The Issue The issue to be determined is whether Respondent violated School Board Policies 3210 (and, when referenced, corresponding Florida Administrative Code rules), 6610, and/or 6152, and, if so, what penalty should be imposed.
Findings Of Fact The Parties Petitioner, Brevard County School Board ("School Board" or "Petitioner"), is the constitutional entity authorized to operate, control, and supervise the public schools in Brevard County, Florida. Beginning in 2009, Respondent, James B. Wilkins ("Wilkins" or "Respondent"), was employed by Petitioner as the band director at Heritage High School. In 2012, Wilkins held a Professional Services Contract. Wilkins has over 30 years' experience working with bands in Florida and North Carolina. He previously taught in Duval and Orange counties, and his personnel files were reviewed and references checked when he was considered for the position at Heritage High School. Petitioner and Brevard Federation of Teachers, Local 2098, are parties to a collective bargaining agreement ("CBA"). Among its terms, the CBA requires just cause for dismissal. Wilkins previously worked for the Orange County School Board, and during his employment, received letters of reprimand in November 2000 (inappropriate physical force and corporal punishment with students and failure to adequately supervise students under his control), April 2004 (shouting match with a student and use of profanity), April 2004 (grabbing a student by the arm and use of profanity), November 2007, and February 2008. During the hearing, Wilkins testified he could not recall the incidents at Orange County Public Schools where he was accused of the use of profanity with students and inappropriate physical force. Wilkins was also previously employed by the Duval County School Board, where he received a letter of reprimand in November 1994 for his use of profanity. Wilkins also received an unsatisfactory rating on his 1995 evaluation for his use of profanity on several occasions despite warnings, and for failure to follow policies or financial procedures. As the band director at Heritage High School, Wilkins taught classes and was also responsible for the extracurricular activities of the band, including marching band and orchestra. Wilkins was also responsible for following the School Board's rules regarding the finances of the band program, as well as the supervising and disciplining of students. Fall 2012 John Tuttle was principal of Heritage High School from its opening in 2009 until October 2012. Tuttle hired Wilkins for the position of band director because he was the best applicant. He knew at the time he hired Wilkins that Wilkins was a strict disciplinarian. Wilkins' organization of the band taught the students responsibility and discipline. Tuttle wanted a band that would showcase the band and its community until the athletic programs could develop. By 2012, the band had been very successful and received many accolades. Tuttle's evaluations of Wilkins each year rated Wilkins "Effective" in each category, the highest rating possible. Wilkins built a strong booster organization for the band that assisted with student financial obligations. Further, Tuttle recognized that Wilkins had established the Heritage Band "as our showcase program." He also noted that Wilkins wrote the "drill music and dance routines" for the band. When Wilkins interviewed for the position, Tuttle asked him what he would like, if he got the job. Wilkins told Tuttle that he would like someone to have the responsibility for money. Tuttle worked previously with Ms. Teressa Torsiello, a parent, when he was principal at Bayside. When Torsiello asked permission for her daughter to attend Heritage, Tuttle gave her the impression that he would approve the transfer only if she would organize the football program and help set up other fund- raising activities at Heritage, including the band. Torsiello knew district financial rules, and Tuttle trusted her. Torsiello soon became the president of the Band Parents Association at Heritage. There was no assistance in how to organize the various parent programs from school district personnel. Torsiello assisted several organizations at Heritage in setting up their programs, including the football program and the band. The Band Parents Association had a constitution and by-laws. Torsiello implemented an accounting program called Charms, which allowed the Band Parents Association to keep track of individual student financial accounts and other matters (such as medical needs and contact information), it could generate receipts, keep track of inventory and produce various reports (such as monthly and year-end financial reports). Parents could access their student's information on-line by using a password. The Band Parents Association met to approve expenditures (with proper receipts), and it used its monthly reports to check the school's internal account balance. The Band Parents Association maintained several accounts. These included: the school's internal account; an account at the Brevard Foundation; a bank account; and a petty cash fund. Every organization at every school Torsiello has ever been involved with has had its own petty cash fund, including the football program at Heritage. Tuttle recognized that he cannot control what the Band Parents Association does with its money– whether they donate to the school (through the internal account or the Foundation) or how they handle it. He can only control the money that comes through the band director and the bookkeeper. The Band Parents Association had to vote to donate money that it raised in order to place it in the school's internal account. Wilkins never handled money until Ms. Martin, the band parent treasurer resigned. He had emphatically stated that he did not want to handle money; he did not even have a password to the Charms accounting program. Although he might have to authorize purchases from the school's internal account or the Foundation account, he was not allowed to be the lone signer. Tuttle dealt with various complaints against Wilkins in the fall of 2012, which are outlined in the superintendent's letter of November 6, 2012, and discussed in the Preliminary Statement, above. Tuttle "felt like a group of parents were out to get him (Wilkins) and they were going to continue drumming up, pulling up things that happened in the past that may have already been dealt with until they did." Following the Palm Bay Police Department and Department of Children and Families investigation, in which the agencies found no violation to pursue, the media scrutiny started. After the media attention, "investigations" were taken away from Tuttle and handled by Ms. Debra Pace and Dr. Mark Mullins. Neither testified as to any complaints they were investigating. They went to Heritage to see what they could dig up. Due to the nature of some of the allegations in this proceeding, it is apparent that they were seeking one or more reasons to terminate Wilkins. Allegations In a letter dated November 6, 2012, the superintendent, Dr. Brian Binggeli, notified Wilkins of his intent to recommend his termination of employment to the School Board. Although the letter contained a number of allegations, most of those are not the subject of this proceeding following the ruling on the Respondent's Motion in Limine. The remaining issues are set forth below, under the appropriate section letter and title. Inappropriate Comments of a Sexual Nature to Students At paragraph 1, the superintendent alleges that Wilkins engaged in the following conduct: "You said to two students that a female member of the band played her woodwind instrument in a manner that looked like an act of oral sex (the exact language you used is too graphic to repeat in this public record)." Mistreatment of Students Paragraph 1 of this section concerns exercises performed by students and alleges that Wilkins engaged in the following conduct: You directed the student who is the "Sergeant at Arms" of the band to discipline students who you or your appointed student leaders in the band determined committed an infraction by taking the students to a separate room with no adult supervision to perform exercises utilized as punishment including push ups, sit ups, panther spreads, rocking chair, 6 inch killer, duck walks and the "Heritage Special". You admitted this practice and acknowledged that some students became upset (crying) because of the strenuous nature of the "punishment". You recently added the names of two female students to the discipline list because you stated they were not wearing sports bras. You readily admitted that you did not monitor the discipline list for fairness or consistency, and you kept no permanent record of who was disciplined or the level of intensity of the discipline sessions. Paragraph 2 of this section concerns bathroom use and water breaks and alleges that Wilkins engaged in the following conduct: You also denied students access to bathrooms and water during various band practices and events. On one occasion during the Extreme Makeover event in Titusville last school year a female student who was not allowed to use the bathroom at a McDonalds [sic] wet herself and was humiliated in front of her peers. Students interviewed indicated that the water breaks were regularly permitted after 45-50 minutes of strenuous physical activity at practices and performances. If someone was about to "pass out," you would allow them a drink of water. The restrictions you placed on student's [sic] access to water and bathrooms subjected them to the potential of physical harm. . . . G. Mishandling of Funds The superintendent alleges that Wilkins engaged in the following conduct relating to the handling of funds: You have violated School Board Policy 6610 and School Board Policy 6152 by maintaining two separate accounts for school based funds. One account was utilized for deposit of checks and was properly operated as a school based internal account. You improperly maintained a separate, unauthorized cash box in which cash collections from band students for band fees and other charges were kept with a separate receipt book. The cash collections were maintained by a single parent, and there was no governance by a Band Booster Board or official parent officer group over expenditures of the funds, other than your direction. When questioned about this separate account on October 16, 2012, you first denied knowledge of its existence. You then denied handling any money. You said that you had forgotten about the money box and the funds contained therein until earlier that morning, when you turned the money box over to the school bookkeeper. You then denied having any knowledge of how much money was in the cash box when you turned it in to the bookkeeper. You also denied several times any knowledge of a second receipt book, separate from the official district-issued receipt book used for the band's internal account. You later admitted the use of two separate receipt books, one for the internal account and a separate one for cash receipts. You also later admitted that you independently authorized the use of $50.00 for a cash prize at the September parent meeting. Then you were shown the cash register receipt which you said the former Band Treasurer signed when she turned the cash box over to you, but you were unable to explain the negative difference between the amount turned over to you by the former Band Treasurer, $800.35, and the amount you turned in to the bookkeeper earlier that day, $680.00. You were both evasive and dishonest about the lack of proper receipts for deposits and expenditures, and the shortage of cash versus receipts when the monies were turned in. You finally admitted that the cash was regularly spent in any manner you deemed necessary with no accountability. At the end of the October 16 interview your briefcase was examined and a clear plastic document holder with additional receipts and cash, $21.00, was found. When questioned[,] you claimed that was some money and receipts you also intended to turn in. District leadership later learned that you previously paid yourself a salary above and beyond the salary and supplement you have regularly received as the Band Director at Heritage High, out of the cash box, for summer band camp: $2,250 in 2011 and $3,000 in 2012. A review of cash fund collected, according to the receipt book, indicates that $4,551.00 was collected between July 16, 2012, and September 7, 2012. Receipts turned in show expenditures at B.J.'s, Sam's, Winn Dixie, etc, total $3225.27, leaving a difference of $1,325.73. With $680 submitted to the Heritage bookkeeper on 10/16, and an addition $21.00 recovered from your briefcase, at least $621.73 [sic] is unaccounted for. Additional Charge By letter dated May 3, 2013, the superintendent notified Wilkins of the additional grounds that involved B.O., a female student, for his termination. The Additional Charge was never presented to Petitioner for its consideration. Basis for Termination At page 4 of the November 6, 2012, termination letter, the superintendent sets forth the legal basis for terminating Wilkins' employment. That basis is set forth, below: Your actions as described in paragraphs A, B, C, D, E, and F above violate the Brevard Public School Code of Ethics, Policy 3210, and The Code of Ethics And The Principles of Professional Conduct of the Education Profession in Florida by failing to protect the students from conditions harmful to learning. You have jeopardized the students' mental and physical health and safety, by intentionally exposing students to unnecessary embarrassment or disparagement. These actions constitute misconduct in office and conduct unbecoming an instructional employee. (emphasis added). Your actions as described in paragraph G. are a violation of School Board Policy and rules of