The Issue Whether Respondent Corporation, Southern Insight, Inc., failed to secure payment of workers' compensation coverage as required by Chapter 440, Florida Statutes, and the Florida Insurance Code, and if so, whether the Department of Financial Services, Division of Workers' Compensation (Department) has lawfully assessed the penalty against Respondent in the amount of $27,805.11.
Findings Of Fact The Department is the state agency responsible for enforcing Section 440.107, Florida Statutes, which requires that employers secure the payment of workers' compensation coverage for their employees and otherwise comply with the workers' compensation coverage requirements under Chapter 440, Florida Statutes. Respondent has been a Florida corporation, actively involved in the construction industry providing framing services, during the period of February 16, 2006, through August 17, 2007 (assessed penalty period). At all times material, Respondent has been an "employer," as defined by Chapter 440, Florida Statutes. At all times material, John Cauley has been Respondent's president and sole employee. At no time material did Respondent obtain workers' compensation insurance coverage for John Cauley. On August 17, 2007, Department Investigator Lynise Beckstrom conducted a random workers' compensation compliance check of a new home construction site in Palm Coast, Florida. At that time, Ms. Beckstrom observed four men, including John Cauley, framing a new home. Utilizing the Department's Compliance and Coverage Automated System (CCAS) database, which contains all workers' compensation insurance policy information from the carrier to an insured and which further lists all the workers' compensation exemptions in the State of Florida, Ms. Beckstrom determined that for the assessed penalty period, Respondent did not have in effect either a State of Florida workers' compensation insurance policy or a valid, current exemption for its employee, John Cauley. During the assessed penalty period, Respondent paid remuneration to its employee, John Cauley. John Cauley admitted that during the assessed penalty period he was not an independent contractor, as that term is defined in Section 440.02(15)(d)(1), Florida Statutes. Section 440.05, Florida Statutes, allows a corporate officer to apply for a construction certificate of exemption from workers' compensation benefits. Only the named individual on the application is exempt from workers' compensation insurance coverage. On or about April 15, 2006, John Cauley, as Respondent's President, applied for such an exemption. That application was denied. Mr. Cauley received neither an exemption card nor a denial of exemption from the Department. During the assessed penalty period, Respondent was a subcontractor of the contractor, Mass Builders, Inc. 9. Sections 440.107(3) and 440.107(7)(a), Florida Statutes, authorize the Department to issue stop-work orders to employers unable to provide proof of workers' compensation coverage, including proof of a current, valid workers' compensation exemption. Based on the lack of workers' compensation coverage and lack of a current, valid workers' compensation exemption for Respondent corporation's employee, John Cauley, the Department served on Respondent a stop-work order on August 17, 2007. The stop-work order ordered Respondent to cease all business operation for all worksites in the State of Florida. Immediately upon notification by Investigator Beckstrom of his lack of valid exemption, Mr. Cauley submitted a new exemption application, which was granted, bringing Respondent corporation into compliance. However, in order to have the stop-work order lifted so that he can work as a corporation again, Mr. Cauley must pay a percentage of the penalty assessment and enter into a payment plan with the Agency. In the meantime, Mr. Cauley cannot pay the percentage required by the Department if he cannot find work as someone else's employee, which he had been unable to do as of the date of the hearing. Herein, it is not disputed that Respondent was inadvertently out of compliance. Mr. Cauley seeks merely to reduce the amount of the penalty assessment so that removal of the stop-work order against Respondent corporation can be negotiated. On the day the stop-work order was issued, Investigator Beckstrom also served Respondent with a "Request for Production of Business Records for Penalty Assessment Calculation," in order to determine a penalty under Section 440.107(7), Florida Statutes. Pursuant to Florida Administrative Code Rule 69L-6.015, the Department may request business records for the three years preceding the date of the stop-work order. Logically, however, Ms. Beckstrom only requested business records dating back to February 14, 2006, Respondent's date of incorporation in Florida. The requested records included payroll, bank records, check stubs, invoices, and other related business records. Ms. Beckworth testified that, "Business records requests usually consist of payroll, bank records, taxes, check stubs, invoices, anything relating to that business." This is a fair summation of a much more detailed listing of records required to be kept pursuant to Rule 69L-6.015, Florida Administrative Code, which was in effect at all times material. In response to the Request for Production, Respondent provided Southern Insight Inc.'s corporate bank statements for the assessed penalty period, detailing corporate income and expenses through deposits and bank/debit card purchases. However, Investigator Beckworth did not deem the corporate bank statements produced by Respondent to be an adequate response, and she did not base her calculations for penalty purposes thereon. Mr. Cauley expected that the Department would, and has argued herein that the Department should, have subtracted from the total deposits to Respondent's corporate account (the minuend) the total corporate business expenses (the subtrahend) in order to determine the Respondent's payroll to Mr. Cauley (the difference), upon which difference the Department should have calculated his workers' compensation penalty. In fact, the Department, through its investigator, did not utilize the total amount deposited to Respondent's corporate account, because some deposits "could" have come from a family member of Mr.Cauley. That said, there are no individual names on the account; the account is clearly in the name of the Respondent corporation; and there is no proof herein that any deposits to Respondent's corporate bank account were derived from anyone other than Mr. Cauley, as Respondent's President. Ms. Beckstrom testified that if the Agency had accepted the total of the deposits to this corporate account for the assessed penalty period as Respondent's payroll, the result would have been more than the total amount actually determined by her to constitute Mr. Cauley's payroll, but that statement was not demonstrated with any specificity. The Department also did not use any of the subtracted amounts shown on the corporate bank statements, even though the bank statements listed the same information as would normally be found on a corporate check, including the transaction number, recipient of the money, the date, and the amount for each bank/debit card transaction. All that might be missing is the self-serving declaration of the check writer on the check stub as to what object or service was purchased from the recipient named on the bank statement. Ms. Beckstrom testified that if Mr. Cauley had provided separate receipts for the transactions recorded on the bank statements as bank/debit card entries, she could have deducted those amounts for business expenses from the corporation's income, to arrive at a lesser payroll for Mr. Cauley. In other words, if Mr. Cauley had provided separate receipts as back-up for the transactions memorialized on the corporate bank statements, the Department might have utilized the bank/debit card transactions itemized on Respondent's corporate bank statements as the amount deducted for Respondent corporation's business expenses, so as to obtain the payroll (difference) paid to Mr. Cauley. It is the amount paid to Mr. Cauley as payroll, upon which the Department must calculate the workers' compensation penalty. The reason Ms. Beckworth gave for not using Respondent's bank statements was that without more, the transactions thereon might not be business expenses of the corporation. However, she also suggested that if, instead of submitting bank/debit card statements, Mr. Cauley had submitted checks payable to third parties and if those corporate checks showed an expenditure for a deductible business expense, like motor vehicle fuel, she might have accepted the same expenditures in check form (rather than the statements) in calculating Respondent's payroll. Ultimately, Ms. Beckworth's only reasons for not accepting the bank statements showing recipients, such as fuel companies like Amoco, was "agency policy," and her speculation that Amoco gas could have been put into a non-company truck or car. She also speculated that a prohibition against using bank statements showing deductions might possibly be found in the basic manual of the National Council on Compensation Insurance (NCCI) or in a rule on payrolls (Rule 69L-6.035) which became effective October 10, 2007, after the assessed penalty period. However, the NCCI manual was not offered in evidence; a rule in effect after all times material cannot be utilized here; and no non-rule policy to this effect was proven-up. In addition to not using Respondent's bank statements to calculate a penalty, the Department also did not "impute" the statewide average weekly wage to Respondent for Mr. Cauley. Ms. Beckworth testified that to impute the statewide average weekly wage would have resulted in a higher penalty to Respondent. As to the amount of the statewide average weekly wage, she could only say she thought the statewide average weekly wage was "about $1,000.00". Instead of using Respondent's corporate bank statements or imputing the statewide average weekly wage, Investigator Beckstrom determined that Mass Builders, Inc., was the prime contractor on the jobsite being worked by Respondent, and that Mass Builders, Inc., had not produced proof of securing workers' compensation coverage for Respondent, its sub- contractor. Therefore, she sought, and received, Mass Builders, Inc.'s "payroll records" of amounts paid by the prime contractor, Mass Builders, Inc., to Respondent Southern Insight, Inc., via a separate site-specific stop-work order and business records request directed to Mass Builders, Inc. The only "payroll records" that Mass Builders, Inc., offered in evidence were Mass Builders, Inc.'s check stubs, which Ms. Beckstrom utilized to come up with an income/payroll amount for Respondent Southern Insight, Inc. Mr. Cauley did not know until the hearing that Mass Builders, Inc.'s check stubs had been utilized in this fashion by the Department. However, he ultimately did not dispute the accuracy of the check stubs and did not object to their admission in evidence. In calculating Respondent's total payroll for the assessed penalty period, Investigator Beckstrom considered only the total of the check stubs from Mass Builders, Inc. It is unclear whether or not she reviewed Mass Builders, Inc.'s actual cancelled checks. No one from Mass Builders, Inc., appeared to testify