPAs), resulting in three overlapping data bases of claims information. Petitioner was unable to reconcile this overlapping claims information and, consequently, was unable to accurately determine the amount of its workers' compensation reserves for 2001. As a result of its inability to determine its workers' compensation reserves in 2001, Petitioner did not submit the required SI-17 and SI-20 forms to FSIGA in 2002 and 2003. Petitioner informed FSIGA of the difficulty it was having in reconciling its claims data for 2001 and paid the required penalties for its inability to timely submit Forms SI-17 and SI-20 in 2002 and 2003. Failure to submit these forms did not affect Petitioner's ability to make timely payments of all current and estimated future workers' compensation claims. In 2004, Petitioner submitted Forms SI-17 to FSIGA reflecting incurred workers' compensation losses for calendar years 2002 and 2003. On December 14, 2004, Petitioner submitted Form SI-20 to FSIGA, reflecting that the present value of its estimated loss reserves was $6,894,776.00. Anthony Gripps, Sr., an independent actuary who is a member of the American Academy of Actuaries, reviewed Petitioner's workers' compensation claims data pursuant to Respondent's October 28, 2002, directive. Grippa issued two reports, one dated December 1, 2004, and the other dated December 15, 2004. Grippa concluded that the present value of Petitioner's workers' compensation loss reserves as of September 30, 2004, was $6,831,175.00. The parties stipulated to Grippa's finding that the amount of Petitioner's workers' compensation loss reserves as of September 20, 2004, was $6,831,175.00. Petitioner's financial statements for 2004 had not been audited as of the final hearing, but were received into evidence in unaudited form. There was no evidence presented that Petitioner's 2004 financial statements do not accurately represent its financial performance in 2004 and its financial condition as of December 31, 2004. Florida Administrative Code Rule 69L-5.101(4) does not require Petitioner to submit audited financial statements as it has been self-insured since prior to January 1, 1997. Petitioner timely supplied Respondent with unaudited financial statements at least annually as required by Florida Administrative Code Rule 69L-5.101(4). Petitioner currently has a qualified security deposit of $2,500,000.00 deposited with FSIGA. In 2002, FSIGA recommended that in light of Petitioner's "significant net losses and very weak capital structure," Petitioner's security deposit should be increased to 150 percent of the actuarially determined loss reserves. Upon consideration of all of Petitioner's financial statements from 1999 through 2004, FSIGA's recommendation should be followed. Petitioner's actuarially determined loss reserves for all current and estimated future workers' compensation claims are $6,831,175.00. One hundred and fifty percent of the actuarially determined loss reserves of $6,831,175 equals $10,246,762.50. Petitioner presented no evidence of a different amount of security deposit increase that would be sufficient assuming one were to find that Petitioner lacks the financial strength to ensure payment of future workers' compensation claims or that Petitioner has failed to maintain a net worth of at least $1 million.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that The chief financial officer issue a final order determining that: (i) Petitioner does not have the financial strength to ensure the timely payment of all current and future workers' compensation claims; and (ii) Petitioner has failed to maintain a net worth of at least $1 million; and Because Petitioner has failed to meet the requirements to continue self-insuring, the final order should require Petitioner to post an additional security deposit in the amount of $7,746,762.50. DONE AND ENTERED this 1st day of June, 2005, in Tallahassee, Leon County, Florida. S DANIEL M. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of June, 2005.
The Issue Whether proposed Rule 69O-186.013 is an invalid exercise of legislatively delegated authority as defined in Section 120.52(8), Florida Statutes.