Heritage High School regarding the collection and expenditure of funds and further constitute misconduct in office. (emphasis added). These actions as described above provide just cause to terminate your employment as a teacher and cancel your Professional Service Contract under Section 1012.36(6)(a), Fla. Stat. Pursuant to the Collective Bargaining Agreement between the Brevard County School Board and the Brevard Federation of Teachers, you have a right to request a meeting with me to discuss my recommendation to terminate your employment. To request a meeting you must advise me in writing within five (5) days after receipt of this letter. If you wish to contest these charges you have the right to request a hearing. To request a hearing you must submit a written request to my office within fifteen (15) days after receipt of this letter. The Additional Charge fails to cite to corresponding provisions of the Florida Administrative Code or state the misconduct in office charge. Inappropriate Comments of a Sexual Nature to Students At section A, paragraph 1 of the termination letter, the superintendent alleged that Wilkins made graphic reference to "oral sex" to two students concerning the way a female student was playing her woodwind instrument. Petitioner neither alleged, nor offered proof at hearing, that the student about whom the alleged comment was made heard the comment. The Letter of Reprimand issued to Wilkins in September 2012 by Tuttle dealt with comments of a sexual nature. Petitioner contends that the alleged comment concerning "oral sex" was not known by district personnel until October 15, 2012, when Pace and Mullins began interviewing students. As such, it is an enhanced allegation that may be considered in this proceeding for disciplinary purposes. Those present at the time Wilkins is alleged to have made the offending comment in August or September 2012 were Wilkins; T.S., a male student; and H.J., a female student. T.S. first testified that Wilkins said, "It looks like she is doing something inappropriate." H.J. agreed and stated that Wilkins made no reference to "oral sex." H.J. merely took Wilkins' comment to mean that the student was playing the instrument wrong in that the mouthpiece was inserted too deeply into her mouth which could lead to injury if the band member fell while marching. Further, H.J. was not offended by Wilkins' comment that the student was playing the instrument inappropriately. However, H.J. did feel that her words were being twisted by Pace and Mullins. Upon further probing by Petitioner's counsel, T.S. testified that he had written in his statement that Wilkins said that it looked like the student was "sucking dick," because of the way the student held the mouthpiece in her mouth. T.S. admitted that he was frustrated by Pace and Mullins, because they badgered him about making a statement. When asked by Respondent's counsel whether the words "sucking dick" were his, T.S. stated, "that's what they (Pace and Mullins) told me." Whatever Wilkins said, T.S. was not offended by the comment. Wilkins denies making any statement to T.S. or H.J. about oral sex. He testified that he wanted T.S. and H.J. to "fix her playing position because it looks inappropriate." One of Wilkins' concerns was that if the student tripped with the mouthpiece in that position, she could injure herself. Based on the testimony of the witnesses, the evidence does not support the assertion that Wilkins made a sexual reference concerning the woodwind player. Mistreatment of Students Exercises At section B, paragraph 1 of the termination letter, the superintendent made several allegations against Wilkins concerning the use of exercises as a consequence for rule infractions, including when students fail to dress properly (sports bra). Other bands in the district such as Palm Bay High, Melbourne High, and Cocoa High, and other organizations at Heritage, such as cheerleaders, use exercises for this purpose and place officers in a position of responsibility over their members. As noted in the Preliminary Statement above, Tuttle previously dealt with issues concerning these exercises when he dealt with earlier complaints. Petitioner, however, contends that the issue of adult supervision of these exercises was not raised until J.V.Z., the sergeant-at-arms, was interviewed by Pace and Mullins in mid- October 2012 and thus the allegation may now be a matter for further discipline. There is no allegation that any student was ever injured performing these exercises. The issue of adult supervision of these exercises was in fact raised by D.S., a band parent, in her complaint to Tuttle. Tuttle dealt with D.S.'s complaint with Wilkins on October 1 and a Summary of Conference was issued on October 3, 2012. Various students and Wilkins testified as to the process and practice of using exercises as a consequence for rule infractions. Petitioner charged Wilkins with failure to supervise these exercises, because the exercises were conducted in a separate room. However, all the rooms in the band area have windows from ceiling to "door knob." Wilkins maintains that he always had a direct line of sight as to what was going on in the area where the exercises were conducted. The students who testified on this issue agreed that Wilkins always had a line of sight view of the officers supervising and the students performing the exercises. These students include J.V.Z., T.S., T.T., and S.O. Based on the testimony of the witnesses, the more credible evidence supports that there was adult supervision of this activity, as Wilkins always had a line of sight as to those performing the exercises and those supervising them. Bathrooms and Water The allegation at section B, paragraph 2 concerns student access to bathrooms and water. The general issue of student access to bathrooms and water was reviewed previously by Tuttle. There was no evidence that Wilkins denied any student access to a bathroom or water. However, with this allegation, Petitioner specifically charged Wilkins with denying a female student access to a bathroom causing her to wet herself on the bus ride home from the Extreme Makeover Event in 2010. Pace now acknowledges that S.O. is the student at issue. Petitioner made this allegation without confirming the name of the student, S.O., who was allegedly the one who wet herself. Even when S.O. provided district officials, including Pace, with a written statement contradicting the allegation prior to Petitioner's vote on the superintendent's recommendation to terminate Wilkins, the superintendent went forward with this unsubstantiated charge. S.O. testified that no one from the school district ever talked to her about the allegation. S.O. stated that she did not realize she had to use the restroom until after the bus was underway. However, she did not wet herself on the bus. Wilkins was not on the same bus as S.O. and never knew about S.O.'s need to use the restroom until he received the termination letter. Petitioner offered no testimony to contradict S.O.'s testimony at hearing. Based on the evidence presented, this allegation is unsupported in its entirety. Further, the allegation was based merely on rumor, and the District failed to follow-up when S.O. came forward. It is unclear why this allegation was even pursued in light of S.O.'s statements made prior to and the testimony of other witnesses at the hearing. Wilkins did not deny S.O. access to a bathroom causing her to wet herself. Mishandling of Funds A major focus of this hearing concerned Petitioner's allegations at section G of the November 6, 2012, termination letter. At this section, Petitioner alleges Wilkins mishandled funds in violation of School Board Policy 6610, relating to internal funds, and 6152, relating to student fees, fines, and charges. However, in order to understand how these rules apply in the instant matter, it is necessary to review several sections of the Internal Funds Procedure Manual referenced at School Board Policy 6610A, as well as School Board policies related to student and outside organizations. Internal v. External Funds Internal Accounts Procedure Manual In general, the Internal Funds Procedure Manual (referred to herein as the "Manual") outlines how "internal funds" are to be handled at the school level. Additionally, the Manual distinguishes between the handling of "internal funds" as opposed to "external funds." Internal Funds Defined Internal funds are defined in the Manual as follows: Internal Funds are defined as all monies collected and disbursed by school personnel within a school, for the benefit of the school, or a school sponsored activity. Funds relating to all school-sponsored functions or activities are to be accounted for within Internal Funds. (emphasis added). Internal Funds . . . are considered unbudgeted public funds under the control and supervision of the District School Board. All funds handled by District employees shall be included in and become part of Internal Funds, unless accounted for in the District level accounting system. . . . School Internal Funds shall be expanded [sic] for the purpose for which they were collected and in accordance with the provisions of this [M]anual. Florida Statutes, State Board Administrative Rules and the School Board of Brevard County Bylaws, Rules & Policies are the governing requirements and must be complied with by all and, in case of conflict, will take precedence over this [M]anual. (emphasis added). External Funds Defined No School Board policy mentions "external funds"; therefore, there is no conflict with any School Board policy as to how those funds are addressed in the Manual. External funds are defined in the Manual as follows: The monies arising from activities or projects conducted or sponsored by outside organizations, or for which such organizations are exclusively responsible, are monies of the organization and are not school monies, even though the activities may be held on school premises. These monies are not subject to deposit or accountability as school monies; such funds are not internal funds, unless they are donated to the school for specific or general purposes. (emphasis added). External funds may be raised by organizations under several different names, examples include "outside organization," "PTA," "parent or civic groups," or "booster parents." There is no differentiation in the School Board policy or the Manual as to how, or if, these groups differ in anything but name or whether they may be treated differently by the District or a school. For instance, there is no distinction between a "booster" organization and one that calls itself a "parent" organization. In particular, there is no requirement that an organization be a 501(c)(3) organization under the Internal Revenue Code. Often these groups are referred to in the Manual and in School Board policy as merely "outside," "parent," or "cooperative" organizations. Cooperative Organizations Cooperative organizations, under whatever name, are required to file annual reports with the school. "All organizations operating in the name of the school, which obtain monies from the public, shall be accountable to the District for receipt and expenditure of those funds, in the manner prescribed by the District." Section H(1) of the Manual states that "the District prefers that the cooperative (or support) organizations be accounted for in the benefitting school's internal funds." The Manual also recognizes, "if the cooperative organization chooses not to be accounted for in the school's internal funds, the organization is required to provide (annual) information to the District as outline below." (emphasis added). If an organization chooses not to account for all its funds in a school's internal account, there is no restriction in any School Board policy, the Florida Manual (discussed below), or the Internal Funds Procedure Manual on how that organization "holds" its funds, as opposed to accounting for them. For example, the cooperative organization may have its own bank accounts-–checking, savings, money market, etc. It may hold some funds in cash to use as a change or a petty cash fund. Or, it may place the funds with the Brevard Schools Foundation or in the school's internal fund. Section H of the Manual provides examples of types of cooperative organizations and requires an annual report from each that must be provided to the school (principal) by August 31 each year. A sample form is provided at A20 of the Manual. Information required includes financial information on all accounts, total funds raised, itemized expenditures, and total expenditures. Section H(4) of the Manual states that the "District recognizes and appreciates the service and assistance provided by the organizations. Cooperation between schools, the District, and cooperative organizations is encouraged." Further, section H(5) of the Manual provides that "it is not the intent of the District to regulate these organizations. However, completing the Cooperative Organization Annual Report complies with the requirement that these organizations are accountable to the District for receipts and expenditures since they operate in the name of the school." (emphasis supplied) These organizations must operate according to School Board Policies 9210 and 9211, relating to "Parent Organizations" and "Parent Organizations, Booster Clubs, and Other Fund-Raising Activities," respectively. Cooperative organizations are required to keep an itemized account of monies collected and expended verified by two signatures. This section also provides that an organization may not have cash withdrawals unless approved by the principal; however, reading section H as a whole, this would only apply to funds held in the internal account of the school over which the principal has responsibility, as it is not the intent of the District to regulate these