that the stubs represented actual cancelled checks to Respondent or Mr. Cauley. The Department also did not deduct from the total of Mass Builders, Inc.'s check stubs any of the bankcard deductions made by John Cauley from Respondent's corporate bank account, for the same reasons set out above. Mr. Cauley testified, without refutation, that some of the expenses noted on Respondent's bank statements, paid by bank/debit card, most notably expenses for gasoline for his truck, constituted legitimate business expenses of Respondent corporation, which should have been deducted from either the bank statement's total income figure or from the amounts paid by Mass Builders, Inc., to Respondent corporation, before any attempt was made by the Department to calculate the amount paid by Respondent corporation to Mr. Cauley as payroll. Utilizing the SCOPES Manual, which has been adopted by Department rule, Ms. Beckstrom assigned the appropriate class code, 5645, to the type of work (framing) performed by Respondent. In completing the penalty calculation, Ms. Beckstrom multiplied the class code's assigned approved manual rate by the payroll (as she determined it) per one hundred dollars, and then multiplied all by 1.5, arriving at an Amended Order of Penalty Assessment of $27,805.11, served on Respondent on August 22, 2007. Subsequent to the filing of its request for a disputed-fact hearing, in an effort to have the penalty reduced, Respondent provided the Department with additional business records in the form of portions of Southern Insight, Inc.'s 2006 and 2007 U.S. Income Tax Returns for an S Corporation (2006 and 2007 income tax returns). However, neither itemized deductions nor original receipts for Respondent's business expenses were provided to Ms. Beckworth at the same time, and she determined that without itemized deductions, there was no way to calculate Respondent's legitimate business deductions so that they could be deducted from the total of Mass Builders, Inc.'s, check stubs to determine a lesser payroll applicable to Mr. Cauley. Investigator Beckstrom testified that the tax returns, as she received them, did not justify reducing Respondent's payroll used in calculating the penalty. The vague basis for this refusal was to the effect that, "The Internal Revenue Service permits different business deductions than does the Department." Itemization pages (schedules) of Respondent's income tax returns were not provided until the de novo disputed-fact hearing. Confronted with these items at hearing, Ms. Beckworth testified that ordinary business income is not used by the Department to determine payroll, but that automobile and truck expense and legitimate business expenses could be deducted, and that she would probably accept some of the deductions on Respondent's 1020-S returns. Also, if Respondent's bank statement corresponded to the amount on the tax form, she could possibly deduct some items on the bank statements as business expenses before reaching a payroll amount. However, she made no such calculations at hearing. Ms. Beckworth testified that if she had Respondent's checks or "something more" she could possibly deduct the motor fuel amounts. Although Respondent's 2006, and 2007, income tax returns reflected Respondent corporation's income minus several types of business deductions, Ms. Beckstrom testified that the tax deductions were not conclusive of the workers' compensation deductions, because the Internal Revenue Service allows certain deductions not permissible for workers' compensation purposes, but she did not further elaborate upon which tax deductions were, or were not, allowable under any Department rule. She did not "prove up" which deductions were not valid for workers' compensation purposes. Respondent's 2006, tax deductions for "automobile and truck expense" were $2,898.00, and for 2007, were $4,010.00. There was no further itemization by Respondent within these categories for fuel. Other business deductions on the tax returns were also listed in categories, but without any further itemization. The only supporting documentation for the tax returns admitted in evidence was Respondent's bank statements. Respondent believed that the tax returns and possibly other documentation had been submitted before hearing by his accountant. It had not been submitted. The Department never credibly explained why it considered a third party's check stubs (not even the third party's cancelled checks) more reliable than Respondent's bank statements or federal tax returns. Even so, at hearing, the Department declined to utilize the business deductions itemized on Respondent's tax forms or any bank/debit card deductions on its bank statements so as to diminish the amount arrived-at via the Mass Builders, Inc.'s check stubs, and ultimately to arrive at a difference which would show a lesser payroll to Mr. Cauley. Although Mr. Cauley's questions to Ms. Beckstrom suggested that he would like at least all of the fuel company deductions on his bank statements to be considered as business deductions of Respondent Southern Insight, Inc., and for those fuel company expenditures to be subtracted from either the total deposits to the corporate bank account or deducted from the payroll total as calculated by Ms. Beckstrom from Mass Builders, Inc.'s check stub total, he did not testify with clarity as to which particular debits/charges on the bank statements fell in this category. Nor did he relate, with any accuracy, the debits/charges on the bank statements to the corporate tax returns. Upon review by the undersigned of Respondent's bank statements admitted in evidence, it is found that the bulk of Respondent's bank/debit card deductions during the assessed penalty period were cash withdrawals or ATM debits which cannot be identified as being paid to fuel companies or purveyors of construction material. As Investigator Beckstrom legitimately observed, "Big Al's Bait" is not a likely source of motor fuel. "Publix" and "Outback Steak House" are likewise unlikely sources of fuel or construction material, and cannot stand alone, without some other receipt to support them, as a legitimate corporate business entertainment expense. Other debits/charges on the bank statements are similarly non-complying, ambiguous, or defy categorization. However, the undersigned has been able to isolate on the corporate bank statements purchases from the known fuel distributors "Amoco" and "Chevron" on the following dates: 7/09/07, 7/10/07, 6/04/07, 6/04/07, 6/11/07, 5/03/07/ 4/09/07, 4/10/07, 4/13/07, 4/16/07, 3/02/07, 3/05/07, 3/13/07, 3/15/07, 3/20/07, 1/29/07, 5/01/06, 6/02/06, 8/02/06, 11/03/06, totaling $556.98.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers' Compensation, that affirms the stop-work order and concludes that a penalty is owed; that provides for a recalculation of penalty to be completed, on the basis set out herein, within 30 days of the final order; and that guarantees the Respondent Southern Insight, Inc., a window of opportunity to request a Section 120.57 (1) disputed-fact hearing solely upon the recalculation. DONE AND ENTERED this 1st day of July, 2008, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of July, 2008. COPIES FURNISHED: Anthony B. Miller, Esquire Department of Financial Services Division of Workers' Compensation 200 East Gaines Street Tallahassee, Florida 32399-4229 John Cauley, President Southern Insight, Inc. Post Office Box 2592 Bunnell, Florida 32110 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Findings Of Fact Petitioners are all corporations which own and operate adult congregate living facilities in Broward County, Florida. Each of the Petitioners had previously been licensed by the Respondent under Chapter 400 and timely applied for renewal of licensure on various dates in November, 1979. (Stipulation, Exhibits 6-8) Petitioners were advised by letters from Respondent in February and March, 1980, that their applications could not be processed because a current statement of assets and liabilities prepared by an independent bookkeeper or accountant in accordance with Rule 10A-5.04(2)(e), F.A.C., had not been submitted. They were also informed in the letters of the availability of procedures under Chapter 120, Florida Statutes. Petitioners thereafter requested an administrative hearing. (Stipulation, Exhibits 6-8) Camelot Retirement Home, Fort Lauderdale, Florida, who is the Petitioner in DOAH Case 80-1218, submitted its application for relicensure in May 1980, and enclosed a financial statement executed by the administrator of the facility. By letter, dated June 4, 1980, Respondent advised the home that, although Chapter 10A-5 formerly required an applicant to submit the required financial statement prepared by an independent bookkeeper or accountant, an emergency amendment to Rule 10A-5.04(2)(e) then permitted an applicant to prepare its own statement. It further noted that because Camelot Retirement Home is a corporation, the personal statement of the administrator was not acceptable because Rule 10A-5.01(4) defines "applicant" to be the owner of the facility. (Stipulation, Exhibit 9) Respondent District Program Specialist who reviews license applications for adult congregate living facilities, determines the financial solvency of an applicant based on the statement of assets and liabilities submitted with an application to determine if the facility would "go bankrupt in providing care to the residents." She makes this determination by observing whether the facility has excessive debt which would render it unable to provide proper care to the residents and continue operation. In doubtful cases, she would have the district fiscal staff, including accountants, review financial statements, but, to date, has had no reason to do so. Since February, 1980, the district office has had sample financial forms available for applicants upon request. Respondent has promulgated no rules or does it have any written policies setting forth criteria as to the financial requirements for licensure. None of the petitioners in these proceeding submitted financial statements with their applications for license renewal. No application has been denied for an insufficient financial condition since the promulgation of Rule 10A-5.04(2)(e), F.A.C., on October 3, 1979. License application files, including financial statements of applicants, are available in Respondent's offices for inspection by the general public. (Testimony of Kroeger, Exhibits 1-2)
Recommendation DONE AND ORDERED in Tallahassee, Leon County, Florida, this 18th day of February, 1981. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Harold S. Braynon, Esquire Department of Health and Rehabilitative Services District X Legal Counsel 201 West Broward Boulevard Ft. Lauderdale, Florida 33301 Stephen W. Toothaker, Esquire 222 Southeast 10th Street Fort Lauderdale, Florida 33316 Liz Cloud, Chief Bureau of Administrative Code 1803 Capitol Building Tallahassee, Florida 32301 Carroll Webb, Executive Director Administrative Procedures Committee 120 Holland Building Tallahassee, Florida 32301 Donna Stinson, Esquire General Counsel Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301
The Issue Whether the Respondent, a licensed Limited Surety Agent, failed to transmit the statistical reporting requirements information to the Petitioner within thirty days after the end of 1988.