Findings Of Fact Pursuant to Section 20.121(3), Florida Statutes, the Financial Services Commission (the Commission) serves as the agency head for the Office of Insurance Regulation for the purpose of rulemaking. On May 26, 2006, the Office of Insurance Regulation issued a Notice of Development of Rulemaking to amend existing Florida Administrative Code Rule 69O-186.013. A workshop was held pursuant to this notice on June 15, 2006. On August 15, 2006, the Commission approved for publication a notice of proposed rule amendments to Rule 69O- 186.013. A Notice of Proposed Rulemaking was published in the Florida Administrative Weekly on October 6, 2006. A public hearing was held October 31, 2006. On November 22, 2006, a second notice of hearing was published in the "Notices of Meetings, Workshops and Public Hearings" section of the Florida Administrative Weekly, advising of "an additional public hearing on the proposed amendments to Rule 69O-186.013, Title Insurance Statistical Gathering, published on October 6, 2006, in Vol. 32, No. 40, of the F.A.W." A public hearing was conducted as noticed December 5, 2006. Petitioners filed their Petition to Determine Invalidity of Proposed Rule December 21, 2006. On June 7, 2007, the Respondent filed its Motion to Dismiss for Lack of Subject Matter Jurisdiction. Included in its Motion are several statements relevant to the Petitioners' position regarding dismissal of these proceedings: [The December 5, 2006, hearing] of course, was not the "final public hearing," was not noticed as a hearing at which any action would be taken and never intended to be the "final public hearing" as that term is used in Section 120.56(2)(a), Florida Statutes. In fact, the "final public hearing" would have been held before the FSC as the collegial body responsible for rulemaking for the Office. When it is appropriate, the FSC will hold such a "final public hearing" prior to adoption of a proposed rule. As in every other instance in which the FSC intends to adopt a rule, notice will be provided in the Florida Administrative Weekly (sample attached as Exhibit E). In this instance, the final hearing has not yet been held, or even scheduled. * * * 11. Therefore, this case must be dismissed as the Petition to Determine Invalidity of Proposed Rule was untimely filed. The Petitioners may, if they desire, challenge the proposed rule after the final public hearing. Nevertheless, they may not maintain this action at this time. Petitioners have responded to the Motion to Dismiss by consenting to dismissal of these proceedings, "in reliance on representations made by the State of Florida, Financial Services Commission/Office of Insurance Regulation (the Respondent) in paragraphs 5, 6, and 11 of Respondent's Motion to Dismiss for Lack of Subject Matter Jurisdiction (the Motion to Dismiss) filed on June 7, 2007, that no 'final public hearing' within the meaning of Section 120.54 . . . has been held . . . and that no 'final public hearing' shall be held unless Respondent has first provided to Petitioners proper notice and an opportunity to contest the validity of the Proposed Rule." Petitioners assert, however, that the Petition should be dismissed without prejudice, and that should Respondent attempt to promulgate the Proposed Rule without first holding a "final public hearing" with proper notice, they reserve the right to reinstate this proceeding.
Findings Of Fact Petitioner Tarpon Financial Corporation is a federal banking corporation engaged in general banking services in the State of Florida, with its principal place of business in Tarpon Springs, Florida. Petitioners are not subsidiaries of, or associated with, either First National Bank of Florida, Inc., or First Florida Banks, Inc. On or about June 16, 1987, Petitioners submitted to and requested approval from Respondent of the name "First National Bank" as a service mark. Respondent denied registration of this service mark on June 29, 1987 by letter stating, "(W)e have a mark registered under the same or similar name and class." On August 6, 1987, Petitioners requested reconsideration citing the Rand McNally Banker's Directory, a nationally issued banking directory, to support its position that the same or similar service mark it seeks to register is not already in use in the State of Florida. The Respondent again denied the request on August 14, 1987 by letter stating, "Our records indicate 'First National Bank of Florida' is an active Florida corporation. We have no record of any name change." Petitioners sought reconsideration again on August 27, 1987, and requested that the matter be reviewed by Respondent's trademark committee. After review by that committee, Petitioners' application was denied for a third time on September 8, 1987. The service mark, "First National Bank of Florida," was registered with Respondent on June 16, 1982, and given mark number 927091. The owner of this mark is First National Bank of Florida, Inc., Tampa, Florida, and annual reports have been filed with Respondent in June of each year, including June 8, 1988, thereby indicating the mark has not been abandoned. The Respondent's records indicate that "First National Bank of Florida" is an actively registered service mark. The fact that it does not appear in the Rand McNally Banker's Directory does not establish that it is not an active mark registered with Respondent. The period of registration for service marks is ten years, and therefore the registration of "First National Bank of Florida" expires June 16, 1992, subject to renewal. The Respondent cannot register marks unless they are distinguishable from service marks already registered. Competent substantial evidence was not presented to support Petitioner's claim that "First National Bank," the mark it seeks to register, is distinguishable from "First National Bank of Florida," which is already registered. The absence of the phrase "of Florida" from the mark Petitioner seeks to register does not distinguish it from the mark already registered
