The Issue The issues in this case are: Whether computer software purchases by the Charlotte County School District (District or Petitioner) in fiscal year 2008-09, paid for with capital outlay millage funds or interest earned on capital outlay millage funds, were authorized equipment purchases under the version of section 1011.71(2)(d), Florida Statutes (2008), existing at the time of the purchases;1 Whether interest earnings on capital outlay millage proceeds are subject to the same expenditure restrictions as the millage proceeds; and Whether the Department of Education's (Department or Respondent) position that the District violated the expenditure restrictions in section 1011.71(2) is impermissibly based on an unadopted rule. See § 120.57(1)(e), Fla. Stat. (2010).
Findings Of Fact The District constitutes the unit for the control, organization, and administration of all public schools in Charlotte County, Florida. The Department is an agency of the State of Florida responsible for ensuring a uniform, efficient, safe, secure, and high-quality system of free public schools that allows students to obtain a high-quality education. The Department's responsibilities include administering the Florida K-20 Education Code (Education Code) set forth in chapters 1000 through 1013, Florida Statutes. The Auditor General is appointed by the Legislature pursuant to Article III, section 2 of the Florida Constitution, and section 11.42, Florida Statutes, to audit public records as prescribed by law. The Auditor General's statutory responsibilities include conducting audits of the financial statements of district school boards. In March 2010, the Auditor General issued its audit report on the District's financial statements for fiscal year 2008-09. The audit report, designated Report No. 2010-136, was entitled, "Financial, Operational, and Federal Single Audit for the Fiscal Year Ended June 30, 2009" (Auditor General Report). Finding No. 1 of the Auditor General Report included a finding that purchases by the District of instructional computer software, software licenses, and Microsoft Office licenses (collectively, the disputed software purchases) were not "specifically included" as allowable uses of capital outlay millage funds under the provisions of section 1011.71(2), Florida Statutes (2009).3/ The Auditor General noted that District personnel had expressed their belief that these expenditures were allowable uses of capital outlay millage proceeds under section 1011.71, but the Auditor General found that "[t]hese expenditures totaling $137,315 represent questioned costs." The Auditor General's finding ended by recommending that the District "should document to the [Department] the allowability of the instructional software, software licenses, and Microsoft Office licenses, or these costs should be restored to the Capital Projects-Local Capital Improvement Fund." The next step was for the Department to review the Auditor General Report. As described by the Department in an April 23, 2010, letter to the District, the Department "is responsible for reviewing reports of the Auditor General on audits of the school districts and following up on findings to determine what corrective action . . . is required to be taken."4/ With regard to the audit finding calling into question the disputed software purchases, the Department stated: Computer software was not a listed use of Section 1011.71(2), F.S., until the 2009 Legislature amended Section 1011.71(2)(d), F.S., effective July 1, 2008, regarding computer software to include only, ". . . enterprise resource software applications that are classified as capital assets in accordance with definitions of the Governmental Accounting Standards Board, have a useful life of at least 5 years, and are used to support district-wide administration or state mandated reporting requirements." The items stated in the finding do not meet this definition. The Department's April 23, 2010, letter informed the District that the District had violated the expenditure restrictions of section 1011.71 and that the District was required to restore $137,315 to the District's Local Capital Improvement Fund by June 30, 2010, or else the Department would impose a penalty of a dollar-for-dollar reduction of the District's allocation of state FEFP funds. This letter did not advise the District of its right to an administrative hearing to challenge the Department's determination. The District wrote back to the Department on June 2, 2010, to point out, as had been explained to the Auditor General, that although the disputed software purchases were recorded in the Local Capital Improvement Fund, no actual ad valorem tax collections were used for the disputed purchases. Instead, the expenditures were made using interest earned on the tax collections. The District argued that the expenditure restrictions in section 1011.71(2) only applied to actual ad valorem tax dollars collected from District taxpayers and did not extend to interest earned on the tax proceeds. The Department responded to the District in a June 18, 2010, letter. The Department rejected the District's argument for unrestricted interest and provided references to the authority relied on, including a 1988 Attorney General opinion concluding that interest earned by a school district on proceeds from the tax levied, pursuant to the predecessor to section 1011.71(2), was subject to the same usage restrictions as the tax proceeds themselves. The Department reiterated that the District was required to take corrective action to avoid the penalty of reduced FEFP funding, but still provided no clear point of entry advising of the District's right to an administrative hearing. On June 29, 2010, the District restored the questioned amount to its Local Capital Improvement Fund, but explicitly did so under protest and without waiving its rights to dispute the legal validity and factual accuracy of the Department's determination regarding the disputed software purchases. The District asked the Department to provide a clear point of entry so that the District could challenge the Department's determination in an administrative hearing. In completing the financial transfer required by the Department, the District was adversely affected because the transfer converted general operating funds to more restricted funds limited in their use to specified categories of capital outlays, pursuant to the capital outlay millage statute. The transfer reduced the amount of general operating funds available for the District to spend, with a greater degree of flexibility, on educational programs or other expenditures. On July 7, 2010, the Department wrote to the District to acknowledge that the District had taken the required corrective action. As requested, the Department provided notice in this letter of the District's right to petition for an administrative hearing pursuant to sections 120.569 and 120.57, Florida Statutes (2010). On July 30, 2010, the District timely filed its Petition for Formal Administrative Hearing to challenge the Department's determination regarding the District's disputed software purchases. This petition generally challenged the determination of unauthorized expenditures and specifically raised the issue of whether interest earned on capital outlay millage proceeds levied, pursuant to section 1011.71(2), was subject to the same restrictions as the millage proceeds themselves. The petition alleged a disputed issue of material fact with regard to the source of funds used by the District for the disputed software purchases. On August 13, 2010, the Department referred this matter to DOAH. The Department acknowledged that the District sought an administrative hearing pursuant to sections 120.569 and 120.57(1), and the Department asked DOAH to assign an Administrative Law Judge to conduct the requested hearing. On October 11, 2010, the District sought leave to file an amended petition to set forth additional grounds identified in discovery for challenging the Department's determination. The District was allowed to file its amended petition, which asserted disputed issues of material fact regarding the Department's prior practice and interpretation of section 1011.71(2), and how that statute had been applied to other school districts using capital outlay millage funds for computer software purchases. The amended petition alleged that the Department had changed its interpretation of section 1011.71(2) in this regard and that the new interpretation that the Department was attempting to apply to the District constituted an unadopted rule. Evolution of Section 1011.71(2) To put this controversy into proper context, it is necessary to consider the statutory framework, as it has evolved, before moving on to a review of the Department's rules, interpretations, and prior practice applying the statute. Section 1011.71 implements Article VII, section 9 of the Florida Constitution, by providing authority for school districts to levy ad valorem taxes. Subsection (2) of the statute gives school districts discretionary authority to levy ad valorem taxes against the taxable value in their districts for school purposes. The authorized amount of this tax has varied from time to time--it was two mills for many years, reduced to 1.75 mills in 2008, and reduced further to 1.5 mills in 2009. This tax is commonly referred to as the "two-mill levy," still, even though it is no longer a two-mill levy. The tax levied must not only be "for school purposes," but it must also be for the purpose of funding items categorized in the statute. In general, the categories involve capital outlays, such as new construction or remodeling projects, acquisition of school buses by purchase or lease, and, the category subject to much attention in this case, the "purchase, lease-purchase, or lease of new and replacement equipment" (the "equipment" category). § 1011.71(2)(d). That the authorized expenditures are, by and large, capital outlays, explains another commonly used description of this tax--"capital outlay millage"--even though section 1011.71(2) does not expressly limit expenditures to capital outlays or capital projects. Section 1011.71 is frequently amended. It was amended multiple times in 2002; in 2003 and 2004; multiple times in 2006; in 2007, 2008, 2009, 2010, and, again, in 2011. Before the substantial reorganization, amendment, and renumbering of the Education Code in 2002, the same statute existed as section 236.25, Florida Statutes (2001), and its history shows similar frequent amendments. However, the particular category of authorized expenditure at issue in this case--the "equipment" category--has been relatively stable over the years, until 2009, when it was first amended in a special session in the beginning of the year and was amended again in 2010. Before 2009, the "equipment" category in section 1011.71(2)(d) remained essentially unchanged. An additional limitation, external to the "equipment" category and the other authorized expenditure categories listed in section 1011.71(2), was imposed for a period of time before 2007, in what was then subsection (5) of the same statute. This additional limitation, in effect for a number of years until it was repealed in mid-2007, restricted expenditures of capital outlay millage proceeds for equipment and other categories listed in subsection (2) by imposing the additional requirement that the expenditure had to be "directly related to the delivery of student instruction[.]" See, e.g., §1011.71(5), Fla. Stat. (2005). Thus, while the "equipment" category remained unchanged in subsection (2), the additional restriction imposed for a time by subsection (5) limited authorized equipment expenditures to only those purchases of equipment that were directly related to the delivery of student instruction. When the District went through its budget process in 2008 and when the District spent $105,815 later in 2008 for most of the disputed software purchases, the version of section 1011.71(2) on the books provided: In addition to the maximum millage levy as provided in subsection (1), each school board may levy not more than 1.75 mills against the taxable value for school purposes for district schools, including charter schools at the discretion of the school board, to fund: New construction and remodeling projects, as set forth in s. 1013.64(3)(b) and (6)(b) and included in the district's educational plant survey pursuant to s. 1013.31, without regard to prioritization, sites and site improvement or expansion to new sites, existing sites, auxiliary facilities, athletic facilities, or ancillary facilities. Maintenance, renovation, and repair of existing school plants or of leased facilities to correct deficiencies pursuant to s. 1013.15(2). The purchase, lease-purchase, or lease of school buses. The purchase, lease-purchase, or lease of new and replacement equipment. Payments for educational facilities and sites due under a lease-purchase agreement entered into by a district school board pursuant to s. 1003.02(1)(f) or s. 1013.15(2), not exceeding, in the aggregate, an amount equal to three-fourths of the proceeds from the millage levied by a district school board pursuant to this subsection. Payment of loans approved pursuant to ss. 1011.14 and 1011.15. Payment of costs directly related to complying with state and federal environmental statutes, rules, and regulations governing school facilities. Payment of costs of leasing relocatable educational facilities, of renting or leasing educational facilities and sites pursuant to s. 1013.15(2), or of renting or leasing buildings or space within existing buildings pursuant to s. 1013.15(4). Payment of the cost of school buses when a school district contracts with a private entity to provide student transportation services if the district meets the requirements of this paragraph. The district's contract must require that the private entity purchase, lease- purchase, or lease, and operate and maintain, one or more school buses of a specific type and size that meet the requirements of s. 1006.25. Each such school bus must be used for the daily transportation of public school students in the manner required by the school district. Annual payment for each such school bus may not exceed 10 percent of the purchase price of the state pool bid. The proposed expenditure of the funds for this purpose must have been included in the district school board's notice of proposed tax for school capital outlay as provided in s. 200.065(10). Payment of the cost of the opening day collection for the library media center of a new school. (Emphasis added). A special legislative session in the beginning of 2009 resulted in the passage of chapter 2009-3, Laws of Florida. This law included two sections pertinent to the "equipment" category. In section 12, section 1011.71(2)(d) was amended as follows: Effective July 1, 2008, the purchase, lease- purchase, or lease of new and replacement equipment, and enterprise resource software applications that are classified as capital assets in accordance with definitions of the Governmental Accounting Standards Board, have a useful life of at least 5 years, and are used to support district-wide administration or state mandated reporting requirements. § 12, Ch. 2009-3, Laws of Fla. In addition, section 16 of this special session law provided: If the Commissioner of Education determines that a school district acted in good faith, he or she may waive the equal- dollar reduction [of FEFP funding] required in s. 1011.71(5), Florida Statutes, . . . for the audit findings for the 2006-2007 fiscal year related to the purchase of software. This section shall take effect upon this act becoming a law, but only if the School Board of Miami-Dade County dismisses the lawsuit entitled “School Board of Miami- Dade County v. State of Florida Board of Education,” case number 09-00507CA20, which is pending in the Circuit Court of the Eleventh Judicial Circuit. § 16, Ch. 2009-3, Laws of Fla. Chapter 2009-3 became law in late February 2009, prior to the District's expenditure of $31,500 on March 31, 2009, for the remainder of the disputed software purchases. Meanwhile, in the 2009 regular session, section 1011.71(2)(d), as amended in the earlier special session, was not amended further. However, pertinent to that provision, the following language appeared in section 34 of chapter 2009-59, Laws of Florida: If the Commissioner of Education determines that a school district acted in good faith, he or she may waive the equal-dollar reduction, required in s. 1011.71, Florida Statutes, for audit findings during the 2007-2008 fiscal year which were related to the purchase of software. Chapter 2009-59 was adopted in May 2009, with an effective date of July 1, 2009. In 2010, section 1011.71(2)(d) was again amended to provide: The purchase, lease-purchase, or lease of new and replacement equipment; computer hardware, including electronic hardware and other hardware devices necessary for gaining access to or enhancing the use of electronic content and resources or to facilitate the access to and the use of a school district’s electronic learning management system