Findings Of Fact Beverly Elaine Bryson's licensure as a Limited Surety Agent (bail bondsman) was placed with Bankers Insurance Company on December 1, 1988. The Department required all limited surety agents to complete a Statistical Reporting Requirements form for the period from July 1 through December 31, 1988. The report was to be transmitted to the Department within 30 days after the end of the period. Respondent Bryson opened her business on December 7, 1988, and executed twenty bonds within the reporting period. Respondent Bryson completed the form within the first part of January 1989. She mailed one copy of the form to the Department and another copy to her general agent, Amando Roche, at Roche's Surety, Inc. Linda Roche, who is employed at Roche's Surety, Inc., recalls receiving a copy of the report from Respondent Bryson. To assure that the Department received the report form, Linda Roche sent a copy of the report, along with the reports of other agents to the Department by Federal Express Mail. The purpose of the transmittal by express mail was to obtain a signed receipt from the Department. The one-page report form that was transmitted to the Department incorrectly listed the bondman's name as "Brysons, Beverly" as opposed to "Beverly Elaine Bryson." In addition, the form was completed in such an ambiguous fashion that an ordinary reading of the form reveals that the report was completed for the reporting period from January 1 through June 30, 1988, as well as the period from July 1 through December 1988. The address on the form, 1960 Velasco Street, was different than the address on file with the Department. The address at the Department was 1900 Velasco Street. Based upon the high percentage of errors, misinformation, ambiguities, and general differences in the report from information already on file, it is unknown what happened to the two copies of the report transmitted to the Department. The problems with the contents of the report were created by the Respondent. In an attempt to acquire the report after the reporting deadline, the Department sent the Respondent a letter stating that the Department had not received the report. An additional time period in which to file the report was given to the Respondent. The letter was sent by certified mail, and reached the 1960 Velasco Street address by March 15, 1989. When the certified letter was received at Respondent's business, Beverly Elaine Bryson was out of the state on vacation. Carol Graham, an insurance agent within the business, signed for the letter. The Respondent was never notified by Carol Graham or any other employee within the business that the Department had not received the first report and was requesting that the information be provided. In March 1989, Linda Roche received a telephone call from Carol Graham regarding the Statistical Reporting Requirements form for the Respondent. Mrs. Roche incorrectly recalls that the call was made by the Respondent. Mrs. Roche reported to the caller that she had sent a copy of the report by Federal Express Mail to the Department. Mrs. Roche's recollection of the telephone call reconciles the question of why Carol Graham did not inform the Respondent of the Department's request. A reasonable inference exists that Ms. Graham believed that Mrs. Roche's mailing was a recent one, and that the matter did not require any more attention. As of the date of hearing on October 17, 1989, the Department records did not reveal that a Statistical Reporting Requirements form for July through December 31, 1988, had been filed on behalf of Beverly Elaine Bryson. The inaccuracy of the report completed and mailed by the Respondent was unintentional.
Recommendation Based upon the foregoing, it is RECOMMENDED: That the violations charged against the Respondent Bryson as set forth in the Administrative Complaint, Case No. 89- 4411, be DISMISSED. DONE and ENTERED this 30th day of November, 1989, in Tallahassee, Leon County, Florida. VERONICA D. DONNELLY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of November, 1989. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-4411 Rulings on the proposed findings of fact submitted by the Petitioner are addressed as follows: Accepted. See HO #1. Accepted. See HO #1. Rejected. See HO #4. Rulings on the proposed findings of fact submitted by the Respondent are addressed as follows: Accepted. See HO #1. Accepted. See HO #3. Accepted. See HO #2. Rejected. See HO #4. Accepted. Rejected. See HO #5. Accept the first sentence. See HO #5. The rest is rejected. Improper conclusion. See HO #7 and #14. Rejected. See HO #10 through #13. Rejected. See HO #14. Accepted. Rejected. See Preliminary Statement Accepted. See HO #2 and #4. COPIES FURNISHED: C. Christopher Anderson III, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Dennis J. Rehak, Esquire Post Office Drawer 660 Fort Myers, Florida 33902 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Findings Of Fact Edward J. Tooze holds certificate number R-0434 as a certified public accountant in the State of Florida. Tooze's certificate is currently under suspension pursuant to order of the State Board of Accountancy entered under to authority of Section 473.111(5), Florida Statutes. Tooze, although under suspension, is subject to the authority of the Florida State Board of Accountancy for violations of Chapter 473 and the rules contained in Chapter 21A, Florida Administrative Code. Tooze undertook to provide an audited and an unaudited financial statement for Gull-Aire Corporation on September 30, 1976. Said audited and unaudited financial statements were received into evidence as Composite Exhibit #1. Financial statements are representations made by management, and the fairness of a representation of unaudited statements is solely the responsibility of management. See Section 516.01 of Statements on Auditing Standards, No. 1, (hereinafter referred to as SAS) The auditor's report dated October 4, 1976, prepared by Tooze, states as follows: In accordance with your instructions, we submit herewith the balance sheet of Gull-Aire Corporation as of September 30, 1976. This statement was prepared without audit, and accordingly we do not express an opinion thereon. Each page of the unaudited statement bears the language, "Prepared without audit from books of account and information provided by management." Paragraph 516.04 of SAS provides an example of a disclaimer of opinion as follows: The accompanying balance of x company as of December 31, l9XX, and the related statements of income and retained earnings and changes in financial position for the year then ended were not audited by us and accordingly we do not express an opinion on them. (Signature and date) The form of the disclaimer used by Tooze in the financial statement of Gull-Aire quoted in Paragraph 6 is not identical to the example given in Section 516.04, SAS, No. 1. However, Tooze's statement does reflect that the financial statement was not audited and that Tooze did not express any opinion on it. The notes to the audited financial statement of Gull-Aire Corporation do not include a summary of significant accounting policies used by Tooze in the preparation of the financial statement. While only a balance sheet is shown in both of the Gull-Aire financial statements, retained earnings were reported which were the result of the sale of a parcel of real property. No notes were made on either of the reports explaining this sale, and its treatment, although this was a major business transaction and source of income to the corporation for the period covered. Tooze did not disclose the treatment of income taxes in both the financial statements of Gull-Aire, particularly the tax treatment of the retained earnings in the amount of $45,499.64 from the sale of the real property. Although Tooze issued two financial statements for Gull-Aire Corporation as of September 30, 1976, one audited and one unaudited, he did not state on the second financial statement the reason for its preparation and explain the accounting decisions which resulted in the change of various entries on the second statement. Tooze stated to the Board's investigator that he did not obtain a representation letter from the management of Gull-Aire Corporation. Tooze further stated that he did not prepare a written audit program nor obtain and report what internal controls existed within Gull-Aire Corporation. Tooze also prepared a financial report dated April 30, 1977, for Jack Carlson Company, Inc., which was received into evidence as Exhibit 2. The disclaimer prepared by Tooze in the Jack Carlson financial statement contained in the letter to the Board of Directors of the company dated September 15, 1977, stated as follows: We submit herewith our report on the examination of the books and records of Jack Carlson Company, Inc., for the fiscal year ended April 30, 1977, and the following exhibits: (delete) The terms of our engagement did not include those standard auditing procedures instant to the rendition of an opinion by an independent Certified Public Accountant. The limited scope of our examination precludes our expression of an opinion as to the fairness of the over-all representations herein. The attached statements were made the basis for the preparation of the U.S. Corporation Income Tax Return for the fiscal year ended April 30, 1977. Essentially the same statement is contained in the statements for Albeni Corporation and Georgetown Mobile Manor, Inc. No statement of changes in financial position was contained in the financial statement prepared for Jack Carlson Company, Inc. Section 516.08, SAS, No. 1 provides in pertinent part as follows: When financial statement's are issued proporting to present fairly financial position, changes in financial position, the results of operations in accordance with generally accepted accounting procedures, a description of all significant accounting policies of the reporting entity should be reported as an integral part of the financial statement. (Emphasis supplied) Tooze prepared financial statements for Albeni Corporation which were received as Exhibit #3, and financial statements for Georgetown Mobile Manor, Inc., which were received as Exhibit #4. The financial statements of Carlson, Georgetown and Albeni were all unaudited. Tooze did not provide an explanation or note to the financial statements describing significant accounting policies which he applied in preparing the statements. In the financial statement of Albeni Corporation, Tooze indicated that "these interim financial statements are intended primarily for internal management use." The fixed assets in the financial statement of Georgetown Mobile Manor, Inc., constitute $301,642 out of $345,000 of the company's assets. Depreciation and accumulated depreciation are reported as $103,641. The method of computing depreciation was not indicated on the financial statement. In the unaudited financial statements prepared for Carlson and Albeni, the basis of stating inventories and the methods used to determine inventory costs were not disclosed, although inventories constitute a significant percentage of both companys' assets.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law the Bearing Officer recommends that the Board of Accountancy take no action on the violation of Rule 21A-4.02, Florida Administrative Code, and Section 473.251, Florida Statutes. DONE and ORDERED this 3rd day of April, 1979, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 COPIES FURNISHED: Douglas M. Thompson, Jr. Executive Director State Board of Accountancy Post Office Box 13475 Gainesville, Florida 32604 Samuel Hankin, Esquire Post Office Box 1090 Gainesville, Florida 32602 Mr. Edward J. Tooze 464 Patricia Avenue Dunedin, Florida 33528
The Issue The issue is whether Respondent's request for a hearing to contest a Stop-Work Order and Amended Order of Penalty Assessment (Amended Assessment) issued by Petitioner, Department of Financial Services, Division of Workers' Compensation (Division), was timely filed by virtue of the doctrine of equitable tolling.