Recommendation Based on the foregoing, it is recommended that Respondent enter a Final Order denying Petitioners' application to register the service mark, "First National Bank." DONE and ENTERED this 1st day of August, 1988, in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of August, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1250 Rulings on Petitioners' Proposed Findings of Fact: Adopted in Finding of Fact 3, but otherwise Rejected in Finding of Fact 5 and as irrelevant. Rejected as irrelevant and unnecessary. 3-4. Rejected in Finding of Fact 7 and Rejected as unsupported in the record. Rejected as irrelevant. Rejected in Finding of Fact 7. Rejected as irrelevant and unsupported in the record. Rejected as unsupported in the record. Rulings on Respondent's Proposed Findings of Fact: 1-2. Adopted in Finding of Fact 5. Adopted in Finding of Fact 2. Adopted in Finding of Fact 1. Adopted in Finding of Fact 2. 6-7. Adopted in Finding of Fact 3. 8-9. Adopted in Finding of Fact 4. 10. Rejected as unnecessary. COPIES FURNISHED: Donald R. Hall, Esquire Suite 402, Corporate Square 2900 U.S. Highway 19, North Clearwater, Florida 34621 Henri C. Cawthon, Esquire Department of State The Capitol, Room LL-10 Tallahassee, Florida 32399-0250 Honorable Jim Smith Secretary of State The Capitol Tallahassee, Florida 32399-0250
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
Findings Of Fact Basic is a general contractor specializing in asphalt resurfacing and related construction activities. Its principal offices are in Orlando, Florida. Basic is not currently qualified to bid on construction projects to be let by DOT. Its certificate of qualification expired on June 30, 1984. Until the expiration, Basic had been continuously qualified by DOT to bid on such jobs since 1975. During the time it was qualified, Basic successfully performed approximately fifty state jobs. In early September, 1984, Basic received its annual audited financial statement from its accountants, Fox and Company (Fox), which reflected Basic's financial condition for the year ending on March 31, 1984. On or about September 14, 1984, Basic filed its application for renewal of its certificate of qualification. With the application, Basic filed the audited financial statement prepared by Fox and Company and an additional financial statement prepared by Basic's new accountants, Colley, Trumbower and Howell (Colley). This Colley financial statement was merely a compilation and covered the period April 1, 1984 through June 30, 1984. The audited statement of Fox contained the opinion of a certified public accountant; the compilation of Colley contained no opinion. The audited statement preceded the date of filing by approximately 170 days. DOT reviewed the application and denied it on the ground that the financial statements submitted were of a date more than 120 days prior to the application DOT did not perform a fiscal analysis or further review of the application after it determined that the application did not contain what it believed to be the necessary financial statements. In response to the denial, Basic had Colley prepare an additional financial statement which reflected its financial condition through September 30, 1984. This financial statement was a review and did not contain an opinion of a certified public accountant (See transcript p 47, lines 22 and 23). DOT declined to accept this review. An "audited" financial statement is a financial statement that has been subjected to full audit scrutiny and verification. A compiled financial statement is merely a compilation of financial information as supplied by the client. A reviewed financial statement consists of inquiries and compilation of financial data with application of analytical procedures and is less in scope than an audited financial statement. An "opinion" is a term of art in the field of accounting and refers to an opinion that the basic financial information taken as a whole is fairly stated in all material respects and is in accordance with generally accepted accounting principals. A qualified opinion is subject to the same definition and level of scrutiny, but is qualified as it relates to one or more items in the financial statement. DOT only accepts audited financial statements which express an opinion. The financial information in the reviewed financial statement, when read in conjunction with the audited financial statement reflects that Basic is in an adequate financial situation with positive current rates and a substantial adjusted net worth. Basic is making a profit.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered denying the application of Basic for a certificate of qualification. DONE and ORDERED this 8th day of February, 1985, in Tallahassee, Florida. DIANE K. KIESLING Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 FILED with the Clerk of the Division of Administrative Hearings this 8th day of February, 1985.
The Issue The issue in this case is whether Respondent is guilty of failing to pay Petitioner for the expenses of an examination and, if so, what penalty should be imposed.