organizations, if they choose not to be accounted for in the school's internal fund. In other words, the District recognizes that neither it, nor its employees, regulate cooperative organizations and that these organizations may have external funds. Section H(13) of the Manual specifically provides that cooperative organizations do not have to use the internal account, that the District does not intend to regulate these organizations, and that the principal would not have control over outside accounts, such as those at the Foundation, in a bank, or held in cash. The cooperative organization must retain backup documentation for each bank transaction. Again, it is contemplated that these organizations may have outside accounts, and there is no restriction on what type of account they may have or how they otherwise choose to hold their funds. Principals are required to have on file, for each cooperative organization, its bylaws, corporate charter, the Cooperative Organization Annual Report form, and Internal Revenue Tax Exemption Status Determination, if any, as there is no requirement for an organization to get a determination letter from the IRS. Section H(2) of the Manual merely indicates that these organizations "may" be recognized as exempt from income taxes by the IRS. Participation by Employees Neither School Board policy nor the Manual prohibits employees from handling funds. However, if a School Board employee, in his or her capacity as an employee, is involved in the collection of monies or merchandise for resale, the funds are defined as internal funds. For example, a teacher collecting money from students for a school-sponsored field trip would be required to deposit the funds into the internal account. Activities in which outside or cooperative organizations may engage do not preclude participation of a District employee, if the employee is not an agent or is not in pursuit of his or her responsibilities for the District. For instance, a teacher may work a concession stand at a football game as a member of the Parent Drama Organization, and the funds would remain those of the organization until the organization decided to donate them to the school's internal fund for the Drama Club, because the School Board employee is not working at the concession stand in his or her capacity as a School Board employee. The employee is working the concession stand as a member of the Parent Drama Organization--membership in which is encouraged by School Board policy. Financial and Program Cost Accounting and Reporting for Florida Schools Manual ("The Florida Schools Manual") The Florida Schools Manual provided by the Florida Department of Education addresses cooperative activities. These activities are defined as those "in which the school participates with outside groups such as the P.T.A. or booster clubs." These activities, which may be held on or off campus, will usually take the form of fund-raising events, such as carnivals and food sales. The Florida Schools Manual requires that the activities be approved by the principal and be beneficial to the students. Further, the manual requires that District procedures be followed to provide for appropriate accounting for funds and compliance with District policies and those provided in the Florida Schools Manual. Other than this paragraph, the Florida Schools Manual does not address "external funds" at all. School Board Policies Policy 6610 - Internal Accounts School Board Policy 6610 provides for the collection, receipt, safekeeping, and disbursement of funds to and from a school internal account. It specifically provides that wages or supplements may not be paid to any employee from internal funds, except as provided by the School Board. Fundraising by student organizations is addressed at section E of the policy. Funds received by a parent-teacher group or other cooperative organization are external funds, unless donated to the school. Therefore, this rule recognizes that when receiving funds from students at school, a parent-teacher group must provide a parent member, rather than a student or School Board employee, to receive the funds. Otherwise, if a parent-teacher group (outside or cooperative organization) uses a student or employee for the collection of funds at school, the funds must be deposited into the school's internal account. Depending on whether funds below $200 can be adequately safeguarded, bank deposits are required to be made within three to five business days of receipt by a school's internal fund. Policy 6152 - Students Fees, Fines, and Charges Depending on whether funds below $100 can be adequately safeguarded, this policy provides that student fees, fines, and charges collected by members of the staff are to be turned into the bookkeeper (for deposit into the internal account) within one to three business days of receipt. These charges include the cost of loss or repair to damaged equipment. The only other fees associated with the band program and authorized by the School Board are for uniform and instrument rental. Policy 5830 - Student Fund-Raising School Board Policy 5830 defines "student fund-raising" as student solicitation and collection of money in exchange for tickets, papers, or goods or services. This policy applies only to student organizations granted permission to solicit funds. Specifically not included in this definition is when a parent or other member of an outside organization collects the funds, even if students are doing something in exchange, such as a car wash. Further, this rule does not reference parent or other cooperative organizations supporting school or student activities; although it does reference the support schools can provide other community organizations, through activities such as a canned food drive. Policy 9210 - Parent Organizations School Board Policy 9210 states in pertinent part, that "The Board supports all organizations of parents whose objects are to promote the educational experiences of District students." (emphasis added). This policy requires that the principal approve any new parent organization prior to organizing. The policy also requires District employees to treat members of these organizations as interested friends and supporters of public education. The policy encourages staff members to join these organizations. Finally, School Board Policy 9210 provides that the School Board may withdraw its recognition of the organization. Policy 9211 - Parent Organizations, Booster Clubs, and Other Fund-Raising Activities Through this policy the School Board expresses its appreciation to these organizations, whose efforts enhance the educational experience of District students and which are not provided for by the School Board. School Board Policy 9211 outlines the expectations of the School Board for parent organizations, booster clubs, and other fund-raising activities. The expectations include: open membership to District staff and community members; cooperate with the principal and abide by School Board policies. These organizations are required to provide their by-laws to the principal. These organizations may not donate to another organization from their funds, unless the money was raised for that purpose (for instance, sponsoring a team in the Relay for Life Walk). School Board Policy 9211 requires that these organizations complete a facility use agreement annually. They are required to provide goals annually to the principal (part of the Cooperative Organization Annual Report). The principal (or a designee) is required to approve fund-raising activities. However, employees of the District are not permitted to sign on any group's checking account. And, these organizations may not use the District's sales tax exemption number. Policy 9230 - Gifts, Grants, and Bequests School Board Policy 9230 recognizes the Brevard Schools Foundation (the "Foundation") as the District's sole non-profit organization established to receive and disburse contributions to the schools. The policy states that all donations over $250 should be funneled through the Foundation, so that charitable tax documentation can be supplied to the donor. The policy recognizes that equipment may be purchased by a parent organization for use in a school or at an event. Although this policy does not address a school's internal account, it does not prohibit donations directly to the internal account from an outside organization. Summary Internal funds are those collected by students or District staff in the performance of the duties for the School Board. External funds are those funds raised or collected by the members of a cooperative organization. The funds are neither handled by students nor by District staff in the performance of their duties. While some of these funds may have to be remitted to the internal account for specific purposes, such as instrument or uniform rental in the case of a band, the cooperative organization can hold the remainder of the funds in any manner it deems appropriate. These funds may not be deposited into the internal account until the cooperative organization approves the donation. Section G Allegations The allegations at Section G may be broken down into several categories: collection, receipt, holding, and disbursement of funds; door prizes; payment for writing music and preparation of marching drills; and missing money. The Collection, Receipt, Holding, and Disbursement of Funds Petitioner alleges that Wilkins maintained two separate accounts for school-based funds. One Petitioner alleged was properly maintained as a school-based account, and the other was a separate unauthorized cash-based account with a separate receipt book. Therefore, Petitioner alleges Wilkins violated School Policies 6610 and 6152. As outlined below, Petitioner is mistaken. Pace was the primary witness for Petitioner on issues concerning the handling of funds. Pace based many of her conclusions about whether the Band Parents Association could maintain outside accounts on what Tuttle told her and her understanding of "booster" organizations. Tuttle testified that the Band Parents Association was no longer a "booster" organization; however, he recognized that he cannot control what the Band Parents Association does with its money-–whether the Association donates the funds to the school's internal fund or keeps it in external accounts. He can only control the money that "comes through my director and my bookkeeper." There is no distinction in School Board policy or in the Manual that a cooperative organization that has the word "booster" in its name is any different from a cooperative organization that does not. Therefore, Pace's conclusion that the Band Parents Association could not maintain outside accounts, including a petty cash fund, is incorrect. Even before organizational changes, the Band Parents Association at Heritage never used the word "booster" in its name. It complied with all the requirements in the Manual relating to cooperative organizations, as well as School Board policies relating to parent organizations. It obtained recognition from Tuttle and provided him with its by-laws. It obtained permission for all fund-raising activities. It maintained various accounts with the Foundation and at one time had its own bank account as well as a change and petty cash fund. Members of the Band Parents Association raised funds from fund- raising events, as well as handled money from students. The Band Parents Association issued monthly financial statements and filed the required Cooperative Organization Annual Report. Although Tuttle acknowledged that he cannot control what the Band Parents Association or other cooperative organization does with their money, Pace understands the interplay among the various adopted School Board policies and the Manual. She does not, however, understand the difference between "internal funds" and "external funds." As such, Pace does not have an appreciation for the District's policy articulated in the Manual that the District, including its personnel, cannot tell cooperative organizations, such as the Band Parents Association, how to handle their money. While it is true that School Board policy requires a cooperative organization to obtain a principal's permission to organize, once that permission is granted the principal may not "regulate" the organization beyond the authority set forth in School Board policy and the Manual, such as obtaining permission prior to holding a fund-raiser. There is no authority for a principal to require a cooperative organization to place all its funds in a school's internal account. To the contrary, the Manual recognizes that cooperative organizations, by whatever name they choose to use, may maintain outside accounts as long as the Cooperative Organization Annual Report is filed. Further, there is no requirement in School Board policy or the Manual that in order to maintain outside accounts an organization must receive a determination letter from the IRS. For these reasons, two receipts books are not only permitted, but required under School Board policy and the Manual. For audit purposes, the official receipt book may only be used for monies deposited into the internal account. Because of the other various accounts maintained by the Band Parents Association (Foundation, bank, and cash) and because of the requirement that any cooperative organization that does not use the internal account for all its funds must maintain proper records, a second receipt book was necessary. The various Band Parent Association accounts and the band's school internal account were always managed by the Band Parents Association, not by Wilkins. Until Ms. Martin resigned as treasurer of the Band Parents Association, Wilkins never handled money. The money he collected from students after Ms. Martin resigned, Wilkins properly receipted by using the official receipt book for