Findings Of Fact The Division is the state agency responsible for enforcing the various requirements of chapter 440. Respondent is a Florida limited liability company engaged in the construction business. Its offices are located at 1717 West Memorial Drive, Lakeland, Florida. On April 6, 2015, while driving in Spring Hill, Florida, Dale Russell, a Division compliance inspector, observed three individuals reroofing a single-family residence located at 1006 Chastile Drive. The three individuals confirmed that they were employed by Respondent's construction firm. Mr. Russell contacted Mr. Hutchinson, the owner of the corporation, who confirmed that the three individuals were employed by his firm and that the three were not covered by workers' compensation insurance. Because Mr. Hutchinson was in Lakeland that day, a Stop-Work Order was not served. However, the two agreed to meet at a later date in the Division's Tampa District Office. A Stop-Work Order and request for business records was served on Mr. Hutchinson by another investigator on April 8, 2015. The Stop-Work Order contained an Order of Penalty Assessment, which explained how a penalty is calculated, but gave no specific amount pending a review of Respondent's financial records. On May 20, 2015, an Amended Assessment was prepared indicating that Respondent was being assessed a total penalty of $96,364.78 for failing to secure the payment of workers' compensation insurance. The Amended Assessment was personally served on Respondent by Mr. Russell on May 26, 2015, when Mr. Hutchinson visited the Tampa District Office. The standard assessment form contains two important deadlines that must be met by the employer. On the first page, the form states that pursuant to Florida Administrative Code Rule 69L-6.028, "if the Division imputes the employer's payroll, the employer shall have twenty business days after service of the first amended order of penalty assessment to provide business records sufficient for the Division to determine the employer's payroll for the period requested in the business records request for the calculation of the penalty." It goes on to state that these records may be used to recalculate the employer's penalty "only if the employer provides all such business records within the twenty days after service of the first amended order of penalty assessment. Otherwise, the first amended order of penalty assessment will remain in effect." This means that Respondent had until June 23, 2015, in which to provide business records to the District Office. On the second page of the Amended Assessment is a section entitled Notice of Rights (Notice). Among other things, it states that if the employer requests a hearing, he "must file the petition for hearing so that it is received by the Department within twenty-one (21) days of your receipt of this agency action." Notably, this timeframe is measured in calendar days, not business days, and means that if Respondent decided to request a hearing rather than providing additional financial records, the request had to be filed with, and received by, the Division no later than June 15, 2015. During his meeting with Mr. Hutchinson, the investigator explained the Amended Assessment, section by section. He specifically told Mr. Hutchinson that he had 20 business days in which to produce additional business records. He also told him that he had 21 calendar days in which to request a hearing. Mr. Russell is an experienced investigator, having worked as a deputy sheriff for 28 years before working as a Division inspector. He has issued numerous notices and is very familiar with the deadlines. Although Mr. Hutchinson testified that he asked Mr. Russell to confirm that he had 21 business days in which to file his business records, and was told that this was correct, which differs from Mr. Russell's version of the conversation, the testimony of the experienced investigator is accepted as being the most credible on this issue. The undersigned finds that Mr. Russell correctly explained the ramifications of the two deadlines and he did not mislead Mr. Hutchinson. The facts here do not demonstrate equitable tolling. Even though he was given accurate information regarding the two deadlines, it is evident that Mr. Hutchinson, a lay person, either misunderstood what he was told or was just plain confused. Obviously, he did not read the instructions on the Amended Assessment before submitting his records. Faced with a potential $96,364.78 assessment, it is somewhat surprising that Mr. Hutchinson did not contact the Tampa District Office after the May 26 meeting to reconfirm the precise date on which the records (or request for a hearing) were due. Even at hearing, he admitted that he did not know the difference between submitting business records and requesting a hearing. Believing that he had 21 business days to provide business records, Mr. Hutchinson carried his records to the Tampa District Office on June 24, 2015, or one day past the deadline established in the Amended Assessment. He was told by a Division supervisor that the submission was untimely and he had waived his right to produce them. Even though it was now too late, she recommended that Mr. Hutchinson prepare a request for a hearing, which would be submitted to Tallahassee for legal counsel to review. Pursuant to her instructions, that same morning, Mr. Hutchinson prepared a handwritten, one-page letter requesting a hearing. According to Respondent, the assessment is based on missing checks that, if produced, would establish that no penalty assessment is warranted. At hearing, over the Division's objection, Respondent was allowed to introduce into evidence bank records and copies of checks. See Resp. Ex. 6-23. Although the Division has not yet reviewed them, it acknowledged that they may substantially reduce the assessment. Throughout this proceeding, Respondent's qualified representative has contended that the Amended Assessment is defective because it does not inform the employer that a qualified representative can represent its interests. The first paragraph of the Notice in both the Amended Assessment and the Stop-Work Order states that "you may be represented by counsel," but it makes no reference to a qualified representative. However, in the second paragraph, which provides information regarding the filing of a petition requesting a hearing, it states that the petition must contain "the name, address, and telephone number, and facsimile number of the attorney or qualified representative of the petitioner (if any) upon whom service of pleadings and other papers shall be made." While more clarity in the first paragraph of the Notice would be appropriate, there is sufficient information in the Notice, if read, to alert the employer that alternative representation is allowed.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order determining that Respondent's request for a hearing was untimely. However, it is recommended that the business records provided by Respondent at hearing be reviewed and considered to determine the correct amount owed, if any. DONE AND ENTERED this 3rd day of February, 2016, in Tallahassee, Leon County, Florida. S D. R. ALEXANDER 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 3rd day of February, 2016. COPIES FURNISHED: Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed) Trevor Sutor, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-4229 (eServed) Jamison Jessup, Qualified Representative 557 Noremac Avenue Deltona, Florida 32738-7313 (eServed)
The Issue The issues are whether Respondent’s decision to disqualify Petitioner’s response to an invitation to negotiate was clearly erroneous, contrary to competition, arbitrary, or capricious and whether Respondent’s decision not to disqualify Intervenor’s response to the same invitation to negotiate was clearly erroneous, contrary to competition, arbitrary, or capricious.