pursuant to s. 1006.281, excluding software other than the operating system necessary to operate the hardware or device; and enterprise resource software applications that are classified as capital assets in accordance with definitions of the Governmental Accounting Standards Board, have a useful life of at least 5 years, and are used to support districtwide administration or state-mandated reporting requirements. The 2010 amendment did not include any provision similar to the two 2009 laws that would apply a similar grace period or extend the prior laws' "good faith" provisions to audit findings for the 2008-2009 fiscal year related to computer software. See Ch. 2010-154, Laws of Fla. Department's Rules, Interpretations, and Prior Practice Like all school districts, the District is required to prepare and maintain its financial records and accounts in accordance with the uniform classification of accounts required to be promulgated by the Department in rules. § 1010.01, Fla. Stat. The Department has established the requisite uniform system of accounts in a publication known as the "Red Book." The 2001 edition of the Red Book is the most recent version promulgated and incorporated by reference as a rule. Fla. Admin. Code R. 6A-1.001. The Red Book is generally consistent with generally accepted accounting principles and the accounting standards for government accounting adopted by the Government Accounting Standards Board. The accounting structure of the Red Book is premised on fund, revenue, and expenditure classifications, to which account code numbers are assigned for uniformity and ease of reporting. The Red Book provides the following definition of a "fund": A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The Red Book provides a "basic fund structure for Florida School districts [that] follows generally accepted accounting principles for governments." This fund structure utilizes three broad categories of funds: governmental funds, proprietary funds, and fiduciary funds. Within each fund category, there may be multiple funds established as needed to comport with the definition of "fund," that is, when it is appropriate to segregate financial resources for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The main fund type used by the District is the governmental fund. The District's governmental funds include a general fund, several debt service funds, and several capital projects funds. The "general fund" (account code 100) is described in the Red Book as the fund used to account for all financial resources, except those required to be accounted for in another fund. Therefore, a variety of revenue sources are accounted for under the broad umbrella of the general fund. The Red Book establishes account codes for a number of different debt service funds and capital projects funds. Germane to this case is capital projects fund 370, called the District or Local Capital Improvement Fund, for capital projects financed through the two-mill levy authorized by section 1011.71(2). Fund 370 is unique in that it is actually described by citation to the capital outlay millage statute (section 236.25(2), section 1011.71(2)'s predecessor, in effect when the Red Book was promulgated in 2001). The Red Book also establishes revenue account codes used to identify revenue sources that are accounted for by fund. Revenue account code 3413 is used for capital outlay millage proceeds. As the two-mill levy is collected, the revenues are identified by the revenue account code (3413), and those revenues are accounted for in fund 370. If capital outlay millage proceeds are not immediately spent, they are invested in some kind of interest-bearing vehicle. The resulting interest revenue would be assigned a different revenue account code than the revenue code used for the tax proceeds to identify the revenue source as interest. Revenue account code 3430 is the umbrella code that can be used for all interest and profits on investments, or the more precise revenue codes with the same three-digit prefix can be used to pinpoint the revenue source more specifically. For example, revenue account code 3431 is specific to interest earnings on investments, while 3432 is for gain on sale of investments. Therefore, interest earnings would be identified by revenue code 3430 or 3431. While all interest earnings receive the same revenue codes (either 3430 or 3431), the interest must be recorded in and credited to the fund whose proceeds generated the interest. For example, interest earnings on revenues that are accounted for in the general fund are assigned an interest revenue code and recorded in the general fund. Interest earnings on capital outlay millage proceeds are assigned an interest revenue code and recorded in the Local Capital Improvement Fund, fund 370. The Red Book also establishes account codes for expenditures. As with revenue sources, expenditures are assigned account codes and allocated to the fund from which the expenditure was made. Expenditures are classified in the Red Book by object and function. Object classifications indicate the type of goods or services obtained as a result of a specific expenditure. Function classifications indicate the overall purpose or objective of an expenditure (e.g., instruction). The Red Book groups together series of object codes, with each series representing like kinds of expenditures. The 100s are used for salaries (account code 110 is for administrators; 120 is for classroom teachers, and so forth). The 200s are used for employee benefits; the 300s are used for purchased services; the 400s are used for energy services; the 500s are used for materials and supplies; the 600s are used for capital outlays; the 700s to 800s are used for "other expenses"; and the 900s are used for transfers between funds. The Red Book gives the following description of capital outlay expenditures in the 600 object code series: These are expenditures for land or existing buildings, improvements of grounds, construction of buildings, additions to buildings, remodeling of buildings, initial equipment, and additional equipment. This description resembles the categories of authorized expenditures of capital outlay millage funds listed in section 1011.71(2). The capital outlay object code titles in the 600 series, broken down by categories and subcategories, are as follows: 610 Library Books 620 Audio-Visual Materials (Non-Consumable) 621 Capitalized AV Materials 622 Noncapitalized AV Materials 630 Buildings and Fixed Equipment 640 Furniture, Fixtures and Equipment 641 Capitalized Furniture, Fixtures and Equipment 642 Noncapitalized Furniture, Fixtures and Equipment 643 Capitalized Computer Hardware 644 Noncapitalized Computer Hardware 650 Motor Vehicles 651 Buses 660 652 Other Motor Vehicles Land 670 Improvements Other Than Buildings 680 Remodeling and Renovations 690 Computer Software 691 Capitalized Software 692 Noncapitalized Software The Red Book contains a description of each capital outlay object code in the 600 series. Germane to this case--and a focal point for both parties--were the detailed descriptions given for object code 643 (capitalized computer hardware) and object code 690 (computer software). The Red Book describes these two categories as follows: 643 Capitalized Computer Hardware. A computer is a digital, electronic device capable of reading, processing and executing software designed for administrative and instructional uses. The term computer includes not only the main processing unit, but also expansion cards, upgrade devices and peripherals such as: operating system software (ROM based), installable memory, processor upgrades, video boards, sound cards, network connectivity boards or cards, other expansion and upgrade devices, monitors, printers, scanners, internal and external hard drives, floppy disk drives, CD-ROM drives, plotters, modems, computer projection devices, adaptive hardware and other peripherals that attach to the main unit. 690 Computer Software. The set of programs and associated documentation used to control the operation of a computer. The two primary types of software are (1) systems software which includes operating systems, programming languages, and utility programs; and (2) application programs that are designed to perform tasks such as data base management, spreadsheet functions, instruction, and word processing. Generally, when software is acquired with computer hardware for a single purchase price and relative value of the software is material to the total cost, it is necessary to allocate the acquisition cost to both the software and hardware in accordance with generally accepted accounting principles for lump-sum or basket purchases. However, systems software acquired in conjunction with computer hardware may be recorded as part of the equipment purchase (no allocation of cost to the software) when the software will not be removed, transferred, or in any way separated from the original hardware. In the event that software which was originally recorded as equipment is subsequently removed, transferred, or detached from the original hardware, it would be necessary to retroactively allocate a portion of the original cost, if material, to the software for proper recording of the removal or transfer. (Emphasis in original.) The Department's position is that even before the "equipment" category in section 1011.71(2)(d) was amended in 2009 and 2010 to ultimately specify which computer-related purchases are included and which are excluded, the Red Book's detailed descriptions of computer hardware and computer software made clear to school districts that only certain kinds of computer-related purchases can be considered "equipment"--only computer hardware and operating systems software purchased with the hardware and treated by the school district as part of a single equipment purchase. Therefore, according to the Department's witness, the Department's consistent position has been that purchases of computer hardware are allowable under the "equipment" category and that purchases of operating systems software along with computer hardware, when those software purchases are treated as part of the equipment purchase, are allowable under the "equipment" category in section 1011.71(2)(d). However, according to the Department's witness, purchases of application software, whether used for instruction or for administration, were never allowable under the "equipment" category in section 1011.71(2)(d) until the 2009 Legislature created a limited authorization for enterprise resource software applications. In addition, according to the Department's witness, purchases of systems software not made at the same time as purchases of the computer hardware or systems software purchased at the same time as computer hardware, but not treated as part of a single equipment purchase under account code 643, were not allowable under the "equipment" category in section 1011.71(2)(d). This, according to the Department, was always clear from the Red Book descriptions of account codes 643 and 690. The District counters the Department's explanation of how the Red Book categories define the contours of permissible capital outlay millage expenditures for computer-related "equipment" by pointing out that it was the Department's choice to adopt object code 690 for computer software as part of the 600 capital outlay series. The District points to the Red Book's description of the entire 600 series of capital outlays to broadly include expenditures for land, building construction, renovation, and equipment, strikingly similar to the categories in section 1011.71(2). The District makes a good point. The Department's response to the District's good point is that the account codes in the Red Book, including those in the 600 "capital outlay" series, apply across-the-board to all kinds of funds, revenues, and expenditures and not just to section 1011.71(2). While true enough, the Department's counterpoint is inconsistent with its original point that the Red Book account descriptions have provided the necessary guidance all along, and well before the 2009 and 2010 legislative changes, to put school districts on notice as to which computer-related expenditures are permissible using capital outlay millage funds. The District reasonably understood computer software purchases to be permissible under the pre-2009 version of section 1011.71(2), in part, because the Red Book itself classified computer software, account code 690, as part of the 600 series of "capital outlay" expenditures. Looking at the Red Book's description of the types of expenditures provided for in the 600 series, the only expenditure category that computer software could possibly fall under is "equipment." The District's reasonable impression that computer software purchases were permissible expenditures under section 1011.71(2)(d) was reinforced by the way the Department used the Red Book account codes in Department-created forms that school districts are required to use to annually report their summary budgets and their actual financial results to the Department. Each year, school districts prepare their budgets, going through a local process by which tentative budgets are first adopted and then aired publicly through notice and hearings, before the budgets are finalized. After the budgets are finalized through the local process, school districts are required to prepare and electronically transmit their summary budgets to the Department on an electronic spreadsheet form created by the Department. The Department's summary budget form, designated Form ESE-139, is promulgated as a rule. Fla. Admin. Code R. 6A-1.002(3). The summary budget form utilizes the Red Book account codes to summarize a district's planned revenues, by revenue code, allocated to the appropriate funds, by fund code, in which those revenues must be recorded. The summary budget form similarly uses the Red Book account codes to summarize a district's planned expenditures, by object code, allocated to the appropriate funds from which those expenditures will be made. Section VII of the summary budget form shows the budgeted revenues and expenditures for capital projects funds. The columns of this section are labeled for each capital projects fund account code set forth in the Red Book. For example, the column for fund 370 is labeled in the Department's form as "370 Cap Improvements Sect 1011.71(2) FS." There are two parts to the rows of the capital projects section: the first part lists revenues by revenue code and title; the second part lists expenditures by object code and title. The District presented evidence that it utilized the Department-prepared summary budget form ESE 139 to annually report its summary budget to the Department. In the capital projects section of each annual summary budget from 2005-06 through 2008-09, the District reported its estimated capital outlay millage revenue in the box where the row labeled for revenue code 3413 (District Local Capital Improvement Tax) meets the column for "[fund] 370 Cap Improvements Sect 1011.71(2), FS." And in the second part of the capital projects section of each annual summary budget from 2005-06 through 2008-09, the District reported its budgeted expenditures for computer software in the box where the row labeled for object code 690, computer software, meets the column "370 Cap Improvements Sect 1011.71(2), FS." Thus, the District's annual summary budgets, which were prepared on the Department's form and submitted to the Department each August in 2005, 2006, 2007, and 2008, plainly announced the District's plans to spend capital outlay millage proceeds (revenue source 3413, in fund 370) on computer software (capital outlay object code 690, from fund 370). The Department does not dispute that it created the summary budget form and labeled the rows and columns that allowed the District to budget capital outlay millage funds for planned expenditures of computer software. The Department's own form provides a specific row for school districts to budget expenditures for computer software (capital outlay object code 690). That row carries across to meet with a specific column labeled by the Department, "[Fund] 370 Cap Improvements Sect 1011.71(2) FS." Nor does the Department dispute that the District has reported annually for years that it planned to purchase computer software (object code 690) using revenues in fund 370, the local capital improvement fund specifically designated for section 1011.71(2) proceeds. The Department contends that it does not scrutinize these summary budget forms to ensure compliance with expenditure restrictions. That may be true, even though, by rule, the Department is required to "review" school district budgets. Fla. Admin. Code R. 6A-1.004 ("Commissioner to Review Budgets. The Commissioner shall establish procedures and prepare plans so that the budget is reviewed by authorized representatives in his or her office."). However, the Department's failure to actually review school district summary budgets does not mean that school districts are aware that the Department does not conduct reviews as its rule requires. Moreover, the Department's