Findings Of Fact Respondent is a licensed Florida domestic insurer operating under a current certificate of authority. Prior to the above-styled proceeding, Petitioner and Respondent were involved in another administrative proceeding. Petitioner seeks in the subject case to impose discipline for Respondent's refusal to reimburse Petitioner for audit expenses incurred during and after the prior administrative litigation. In DOAH Case No. 87-4518, Petitioner alleged, by Notice and Order to Show Cause filed September 11, 1987, that Respondent was in unsound financial condition, using methods of business that rendered its further transacting of insurance hazardous to policyholders and the public, in violation of a lawful order or rule of Petitioner, and in a financial condition that endangered the interests of policyholders, especially because its ratio of net premiums written to surplus exceeded 4:1. The Notice and Order to Show Cause alleges that the projected annualized ratio of net premiums written to surplus would exceed 4:1 by year- end; Respondent was not properly reserving for losses and expenses in connection with liability policies; the annual and quarterly statements reflect a continuing serious deficiency in loss reserves; financial deterioration seriously endangered the welfare of policyholders and the public; and major material discrepancies existed between Respondent's 1986 annual statement filed with Petitioner and Respondent's 1986 audited annual financial statements. The major material discrepancies between the financial statements consisted of allegations that the surplus was overstated by $41,327 in the annual statement filed with Petitioner; the loss adjustment expenses and loss reserves were carried at $1.4 million on the annual statement filed with Petitioner, but $2.7 million on the financial statement; and the unearned premiums were carried at $3.5 million on the annual statement filed with Petitioner, but $2.1 million on the financial statement. Three days prior to the filing of the Notice and Order to Show Cause, Petitioner commenced a financial examination of Respondent. The examination, which began on September 8, 1987, was a target examination. The other type of financial examination conducted by Petitioner is a triennial examination, which is performed not less frequently than every three years. Unlike the triennial examination, a target examination focuses on particular matters--in this case discrepancies between financial statements. Because Respondent commenced doing business on April 5, 1985, it had not yet been the subject of a triennial examination. The target examination is also different from an investigation, which focuses on the business practices of individuals rather than financial matters of insurers. Due to a perceived lack of reliability with respect to Respondent's accounting records, the scope of the examination was extended to include an analysis of all of Respondent's accounts. This broadening of scope took place during the first audit examination, which culminated with the Report on Examination for the period ending June 30, 1987. With respect to its examination of Respondent, Petitioner incurred, during the months indicated, the following audit expenses, all of which are reasonable: September, 1987 $7,889.00 October, 1987 10,682.00 November, 1987 10,678.00 December, 1987 8,931.65 January, 1988 10,401.00 February, 1988 2,051.80 March, 1988 645.40 July, 1988 237.70 August, 1988 5,795.80 September, 1988 5,564.40 October, 1988 2,645.40 January, 1989 610.80 TOTAL $66,132.95 10. On April 13, 1988, counsel for Petitioner and Respondent in DOAH Case No. 87-4518 met to discuss a settlement. Memorializing the meeting, Respondent's counsel acknowledged by letter dated April 13 that Petitioner's counsel indicated a desire "to go back into the company for the purpose of bringing forward the audit that was completed earlier this year." Respondent's counsel suggested a date for Petitioner's auditors to commence another audit and advised that he would postpone discovery in the hopes of settling many of the issues. Negotiations proved successful. On July 14, 1988, the final signatures were affixed to a Joint Settlement Stipulation for Agreed Order (Stipulation). The Stipulation recites in material part: [Petitioner] conducted an investigation of [Respondent], and alleged that it was in violation [of] certain provisions of the Florida Insurance Code. These violations included its ratio of net premiums written to surplus as to policyholders and its statutory insurer capital and surplus requirements. [Petitioner] conducted an examination of the company and on March 24, 1988, issued a Report on Examination of [Respondent] as of June 30, 1987. The Stipulation provides that the Insurance Commissioner may enter an order providing, among other things, that the Stipulation shall be incorporated by reference and that "[e]ach party to this case shall bear its costs, expenses and fees, including attorney's