Findings Of Fact On May 26, 2000, Respondent’s Office of the District Administrator, District 1, issued Invitation to Negotiate ITN-00-AJ01 (ITN). The ITN is for a contract under which the successful applicant would become the “community-based lead agency for foster care and related services in Escambia County.” Section 1 of the ITN is the Introduction. Section 1.1 of the ITN states that Section 409.1671, Florida Statutes, “directs [Respondent] to identify and contract with highly qualified community based organizations that are interested in serving as the lead agency for an integrated system of foster care and appropriate related services.” In response to this legislative mandate, District 1 “is planning a system redesign in which community-based organizations will assume the service provision role currently held by the state.” Section 1.2 of the ITN states that the purpose of the ITN is to solicit the community-based agency that will serve as the lead agency in Escambia County for the integrated provision of foster care and related services. Foster care and related services include “protective services, family preservation, independent living, emergency shelter, residential group care, foster care, therapeutic foster care, intensive residential treatment, foster care supervision, case management, post- placement supervision, and family reunification.” Section 1.2 notes that state-employed protective investigators will continue to receive and investigate complaints of child abuse. Section 1.2.A of the ITN describes this project as one of “major scope” and cautions that “[i]t will take a significant period of time for the selected lead agency to fully develop and implement a community-based system of care for this population.” Within the framework of existing laws, the selected agency “will be encouraged to develop innovative child focused intervention protocols and program components.” Section 1.2.A identifies the “minimal design elements” that must be included in any contract, regardless how the selected lead agency structures the project. These elements include: The selected lead agency will be responsible for all aspects of the delivery of foster care and related services. Within the scope of their expertise and resources, the lead agency can directly supply needed services to children and their families. A network of sub-providers will be developed by the lead agency to assure access to services not available through the lead agency. Capacity and financial risk issues will be managed by the lead agency. An automated system will be put in place by the district in collaboration with the selected lead agency that will allow for real-time communication as well as data transfer between [Respondent], the lead agency and the judicial system. This mechanism will allow judges to be quickly apprised of the progress of children and families under the supervision of the court. A comprehensive quality improvement system must be established by the lead agency. The lead agency and provider network will be accredited in accordance with department policy. In addition, the lead agency will identify and meet the training and job skill development needs of all employees of the system. . . . Section 1.2.C of the ITN describes the relationship between District 1 of Respondent and the lead agency. This ITN starts the process by which Respondent will be relieved of responsibility for foster care and related services in Escambia County. Section 1.2.C notes: “The district will shift from performing to technical assistance and quality assurance.” Section 1.2.E of the ITN describes the start-up process. Section 1.2.E states that the most important part of this process of the privatization of foster care and related services is “[m]oving forward in a planned and deliberate manner.” Section 1.2.E warns: “Transitioning from a broad concept to a carefully implemented system of community-based care requires a period of concurrent planning between the district, the alliance [a community group initially comprising the District 1 Health and Human Services Board and the Circuit Court Chief Judge’s Children’s Council] and the selected lead agency.” Section 1.2.E anticipates a “start-up contract” for a term of six to nine months, during which time Section 1.2.E identifies several deliverables that Respondent will require from the lead agency. Among these deliverables is: “The lead agency will develop a plan for the maximization of Medicaid dollars and all other federal funding streams associated with child protective services.” Section 1.2.E states that, during the start-up period, Respondent will continue to assure the safety of children, while the lead agency submits the deliverables. The end of the start-up contract occurs when the lead agency “demonstrates readiness to assume the management of the sub- provider network and the actual delivery of foster care and related services.” Section 1.2.E states that, at this point, Respondent and the lead agency will negotiate a “service contract,” which will “systematically stage the transfer of foster care, protective supervision, adoptions and all related functions from the department to the lead agency.” Section 1.2.E contemplates that the parties will sign the service contract by July 6, 2001. Section 1.3 of the ITN restates that Respondent will enter into a “start-up contract” with the applicant that Respondent chooses as the lead agency. Conflicting somewhat with Section 1.2.E as to the term of the start-up contract, Section 1.3 states that the term may be six to twelve months. More importantly, Section 1.3 restates the purpose of the start-up contract: “At the conclusion of this contract, [Respondent] will make a determination of the readiness of the provider for a service contract. This determination will be made on the basis of a review of the deliverables required under the start-up contract . . ..” The resulting service contract will be for a three-year term. Section 1.4.A of the ITN defines “[a]pplicant” as: “A not for profit community-based agency that successfully submits an application for consideration under this [ITN].” Section 1.4.R defines “[s]elected applicant” as: “The applicant selected for negotiation under the terms and conditions of this [ITN].” Section 1.4.M defines “[l]ead agency” as: “The not for profit community-based provider responsible for coordinating, integrating and managing a local system of supports and services for children who have been abused, abandoned or neglected and their families. The lead agency is also referred in any contract awarded from this [ITN] as the ‘Provider.’” Section 2 of the ITN is the Invitation to Negotiate Information. Section 2.2 of the ITN warns: Failure to have performed any contractual obligations with [Respondent] in a manner satisfactory to [Respondent] will be a sufficient cause for termination. To be disqualified as an applicant under this provision, the applicant must have: 1) previously failed to satisfactorily perform in a contract with [Respondent], been notified by [Respondent] of the unsatisfactory performance, and failed to correct the unsatisfactory performance to the satisfaction of [Respondent] or, 2) had a contract terminated by [Respondent] for cause. Section 2.6 of the ITN states: “Attendance at the applicant’s conference is a prerequisite for acceptance of applications from individuals or firms.” Section 2.9 of the ITN sets a deadline for submitting all applications by 5:00 p.m. local time on August 24, 2000. This section adds: “[Respondent] reserves the right to reject any and all applications or to waive minor irregularities when to do so would be in the best interest of the State of Florida. Minor irregularities are defined as variations from this [ITN] terms and terms and conditions which does [sic] not effect [sic] the price of the application, or give the prospective applicant an advantage or benefit not enjoyed by other prospective applicants, or does not adversely impact the interest of [Respondent].” Section 2.13 of the ITN provides that any person who is adversely affected by Respondent’s decision concerning a procurement solicitation or contract award may file a protest, pursuant to Section 120.57(3), Florida Statutes. Section 2.14 of the ITN sets forth the evaluation procedures. Section 2.14.A states: “Before the district initiates a negotiation with any potential provider, all applications received will be ranked according to the evaluation criteria and score sheet contained in Appendix II of this [ITN]. . . .” Section 2.14.B states: [The evaluation] team will utilize the methods described in Section 7 and the criteria listed in Appendix II of this [ITN] to rank each application received by the district. . . ..” Section 2.14.C adds: “At the conclusion of the evaluation process, the District Administrator will designate a Lead Negotiator and four additional persons to enter into negotiations with the highest ranked applicant for selection of a lead agency. This negotiation for a start-up contract will begin with the highest ranked applicant and continue through the rankings until an award is made. ” Section 3 of the ITN identifies the Minimum Program Requirements. Section 3.1 of the ITN describes Respondent’s expectations of the services to be delivered by the “selected applicant.” Section 3.2 of the ITN adds that the “selected applicant” shall be knowledgeable of all relevant state and federal laws and shall ask Respondent for assistance when necessary. Section 3.2 notes that, at a minimum, the “selected applicant” will be conversant with nine groups of federal and state laws. Among these requirements is Section 3.2.D, which states: “The selected applicant shall ensure compliance with Title IV-B of the Social Security Act, Title IV-E of the Social Security Act, Social Services Block Grant (SSBG), Title XIX (Medicaid), and Temporary Assistance for Needy Families (TANF) requirements.” Section 3.3 of the ITN states: “The purpose and intent of any contract awarded from this [ITN] is to meet the following departmental goals and the principles outlined in Section 1.1 of this [ITN] . . ..” What follows are 13 specific goals to assure the safety and welfare of the children served by the lead agency. Section 3.8 of the ITN states: “District 1 intends to enter into the start-up contract referenced above. The objective of this start-up contract is to prepare the selected lead agency to perform the tasks listed in this section. Written evidence of an organization’s capacity, prior experience and potential to ultimately perform tasks of this scope will be given considerable emphasis and weight when [Respondent] determines with which applicant to enter into negotiations.” Section 3.8.A then details numerous requirements to be imposed by the “selected applicant,” including the submittal, for prior approval, of any new procedures or policies that may affect the State Plan regarding Title IV-E claims or other sources of federal funds. Section 3.9 of the ITN states: Applicants shall include in their application the proposed staffing for technical, administrative, and clerical support. The successful applicant shall maintain an adequate administrative organizational structure and support staff sufficient to discharge its contractual responsibilities. The selected applicant and any subcontractors shall meet, at a minimum, the staff ratios found in Chapter 65C-14, F.A.C., for residential group care. Section 3.10 of the ITN requires the “selected applicant” to ensure that its staff and