Findings Of Fact Petitioner, Golfcrest Nursing Home (Golfcrest), is a properly licensed 67-bed nursing home located in Broward County, Florida. Respondent, the Department of Health and Rehabilitative Services (HRS), was the state agency responsible for administration and implementation of the Florida Medicaid Program. Those responsibilities have been transferred to the Agency For Health Care Administration. Golfcrest participates in the Florida Medicaid Program and provides inpatient nursing home services to Medicaid eligible persons. Golfcrest is entitled to reimbursement in accordance with the Florida Title XIX Long-Term Care Reimbursement Plan (Plan) which has been adopted and incorporated by reference in Rule 10C-7.0482, Florida Administrative Code. The Plan contains provisions which authorize a nursing home participating in the Medicaid Program to request an interim change in its Medicaid reimbursement rate when it incurs property related costs which would change its reimbursement rate by one percent (1 percent) or when it incurs costs resulting from patient care or operating changes made to comply with existing state regulations, and said costs are at least $5,000 or one percent (1 percent) of its reimbursement rate. In 1980 Americare Corporation (Americare) purchased Golfcrest. In 1983 or 1984, Americare did some cosmetic renovations at Golfcrest. Portions of the facility are 45 years old. Americare contracted with Diversicare Management Services to manage the operations of Golfcrest. In 1988-1989, Joann Verbanic, a regional vice- president for Diversicare Management Services, recommended to the Board of Directors of Americare that major renovations to the Golfcrest facility be done. On March 19, 1990, Americare sent a team to Golfcrest to survey the facility for needed renovations. Later a plan was presented to Americare's Board of Directors and permission was given to proceed with a major renovation. In May of 1990 and July of 1991, HRS conducted its annual licensure surveys at Golfcrest. As a result, HRS identified several licensure deficiencies. Correction of these deficiencies was mandated by HRS. Failure to correct these deficiencies would have resulted in sanctions against Golfcrest's nursing home license, including administrative fines, a reduction in licensure rating, other civil penalties, and a reduction in Medicaid reimbursement. In order to correct the licensure deficiencies, Golfcrest incurred substantial property costs and costs due to patient care and operating changes. By letter dated January 6, 1992, Golfcrest submitted to HRS a request for an interim rate increase for patient care costs, operating costs, and property costs incurred or to be incurred to comply with existing state regulations and to correct identified licensure deficiencies. By letter dated April 14, 1992, Golfcrest provided additional information which had been requested by HRS. Golfcrest requested that the following costs be included in the calculation of its interim rate: Operating Costs Office Furniture $ 896.45 3 Laundry Carts 696.31 Office Door 125.00 Light Fixtures 1,067.30 Laundry Table 482.00 Structural Repairs 100.00 Repairs for Boiler 390.00 42 Overhead Lights 11,861.07 Patient Care Costs 57 Hi-Lo Beds 19,301.40 Blinds 5,145.02 Dining Room Furniture 3,167.70 Lobby Furniture 2,500.00 Bedspreads 3,404.78 Valances 3,472.05 Cubicle Curtains, Tracks 9,579.51 Activity Furniture 1,000.00 Property Costs Bldg. Imp. Depreciation 16,356.00 HRS denied in part and granted in part, Golfcrest's interim rate request by letter dated June 15, 1992, as revised by letter dated July 1, 1992. HRS granted the patient care costs for the 57 Hi-Lo beds and for the cubicle curtain and tracks and the property costs for the building improvement depreciation. In its proposed recommended order, Golfcrest withdrew its request for costs of the boiler leak, the lobby furniture, folding table for the laundry, and structural repairs. Golfcrest incurred the costs for which the interim rate is requested. Golfcrest requested that the purchase of office furniture be accepted as an allowable cost. Golfcrest did not specify what office furniture was purchased nor did it adequately relate such a purchase to a cited deficiency in either the 1990 or the 1991 survey. Additionally, Golfcrest did not establish that the cost of the office furniture was what a prudent and cost-conscious buyer would pay for office furniture. In the 1990 survey report, Golfcrest was cited for having linen stored on dressers in residents' rooms. There was insufficient space to store the linen in the laundry area so Golfcrest purchased three laundry carts to store the linens in the hallways. The purchase of the laundry carts was necessary to correct the deficiency cited in the 1990 survey. However, no evidence was presented to establish that the amount paid for the laundry carts was what a prudent and cost-conscious buyer would pay for the item. In the 1991 survey, Golfcrest was cited for having exit doors with screens missing and broken jalousie slats; therefore, it did not meet the requirement that the facility must provide housekeeping and maintenance services necessary to maintain an orderly and comfortable interior. Golfcrest relies on this cited deficiency to support its claim for the cost of replacing a new office door. Golfcrest's reliance is misplaced. The deficiency is the failure to perform ordinary maintenance services. The replacement of the office door is not necessary to comply with the cited licensure requirements. Golfcrest stated in its plan of correction that it would repair the cited doors by replacing the screens. Additionally, Golfcrest did not establish that the cost of the door was what a prudent and cost-conscious buyer would pay for the door. Rule 10D-29.121(7)(d), Florida Administrative Code, required that renovations to restore a nonconforming building to its condition previous to deterioration must minimally meet standards for a new facility. The unrebutted testimony was that termites had damaged the wall studs and the walls had to be torn out and replaced. In order to meet the required NFPA standards and building code requirements for lumens and wiring, it was necessary to replace 42 overbed lights and 14 light fixtures for 3-bed wards. The purchase of this lighting was necessary to correct deficiencies that would result if the old lighting were retained after the renovations. However, no evidence was presented that would establish that the cost of the lighting fixtures was what a prudent and cost-conscious buyer would pay for the lighting. In the 1990 survey report, Golfcrest was cited for having broken venetian blinds in rooms 6 and 33. Golfcrest stated in its plan of correction that "broken blinds are repaired/replaced as needed." Golfcrest requested that in its interim rate request that $5,145.02 be considered an allowable cost for the replacement of blinds. Although there was a deficiency noted concerning broken venetian blinds, Golfcrest did not establish that the cost for the blinds was what a prudent and cost-conscious buyer would pay for the blinds. In the 1991 survey, Golfcrest was cited for not being adequately furnished in the dining areas and not having sufficient space to accommodate all activities. In order to provide more space in the dining areas, Golfcrest purchased ten collapsible dining tables which could be easily removed to provide more space for large group activities in the dining room. The purchase of the dining tables was necessary to correct the deficiency of inadequate space, however, Golfcrest did not establish that the cost of the dining tables did not exceed the level of what a prudent and cost-conscious buyer would pay for dining tables. Golfcrest purchased 67 dining room chairs. However, Golfcrest did not establish how the purchase of the dining room chairs corrected the cited deficiency and did not establish that the cost of the dining room chairs was what a prudent and cost-conscious buyer would pay for dining room chairs. In the 1991 survey report, Golfcrest was cited for not providing clean beds. As an example of this deficiency, the survey listed torn blankets, threadbare sheets, pillow cases and towels and sunrotted sheets. Golfcrest purchased 104 bedspreads to replace all the bedspreads in the facility and to maintain an inventory of bedspreads to be used while bedspreads was being laundered. The purchase of the bedspreads were related to a cited deficiency, but Golfcrest did not establish that the cost of the bedspreads was what a prudent and cost-conscious buyer would pay for the bedspreads. Golfcrest requested that the purchase of valances be considered an allowable cost in its interim rate request. In its proposed recommended order, Golfcrest relied on the deficiencies cited in the 1991 survey report relating to the life safety survey dealing with privacy curtains which did not have netting at the top for support of its request for the valances. Golfcrest did not establish that the valances purchased were part of the cited privacy curtains. Given the fact that Golfcrest's request for replacement of cubicle curtains and tracks, was a separate request from the valances, it is reasonable to infer that the valances did not relate to the licensure requirement relied upon by Golfcrest. Additionally, Golfcrest did not establish that the cost of the valances was what a prudent and cost-conscious buyer would pay for valances. Golfcrest requested that the purchase of furniture for the activities area be considered an allowable cost in the calculation of its interim rate. Golfcrest did not establish what furniture was purchased for the activity area; thus, it did not establish how the purchase of the furniture was necessary to correct the deficiency that Golfcrest did not provide sufficient space and equipment and did not adequately furnish recreation and program areas to enable staff to provide residents with needed services as required. Additionally, Golfcrest did not establish that the cost of the furnishings for the activity room was what a prudent and cost-conscious buyer would pay for the furnishings. In its January 6, 1992 letter requesting an interim rate request, Golfcrest used 22,676 patient days to calculate the per diem rate for property costs. This number was taken from the July 31, 1990 cost report. HRS used 23,010 patient days to calculate the per diem rate. This number was taken from the last cost report dated July 31, 1991 and is the appropriate number to use in calculating the interim rate. The total per diem reimbursement rate for Golfcrest which was in effect at the time of the interim rate request was $71.2565. The per diem reimbursement for the property component is not one percent or more of Golfcrest's total per diem reimbursement rate.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration as successor in interest for the Department of Health and Rehabilitative Services determining the interim rate for Golfcrest to be $1.2551. DONE AND ENTERED this 3rd day of August, 1994, in Tallahassee, Leon County, Florida. SUSAN B. KIRKLAND Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of August, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-847 To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact Paragraphs 1-6: Accepted. Paragraph 7-9: Accepted in substance. Paragraph 10: Rejected as unnecessary detail. Paragraph 11-16: Accepted in substance. Paragraphs 17-19: Rejected as subordinate to the facts actually found. Paragraph 20: Accepted in substance. Paragraph 21: Rejected as constituting a conclusion of law. Paragraph 22: Accepted in substance. HRS had allowed the cost of the Hi-Lo beds, thus, those costs were not in dispute. Paragraph 23: Accepted in substance as to the blinds but not as to the shades and shower curtains. The shades and shower curtains were not part of the interim rate request, thus whether they were necessary to correct a deficiency is not addressed in this Recommended Order. Paragraph 24: Accepted in substance as it relates to the dining tables but not as to the dining chairs. Paragraph 25: Accepted in substance. Paragraph 26: Accepted in substance as it relates to the cubicle curtains and tracks but not as it relates to the valances. The cubicle curtains and tracks were allowed by HRS as a cost and thus was not in dispute. Paragraphs 27-28: Accepted in substance. Paragraph 29: Rejected as not supported by the greater weight of the evidence. Paragraph 30: Accepted in substance. Paragraph 31: Rejected as not supported by the greater weight of the evidence. Paragraphs 32 and 33: Accepted in substance. Paragraph 34: The first two sentences are accepted in substance. The third, fifth, sixth and seventh sentences are rejected as constituting conclusions of law. The fourth sentence is accepted. Paragraphs 35-36: Rejected as not supported by the greater weight of the evidence. Paragraph 37: The first sentence is accepted. The second sentence is rejected as not supported by the greater weight of the evidence. Paragraph 38: Rejected as subordinate to the facts actually found. Paragraph 39: With exception of the last sentence the paragraph is rejected as unnecessary detail. The last sentence is rejected as constituting a conclusion of law. Respondent's Proposed Findings of Fact. Paragraph 1: Accepted in substance. Paragraphs 2-9: Accepted. Paragraph 10-11: Accepted in substance. Paragraph 12-22: Rejected as unnecessary detail. Paragraphs 23-28: Accepted in substance except in paragraph 24 the reference to floor coverings should be to light fixtures. Paragraph 29: Rejected as not supported by the greater weight of the evidence. Paragraph 30: Accepted in substance. Paragraph 31-33: Rejected as subordinate to the facts actually found. Paragraph 34: Accepted in substance. Paragraph 35: Rejected as subordinate to the facts actually found. Paragraphs 36-39: Accepted in substance. COPIES FURNISHED: Alfred W. Clark, Esquire 117 South Gadsden, Suite 201 Tallahassee, Florida 32301 Karel Baarslag, Esquire HRS Medicaid Office 1317 Winewood Boulevard Building Six, Room 233 Tallahassee, Florida 32399-0700 R. S. Power, Agency Clerk Agency for Health Care Administration Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Harold D. Lewis, Esquire Agency For Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303
The Issue The issues are whether any Petitioner has proved by clear and convincing evidence that he timely submitted a request to purchase "Additional Accrual Service" (AAS) credit to the Board of Trustees (Board) of the City of Hallandale Beach Police Officers' and Firefighters' Pension Plan (Plan) in writing or at a public meeting and whether the Board prohibited such Petitioner from purchasing the requested AAS credit.