the school's internal account. Based on the testimony and the exhibits entered into evidence, neither Wilkins nor the Band Parents Association did anything improper concerning the collection, receipt, holding, and disbursement of funds. Petitioner has failed to prove the allegations relating to these issues. Cash Box Petitioner alleges that Wilkins, rather than the Band Parents Association, maintained an unauthorized cash account maintained by a band parent for use at his sole discretion without any oversight by a booster or other parent group. Petitioner is mistaken. Tuttle received an anonymous letter in September concerning a cash box maintained somewhere with the "band." Even though he believed that the band and the Band Parents Association could not maintain outside accounts, he decided to wait until things calm down with other allegations against Wilkins before dealing with this issue. The Band Parents Association maintained its records online for use by students and parents. Further, the Band Parents Association provided monthly reports of expenditures and all its accounts, including the cash account, to parents and made those reports available to Tuttle, Ms. Lucas and Mr. McGrew (Mr. McGrew, Athletic Director, was the principal's designee for the Band Parents Association and other cooperative organizations). None of these District employees was interested in receiving these monthly reports. The monthly reports were kept in the band room at McGrew's request. Further, the Cooperative Organization Annual Report that the Band Parents Association filed with the school specified the funds in each account (internal fund, bank account, Foundation account, and cash). The Band Parents Association's ability to maintain a petty cash fund pursuant to School Board policy and the Manual is addressed above. Petitioner provided no evidence that this fund was used at Wilkins "sole discretion." Torsiello, Martin, and Wilkins testified as to the use of these monies by Wilkins and others. Wilkins, who had no physical possession of the funds until Ms. Martin resigned, always had to make a request for the use of these funds and other Band Parent Association funds (such as monies in the Foundation account). Wilkins' request for funds was not always granted; however, if it was, he was required to provide proper documentation in the form of an invoice or receipt just like everyone else. There was no question raised in this proceeding that the money in the cash fund was raised by the Band Parents Association for the benefit of the band. When Wilkins received the money from Ms. Martin, he locked it up. Although it is not clear when he got it, he eventually turned it in to the bookkeeper, Ms. Lucas. Whether he should have turned the money over to her or not, is still in question, because there was no vote by the Band Parents Association to donate that money to the internal fund, merely a direction by Ms. Martin to Wilkins. Moreover, it appears that the $680 he turned over to Ms. Lucas has not been available for use by the band since Wilkins turned it in. Ms. Lucas testified that almost eight months after Wilkins turned in the money, the $680 was still in the school's safe. She was still waiting for instructions on what to do with it. Ms. Lucas' actions are contrary to the requirement that all funds over $200 be deposited within three days in a financial institution. As of the date of her testimony, the band still did not have use of these funds for any purpose. Based on the testimony and the evidence in this proceeding, Petitioner proved that Wilkins did not turn in the money within the time prescribed by School Board policy; however, Petitioner failed to establish that that provision applies as Wilkins did not collect this money from students and, further, the money was not "donated" by the Band Parents Association as required by the Manual. Petitioner also failed to establish that the money in the cash box was for use by Wilkins at his "sole" discretion and without oversight from the Band Parents Association. Therefore, Petitioner has failed to prove that Wilkins did anything in violation of School Board Policy 6610 and 6152 concerning the cash box. Door Prizes Petitioner alleges that Wilkins independently authorized a $50 door prize from the Band Parents Association cash box. Petitioner is mistaken. The Band Parents Association, not Wilkins, authorized door prizes for every band parent meeting in order to increase participation. After the first year, parent attendance and participation at these meetings (where fundraisers for the band were organized) fell off. Even though the students were in attendance, their parents would sit in the car in the parking lot during the meetings. After the door prizes were authorized, parent participation increased from a dozen or so to over 100 at each meeting, as did parent participation at other events, including fund-raising activities and chaperoning trips. Based on the testimony of the witnesses, Petitioner has not proven that Wilkins, rather than the Band Parents Association, independently authorized any door prize. Payment for Writing Music and Preparation of Marching Drills Petitioner alleges that Wilkins paid himself "a salary above and beyond the salary and supplement you have regularly received as the Band Director at Heritage High School, out of the cash box, for summer band camp: $2,250 in 2011 and $3,000 in 2012." Torsiello and Wilkins testified that the payments were not for holding a band camp, but for writing music and preparing marching drills for the band to perform during football season. Although the payment was based on student attendance during band camp, it was not later increased when more students signed up for band following band camp and, consequently, adjustments had to be made to the music and drills. Tuttle testified that band directors are not paid for writing music or preparing marching drills. He acknowledged that other bands pay substantial fees for this service. He believed that Wilkins should have performed this service gratis since he possessed the special skills necessary to write and choreograph the band's music. He also testified, however, that he had no problem with Wilkins performing this service and being paid to do it by the Band Parents Association, so long as the school did not have to cover the fees. Although Tuttle stated that he did not know of the arrangement between the Band Parents Association and Wilkins, Torsiello testified that she discussed and exchanged email on this issue with Tuttle prior to the Band Parents Association entering into the agreement with Wilkins for the school's second year. Wilkins thought Tuttle was aware that the Band Parents Association paid him for this service, in part due to Tuttle's acknowledgment in his evaluation that he knew Wilkins was writing the shows, something that is not part of the duties for his position with the School Board, thus saving the school or the Band Parents Association money. Torsiello testified that she solicited bids and researched providers on the internet, but that Wilkins had the best price. The Band Parents Association approved payment to Wilkins to write the music and prepare the drill plans each year. Pace testified that she thought this practice was unethical, because of Wilkins position. However, Petitioner did not allege an ethics violation (i.e. self dealing) as it relates to Section G of the termination letter. Based on the testimony and the evidence presented, Petitioner has failed to prove that writing music and preparing marching drills was part of Wilkins official duties. As such, Petitioner failed to prove that the Band Parents Association paying Wilkins for this service violated School Board Policies 6610 and 6152, the only policies cited by Petitioner relating to these allegations. Missing Money Petitioner alleged that Wilkins was unable to explain the $120.35 shortage of funds from the cash box turned over to him by Ms. Martin, and the amount Wilkins turned in to Ms. Lucas, the school bookkeeper. Further, Petitioner alleged that after a review of the records, "at least $621.73 (of other funds) is unaccounted for." At hearing, Pace acknowledged that Wilkins did not steal any money. While Petitioner never attempted to present any evidence about the $621.73 that was "unaccounted for," there was testimony concerning the $120.35. Of that amount: $50 went to the door prize discussed above; $20 was used by the Band Parents Association for change for a car wash fund-raiser; $50 was used by the Band Parents Association for change for a rummage sale fund-raiser; and $.35 was found on Wilkins' desk. Based on the testimony of witnesses, Petitioner has failed to prove any Band Parents Association money or any other (internal account) money was stolen by Wilkins or otherwise unaccounted for. Wilkins' Demeanor Although Petitioner did not charge Wilkins with failure to maintain honesty in professional dealings under School Board Policy 3210, Petitioner accuses Wilkins of making contradictory statements and being evasive and less than truthful concerning money issues throughout section G. Based on his testimony at hearing and that of other witnesses, in particular Torsiello, Wilkins simply did not know how the funding system was put in place by the Band Parents Association, because he never handled money. The Band Parents Association did not even give him a password to access the computerized records, because it would have required giving him access as a site administrator and his knowledge of computers is limited. Further, Wilkins had a limited understanding of the various accounts and how they were used by the Band Parents Association. He, as well as Pace, Tuttle, and Lucas also had a limited understanding of the interplay between the various School Board policies relating to the various types of accounts and the Manual. In short, Wilkins did not know enough about the financial records to hold a meaningful conversation about money issues, and this lack of ability was confused by Petitioner with evasiveness. The May 3, 2013 Additional Charge B.O. stated that the events alleged in the Additional Charge occurred more than once and that they occurred prior to her initial complaint. Wilkins denied the allegations. In September 2012, B.O. told Tuttle and Mullins that Wilkins did not touch her. B.O. also told the Palm Bay Police Department that Wilkins did not touch her. On September 21, 2012, B.O. sent Ms. Andahar, a Department of Children and Families investigator, an e-mail in which B.O. stated that Wilkins did not touch or hug her. In an e-mail to Ms. Andahar from Ms. O., B.O.'s mother, dated October 9, 2012, Ms. O. informed Ms. Andahar that B.O. had told her "lately" that Wilkins has hugged her. Ms. Andahar forwarded the e-mail to Ms. Alford, head of security for the School District. However, testifying at hearing, B.O. does not remember telling her mother this. The School District never investigated the allegation. In an e-mail dated December 29, 2012, B.O. complained that no one would do anything about Wilkins, because he did not touch her. Based on the testimony of credible witnesses that "Mr. Wilkins is not a hugger," as well as B.O.'s admitted goal of facilitating Wilkins' termination, the evidence supports that Wilkins did not subject B.O. to the conduct alleged in the Additional Charge. Summary Following the initial complaint(s) in September 2012 and his response, Wilkins was placed on a Professional Development Assistance Plan (PDAP). Tuttle continued to receive complaints concerning matters that predated the PDAP after it was approved. He and Wilkins worked through those complaints which are documented in the two Summaries of Conference. Tuttle noted that Wilkins was implementing the changes contemplated by the PDAP and that he had received positive remarks from parents. However, "a group of parents were out to get him and they were going to continue drumming up, pulling things up . . . until they did." When the media "circus" started in October 2012, the "investigations" were taken away from Tuttle and assumed by Pace and Mullins. No complaints were produced on which these "investigations" were premised. From that point forward, the "investigations" were neither fair to Wilkins, nor were they based on fact.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner, Brevard County School Board, dismiss all charges against Respondent, James B. Wilkins. Further, it is RECOMMENDED that Petitioner, Brevard County School Board, reinstate Respondent, James B. Wilkins, with full back pay and benefits. DONE AND ENTERED this 1st day of November, 2013, in Tallahassee, Leon County, Florida. S ROBERT S. COHEN 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 1st day of November, 2013. COPIES FURNISHED: Wayne L. Helsby, Esquire Shannon L. Kelly, Esquire Allen, Norton and Blue, P.A. 1477 West Fairbanks Avenue, Suite 100 Winter Park, Florida 32789 Mark S. Levine, Esquire Levine and Stivers, LLC 245 East Virginia Street Tallahassee, Florida 32301 Harold T. Bistline, Esquire Stromire, Bistline and Miniclier 1037 Pathfinder Way, Suite 150 Rockledge, Florida 32955 Matthew Carson, General Counsel Department of Education Turlington Building, Suite 1244 325 West Gaines Street Tallahassee, Florida 32399-4000 Pam Stewart, Commissioner of Education Department of Education Turlington Building, Suite 1514 325 West Gaines Street Tallahassee, Florida 32399-4000 Dr. Brian T. Binggeli, Superintendent Brevard County School District 2700 Judge Fran Jamieson Way Viera, Florida 32940
The Issue Whether the proposed amendment to Florida Administrative Code Rule 6A-2.0020(4) is an invalid exercise of delegated legislative authority because of conflict with section 1008.34(1)(a), Florida Statutes (2016), or because the rule will be arbitrary and capricious in its application and administration.