the staff of its subcontractors meet the qualification requirements of Chapters 65C-14 and 65C-15, F.A.C.; the background screening requirements of Section 435.04, Florida Statutes; and the training and certification requirements of CFOP 175-78, Certification Procedure for Professional Child Protection Employees. Section 3.20 of the ITN identifies the performance measures to be applied to the evaluation of the services provided by the lead agency. Section 3.20.A lists outcomes such as 95 percent of the children served will not be the victims of verified reports of abuse or neglect while receiving services, 85 percent of the children in foster care for less than one year will have had less than two placements, and 100 percent of all judicial reviews will be completed within the statutory deadlines. Section 3.20.B identifies other outcomes whose percentage of achievement will be established in the future; samples of these are the percentage of children who have been in shelter for more than three days who have a family-safety plan upon their release from the shelter and the percentage of children who are placed in out-of-home care and who are later reunited with their families. Section 3.21.C of the ITN warns: “Upon execution of the contract resulting from this [ITN], the successful applicant must meet the standards set forth in Section 3.20 ” Section 3.23 of the ITN provides that the “selected applicant will agree” to coordinate with various other agencies in providing foster care and related services. Section 4 of the ITN covers Financial Specifications. Section 4.2 of the ITN requires the “selected applicant” to submit a “cost allocation plan” that it has been developed in accordance with the Office of Management and Budget (OMB) Circular A-122. The cost allocation plan “must describe the allocation methodologies used by the selected applicant to claim expenditures for reimbursement under any service contract awarded from this [ITN].” Section 4.4 of the ITN requires the “selected applicant” to submit a “financial and service plan” that assures that, among other things, “[s]tate funds in the contract must be spent on child protection activities in ways that allows the state to maximize federal funding.” Section 5 of the ITN addresses Standard Contract Provisions. Section 5.1 of the ITN incorporates the appendix containing model contract provisions to be incorporated into any contract resulting from the ITN. Section 6 of the ITN contains Instructions to Prospective Applicants to the ITN. The flush language under this section states that Respondent “will not . . . consider. . .” applications submitted after the deadline and that applicants must submit one original and nine copies of their applications. Also, an officer of the “selected applicant agency” must sign at least one copy of the application. Another provision covers the typographical presentation of application material. The last sentence of the flush language states: “Each application must follow the document structure listed in Sections 6.1 through 6.9 of this [ITN].” Section 6.1 of the ITN requires the execution of a standard acknowledgement form. Section 6.2 requires that the second page of the application consist of a title page with such information as the ITN number and name of the applicant. Section 6.3 requires a one-page executive summary of the application. Section 6.4 requires a table of contents following the executive summary and, after the table of contents, a cross-reference table covering all of the responses required by Section 6 of the ITN. Section 6.5 requires a demonstration of the applicant’s “comprehensive understanding of the scope of the issues associated with the delivery of child protection services in Escambia County” and a presentation of the applicant’s “perspective regarding community[-]based . . . care with foster care and related services. ” Section 6.6 of the ITN is entitled, “Description of Organizational Capacity.” The flush language in Section 6.6 states: “In this section the applicant will, at a minimum[,] address the following factors ” Section 6.6.A is headed, “Description and Qualifications of the Organization.” Section 6.6.A requires 13 items, including articles of incorporation, services currently provided, and formal and informal connections to Escambia County. Section 6.6.B is headed, “Administrative/Fiscal: The applicant must supply the following information ” Section 6.6.B requires the following nine items: The organization’s annual budget. A three-year history of audited financial statements. An estimate of advance payments (if needed) to support this project. The most recent audit reports complete with the management response. Evidence of compliance with previous correction action plans proposed by [Respondent] through any contract. A documented history of maximizing Medicaid revenues. Provide a discussion of the organization’s system of staff recruitment, screening, pre-service training, in-service training, staff development and employee evaluation. Include a three-year staff retention study. A copy of the organization’s disaster readiness plan(s). [Deleted from ITN] A copy of minority business enterprise certificate issued by the Department of Management Services, if applicable. Section 6.6.C is headed, “Scope of the Organization: The applicant must address the following capacity issues . . ..” Section 6.6.C requires eight items, including Section 6.6.C.2, which states: “Evidence of an infrastructure that includes automated communication and record keeping systems that can be linked to the judicial system and the department.” Section 6.6.D is headed, “Clinical Capacity: The application must address each of the following items ” Section 6.6.D lists six items. Section 6.6.E is headed, “Quality Improvement: The application must address each of the following items ” Section 6.6.E lists seven items, including Section 6.6.E.3, which states: “The ability of the organization and the structure through which the standards found in Section 3.20 of this document will be met.” Section 6.7 of the ITN is entitled, “Proposed Statement of Work.” The flush language explains that the statement of work is “to be general and increase in specification during the period of time covered by a start-up contract.” Section 6.7.G states: “Explain how the applicant will provide for integrated generic and specialized case management.” Section 6.8 of the ITN is entitled, “Proposed Implementation Plan.” This section requires the “applicant’s proposed time-lines for sequencing of all the activities that will lead to full implementation of the items in Section 3.” Section 6.9 of the ITN is entitled, “Mandatory Certifications, Assurances and Statements.” This section lists several executed documents that the application must include. Section 7 of the ITN is entitled, “Application Evaluation Criteria and Rating Sheet.” Section 7.A states that the score sheets “for evaluating the [ITN responses]” are in Appendix II. Section 7.A warns: “The score sheet is the instrument used to assess the degree to which the applicant’s response meets the criteria of this [ITN].” Appendix II of the ITN is entitled, “Evaluation Criteria and Scoring Sheet.” The first section of Appendix II is the “Evaluation Methodology,” which states in its entirety: The evaluation team will score the application using the criteria and scoring procedures found in each domain of this appendix. The score for each criteria will be established by consensus of the evaluation team. The scores assigned to each criteria [sic] will be added to determine the final score for each domain. The scores from each domain will be summed to determine the final score for the application and annotated on the attached score sheet. Domain A (Disqualifying Criterion) contains fatal items that must be present if the application is to be scored. With no disqualification resulting from the review of Domain A, Domains B though E will be scored based on the procedures and standards listed. Appendix II, Domain A is entitled, “Disqualifying Criteria.” The first section under Domain A is “Scoring Procedure,” which states: “Score each criteria [sic] as present or absent. If any of these criteria are scored as absent, the applicant is disqualified.” The second section under Domain B is “Criteria,” which lists 23 items. The 23 items are: Application was received at the time and date specified in Section 2.9 of this [ITN]. One original and 9 copies of the application were received by the department in the manner and location specified in Section 2.9 of this [ITN]. The application included a signed and original State of Florida Invitation to Negotiation Contractual Services Acknowledgement Form, PUR 7105. (See Appendix IX) The application included an original signed Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Contracts/Subcontracts. (See Appendix X) The application included an original signed Acceptance of Contract Terms and Conditions indicating that the applicant agrees to all department requirements, terms and conditions in the [ITN] and in the department’s Standard Contract. (See Appendix XI) The application included an original signed Statement of No Involvement form. (See Appendix XII) The application included an original signed District 1 Statement of Assurances (See Appendix XIII) The application followed the document structure listed in Section 6.1-6.9 of this [ITN]. All forms submitted included an original signature from an individual authorized to bind the applicant to the terms and conditions of this [ITN]. The application contains the title page, the abstract, the table of contents and cross reference table as required in Sections 6.2-6.4 of this [ITN]. Articles of Incorporation. [deleted from ITN] Certificate of Good Standing from the Secretary of State. Documentation from the U.S. Internal Revenue Service of the organization’s Section 501(c)(3) status. Evidence that the applicant provides for and supports a Drug-free Workplace. Evidence that the applicant is willing to comply with the Environmental Tobacco Smoke Restrictions. Evidence the applicant does not employee unauthorized aliens. Three history of financial statements. A disclosure of any financial difficulties and extraordinary obligations. An estimate of advanced payments if needed to support this project. Documentation of compliance with past departmental or Florida state contracts. Most recent financial audit reports complete with management response including evidence of sound credit rating. A copy of the Application Guarantee. Attendance at all applicant conferences is a pre-requisite for acceptance of applications from individuals or firms. [deleted from the ITN] Appendix II, Domains B through E are score sheets. Domain B covers Section 6.5, Domain C covers Section 6.6, Domain D covers Section 6.7, and Domain E covers Section 6.8. Domain C, Factor B, Item 2 covers Section 6.6.B.2. This item states: 2. Analysis of the three year audited financial statements. (See Section 6.6B.2) Points Standard Poor Average Above Average Excellent NOTE: The analysis of the financial statements by the department will at a minimum include: Calculation of selected financial ratios Review of accounting policies A review of credit history will be included in this analysis No items in Domains B through E cover Section 6.6.B.3 through 6.6.B.5. Domain C, Factor B, Item 3 covers Section 6.6.B.6. This item states: 3. History of maximization of Medicaid revenues. (See Section 6.6B.6) Points Standard No history Some