Findings Of Fact At all material times, Respondent has maintained city police and fire departments.3 Respondent sponsors the Plan to provide defined benefits, mostly on retirement, to members of the Plan, who are current and former city police officers and firefighters. Respondent primarily documents the Plan in ordinances that it enacts from time to time--as relevant in this case, in 2008 and 2011.4 Changes to the Plan may result from negotiations between Respondent and the police and firefighters unions, and the collective bargaining agreement may document the new provision until it is enacted by ordinance. The relevant agreement is the Collective Bargaining Agreement between Respondent and the Hallandale Beach Professional Fire Fighters Metro Broward Local 3080 District 10 for October 1, 2005 through September 30, 2008, as executed on October 3, 2006 (CBA).5 The Plan and the funds associated with the Plan are "under the exclusive administration and management" of the Board.6 The "responsibility for the proper effective operation of the … Plan and for making[7] the provisions of this Ordinance is vested in [the] Board."8 The 3 Subsequent to the timeframe at issue, the city fire department merged with the Broward County fire department. 4 For most of the time in question, the relevant Plan was documented in City of Hallandale Beach Ord. Nos. 2008-29 and 2011-11. Provisions material to this case were unchanged in the 2011 ordinance. References to the "Plan" are to the 2011 ordinance due to its superior formatting and ease of use. All references to "section" or "§," such as "section 8.08," are to the Plan, as codified by the ordinance, unless the reference is to Florida Statutes. 5 Presumably, Respondent negotiated identical language in the collective bargaining agreement with the police union, but this contract is not part of the record. 6 § 2.01. 7 "Making" probably means "implementing," because Respondent, not the Board, "makes" or enacts ordinances. 8 § 3.01. Board consists of one trustee elected by the police, one trustee elected by the firefighters, two trustees appointed by Respondent, and a fifth trustee, who is selected by the other four trustees and appointed by Respondent.9 The Plan authorizes the Board "to take such action as may be necessary to carry out the provisions of the Plan and all decisions of the Board … , made in good faith, … shall be final, binding and conclusive on all parties."10 The Board may "establish and maintain communication with [Respondent's] departments and other agencies of government as is necessary for the management of the … Plan," but the Board must "determine all questions relating to and process all applications for … benefits."11 However, "[i]f an action of the Board has an impact on [Respondent's] contribution the action must be approved by the City Commission. [Respondent] retains the right to obtain independent actuarial services to determine financial impact." Despite this exception to the Board's administrative authority, only the Board, not Respondent, is a fiduciary of the Plan, so as to be subject to the obligation "to discharge its responsibilities solely in the interest of the members and beneficiaries of the Plan for the exclusive purpose of providing benefits to the members and their beneficiaries and to defray the reasonable expenses of the Plan."12 As authorized by the Plan,13 the Board retained, at all material times, the services of independent counsel, actuarial firms, and pension services 9 § 3.02. See also §§ 175.061(1)(b)2.; 185.05(1)(b)2., Fla. Stat. Chapter 175 applies to a city pension plan for firefighters, and chapter 185 applies to a city pension plan for police officers. 10 § 3.09. 11 § 3.11(f) and (g). 12 § 3.10. This section continues: "The [Board] shall exercise those fiduciary responsibilities with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a similar character and with similar aims." 13 § 3.12. companies to assist in the administration of the Plan. Board counsel and a representative of the pension services company routinely attended Board meetings. The Plan's primary retirement benefit, which is payable for the remaining life of the member, but not less than ten years,14 is based on a formula that, for a vested member,15 multiplies the member's final average compensation by the member's credited years of service by the applicable annual accrual rate, which is typically 3.2%.16 For instance, the lifetime benefit payable to a member earning annual compensation of $50,000 with 20 years of service at an accrual rate of 3.2% would be $32,000 annually or $2667 monthly.17 The Plan's funding is more complicated and requires the services of an actuary to calculate the assets and liabilities of the Plan, which are held by a trust.18 For a fully funded plan providing a defined benefit, the assets--the 14 § 6.04. 15 The vesting period for the Plan is generally ten years. §§ 1.31, 1.32, and 8.01. 16 § 6.02. 17 The annual benefit is the product of $50,000 x 20 x .032. 18 For an excellent discussion of the responsibilities of an actuary in determining the proper funding of a pension plan, see Vinson & Elkins v. Comm'r of Int. Rev., 99 T.C. 9, 15-16 (1992), which cites the following legislative history concerning the treatment of actuaries in The Employee Retirement Income Security Act of 1974: In estimating pension costs, actuaries must make assumptions (“actuarial assumptions”) about a number of future events, such as the rate of return on investments (“interest”), employees' future earnings, and employee mortality and turnover. Actuaries also must choose from a number of methods to calculate future plan liabilities. The amounts required to fund any given pension plan can vary significantly according to the mix of these actuarial assumptions and methods. As a result, the assumptions and methods used by actuaries are basic to the application of minimum funding standards for defined benefit pension plans. [citations omitted] contributions of the plan sponsor; the contributions of members; for a local pension plan for police officers and firefighters, the plan's share of state excise taxes that are imposed on insurers19 or local excise taxes that may be imposed on local insurance premiums;20 forfeitures, usually of the sponsor's contributions on behalf of members whose service terminated prior to vesting;21 and the expected investment returns on these contributions and forfeitures, from receipt until payout--will provide adequate funds for the plan's trust to pay all liabilities, or benefits, when due. The benefits include projections and estimates of how many members will become vested; the retirement benefits due based on the members' final compensation levels, years of service, and form of benefit--disability, early retirement, normal retirement, and enhanced retirement benefits, such as from additional accrual rate or additional years of service; and the remaining life expectancies of members when they start receiving retirement benefits.22 19 §§ 175.1215 and 185.105, Fla. Stat. 20 §§ 175.101 and 185.08, Fla. Stat. 21 The Plan seems to preclude a forfeiture of the sponsor's contributions on behalf of even an unvested member. Section 8.03 provides that "[e]very member shall have the right to receive, in lieu of all benefits under the plan, a return of the member's accumulated contributions." If the member terminates with less than five years' service, the member is entitled "to a return of the contributions" without interest. If the member terminates with more than five years' service and elects a lump-sum "return of contributions," the member receives interest. Section 1.01 defines "accumulated contributions" as "the sum of all amounts deducted from a member's compensation or picked up on behalf of a member." Section 4.01 states that Respondent "shall pick-up, rather than deduct from each member's pay," specified percentages of pensionable earnings, so the pick-up amount appears to be Respondent's contribution on behalf of a member. As discussed below, this case presents another category of forfeitures--members' payments for additional accrual rate that cannot be applied due to insufficient years of service at the time of retirement. 22 See, e.g., Vinson & Elkins, 99 T.C. at 13 ("The amount estimated to fund a defined benefit plan is calculated by the plan's actuary and is determined based upon actuarial assumptions about a number of future events, such as rates of return on investments, the benefit commencement date, future earnings, and member mortality, among other things."). This case involves an optional enhanced retirement benefit in the form of additional accrual rate. As noted below, eligible members have previously been able to purchase additional accrual rate, but this case concerns a pricing change that went into effect for police officers hired after January 1, 2006, and firefighters hired after January 1, 2007.23 Section 8.08 authorizes such persons to purchase up to five years' additional accrual rate--so as to add 3.2% accrual rate to the Plan's 3.2% accrual rate, for a total 6.4% accrual rate--for each year of service that the member completes from his or her 16th through 20th years of service or, if fewer than five years' accrual rate is purchased, for the purchased number of years constituting the final years of service within the 16th through 20th years of service.24 Taking the example in paragraph 6, if a member purchased five years' additional accrual rate and retired with 20 years of service, the benefit would be $40,000 annually or $3333 monthly.25 In this illustration, the enhanced retirement benefit would increase the member's monthly benefit by $666 and would produce a retirement benefit, at 20 years' service, that would be the equivalent of the retirement benefit, at 25 years' service, without the additional accrual rate purchase.26 23 The difference of one year reflects the one-year difference in the commencement date of each union's collective bargaining agreement. 24 Section 8.08 does not so clearly limit the member purchasing fewer than five years' additional accrual rate to the corresponding number of years in the member's 16th through 20th years of service, but the parties seem to share this interpretation. Thus, it appears that a member purchasing three years' additional accrual rate would be required to apply the additional rate to the member's 18th through 20th years of service. 25 The 3.2% accrual rate for the first 15 years at $50,000 would produce an annual benefit of $24,000, and the 6.4% accrual rate for the final five years at $50,000 would produce an annual benefit of $16,000. 26 The total annual benefit of $40,000, as calculated in the preceding footnote illustrating the effect of five years' additional accrual rate, is identical to the total annual benefit of a 3.2% accrual rate for 25 years at $50,000. Section 8.08 imposes three conditions on the purchase of additional accrual rate. The member must have been employed as a police officer or firefighter with Respondent for at least one year, the member "must exercise this option within [90] days after completion of probation," and the member "shall contribute the full actuarial cost of the benefit for each of year enhanced multiplier purchased," which the member may pay over ten years or prior to entry into DROP,27 whichever occurs first. During the time in question, it appears that probation ran one year from the date of hire. Section 8.07 authorizes an eligible member to purchase additional years of service based on prior years of service with certain employers, such as the military or other law enforcement agencies. Section 8.07 limits this "buyback" of prior service to four years' qualifying service and requires a member to pay 8.4% of the member's current annual compensation for each year of prior service purchased. Section 8.07 allows a member five years to pay the purchase price and limits a member to the purchase of no more than a total of five years' additional accrual rate and additional years of service. Nomenclature problems render some of the minutes of Board meetings discussed below difficult to understand. The problem starts with "AAS," which misleadingly refers to "service," not rate, so as to encourage the reference to the purchase of additional accrual "rate" as the purchase of "service," which properly applies only to the purchase of additional years of service. The confusion is compounded by the use of the term, "buyback" to apply to the purchase of additional accrual rate, as well as to the purchase of additional years of service. The sense of reacquisition in the term, "buyback" limits its use to the purchase of additional years of service, because a member is not reacquiring anything when she purchases additional accrual rate. The Plan appropriately describes the purchase of additional years of service as a "buyback," but does not use this term to describe the purchase of 27 DROP is the Deferred Retirement Option Program. additional accrual rate, although the Plan elsewhere uses "buyback" to refer to the purchase of both additional years of service and additional accrual rate.28 Distinguishing between these two enhanced benefits was less important for police officers hired on or before January 1, 2006, and firefighters hired on or before January 1, 2007. For them, each year of additional accrual rate cost 8.4% of compensation and payment of the purchase price was limited to five years--the same terms that applied and apply to the purchase of each year of additional service. Another common feature between the two optional benefits is their monetary value to the member. At all material times, for identically situated members, the purchase of an additional year of accrual rate has resulted in the same increased benefit as the purchase of an additional year of service.29 Respondent introduced the 2005 and 2006 changes to end its subsidy of members' purchases of additional accrual rate,30 but obviously chose not to end its subsidy of members' purchases of additional years of service--an option that is obviously available only to new hires with qualifying past employment. Calculating the full actuarial cost of additional accrual rate should not have been inordinately difficult. Compensation levels for the members would have been relatively easy to project due to the nature of their 28 § 1.01 ("Accumulated contributions shall … include buy-back amounts paid under sections 8.07 and 8.08."). 