Findings Of Fact The Petitioner completed an academic program in accounting at the University of South Florida in March, 1976. She applied to sit for the May, 1976 Certified Public Accountant's examination, and paid her fee. There are four sections to the examination: Auditing, Law, Theory, and Practice. At the May, 1976 examination the Petitioner passed the Law section, but failed the sections on Auditing, Theory and Practice. Accordingly, under the Board's rules, the Petitioner was not credited with having passed any sections of the examination, and needed to take the entire test again. She applied to sit for the November, 1976 examination, paid her application fee, and sat for the examination. On this occasion she passed the Theory and Practice sections of the examination but failed the Auditing and Law sections. Under the Board's rules the Petitioner at this juncture was credited with having passed the Theory and Practice sections, and would be allowed to sit for the next three consecutive examinations in order to pass the remaining two sections. She applied to sit for the May, 1977 examination, paid her fee and sat for the examination. She passed the Law section and failed Auditing. At this juncture she needed to pass only the Auditing section, and had two examinations within which to accomplish that. She applied to sit for the November, 1977 examination. The deadline for making application was September 1, 1977. The Petitioner, through her own mistake, was lake in making application, and her application was rejected. She was not permitted to sit for the November examination. She did timely apply for the May, 1978 examination. She again failed the Auditing section with a score of 69. Under the Board's rule her application for certification as a CPA was considered she would need to being again the testing process, without being credited with having passed any sections. She applied for a regrading of the May, 1978 examination. The examination was regraded, but her score was not changed. The Petitioner is seeking, through this proceeding, an opportunity to retake the Auditing section of the examination, while continuing to receive credit for having passed the Law, Theory, and Practice sections. Under the Board's interpretation of its rules, she would not receive credit for having passed the sections, but would need to begin the testing procedure as a new applicant.
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.
Findings Of Fact The Petitioner is University General Hospital, Inc. (hereinafter "UGHI"), the present license holder of University General Hospital (hereinafter "University Hospital"), a 140-bed general acute-care hospital located in Seminole, Florida. During calendar years 1989 and 1990 and until July 30, 1991, University Hospital operated as a division of Community Health Investment Corporation f/k/a/ CHS Management Corporation (hereinafter "CHIC"). On July 30, 1991, UGHI was incorporated as a wholly-owned subsidiary of CHIC and became the license holder of University Hospital. University Hospital's change in licensure on that date did not change its ownership, control, management, reporting, or operation. On or about December 2, 1991, UGHI timely filed Certificate of Need (hereinafter "CON") Application No. 6851 to convert 12 general acute-care beds to hospital-based skilled nursing beds. In a letter dated December 19, 1991, the Department (hereinafter "HRS") identified certain items of information omitted from UGHI's initial application (commonly referred to as an "Omissions Letter"), including, among other items, audited financial statements of the applicant. On or about January 15, 1992, UGHI timely filed its response to the Omissions Letter and included a document entitled "UNIVERSITY GENERAL HOSPITAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF COMMUNITY HEALTH INVESTMENT CORPORATION) FINANCIAL STATEMENTS AS OF DECEMBER 31, 1990 AND 1989 TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS." In a letter dated January 28, 1992, HRS notified UGHI that its CON application was being administratively withdrawn from consideration for the sole reason that it did not contain audited financial statements of the applicant, University General Hospital, Inc. The purpose of audited financial statements from the standpoint of HRS' review of CON applications is that they provide HRS with a basis to determine the overall financial strength and financial position of the applicant and the applicant's ability to carry out the project being proposed. HRS requires that the financial statements be "of the applicant" because it looks to the source of funding and financial strength of the entity responsible for funding the project--the party submitting the CON application. The audited financial statements submitted by UGHI reflect the resources available to it for the