fees." The reference to "expenses" was added at the request of Respondent's counsel. The Consent Order, which was filed August 2, 1988, incorporates by reference the Stipulation and provides that "each party to this proceeding shall bear its own costs and attorney's fees." In November or early December, 1988, Respondent received an invoice for audit examination fees incurred from August through October, 1988. As was the case with prior invoices, the invoice recited a past-due amount. A letter dated December 15, 1988, from Respondent's president responds to the invoice by stating that the past-due amount is "apparently for fees and expenses incurred by [Petitioner] in performance of an audit examination done during the months of September, 1987 through April 1988. This obligation has been satisfied by [the] . . . Stipulation . . .." The December 15 letter does not object to the audit fees incurred during August through October, 1988. The December 15 letter notes that Petitioner, immediately after filing the Notice and Order to Show Cause in September, 1987, began a "complete audit . . . to support its allegations that [Respondent] was in financial circumstances justifying the . . . Order to Show Cause." The letter adds that, pursuant to the Stipulation, Respondent bore its accounting expenses in connection with the audit examination, just as Petitioner must bear its audit examination expenses. The audit examinations conducted prior to the settlement of DOAH Case No. 87-4518 served the purpose of discovery for Petitioner. Respondent never sought a protective order as to these fact-finding efforts. Although Petitioner conducted no investigation, the allegations in DOAH Case No. 87- 4518 involved Respondent's financial condition, not the business practices of individuals, so an investigation would have been inappropriate. The early audit examinations culminated in a Report on Examination for the period ending June 30, 1987. The Report on Examination was issued on March 24, 1988. Later audit examinations culminated in a Report of Examination for the period ending June 30, 1988. This Report of Examination, which was issued on February 26, 1988, states: This is the second report on examination of [Respondent] and represents a continuation and follow-up to the report filed as of June 30, 1987. The effect of the Stipulation and ensuing Consent Order is that Petitioner agreed to absorb all audit examination expenses incurred through the preparation of the Report on Examination for the period ending June 30, 1987. These audit examination expenses ended on or about March 24, 1988, when the first Report on Examination was issued. The March, 1988, audit expenses of $645.40 appear to be related to the issuance of the first Report on Examination because all of the activity occurs in the four days prior and two days after March 24. The audit examination expenses incurred through the preparation of the Report on Examination for the period ending June 30, 1987, total $51,278.85. The letter of December 15, 1988, from the president of Respondent disputes the past-due billing of $51,278.85 because "this obligation" was discharged by the Stipulation. This letter ignores the current billing for audit expenses incurred during August through October, 1988, because the writer knew that these fees were not intended to be covered by the Stipulation. The letter of April 13, 1988, from Respondent's counsel acknowledges the hiatus disclosed by the monthly statements. By April 13, 1988, there had been a break in audit examinations. The April 13 letter discusses an "updated audit" beginning perhaps May 9, 1988; covering the March 31, 1988, quarter; and hopefully taking less than the five months expended in the first audit resulting in the Report on Examination for the period ending June 30, 1987. In effect, the April 13 letter seeks a settlement in the near future, so that discovery need not be begun, while recognizing that another audit would not be completed for several months. The author of the April 13 letter claims that he intended to include in a settlement agreement, which he hoped would be finalized in the near-term, future audit expenses to be incurred over a period of months. If so, the burden was on the author to identify explicitly these future expenses in the Stipulation.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Insurance enter a final order suspending the certificate of authority of Respondent until the earlier of: a) six months or b) such time as Respondent complies with prior lawful orders of the Department of Insurance by remitting the sum of $14,854.10 and pays an administrative fine of $2500. ENTERED this 15 day of July, 1992, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15 day of July, 1992.
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 The issue for determination is whether Respondent committed the offenses set forth in the Notice to Show Cause, filed on September 14, 2010, and, if so, what action should be taken.