failure to review summary budgets in any meaningful way does take away from the fact that the Department created and labeled the summary budget form in a way that represented to school districts permissible categories of expenditures from capital outlay millage proceeds. The District was not alone in taking the Department up on the invitation in Form ESE 139 to budget for computer software expenditures using capital outlay millage proceeds collected pursuant to section 1011.71(2). The District presented evidence of summary budgets submitted annually by other school districts, from 2001-02 through 2008-09, in which other school districts budgeted for expenditures in the box where the row provided for object code 690 (computer software) meets the column provided for fund 370, the Local Capital Improvements Fund used for proceeds of the section 1011.71(2) two-mill levy. The Department contends that the fact that summary budgets of other school districts show planned expenditures of capital outlay millage funds from fund 370 for computer software under object code 690, does not establish that those school districts planned unauthorized expenditures. Instead, the Department argues that it is possible that all of the budgeted expenditures for computer software using code 690 might have been for allowable systems software, and not for unauthorized application software. However, this argument ignores the testimony of the Department's own witness that capital outlay millage proceeds could only be used to purchase systems software when that software was purchased together with computer hardware and allocated by the school district to a single purchase of equipment. The Red Book would require that a single purchase of computer hardware with systems software be assigned object code 643, not object code 690. In other words, according to the Department's witness, capital outlay millage proceeds can only be used to purchase systems software classified under object code 643; capital outlay millage proceeds could not be used for system software if the school district did not elect to treat the software purchase as part of the computer hardware equipment purchase. And yet, the Department's own form was created to allow school districts to budget for such expenditures. In addition, the Department's contention was contradicted by the testimony of the Department's own witness, designated as an expert in school board accounting and fiscal reporting, that as a practical matter, account code 690 is used for application software and not for systems software. Ms. Champion testified that as far as she is aware, districts purchasing systems software, at the same time as they purchase computer hardware, choose to treat the software purchase as part of a single purchase of equipment under object code 643, rather than to separately allocate the costs between the computer hardware (code 643) and the systems software (code 690): Q: My question is, if the operating software is to be part of the hardware, that's contemplated under object code 643; correct? A: Yes. . . . Q: Under 690 you testified that there is a distinction set out there for application programs and -- it says systems software or operating software? A: That's true. Q: So why would systems software or operating software have to be addressed under 690 if it's covered under 643? A: I believe that--again, this is allowing operating software that's purchased in conjunction with hardware to be considered equipment, or there is the option to allocate costs on that initial purchase between the operating software and the hardware if the district chose to do that. I'm not aware of a district ever having done that . . . Q: Is it the department's position that if operating software was being purchased independently of computer hardware, it could be purchased using the section 1011.71(2) levy? A: I don't believe it could be . . . Q: It could be or couldn't be? A: Could not be. Q: Okay. And why is that? A: Operating software is considered, when purchased with the hardware, is considered equipment, in essence, and therefore, meets the allowability for use of the 1011.71(2) funds, because that is specifically authorized in that statute. A: Then why have a separate object code for computer software here? Q: Well, we do have an object code for application software, and that's I think, it's used for application software. (Emphasis added.) Tr. 287-289. Even if the Department's position was that capital outlay millage expenditures for systems software classified under object code 690 is permissible, while such expenditures for applications software is not permissible, the fact remains that the Department chose to create the Red Book expenditure categories, and the Department chose how those expenditure categories are used in the summary budget form. If the Department's budget form allows school districts to budget for expenditures of capital outlay millage proceeds for computer software (object code 690), as it does, then the Department has communicated to the school districts that such expenditures, for the software described in object code 690, are permissible. If only some of those purchases were permissible (i.e., systems software, the type which the Department's witness admitted is not as a practical matter reported under expenditure code 690), then the Department should not have grouped both kinds of software under the same object code. If the Department required a breakdown of computer software purchases by type of software to determine whether an expenditure was a permissible use of capital outlay millage funds, then the Department's account codes and forms needed to provide that breakdown to avoid the misimpression otherwise created. The District also presented evidence that after the close of each fiscal year, it is required to prepare its financial reports showing the actual results for the year, with statements of revenues, expenditures, and changes in fund balance, by fund, on a Department-prepared form to transmit to the Department for its review. This form, designated Department form ESE 348 and promulgated in rule 6A-1.0071(2), is similar to the summary budget form, but with even greater detail. The similarity is that the financial report form was created by the Department to provide, in the capital projects section, specific rows with account codes and titles, including account code 690 for computer software; that specific row carries across to meet up with a column labeled by the Department as "[Fund] 370 Cap. Improvements Sec. 1011.71(2)." The District put into evidence its actual ESE 348 reports to the Department for each year from 2005-06 through 2008-09. Each year, the District's completed ESE 348 forms reported to the Department that the District had used capital outlay millage funds from fund 370 to purchase computer software (object code 690). Just as with the summary budget form, the Department does not dispute that it created financial reporting form ESE 348 with labeled rows and columns that allow school districts, including the District, to report expenditures of capital outlay millage funds to purchase computer software. However, just as with the summary budget form, the Department contends that it does not scrutinize these financial reports to ensure compliance with expenditure restrictions. The District also presented evidence that other school districts annually reported on their forms ESE 348 that they had purchased computer software, designated under object code 690, using section 1011.71(2) capital outlay millage proceeds from fund 370. The Department downplayed the significance of this pattern in the same manner as for the summary budgets. The Department offered no explanation for why its own forms were created to allow school districts to fill in capital outlay millage fund columns to report budgeted and actual expenditures for computer software, if that was not a permissible use of capital outlay millage funds. If the Department wanted to make clear to school districts that certain categories of expenditures were not allowed under a certain fund, it could have blocked off those expenditure codes from being a permissible entry under the particular fund. The District also presented evidence that as part of the required annual local budget process, the District complies with "Truth in Millage" (TRIM) requirements to locally publish notices of the District's plans to levy the capital outlay ad valorem tax on the assessed value within the district. The notices are prepared in a required format, using large print, with a description of how the District is planning to spend the tax proceeds, by category of planned expenditure. The District presented evidence that each year in late July, the District followed the TRIM requirements by publishing the required notices of its plans to levy and use capital outlay millage proceeds. Each of these annual notices, back to July 2000, informed the District taxpayers that the District planned to levy the two-mill tax to use for specified categories of purchases, including the following category and subcategories: New and Replacement Equipment: Furniture and equipment for school and ancillary locations Computer software for school and ancillary locations The Department accurately points out that the TRIM requirements and the details of the required notices are administered and overseen by a different state agency: the Department of Revenue. However, the District is required to submit its TRIM notices to the Department along with its summary budgets each year, and there is no mistaking the parallel between the categories of expenditures shown on the TRIM notices and the categories of permissible expenditures in section 1011.71(2). With the enlarged print required to meet TRIM notice specifications, anyone glancing at the District's notices would see that the District was under the impression that computer software was a permissible item to purchase using capital outlay millage proceeds, as the District annually informed the District taxpayers. Indeed, the District's usage of "equipment" as a broad umbrella category, which includes a narrower subcategory of "furniture and equipment," as well as the subcategory "computer software," parallels the Department's own Red Book account codes in the 600 series. Other evidence, besides summary budget and financial reporting, confirmed that the District was not alone in its understanding that expenditures for computer software described in object code 690 were permissible capital outlay expenditures for equipment pursuant to section 1011.71(2)(d). The view shared by other districts was shown by submittals in evidence from school districts seeking to qualify for the "good faith" provisions in the 2009 legislation. These "good faith" provisions allowed the Department to waive the penalty of reduced FEFP funding for school districts acting in good faith regarding "computer software" expenditures flagged by the Auditor General in audits for the 2006-07 and 2007-08 fiscal years.5/ For example, in February 2008, the Auditor General issued an audit report for the Duval County District School Board (Duval) for the 2006-07 fiscal year. An audit finding questioned Duval's purchase of "instructional software" using capital outlay millage proceeds. Just as in the audit at issue in this case, the Auditor General pointed out that "instruction software is not specifically included as an allowable use of capital outlay millage proceeds." Duval initially responded to the Department's demand for corrective action by transferring the amount spent on instructional software from the district's general operating account to the Local Capital Improvement Fund (370) to replenish that fund. However, after the 2009 legislative special session, the school district wrote to the Department on March 13, 2009, to request permission to transfer the money back from the Local Capital Improvement Fund to the operating account, under the "good faith" waiver provision. Duval asserted that it acted in "good faith" using capital outlay millage funds to purchase instructional software, "as it had done in previous fiscal years." Duval pointed to the support for its actions in the Red Book: [I]n 1991, when the [Department] created a separate "object code" for software, it was coded in the 600 series. The 600 object series, as defined by Red Book, is titled Capital Outlay. Furthermore, the District's determination that software is equipment is evidenced by a specific line item in its annual TRIM notice under how it will spend Capital Outlay funds. The District has included software in its TRIM notice since 1995. The Department agreed that Duval demonstrated good faith in treating its instructional software purchase as equipment. Accordingly, the Department authorized the re-transfer of funds back from the operating account to Capital Improvement Fund 370 and waived the penalty of reduced FEFP funding. As another example, the School District of Lee County (Lee) sought and received a "good faith" waiver to allow its expenditure of capital outlay millage funds for enterprise resource planning (ERP) software applications during fiscal year 2007-08, which was the fiscal year preceding the effective date of the 2009 specific statutory authorization for such expenditures. Lee demonstrated its good faith to the Department's satisfaction with the following in a letter dated June 19, 2009: When we made the purchase of the ERP software from capital outlay millage funds, we believed that we were acting within the statute. Our financial departments conferred with our board attorney, our bond attorney, and other districts across the state that had use the same funding source for similar projects. All were of the opinion the expenditure was allowed by statute. In addition, our capital outlay millage advertisement (required by law) and our Five Year work plan had the purchase of the software listed in each, as we were confident that our purchase was lawful and acceptable. We were quite surprised at the auditor's findings. We acted in good faith, as we believed our expenditures were compliant with the law. Again, the Department agreed, and pursuant to the "'good faith' rationale cited in" Lee's letter, the Department waived the penalty of reduced FEFP funding. The Department contends that the "equipment" category was always clear in section 1011.71(2)(d) and was always consistently applied by the Auditor General and by the Department, even before the series of amendments in 2009 and 2010 to delineate what was permissible and what was not permissible. This effort to establish clarity and consistency by the Department and the Auditor General failed. At times, the witnesses for the Department and the Auditor General tried to support the proposition that they have always interpreted and applied the capital outlay expenditure statute in a simple and straightforward manner: if something was not "specifically" listed in the statute, it was not allowed. That simple assertion was simply not true. For example, both witnesses for the Department and the Auditor General admit that they have always considered computer hardware purchases to be an allowable use of capital outlay millage proceeds, even though the capital outlay millage statute never specifically listed computer hardware until 2010. The Department considers computer hardware to be equipment, consistent with its Red Book accounting that treats computer hardware as a subcategory of equipment, or more accurately, as a subcategory of the account called "furniture, fixtures, and equipment." Indeed, furniture is another example of an item that is not specifically listed in the statute, but is considered authorized under the "equipment" category. In short, because the undefined statutory term "equipment" has a broad common meaning, it is necessary to interpret the specifically listed item to determine which specific items are equipment and which are not. See testimony of Department's witness, paragraph 59, supra ("Operating software . . . when purchased with computer hardware, is considered equipment, in essence, and therefore meets the allowability for use of 1011.71(2) funds, because that is specifically authorized by statute.") (Emphasis added). The Department's witness made clear that through its practice, the Department has made a number of distinctions, based on such issues as functionality and usage, to determine if items are equipment or not. Yet, before the 2009 and 2010 amendments, these distinctions were not hinted at in the statute. For example, as explained above, the Department has always considered certain computer systems software to be equipment on the rationale that such software is necessary to make the equipment functional. If functionality were the actual test, one could certainly quibble with how far that logic goes for computer-related items. Is a computer really functional without application software that enables a computer to be used for spreadsheets or word processing or electronic mail or anything else computers are actually used for? Would such application software be considered necessary to make the computer