Findings Of Fact Petitioner Florida Association of Independent Charter Schools is a Florida non-profit corporation. The association is substantially affected by the proposed amended rule. Petitioner Aspira Raul Arnaldo Martinez Charter School is a charter school in Miami-Dade County and is currently serving 573 students. Its school grades over the past two consecutive years are: “D” for 2014-2015 and “D” for 2015-2016. If the proposed amended rule becomes effective and the school receives a school grade lower than “C” for 2016-2017, the school will not be eligible for the 2017-2018 Capital Outlay Appropriation. The school is substantially affected by the proposed amended rule. Petitioner Miami Community Charter Middle School is a charter middle school in Miami-Dade County currently serving 283 students. It is a Title I school serving 99 percent Free and Reduced Lunch. Its school grades over the past two consecutive years are: “D” for 2014-2015 and “D” for 2015-2016. If the proposed amended rule becomes effective and the school receives a school grade lower than “C” for 2016-2017, the school will not be eligible for the 2017-2018 Capital Outlay Appropriation. The school is substantially affected by the proposed amended rule. Respondent State of Florida Board of Education is “the chief implementing and coordinating body of public education in Florida . . . [with] the authority to adopt rules pursuant to ss. 120.536(1) and 120.54 to implement the provisions of law conferring duties upon it for the improvement of the state system of K-20 public education . . . .” § 1001.02(1), Fla. Stat. Respondent Florida Department of Education “act[s] as an administrative and supervisory agency under the implementation direction of the State Board of Education.” § 1001.20(1), Fla. Stat. “The Commissioner of Education is the chief educational officer of the state . . . , and is responsible for giving full assistance to the State Board of Education in enforcing compliance with the mission and goals of the K-20 education system except for the State University System.” § 1001.10(1), Fla. Stat. Charter school capital outlay funding is the state’s contribution to capital funding for charter schools. A charter school’s governing body may use such funds for the following purposes: purchase of real property, construction of school facilities, purchase or lease of permanent or relocatable school facilities, purchase of vehicles, renovation, repair, maintenance of school facilities, and insurance for school facilities. § 1013.62(3), Fla. Stat. The charter school statute, section 1002.33, Florida Statutes, specifically authorizes the State Board of Education to adopt rules which address charter school eligibility for capital outlay funds. “The Department of Education, after consultation with school districts and charter school directors, shall recommend that the State Board of Education adopt rules to implement specific subsections of this section.” § 1002.33(28), Fla. Stat. One of the specific subsections of section 1002.33 is subsection (19), entitled “CAPITAL OULAY FUNDING.” Subsection (19) provides, in pertinent part: “Charter schools are eligible for capital outlay funds pursuant to s. 1013.62.” Each year, the Commissioner of Education is required to allocate charter school capital outlay funds, if any are appropriated by the Legislature, to eligible charter schools.1/ One of the eligibility criteria, which is at the center of the parties’ dispute, is set forth in section 1013.62(1)(a)3., Florida Statutes: “Have satisfactory student achievement based on state accountability standards applicable to the charter school.” The 2016 Florida Legislature amended section 1013.62, but it did not amend the statute regarding satisfactory student achievement. With regard to satisfactory student achievement, presently effective rule 6A-2.0020 provides: (2) The eligibility requirement for satisfactory student achievement under Section 1013.62, F.S., shall be determined in accordance with the language in the charter contract and the charter school’s current school improvement plan if the school has a current school improvement plan. A charter school receiving an “F” grade designation through the state accountability system, as defined in Section 1008.34, F.S., shall not be eligible for capital outlay funding for the school year immediately following the designation. On February 28, 2017, Respondents published a Notice of Proposed Rule, which proposed to amend rule 6A-2.0020. On March 22, 2017, the State Board of Education approved the proposed amendments to rule 6A-2.0020. As approved, the portion of the proposed rule which addresses satisfactory student achievement provides: (4) Satisfactory student achievement under Section 1013.62(1)(a)3., F.S., shall be determined by the school’s most recent grade designation or school improvement rating from the state accountability system as defined in Sections 1008.34 and 1008.341, F.S. Satisfactory student achievement for a school that does not receive a school grade or a school improvement rating, including a school that has not been in operation for at least one school year, shall be based on the student performance metrics in the charter school’s charter agreement. Allocations shall not be distributed until such time as school grade designations are known. For the 2016-2017 school year, a charter school that receives a grade designation of “F” shall not be eligible for capital outlay funding. Beginning in the 2017-2018 school year, a charter school that receives a grade designation of “F” or two (2) consecutive grades lower than a “C” shall not be eligible for capital outlay funding. Beginning in the 2017-2018 school year, a charter school that receives a school improvement rating of “Unsatisfactory” shall not be eligible for capital outlay funding. Proposed amended rule 6A-2.0020(4), if adopted, will provide the standard for what constitutes failure to meet satisfactory student achievement for purposes of receiving capital outlay funding. A school with a grade of “F” or two (2) consecutive grades lower than a “C” will be ineligible for funding. Proposed amended rule 6A-2.0020(4), if adopted, will allow a charter school with a single “D” grade to continue receiving capital outlay funds for the next fiscal year. On April 5, 2017, Respondents published a Notice of Change for a technical change for rule 6A-2.0020, referencing the following rulemaking authority for the rule: sections 1001.02(1), (2)(n); 1002.33(19), (28); 1013.02(2)(a); and 1013.62(5).
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 Upon consideration of the oral and documentary evidence adduced at the hearing, as well as the observation of the demeanor of the witnesses, the following facts are found: Respondent, Lloyd R. Day, has been employed by the Madison County School Board in the position of Finance Officer since May, 1971. He has been continuously employed in this position through a series of one-year contracts. On April 2, 1982, the School Board, upon recommendation of Petitioner, reemployed Respondent for the period commencing July 1, 1982, and continuing through June 30, 1983. Petitioner, Randall M. Buchanan, became Superintendent of Schools in Madison County in 1977. His duties are defined by law and rules promulgated by the School Board of Madison County. As part of his duties as Director of Finance, Respondent invested the idle funds of the Madison County District School Board following his employment in May, 1971, and continued to perform this function until approximately October, 1980. At the time Petitioner became Superintendent, he requested that employees write down their current duties to assist him in learning their functions. He retained this information in his own office files. This informal job description established that the finance officer was responsible for investment of all idle funds. Two other job descriptions for the position of finance officer also existed, one in the personnel office, which assigns responsibility for the investment of idle funds to the Finance Director, and one filed with the Public Employees Relations Commission, which does not include this specific function but contains an "other assigned duties" clause. The School Board has not adopted an official job description for the position of finance officer. This evidence, the testimony of Petitioner and Respondent, as well as the accepted practices within the school system established that Respondent was responsible for this function. He exercised his duty to invest idle funds of the Madison County District School Board from January, 1977, until approximately October, 1980, and did an excellent job investing during that period. His efforts enabled the Madison County District School Board to construct a half- million dollar football stadium with interest earned on such investment of idle funds in the Board's capital outlay account. During the fiscal year commencing July 1, 1979, and ending June 30, 1980 (1980 fiscal year), Respondent made 102 separate investments of idle School Board funds in certificates of deposit and repurchase agreements. As a result, the Madison County School Board earned interest income of $245,862.51. Respondent was criticized, however, in the audit report prepared by the Auditor General's Office for his investment practices during the 1980 fiscal year due to his failure to follow-up investments made by telephone with written confirmation or documentation. Respondent was so angered and upset with the auditor's criticism of the manner in which he made investments in the 1980 fiscal year that he told the auditor he would leave the School Board's funds in a passbook savings account rather than comply with the auditor's recommended investment procedures. With the exception of three certificates of deposit and one repurchase agreement, Respondent did in fact leave the funds in a passbook savings account at the Bank of Greenville, which paid a rate of 5.25 percent. As a result, interest income in the 1981 fiscal year (which ended June 30, 1981) totaled only $104,976.52, approximately $140,000.00 less than that which was earned in the 1980 fiscal year. In the report of the Auditor General for the 1981 fiscal year, the auditor noted on page 4, paragraph (13),that the Madison County District School Board lost approximately $92,000.00 in interest income as a result of failing to invest School Board funds in accordance with State Law. Section 236.24(2) , Florida Statutes, effective July 1, 1980, provides that a District School Board may invest funds not needed for immediate cash requirements in savings accounts only if the interest rate received is not less than prevailing US. Treasury Bill rates. Respondent was knowledgeable of that fact, having attended the Summer Conference of the Florida School Finance Officers Association in Orlando, Florida, in June, 1980. Following his return from that meeting, Respondent prepared a memorandum to Superintendent Buchanan dated July 8, 1980, in which he stated: At a meeting held in Orlando, Florida, by the Department of Education, recent legislation was discussed and explained to us. One Bill (CSSB 559)(Chapter 80-103, effective July 1, 1980) pertained to the subject of investment of public funds. The explanation given us at this meeting was that we are precluded from investing in time deposits unless the rate of return equals US. Treasury Bill rates. Respondent's memorandum went on to indicate that the Florida Bankers Association's interpretation of the new law was in agreement with that of the Department of Education. Respondent concluded his memorandum by stating "future investments must yield at least US. Treasury Bill rates or we must invest in US. Treasury Bills. By memorandum dated August 25, 1980, Respondent advised Superintendent Buchanan of the investment of School Board funds in two certificates of deposit. in addition, he advised the Superintendent that on August 25, 1980, he talked to personnel at the Department of Administration, Local Government Surplus Trust Fund, to request a quote on the amount of funds which he was putting up for bid. Respondent notes in his memorandum that when he received the response from the Local Government Surplus Trust Fund, they quoted rates substantially higher than the rates quoted by local banking institutions. Acting on this information, Respondent prepared an agenda item requesting that the Madison County District School Board authorize investments with the Local Government Surplus Trust Fund. At its meeting on September 4, 1980, Respondent appeared before the Board and explained the request to them. The Board voted to authorize investment of funds in the Local Government Surplus Trust Fund unless the Hoard obtain a rate of interest from a local banking institution of within one-half percent of that paid by the Fund. Although he received authorization by the Board on September 4, 1980, to invest funds with the Local Government Surplus Trust Fund, Respondent took no further action to initiate any such investments and, in fact, made no investments with the Fund until after the Madison County District School Board received the official audit report for the 1981 fiscal year from the Auditor General in June, 1982. Respondent claimed that the idle funds were not invested in other investment forms due to workload, lack of direction and a preexisting directive by the Petitioner not to place funds out of the county. These assertions are not credible and are rejected. Rather, Respondent left funds in passbook savings because of the audit criticism over his failure to confirm and document verbal fund transactions. Because of Respondent's failure to properly invest idle funds, the School Board lost approximately $92,000.00 in the fiscal year which ended June 30, 1981. Petitioner claimed that he was not aware of either the problem or its magnitude until after receipt of the final audit in June, 1982, one year later. However, in October, 1981, auditors from the Auditor General's Office met with Petitioner and Respondent and criticized the manner in which funds had been invested and the revenues received from such investments. The testimony of an employee of the Auditor General established that he told Petitioner of the problem and that he acknowledged it. In January, 1982, a second auditor meeting with the Petitioner took place, this time with School Board member Albert W. Waldrep present. Again, Petitioner was told of the problem and its magnitude in terms of dollars and cents. School Board member Claude Pickles, on his volition, met with representatives from the Auditor General's Office on January 26, 1982, and was similarly informed. Petitioner took no disciplinary action against Respondent until after the audit criticism was reported in the local newspaper in Madison County in June, 1982. In April, 1982, Petitioner had recommended the reemployment of Respondent and the School Board renewed his contract. At the time of Respondent's reemployment, the Superintendent and at least two of the five School Board members were aware of the audit criticism relating to the investment of funds. Still it was not until the newspaper reported the audit criticism that Petitioner or the School Board acted to discharge Respondent. There was no evidence of any prior disciplinary action against Respondent, nor had he ever received a written performance evaluation during his employment with the Madison County School Board.