Findings Of Fact The Department is the state agency charged with regulating condominiums, including condominium associations, pursuant to chapter 718, Florida Statutes. At all times material hereto, Whitehall was a condominium association operating in the State of Florida. At all times material hereto, Whitehall was responsible for managing and operating Whitehall Condominium in West Palm Beach, Florida. Pertinent to the case at hand, regarding a condominium's year-end financial statement, section 718.111, Florida Statutes, provides in pertinent part: (13) Financial reporting. --Within 90 days after the end of the fiscal year, or annually on a date provided in the bylaws, the association shall prepare and complete, or contract for the preparation and completion of, a financial report for the preceding fiscal year. Within 21 days after the final financial report is completed by the association or received from the third party, but not later than 120 days after the end of the fiscal year or other date as provided in the bylaws, the association shall mail to each unit owner at the address last furnished to the association by the unit owner, or hand deliver to each unit owner, a copy of the financial report or a notice that a copy of the financial report will be mailed or hand delivered to the unit owner, without charge, upon receipt of a written request from the unit owner. The division shall adopt rules setting forth uniform accounting principles and standards to be used by all associations and addressing the financial reporting requirements for multicondominium associations. The rules must include, but not be limited to, standards for presenting a summary of association reserves, including a good faith estimate disclosing the annual amount of reserve funds that would be necessary for the association to fully fund reserves for each reserve item based on the straight-line accounting method. This disclosure is not applicable to reserves funded via the pooling method. In adopting such rules, the division shall consider the number of members and annual revenues of an association. Financial reports shall be prepared as follows: (a) An association that meets the criteria of this paragraph shall prepare a complete set of financial statements in accordance with generally accepted accounting principles. The financial statements must be based upon the association's total annual revenues, as follows: * * * An association with total annual revenues of $ 400,000 or more shall prepare audited financial statements. (emphasis added). Whitehall's annual revenue is in excess of $400,000.00. Therefore, Whitehall is required to produce audited year-end financial statements. Whitehall's fiscal year coincided with the calendar year. As a result, Whitehall's 2009 year-end financial statement was due on or before May 1, 2010. On December 11, 2009, Whitehall engaged Hafer Company, LLC (Hafer), a Certified Public Accountant (CPA) firm, to produce its audited 2009 year-end financial statement. Whitehall must rely upon a third-party vendor, such as Hafer, to produce its audited financial statement. Hafer assigned Nicole Johnson as the auditor to produce Whitehall's audited 2009 annual financial statement.4/ Ms. Johnson's process involved, among other things, preparing a draft audit; providing a draft audit to the condominium board, which reviews the draft audit with Ms. Johnson; and then preparing the final audit. Whitehall's engaging Hafer in December 2009 did not contribute to any delay in producing Whitehall's audited financial statement. Ms. Johnson wanted to begin the auditing process early and made a request to Whitehall to begin on or about January 6, 2010, but Whitehall was not prepared to go forward at that time. She was not concerned with beginning at a later date because, among other things, her suggested date was an early date for beginning the auditing process. Whitehall's day-to-day bookkeeping and accounting was performed by a third-party vendor, The Accounting Department, Inc. (Accounting). On February 3, 2010, Ms. Johnson met with Accounting's representative who was handling the day-to-day bookkeeping and accounting. Having the meeting occur in February 2010 was not late or abnormal in the ordinary course of preparing an audited year-end financial statement for a condominium; and did not contribute to any delay in Ms. Johnson's producing Whitehall's audited 2009 year-end financial statement. On February 3, 2010, Ms. Johnson began her field-work and received the primary bulk of the accounting information necessary to complete the audit. From February 3, 2010, Ms. Johnson maintained communication, whether by telephone, email, or other methods of communicating, with Whitehall's directors and officers, and its property manager, Michael Weadock, who is a licensed Community Association Manager (CAM). Ms. Johnson's communications included requesting additional information, asking questions, and obtaining clarifications regarding items for the audited year-end financial statement. One of the items needed by Ms. Johnson to complete the audited year-end financial statement was independent verification from Whitehall's banks regarding Whitehall's certificates of deposit (CDs). Ms. Johnson, as the auditor, was responsible for obtaining the independent verification of the CDs from Whitehall's banks. Due to the economic crisis, which occurred in 2009, banks nationwide were taking an unusual amount of time to respond to auditors' requests associated with the independent verification of bank account information. The banks from which Ms. Johnson was requesting independent verification were no different. She did not receive independent verification of