29 Assume that the members are the same age, retire on the same date with 20 years of service, commence benefits at retirement, and earned $50,000 at all times during employment with Respondent. As noted above, the annual retirement benefit for such a member who did not purchase additional accrual rate or additional years of service would be $32,000. The purchase of one year of additional accrual rate would raise the member's annual retirement benefit to $33,600: ($50,000 x 19 years x .032) + ($50,000 x 1 year x .064). The purchase of one year of additional year of service also would raise the member's annual retirement benefit to $33,600: ($50,000 x 21 x .032). 30 Minutes of Board meeting on Aug. 27, 2007. employment with expected raises based mostly on years of service. Normal retirement under the Plan is the earlier of 25 years of service or 52 years of age with at least ten years of service, and there is no mandatory retirement age.31 A member's age at retirement would not have been difficult to project due to the necessity that, for additional accrual rate, a member must work at least through her 16th through 20th years of service and the knowledge of the age of a member at the time of her employment. A member's age at retirement is especially important because a lifetime enhanced monthly benefit of, say, $666 is far more costly to the Plan, for a member who is 52 years old at retirement than for a member who is 70 years old at retirement, given the large difference in remaining life expectancies between these two retirees. With this information, coupled with standard mortality tables and an assumed investment return, an actuary could readily determine the sum required to support the enhanced monthly benefit payment. Estimating the contribution required to generate the sum determined in the preceding paragraph also should have been straightforward. If a member paid the contribution in a lump sum, the main task would be settling upon a reasonable investment return from the contribution until payout, more than 19 years later. If a member paid the contribution by installments over ten years, the investment return would apply to each payment, upon receipt, as payments made in the first year would produce more total investment return than payments made in the tenth year. As detailed below, two issues emerged that interfered with the rollout of the revisions to the purchase of additional accrual rate. The first issue, which was first seen in April 2007, was whether a vested member forfeited her payment or payments if she retired prior to the 16th through 20th years of service. If a member forfeits her payment or payments, an actuary could 31 § 6.01. consider projected forfeitures in calculating the full actuarial cost of the additional accrual rate purchase; this would lower the cost to a member, whose enhanced benefit would be partly paid by such forfeitures. This issue may have been more theoretical, unless the Plan had had sufficient experience with such forfeitures to allow an actuarial assumption as to the amount that would be forfeited over a specific interval. In any event, Plan provisions clearly would have supported the Board's determination that such forfeitures were not permitted by the Plan.32 The second issue, with which the Board wrestled from at least September 200833 through February 2009,34 is whether a member who pays the full actuarial cost by installments must pay interest on the installments. This issue raises questions about the communications between the Board and its actuaries,35 who, if asked, should have promptly advised the Board that their actuarial calculations already captured the time value of money, so as to dispense with the necessity of charging interest.36 32 See footnote 21. 33 Minutes of Board meeting on Sept. 8, 2008. 34 Minutes of Board meeting on Feb. 23, 2009. 35 A couple of years later, relations between the Board and its actuaries were decidedly suboptimal when the actuary informed the Board that his firm would require an additional $100 per calculation of the full actuarial cost of additional accrual rate, the Board told the actuary that his firm needed to live up to its contract, a motion to approve the fee increase died for lack of a second, and the actuary told the Board that the firm would resign, if the Board failed to approve the fee increase. Minutes of Board meeting on Oct. 10, 2011. 36 This assumes that Respondent or the trust did not effectively lend the purchase price to the member--perhaps, to simplify the actuarial calculations--and, if not, that the actuaries made some attempt at pricing the full actuarial cost based on how long the trust held each installment payment. Because the full actuarial costs reflects the amount necessary to produce the defined benefit, the member who pays over ten years already will pay more than the member who pays in a lump sum at the time of purchase; the former's final year's installment payments will support investment return for nine fewer years than any payments in the year of purchase. Charging interest on deferred payments would have imposed duplicative exactions upon the member. Nevertheless, the available minutes do not document how the Board resolved this issue. Given one year's probation for new hires, the above-described changes to Section 8.08 would have applied to police officers starting in 2007 and firefighters starting in 2008. Although Respondent did not enact the first ordinance with these changes until 2008, the operative language had been incorporated into the CBA, which adequately captures the new provisions governing additional accrual rate purchases, so as to permit immediate implementation. The CBA provides: For employees hired after 01/01/2007, modify the Additional Accrual Service (AAS) Buyback percent the employee pays from 8.4% to the actual actuarial cost of the benefit and allow the member to pay for this in 10 years instead of 5 years. Effective 11/01/2006, continue the current prior service credit buyback provision … .[37] The record contains no minutes for Board meetings prior to 2007, but, in minutes of a meeting in early January 2007, the Board recognized that it could not provide a member with the purchase price of additional accrual rate until an actuary calculated the full actuarial cost.38 This was a good start. The next month's Board meeting, though, provided evidence of poor communications with the actuaries on the crucial issue of Plan provisions. In February 2007, an actuary performing an audit of the trust fund complained that the Plan was unclear in its treatment of the "buyback [of] service," and he could not reconcile his determination of the present value of benefits with the same determination by another actuary, who had a different interpretation of this buyback provision. Due to confused use of nomenclature, as described above, it is unclear whether this complaint pertained to additional accrual rate, additional years of service, or both 37 Coyle Ex. 11, Bates Stamp, p. 296. 38 Minutes of Board meeting on Jan. 8, 2007. optional benefits, but, given the recent change as to the accrual rate, it likely pertained to the optional benefit at issue in this case. The response of the Board's counsel was not to refer the actuary to language in the ordinance or a collective bargaining agreement, but to a recommended clarification of the "service buyback" within the Summary Plan Description,39 which, as the name implies, is intended to be merely a synopsis of provisions in the operative Plan, not a source of Plan provisions.40 In a Board meeting in April 2007, a Board trustee asked whether a vested member who terminated service was entitled to a refund of the member's contributions as part of a "five year buyback," which likely referred to the additional accrual rate purchase, as a member may purchase five years of that optional benefit, but only four years of additional years of service. Construing the question to pertain to the purchase of additional accrual rate, Board counsel referred to a Draft Summary Plan Description from October 2006 that provided clearly that such contributions were forfeited if a member elected to receive a retirement benefit prior to the completion of the 16th through 20th years of service, but member contributions were not forfeited if the member elected to receive a refund of all contributions instead of a pension benefit.41 Rather than accept this substantive guidance or argue for a different policy, another Board trustee 39 Minutes of Board meeting on Feb. 26, 2007. 40 Nor may a collective bargaining agreement have been the sole alternative source of important Plan provisions. On one occasion, the minutes state that an important provision regarding DROP was addressed only in "a contract"--presumably, a collective bargaining agreement--not in any "ordinance," and Mr. Antonio suggested that Respondent and the union enter into a "letter of understanding" on the matter. Minutes of Board meeting of Oct. 15, 2007. 41 Neither the Draft Summary Plan Description nor any written opinion of Board counsel is part of the record. It seems odd that a vested member would not receive a refund of her payments, but an unvested member would. See footnote 22. The last sentence of section 1.01, which defines the "accumulated contributions" that are to be returned to a member, states: "Accumulated contributions shall also include buy-back amounts paid under sections 8.07 and 8.08." responded that Respondent had never adopted this Draft Summary Plan Description. The discussion ended, and the forfeiture issue remained unresolved for an extended period of time, even though Board counsel had provided the Board with an unequivocal opinion that a vested member forfeited her payments, and the implementation of this opinion would not have impacted--i.e., increased--Respondent's contribution, as addressed in Section 3.16. The Board's nondecision on forfeitures deprived the actuaries of important information needed to price the full actuarial cost of additional accrual rate purchased. Poor communications with the actuaries may have resulted from direct communications that they received, not from Board representatives, but from representatives of Respondent. At times during the hearing, Petitioners' witnesses described how well the Plan was administered when Respondent's employee, Marc Antonio, was available to prepare cost worksheets for the optional benefits and help new hires complete their applications. In 2007, Mr. Antonio was an assistant City manager; by August 24, 2009, he was in the Finance Department. But Mr. Antonio was still regularly attending Board meetings during the period that the full actuarial cost was in effect, and neither he nor the Board was able to provide this information to interested members. The record does not reveal whether Mr. Antonio contributed to confusion among the actuaries. However, another employee of Respondent did. According to Board minutes in 2018, Mr. Cowley recalled speaking ten years earlier to a former human resources director who had become active in Plan business. Mr. Cowley mentioned to the director the need of the Board to be able to present full actuarial costs to members seeking to purchase additional accrual rate, but any deadlines for producing this information "kept getting pushed back." A Board trustee familiar with the director added that he had "always deferred sharing the specifics of the buyback procedures and had trouble conveying the information to the actuary."42 Nevertheless, in early 2007, the actuaries began to develop a method to calculate the full actuarial cost of the purchase of additional accrual rate. Minutes of a Board meeting on August 27, 2007, reveal that, at the previous month's meeting, the Board had been presented with a draft ordinance, perhaps of the Plan or at least Section 8.08, as well as "buy-back tables" that appear to pertain to the purchase of additional accrual rate for a member who retired at age 52. An actuary referred to these tables as applicable to members purchasing "additional service," but these comments pertain to the purchase of additional accrual rate. Mr. Antonio replied that the "dynamic created by eligibility makes the cost very difficult to … estimate,"43 perhaps accurately commenting on the impact of the member's age at retirement on the full actuarial cost of the optional benefit. The actuary asked that each member seeking to purchase additional accrual rate be required to submit an application. At the time a Board trustee, Mr. Cowley asked for the chart as a guide for all members, even though the chart would overstate the cost for older members at retirement. Mr. Antonio seemed to discourage the broader use of a chart designed for a 52-year-old retiree, but incorrectly explained that, while he thought the chart would be accurate, the benefit and cost could be difficult to explain to members--obviously true if someone tried to explain the cost to a 65-year-old retiree based on a chart prepared for a 52-year-old retiree. The actuary said that she would expand the chart to include older members at retirement, and the Board agreed that members older than the oldest age used in the revised chart would apply for an individual calculation of the full actuarial cost. Mr. Antonio concluded the discussion by saying that he 42 Minutes of Board meeting on Nov. 26, 2018. 43 Minutes of Board meeting on Aug. 27, 2007. wanted "the chart" to be a fixed cost to members with Respondent bearing the financial burden of what he termed, "minor variations in experience." It seems as though Mr. Antonio was referring to the relatively minor cost of preparing a chart, rather than to a directive that the full actuarial cost disregard the age of the retiree--as before, at the expense of Respondent. The actuaries expended considerable time preparing the age-based "Buy Back Tables,"44 and the work proved to be much more difficult than they had initially expected. During a Board meeting in October 2007, the actuary, by letter, asked the Board to approve an increase in actuarial fees for this service from the quoted $2500 to $3000 to $19,424 for 89 hours of work already completed. The letter explained that "the unusual nature of the Plan's buyback provision" had necessitated "much more extensive testing than is required for other plans." Even though this optional benefit should have been rolled out for police officers months earlier, the Board deferred action on the request.45 These are all of the minutes of Board meetings in 2007 that are in the record. For all of 2007, the development of the full actuarial cost of additional accrual rate purchase indisputably remained a work in progress. Regardless, Respondent contends, in derogation of the Board's minutes, that an interested member could, in late 2007, obtain the full actuarial cost of additional accrual rate. In support of this fanciful contention, Respondent produced four exhibits. Respondent Exhibits 1 through 3 purport to be worksheets showing the calculation of the full actuarial cost of additional accrual rate purchased 44 If Mr. Antonio's "fixed cost" reply ended the investigation into charging the full actuarial cost for the purchase of additional service years, this reference to "Buy Back Tables" is to the purchase of additional accrual rate. Otherwise, the tables might pertain to the purchase of additional accrual rate and additional years of service. 