CON project proposed in CON Application No. 6851 and are appropriate to demonstrate the financial strength of UGHI. The audited financial statements filed by UGHI contain financial documentation for years ending December 31, 1990 and 1989, as well as information through November 13, 1991. The issuance of audited financial statements for an entity incorporating a period of time before that entity's corporate existence (known as "reissuance") is a common practice in the accounting profession and, subject to the entity's ability to satisfy the specified prerequisites, is consistent with pronouncements and standards under generally accepted auditing standards (hereinafter "GAAS") and generally accepted accounting principles (hereinafter "GAAP"). The prerequisites for reissuance of an audited financial statement are adequate disclosure made in the notes of the financial statement and continuance of common ownership, control, management, reporting, and operation of the entity's activities. Prior to issuance of the audited financial statements for UGHI, Arthur Andersen & Co. conducted an extensive post-audit review of UGHI and concluded that the financial statements previously issued to University Hospital could be reissued as audited financial statements of UGHI. Had Arthur Andersen & Co. found that the previously-issued audited financial statements were misleading or that the requirements set forth in GAAS and GAAP were not satisfied, it would not have reissued the audited financial statements on behalf of UGHI. The audited financial statements submitted by UGHI to HRS constitute a valid document prepared in accordance with the pronouncements and standards under GAAS and GAAP. It is the policy of HRS that, if an entity has been in existence for less than one year, HRS will accept only a balance sheet audit as of the date of incorporation, or a short period audit from the date of incorporation through an undefined period of time. HRS' policy is not reflected in any of the statutes, rules, or HRS Manual provisions regarding audited financial statements, and HRS is not in the process of promulgating a rule regarding this policy. HRS' policy applies to all entities submitting CON applications that have been in existence for less than one year. Balance sheet and short period audits are not appropriate documents to assess an entity's financial condition. In many cases, HRS would prefer a reissued audited financial statement to a balance sheet audit in analyzing a CON application. In determining whether an applicant complies with Section 381.707(3), Florida Statutes, HRS will, with certain exceptions, look at whether the definition of "Audited Financial Statement" set forth in Rule 10-5.002(5), Florida Administrative Code, is met. HRS does not apply the definition of "Audited Financial Statement" set forth in Section 10-5.002(5), Florida Administrative Code, to applicants in existence for less than one year. The definition it applies to these entities is not set forth in any rule, statute, or HRS Manual provision. A balance sheet audit does not comply with the definition of "Audited Financial Statement" set forth in Rule 10-5.002(5), Florida Administrative Code. The audited financial statements filed by UGHI comply with the definition of "Audited Financial Statement" set forth in Rule 10-5.002(5), Florida Administrative Code. Rule 10-5.008(5)(g), Florida Administrative Code, identifies those audited financial statements satisfying the rule definition of "Audited Financial Statement" that HRS will not accept. HRS explains the exceptions set forth within Rule 10-5.008(5)(g), Florida Administrative Code, on the basis that these audited financial statements reflect financial documentation of an affiliate entity. The audited financial statements submitted by UGHI are not a combined audit, a consolidated audit, or an audit of a division, as prohibited under Rule 10-5.008(5)(g). From an accounting standpoint, the audited financial statements submitted by UGHI are those of UGHI. An accounting firm typically identifies the entity being audited on the title page of the audited financial statements and in the audit report and financial statements contained therein. The title page of, and audit report and financial statements in, the audited financial statements prepared by Arthur Andersen & Co. for UGHI all reflect that the entity being audited is UGHI. An accounting firm faces significant liability if the audited financial statements it prepares are found to be inaccurate or misleading. HRS does not dispute, and in fact agrees, that the audited financial statements prepared by Arthur Andersen & Co. for UGHI were correctly issued and are consistent with GAAS and GAAP.
The Issue Whether petitioner should take disciplinary action against respondent for the reasons alleged in the administrative complaint?