experience Experienced Well documented history Domain C, Factor B, Item 4 covers Section 6.6.B.7. This item states: 4. Organization’s system of staff recruitment, training, evaluation and retention. (See Section 6.6B.7) Points Standard No system Incomplete system System in place Well developed / comprehensive system Domain C, Factor C, Item 2 covers Section 6.6.C.2. This item states: 2. Automated communication and record keeping systems. (See Section 6.6C.2) Points Standard No automated systems Limited automation, internal only Currently automated, limited external applications Comprehensive systems Petitioner and Intervenor attended the applicant’s conference, which was held on June 23, 2000. Respondent duly answered all questions of Petitioner and Intervenor. Petitioner timely submitted a response to the ITN on August 22, 2000, and Intervenor timely submitted a response to the ITN on August 24, 2000. These were the only responses to the ITN. Respondent opened the responses on August 25, 2000. Respondent initially disqualified Petitioner’s response by, letter dated August 29, 2000, on the erroneous ground that Petitioner had not attended the applicant’s conference. Withdrawing the August 29 letter, Respondent disqualified Petitioner’s response on other grounds, as cited in a letter dated September 6, 2000. The September 6 letter disqualifies Petitioner’s response because it omitted several items identified in three criteria contained in Appendix II, Domain A. The September 6 letter cites seven “mandatory elements from Section 6 that were referenced in Criteria [sic] 8,” but Respondent later cited only three omissions under Criterion 8: 6.6, B.2: only the 1998-1999 fiscal year audited financial statement was included. 6.6, B.5: Family Safety Program contract corrective action plans were not included. 6.6, B.7: a three year staff retention study was not included. Relying on Criteria 18 and 21, respectively, the September 6 letter cites the following grounds for disqualification of Petitioner’s response: Only two years of financial statements were included, but three were required. Incomplete documentation was provided. No evidence of compliance with the Family Services Program was found in the proposal. Petitioner timely filed a protest and formal written protest of Respondent’s disqualification of Petitioner’s response. Petitioner contends that the disqualification of its response was clearly erroneous, contrary to competition, arbitrary, and capricious. In particular, Petitioner contends that Respondent applied more stringent standards in its examination of Petitioner’s response than it did in its examination of Intervenor's response. The introduction to Petitioner’s response identifies Bridgeway Center, Inc., as the proposed lead agency, and Foster America, Inc., as its presumably prime subcontractor, although Foster America, Inc., will do business in Florida under the name of Managed Family Services. The title page to Petitioner’s response identifies Bridgeway Center, Inc., and Managed Family Services as the “applicant organization.” Section 2.1.B of Petitioner’s response details the substantial experience of Foster America, Inc., as “the first company established in the United States to address the issues pertaining specifically to the management of foster care.” Considerable portions of the ensuing sections of Petitioner’s response describe the capabilities of Foster America, Inc., to meet the requirements of the ITN. Appendix 16 of Petitioner’s response is entitled “Three-Years of Financial Statements.” Appendix 16 consists of the following financial information for Bridgeway Center, Inc.: statements of financial position for fiscal years ending in 1996-99 and statements of activities for fiscal years ending in 1996-99. At the bottom of each of the four pages containing these statements is the declaration: “The accompanying notes are an integral part of these financial statements.” No notes accompany the financial statements contained in Appendix 16. Nothing in Petitioner’s response indicates that these financial statements were audited. These financial statements do not include a statement of functional expenses and statement of cash flows. The attached financial statements do not contain auditor’s reports describing the scope of the opinion. Appendix 18 of Petitioner’s response is entitled, “Most Recent Audit Reports with Management Response Including Evidence of Sound Credit Rating.” Pertaining to fiscal year ending 1999, this set of documents starts with an “independent auditor’s report, stating, among other things, that the financial statements “present fairly, in all material respects, the financial position of Bridgeway Center, Inc. as of June 30, 1999 and the statement of activities and its cash flows for the year then ended in conformity with generally accepted accounting principles.” Following the main independent auditor’s report, the 1999 financial statements comprise a statement of financial position, statement of activities, statement of functional expenses, and statement of cash flows. Following the four financial statements, twelve pages of notes explain in detail many of the individual items contained in the financial statements. Following a nonrequired schedule of revenues, a schedule of expenditures of federal awards and other contract and grant activity, with accompanying notes, responds to the requirements of OMB Circular A-133. Following these items is another independent auditor’s report, also responding to the requirements of OMB Circular A-133. Next is another independent auditor’s report, responding to the state requirement that it opine as to management’s assertion of its compliance with state law. The final document in this set is a management letter from the auditor identifying deficiencies in internal controls, making recommendations for improving operating efficiency, and recording management’s response to each of these observations and recommendations. Strictly speaking, Appendix 18 of Petitioner’s response contains audited financial statements, including notes, only for the fiscal year ending in 1999. However, the statement of financial position and statement of cash flows contain the identical information for the fiscal years ending 1998 and 1999. The statement of activities contains nearly the same information for both years, adding for 1999 only a breakdown of which revenues are unrestricted and which are restricted. The statement of functional expenses contains considerably more detailed information for 1999. The main independent auditor’s report states: “Information for the year ended June 30, 1998, is presented for comparative purposes only and was extracted from the financial statements from that year, on which we presented an auditor’s report dated [approximately one year earlier].” Thus, Petitioner’s response contains audited financial statements only for the fiscal year ending in 1999, but also contains considerable, but not all, information from the audited financial statements for the preceding fiscal year. Petitioner’s response contains considerably less information for the fiscal year ending in 1997. The adequacy of Petitioner’s response, of course, depends on the determination of the specific requirements of the disqualification provisions. There is little agreement on these specific requirements. Respondent and Intervenor erroneously contend that Criterion 8 of Domain A incorporates by reference all of the requirements of Sections 6.1 through 6.9. However, Criterion 8 requires only that the “application followed the document structure listed” in these sections. Nothing in the record casts much light upon the meaning of “document structure.” At a minimum, though, the requirement that each application “follow” the “document structure” listed in Sections 6.1 through 6.9 would be an odd way of requiring that the application contain all of the items required in these sections. In opposition to this contention of Respondent and Intervenor, Petitioner identifies several scoring matrices that assign zero points to responses showing no evidence in response to a specific requirement within Sections 6.1 through 6.9. Petitioner reasons that the absence of evidence is tantamount to the omission of an item. Petitioner then concludes that it would make little sense if the absence of evidence, or omission of such an item, meant the disqualification of the application. Petitioner makes a good point here. The scoring matrices for items for which an omission explicitly means disqualification, such as financial statements, do not assign zero points for the omission of such items. The scoring matrices assign zero points for the omission of an item only as to items that are not explicitly the subject of disqualification. Petitioner relies upon the common definition of structure as, according to Webster’s III New College Dictionary (1995): “Something made up of a number of parts held or put together in a specific way. The manner in which parts are arranged or combined to form a whole.” This is a good definition of “structure” and helps define the meaning of the somewhat obscure phrase, “document structure.” It suffices for this case to determine that “document structure” does not mean each and every requirement contained in Sections 6.1 through 6.9. Most likely, “document structure” means only that each application has to contain documents corresponding to each of the requirements stated in each of these sections: i.e., a standard acknowledgement, title page, executive summary, table of contents and cross- reference table, organizational perspective, description of organizational capacity, proposed statement of work, proposed implementation plan, and all of the specified mandatory certifications. Thus, an applicant could avoid disqualification under Criterion 8 by, as to Section 6.6, including a document describing its organizational capacity, even though the document may have omitted certain items required under Section 6.6, such as professional affiliations of the applicant. Because “document structure” does not incorporate all of the Section 6 requirements into Criterion 8, Respondent has erroneously relied upon the first three, bulleted grounds for disqualification, which identify omissions of Section 6 requirements. Respondent and Intervenor have never contended that Petitioner’s response fails to satisfy the narrower interpretation given “document structure” in this recommended order. Thus, Criteria 18 and 21 are the only grounds on which Respondent could disqualify Petitioner’s response. Criterion 18 requires a “three [sic] history of financial statements.” This obvious typographical error did not obscure for Petitioner the intended meaning of this criterion: any application omitting three years of financial statements would be disqualified. The key question is exactly what the ITN requires, as to financial statements, to avoid disqualification. The failure of Criterion 6 to incorporate, among other provisions, the specific requirements of Sections 6.6.B.2 for a three-year history of “audited” financial statements is significant. Criterion 18 does not require “audited” financial statements, so, unless Criterion 18 incorporates Section 6.6.B.2 into the disqualifying criteria, the omission of audited financial statements, while possibly a scoring matter, is not a basis for disqualification. The identification of a requirement in Domain A does not equate to the identification of a near counterpart to that requirement in Sections 6.1 through 