45 Minutes of Board meeting on Oct. 15, 2007. by three police officers: John Cameron,46 Marco McAdam,47 and Victor Lynch,48 respectively. In each case, the worksheet indicates that the member had completed probation less than 90 days earlier. The Cameron and McAdam worksheets depict four years' additional service and one year's additional accrual rate, and the Lynch worksheet depicts five years' additional accrual rate. There is no evidence about the authorship of these worksheets or, for the Cameron and McAdam worksheets, that the members were able to purchase the service and rate credit at the prices quoted. Respondent Exhibits 1 and 2 are thus entitled to no weight. By contrast, the Lynch worksheet is supported by Respondent Exhibit 4, which is documentation of actual payroll deductions. Both documents are consistent, showing a total cost of $55,840.50, 260 payroll deductions of $214.77 each, and a start date of October 15, 2007. However, Respondent Exhibits 3 and 4 do not support Respondent's claim that, in the fall of 2007, members were able to obtain the full actuarial cost of additional accrual rate purchases, and, if they failed to do so, it was due to a lack of interest in this optional benefit. Given the timing of the Lynch worksheet and the request of the actuary for Board approval of fees over six times higher than the actuary had quoted for working up the full actuarial cost, the Lynch worksheet likely was a prototype that the actuary prepared in trying to develop a method for calculating full actuarial costs. Noticeably missing from the record is any indication that the calculations for the prototype Lynch worksheet proved reliable or the workup could be used for other members. Judging from the absence of Board-approved purchases the 46 Resp. Ex. 1. 47 Resp. Ex. 2. 48 Resp. Ex. 3. following year, either the Lynch calculations were unreliable or at least premature. Minutes of a Board meeting years later, in November 2018, address the Lynch worksheet. In this meeting, Mr. Dodea told Petitioner Roccisano that Mr. Dodea had found one early calculation of full actuarial cost--a calculation done by actuary, Chad Little, in 2008 for Victor Lynch, which the Board had approved. It seems that Mr. Dodea was off by one year in his description of Respondent Exhibit 3. Aptly, Petitioner Roccisano replied that all that this proved is that Mr. Lynch had found a "different channel" by which to obtain a calculation of the full actuarial cost of his purchase of additional accrual rate.49 The minutes of the Board meeting in January 2008 revealed progress in the preparation of an age chart for determining the full actuarial cost of additional accrual rate for a span of ages at retirement. The Board agreed that any member over the ages shown on the chart should receive an individual calculation.50 The next Board meeting for which minutes are available took place in August 2008, and they confirm that, besides Mr. Lynch, no one had obtained the full actuarial cost of additional accrual rate, so as to be able to make an informed purchase decision. An actuary stated that he would charge $600 for each such "buyback" calculation. Told that members had been waiting "for over a year" for an estimate of the full actuarial cost of a purchase of additional accrual rate, the Board agreed to send the information for these members to the actuary for calculations of their purchase prices. The motion 49 These minutes suggest that, contrary to Mr. Dodea's testimony (Tr., pp. 598, 601), he did not discover the Lynch worksheet on the day prior to the last day of the hearing, but, at best, he "rediscovered" it at that time. Given the treatment of the Lynch worksheet, Respondent's failure to disclose the existence of this exhibit in a more timely fashion is immaterial. 50 Minutes of Board meeting on Jan. 14, 2008. that passed specifically approved sending the information for members who "are past their one year anniversary since 9/30/06 through 9/30/08."51 In September 2008, a Board trustee raised the issue of interest on installment payments for "buyback purchases" and stated that the installment payments must not impact the trust assets. "Buyback purchases" may refer to the purchase of additional accrual rate, additional years of service, or both. Interest on the purchase of additional years of service makes sense, because 8.4% per year purchased does not seem to reflect the time value of money. Again, the full actuarial cost of additional accrual rate purchased should reflect the time value of money, although nothing in the record clearly confirms that actuaries calculated a considerably higher full actuarial cost for installment payments than for a lump sum.52 This issue should have been resolved at this time--ideally based on the approach of the actuary calculating the full actuarial cost, but practically with a decision either to charge interest or not to charge interest. Instead, as detailed below, this issue lingered, unresolved, until February 2009. The same Board trustee raised the forfeiture issue by suggesting that members be allowed to obtain a refund of their payments toward additional accrual rate, presumably if they were unable to qualify for the rate due to insufficient years of service. The minutes state: "The City does not agree, 51 Minutes of Board meeting on Aug. 11, 2008. 52 Nine years later, in 2017, an actuarial letter prepared for Petitioner Manny Gonzalez alludes to this issue. Coyle Ex. 1, Bates Stamp, p. 5. The letter quotes nearly $80,000 as the cost of five years' additional accrual rate for retirement benefits commencing 11 years later. Given that the full actuarial cost likely approximated Mr. Gonzalez's annual salary, the letter unrealistically "recommend[s] … payment … be made as a lump sum within six months of the request." This seems like wishful thinking by the actuary, but was it to spare the actuary the task of recalculating the full actuarial cost if paid over ten years, running a simple installment payment plan with interest, running a simple installment payment plan without interest (and ignoring the time value of money), or avoiding the interest issue with Respondent? until they can resolve a separate issue related to interest on buyback payments over time." This quote marks the end of a documented, evidently brief discussion about interest and forfeitures--over one-and-one-half years after the Board initially referred the matter to its actuaries. The Board does not explicitly defer to Respondent's objection to refunds and claim that it must resolve the interest issue, but, characteristically, the Board took no action. At this point, both of these issues were overripe for resolution,53 and the Board's failure to proceed appears at least partly attributable to Respondent's refusal to agree--even though, two years earlier, Respondent had completed its relevant work when it incorporated the change, in implementable form, in the CBA. The next Board meeting for which minutes are available took place in January 2009. The actuary discussed the calculations of the full actuarial cost of additional accrual rate purchases--work that was still "in the process." Someone asked whether a vested member would receive a refund of the purchase price if the member's services terminated, presumably prior to the 16th year of service. The Board attorney said that the member would receive a refund, but Mr. Antonio disagreed, adding that Respondent was negotiating this issue with the unions. A Board trustee raised the issue of interest, and Mr. Antonio replied that Respondent was negotiating this with the union. No one on the Board displayed the initiative to resolve the issues at this time. A Board trustee mentioned that two persons were "currently buying back time" and were not paying interest. Once again, a lack of clarity with nomenclature precludes a finding that Mr. Lynch had been joined by 53 It seems that these issues should have arisen and been resolved under the prior Plan provisions authorizing the purchase of either optional benefit at 8.4% of compensation per year purchased, even though the maximum repayment period for both options was only five years. It is unclear if the provision as to the 16th through 20th years of service previously applied to the purchase of additional accrual rate, but, if not, the forfeiture issue would have arisen at least when an unvested member terminated service. another lucky member; again, a member "buys back time" when purchasing additional years of service and buys rate when purchasing additional accrual rate. Rather than resolve the issue, the Board agreed on an impractical temporary fix: to provide members with two purchase prices--one with interest and one without interest. At the end of the minutes, a Board trustee noted that new employees did not know the cost of additional accrual rate, and the "Board must first retain an actuary"54--precisely what the Board had done two years earlier. At the Board meeting on the following month, the same Board trustee complained about the "buyback" calculations that had recently been completed for 14 members. Because Respondent had failed to indicate whether these installment payments would be charged interest, the calculations were done in the alternative, and the difference between each pair of calculations was "huge," thus demonstrating the impracticality of this "solution." However, this discussion concluded with an observation that "[s]ome members have already started buying back time."55 At a meeting in August 2009, the Board deferred the approval of "buyback statements" that had been prepared by an actuary.56 At the Board meeting the following month, the Board discussed a request of a member currently "buying back time." Without terminating employment, the member wanted to stop the purchase and obtain a refund of all payments previously made. The member added that he was under the old purchase price of 8.4%, suggesting that he was purchasing additional accrual rate, not years of service. The Board deferred action, but relieved the member from the responsibility of making further payments.57 54 Minutes of Board meeting on Jan. 5, 2008. 55 Minutes of Board meeting on Feb. 23, 2009. 56 Minutes of Board meeting on Aug. 24, 2009. 57 Minutes of Board meeting on Sept. 29, 2009. The next Board meeting for which minutes are available took place in January 2010. Board counsel informed the Board that the actuary had increased the cost of a calculation of additional accrual rate purchase to $350, but all other calculations would remain $100 per calculation.58 It seems, finally, that the Board had sorted out the remaining problems that had prevented the presentation of the full actuarial cost to a member purchasing additional accrual rate. By mid 2010, another issue had arisen, though. In July 2010, the Board considered the timeliness of a request to purchase an optional benefit relative to the expiration of probation. As noted above, a request for either optional benefit must be filed within 90 days of the completion of probation. An employee of the Board or Respondent advised the Board that members had been told to wait to purchase additional years of service until Respondent entered into a new collective bargaining agreement with the unions and, now that the parties had concluded a new agreement,59 the members wanted to proceed with their purchases of additional years of service. The Board agreed that it would allow these purchases to take place, but would need a list of these members.60 In August 2010, the Board was informed that a vested member had complained to the Florida Division of Retirement that, upon termination of employment, he had not received a refund of his payments for additional accrual rate. The Board declined to change its earlier decision, which evidently was not to refund the payments. In response to the business taken up at the July 2010 meeting, Mr. Dodea distributed a list of members who 58 Minutes of Board meeting on Jan. 11, 2010. 59 It is possible that a new collective bargaining agreement had resolved the issues of forfeitability of payments for additional accrual rate by a vested member and whether the installment payments bore interest. But the record contains no collective bargaining agreements subsequent to the CBA. 60 Minutes of Board meeting on July 12, 2010. wanted to purchase additional years of service, even though they were past 90 days from the end of their probation. Board counsel advised the Board that this process was being undertaken because, when the probation had ended for these members, a "final contract" was not in place.61 In any event, in October 2010, Board counsel presented lists of members who wanted to purchase additional accrual rate or additional years of service, but who were past 90 days from the end of their probation. The minutes reflect that Respondent had questioned by what authority the Board could "impasse [bypass?] the Ordinance," which probably means disregard the 90-day limitation periods, and Board counsel replied that Respondent would not have to amend the ordinance to authorize this extension of these two 90-day deadlines. Apparently mollified, Respondent insisted that the Board communicate a firm deadline to members by which they would have to elect one or both options. In other related business, the actuarial firm reported that it had completed its "first buyback calculation." But the actuary asked if the calculation was based on the member's base pay or pay with benefits. Suggestive of a program that was rolling out, finally, the Board told the actuary to use base pay--and not to charge interest on the installment payments.62 In April 2015, Board counsel stated that letters that the Board had sent to eligible members "a couple of years ago," advising them of the 61 Minutes of Board meeting on Aug. 23, 2010. Regardless of the status of any effort to document a collective bargaining agreement, the law unsurprisingly requires that, at all times, the provisions of a pension plan of the type at issue be documented, not open-ended. Section 175.261(2)(a)1. requires an annual filing with the Division of Retirement of "each and every instrument constituting or evidencing the plan." Chapter 175 applies to firefighters, and this requirement applies to "local law" plans, not "chapter" plans, which merely incorporate the relevant provisions of chapter 175. See § 175.032(4), (14) (definitions of "chapter plan" and "local law plan"). Similar provisions govern police pensions. See § 185.221(2)(a)1. 