Findings Of Fact Respondent Marc M. Harris holds a license to practice certified public accounting in Florida, No. AC 16869. Respondent compiled, permitted his name to be associated with, and issued a balance sheet or statement of financial position, including notes, for MMH Equity Fund, Inc., purporting to represent the company's position as of March 31, 1988. Petitioner's Exhibit No. 1; Petitioner's Request for Admissions Nos. 4, 5 and 6. The body of respondent's letter accompanying the balance sheet or statement of financial position reads: We have compiled the accompanying balance sheet of MMH Equity Fund, Inc., as of March 31, 1988, except as noted in the last paragraph, in accordance with the standards established by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of the individual. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any form of assurance on them. MMH Equity Fund, Inc., has elected to use the equity method to report its holdings in majority-owned subsidiaries. If the consolidated disclosures were included in the financial statements, they might influence the user's conclusions about the Fund's financial position. Accordingly, these financial statements are not intended for those who are not informed about such matters. Petitioner's Exhibit No. 1 (Emphasis supplied.) Dated April 15, 1988, the letter evinces an intention to qualify the balance sheet or statement of financial position. But the balance sheet or statement of financial position does not contain a reference to the accountant's report or to the notes. Petitioner's Request for Admissions Nos. 32 and 33; Petitioner's Exhibit No. 1; T. 26. While the letter refers to a "balance sheet," the document itself is styled a statement of financial position. Statements on Standards for Accounting and Review Services (SSARS), which have been adopted by Florida's Board of Accountancy, require that the balance sheet contain a reference to the accountant's report and notes to the financial statement, if any. Petitioner's Request for Admission No. 34; T. 26- This is particularly important when the report contains significant qualifications. Lack of Independence Undisclosed Respondent Harris was an officer and/or a director of MMH Equity Fund, Inc. Petitioner's Request for Admission No. 41. A company's officer or director is not independent of the company. In evaluating financial assets, liabilities and equity or net worth, certified public accountants offer three levels of service: audit, review and compilation. Certified public accountants are forbidden to undertake audits or reviews for entities with respect to which they are not independent. In contrast, nothing prohibits a certified public accountant's performing a compilation, despite a lack of independence. But the lack of independence must be disclosed: If the accountant is not independent, he should specifically disclose the lack of independence . . . When the accountant is not independent, he should include the following as the last paragraph of his report: I am . . . not independent with respect to XYZ Company. Statements on Standards for Accounting and Review Services, (SSARS) Section 100.22 (Jan. 1, 1987). The respondent's lack of independence was not disclosed in the accountant's report, on the statement of financial position, or in the notes. Petitioner's Exhibit No. 1; Petitioner's Request for Admission No. 42; T. 30, 31. Accepted Principles Disregarded A provision in SSARS 1 requires the accountant "to read the financial statements and make certain that there are no obvious deviations from generally accepted accounting principles." T. 29. This requirement applies specifically to compilations, to prevent disregard for generally accepted accounting principles. Petitioner's Exhibit No. 7; T. 29. Respondent did not adhere to applicable generally accepted accounting principles or exercise due professional care in compiling and issuing the March 31, 1988, statement of financial position for MMH Equity Fund, Inc. Assets should equal equity plus liabilities. T. 11. On the compiled balance sheet or statement of financial position, total liabilities and stockholders' equity do not add up to the amount stated as total assets. The document reflects a discrepancy of $100,000. Petitioner's Exhibit No. 1; T. 11. The balance sheet or statement of financial position puts total assets at $13,171,000 but, as stated individually, they add to $13,216,000. Petitioner's Exhibit No. 1; Petitioner's Request for Admissions Nos. 9 and 10. The balance sheet or statement of financial position shows investment in operating affiliates in the amount of $6,234,000. But there is no further disclosure as to who or how many those affiliates are; as to how much of the $6,234,000 is invested in any one entity; or as to what percentage of ownership MMH Equity Fund, Inc. has in any one entity. Petitioner's Exhibit No. 1; T. 18. With respect to investments accounted for by the equity method, Accounting Principles Board Statement No. 18 requires that the name of each investee and the percentage of the investor's ownership of common stock, if significant, be disclosed in the notes. Petitioner's Request for Admissions No. 25; Petitioner's Exhibit No. 4; T. 17-20. If the certificates of deposit were held by related parties, they should have been disclosed in the notes. T. 22. Financial Accounting Standards Board Statement No. 57 requires that the name and amount or amounts due to or from related parties be disclosed. Petitioner's Exhibit No. 5; T. 23. The notes do not disclose the balances of major classes of depreciable assets by nature or function. Petitioner's Requests for Admissions Nos. 15 and 16; Petitioner's Exhibit No. 1; T. 15. Accounting Principles Board Statement No. 12 requires that depreciable assets be broken down by class together with the accumulated depreciation thereon. T. 16; Petitioner's Exhibit No. 3. Neither the gross amount of assets in the balance sheet nor the accumulated amortization for the assets recorded under capital leases is disclosed in the notes. Petitioner's Requests for Admission Nos. 26 and 27; Petitioner's Exhibit No. 1; T. 24. The notes do not disclose accumulated depreciation by class nor do the notes disclose total accumulated depreciation. Petitioner's Requests for Admissions Nos. 18 and 19; Petitioner's Exhibit No. 1; T. 15 and 16. Neither the aggregate cost nor the market value of marketable securities is disclosed on the balance sheet or statement of financial position or in the notes. Petitioner's Requests for Admissions Nos. 29 and 30; Petitioner's Exhibit No. 1; T. 25. The requirement is that both the original cost and market value be disclosed. Petitioner's Request for Admissions No. 31; T. 25. No allowance for doubtful accounts is disclosed on the balance sheet or statement of financial position or in the notes, and no explanation is offered why such an allowance might be unnecessary. Petitioner's Request for Admissions No. 21; Petitioner's Exhibit No. 1; T. 16. Accounting Principles Board Statement No. 12 requires either that allowance for doubtful accounts be made or that an explanation as to why one is not needed be included in the notes. Petitioner's Request for Admissions No. 22; Petitioner's Exhibit No. 3; T. 16, 17. Neither the March 31, 1988, compiled balance sheet or statement of financial position for MMH Equity Fund, Inc. nor the notes disclose any maturity schedule for long term notes. But these long term notes represent indebtedness of $11,000, or less than one thousandth of total assets, and the omission of a maturity schedule is immaterial.