functional as a practical matter? But putting that debate to the side, the real point is that this test is a very different test than the "specifically-listed" test given lip service by both the Department and the Auditor General's witness. Indeed, the evidence showed that both the Auditor General and the Department were inconsistent in how broadly or narrowly they interpreted "equipment" as used in section 1011.71(2)(d) before the 2009 statutory amendment. The unrebutted testimony of the District's CFO was that school districts have been purchasing computer software since the mid-1990s to keep up with technology and the use of that technology for districts' information management and state reporting requirements. That testimony was corroborated by the Duval "good faith" letter quoted in paragraph 69 above. However, the earliest example in evidence of an Auditor General Report questioning a computer-related expenditure from capital outlay millage funds was for Highlands County District School Board (Highlands) for its fiscal year 2002-03. At that time, section 1011.71(5) contained the additional restriction that expenditures of capital outlay millage proceeds for equipment and other items listed in (2), had to be directly related to the delivery of student instruction. The Auditor General questioned a number of capital outlay millage expenditures, because they were for "purposes not directly related to the delivery of student instruction." The audit finding listed the questioned expenditures under the heading "Expenditures Not Directly Related to Student Instruction." One expenditure category listed in this table was "MIS Computers (hardware and software) and Other Equipment" (emphasis added). The Auditor General's witness confirmed that the only reason this expenditure category was questioned was because Highlands did not document that these capital outlay millage purchases were directly related to student instruction. The Department reviewed the Auditor General's Report and issued a letter to Highlands to require additional documentation or corrective action. Regarding the questioned purchases of "MIS Computer (hardware and software) and Other Equipment" totaling $103,480.47, the Department stated: The information provided is not adequate to make a determination on this item. While the purchases were detailed, their use in providing delivery of instruction is unknown. Some portion of these expenditures probably could be identified with delivery of instruction as required by the statute versus ineligible expenditures for administrative and support uses. (Emphasis added.) The Department did not suggest that the purchase of computer software would be ineligible in any event, even if the software was purchased for student instruction. Thus, the implication of Respondent's determination on Highlands' 2003 Audit Report was that computer software purchases would be authorized expenditures if used in the delivery of student instruction, but would be unauthorized expenditures if used for administration and support. The Department's witness attempted to explain the Highlands audit finding and action thereon as only addressing the failure of the cited expenditures to pass the new "directly related to student instruction" test then in place in section 1011.71(5) and that those expenditures would still have to pass the test of whether they were authorized equipment purchases under section 1011.71(2)(d). The Department's attempted explanation is not credible. Neither the Auditor General Report, nor the Department, in addressing the Highlands 2003 expenditures, raised the threshold question of whether the questioned expenditures would have been unauthorized under the "equipment" category regardless of whether they were for student instruction. Indeed, the Auditor General's audit report described the category of questioned expenditures as being for "MIS Computers (hardware and software) and Other Equipment" (emphasis added), suggesting that at least in March 2004, in the context of addressing allowable capital outlay millage expenditures, the Auditor General considered computer hardware and software to be types of equipment. The Department agreed with the Auditor General's finding that questioned only whether the expenditures were directly related to the delivery of student instruction. No evidence was presented of any audit finding questioning computer-related purchases for the next three fiscal years, ending in 2004, 2005, and 2006, despite evidence that such purchases were being budgeted and made from capital outlay millage proceeds by the District and other school districts and reported to the Department both before and after the expenditures occurred. The next documented example of an Auditor General Report questioning a school district's computer- related expenditures of capital outlay millage proceeds was not until the Miami-Dade County District School Board (Miami-Dade) Audit Report for fiscal year ended June 30, 2007. In this report, as for Highlands four years earlier, the Auditor General's findings stated that Miami-Dade's use of capital outlay millage funds to purchase computer software for Informational Technology Services did not appear allowable as the purchase of equipment directly related to the delivery of student instruction as required by section 1011.71(5)(a), Florida Statutes (2006). The report also noted that section 1011.71(5) had been repealed, effective June 19, 2007, which was after the questioned expenditures occurred. The Department's witness acknowledged that the computer software purchased by Miami-Dade was enterprise resource software applications intended for district-wide use and that it was Miami-Dade's vigorous opposition to the disallowance and vigorous lobbying campaign that were instrumental in the passage in the 2009 special session of the amendment to section 1011.71(2)(d) to expressly add authorization for the purchase of enterprise resource software applications. This fact is further confirmed by the legislative grace period that would, in effect, allow computer software purchases questioned in audit findings for fiscal year 2006-07, which grace period would only take effect after Miami-Dade dismissed its lawsuit against the Department. §§ 12, 13, Ch. 2009-3, Laws of Fla. The Department asserts that the amended section 1011.71(2)(d), resulting from the 2009 special legislative session, contained a completely new category of authorized expenditure, one that had not been previously authorized under the general "equipment" category. However, in a 2000 legal opinion interpreting a related statute, the Department approved a proposal by St. John's County School District (St. John's) to get a loan to finance the purchase of a computer system and related components, because the described purchase "constitutes a purchase of equipment for educational purposes" pursuant to section 237.161(1), Florida Statutes (2000). The statute interpreted in the 2000 legal opinion, section 237.161(1), was renumbered section 1011.14(1) as part of the 2002 Education Code reorganization. Then and now, this statute authorized a school district to obtain loans for certain expenditures, similar to the list of authorized expenditures in section 1011.71(2), such as for construction of educational facilities or the purchase of school buses, land, or equipment for educational purposes. The relationship between these two statutes is that capital outlay millage proceeds may be used, pursuant to section 1011.71(2)(f), to repay loans approved pursuant to what is now section 1011.14. By liberally construing the Education Code (as required, then and now, by section 1000.01(2) and its predecessor), the Department's general counsel was able to conclude that the purchase of the computer system and related components, including enterprise resource software,6/ software licenses, and computer hardware constituted the purchase of equipment for educational purposes for which St. John's could obtain a loan pursuant to what is now section 1011.14(1). As provided by what is now section 1011.71(2)(f), the loan to purchase that "equipment" could then be repaid from capital outlay millage proceeds. A number of school districts have pointed to the Department's 2000 legal opinion issued to St. John's to show the Department's appropriately broad prior interpretation of "equipment." One such example in evidence is from Lee County school district, for the 2007-08 audit findings for which it ultimately obtained a "good-faith" penalty waiver. In a candid admission by the Auditor General's witness, this whole murky area of computer-related purchases under the "equipment" category in section 1011.71(2)(d) "started to be clarified" by the Legislature in 2009. Following the adoption of the "enterprise resource software" addition to the equipment category in the 2009 special session, two things occurred that should have happened a long time ago. The first thing that should have happened a long time ago, perhaps in a different form such as an amendment to the Red Book, was that the Department communicated to the school districts how the Department interpreted the newly amended "equipment" category in section 1011.71(2)(d), Florida Statutes (2009). In August 2009, the Department issued a memorandum to all school district financial officers regarding the new enterprise resource software addition to the "equipment" category. The Department offered the school districts a definition that it had "developed" for what was included in, and what was excluded from, the new statutory term: The following definition of "enterprise resource software" has been developed to assist school districts in complying with the amended statute: Qualified software consists of programs and applications used district-wide for administration of the school district or used to comply with state-mandated reporting requirements. Such software includes software used district-wide to account and coordinate for resources and information related to items such as financial data, human resource information, student and asset records, but does not include instructional software. Qualified software must be classified as a capital asset in accordance with Governmental Accounting Standards Board (GASB) Statement No. 5, and have a useful life of at least 5 years determined in accord with Florida Department of Education GASB 34 Guide. (Emphasis added.) As a follow-up to the August 2009 memorandum, the second noteworthy event, long overdue, was a discussion held in September 2009 between an accountant in the Auditor General's Office and a Department representative, in which the Department representative cataloged which computer-related purchases the Department believed were included in, and which were excluded from, the newly amended "equipment" category. This discussion was memorialized in a September 28, 2009, memorandum, in which the accountant with the Auditor General's Office summarized his "productive conversation" with a Department representative regarding computer-related purchases from capital outlay millage funds. The memorandum was directed to Mr. Centers, the audit manager over school boards, who then forwarded the memorandum to many others in the Auditor General's Office. The summary of the September 2009 "productive conversation" was as follows: FDOE defines allowable [enterprise resource software] as a system that fulfills state-mandated reporting requirements (AFR, FTE surveys, etc.) comprised of Financial, HR, and student records (see attached) [copy of August 2009 Department memo to districts]. Instructional s/ware is not allowable (ex. Math and Reading s/ware); Only software installed on computer to make operating system run (ex. Windows, DOS) are [sic] allowable. Microsoft Office, Photoshop, etc. are not allowable. Putting these types of programs on a server as opposed to individual computers does not make the maintenance allowable. Software to operate routers and maintain the network as a whole, including anti-virus and firewall software, is allowable. However, as indicated above, maintaining non-[enterprise resource] application software installed on the network is not allowable. Some computer maintenance is allowable: Centralized computer repair shop, in which computers are hooked up and repaired (ex. Replace hard drive, install more memory) is allowable. Maintenance of [enterprise resource software] is allowable. Installation or maintenance of non- [enterprise resource] software is not allowable (ex. Install MS Office). Data base maintenance or other data management is unallowable. Technical assistance and/or trouble- shooting for end users involving network connectivity, e-mail, or other software issues is unallowable. The interpretations set forth in the Department's August 9, 2009, definition that it "developed" and communicated by memorandum to the school districts, plus the Department's clarification to the Auditor General's Office detailing which computer-related purchases were authorized capital outlay millage expenditures and which were not authorized expenditures, did not appear in statute or rule until the 2010 legislative amendment to section 1011.71(2)(d). Interest Earnings By pre-hearing stipulation, the parties agreed that during the fiscal year ending June 30, 2009, the District earned sufficient interest in its Local Capital Improvement Fund to pay for the disputed software purchases and that the District used the interest earnings from its Local Capital Improvement Fund to pay for the disputed software purchases. The Red Book provides as follows with respect to interest earnings: Interest or profit should be recorded in the fund that produced the earnings unless specified otherwise by bond resolution or legal documents. This Red Book rule is consistent with the statutory requirement in section 1011.09(1), which states that "[a] district school board shall credit interest or profits on investments in the specific budgeted fund, as defined by the accounting system required by s. 1010.01, that produced the earnings unless otherwise authorized by law or rules of the State Board of Education." The District did not identify any law or rule that "otherwise authorizes" interest earned on capital outlay millage proceeds to be credited anywhere other than in the fund that produced the earnings, i.e., in fund 370. The District's position is that this general requirement that interest be "recorded in" and "credited to" the fund that produced the earnings is satisfied by the accounting function of recording interest in the fund whose revenues produced the interest. The District asserts that this requirement does not mean that the use of interest, recorded in the proper fund, is actually restricted in the same manner that the fund is restricted. The District's petition asserted that there was a dispute regarding the Department's practice in permitting unrestricted use of interest proceeds by other school districts. However, the District presented no evidence that the Department has permitted any other school district to use interest earned on capital outlay millage proceeds in a manner that was inconsistent with the expenditure restrictions for the capital outlay millage proceeds themselves. The District did present evidence that the Department allowed unrestricted use of interest earned on certain categories of revenue in school districts' general funds, despite restrictions in the districts' usage of the those categories of revenue. The difference, though, is that this practice is limited to categories of revenue that are permitted to be pooled and accounted for, in accordance with the Red Book, in the residual "general fund." The District has not shown that the Department's practice in this regard is applicable to the circumstances here, such that it would constitute precedent that would apply to the District's case.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by Respondent, Department of Education, determining as follows: That Petitioner, Charlotte County School District, violated the expenditure restrictions in section 1011.71(2), Florida Statutes (2009), by spending $31,500 in 2009 for computer software and that the corrective action previously required by Respondent, and previously accomplished by Petitioner, was correct with respect to this $31,500 expenditure; That Petitioner did not violate the expenditure restrictions in section 1011.71(2), Florida Statutes (2008), by spending $105,815 in 2008 for computer software; That Petitioner is authorized to re-transfer $105,815 from its Local Capital Improvement Fund to its general operating account to reverse the corrective action previously required by Respondent, and previously accomplished by Petitioner, with respect to this $105,815 expenditure; and That provided the recommendations in (2) and (3) above are adopted, Respondent's agency action is not based on an unadopted rule. Jurisdiction is reserved for the purpose of ruling on Respondent's motion for attorney's fees. DONE AND ENTERED this 16th day of June, 2011, in Tallahassee, Leon County, Florida. S ELIZABETH W. MCARTHUR Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of June, 2011.