Whitehall's CDs until after the May 1, 2010, due date for Whitehall's audited 2009 financial statement. Whitehall could do nothing to expedite the banks' response to Ms. Johnson's requests. Additionally, on May 28, 2010, Ms. Johnson sent an email to Mr. Weadock requesting additional items that were outstanding. The requested items were non-bank items and were not items that would delay the completion of a draft audit, but were required for the final audit. The next business day, Whitehall provided the requested items. Whitehall had control over these non-bank items, which delayed completion of the final audit. Subsequently, Ms. Johnson received the independent verification of Whitehall's CDs from the banks. On June 23, 2010, Ms. Johnson completed Whitehall's audited 2009 Financial Statement and forwarded a copy to the Department. Even though the final audit was not completed until June 23, 2010, on or about June 10, 2010, Whitehall posted on its bulletin board a notice indicating that copies of the audited 2009 Financial Statement were available in its office. However, subsequently, another notice was posted on the bulletin board indicating, among other things, that copies of the audited 2009 Financial Statement would be available at the Board of Directors Meeting on July 1, 2010, in order to provide for the completion of the audited year-end financial statement. Whitehall does not dispute that neither notice complies with the manner/method of delivery requirement in section 718.111(13). Additionally, Whitehall provided notice to its unit owners as to the availability of the audited 2009 Financial Statement through its community television channel, website, and email blast. This same manner/method of sending the notices to unit owners was used in the past by Whitehall. Whitehall does not dispute that this manner/method of providing notice does not comply with the manner/method of delivery requirement in section 718.111(13). At the time of hearing, Whitehall had not provided its unit owners with a copy of the audited 2009 Financial Statement by mail or hand-delivery. Whitehall has prior disciplinary history regarding its failure timely to prepare and provide its audited year-end financial statements in prior years. On April 1, 2010, Whitehall and the Department entered a Consent Order resolving several statutory violations. One of the violations in the Consent Order was Whitehall's failure timely to prepare and provide its 2005, 2006, 2007, and 2008 audited year-end financial statements. As to this violation, the Consent Order concluded that Whitehall failed timely to prepare and provide the audited year-end financial statements for the four consecutive years. The Consent Order did not include a violation of the manner/method of delivery of notices regarding the year-end financial statements for the four consecutive years. Subsequent to the Consent Order, the Department received a complaint from a one of Whitehall's unit owners regarding Whitehall's failure timely to provide a copy of the 2009 audited year-end financial statement. The Department's usual practice is that, if a repeat violation occurs within a two-year period, administrative action is taken resulting in a consent order or notice to show cause. Considering the recent Consent Order, the Department followed its usual practice and appropriately pursued the complaint. On September 14, 2010, the Department filed a Notice to Show Cause against Whitehall, which is the subject matter of the instant case. Even though the unit owner's complaint did not include the manner/method in which notice was provided, the evidence fails to demonstrate that the Department was restricted to investigate only that which was complained of. The evidence fails to demonstrate that the Department's investigation of a violation of section 718.111(13) by Whitehall was improper. Further, the evidence fails to demonstrate that the Department's enforcement of the requirements of section 718.111(13) was selective enforcement against Whitehall. The evidence demonstrates that the Department participated in this proceeding primarily due to Whitehall having previously, within a short period of time, violated section 718.111(13) regarding Whitehall's failure timely to provide its unit owners a copy of audited year-end financial statements. Additionally, the evidence fails to demonstrate that either the Department or Whitehall needlessly increased the cost of litigation in the instant case.5/ Consequently, the evidence fails to demonstrate that the Department participated in this proceeding for an improper purpose as defined by section 120.595(1)(e)1.6/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Business and Professional Regulation, Division of Florida Condominiums, Timeshares, and Mobile Homes, enter a final order: Finding that Whitehall Condominiums of the Villages of Palm Beach Lakes Association, Inc., violated section 718.111(13), Florida Statutes, by failing to deliver, in the manner authorized by statute, a copy of its audited 2009 year- end financial statement to all of its unit owners no later than 120 days after the end of the fiscal year, and by failing to make audited 2009 year-end financial statement available in the manner authorized by statute, when it became available; and Imposing a fine in the amount of $5,000.00. DONE AND ENTERED this 21st day of May, 2013, in Tallahassee, Leon County, Florida. S ERROL H. POWELL 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 21st day of May, 2013.
The Issue Whether Respondents violated the statutes and rules alleged in the Second Amended Administrative Complaint; and, if so, what is the appropriate penalty to be imposed against Respondents.