Recommendation From the foregoing, it is RECOMMENDED: That Petitioner suspend Respondent without pay for a period of one year. DONE and ENTERED this 11th day of March, 1983, 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 11th day of March, 1983. COPIES FURNISHED: David Holder, Esquire Post Office Box 1694 Tallahassee, Florida 32302 John D. Carlson, Esquire 1030 E. Lafayette Street, Suite 112 Tallahassee, Florida 32301 Randall M. Buchanan, Superintendent Madison County School Board Madison, Florida 32340 =================================================================
The Issue The issue for determination is whether Respondent should be suspended without pay and terminated from employment with Petitioner.
Findings Of Fact Mr. Gonzalez was a non-instructional employee with the School Board at Liberty Park Elementary School (Liberty Park), employed as a Paraprofessional II. Prior to that position, he was employed as an Instructional Technologist Specialist at Liberty Park. Before working at Liberty Park, Mr. Gonzalez was employed with the School Board at S.D. Spady Elementary School (S.D. Spady) as an Instructional Technology Assistant for approximately 90 days. He was responsible for the computer hardware and software at S.D. Spady, including maintaining the inventory and repairing the hardware and software. During Mr. Gonzalez’s probationary period at S.D. Spady, the principal gave him a computer to place in the Exceptional Student Education (ESE) Department. Before the end of his probationary period at S.D. Spady, Mr. Gonzalez was released from his employment by the principal. The principal was having continuous problems with him; many times, Mr. Gonzalez was not coming to work or calling- in to advise that he was not coming into work, and the principal could not locate him. After Mr. Gonzalez was released by the principal at S.D. Spady, the principal discovered that the computer was never delivered to the ESE Department. The computer was never seen at S.D. Spady again. Subsequently, Mr. Gonzalez was employed at Liberty Park. During his tenure at Liberty Park, the principal requested an investigation by the School Board’s School Police Department (School Police) of Mr. Gonzalez regarding a parent’s complaint against him. Allegedly, Mr. Gonzalez borrowed money from a student and promised to repay the student more money than he borrowed on his (Mr. Gonzalez’s) payday, but failed to do so. The student told his mother, and the student’s mother reported the incident to the principal. The investigation began in February 2009. During the investigation of the parent’s complaint, Mr. Gonzalez became the subject of a separate investigation by the School Police due to a background check of Mr. Gonzalez by the investigator, using the PAWN system of the Palm Beach County Sheriff’s Office (Sheriff’s Office). The PAWN system is used by the Sheriff’s Office to track pawn transactions in local pawn shops. The background check showed Mr. Gonzalez’s name appearing 63 times in the PAWN system from June 2006 through March 2009. As to the separate investigation, the PAWN system revealed that a computer on the list of items pawned by Mr. Gonzalez matched the missing computer from S.D. Spady. The manufacturer of the pawned computer confirmed that the service code number on the pawned computer indicated that the pawned computer was purchased by the School Board from the manufacturer. The pawn ticket for the pawned computer, maintained by the pawn shop, contained Mr. Gonzalez’s identifying information, including his name, address, driver’s license number, signature, and fingerprint, all of which were required by the pawn shop. The School Police arrested Mr. Gonzalez and charged him with grand theft, dealing in stolen property, and false verification of ownership of property. He was transferred to the Sheriff’s Office. Mr. Gonzalez’s fingerprints were taken when he was arrested. The fingerprint on the pawn ticket, maintained by the pawn shop, was confirmed by a latent print specialist at the Sheriff’s Office as matching Mr. Gonzalez’s fingerprint taken at the time of his arrest. The School Board’s Superintendent decided to recommend suspension without pay and termination of Mr. Gonzalez to the School Board. The Superintendent notified Mr. Gonzalez of his (the Superintendent’s) recommendation. Mr. Gonzalez notified the School Board of his challenge to the recommendation and requested a hearing. On November 16, 2009, Mr. Gonzalez pled guilty to one count of dealing in stolen property (stemming from the School Police’s case), a second degree felony, in State of Florida v. Jorge E. Gonzalez, Case No.2009CF005648AXX, Criminal Division, Circuit Court, Fifteenth Judicial Circuit, Palm Beach County, Florida. Among other things, the court withheld adjudication, placed him on probation, and ordered restitution to the School Board.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Palm Beach County School Board enter a final order suspending Jorge Gonzalez for 15 days without pay and terminating his employment. DONE AND ENTERED this 17th day of June, 2010, in Tallahassee, Leon County, Florida. ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of June, 2010.
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 The issues to be resolved in this proceeding concern whether the Petitioner, D. J. Haycook Construction Company (Haycook) was the lowest responsive bidder for an elementary school procurement project known as Elementary School "X," let by the Volusia County School Board and whether the Petitioner should have been awarded the contract.
Findings Of Fact On June 13, 2003, the School Board of Volusia County authorized the issuance of a request for proposal for the construction of a new elementary school known as Elementary School "X." The proposed new school would be located in Orange City, Florida. The school board issued an advertisement for the construction of Elementary School "X" and had it published. The project architect for the Board prepared the solicitation documents constituting a "Phase III specifications" manual and three addenda. The advertisement stated that "the school board expressly reserves the right to reject any and all bids and to waive informalities therein, and to use sufficient time to investigate the bids and the qualifications of the bidders." Section 00430 of the solicitation required that all bidders list the name of the subcontractor for each type of the 12 areas of construction work for Elementary School "X" as follows: 'For each type of work' below, list the name of the subcontractor. List only one name on each line and only one subcontractor for each type of work. Various 'type of work' sub-contracts may have more than one subcontractor (re: roofing; metal roofing and membrane roofing), list each subcontractor accordingly. Use additional sheets, if required. Additionally, Section 00430 provided: The term subcontractor as used herein shall be defined in 2001, Florida Statute 713.01(27) - subcontractor means a person other than a materialman or laborer who enters into a contract with a contractor for the performance of any part of such contractor's contract. The deadline for submission of proposals in response to the solicitation was August 6, 2003. On August 6, 2003, Haycook's bid proposal and that of the second and third lowest bidders were opened and read by the members of the school board's staff. Haycook listed itself as performing or "self-performing" in areas of earthwork, masonry, concrete, and structural steel on the required list of subcontractors form pursuant to section 00430 of the solicitation. Subsequently, the project architect began to investigate the bids for the project. This was done through correspondence and direct contact between Haycook, the project architect, Mr. Daimwood, and the school board staff. This process began on August 8, 2003. As part of the evaluation process the architect verbally requested documentation from Haycook to verify its past and present abilities to self-perform in the four areas of earthwork, concrete, masonry, and structural steel, as well as by letters dated August 12, August 15, and August 25, 2003. Haycook responded to these information requests by letters of August 11, 13, and 28, 2003. The bid documents for the school project included the bidding and contractual conditions, general conditions, technical specifications, and the drawings listed on pages 10D-1 to 10D-2. In order to have a responsive bid a bidder was required to comply with the bid documents when submitting its bid. The relevant bid documents at issue in this dispute are Section 0020, "invitation to bid," Section 00100, "instruction to bidders," Section 00300, "bid form," and Section 00430, "list of subcontractors." The bid documents also required each bidder to deliver a bid bond in the amount of five percent of its bid to accompany the proposal. After acceptance of the lowest responsive bid, and issuance of the contract award, a bidder was required to deliver a payment and performance bond in the amount of 100 percent of the contract price. There is no dispute that Haycook has a bonding capacity of 18 million dollars for a single project and 35 million dollars for aggregate projects and the bonding capacity is not in dispute. The invitation to bid documents require that bidders be required to hold a current Certificate of Pre-Qualification issued by the school board at the time of bid opening. Haycook at all material times hereto held a Certificate of Pre- Qualification and was licensed to perform all work called for by the bid documents including, among others, self-performance of earthwork, concrete work, masonry, and structural steel. The three bids received were in the amounts as follows: (1) D. J. Haycook Construction Company: a base bid of $7,599,000.00; Alternate One, $189,000.00; Alternate Two, $48,800.00; Alternate Three, $21,000.00; (2) Mark Construction Company of Longwood, Florida: base bid of $7,657,000.00, Alternate One, $221,000.00; Alternate Two, $50,000.00; Alternate Three, $20,000.00; (3) Clancy and Theys Construction Company of Orlando, Florida: base bid of $7,840,000.00; Alternate One, $230,000.00; Alternate Two, $50,000.00; Alternate Three, $21,000.00. Section 00430 required each bidder to furnish a list of subcontractors defined as quoted above in the bid form. Section 00430 of the bid form also permitted a bidder to list itself as a subcontractor. The form provides: "A contractor may not list himself as performing a type of work unless he is self- performing and is a Florida licensed contractor for that type of work". Haycook was properly licensed at the time of bidding, and at all relevant times, to self-perform in the four areas of earthwork, structural steel, masonry, and concrete at issue in this case. After the bids were opened and examined, Mr. Daimwood, the architect evaluating bids for the school board, requested that Haycook furnish a list of past projects where it had self- performed earthwork, structural steel, masonry, and concrete work. Haycook provided a list of examples of prior projects for which it had self-performed work in those areas on August 11, 2003. The list included five projects for earthwork, four projects for structural steel, seven projects for masonry, and seven projects for concrete. Thereafter, on August 12, 2003, the architect requested additional information regarding self- performance of work in the four areas at issue. Haycook provided the architect with the requested additional information on August 13, 2003, including a list of each project, the total cost of each project, the completion dates, as well as contact persons with their telephone numbers and including copies of qualifications of the subcontractors listed on Haycook's subcontractor list. On August 25, 2003, the architect requested Haycook payroll records and workers compensation information for two of the listed projects of those Haycook had provided, that for Goldsboro Elementary School and Eustis Elementary School. On August 28, 2003, Haycook sent a letter to the architect explaining that on the Goldsboro job the earthwork was self-performed by a combination of supervising and directing the work with salaried employees, with leasing of labor from an employment service, and hiring of labor by the cubic yard with a cap on the activity. Haycook also explained that structural steel work on the projects was self-performed by a combination of supervising and directing the work with salaried employees, leasing of labor from an employment service, hiring of labor paid by the foot to erect specific components of the job, as well as using salaried employees for the performance of specific activities, and including purchasing of fabricated materials and then hiring crew labor and equipment on an hourly basis to erect them. In the August 28, 2003, letter Haycook also explained, with respect to the self-performed masonry work on both the Eustis and Goldsboro jobs, that those areas of work were self- performed by purchasing fabricated material, supervising and directing the work with salaried employees, hiring labor by the unit price (for instance by the block) to lay the block, and hiring labor from an employee leasing service for specific activities as to those jobs. Haycook also explained in the August 28, 2003, letter that a combination of the methods and means of performing delineated above and in that letter would be used for the activities listed on the subcontractor list on the relevant bid form for Elementary School "X". Haycook explained that it had priced and used its own costs for the activities listed on the bid form to arrive at the bid price for Elementary School "X". Enclosed with the August 28, 2003, letter from Haycook were copies of its purchase orders and cost journals for the Goldsboro School, concerning earthwork, masonry, and structural steel activities and its vendor purchase orders and cost journals for the Eustis Elementary School's masonry work done by Haycook. The enclosures with the August 28, 2003, letter showed that Haycook had purchased the materials, performed the work with its own employees, and performed work using additional outside labor in the areas of structural metals, prefabricated structures, earthwork, cast-in-place concrete, structural steel erection, and masonry work. Haycook also provided its proposals used on the Goldsboro project which consisted of concrete labor and structural steel labor. The architect interpreted the term "self-performance" to mean labor with the contractor's