Findings Of Fact From approximately August, 1978, to August, 1980, Respondent held the position of Director, Department of Federal and State Relations in the Dade County School System. Prior to that, he was the assistant director in that department under the department's prior name. During the period of time that Respondent held positions in that department, a program called the At-Home Program was being purchased by the school system. Continuances of this program were approved by the School Board either Prospectively or retroactively until March, 1978, at which time, upon the recommendation of the then-Superintendent, Dr. Johnny L. Jones, the School Board amended its rules to permit the Superintendent to negotiate purchases of instructional materials without Board action. The At-Home Program continued in the Dade County school system until May, 1980. During the 1977-78 contract year, Respondent approached David Rouen, the owner and operator of the At-Home Program, advised him that the Superintendent of Schools "needed help" and asked whether Mr. Rouen would he able to provide that "help." Solicitations of "help" for Superintendent Jones by Respondent occurred three (3) or four (4) times. Subsequent to the first solicitation however, Dr. Jones contacted Rouen directly, thanked him for his willingness to help and asked how much money Rouen could bring Jones. Rouen subsequently gave Jones cash and gifts amounting to approximately sixty or seventy thousand dollars. Two of the solicitations by Respondent for Jones were made after Jones had started receiving money. Rouen did not believe that Respondent was aware that Jones was already receiving payments and he, therefore, did not pay much attention to the second and third solicitations. He deferred the question by asking Respondent how it could be done or specifically how much money the Superintendent needed. In 1980, Respondent called Rouen early in the morning. Respondent advised that he was calling about the problems in Miami, and Rouen assumed that the Respondent meant the "Gold Plumbing" situation involving criminal charges against Jones. Respondent asked if Rouen could help the Superintendent and stated that the Superintendent was there. Jones then got on the telephone and asked Rouen what he could send. Rouen said he would send a thousand or two. Jones gave Rouen Jones' mother's address to which to forward the funds. Rouen placed the cash in the mail the following day to Jones' mother. During the period of time that Respondent was employed in the Department of Federal and State Relations in the Dade County school system, he received gifts from Rouen, probably as a result of Jones' instruction to Rouen to give Respondent some "trinkets." Respondent received a television set with an approximate value of $89.00 and a radio with an approximate value of $20.00 according to Rouen, the giver of the gifts. Respondent acknowledges acceptance of these gifts. Rouen also gave Respondent a videotape recorder with an approximate value of $300.00 since it was used. On several occasions Respondent offered to pay Rouen for the recorder, and each time Rouen advised Respondent not to he concerned about payment. Between the time that Respondent received the recorder in 1979 and the formal hearing in this cause, Respondent never paid for the recorder. Further, he did not return the recorder when it became apparent that Rouen was not going to accept payment for it. At all times that Respondent accepted gifts from Rouen, he was aware of a School Board rule prohibiting the acceptance of gifts of more than nominal value from School Board vendors. In the fall of 1979, Rouen spoke with Respondent regarding some real property in which Rouen had an interest in Palm Coast, Florida. Rouen indicated that he had been attempting to sell the property, and Respondent stated that possibly he could sell the property for Rouen. Rouen advised that he would pay Respondent a standard fee of ten to fifteen percent for selling the property. The value of the property was between seven and ten thousand dollars. Respondent has no license to sell real estate. Subsequently, Respondent advised Rouen that he had a prospective buyer for Rouen's property, a James Cash. Rouen wrote to Palm Coast in October, 1979, advising that he had sold his property to James Cash and asking that Palm Coast forward whatever documents would he necessary to complete the transaction. Palm Coast responded on October 26, 1979, enclosing assignment papers transferring Rouen's interest in the property to Cash. Palm Coast directed Rouen to have all interested parties sign where indicated, have all signatures witnessed and notarized, and return all copies of the assignment to the Palm Coast office for final processing. Rouen and his wife signed the document and had it notarized in Baltimore, Maryland. The document was then delivered to Respondent. The Reverend James Cash was a friend of Respondent. The two had spoken about Respondent's interest in obtaining some real property, and Cash had previously signed a letter regarding real property transactions at the request of Respondent. At that time Respondent told him that Cash's signature was necessary to save the home of a friend of Respondent. In December, 1979, Respondent again came to Cash about signatures and this time advised Cash that he did not want the document notarized in Dade County. The two traveled to Broward County to have the form notarized there. While Cash did not read the document he did note that it had been previously signed by David Rouen and his wife in Baltimore, Maryland. James Cash signed the form and delivered it to Respondent. Cash was not of the belief that he was purchasing property from David Rouen. He simply signed the documents at his friend's request. At about this time, various well-publicized problems involving Superintendent Jones arose in the Dade County school system and Rouen never heard anything further on the sale of his Palm Coast property. Cash began to read articles in the local newspapers regarding allegedly fraudulent transactions involving Superintendent Jones and David Rouen. Respondent's name was mentioned. Cash became concerned and approached Respondent about the papers that he had signed. Respondent advised him not to worry, that someone had gotten rid of the papers. Cash approached Respondent several times with his concern about the papers, and Respondent eventually refused to talk with him about them. While Director of the Department of Federal and State Relations, Respondent directed and coerced School Board employees to violate School Board administrative directives. In August, 1979, he attempted to obtain a manual check for the payment of several purchase orders issued to the At-Home Program. Harold Wheeler, Supervisor of Accounts Payable and Cost Analysis, refused to authorize the manual check since he questioned whether the goods had been received and whether Respondent had the authority to certify that the goods had been received. Respondent attempted to intimidate Wheeler into ignoring the improper procedures Respondent was utilizing by threatening to report Wheeler to Superintendent Jones. Respondent directed School Board employees at the School Board warehouse to accept goods from the Bhards Publishing Company notwithstanding the fact that copies of the purchase orders for these materials were not provided to the warehouseman. Respondent was advised that there were no copies of the purchase orders and was asked to provide she purchase orders several times. They were never produced. Rather, Respondent went to the receiving warehouse and directed that the materials be shipped to the schools. When Warehouse Supervisor Ben Bowen objected to sending the goods to the schools before being provided with purchase orders, Respondent told Bowen that if Bowen did not comply, Respondent would report him to Superintendent Jones. A similar threat was made to Bowen's superior. When the Bhards materials arrived at the schools, personnel from several of the schools called to advise they had no knowledge they were to receive such materials. One school actually refused delivery. Harold Wheeler and Ben Bowen were both annual contract employees. These employees were reasonably placed in fear of losing, at the least, their jobs by Respondent's threats to them that Respondent would report to Superintendent Jones their refusal to comply with Respondent's orders. The Superintendent of Schools has the power to not reappoint persons on annual contracts. At all time material hereto, School Board Rules 6Gx13-3C-1.09 and 6Gx13-3C-1.14 were in effect and required that all School Board materials and commodities be purchased through the School Board Purchasing Department, which has been designated by the School Board as its official purchasing agent. This is in part so that it can be determined if funds for the purchase are available. No other persons are authorized to make purchases, except in limited circumstances not here applicable. Respondent admits he had no authority to authorize shipping goods without a purchase order, admits he had no authority to permit use of the School Board warehouse by non-School Board companies, and that it is not proper procedure to receive goods without a purchase order being issued for those goods. However, in November, 1979, Respondent told Sanford Hershey, Director of Marketing and Sales for School Board vendor Random House Corporation, to ship six or seven hundred thousand dollars worth of materials to the school system notwithstanding the fact that no purchase orders bad been issued by the school system for these goods. The materials were shipped to the School Board in late November or early December, 1979. They were received in the School Board warehouse in December, 1979. This unauthorized order first came to the attention of the school system when Cellostine Baughan, a purchasing agent in the school system's Purchasing Department, received incomplete requisitions for the materials in late November, 1979. In attempting to resolve the problem, she was advised by Respondent that he had invoices for the goods. The invoices were dated November 28, 1979. This indicated that the goods had been ordered and possibly shipped. The invoices all show that they were issued on a verbal order, and the School Board Purchasing Department did not place an order. After realizing that the material had already been ordered, Baughan issued a purchase order for the goods. The purchase orders were issued January 24, 1980, approximately two (2) months after Respondent verbally obligated the school system for at least six hundred thousand dollars and after the materials had already been delivered to the schools. Although Superintendent Jones had negotiated the contract for the purchase from Random House, his authority to negotiate a contract does not negate the requirement that all purchases, even after a price has been negotiated, must he made through the School Board Purchasing Department.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is, therefore, RECOMMENDED that a final order be entered affirming the suspension of Respondent Edwin Demeritte and dismissing Respondent Edwin Demeritte from his employment with the School Board of Dade County, Florida. RECOMMENDED this 12th day of May, 1982, in Tallahassee, Florida. LINDA M. RIGOT Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 Filed with the clerk of the Division of Administrative Hearings this 12th day of May, 1982. COPIES FURNISHED: Phyllis O. Douglas, Esquire Assistant School Board Attorney Room 200 Lindsey Hopkins Building 1410 N.E. Second Avenue Miami, Florida 33132 Jesse J. McCrary, Jr., Esquire 3000 Executive Building Suite 300 3050 Biscayne Boulevard Miami, Florida 33137 Clinton J. Pitts, Esquire Hubbart, Pitts and Wilson 19 West Flagler Street 824 Biscayne Building Miami, Florida 33130 Thomas Murray, Esquire 3050 Biscayne Boulevard Miami, Florida 33137 Leonard M. Britton Superintendent of Schools Lindsey Hopkins Building 1410 N.E. Second Avenue Miami, Florida 33132
Findings Of Fact The WCHS maintains one checking account. The bookkeeping for the checking account is segregated into a General Account and multiple Internal Accounts. The Internal Accounts represent various interest centers at the school, e.g., athletics, welding class, auto repair, small engine repair and senior class. Each Internal Account and the General Account have separate ledger cards. The General Account is used to receive miscellaneous income such as coke machine receipts or employee reimbursements for long distance calls and to pay non-specific expenses. The Internal Accounts are used to purchase supplies for particular activities and to receive ticket proceeds, monies raised and reimbursements for parts and materials used in repair of the equipment. The bookkeeping is done by the sole bookkeeper, Mrs. Madelyn Crowson, who has been so employed for more than 15 years. Original documentation for receipt of funds includes a receipt, a deposit and a receipts journal. Original documentation for issuance of funds includes a purchase order, a check requisition with supporting documentation attached and checks. Cash on hand is kept in a safe which is normally opened between 8:15 and 5:30 a.m. by Crowson, left "latched" but not locked until late in the day. The Principal is required to prepare a Monthly Report of Internal Accounts from the Internal Account ledger cards and to certify such to the Superintendent. The WCHS is audited annually by external auditors for the WCSB. The WCHS has a Vocational Department which includes an Auto Repair Class, a Small Engine Repair Class and a Welding Class, among others. The Chairman of the department for the 1981-82 school year was Mrs. Helen Whaley, wife of Superintendent Whaley. The Auto Repair, Small Engine Repair and Welding classes all teach by having community members and students bring items which require the attention of the class (cars or small engines needing repair, or items to be welded, etc.), and the items are repaired. Vocational classes such as those noted all charge a shop fee to recover the cost of expendable items. Whether WCHS through an Internal Account acquired the parts necessary for the repair and was later reimbursed by the customer, or whether the customer brought the parts to the shop is subject to the wishes of the individual teacher and the customer. However, both methods were utilized. The financial management of the Athletic Department was the responsibility of the Athletic Director through the Athletic Fund Internal Account. For several years the Assistant Principal served as the Athletic Director. Don Mathews, a guidance counselor, was the Athletic Director for the 1981-82 school year. Income to the athletic account was derived primarily from the sale of tickets to athletic events. Tickets were acquired and controlled by the Athletic Director in rolls of 2,000, with unused tickets being maintained in an unlocked cabinet in a room also used to store the cheerleaders' equipment. Reports of tickets sold were made on a Department of Education (DOE) approved form and the funds received were noted on the DOE form, signed by Mathews and receipted by Crowson to the Athletic Fund Internal Account. Each of the Reports of Tickets Sold or Admissions contained signatures certifying that the information was true and accurate and that the persons depositing the funds were depositing all funds received. At the beginning of the 1981-82 school year, Pelham appointed Mathews to be Athletic Director and advised him that he would be in charge of the funds from athletic ticket sales. He also informed Mathews how ticket sales and funds had been handled in