62 Minutes of Board meeting on Oct. 11, 2010. reopening of the window to purchase optional credit, had limited the reopening to the purchase of additional years of service. As noted above, four and one-half years earlier, the Board had approved such letters to members interested in purchasing either option. It seems that Board staff or the pension services representative had taken two years to mail or email these letters and had mistakenly dropped the option for the purchase of additional accrual rate. Board counsel asked if the Board wished to reopen the window for members interested in purchasing either option, and the Board agreed to do so.63 In May 2015, the Board clarified that, when the purchase window was reopened, the purchase price for additional years of service would be based on the member's current income, not the member's income in 2010.64 In its August 2015 meeting, Board staff informed the Board that buyback applications for the purchase of additional accrual rate and additional years of service had been emailed to all members with a deadline of September 18, 2015. Board staff advised that it would forward timely filed applications to the actuary for the calculation of the purchase price and then forward the price to the member, who would decide whether to complete the purchase.65 Minutes of the next month's Board meeting indicate that this process was continuing.66 In its August 2018 meeting, the Board was addressed by Petitioner Roccisano, who complained that the purchase price that he had been given for additional accrual time was based on current conditions, not the conditions when he first had the right to purchase additional accrual rate. By now a former Board trustee, Mr. Cowley confirmed that "the City" never 63 Minutes of Board meeting on Apr. 6, 2015. 64 Minutes of Board meeting on May 18, 2015. 65 Minutes of Board meeting on Aug. 24, 2015. 66 Minutes of Board meeting on Sept. 30, 2015. decided on the cost method, which "prohibited" a member from completing a timely purchase of additional accrual rate.67 Its own minutes reveal a Board that, sluggish, reactive, and aimless, failed to discharge its responsibility to implement the revision in the Plan requiring that members pay the full actuarial cost of additional accrual rate purchased. There were suggestions during the hearing that perhaps problems with certain actuaries or certain plan services representatives impeded this effort, but these advisors, like Board counsel, served the Board, and, if they failed to discharge their duties, it was the Board's job to replace them promptly with professionals who would timely do their jobs. From the minutes, the more prominent problem involving a third party was Respondent--specifically, the Board's reliance on Respondent's approval for administrative decisions that are assigned to the Board, not the Plan's sponsor. Respondent discharged its responsibilities with the documentation in the CBA of the changes to the purchase of additional accrual rate, as later enacted in Section 8.08, but the Board failed to discharge its responsibilities in the timely implementation of these changes--for years, not weeks or months. For these reasons, the Board prohibited members from purchasing additional accrual rate at all material times. On the other hand, no Petitioner ever submitted to the Board a request to purchase additional accrual rate in writing or at a Board meeting. 67 Minutes of Board meeting on Aug. 13, 2018. These comments get to the crux of the dispute from the perspective of Petitioners. They do not merely seek another reopening of the window to purchase additional accrual rate; now that this purchase is priced at full actuarial cost, Respondent may not even oppose such a remedy. Petitioners want to purchase additional accrual rate at the full actuarial cost, but as it would have been calculated when each petitioner first became eligible to purchase additional accrual rate--say, 12 or 13 years ago, not now. This administrative proceeding cannot reach such an issue. The Board did not contract with DOAH to address this issue and such a remedy likely represents damages, which are reserved for the judicial branch, not the mere application of basic principles of actuarial science, where investment returns, like time, wait for none of us, even the ever-youthful Petitioner Roccisano. The facts pertaining to each Petitioner are very similar. While still on probation, each Petitioner learned from more senior police officers or firefighters about the optional benefit for the purchase of additional accrual rate. If a police officer, the Petitioner contacted Mr. Cowley; if a firefighter, the Petitioner contacted Jim Bunce. Mr. Cowley was a Board trustee at all material times until at least early 2010. Mr. Bunce became a Board trustee by September 29, 2009, and remains on the Board; from 2007 until 2020, Mr. Bunce was the district president of the firefighters' union. Prior to the expiration of 90 days following the end of probation, each Petitioner contacted Mr. Cowley or Mr. Bunce, depending on whether Petitioner was a police officer or firefighter, and asked about purchasing additional accrual rate. In each case, Mr. Cowley or Mr. Bunce told the Petitioner that the optional benefit was not available due to problems in calculating the cost of the benefit and the absence of a procedure for applying for the benefit; each Petitioner was advised--or directed--to be patient. Sometimes, a Petitioner contacted an employee of Respondent, but was told the same thing. Petitioners completed their probations from March 12, 2008, in the case of Petitioner Pan, through June 8, 2010, in the case of Petitioner Bruce. At least 12 other members, who completed their probations from 2008 to 2012, are identically situated to Petitioners.
Recommendation It is RECOMMENDED that the Board enter a final order determining that Petitioners have failed to prove that they timely submitted a request to 68 See footnote 2. purchase additional accrual rate in writing to the Board or orally at a Board meeting. DONE AND ENTERED this 11th day of February, 2021, in Tallahassee, Leon County, Florida. COPIES FURNISHED: S ROBERT E. MEALE Administrative Law Judge 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 11th day of February, 2021. Michael Allen Braverman, Esquire Michael Braverman, P.A. 2650 West State Road 84, Suite 104 Fort Lauderdale, Florida 33312 Brendan Michael Coyle, Esquire Law Office of Brendan M. Coyle, P.A. 407 Lincoln Road, Suite 8-E Miami Beach, Florida 33139 Teri Guttman Valdes, Esquire Teri Guttman Valdes LLC 1501 Venera Avenue, Suite 300 Miami, Florida 33146 Brett J. Schneider, Esquire Weiss Serota Helfman Cole & Bierman, P.L. 1200 North Federal Highway, Suite 312 Boca Raton, Florida 33432 Garth Bonner (Address of Record) Luis Acosta (Address of Record) Janira Camero (Address of Record) Miguel Cordova (Address of Record) John Faul (Address of Record) Philip Rothman (Address of Record) Yvette de la Torre (Address of Record) Wissem Mejdoub (Address of Record) Gabriel Castillo (Address of Record) Gary di Lella (Address of Record) Robert David Klausner, Esquire Klausner & Kaufman, P.A. 7080 Northwest 4th Street Plantation, Florida 33317 Michelle Rodriguez, Plan Administrator City of Hallandale Beach Police Officers’ and Firefighters’ Pension Plan Foster and Foster Plan Administration Division 2503 Del Prado Boulevard South, Suite 502 Cape Coral, Florida 33904 Pietro G. Roccisano (Address of Record) Anthony Gonzalez (Address of Record) Stephen Sanfilippo (Address of Record) Eric Bruce (Address of Record) David DeCosta (Address of Record)
Findings Of Fact In July 1976 Berger was working as a salesman for Property Resales Services when he and Tritsch decided to set up a similar advance fee listing operation. Berger was knowledgeable of the operation and Tritsch held a broker's license. Both had been engaged for several years in land sales in Florida and at one time both worked for the same land developer selling land to mostly out of state investors. Each put up $1,000 to get the corporation formed and in operation. Stock was equally split between Berger's son Albert and Tritsch with two shares unissued. Shortly after the business became operational Berger and Tritsch repaid themselves $750 of their investment/loan. Berger was to supervise the obtaining of listings and Tritsch was to set up the resale operation. Shortly before the beginning of operations Berger suffered a heart attack and was hospitalized For some two and one half weeks. Following his release from the hospital he was able to spend only limited time in the office. However, script for the telephone salesmen had been prepared as well as listing contracts and brochure to be sent to those customers indicating a desire to sell their land. The business opened as scheduled in a rented office with WATS lines installed. Similar to other advance fee operations the salesmen worked from about 6 P.M. until 10 P.M. making phone calls to out of state owners of Florida land. Most of the owners contacted were those who had earlier bought land in the developments of Rotunda, Royal Highlands, and Port Charlotte with which Tritsch and Berger were familiar. Lists of owners were purchased from a company in Miami providing such information and copies of the Charlotte County tax records were obtained. NPS joined the National Multiple Listing Service (NMLS) and the listings obtained were to be published in that publication. They also indicated in their sales pitch and on the listing contract that advertising would be placed in local newspapers. Salesmen were paid $125 for each listing received with the $350 advance listing fee obtained from the property owner except Egan who was paid $175 for each listing. Shortly after Berger became well enough to devote time to the affairs of NPS, Tritsch broke a shoulder in a motorcycle accident and was limited in his movements by a cast for some six weeks. This was followed by an operation on his nose also injured in the accident. Berger did little, if any, telephone solicitation. His function appeared to be that of supervisor and consultant. His son, Albert Berger, was given the job of secretary, bookkeeper and keeper of the records which the son, a fifty percent shareholder in the corporation, had no idea what happened to following his departure in December, 1975. Exhibit 6 shows checks were made payable to Annette Berger, presumably a daughter, as wages. Berger and Tritsch were paid $300 to $500 per week (net) for their services depending upon availability of funds, Albert Berger received $250 per week (net) and Annette Berger received $100 to $225 per week (net). Net wages are normally the salary left after the deduction for withholding and FICA taxes. Since no check stubs showed payment to the Internal Revenue Service the withheld portion of the salaries apparently was not remitted. Additionally Berger and Tritsch were reimbursed for travel expenses, but no testimony was adduced that Berger did any traveling on the business of the company. Nevertheless Berger was paid travel expenses and one check was made payable to an airline for nearly $300. Respondents Egan and Resnik as well as several other salesmen, not named as Respondents here, manned the telephones during the operating hours of 6:00 to 10:00 P.M. They generally followed the script given to them and no evidence was presented that any known false representation was made by either Egan or Resnik. Neither Egan nor Resnik attempted to sell property. However, Egan testified that if a customer was happy with his land and didn't want to sell, he would ask if the customer would like to buy more. No evidence was presented that either salesmen advised customers that contractors and other brokers were being transported to the property or that they suggested the customer could obtain an inflated price for his property. No sales of the listings so received was ever made by NPS. If the customer indicated a willingness or desire to sell his property when first called he was advised that literature would be mailed to him to more fully explain the services offered by NPS. The salesman then turned the name in to the office and a blank contract (Exhibit 3) and brochure (Exhibit 4) were mailed to the customer. After the customer received the material the salesman would again call and go over the provisions of the contract with the customer and attempt to induce the customer to sign the contract and forward it with his $350 listing fee for services NPS were to perform in selling the property so listed. The customers were told that the advance fee was used to advertise the property and to cover office expenses, however the fee would be deducted from the commission when the property was sold, and, in effect, refunded to the property owner. Both Resnik and Egan were led to believe that a sales office was being set up on the west coast, near the property for which listings were being solicited, however, no such office was ever opened. No advertising of any property was ever placed in newspapers or in any other media than the National Multiple Listing Services. As a matter of fact, no evidence was presented that any property for which NPS was paid an advance listing fee was ever advertised for sale in NMLS. Exhibit 6 indicates that NPS paid a total of $62.50 to NMLS before going out of business near the end of 1975. During the four to five months NPS remained in operation in excess of $52,000 was received from customers as advance listing fees and no sales of any of these listings was made. Respondents Tritsch and Berger both blamed their respective accident and illness for their failure to consummate sales of the properties for which listing fees were obtained.
The Issue Whether Respondent Department of Revenue’s (Department) January 27, 2020, Notice of Proposed Assessment to Petitioner B Century 21, Inc. (B Century 21) is incorrect.