own employees only. Based upon that restrictive interpretation, he concluded that he had not found adequate information demonstrating Haycook's having "self-performed" these types of work previously. Additionally, the architect opined that Haycook's intended self-performance on Elementary School "X" project at issue, in the four work areas in dispute, "is in our opinion, a subcontractor format." Uncontroverted evidence adduced at hearing established that Haycook has extensive public school construction experience. The Petitioner's President, Dennis Haycook, has built more than 35 public schools and Haycook's project manager, Reed Hadley, who is assigned to the Elementary School "X" project, has built over 25 school projects. Dennis Haycook was also a principal of Mark Arnold Construction Company in the past, which was one of the largest public school contractors in Florida. In the past 10 years, with his own company, the Petitioner, Haycook, has built numerous school projects including the Goldsboro school which was a $7,000,000.00 project. The Goldsboro, Eustis, and other Haycook-built schools referenced during the hearing and in the evidence were all projects that were built within the authorized budget, were timely, and were of quality construction. The Board ultimately rejected Haycook's bid on Elementary School "X" because of the architect's interpretation concerning "self-performance," i.e. that all work must be performed by employees on Haycook's payroll. The bid documents did not define "self-performance," nor do the bid documents require that labor used must be on the contractor's payroll in order for his performance to constitute "self-performance." Haycook's witnesses were consistent in their testimony as to the definition of "self-performance": "self-performance," as customarily used in the construction industry, includes the contractor's purchasing of materials, performing part of the work with its own labor force, providing other labor not on the contractor's payroll, and directly supervising the work with the contractor's supervisory personnel. The term "subcontractor" is defined in the custom and usage of the construction industry, however, to mean someone or an entity that provides all labor, material, and equipment necessary to do the complete operation, as well as all supervision. It is more of a "total turn key operation." A subcontractor provides everything necessary to finish the work, including supervision, and then merely answers to the general contractor in terms of responsibility for the quality of the job and its timeliness. The school board's witnesses, expert and otherwise, gave interpretations of the concept of self-performance which were somewhat conflicting. Mr. Daimwood, the architect, opined that self-performance requires the contractors to use employees on its own payroll and make direct payment of workers' compensation for such employees. His opinion was that anything else would be a subcontractor relationship and not self- performance. He later testified, however, that paying labor not actually on Haycook's payroll could still constitute self- performance. Patricia Drago, of the school board staff, testified that if a contractor uses 10 employees on his payroll and uses 10 non-employees, this would be self-performance. If such a contractor has 10 employees and uses 11 non-employees, she was not sure whether this would constitute self-performance. Allen Green testified that self-performance of an area of work requires the majority of that work to be performed by the contractor's own employees, while other work could be performed by contract labor. He later changed his definition to require a contractor to have all employees on the payroll in order to self-perform. In other testimony, however, Mr. Green opined that if a contractor supplemented his labor with a couple of additional masons and paid them by the piece, then he would no longer be self-performing. At still another point in his testimony he added that it would be dependent upon the stage of the project as to whether the contractor's use of contract labor is self-performing or subcontracting. He felt that if the contractor adds some additional masons near the end of a job, as opposed to the beginning, then he could still be self- performing. Gary Parker is the Director of Facilities for the Lake County School Board. He testified that from his perspective, self-performance required the use of employees on the contractor's payroll. This definition, however, was not consistent with Lake County's course of conduct with the job that Haycook performed. Mr. Parker acknowledged that there had been no complaints by the architect or anyone else associated with the Eustis school project where Haycook listed itself as self-performing for masonry work, even though Haycook had retained a different entity to perform masonry labor (although not supply materials or supervision). Scott Stegall, the Director of Capital Outlay for the Seminole County School Board, testified that self-performance would require a contractor to perform all work without the use of outside contractors, including labor. Yet Mr. Stegall acknowledged that Haycook listed itself as self-performing masonry work on the Goldsboro school project and used a firm or entity known as Webber and Tucker to perform some masonry work, and that the Seminole County School Board had no dispute with this approach. Mr. Stegall's evaluation form for Haycook had stated that Haycook did not improperly substitute any subcontractors from the submitted list in that project. He later changed his definition of self-performance to acknowledge that a contractor could bring in laborers individually to perform without a "formal contract"; these informal labor contracts would not take it out of the self-performance category according to Mr. Stegall. The evidence concerning the Lake County District's and Seminole County District's experience as to the Eustis school project and the Goldsboro school project with Haycook's performance, including Haycook's approach to self-performance, was satisfactory in terms of pricing and the quality and timeliness of the work performed. The perceived fear by the Respondent that Haycook's performance might be substandard or that it might "bid shop" amongst potential subcontractors, after the bid opening, if Haycook did not list all subcontractors on the bid response, and self-performed in the manner Haycook described in its evidence, has not been shown to have occurred with regard to any of Haycook's past projects. There has been no demonstration by preponderant evidence that the use of only subcontractors listed or named in the bid response has resulted, in itself, in a lower price or better performance for the public by a contractor situated as Haycook. The architect testified that one method of defining "self-performance" is to determine whether the entity performing work was a subcontractor as defined by the bid documents. If the work is not being performed by a subcontractor, then it is being performed by the general contractor or self-performance. As the term is used in the construction industry, a subcontractor generally furnishes materials, installs the work, and supervises its own work. The bid documents define subcontractor as follows: "subcontractor means a person other than a materialman or laborer who enters into a contract with a contractor for the performance of any part of such contractor's contract." Preponderant, credible, and substantial evidence was presented by Haycook to show that Haycook's use of the term "subcontractor" was an entity that furnishes the materials, provides the labor, and the supervision, and undertakes the entire responsibility for that type or phase of the work. When a general contractor hires contract labor only, this excludes what is occurring from the definition of subcontractor, since the definition of subcontractor prevailing in this proceeding based upon the bid documents, takes out of that subcontractor definition "a materialman or laborer." The preponderant credible evidence shows that when Haycook purchases materials and provides the labor, whether or not the labor is on Haycook's payroll, which Haycook then directly supervises, this, by definition, is not a subcontractor situation under the definition of that concept in the bid documents themselves. The bid documents provide no definition for self- performance, but simply contain the following requirements: "a contractor may not list himself as performing a type of work unless he is self-performing and is a Florida licensed contractor for that type of work." Therefore, if a contractor meets these two requirements, he is responsive to this specification concerning when subcontractors should be listed or need not be listed in the bid response. Haycook meets both of the two requirements for self- performing. Haycook's definition of self-performing work is consistent with and does not conflict with the definition of "subcontractor," which excludes materialmen and laborers. Haycook's expert witness, Mr. Harold Goodemote, is a general contractor with 20 years experience, including 8 years as a project engineer and chief estimator for Foley and Associates Construction Company for many public school projects in the Orlando, Melbourne, and Daytona Beach area. Mr. Goodemote is also Vice-President of "Coleman-Goodemote" which has been in existence for approximately 10 years and has built projects worth multi-millions of dollars for Daytona Speedway related entities. It was established through Mr. Goodemote's testimony that it is customary in the construction industry to self- perform work by the contractor's purchasing of materials and using the contractor's own employees, along with "third party labor," to complete work under the direct supervision and control of the general contractor. The testimony of Mr. Reed Hadley and Mr. Haycook likewise establishes that it is common practice in the construction industry to self-perform work in the manner in which Haycook has performed it in the past. For example, both the Lake County and Seminole County School Boards allowed Haycook to list itself as self-performing where Haycook purchased masonry materials and used contract labor to install the masonry materials and components. "Bid shopping" is a practice whereby a contractor submits a bid for a project and, after winning the bid, goes to its subcontractors or even to new subcontractors, not considered in the bid process, and attempts to get lower prices from them, versus the prices the contractor had when it submitted its bid. This allows more profit to be built into the job for the contractor or, if the contractor artificially bid low in order to get the job, tends to allow the contractor to restore profit to the job for itself. The school board's rationale for requiring pre-bid opening listing of subcontractors is to prevent bid shopping after the bid is awarded in order to protect the competitive integrity of the bidding process. The listing of subcontractors is a practice of the Volusia County School Board and some other school boards in Florida. Ms. Drago, in her testimony, acknowledged that a substantial number of school boards in Florida do not require a list of subcontractors to be provided with bid proposals, and she acknowledged that this does not mean that those school boards' bid processes lack credibility and competitive integrity. She was unaware of any examples in the Volusia County School Board's experience where a contractor listed itself as self-performing and then shopped subcontractors after the bid opening to obtain a better price. The preponderant evidence of record does not establish that this has been the case with Haycook or other contractors on past Volusia County School Board jobs. This is in accord with Mr. Haycook's testimony, who described the detrimental effects such a practice could have on future relationships between a contractors and subcontractors in terms of having them available for later jobs, if a contactor became known for "beating down" subcontractors' prices. If a contractor had a reputation for engaging in that practice, in the future subcontractors' bids to that general contractor would likely be higher, if he could get their bids, and this might result in that contractor having difficulty rendering bid proposals that were low enough to have a chance of being successful. The bid documents give the school board the right to determine if each subcontractor listed by the bidders is qualified to perform the work and if not, to reject that subcontractor and require a replacement subcontractor. It is noteworthy that neither the architect nor the school board rejected Haycook as being unqualified to perform the work in any of the areas in which Haycook, in effect, listed itself as the subcontractor. The bid documents do not provide that the school board may reject "sub-subcontractors" engaged by a subcontractor, nor does the school board examine the history and capabilities of sub-subcontractors that a subcontractor intends to use. Once a subcontractor is acceptable to the Board, there is no further review to determine what means, methods, and procedures the subcontractor uses to perform the work. The subcontractor can contract out all of the work to sub-subcontractors who are actually performing the work, and the Board might not even be aware of it. Therefore, its method or rationale of listing subcontractors and then investigating the subcontractors is no guarantee of ensuring quality of work. In fact, the more areas of work that the general contractor does itself, the more direct control over performance the school board would have. The school board apparently uses a different approach in the instance where a general contractor lists itself as a subcontractor for one or more types of work, i.e. is self- performing. The Board's practice in that situation requires the general contractor to list each contractor who may perform parts of the work. Therefore, the general contractor must list each contractor who will perform the work in each area while this standard is not applied to listed subcontractors. The bid documents do not disclose to bidders the school board's unwritten definition and interpretation of "self- performance." They do not reveal that under the Board's interpretation a contractor must self-perform only with employees on its payroll; that a pre-qualified contractor licensed to perform work in a given area must prove that it has self-performed such work in the past