previous years. The normal procedure for football ticket sales was as follows: (1) Mathews would acquire $600.00 for change, divide the change into 3 metal cash boxes and put an adult and student roll of tickets with each box; (2) Mathews would give each of three ticket sellers a box of 2 rolls of tickets at the beginning of the game, collect each box and rolls of tickets at intervals throughout the game, put away the equipment for each gate and deliver the metal boxes to Pelham, who would lock them in the driver's education car trunk until the game was over; (3) Pelham, who was the only person attending the game with both a key to the school office and the combination to the safe, would transfer the contents of the three boxes to one box and lock it in the safe; and (4) on the following Monday morning, Crowson and Mathews would count the money, compare the money to the number of tickets removed from each roll, complete the Report of Tickets Sold or Admissions, and make the deposit. The regular season home games for WCHS were: Blountstown - September 18, 1981 Jefferson County - October 2, 1981 F.A.M.U. - October 9, 1981 Rickards - October 23, 1981 Port St. Joe - November 13, 1981 There were two play-off games played at WCHS following the regular season against Jefferson County and Bolles High School. Because the play-off games are sponsored by the Florida High School Athletics Association, the home team principal is required to be in charge of those ticket sales. Mathews was in charge of ticket sales for the regular season. During the Blountstown, Jefferson County and F.A.M.U. games, the ticket sale proceeds were not counted before Monday morning. In each game the number of tickets missing from the rolls when multiplied by the ticket price did not equal the funds reported on Monday morning. In each game Mathews and Crowson "doctored" the Report of Tickets Sold and Admissions to reflect no discrepancies. Pelham had previously instructed Mathews and Crowson to adjust these reports for the purpose of eliminating minor discrepancies. Neither Mathews nor Crowson advised Pelham of these discrepancies which they adjusted. During the Rickards game, a cash count was performed by the ticket sellers but checks were cashed and funds were intermingled sufficiently to question the accuracy of the count on either Friday night or Monday morning. During the Port St. Joe game, a cash count was conducted, but following the cash count and before the funds were recounted, several persons had access to the funds and all of the ticket sellers had made errors in their counts. Major errors in arithmetic were committed on several occasions by persons counting the money after the games. Therefore, it could not be determined with any degree of certainty that the final counts reflected missing dollars or merely corrections of earlier errors. There were a substantial number of tickets for which there was no accounting. Because of the deficiencies in ticket accounting, it cannot be determined whether there was, in fact, any money missing. None of the Reports of Tickets Sold or Admissions certified by Mathews to be accurate reflect money or tickets missing except for the report on the Port St. Joe game. However, if there was money missing from this game, the evidence is insufficient to determine if it was stolen, and if so, by whom. Pelham brought his lawn/garden tractor to the Small Engine Repair Class during the Spring of 1980 for repair by the class. This tractor is a Sears product and has an Onan engine. In the fall of 1981 the shop teacher provided Pelham with a list of the parts necessary for repair. The parts were provided and installed on the tractor by late January of 1982. However, no battery was available to start and test the equipment. The tractor was removed from WCHS in March or April of 1982 without completion of the repairs. A check requisition and check for $65.71 drawn on WCHS to Sears Roebuck & Co., a copy of a check requisition and a check in the amount of $16.62 drawn on WCHS to Whitehill Equipment Co., and a check requisition for $293.00 to Whitehill Equipment Co. were introduced. However, no positive connection was made between these documents and the associated invoices and parts to be received by Pelham or used for his benefit. In October, 1981, a check requisition and check for $27.85 drawn on WCHS were issued to Whitehill Equipment Co. by Pelham for Onan parts (Petitioner's Exhibit 10, A, B, & C). These parts were picked up at Whitehill and signed for by J. D. Jones, WCHS football coach, at Pelham's request and were delivered to him. Here, Petitioner's documentary evidence and Jones' testimony, which were unrebutted, established that Pelham utilized school funds, which he did not replace, to obtain supplies for his personal use or benefit. In December, 1980, a check requisition and check for $113.31 drawn on WCHS were issued to U.S. Games, Inc. by Pelham for a tennis net (Petitioner's Exhibits 9, A). This tennis net was procured for Pelham's personal use with school funds. Respondent did not make reimbursement of these funds, but offered to do so when presented with the Statement of Charges in February, 1982.
Recommendation From the foregoing, it is RECOMMENDED that Respondent be found guilty of charges set forth in paragraphs 9(1) and 9(4) of the Statement of Charges, and that he be dismissed from his position as teacher under continuing contract with the Wakulla County District School Board. It is further, RECOMMENDED that Respondent be suspended with pay, including back pay from the date of suspension without pay, pending issuance of a Final Order by the Wakulla County School Board. DONE and ENTERED this 13th day of August, 1982, in Tallahassee, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of August, 1982.
Findings Of Fact The Respondent has been employed with the Brevard County School Board for approximately nineteen years. Before he was suspended in connection with this proceeding, he held the position of Warehouse Coordinator. The warehouse maintained by the School Board houses various operations. Its basic function is to store and distribute goods. The School System's film library, textbooks, courier service, media center, and transportation and maintenance parts department are all operated at the warehouse. Among specific warehouse functions is the sale of salvage goods. The job description for the Warehouse Coordinator was developed sometime during the period 1972 to 1974. The Respondent has held the position since that time. Prior to then, the Respondent served as the "Storekeeper" with essentially the same duties. The job description for the Warehouse Coordinator lists the position's major functions as follows: This involves the supervision over the operations of a portion of a large-sized warehouse or complex pertaining to stock and supplies and their distribution. This supervision also includes movement of all foods and surplus property items. The employee is responsible for the efficient operation of the warehouse complex and performs his/her duty under the general direction of the Director of Warehousing and Distribution and in accordance with established procedure and regulations. The description lists illustrative duties as follows: Supervises the receipt and storage of a large variety of supplies, materials, and equipment; supervises the proces- sing of requisitions and issuance of supplies in accordance with prescribed procedures; supervises the maintenance of perpetual inventories and the prepa- ration of detailed stores, records and reports; keeps superior notified of stock on hand and suggests purchases of designated commodities and materials; recommends and supervises the mainte- nance of proper minimum and maximum stock amounts. Coordinates and supervises the receipt, storage and delivery of surplus com- modities for the school lunchrooms; negotiates with carrier representa- tives concerning payment for goods damaged in shipping; supervises the movement of all surplus items and equipment between the schools and warehouse. Performs related work as required. Among the Respondent's specific duties was responsibility for disposing of scrap metal. The Respondent was responsible for supervising the loading of scrap metal onto trucks, the transporting of it to a salvage dealer, collecting money from the dealer and turning money in to the accounting clerk. During the years that the Respondent served as Warehouse Coordinator and Storekeeper, he received consistently high evaluations, generally in the "exceptionally high" range. It does not appear that he has ever been the subject of any disciplinary proceedings prior to this matter, and it appears that he has been regarded as a very capable and trusted employee. In disposing of scrap metal, the Respondent would supervise the loading of the material onto trucks at the warehouse. The drivers, who were generally classified as "storage clerks," would drive the trucks to a scrap metal dealer. The scrap metal dealer would issue an invoice and typically pay the drivers in cash. The drivers would return to the warehouse. On most occasions, the drivers would deliver the invoice and cash directly to the Respondent. On some occasions, however, because the Respondent was otherwise occupied, the money would be left on the Respondent's desk in his office, or in one of his desk drawers. The Respondent's office was located in the center of the warehouse. It was generally open to all employees, and employees frequently used the office to make telephone calls. Once the cash was delivered to the Respondent, he would deliver it to the warehouse accounting clerk, or to his supervisor, who would then be responsible for delivering it to the accounting clerk. Whether the money was delivered by the Respondent or by some other person, the accounting clerk would issue a receipt. The receipt would indicate that the funds were received from the scrap metal dealer. The receipt would not reveal whether Respondent or some other person delivered money to the accounting clerk. The receipts were numbered and issued in order. Receipt books were maintained so that copies of all receipts that were issued were preserved. During the early part of 1981, an investigation was initiated by the School Board respecting warehouse funds. The investigation was conducted under the supervision of the Board's Chief of Plant and Personnel Security, Bill H. Schwartz. Among other things, Mr. Schwartz compared invoices from the scrap metal dealer with the receipts maintained by the School Board and came to the conclusion that some money reflected on invoices had not been receipted. He interviewed numerous witnesses, including the Respondent. Schwartz came to the conclusion that the unreceipted funds ended with the Respondent. Based upon the demeanor of Mr. Schwartz on the witness stand, and upon statements of the witness that were clearly inaccurate, the witness Schwartz's testimony and conclusions have not been deemed credible. Schwartz testified, for example, that receipts issued by the School Board reflected who delivered the cash to the accounting clerk. This testimony is inaccurate. The receipts issued by the accounting clerk reflected only that funds were received from the scrap metal dealer. That fact is not a minor aspect of the investigation respecting the missing funds, and the witness Schwartz's faulty memory about it cannot be lightly regarded. This error and the witness's demeanor otherwise reveal that Schwartz focused his investigation initially upon the Respondent, considered the Respondent the culprit, and was not open to other conclusions during his investigation, or as a witness. Schwartz's testimony respecting statements made to him by the Respondent has been similarly deemed not credible. During the investigation, an invoice from the scrap metal dealer, together with some cash, was found in Respondent's desk drawer. The Respondent delivered the money to the accounting clerk. The invoice was approximately four months old at the time that it was delivered. The Respondent was expected to deliver money to the accounting clerk immediately upon its receipt. The four- month delay in an isolated case, however, does not reflect impropriety on the Respondent's part. Clearly, procedures followed by the Respondent in allowing employees that he supervised to leave money on his desk or in his desk drawers were lax. These procedures, however, had been followed for many years in the warehouse and were well known to at least some of the persons who held the position of Respondent's supervisor. Despite that knowledge, the Respondent received consistently outstanding evaluations. To the extent that the procedures Respondent followed violated School Board regulations, he could and should have been informed of it many years prior to the incidents which gave rise to this proceeding. After the investigation conducted by Mr. Schwartz, an audit was conducted of the scrap metal invoices and receipts. The audit revealed that approximately $230 was reflected as being paid to the School Board that was not reflected as being received. There are many possible explanations for this discrepancy. One possible explanation is that the Respondent received the cash from the employees that he supervised and failed to turn it in to the accounting clerk. Among other possible explanations are that employees of the scrap metal dealer falsely issued invoices and retained the cash for their personal purposes; that truck drivers improperly failed to turn money over to the Respondent; that money left by drivers on the Respondent's desk was taken by some other person; that the Respondent's supervisor, to whom the Respondent from time to time delivered the money so that it would be later turned over to the accounting clerk, failed to turn it over; or that the accounting clerk issued erroneous receipts. The evidence reveals no more than that the Respondent is one of numerous persons who could be responsible for the discrepancy. Paul Green was formerly employed by the School Board at its warehouse as a storage clerk. He testified at the hearing that the Respondent told him to pick up storage sheds at a commercial outlet and deliver them to a third party. The witness Green testified that this was done for the Respondent's private benefit. Green testified that the loading was accomplished by him and another School Board employee while they were on duty as School Board employees and that a School Board truck was used. The witness Green's testimony has been deemed not credible. This conclusion is based upon Green's demeanor as a witness, upon inherent contradictions in his testimony, and upon statements in his testimony that were shown to be untrue. Green was a very guarded witness. At times he wanted to reveal information but not reveal the source of the information. Green had at one time been terminated from his employment with the School Board, and he displayed hostility about that and toward the Respondent. Green testified that on one occasion he personally conducted an investigation about food being delivered by School Board employees on other than refrigerated trucks that were required for such use. He testified that he conducted the investigation while he was not on duty. His cohort, however, who assisted in the "investigation" testified to the contrary. Even if Green's testimony were credited, the evidence would not reveal who owned the sheds, whether the Respondent had been instructed by some other person to deliver them, and whether the School Board employees and trucks were or were not properly used to deliver them. The Respondent has been under suspension from his employment with the School Board since May 12, 1981.