6.9. For example, Criterion 19, which requires disclosure of “any financial difficulties and extraordinary obligations,” has no counterpart in Section 6, or anywhere else in the ITN. Likewise, the portion of Criterion 22 requiring “evidence of sound credit rating” has no counterpart in Section 6, or anywhere else in the ITN. By adding new requirements for disqualification purposes, Domain A does not serve merely as a collection of references to requirements contained in Section 6 or elsewhere in the ITN. This means that it is not possible to read into or out a specific Domain-A requirement that resembles a specific Section-6 requirement those elements necessary to transform it into the Section-6 requirement. Therefore, except for the uncontroversial correction of the obvious typographical error, Criterion 18 is a complete statement of the disqualification requirement concerning financial statements. And Criterion 18 obviously omits the requirement in Section 6.6.B.2 that the financial statements be “audited.” For a not-for-profit corporation, a set of financial statements comprises four financial statements: a statement of financial position, statement of activities, statement of functional expenses, and statement of cash flows. Petitioner’s response contains a full set of the four, audited financial statements applicable to not-for-profit corporations, but only for the fiscal year ending in 1999. These 1999 financial statements are accompanied by all required independent auditor’s reports and notes. Petitioner’s response also contains the three prior years of two of the four financial statements--the statement of financial position (resembling what was traditionally known as the balance sheet for for-profit corporations) and the statement of activities (resembling what was traditionally known as the income statement for for-profit corporations). However, these additional financial statements are unaccompanied by notes and independent auditor’s reports. Petitioner’s response for 1997 and 1998 includes the two financial statements that provide the most information and for 1998 includes considerable information from one of the two missing financial statements. Criterion 18 does not explicitly require all of the financial statements that constitute a complete set of financial statements, so the omission of the information from the 1997 and 1998 financial statements is not necessarily disqualifying, at least if the information provided is substantially complete. The omission of the notes for 1997 and 1998 merits careful consideration. Petitioner’s auditor warns, on each financial statement, that the accompanying notes are an “integral” part of the financial statements. According to the American Heritage Dictionary (1981), “Integral” means: “Essential for completion; necessary to the whole constituent.” In other words, the financial statements submitted by Petitioner are not whole or complete without the accompanying notes. The notes accompanying the 1999 financial statements add explanatory material. Note 1 discloses that Bridgeway Center, Inc. is an accrual-basis taxpayer; values its inventory on the lower of cost or market basis on a last-in, first-out basis; and capitalizes all equipment expenditures over $500 and depreciates its fixed assets over stated cost-recovery periods. Note 3 schedules the receivables owed Bridgeway Center, Inc. by payor and, in the case of Respondent, program. Note 6 details notes payable and lines of credit with terms, interest rates, and monthly payments. Note 7 describes a bond payable in the amount of nearly $2 million. Note 8 identifies real estate leases and rental payments for which Bridgeway Center, Inc. is obligated. Note 10 itemizes by program the sources of income from the State of Florida. As explained in the Conclusions of Law, the determination of whether Petitioner’s response contains three years of financial statements is governed by the less- deferential standard of a preponderance of the evidence, rather than the more-deferential evidentiary standard of clearly erroneous, contrary to competition, arbitrary, or capricious. Petitioner has proved by a preponderance of the evidence that the omission of two financial statements for 1997 and the omission of some information from the same two financial statements for 1998 does not necessarily preclude its satisfaction of the disqualification requirement of three years of financial statements. However, Petitioner’s omission of the notes for 1997 and 1998 precludes its satisfaction of this disqualification criterion, even by a preponderance of the evidence. Petitioner’s auditor describes the notes as “integral” to those selected financial statements that Petitioner submitted. Absent an integral part of the already-incomplete submission, Petitioner has failed to prove, even by the less deferential preponderance standard, that its response satisfies the requirement of Criterion 18 for three years of financial statements. Criterion 21 requires “[d]ocumentation of compliance with past departmental or Florida state contracts.” Appendix 19 of Petitioner’s response contains, by program type, 171 schedules identifying compliance issues, corrective action plans, responsible persons, and completion dates. Again, Respondent and Intervenor attempt to add elements from Section 6 to this disqualification criterion of documentation of compliance with past agency contracts. Both parties contend that Criterion 21 should be read in conjunction with Section 6.6.B.5, which requires: “Evidence of compliance with previous correction action plans proposed by [Respondent] through any contract.” For the reasons set forth above, it is impossible to engraft onto Criterion 21 the more demanding requirements of Section 6.6.B.5. In this instance, Respondent answered a question posed by Intervenor consistent with Respondent’s present interpretation of Criterion 21, but this answer--absent an accompanying amendment of the ITN--cannot override the clear disqualification requirement imposed by Criterion 21. Petitioner’s response omits corrective action plans related to contracts for the Family Services Program. This omission was inadvertent, occasioned by the death of the sole Bridgeway employee with knowledge of these matters. As for Criterion 21, Petitioner has proved by a preponderance of the evidence that its response contains documentation of compliance with past agency contracts. Even if a substantiality requirement were inferred as to Criterion 21, Petitioner’s substantive response would still, by a preponderance of the evidence, satisfy this disqualification requirement. Criterion 21 does not incorporate the comprehensiveness required by Section 6.6.B.5, which requires information concerning “any contract.” Petitioner raises numerous challenges to Intervenor’s response. Partly, these challenges are intended to show how Respondent evaluated Petitioner’s response more stringently. Partly, these challenges are intended to show that Intervenor’s response should be disqualified, regardless of whether Petitioner prevails on its challenge to the disqualification of its response. The latter purpose of Petitioner’s challenges depends upon a ruling allowing it to amend its petition to raise the issue of whether Intervenor’s response should also be disqualified. In challenging Intervenor’s response, however, Petitioner repeats the same mistaken assumptions made by Respondent and Intervenor about the relationship between Domain A and Section 6. In fact, Petitioner extends these mistaken assumptions one level by faulting Intervenor’s response for failing to satisfy non-Domain A provisions that are not even applicable to responses to the ITN. The ITN imposes very few requirements upon ITN responses outside Section 6 and Domains A through E of Appendix II. The two such requirements are Section 2.2, which disqualifies certain applicants with unsatisfactory histories with Respondent; Section 2.6, which requires attendance at the applicant’s conference; Section 2.9, which sets the deadline for submitting responses; and Section 3.9 (first sentence), which requires that responses include proposed staffing for technical, administrative, and clerical support. Apart from some general background descriptions contained in the introductory sections of the ITN, the remainder of the ITN, apart from Section 6 and Domains A through E, deal with the start-up contract and the ultimate service contract. This orientation is amply revealed by frequent use in these provisions of the future tense and descriptions of the non-agency party as the “successful applicant,” “lead agency,” or “selected applicant.” In its proposed recommended order, Petitioner first challenges Intervenor’s response with respect to Criterion 22, which requires the most recent financial audit reports “complete with management response.” Criterion 22 is in Domain A, so it is a disqualification requirement. However, Petitioner failed to prove by a preponderance of the evidence that such a response is required when, as here, Intervenor’s auditor uncovered no material weaknesses or disagreements to which Intervenor was obligated to respond. In its proposed recommended order, Petitioner challenges Intervenor’s response with respect to Section 6.6.E.3, which addresses the ability of the applicant with respect to federal funding. This is not a Domain-A requirement. In fact, Petitioner’s contentions require application of ITN provisions apart from Section 6 and Domain A that involve the start-up process and are inapplicable to the present stage of this procurement. The deficiency described in the preceding paragraph characterizes the remainder of Petitioner’s challenges to Intervenor’s response, such as with respect to a staff- retention study and demonstration of infrastructure capability. It is thus unnecessary to consider the extent to which Intervenor’s response addresses these items. Based on these findings, Petitioner has failed to prove that Respondent’s proposed determination disqualifying Petitioner’s response is clearly erroneous, contrary to competition, arbitrary, or capricious. Based on these findings, Petitioner has failed to prove that Respondent’s proposed determination failing to disqualify Intervenor’s response is clearly erroneous, contrary to competition, arbitrary, or capricious.
Recommendation It is RECOMMENDED that the Department of Children and Family Services enter a final order dismissing the protest of Petitioner to the disqualification of its response to the ITN and to the failure to disqualify Intervenor’s response to the ITN. DONE AND ENTERED this 2nd day of February, 2001, in Tallahassee, Leon County, Florida. ___________________________________ ROBERT E. MEALE 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 2nd day of February, 2001. COPIES FURNISHED: Virginia A. Daire, Agency Clerk Department of Children and Family Services 1317 winewood Boulevard Building 2, Room 204B Tallahassee, Florida 32399-0700 Josie Tomayo, General Counsel Department of Children and Family Services 1317 Winewood Boulevard Building 2, Room 204B Tallahassee, Florida 32399-0700 Wilbur E. Brewton Kenneth J. Plante Gray, Harris & Robinson, P.A. 225 South Adams Street, Suite 250 Tallahassee, Florida 32301 Katie George Chief Legal Counsel Lori Lee Fehr Legal Counsel Department of Children and Family Services District 1 160 Government Center, Room 601 Pensacola, Florida 32501 Martha Harrell Chumbler Kelly A. Cruz-Brown Carlton Fields Post Office Drawer 190 Tallahassee, Florida 32302