Findings Of Fact Parties The Department is the state agency responsible for administering Florida’s sales and use tax laws, pursuant to chapter 212, Florida Statutes. B Century 21 is a Florida S-Corporation that operates two liquor stores (Al’s Liquor and Arlington Liquor), as well as a bar (Overtime Sports Bar), in Jacksonville, Florida. Mr. Altheeb is the sole owner of B Century 21 and testified that he is solely responsible for the operation of it, including the two liquor stores and bar. With respect to the operation of B Century 21, Mr. Altheeb testified, “I do all the paperwork, all the books, all the taxes. I do all the orders.” Matters Deemed Admitted and Conclusively Established2 B Century 21 received correspondence from the Department, dated August 20, 2019. That correspondence, from Ms. Pitre, stated, in part, “I will be conducting an examination of your books and records as authorized under Section 213.34, Florida Statutes.” B Century 21 received the Department’s form DR840, Notice of Intent to Audit Books and Records, dated August 20, 2019, including the Sales and Use Tax Information Checklist. The form DR-840 indicated that the Department intended to audit B Century 21 for a tax compliance audit for the period of July 1, 2016, through June 30, 2019. The Sales and Use Tax Information Checklist listed a number of categories of documents the Department intended to review as part of this audit. B Century 21 (through its accountant, power of attorney, and qualified representative, Mr. Isaac) received the Department’s October 30, 2019, correspondence, which referenced the “Audit Scope and Audit Commencement,” and an attached Records Request list. B Century 21 (through Mr. Isaac) received an email, dated October 30, 2019, from Ms. Pitre. That email references an attached Audit Commencement Letter. B Century 21 (through Mr. Isaac) received an email, dated November 12, 2019, from Ms. Pitre, which inquired of “the status of the records requested during the meeting with you and Mr. Altheeb on October 29, 2019.” B Century 21 (through Mr. Isaac) received the Department’s Notice of Intent to Make Audit Changes, form DR-1215, dated December 16, 2019. The form DR-1215 reflects a total amount of tax of $170,232.93, a penalty of $42,558.24, and interest through December 16, 2019, of $25,461.86, for a total deficiency of $238,253.04. The form DR-1215 also reflects that if B Century 2 See Order Granting Motion Declaring Matters Admitted and Setting Discovery Deadline. Fla. R. Civ. P. 1.370(b). 21 did not agree with these audit changes, or only agreed with a portion, that it had until January 15, 2020, to request a conference or submit a written request for an extension. Further, the form DR-1215 attached a Notice of Taxpayer Rights, which included additional detail on the options available to B Century 21. B Century 21 (through Mr. Isaac) received correspondence from Ms. Pitre, dated December 16, 2019, which stated that as of the date of the correspondence, the Department had not received the information previously requested on October 13, 2019, which it needed to complete the audit. The correspondence stated that B Century 21 had 30 days to review the audit changes, provided contact information to B Century 21 if it wished to discuss the findings in the form DR-1215, and noted that if the Department did not hear from B Century 21 within 30 days, it would send the audit file to the Department’s headquarters in Tallahassee, Florida. B Century 21 (through Mr. Isaac) received the Department’s Notice of Proposed Assessment, form DR-831, dated January 27, 2020. The form DR- 831 reflects a total amount of tax of $170,232.93, a penalty of $42,558.24, and interest through January 27, 2020, of $27,224.82, for a total deficiency of $240,016.00. For the time period between August 20, 2019, and January 7, 2021, B Century 21 did not provide the Department with: (a) any sales records; (b) any purchase records; or (c) any federal tax returns. For the time period between August 20, 2019, and January 7, 2021, B Century 21 did not provide any records to the Department for examination in conducting the audit. Additional Facts In 2011, for the purpose of enforcing the collection of sales tax on retail sales, the Florida Legislature enacted section 212.133, Florida Statutes, which requires every wholesale seller (wholesaler) of alcoholic beverage and tobacco products (ABT) to annually file information reports of its product sales to any retailer in Florida. See § 212.133(1)(a) and (b), Fla. Stat. Once a year, ABT wholesalers report to the State of Florida their name, beverage license or tobacco permit number, along with each Florida retailer with which they do business, the Florida retailer’s name, retailer’s beverage license or tobacco permit number, retailer’s address, the general items sold, and sales per month. See § 212.133(3), Fla. Stat. The information collected captures the 12-month period between July 1 and June 30, and is due annually, on July 1, for the preceding 12-month period. Id. ABT wholesalers file these reports electronically through the Department’s efiling website and secure file transfer protocol established through the Department’s efiling provider. § 212.133(2)(a), Fla. Stat. Ms. Baker explained this statutory process further: [W]e annually, every year in the month of May, my unit reaches out to the Florida Department of Business and Professional Regulations. We compel them to give us a list of all of the active wholesalers who were licensed to sell to retailers in the state of Florida for the prior fiscal year. Once we receive that list, we then mail a notification to all those wholesalers and state the statute and the requirements and give them a user name and a password that will allow them to then log into that portal and submit their retail—their wholesale—or their wholesale sales to retailers in the state of Florida for the prior fiscal year. Those reports are due on July 1st of each year, but they are not considered late until September 30th of that year. So that gives the wholesaler population a couple of months to compile all of their sales for the prior year, fill out their reports and submit them to the Florida Department of Revenue by the end of September. Additionally, each month, and for each retail location, B Century 21 reports gross monthly sales to the Department, and remits sales tax, utilizing the Department’s form DR-15. Ms. Baker further described the process the Department utilizes in identifying an “audit lead,” utilizing the data that ABT wholesales provide: Specifically for ABT, we have a very, actually, kind of simple comparison that we do. . . . [A]s a taxpayer, as a retailer in the state of Florida, you may purchase from multiple wholesalers. So, part of our job is we compile all of the purchases that each beverage license or tobacco license has purchased, and once we compile all the purchases for the fiscal year, then to say, you know, what were the purchases for the fiscal year versus what were the reported sales for the fiscal year. And, again, a pretty simple comparison we really look to see, did you purchase, or . . . did you report enough sales to cover the amount of purchases that we know you made as a – as a retailer. And if the sales amount does not exceed the purchase amount, then we’ll create a lead on it. The Department’s efiling provider exports the ABT wholesalers’ information to SunVisn, the Department’s database. The Department’s analysts review the ABT wholesalers’ reported data, and taxpayer information, to identify audit leads. The Department then assigns these audit leads to its service centers to conduct an audit. A tax audit period is 36 months. In conducting ABT audits, the Department has 24 months of reported data (i.e., the first 24 months of the audit period) for review. This is because the timing of section 212.133(3) requires ABT wholesalers to report annually on July 1, for the preceding 12- month period of July 1 through June 30. For the ABT reporting data examination period of July 1, 2016, through June 30, 2018 (a period of 24 months), B Century 21’s gross sales for its two liquor stores was as follows: Liquor Store Reported Gross Sales Al’s Liquor $1,051,128.56 Arlington Liquor $902,195.49 For the same 24-month time period of July 1, 2016, to June 30, 2018, B Century 21’s wholesalers reported the following ABT inventory purchases to the State, as required under section 212.133: Liquor Store ABT Inventory Purchases Al’s Liquor $1,250,055.79 Arlington Liquor $1,174,877.98 As the ABT wholesalers’ reported ABT inventory purchases by B Century 21’s retail outlets were higher than B Century 21’s reported sales, the Department issued an audit lead, which led to the audit that is at issue in this proceeding. The Audit For the 36-month audit period of July 1, 2016, through June 30, 2019 (audit period), B Century 21’s reported gross sales for each of its locations was: Location Reported Gross Sales Al’s Liquor $1,557,569.74 Arlington Liquor $1,434,551.65 Overtime Sports Bar $968,476.08 On August 20, 2019, Ms. Pitre mailed to B Century 21 (and received by Mr. Altheeb), a Notice of Intent to Audit Books and Records for the audit period. Included with the Notice of Intent to Audit Books and Records was correspondence informing B Century 21 of the audit and requesting records. On August 26, 2019, Ms. Pitre received a telephone call from Mr. Altheeb. Ms. Pitre’s case activity notes for this call state: Received a call from Baligh Altheeb and he said he will be hiring Brett Isaac as his POA [power of attorney]. I informed him to complete the POA form and to give it to Mr. Isaac for signature and send to me. He knows about ABT Data assessments and asked that I note on the case activity that he contacted me regarding the audit. He was worried that his liquor license will be suspended if he does not respond right away. I informed him that once I receive the POA, I will contact Mr. Isaac and discuss the audit. On October 18, 2019, the Department received B Century 21’s executed power of attorney (POA) form naming Mr. Isaac as its POA for the audit. The executed POA form reflects that the Department’s notices and written communications should be sent solely to Mr. Isaac, and not B Century 21. The executed POA form further reflects that “[r]eceipt by either the representative or the taxpayer will be considered receipt by both.” On October 29, 2019, Ms. Pitre met with Mr. Altheeb and Mr. Isaac at Mr. Isaac’s office, for a pre-audit interview. Ms. Pitre’s case activity notes for this meeting state: Met with the taxpayer contact person, POA Brett Isaac and owner Baligh Thaleeb [sic], at the POA’s location to conduct the pre-audit interview. Discussed the scope of the audit, records needed to conduct the audit, availability of electronic records, business organization, nature of the business, internal controls, and the time line of the audit. Discussed sampling for purchases and POA signed sampling agreement. Made appointment to review records on November 12, 2019. Toured one of the location [sic] to observe business operations, Overtime Sports Bar. On October 30, 2019, Ms. Pitre emailed Mr. Isaac a copy of the Notice of Intent to Audit Books and Records, which included a “Sales and Use Tax Information Checklist,” which requested specific taxpayer records. After receiving no response from Mr. Isaac, Ms. Pitre, on November 12, 2019, emailed Mr. Isaac concerning “the status of the records requested during the meeting with you and Mr. Altheeb on October 29, 2019.” Section 212.12(5)(b) provides that when a taxpayer fails to provide records “so that no audit or examination has been made of the books and records of” the taxpayer: [I]t shall be the duty of the department to make an assessment from an estimate based upon the best information then available to it for the taxable period of retail sales of such dealer … or of the sales or cost price of all services the sale or use of which is taxable under this chapter, together with interest, plus penalty, if such have accrued, as the case may be. Then the department shall proceed to collect such taxes, interest, and penalty on the basis of such assessment which shall be considered prima facie correct, and the burden to show the contrary shall rest upon the [taxpayer]. Section 212.12(6)(b) further provides: [I]f a dealer does not have adequate records of his or her retail sales or purchases, the department may, upon the basis of a test or sampling of the dealer’s available records or other information relating to the sales or purchases made by such dealer for a representative period, determine the proportion that taxable retail sales bear to total retail sales or the proportion that taxable purchases bear to total purchases. Mr. Collier testified that, in the absence of adequate records, the Department “estimates using best available information, and for this industry … ABT sales are a higher percentage of their taxable sales.” Because B Century 21 did not provide adequate records to Ms. Pitre, she estimated the total taxable sales for the audit period. For each liquor store that B Century 21 operated, she multiplied its total ABT purchases by average markups to calculate total ABT sales. To derive these average markups, Mr. Collier explained that the Department receives data from wholesalers, and then: [W]e take that purchase information, apply average markup to the different ABT product categories, which include cigarettes, other tobacco, beer, wine, and liquor; and then that gets us to total ABT sales number. And then we derive what we call a percentage of ABT sales, percentage of that number represents. And in this particular model, 95.66 percent