Conclusions On October 27, 2014, an Administrative Law Judge (“ALJ”) with the Division of Administrative Hearings (“DOAH”) entered her ORDER CLOSING FILE AND RELINQUISHING JURISDICTION (“DOAH ORDER”) to the Madison County School Board (the “SCHOOL BOARD” or the “BOARD”) in the above captioned proceeding. A copy of the DOAH ORDER is attached hereto as Exhibit A. The DOAH ORDER indicates that copies were sent to counsel for the SCHOOL BOARD, George T. Reeves, Esq., and counsel for the Petitioner, NEW MILLENNIUM CHARTER SCHOOL, (the “CORPORATION”). The DOAH ORDER was stipulated to by the parties. This matter is now before the SCHOOL BOARD for final agency action.
The Issue As to Case 95-3362RX: 1. Whether the portion of School Board Rule 6Gx13-3C-1.08 pertaining to vendors who have defaulted on contracts for commodities is an invalid exercise of delegated legislative authority. 2. Whether the instructions to bidders issued by the School Board as part of its invitation to bid on commodities constitute inadequate, unpromulgated rules. As to Case 95-4834Rx: Whether an amendment to School Board Rule 6Gx13-3C-1.08 (adopted July 12, 1995) that purports to disqualify as bidders for 14 months the principals of defaulted vendors is an invalid exercise of delegated legislative authority.
Findings Of Fact THE PETITIONERS Petitioners Mary Ann Talmadge and Dunbar Electric Supply, Inc., are vendors who have bid on invitations to bid (ITBs) issued by the School Board. Ms. Talmadge is an officer and principal shareholder of Dunbar. Thomas W. Talmadge is the husband of Ms. Talmadge and is also a principal shareholder and officer of Dunbar. The Petitioners have standing to bring these rule challenges. THE SCHOOL BOARD - GENERAL AUTHORITY The Respondent is a duly constituted school board with the authority to enact rules, including those relating to the procurement of commodities. Article IX, Section 4, Florida Constitution, provides, in pertinent part, as follows: 4.(a) Each county shall constitute a school district. . . . In each school district there shall be a school board. . . . (b) The school board shall operate, control and supervise all free public schools within the school district. . . . Section 230.03, Florida Statutes, provides, in pertinent part, as follows: The district school system shall be managed, controlled, operated, administered, and supervised as follows: * * * SCHOOL BOARD. - In accordance with the provisions of s. 4(b) of Art. IX of the State Constitution, district school boards shall operate, control, and supervise all free public schools in their respective districts and [may exercise any power except as expressly prohibited by the State Constitution or general law.] [Emphasis added.] Section 230.22(2), Florida Statutes, confers rulemaking authority on school boards as follows: ADOPT RULES AND REGULATIONS. - The school board shall adopt such rules and regulations to supplement those prescribed by the state board as in its opinion will contribute to the more orderly and efficient operation of the district school system. SCHOOL BOARD PURCHASES - IN GENERAL Section 230.23(2), Florida Statutes, confers upon school boards the authority to contract, to sue, and to purchase commodities as follows: The school board, acting as a board, shall exercise all powers and perform all duties listed below: * * * CONTROL OF PROPERTY. - Subject to regulations of the state board, retain possession of all property to which title is now held by the school board and to obtain possession of and accept and hold under proper title as a body corporate by the name of "The School Board of County, Florida," all property which may at any time be acquired by the school board for educational purposes in the district; manage and dispose of such property to the best interests of education; [contract, sue, receive, purchase], acquire by the institution of condemnation proceedings if necessary, lease, sell, hold, transmit, and convey the title to real and personal property, all contracts to be based on resolutions previously spread upon the minutes of the school board; receive, hold in trust, and administer for the purpose designated, money, real and personal property, or other things of value granted, conveyed, devised, or bequeathed for the benefit of the schools of the district or any one of them. [Emphasis added.] Section 237.02(1)(a), Florida Statutes, pertains to purchases by school boards and provides as follows: PURCHASES. - Each district school board shall develop and adopt policies establishing the plan to be followed in making purchases as may be prescribed by the state board. The state board rule pertinent to this proceeding is Rule 6A-1.012, Florida Administrative Code, which provides, in part, as follows: Purchasing Policies. Each district school board shall establish purchasing rules which shall include but not be limited by the following: * * * (6) Except as authorized by law or rule, bids shall be requested from three (3) or more sources for any authorized purchase or contract for services exceeding ten thousand (10,000) dollars. . . . The school board shall have the authority to reject any or all bids and request new bids. In acceptance of bids, the school board shall accept the lowest and best bid from a responsive and responsible bidder. . . . The School Board's Department of Procurement Management is responsible for administering and managing all of the purchases of materials and services for the school district of Dade County, Florida. School Board Rule 6Gx-3C-1.14 designates the Department of Procurement Management as the official purchasing agency for the School Board and requires it to make such purchases in compliance with Florida Statutes, State Board of Education Rules, School Board Rules, and administrative directives and manuals. The School Board has the authority to determine which bidders are responsible, the authority to reject bids from irresponsive bidders, and the authority to enact rules pertaining thereto. THE CHALLENGED RULE Rule 6Gx13-3C-1.08, is styled "Performance and Payment Security, Declining a Bid Award, and Bonding Company Qualifications". The rule, initially adopted in 1974 and subsequently amended, was adopted pursuant to the authority of Section 237.02(1)(a), Florida Statutes, and Rule 6A-1.012, Florida Administrative Code. The rule is divided into three parts. Part I pertains to performance security on construction bids and awards. Part II, the portion of the rule being challenged in this proceeding, pertains to performance security on awards other than construction. Part III pertains to bonding company qualifications. The rule, as amended on July 12, 1995, has been duly adopted by the School Board following all pertinent rulemaking procedures. The rule reasonably relates to one subject matter, protecting the School Board against defaults by parties who have been awarded contracts. Prior to its amendment on July 12, 1995, School Board Rule 6Gx13-3C-1.08 provided for performance security on awards other than construction, in pertinent part, as follows: Bid security is not required. However, a bidder who declines an award shall either (1) pay a bid default penalty of five percent of the unit price bid times the quantity, or $10, whichever is greater, or (2) lose eligibility to transact new business with the Board for a period of 14 months from date of award by the Board. A bidder who accepts an award but fails to perform shall either (1) pay a performance default penalty of 25 percent of the unit price of the item(s) awarded times the quantity, or $25, whichever is greater, (where partial ship- ment of items awarded has been made, the default penalty shall be applied to the balance remaining after items received have been deducted from the estimated quantity(ies),) or lose eligibility to transact new business with the Board for a period of 14 months from date of the cancellation of award by the Board. The School Board amended Rule 6Gx13-3C-1.08 on July 12, 1995, to provide as follows: Bid security is not required. However, a bidder who declines an award shall either (1) pay a bid default penalty of five percent of the unit price bid times the quantity, or $10, whichever is greater, or (2) lose eligi- bility to transact new business with the Board for a period of 14 months from date of award by the Board. A bidder who accepts an award but fails to perform shall either (1) pay a performance default penalty of 10 percent of the unit price of the item(s) awarded times the quantity, or $25, whichever is greater, (where partial shipment of items awarded has been made, the default penalty shall be applied to the balance remaining after items received have been deducted from the estimated quantity(ies),) or lose eligibility to transact new business with the Board for a period of 14 months from date of the cancellation of award by the Board. [The ineligibility shall be applicable to the principals individually and the entity, as well as any other firm in which a principal of a defaulting firm is a principal. For purposes of this rule principal is defined as an executive officer of a corporation, partner of a partnership, sole proprietor of a sole proprietorship, trustee of a trust, or any other person with similar supervisory functions with respect to any organization, whether incorporated or unincorporated]. [Emphasis added.] THE AUTHORITY OF THE SCHOOL BOARD TO IMPOSE LIQUIDATED DAMAGES OR TO DISQUALIFY DEFAULTED VENDORS FOR FOURTEEN MONTHS A provision for liquidated damages is not against public policy and is not prohibited by law or by state board rules. Pursuant to the provisions of Sections 230.03(2), 230.22(2), and 230.23(2), and 237.02(1)(a), Florida Statutes, the School Board has the authority to provide for liquidated damages in its purchasing contracts. A provision disqualifying vendors for a reasonable period of time based on prior performance is not uncommon in government contracts. The period of disqualification for defaulted vendors was for a one year period when the rule was first adopted. In 1987, the period of disqualification was extended from one year to fourteen months. The notice of intended action pertaining to this amendment provided, in pertinent part, as follows: PURPOSE AND EFFECT: This amendment extends the period of time a vendor is penalized for failing to accept a bid award or performing (sic) after a bid award has been made. This will give the Board more leverage in penalizing a vendor when necessary. SUMMARY: This amendment extends the penalty period for declining a bid award or failing to perform once a bid is awarded, from the current one (1) year period to a fourteen (14) month period, which will result in the vendor being precluded from the current contract and the subsequent contract. Such a provision disqualifying vendors for a reasonable period of time is not against public policy and is not prohibited by law or by state board rules. The period of fourteen months is a reasonable period for the term of disqualification. The School Board selected a period of fourteen months because many of its contracts are for one year terms. The rationale was to prevent a defaulted vendor from bidding on the ensuing year's contract. Pursuant to the provisions of Sections 230.03(2), 230.22(2), and 230.23(2), and 237.02(1)(a), Florida Statutes, the School Board has the authority to provide for the disqualification of defaulted vendors for a fourteen month period. The determination that a bidder has failed to perform the terms of a contract is initially made by a buyer in the School Board's Department of Procurement Management. Efforts are made to bring a defaulted vendor into compliance with the contract. If that cannot be done, the defaulted vendor is informed that it may either perform the contract, pay liquidated damages, or face disqualification. If the vendor performs or pays liquidated damages, the matter is ended. If the vendor refuses to perform or to pay liquidated damages, the School Board determines whether the vendor should be disqualified. A vendor who is subject to disqualification has the opportunity to address the School Board on that matter and has the right to challenge the agency action pursuant to Section 120.57(1), Florida Statutes. A principal of a disqualified vendor who is also being disqualified also has the right to address the School Board on that matter and has the right to challenge the agency action pursuant to Section 120.57(1), Florida Statutes. 2/ LIQUIDATED DAMAGES OR PENALTY Petitioners assert that the provision that gives a defaulted vendor the option to pay a sum equal to 10 percent of the bid price of undelivered commodities constitutes a penalty and is void. 3/ In support of their position, Petitioners correctly assert that the rule itself refers to this provision as a "default penalty." Notwithstanding that reference, the greater weight of the competent evidence in this proceeding established that the purpose of this provision of the challenged rule is to provide for reasonable liquidated damages so that the School Board can recoup its damages when a contract is breached. That the School Board has made an effort to set a reasonable amount is established by the research done by Mr. Carter in reviewing similar provisions in other government contracts and by the action of the School Board on July 12, 1995, in reducing the percentage from 25 percent to 10 percent. What has been referred to as a defaulted vendor's Option 1 is the payment of liquidated damages, not the payment of a cash penalty. The default provision serves three valid School Board purposes. First, it discourages vendors from defaulting on contracts. Second, it provides for liquidated damages if a vendor wants to keep its good standing as a vendor. Third, it prevents a vendor that has defaulted on its contract and thereafter has declined to pay the School Board's liquidated damages from securing other School Board contracts for at least 14 months following the default, thereby ensuring that the School Board will not have to deal with such a vendor during the period of disqualification. THE EXTENSION OF THE DISQUALIFICATION TO PRINCIPALS OF DEFAULTED VENDORS The extension of the disqualification to the principals of a defaulted vendor was enacted in response to problems the School Board experienced with the principals of certain vendors who, having defaulted on contracts in the name of one bidding entity, thereafter obtaining contracts under other vendor names and defaulted on the subsequent contracts. The extension of the disqualification serves a valid School Board purpose in that it prohibits the individuals who control various bidding entities from defaulting on a contract by one bidding entity while continuing to bid on other contracts through other entities. The amendment was duly adopted. The rule provides a definition of the operative term "principal" so that it is not vague and does not vest unbridled discretion in the School Board. It is within the School Board's authority to adopt this amendment pursuant to the provisions of Sections 230.03(2), 230.22(2), and 230.23(2), and 237.02(1)(a), Florida Statutes. Petitioner, Thomas Talmadge, has failed to demonstrate that the amendment is an invalid exercise of delegated legislative authority within the meaning of Section 120.52(8), Florida Statutes. THE INSTRUCTIONS TO BIDDERS Each ITB contains "Instructions to Bidders" that become part of the contract once the contract is awarded. Pertinent to this proceeding, the Instructions to Bidders that accompany each ITB for commodities, contain "instructions" as to the filing of objections to bid specifications (Section I.C.2.), the place, date, and hour for the submission of bids (Section II.C.), the method for filing objections for the award of bids (Section IV.D.), and the default provision (Section IV.F.). Section I.C.2. contains an agency statement of general applicability that is not found in any promulgated rule as follows: 2. OBJECTION TO BID/SPECIFICATION. Any objections to specifications and/or bid conditions must be filed in writing and must be received by the Superintendent of Schools no later than 9:00 A.M. on the date specified for acceptance of bid. Section II.C. contains an agency statement of general applicability that is not found in any promulgated rule as follows: PLACE, DATE AND HOUR. Bids shall be submitted by U.S. Mail, Courier/Express Service, or deposited in the BID receiving slot located in Room 352, 8:00 A.M. to 4:30 P.M., Monday through Friday, SCHOOL BOARD ADMINISTRATION BUILDING, 1450 N.E. Second Avenue, Miami, Florida 33132. Bids received after the date and hour specified in the BIDDER QUALIFICATION FORM will not be considered. Section IV.D. contains an agency statement of general applicability that is not found in any promulgated rule as follows: FILING OF OBJECTION. Any objections to an award by the Board must be filed in writing and must be received by the Superintendent of Schools no later than 9:00 A.M. on the first Monday following the award. 4/ Section IV.F. contains three sentences. The first two sentences merely repeat the default provisions contained in School Board Rule 6Gx13-3C-1.08. The final sentence, however, contains an agency statement of general applicability that is not found in any promulgated rule. The rule does not state that the vendor will be disqualified if it does not pay the liquidated damages within fifteen days of the default. Section IV.F. of the Instructions to Bidders is as follows: F. DEFAULT: In the event of default, which may include, but is not limited to non- performance and/or poor performance, the awardee shall pay to the Board as liquidated damages an amount equal to 10 [percent] of the unit price times the quantity, or $25, whichever amount is larger. Where partial shipment of items awarded has been made, the default penalty shall be applied to the balance remaining after the items received have been deducted from the estimated quantity(s). [Where no performance bond or check has been acquired (sic), each awardee who fails to pay the penalty within 15 days after it is invoked shall lose eligibility to be awarded new business by the Board for a period of 14 months from the date of cancellation of award by the Board]. [Emphasis added.]