Recommendation It is, accordingly, recommended that the Board of Accountancy reprimand respondent; and place him on probation, on condition that he not practice in Florida without supervision by another certified public acountant licensed in Florida, until he has practiced in Florida under the supervision of another certified public accountant licensed in Florida satisfactorily for a year; and completed 24 hours of continuing education in generally accepted accounting principles. RECOMMENDED this 12th day of September, 1990, in Tallahassee, Florida. ROBERT T. BENTON, II 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 12th day of September, 1990. COPIES FURNISHED: Charles F. Tunnicliff, Esquire Tobi C. Pam, Senior Attorney Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Marc M. Harris Apartado 6-1097 Estafeta El Dorado Panama, Republica de Panama Kenneth E. Easley, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Martha Willis Executive Director Department of Professional Regulation Suite 16 4001 Northwest 43rd Street Gainesville, FL 32606 =================================================================
The Issue The issue in this case is whether Petitioner's application for a certificate of need was complete.
Findings Of Fact Petitioner and Intervenor each filed applications in the same batching cycle for certificates of need to establish Medicaid-certified home health agencies in Collier County, District 8. By letter dated October 6, 1994, Respondent advised Petitioner that its application omitted certain elements. The letter requests, among other things, an "audited financial statement," including a balance sheet and profit-and-loss statement for the previous two years' operation. Petitioner's application contained an unaudited financial statement for the part of the year that it had been operation. Incorporated in 1994, Petitioner had been receiving patients only since September or October 1994. Petitioner's agent contacted a representative of Respondent and discussed the omissions letter. A misunderstanding ensued in which Petitioner's agent thought that Respondent's representative said that Petitioner would not be required to submit an audited financial statement because Petitioner had not been in operation for a full fiscal year. In fact, Respondent's representative did not say that. Respondent's policy is to permit applicants to file audited financial statements for a partial year, if that is how long they have been in business. For example, Intervenor included with its application an audited financial statement covering the six-week period that it had been in existence. In this case, it would have been possible for Petitioner to obtain an audited financial statement for a period of time including at least its first month of operation.