represents what we believe in a liquor store industry, that this type of business, that 95.66 percent of their sales are ABT products. We derive the markups, and the percentage of ABT sales from a number of liquor store audits that the Department had performed on liquor stores that provided records. The Department utilized markup data from other ABT audits. The Department applied the following markups to these ABT categories: 6.5 percent for cigarettes; 47.5 percent for other tobacco products; 17.33 percent for beer; 29.84 percent for wine; and 24.5 percent for liquor. Applying the Department’s markup for liquor stores to the wholesalers’ reported ABT data and percentage of taxable sales, Ms. Pitre estimated taxable sales for the ABT reporting data examination period and calculated the under-reported sales error ratio as follows: Location Estimated Taxable Sales Error Ratio Al’s Liquor $1,597.544.01 1.519837 Arlington Liquor $1,516,259.34 1.680633 The Department then divided B Century 21’s estimated taxable sales for the examination period, for each liquor store, by its self-reported tax sales in its DR-15s to arrive at the under-reported rate. The Department then multiplied the under-reported rate by the reported taxable monthly sales in the DR-15s to arrive at the estimated taxable sales for the 36-month audit period. The result of this calculation was: Location Estimated Taxable Sales Al’s Liquor $2,367,252.11 Arlington Liquor $2,410,954.82 The Department then multiplied the estimated taxable sales by an effective estimated tax rate which, after giving credit for B Century 21’s remitted sales tax, resulted in tax due for the Al’s Liquor and Arlington Liquor for the audit period, as follows: Location Sales Tax Owed Al’s Liquor $58,367.01 Arlington Liquor $70,068.44 For Overtime Sports Bar, the Department could not use ABT wholesalers’ data to estimate an assessment because the Department does not have audit data averages for bars and lounges. The Department used the “Tax Due Method” in estimating under-reported taxes and calculating under- reported taxable sales. Mr. Collier explained: The Department does not have average markup and percentage of sales for a bar. Though, you know, obviously, we all know that a bar, their main product that they sell and in most cases is ABT products. So, therefore, typically, an auditor would need to get information about that specific location. Bars can vary so much in their type of business that they do, they can be like nightclubs, or they can be like bar and grill that serves a lot of food. So there’s a lot of variances there for that particular type of industry, so we haven’t really come up with average markups, average percentage of sales for bars, per se. It’s a case-by- case situation, and in this case, the auditor decided that the fair, reasonable way to estimate the bar location would be to just average the error ratios that were derived from the Al’s Liquor and the other liquor store location and apply it to the taxable sales reported for the bar. And I think that’s a very fair and reasonable estimate based on what we all know in a bar situation; their markups are significantly higher. And of course, there can be plenty of other non-ABT taxable sales occurring in a bar setting, such as prepared food, you know, just your regular cokes and drinks. So it’s certainly a fair way to estimate in this particular audit and I believe only benefits the taxpayer. The undersigned credits the Department’s methodology for estimating an assessment for Overtime Sports Bar. Further, Mr. Altheeb testified that Overtime Sports Bar operates as both a sports bar and a liquor/package store, and stated: Most of it—it’s a liquor store. I don’t know if you know the area, it’s a liquor store on the Westside. So most of it—the sport bar doesn’t really do too much business in the Westside, mostly the liquor stores. People coming in and buy package, you know, buy bottles and leave. So, most of the business is the drive-through window. The Department’s decision to average the error ratios for the other two liquor stores to derive the additional tax due average for Overtime Sports Bar is reasonable, particularly in light of Mr. Altheeb’s testimony that Overtime Sports Bar operates primarily as a liquor (package) store. The Department calculated the additional tax due average error ratio for Overtime Sports Bar by averaging the error ratios of Al’s Liquor and Arlington Liquor, and then multiplied it by B Century 21’s reported gross sales to arrive at the additional tax due for Overtime Sports Bar of $41,797.49. Ms. Pitre testified that she determined that, for the audit period, B Century 21 owed additional sales tax of $170,232.93. In addition, the Department imposed a penalty and accrued interest. On December 16, 2019, Ms. Pitre sent correspondence, the preliminary assessment, and a copy of the audit work papers to B Century 21 (through Mr. Isaac), informing B Century 21 that it had 30 days to contact the Department’s tax audit supervisor to request an audit conference or submit a written request for an extension. After receiving no response from B Century 21, Ms. Pitre forwarded the audit workpapers to the Department’s headquarters in Tallahassee, Florida, to process the Notice of Proposed Assessment. B Century 21’s Position As mentioned previously, and after initially meeting with the Department, B Century 21 failed to provide requested financial records or respond to any of the numerous letters and notices received from the Department, despite being given adequate opportunity to do so. And, after filing its Amended Petition, it failed to timely respond to discovery requests from the Department which, inter alia, resulted in numerous matters being conclusively established. Mr. Isaac served as the POA for B Century 21 during the audit, and also appeared in this proceeding as a qualified representative. However, Mr. Isaac did not appear at the final hearing, did not testify as a witness at the final hearing, and does not appear to have done anything for B Century 21 in this proceeding, other than filing the Petition and Amended Petition. After Mr. Heekin appeared in this matter, and well after the time to respond to discovery, B Century 21 provided 127 pages of documents to the Department. These documents consist of: 18 pages of summaries of daily sales that Mr. Altheeb prepared for the hearing; 41 pages of sales and use tax returns from B Century 21 locations, covering 25 months (DR-15s); 2 pages of Harbortouch’s 2016 1099K, reporting credit card sales; 43 pages of unsigned federal tax returns from 2016, 2017, and 2018, prepared by Mr. Isaac; and 17 pages of B Century 21’s untimely responses to the Department’s discovery requests. Florida Administrative Code Rule 12-3.0012(3) defines “adequate records” to include: (3) “Adequate records” means books, accounts, and other records sufficient to permit a reliable determination of a tax deficiency or overpayment. Incomplete records can be determined to be inadequate. To be sufficient to make a reliable determination, adequate records, including supporting documentation, must be: Accurate, that is, the records must be free from material error; Inclusive, that is, the records must capture transactions that are needed to determine a tax deficiency or overpayment; Authentic, that is, the records must be worthy of acceptance as based on fact; and Systematic, that is, the records must organize transactions in an orderly manner. The nature of the taxpayer’s business, the nature of the industry, materiality, third-party confirmations and other corroborating evidence such as related supporting documentation, and the audit methods that are suitable for use in the audit, will be used to establish that the taxpayer has adequate records. The undersigned finds that the summaries of daily sales are not adequate records because Mr. Altheeb prepared them for use at the final hearing, rather than in the regular course of business. The undersigned finds that the DR-15s provided by Mr. Altheeb, covering 25 months, are not adequate records because they are incomplete and are not inclusive. The audit period encompassed 36 months, for B Century 21’s three retail locations; however, Mr. Altheeb only provided 25 months of DR-15s. The 2016, 2017, and 2018 federal tax returns that B Century 21 provided are not adequate records because they are not authentic. Mr. Altheeb was unable to verify if these tax returns were correct, and they were unsigned. B Century 21 did not provide any evidence that it had filed any of these federal tax returns with the Internal Revenue Service. Ms. Pitre reviewed the 127 pages of documents that B Century 21 provided and testified that the summaries of daily sales did not provide the “source documents” for verification. The unsigned federal tax returns reflect that B Century 21 reported a cost-of-goods-sold (COGS) of $518,606.00 for 2016; $1,246,839.00 for 2017; and $796,968.00 for 2018. Additionally, the unsigned federal tax returns reflect that B Century 21 reported a beginning inventory (BI) for 2016 of $95,847.00, and a year-end inventory (EI) for 2016 of $200,556.00, EI for 2017 of $280,235.00, and EI for 2018 of $295,628.00. When comparing the unsigned federal tax returns with the ABT wholesalers’ data, the federal tax returns reflect, for 2016, total inventory purchases of $623,315.00 (which is derived from $518,606.00 (COGS) + $200,556.00 (EI) - $95,847.00 (BI)). However, the ABT wholesalers’ data for 2016 reflects that B Century 21’s ABT purchases were $1,174,997.34 – a discrepancy of more than $500,000.00. For 2017, the federal tax returns reflect total inventory purchases of $1,326,518.00 (which is derived from $1,246,839.00 (COGS) + $280,235.00 (EI) for 2017 - $200,556.00 (EI) for 2016). However, the ABT wholesalers’ data for 2016 reflects that B Century 21’s ABT purchases were $1,422,854.79 – a discrepancy of over $96,000.00. And for 2018, the unsigned federal tax returns reflect total inventory purchases of $812,361.00 (which is derived from $796,968.00 (COGS) + $295,628.00 (EI) for 2018 - $280,235.00 (BI) for 2017). However, the ABT wholesalers’ data for 2018 reflects that B Century 21’s ABT purchases were $1,335,814.00 – a discrepancy of over $500,000.00. Mr. Altheeb testified that Arlington Liquor and Overtime Sports Bar opened in 2016 – after B Century 21 began ownership and operation of Al’s Liquor. He stated that he did not purchase inventory for the openings of the newer locations, but instead transferred excess inventory from Al’s Liquor, which resulted in lower total inventory purchases for 2016. Mr. Altheeb also testified that B Century 21’s three locations experienced spoiled inventory. However, B Century 21 should include spoiled inventory in COGS reported in its federal tax returns, and further, B Century 21 provided no additional evidence of the cost of spoilage for the audit period. The undersigned finds that the ABT wholesalers’ data for 2016 through 2018 reflects similar amounts for inventory purchases between 2016 through 2018. The undersigned credits the Department’s reliance on the ABT wholesalers’ data, which reflect fairly consistent purchases for each year. The undersigned does not find the unsigned federal tax returns that B Century 21 provided to be persuasive evidence that the Department’s assessment was incorrect. Mr. Altheeb testified that he believed Mr. Isaac, who B Century 21 designated as POA for the audit, and who appears as a qualified representative in this proceeding, was actively handling the audit. Mr. Altheeb stated that the audit, and the final hearing, “kind of came out of nowhere” and that once he learned of it, he retained Mr. Heekin and provided “everything” to him. However, it is conclusively established that the Department provided correspondence and notice to B Century 21 through its designated POA, and that B Century 21 failed to respond to record requests in a timely manner. Mr. Isaac neither testified nor appeared at the final hearing to corroborate Mr. Altheeb’s claims that Mr. Isaac did not keep Mr. Altheeb or B Century 21 apprised of the status of the audit, including the failure to provide requested records or to communicate with the Department. B Century 21 also attempted to challenge the Department’s use of markup data from other ABT audits, in an attempt to argue that the markups were inflated and not representative of B Century 21’s markups. However, and as previously found, B Century 21’s failure to timely provide records—or respond in any meaningful way to the audit—undermines this attempt. The undersigned credits the Department’s methodology in using the best information available to it for the audit period in calculating the assessment. Although it became apparent during the final hearing that Mr. Altheeb did not treat the audit of B Century 21 with appropriate seriousness, and deflected blame to Mr. Isaac, and that his approach resulted in a legally appropriate and sustainable audit and assessment based on the Department’s best information available, the undersigned does not find that B Century 21, Mr. Isaac, or Mr. Heekin knew that the allegations of the Amended Petition were not supported by the material facts necessary to establish the claim or defense, or would not be supported by the application of then-existing law to those material facts. The undersigned finds that the Department made its assessment based on the best information then available, and is thus prima facie correct, pursuant to section 212.12(5)(b). The undersigned further finds that B Century 21 did not prove, by a preponderance of the evidence, that the Department’s assessment is incorrect, pursuant to section 212.12(5)(b).