Findings Of Fact OFR is the state agency charged with administering and enforcing chapter 560, Florida Statutes, including part II related to money services businesses. At all times material hereto, Payservices has been a foreign corporation and part II licensee pursuant to chapter 560, specifically a "money services business," as defined in section 560.102(22), and "money transmitter," as defined in section 560.102(23).4/ At all times material hereto, Mr. Danenberg has been the chief executive officer, compliance officer, and an owner of Payservices. As such, Mr. Danenberg is an "affiliated party" and a "responsible person" as defined in sections 560.103(1) and 560.103(33). Count I Licensees, such as Payservices, are required to annually file a financial audit report within 120 days after the end of the licensee's fiscal year. The financial audit report is prepared by a certified public accountant and is used to demonstrate to OFR that the licensee has the financial health to conduct its business and transmit funds within the State of Florida. Payservices' fiscal year ends December 31st. Respondents were required to provide Payservices' 2016 financial audit report to OFR by no later than May 1, 2017. On December 20, 2017, William C. Morin, Jr., OFR's Chief of the Bureau of Registration, contacted Payservices by email with regard to Payservices' failure to timely file a financial audit report within 120 days after the 2016 fiscal year ended. Mr. Danenberg responded by email that same day, telling Mr. Morin that Payservices' accountant had prepared a financial audit report "many months ago," and that it was his "impression" that it had been uploaded to the REAL system "at some point when we filed the quarterly reports." Mr. Danenberg attached to his December 20, 2017, email what OFR accepted as the financial audit report that same day. Notably, the document indicated it was prepared by a certified public accountant on June 15, 2017, after the May 1, 2017, deadline. In any event, Mr. Morin reviewed the REAL system regarding Payservices and determined there were no problems with the REAL system's ability to accept uploaded documents. Mr. Morin testified that he could see on the REAL system that Payservices successfully uploaded a quarterly report and Security Device Calculation Form on January 26, 2017, which created a transaction number. Mr. Morin also observed that Payservices started to upload its financial audit report, which would create a transaction number, but no financial audit report was actually attached and uploaded to the REAL system on January 26, 2017, under that transaction number. According to Mr. Morin, Payservices may have attempted to start to file a financial audit report on January 26, 2017, but it did not complete the transaction because no financial audit report was attached. At hearing, Mr. Morin acknowledged that: "When I looked at the Financial Audit Report transaction, nothing was attached. And I also know that the functionality of the REAL system will kind of allow for the transaction to be completed and nothing attached." Tr. p. 100. Mr. Morin testified that Mr. Danenberg was cooperative when he was contacted on Decemeber 20, 2017, and submitted the financial audit report. The persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not submit their financial audit report to OFR until December 20, 2017, almost eight months after the May 1, 2017, deadline. Count II Licensees, such as Payservices, are required to annually file Form OFR-560-07, Security Device Calculation Form, by January 31st of each calendar year for the preceding calendar year. The Security Device Calculation Form requires licensees to report to OFR the dollar amount of transactions with Florida consumers. The dollar amount of transactions identified in the form is then utilized by OFR to determine if additional collateral is necessary to protect Florida consumers in the event a claim is made against the collateral for monies that were not properly transmitted by the licensee. Andrew Grosmaire, OFR's Chief of Enforcement in the Division of Consumer Finance, acknowledged at hearing that a licensee has 60 days to amend the face value of its surety bond, should an increase be required, and that at all times material hereto, the value of Payservices' surety bond has been correct for the minimum amount required. Nevertheless, Mr. Morin testified that Respondents did not file Form OFR-560-07, Security Device Calculation Form, until February 10, 2018, ten days late. The persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not file Form OFR-560-07, Security Device Calculation Form, until February 10, 2018, ten days late. Count III Licensees, such as Payservices, are required to update information contained in an initial application form, or any amendment to such application, within 30 days after the change is effective. In Payservices' initial application dated September 25, 2015, Respondents identified Corporate Access, Inc., as its registered agent with an address for service of process at 236 East 6th Avenue, Tallahassee, Florida 32303. According to the Department of State, Division of Corporation's records, on January 10, 2017, Mr. Danenberg was appointed as Payservices' registered agent with a new address for service of process at 300 West Palmetto Park Road, A210, Boca Raton, Florida 33432. Respondents filed an amended license application with OFR on August 28, 2017, which still listed Corporate Access, Inc., as the registered agent for service of process. On February 26, 2018, Respondents amended their registered agent information with the Department of State listing a new address for Mr. Danenberg at 14061 Pacific Pointe Place, No. 204, Delray Beach, Florida 33484. Mr. Morin testified that at no time have Respondents updated their initial application with OFR to reflect Mr. Danenberg as the registered agent for Payservices and his address as the registered agent.5/ Mr. Morin and Mr. Grosmaire testified that the reason a licensee needs to update a change in the registered agent's name and address is so that OFR may effectuate service of process against the licensee. Yet, Mr. Grosmaire acknowledged that OFR has access to the Division of Corporation's records. Nevertheless, the persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not update their initial application with OFR to reflect Mr. Danenberg as the registered agent for Payservices and his address as the registered agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that OFR impose an administrative fine against Respondents in the amount of $6,000. DONE AND ENTERED this 16th day of December, 2019, in Tallahassee, Leon County, Florida. S DARREN A. SCHWARTZ Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of December, 2019.