Recommendation It is hereby RECOMMENDED that the Agency for Health Care Administration enter a final order dismissing Petitioner's challenge to the administrative withdrawal of the subject application for a certificate of need. ENTERED on April 24, 1995, in Tallahassee, Florida. ROBERT E. MEALE 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 on April 24, 1995. APPENDIX Rulings on Petitioner's Proposed Findings 1-6: rejected as subordinate. 7-8: rejected as unsupported by the appropriate weight of the evidence. 9: adopted or adopted in substance. 10-11: rejected as not finding of fact. 12-14: rejected as recitation of evidence. 15: rejected as unsupported by the appropriate weight of the evidence. Rulings on Proposed Findings of Respondent and Intervenor All are adopted or adopted in substance. COPIES FURNISHED: Harold D. Lewis, General Counsel Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, FL 32303 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, FL 32303 Attorney Robert E. Senton P.O. Box 963 Tallahassee, FL 32302 Richard A. Patterson Assistant General Counsel Agency for Health Care Administration 325 John Knox Road Suite 301--The Atrium Tallahassee, FL 32303 Attorney Alfred W. Clark 117 South Gadsden Street Suite 201 Tallahassee, FL 32301
Findings Of Fact Dwight S. Cenac, Respondent, holds certificate No. 3639 as a Certified Public Accountant in the State of Florida. On 2 September 1977 he requested an exemption from the continuing education program required of public accountants to retain their certificate (Exhibit 2). Therein he stated he was not practicing public accounting, the exemption was granted and Respondent's registration card has been endorsed with a statement that Respondent's certificate to practice public accounting in Florida is inoperative. Following his graduation from college in 1970 Respondent worked for the accounting firm of Ernst and Ernst for two years and attained his certificate in 1973. He was employed with Blue Cross of Florida from 1973 until 1977 when he was employed by a health care provider in Puerto Rico to help set up their procedures to improve Medicare and Medicaid payments for services they provided. His understanding of the Medicare regulations and procedures acquired while working at Blue Cross, coupled with the conditions he found in Puerto Rico, led Respondent to believe that many health care providers had need for special consulting in conjunction with their financial record keeping. Health Care Management Consulting, Inc. (HCMC) was formed in 1977 with Respondent as the sole shareholder. In order to acquaint providers with the services he proposed, Respondent prepared a proposal (Exhibit 1) which was sent to health care providers. As a certified public accountant he could not do this without violating the laws and regulations proscribing solicitation by Florida practitioners. In order to overcome this potential problem, Respondent, on 2 September 1977, (by Exhibit 2), notified Petitioner that he was no longer performing public accounting. As the owner and principal operator of HCMC, Respondent does not hold himself out as a CPA, such information is not included in his letterhead or business cards, office or telephone directory or in any public place. His certificates as a Certified Public Accountant are hanging on the wall of his office, but none of his clients ever visit his office. In addition to Respondent, HCMC employs two other consultants who previously worked for Blue Cross, as well as a secretary. Neither of the other two consultants is a certified public accountant, but both perform services for clients similar to those services performed by Respondent. They, as well as Respondent, obtained the special expertise they offer to health care providers while working in the intermediary field between the government and the provider. HCMC provides specialized services not provided by public accountants such as setting up books and records for health care providers, preparing cost reports, providing assistance in setting rates and general familiarity with Medicare rules and regulations. Many of the services provided by HCMC, inasmuch as they involve financial records, are the same type services provided by Florida practitioners. Respondent, by submitting the HCMC Proposal to hospitals, nursing homes and other health care providers is both advertising and soliciting business. HCMC has submitted copies of its Proposal (Exhibit 1) to over 300 hospitals in Florida, and has obtained business previously performed by Florida practitioners. In the Proposal (Exhibit 1) HCMC offers services on a contingent fee basis. These services offered include reimbursement and recoupment of Medicare funds, and the fee paid HCMC is a percentage of the additional funds obtained as a result of the services provided by HCMC. Many of HCMC's services involve increasing reimbursement to the health care provider from Medicare and Medicaid sources. No audits unrelated to Medicare or Medicaid are performed, and financial statements prepared by HCMC do not refer to generally accepted accounting principles and generally accepted auditing standards, nor do they purport to express or disclaim an opinion as to the fairness of the presentation. The work performed by Respondent as an employee of HCMC would not constitute the practice of public accounting if performed by a non-certified person. The other employees of HCMC providing consulting services to health care providers similar to that provided by Respondent, are not in violation of Chapter 473, Florida Statutes.