The Issue The issue in this case is whether Respondent's intended contract award pursuant to Invitation to Bid No. SDOC-11-B-049- CJ for ready-mix concrete is contrary to Respondent's governing statutes, Respondent's rules or policies, or the solicitation specifications.
Findings Of Fact In October 2010, the School District issued an invitation to bid for ready-mix concrete (the original ITB). The only bidder who submitted a bid in response to the original ITB was Bedrock. Bedrock had had the concrete contract with the School District for the prior three years and had used a front discharge delivery method. On December 7, 2010, Cindy Hartig (Ms. Hartig) and Michael Grego (Mr. Grego), who at the time was the superintendent of the School District, had a conversation concerning the award of the concrete contract to Bedrock pursuant to the original ITB. Mr. Grego testified that Ms. Hartig told him that the School Board would not support a recommendation to award the contract to Bedrock. Mr. Grego further testified that when he asked Ms. Hartig how she knew that the School Board would not support an award to Bedrock, she did not say how she knew. Ms. Hartig testified that Mr. Grego told her that he had polled the School Board members and that they advised they would not support an award of a contract to Bedrock. Having considered the testimony of Mr. Grego and Ms. Hartig, the testimony of Mr. Grego is more credible. On December 7, 2010, prior to the School Board meeting in which the School Board considered the original ITB, Ms. Hartig sent an email to Mr. Grego and Cheryl Olson (Ms. Olson), who was the director of purchasing for the School District. The email stated: Team, An ex board member works for bedrock An ex board member is building the house for the owner of bedrock Bedrock is only one of two companies that have front discharge trucks And reality is the front discharge is not needed, most CM's will not use them Please re look at the requirements for this bid prior to rebid Also make sure that each company is getting the vendor request and that it is not in their spam thank you cindy lou The former board member to whom Ms. Hartig was referring was John McKay (Mr. McKay). There had been friction between Ms. Hartig and Mr. McKay in the past. At the School Board meeting on December 7, 2010, the School Board voted to reject all bids for the original ITB. The reasoning for rejecting all bids was not apparent from the minutes of the School Board meeting. There was no evidence presented that the School Board, as a whole, was biased against Bedrock or that Ms. Hartig had influenced the School Board to reject all bids. On December 10, 2010, the School District issued the rebid ITB, which allowed the vendors to bid front and rear discharge methods of delivery. It was felt that having both front and rear delivery would give the maintenance staff an opportunity to choose the method they wanted to use on a job-by- job basis. The rebid ITB includes a bid submittal form on which the bidders are to submit their prices. There are 15 separate line items on which the bidders may submit a bid. Line items 1 and 2 are for delivery of ready-mix concrete using a front discharge cement truck. Line items 3 and 4 are for delivery of ready-mix concrete using a rear discharge cement truck. The rebid ITB did not specify whether the bidders had to submit a price for each line item in order to be deemed responsive. Paragraph 25, on page 2 of 29 of the rebid ITB states: AWARD: As the best interests of the School Board may require, the School Board reserves the right to make award(s) by individual item, group of items, all or none, or a combination thereof; on a geographical basis and/or on a district wide basis with one or more supplier(s) or provider(s); to reject any and all offers or waive any minor irregularity or technicality in offers received. Offerors are cautioned to make no assumptions unless their offer has been evaluated as being responsive. Any and all award(s) made as a result of this invitation shall conform to applicable School Board Rules, State Board Rules, and State of Florida Statutes. Page 3 of 39 of the rebid ITB provides: "THE SCHOOL BOARD RESERVES THE RIGHT TO REJECT ANY OR ALL OFFERS, TO WAIVE ANY INFORMALITIES, AND TO ACCEPT ALL OR ANY PART OF ANY OFFER AS MAY BE DEEMED TO BE IN THE BEST INTEREST OF THE SCHOOL BOARD." Section 2.09 of the rebid ITB provides: The School Board reserves the right to award the contract to the bidder(s) that the Board deems to offer the lowest responsive and responsible bid(s), as defined elsewhere in this solicitation. The Board is therefore not bound to accept a bid on the basis of lowest price. In addition, the Board has the sole discretion and reserves the right to cancel this Bid, to reject any and all bids to waive any and all information and/or irregularities, or to re-advertise with either the identical or revised specifications, if it is deemed to be in the best interest of the Board to do so. The Board also reserves the right to make multiple awards based on experience and qualifications or to award only a portion of the items and/or services specified, if it is deemed to be in the Board's best interest. Section 2.42 of the rebid ITB provides: "The School Board reserves the right to award one or more contracts to provide the required services as deemed to be in the best interest of the School Board." Section 2.11 of the rebid ITB defines "responsive and responsible" as follows: Each bid submittal shall be evaluated for conformance as responsive and responsible using the following criteria: Proper submittal of ALL documentation as required by this bid. (Responsive) The greatest benefits to the School District as it pertains to: (Responsible) Total Cost. Delivery. Past Performance. In order to evaluate past performance, all bidders are required to submit: A list of references with the bid and; A list of relevant projects completed within the last 3 years that are the same or similar to the magnitude of this ITB. All technical specifications associated with this bid. Financial Stability: Demonstrated ability, capacity and/or resources to acquire and maintain required staffing. Bidders are reminded that award may not necessarily be made to the lowest bid. Rather, award will be made to lowest responsive, responsible, bidder whose bid represents the best overall value to the School District when considering all evaluation factors. Two vendors, Bedrock and Prestige, submitted bids in response to the rebid ITB. Bedrock does not have the capability to provide concrete with rear delivery trucks. Therefore, Bedrock did not submit a bid for concrete delivered by rear discharge trucks. Bedrock submitted a bid for concrete delivered with front discharge trucks. Bedrock's total bid price was $74,887.50. Prestige's bid was for concrete delivered by rear discharge trucks. Prestige did not submit a price for concrete delivered by front discharge trucks. Prestige's total bid price was $70,300.00. The bid tabulation was posted on January 18, 2011. Staff of the School District made a recommendation to the School Board to award the front discharge portion of the rebid ITB to Bedrock and to award the rear discharge portion to Prestige. The recommendation was placed on the agenda for the School Board meeting scheduled for February 1, 2011. There was a discussion among the School Board members concerning notification to the vendors. Thomas Long (Mr. Long) became a School Board member in November 2010. He was concerned by the lack of response to the original ITB and, on January 27, 2011, requested Ms. Olson to send him a list of local vendors who did not respond to the rebid ITB. The purpose of the communication was to learn why vendors were not submitting bids. He contacted one vendor who did not submit a bid, but he did not contact either Bedrock or Prestige. The communication would have had to have been made after he received the list of vendors on January 28, 2011. Section 7.70 I. G. of the School Board Policy Manual provides: Vendors, contractors, consultants, or their representatives shall not meet with, speak individually with, or otherwise communicate with School Board members, the Superintendent, or School District Staff, other than the designated purchasing agent, and School Board members, the Superintendent, or School District staff, other than the designated purchasing agent shall not meet with, speak individually with, or otherwise communicate with vendors, contractors, consultants, or their representatives, about potential contracts with the School Board once an invitation to bid, request for quote, request for proposal, invitation to negotiate, or request for qualification has been issued. Any such communication shall disqualify the vendor, contractor, or consultant from responding to the subject invitation to bid, request for quote, request for proposal, invitation to negotiate, or request for qualifications. At the February 1, 2011, School Board meeting, the School Board voted to appoint Scott Stegall (Mr. Stegall) as the new chief facilities officer for the School District. The School Board also voted to table the issue of the concrete contract in order to give Mr. Stegall an opportunity to review the procurement. Mr. Stegall did review the procurement and recommended that the contract award be split between Bedrock and Prestige. There was no difference between the quality of the concrete whether it was delivery by a front discharge truck or a rear discharge truck. Whether it would be more efficient to use a front discharge versus a rear discharge method of delivery would depend on the job for which the concrete was ordered. The recommendation to split the award of the concrete contract was placed on the agenda for the School Board meeting scheduled for March 1, 2011. Five School Board members were present for the School Board meeting of March 1, 2011. Four School Board members voted to reject the staff recommendation and to award the contract to Prestige. One School Board member voted against awarding the contract to Prestige. Thus, the School Board's intended award of the contract was to Prestige.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding that the intended award to Prestige was not contrary to the School Board's governing statutes, the School Board's policies or rules, or the rebid ITB and that the intended award to Prestige was not clearly erroneous, arbitrary, capricious, or contrary to competition. DONE AND ENTERED this 16th day of August, 2011, in Tallahassee, Leon County, Florida. S SUSAN BELYEU KIRKLAND Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of August, 2011.
The Issue Whether the Broward County School Board (School Board) has an unwritten policy excluding all charter schools, including the City's charter schools, from consideration in the distribution of funds under Section 1011.71(2), Florida Statutes1 (Challenged Statement) and, if so, whether that unwritten policy constitutes a "rule," within the meaning of Section 120.52(16), Florida Statutes, that violates Section 120.54(1)(a), Florida Statutes, as alleged by the City of Pembroke Pines (City).