with its own employees only; that general contractors will be treated differently from subcontractors on the subcontractors list, as to the listing of contract labor, and that even though the term "subcontractor" in the bid documents excludes "materialmen" and "laborers," the school board still considers contract labor as a subcontractor or subcontracting, that must be listed for self-performance work. Haycook has substantial experience in bidding and performing work on public school projects, as does Mr. Haycook himself, with both Haycook and a prior company with which he was associated. Haycook had prepared a bid three or four months earlier on a prototype school project similar to Elementary School "X" and had extensive cost information obtained from its work on that project and from subcontractors, including those "bidding" Elementary School "X." Haycook maintains a large database of subcontractors and suppliers experienced in performing work and portions of the work necessary for the Elementary School "X" project, including cost information. It has a database of over 3,000 names useful in obtaining and providing labor for use on parts and subparts of any self- performed work. Prior to the bid, Haycook received the plans and specifications enabling it to determine the quantities of materials needed and the costs per unit for installing the materials and performing the necessary work. Haycook had received subcontractor bids in each of the four areas that it later determined it would self-perform (earthwork, structural steel, concrete, and masonry). Because Haycook's "takeoffs," historical pricing information and recent bid information from another Volusia County prototype school indicated that it could self-perform the work at less cost than using the bids of subcontractors in those four work areas, Haycook elected to self-perform the work and listed itself as the subcontractor in those four work areas. This was not a case where Haycook simply ran out of time to get subcontractors' bids in those four work areas and therefore simply listed itself as performing in the four work areas at issue due to time expediency. It was also not because Haycook intended listing itself as performing in the four subject work areas so that it would create an opportunity to get lower bids from unknown subcontractors after bid opening, in order to enhance its profitability and support a low bid, in terms of putting enough money in the job for itself. As general contractor for the entire project, Haycook intended to provide general supervision of the entire project including subcontractors. With respect to self-performed work, Haycook intended to supply materials and components and to directly supervise and control the means, methods, and procedures of the self-performed work with contract labor. Haycook's definition of "self-performance" for earthwork involved Haycook's renting equipment, retaining contract laborers to clear the site, place the fill (paid by the hour or by the yard), compact the fill, and grade the site. Haycook directly supervises self-performed work and schedules and manages it with Haycook's project manager and on-site superintendent. The testimony of Reed Hadley and Dennis Haycook on behalf of Haycook established that Haycook had self-performed earthwork on other projects in the same manner as described above, satisfactorily for the owners. Specific project names and other project information showing earthwork self-performance by Haycook was provided to the architect as referenced above. Mr. Haycook established that Haycook had "self-performed" earthwork on 50 to 60 percent of its projects in the past. Haycook's definition of self-performance of structural steel included engaging a licensed fabricator, as required by the bid specifications in this instance, hiring experienced labor erection crews, purchasing the materials and component parts, and directly supervising and managing the work, including scheduling of the labor crews. Haycook had performed structural steel on 10 to 15 percent of its past projects. Four examples of projects, self-performed in structural steel, were provided to the architect along with related detailed information. Haycook's self-performance of concrete work included its purchasing of materials, hiring contract labor for footings, paid by the lineal foot, and concrete slabs paid by the square foot, and directly supervising, coordinating, and scheduling the concrete work activities with Haycook's own project managers and superintendent. Haycook has self-performed concrete work on approximately 80 percent of its past projects. The architect was provided a project listing of self-performed concrete work and detailed information showing Haycook's experience in this area. Concrete work is the area of work most commonly self- performed by general contractors in the construction market area in and around Volusia County. Haycook's self-performance of masonry includes Haycook's purchasing of concrete blocks, and reinforcing steel placed within the block, hiring labor on a unit price basis to install it (as, for instance, paid by the block laid), directly supervising the work, and coordinating and scheduling the masonry work activities with Haycook's project manager and superintendent. Haycook has self-performed masonry on approximately 70 percent of its past projects. The architect was provided examples of projects listing self-performed masonry work by Haycook, as well as detailed information depicting Haycook's experience in this work area. Mr. Goodemote, as referenced above, is a local general contractor with school board project experience and is Haycook's expert witness. He established that it is common practice in the construction industry in the Volusia County area for contractors to self-perform work in the manner that Haycook had self-performed it in the past and proposes to do on Elementary School "X." He established with reference to the Board's definition of "subcontractor," which excludes "materialmen" and "laborers," that a contractor's purchase of materials and the hiring of contract labor to install the materials does not come within the definition of "subcontractor" or "subcontracting." He established that a subcontractor is the one who provides all labor, material, equipment, and supervision necessary to complete a work operation. "It's a total turnkey operation. They provide everything to finish the work." Mr. Goodemote's opinion establishes that "self-performance" of the subject work includes a general contractor hiring contract labor to perform a part of the work, because many times there are multiple vendors associated with a portion of the work, and the contractor is still directing and supervising the work and assuming all the risks associated with the work. Mr. Goodemote himself has self- performed as a general contractor and observed other contractors self-perform earthwork, masonry, concrete work, and structural steel work. He demonstrated that if a general contractor uses contract labor to perform a portion of the work, it still remains a "self-performance" by the general contractor, and that the laborers do not have to be on the contractor's payroll in order for the work to constitute self-performance, according to the general practice and usage in the construction industry. When requested by the architect to provide examples of past projects that it had self-performed in the four subject work areas, Haycook listed five projects as to earthwork; four projects in structural steel; seven projects as to masonry; and seven projects as to concrete. In consideration of his restrictive view of what self-performance means (i.e. that self- performance can only mean performance of work by salaried employees on the general contractor's own payroll), the architect (evaluator) requested payroll records and workers' compensation information on two projects only, the Goldsboro Elementary School and Eustis Elementary School. The bid documents do not provide unbridled discretion in the architect/evaluator, or in the school board, to define self-performance in a manner not provided for or inconsistent with the bid documents or to define "subcontractor," to include contract labor and thus require the labor to be listed as a subcontractor on the bid response. There was no notice to any of the bidders that such a restrictive definition would be employed, nor that a contractor listing itself as self- performing, and therefore standing in same position as other subcontractors as to the areas of work it would self-perform, would be treated differently from other subcontractors by, in effect, having to list such persons or entities as those providing contract labor as "sub-subcontractors." There was no evidence that the architect was provided sole discretion to verify self-performance experience as to the two projects only and ignore verification information of self-performance as to the other listed projects provided by Haycook. Although the architect and the Board contended that Haycook's listing of itself as self-performing in the four work areas at issue might allow Haycook to "buy out" subcontractors or to "bid shop," there was no evidence offered to substantiate that this was Haycook's intent or that Haycook or any other identified contractor in Volusia County or the surrounding area had ever attempted to "buy out" subcontractors on Volusia County school projects. Contrarily, Mr. Haycook testified that he does not engage in a practice of "buying out" subcontractors after he has obtained contracts with a winning bid. He explained, as referenced above, that subcontractors and the business relationships that he has with them are crucial to the success of his business. If Haycook made a practice of engaging in such inappropriate operational and pricing conduct when bidding for projects, or entering into related contracts, then subcontractors would either elect not give bids to Haycook at all when Haycook was, in the future, attempting to formulate bid responses, or would not give Haycook their lowest or best price because of their knowledge of such a practice, if Haycook engaged in it. This would obviously have an adverse effect on Haycook's ability in the future to be successful in competitive bid procurements or projects. Haycook has self-performed in the manner intended as to Elementary School "X" for years, as have his competitors. Although the Board apparently feared that Haycook's listing itself as self-performing in the areas of work in question gave it a competitive advantage over other bidders, the evidence does not bear out that fear. The competing bidders had the same opportunity to look at their past cost knowledge and experience, their knowledge of materialmen and suppliers in the area, their knowledge of the labor market and available labor and other data by which they might arrive at an independent evaluation of what a particular area of the work should cost, as well as the methods and means necessary to perform it. They had the same opportunity to evaluate any such knowledge base they have and elect to self-perform one or more areas of the work, as did Haycook. Since they had the same opportunity to do so, the evidence does not show there is any competitive advantage gained by Haycook in this situation which was not available to other bidders as well. As addressed above, the architect's recommendation to reject the Haycook bid was based upon his interpretation that "self-performance" required all work to be accomplished by employees on Haycook's payroll. Using that restrictive definition, the architect concluded that Haycook did not demonstrate, as to the Goldsboro and Eustis projects only, that Haycook had self-performed work with its own employees in the past and therefore that Haycook would self-perform with its own employees on the project at issue. The architect concluded that Haycook's subsequent engagement of contract labor in lieu of using his own payroll employees "could potentially give D. J. Haycook Construction Company an unfair advantage over the other bidders." Neither the architect's testimony nor the Board's other evidence explained, however, how that would give the Petitioner an unfair advantage over other bidders who, as found above, were free to engage in the same proposed self-performance as Haycook. The evidence did not establish how it would harm the public's strong interest in getting the best possible price for a quality construction effort that was completed on time, within the authorized budget, and in accordance with all the contractual terms. The architect's and Board's conclusion in this regard is based upon incorrect and unreasonable interpretations of what is meant by "subcontractor" and the concept of "self-performance." The rationale for finding that Haycook's putative self-performance would give Haycook an unfair advantage, vis a vis, other bidders or would promote bid shopping or buy-out of subcontractors has been shown by the evidence to be based upon speculation and conjecture. Haycook's bid response has been shown to be responsive to the specifications as they were stated, published and furnished to the bidders, including Haycook, in the bid documents at issue. The definition of self-performance employed by the architect and the Board is not supported by the language of the bid documents and has been shown by the preponderant, most credible evidence of record to be an unreasonable definition and manner of evaluating the bids and particularly Haycook's bid. Haycook has been shown to be responsive to the specifications and the relevant portions of the bidding documents and to have the lowest bid by a significant amount, some $241,000.00 dollars as to the base bids of Haycook versus that of Clancy and Theys.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the School Board of Volusia County awarding the contract for Elementary School "X" to the Petitioner, D. J. Haycook Construction Company, Inc. DONE AND ENTERED this 8th day of March, 2004, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with Clerk of the Division of Administrative Hearings this 8th day of March, 2004. COPIES FURNISHED: S. LaRue Williams, Esquire Kinsey, Vincent, Pyle, L.C. 150 South Palmetto Avenue, Box A Daytona Beach, Florida 32114 Theodore R. Doran, Esquire Michael G. Dyer, Esquire Doran, Wolfe, Rost & Ansay 444 Seabreeze Boulevard, Suite 800 Post Office Drawer 15110 Daytona Beach, Florida 32115 William E. Hall Superintendent Volusia County School Board Post Office Box 2118 Deland, Florida 32721-2118