Findings Of Fact On February 21, 1980, petitioner, as president and chief executive officer of Crown Financial Services was fined $500 and censured by NASD for violating SEC, NASD and Municipal Securities Rulemaking Board regulations. Crown Financial, a holding company under the direction and control of Petitioner, became a member of the NASD in 1977. At the time Crown Financial employed the services of a large accounting firm, knowledgeable of NASD regulations, to set up their accounts so as to comply with NASD regulations. During the first audit of crown Financial by NASD in 1979-80 it was noted that Crown was including accounts receivable from subsidiaries as cash which was contrary to NASD regulations and Crown and Petitioner were fined and censured for this infraction. Crediting such receivables as cash was the procedure established by the accounting firm hired by Crown Financial Services. On December 30, 1982 the Massachusetts Securities Division issued a Summary Order Denying Exemption from Registration and a temporary Cease and Desist Order naming Petitioner and others based upon the offering of limited partnerships in Energy Exchange Corporation which had been founded by Petitioner. Although Petitioner founded Energy Exchange in February 1981 and was its president and chief operations officer, he resigned from these positions in November 30, 1982 shortly after Energy Exchange went public. Thereafter, Swain remained an outside director and was unaware of management decisions, one of which involved the issuance of questionable (or fraudulent) securities in December 1982, which led to the actions taken by the Massachusetts Securities Division. Petitioner was unaware these securities were issued until he read of the Massachusetts Securities Division's actions in the newspaper and he had nothing to do with their issuance. On April 23, 1983, NASD fined and censured Swain in the amount of $12, 000 as a result of limited partnerships set up by Crown Financial Corporation of which Swain was Chief Operations Officer and principal owner. The violation alleged Crown Financial was engaged in a continuous and integrated offering in connection with the development of four condominiums were built (and to which limited partnerships were sold) he was unaware any other parcel of property nearby was or would be for sale, and that each of these developments was independent of the other and in no wise integrated alleged. An investigation by the Securities and Exchange Commission disclosed no integrated operation. Petitioner concluded it was prudent to enter into a consent order without admitting any violation and pay the fine rather than go to the expense of defending against the allegations. Civil actions alleged to have been brought against Petitioner and which were listed as another basis for denying registration were contained in paragraph 5 of the Exhibit 21. At the hearing Respondent stipulated to a dismissal of these grounds as a basis for denying registration. Despite the charges by NASD Petitioner' s registration with NASD remains in good standing. Petitioner produce one witness who is registered with Respondent and with NASD who testified that fines and censures for violation of NASD regulations are an every day occurrence with NASD. This witness ,was recently found in violation of NASD regulations because he had included accounts receivable for more than 30 days as assets. According to NASD regulations these accounts receivable or more than 30 days cannot be included as an asset although the vast majority will be paid.
Findings Of Fact Pabrey holds certificate number R-0211 as a Certified Public Accountant practicing in the State of Florida and held such certificate in good standing on January 1, 1974. At that time, Pabrey was subject to professional certification require- ments set forth in Chapter 473, Florida Statutes. The records of the Board reflect that Pabrey provided no evidence of the completion of any courses or studies that would give him credit towards the reestablishment of his professional competency in the period between January 1, 1974, and April 2, 1977. On October 15, 1976, Pabrey sat for an examination which was approved by the Board and given to practicing Certified Public Accountants pursuant to applicable law requiring reestablishment of professional competency. Pabrey received a score of 57 out of a possible score of 100. The established passing grade for the examination is 75. On December 31, 1976, Pabrey tendered his check to the Board in the amount of forty dollars ($40.00) as the required license fee. On May 13, 1977, the Board suspended Pabrey's certificate R-0211 as a Certified Public Accountant for failing to comply with requirements for the reestablishment of his professional knowledge and competency to practice public accounting. The check was returned to Pabrey by the Board on May 18, 1977, along with a copy of the Administrative Complaint and Order of Suspension. The questions to be answered in the uniform written professional examination administered to Pabrey on October 15, 1976, were based upon "Current Authoritative Literature' which included Accounting principles Board's Opinions, Accounting Research Bulletins, Statements and Interpretations of the Financial Accounting Standards Board, Statements on Auditing standards, and the Laws and Rules of the Florida State Board of Accountancy. Pabrey challenges thirty-six of these one hundred questions on the grounds that the approved answers are incorrect and that the answer selected by Pabrey is the proper choice. The questions attacked by Pabrey are numbers 5, 7, 11, 15, 18, 19, 22, 28, 29, 30, 31, 35, 36, 37, 42, 45, 53, 54, 55, 57, 59, 62, 63, 65, 66, 70, 72, 74, 76, 78, 86, 87, 88, 91, 92, and 98. The title of the uniform written professional examination is "Examination of Current Authoritative Accounting and Auditing Literature and Rules of the Florida State Board of Accountancy. The approved answer to each of the questions on the examination is that which is mandated by the "Current Authoritative Literature." The examination does not purport to seek answers outside of the requirements of the Current Authoritative Literature. Each of the approved answers in the thirty-six questions listed above are consistent with the demands of the Current Authoritative Literature. None are vague, misleading, unfair or improper. Each of Pabrey's answers is contrary to the provisions of the Current Authoritative Literature. Accordingly, the answers selected by Pabrey are not the best answers and were properly graded incorrect on his examination answer sheet.
The Issue 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.