Conclusions For Petitioner: Robert Andrew Heekin, Esquire The Law Office of Rob Heekin, Jr., P.A. 2223 Atlantic Boulevard Jacksonville, Florida 32207 For Respondent: Randi Ellen Dincher, Esquire Franklin David Sandrea-Rivero, Esquire Office of the Attorney General Revenue Litigation Bureau Plaza Level 1, The Capitol Tallahassee, Florida 32399
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, the undersigned hereby RECOMMENDS that the Department enter a final order sustaining the January 27, 2020, Notice of Proposed Assessment to B Century 21, Inc. DONE AND ENTERED this 21st day of October, 2021, in Tallahassee, Leon County, Florida. S ROBERT J. TELFER III Administrative Law Judge 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 21st day of October, 2021. COPIES FURNISHED: Mark S. Hamilton, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Randi Ellen Dincher, Esquire Office of the Attorney General Revenue Litigation Bureau Plaza Level 1, The Capitol Tallahassee, Florida 32399 Robert Andrew Heekin, Esquire The Law Office of Rob Heekin, Jr., P.A. 2223 Atlantic Boulevard Jacksonville, Florida 32207 Franklin David Sandrea-Rivero, Esquire Office of the Attorney General Plaza Level 1, The Capitol Tallahassee, Florida 32399 Brett J. Isaac 2151 University Boulevard South Jacksonville, Florida 32216 James A Zingale, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue The issue is whether Respondent is liable for a penalty of $265,604.81 based on payroll records for the period from October 28, 2008, through October 27, 2008, pursuant to Subsection 440.107(7), Florida Statutes (2008).1
Findings Of Fact Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers’ compensation insurance for the benefit of their employees in accordance with Section 440.107. Respondent is a Florida corporation engaged in the construction business. On October 27, 2008, a compensation compliance investigator and other investigators for Petitioner conducted a targeted investigation of Respondent’s business based on reports from a confidential informant that Respondent was not in compliance with Chapter 440 and the Insurance Code. The compliance investigator met two relatives of the sole shareholder of the company, who identified themselves as employees. The compliance investigator also identified construction work being conducted by two workers, who, it is undisputed, were not in compliance with Chapter 440. The disputed issues of fact are comprised of two issues. The first issue is whether payments to relatives of the sole shareholder are compensation or loans. The second issue is whether cash payments to the sole shareholder are compensation or business expenses. None of the loans to family members were repaid to the employer at the time of the hearing. Loans that have not been repaid to the employer are defined as payroll by Florida Administrative Code Rule 69L-6.035, and Respondent owes that portion of the penalty assessment allocable to the first issue. Respondent provided ample evidence to demonstrate that the disputed transactions were loans rather than compensation for employment. One relative is disabled and unable to work at the level for which he is allegedly compensated. He will repay the loans out of the sale proceeds of his home upon his death. Other family members have less tragic but similarly sad stories. However, deviation from Florida Administrative Code Rule 69L- 6.035 would merely invite remand pursuant to Section 120.69. The remaining issue is whether cash payments by Respondent to its sole shareholder are properly characterized as compensation or business expenses. Florida Administrative Code Rule 69L-6.035(1)(f) defines payroll to include expense reimbursements to the extent the business records do not confirm the expense was incurred as a valid business expense. For the reasons stated hereinafter, it is less than clear and convincing that the disputed cash payments are payroll within the meaning of Florida Administrative Code Rule 69L-6.035(1)(f). The sole shareholder explained under oath at the hearing that the cash payments at issue were for business expenses, including the payment of construction materials. He does not give workers charge cards to buy construction materials. He gives them cash. They do not always bring him receipts. The witness submitted detailed tabulations of approximately $77,002.46 in such expenses during the audit period, and the trier of fact found the testimony and supporting documentation to be credible and persuasive. The sole shareholder also testified that he incurred cash office expenses during the audit period of approximately $22,500.00 and submitted documentation to support that testimony. He also purchased three trucks for the business and made cash down payments on each truck with documentation to support the cash payments. The trier of fact finds that testimony and supporting documentation to be credible and persuasive. Based on the evidence through the date of the hearing, it is less than clear and convincing that the disputed cash payments to the sole shareholder were not incurred as valid business expenses within the meaning of Florida Administrative Code Rule 69L-6.035(f). The testimony of the sole shareholder and the supporting documentary evidence also shows that the disputed amounts were not cash payments to the sole shareholder in his capacity as an employee within the meaning of Florida Administrative Code Rule 69L-6.035(1)(b).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order imposing a fine consistent with the amount attributable to unpaid loans. DONE AND ENTERED this 24th day of November, 2009, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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 24th day of November, 2009.
The Issue Whether City of Belleair Beach Treasurer Robert K. Hebden was an independent contractor or an employee of the city.
Findings Of Fact The Petitioner City of Belleair Beach (City) is a participating local agency of the Florida Retirement System (FRS) and is subject to the laws applicable to the FRS. The City began participating in the FRS through the adoption of City Ordinance 99 in 1973. The Respondent Division of Retirement (Division) is the state agency charged by statute with the administration of the FRS. On a date unspecified, the Division's Management Review Section audited the City as required by statute. Based on the audit, the Division concluded that Mr. Hebden was not an independent contractor, but was a part time employee of the City. The Division communicated this information to the City by letter of May 27, 1992. The Division's Enrollment Section, responsible for enrolling employees in the FRS, conducted an analysis of the materials obtained by the Management Review Section, and concurred in the initial employment status determination. By letter of October 11, 1993, the Director of the State Division of Retirement notified the City that the Division had determined Mr. Hebden to be have been an employee in a regularly established position for purposes of the FRS from July 1979 through February 1991, and that FRS contributions were due for that period. On October 15, 1993, Mr. Hebden signed an FRS application for service retirement. The application was filed with the FRS. Mr. Hebden completed the application on the suggestion of the Enrollment Section Administrator. Mr. Hebden considers himself to have worked for the City as an independent contractor and would not have filed an FRS application without the request by the enrollment administrator. In concluding that Mr. Hebden was an employee, the Division reviewed all materials furnished by the City. Such materials included copies of contracts, billing statements and IRS forms. At all times, the Division has been amenable to reviewing any additional documents submitted by the City. Beginning in 1972, and continuing to February of 1991, Robert K. Hebden provided various services to the City. Beginning in July 1979, Mr. Hebden served as the City Treasurer. The position of Belleair Beach City Treasurer is established by city ordinance. The position description for the City Treasurer sets forth duties as follows: The treasurer works on a daily basis primarily under the mayor's supervision but is ultimately accountable to the city council. Compiles operating and capital expense estimates for annual budget. Forecasts problem areas of income and expense and proposes possible solutions. Maintains general accounting system and appropriate operating cash balances. Submits to council a monthly detailed statement of revenue and disbursements in contrast with annual budget. Prepares for submission to council a detailed financial statement as of the end of each fiscal year. Invests surplus General Government Funds in conjunction with the Mayor or Deputy Mayor and recommends investment of Sewer Trust Funds in conjunction with the approved Trustee. Provides for payment of bonds and interest and maintains files for cancelled coupons and bonds. Maintains capital assets inventory including acquisition and disposition. Between July 1, 1979 and February 12, 1991, Mr. Hebden was the Belleair Beach City Treasurer. He performed the duties of the position description and such additional duties as were assigned at the discretion of the Mayor and Council. In February 1983, Mr. Hebden and the City entered into a written contract regarding his service as Treasurer. The initial contract was retroactive to October 1, 1982. Prior to this point, Mr. Hebden acted as City Treasurer under an oral agreement with the City officials. The February 2, 1983 contract identifies Mr. Hebden as "the Contractor." The contract is for the one year period of October 1, 1982 to September 30, 1983 and provides as follows: The Contractor will be allowed twelve (12) days of paid sick leave and at times mutually agreeable fifteen (15) days of vacation without adjustment to the monthly fee. Absence in excess of this amount will be adjusted on a prorata basis. The work week will be 8:30 A. M. to 12:30 P. M. daily, Monday through Friday, except for legal holidays recognized by the City. In addition, attendance will be required at Council meetings, work sessions and committee meetings, as may be determined by the Mayor. Services will be reimbursed on a monthly basis at the rate of SEVEN HUNDRED DOLLARS ($700.00) per month, plus an allowance of SEVENTY DOLLARS ($70.00) for expenses upon receipt of a statement. This agreement may be extended beyond the original term of One (1) year upon such terms and conditions as the parties shall mutually agree between them. Beginning with the subsequent agreement dated July 14, 1983, all contracts identify Mr. Hebden as "the City Treasurer" rather than "the Contractor." The July 14, 1983 contract provides as follows: That Robert K. Hebden shall serve the City of Belleair Beach as the City Treasurer, appointed by the City Council. The services of the City Treasurer shall be performed between the hours of 8:30 a.m. to 12:30 p.m. daily, Monday through Friday, except for legal holidays recognized by the City. In addition, attendance will be required at Council meetings, work sessions and committee meetings, as may be determined by the Mayor. The duties of the City Treasurer shall include but not be limited to: -compilation of current and capital expense estimates for the annual budget -maintenance of a general accounting system -submission to the city council of a monthly detailed statement of revenue and disbursements in contrast with the annual budget -preparation for submission to council of a detailed financial statement as to the end of each fiscal year A RETAINER fee shall be paid by the City of Belleair Beach to the City Treasurer for the above service which shall be EIGHT HUNDRED THIRTY DOLLARS AND NO/100 ($830.00) per month. THIS AGREEMENT shall be reviewed annually by the Personnel Committee of the City Council, the Mayor and the City Treasurer. THIS AGREEMENT shall expire on September 30 of each year unless renewed by Council prior to that time. THIS AGREEMENT shall be cancelled by either party upon a thirty (30) day notice of intent to do so. The September 10, 1984 contract for the one year period to September 30, 1985 is identical to the agreement of July 14, 1983 except that the retainer fee was increased to $900.00 monthly. The July 15, 1985 contract for the one year period to September 30, 1986 is similar to the agreement of September 10, 1984. The retainer fee was increased to $1100.00 monthly and paid leave was again included. The agreement provides as follows: ....In addition, the City Treasurer shall receive three work-weeks vacation annually (allowing for a base figure of 3 work-weeks for the current fiscal year) and twelve work-days sick leave annually (allowing for twelve work-days for the current fiscal year). THIS AGREEMENT shall be reviewed annually by the Personnel Committee of the City Council, the Mayor and the City Treasurer. THIS AGREEMENT shall commence October 1, 1985, and shall expire on September 30 of each year unless renewed by Council prior to that time. THIS AGREEMENT shall be cancelled by either party upon a thirty (30) day notice of intent to do so. The September 23, 1986 contract for the one year period to September 30, 1987 is substantially similar to the preceding contract, however, an amendment was made to the paid leave provisions. The agreement provides as follows: That Robert K. Hebden shall serve the City of Belleair Beach as the City Treasurer, appointed by the City Council. The services of the City Treasurer shall be performed between the hours of 8:30 a.m. to 12:30 p.m. daily, Monday through Friday, except for legal holidays recognized by the City. In addition, attendance will be required at Council meetings, work sessions and committee meetings, as may be determined by the Council or Mayor. The duties of the City Treasurer shall include but not be limited to: compilation of current and capital expense estimates for the annual budget maintenance of a general accounting system submission to the city council of a monthly detailed statement of revenue and disbursements in contrast with the annual budget preparation for submission to council of a detailed financial statement as to the end of each fiscal year A RETAINER fee shall be paid by the City of Belleair Beach to the City Treasurer for the above service which shall be ELEVEN HUNDRED THIRTY DOLLARS AND NO/100 ($1100.00) per month. In addition, the City Treasurer shall receive three work-weeks vacation annually and twelve work-days sick leave annually. Annual leave, which will only be applied against working days, and shall be taken in not less than four (4) hour increments, may accrue to a maximum of fifteen (15) days. Annual leave in excess of fifteen (15) days will be forfeited on the following anniversary date after the year in which earned. The August 3, 1987 contract for the one year period of October 1, 1987 to September 30, 1988 is substantially similar to the preceding contract except that the work hours were amended to 8:00 a.m. to 12:30 p.m. and monthly payment was increased to $1300.00. The September 12, 1988 contract for the one year period of October 1, 1988 to September 30, 1989 is substantially similar to the preceding contract except that monthly payment was increased to $1350.00. In 1989, some Council members questioned Mr. Hebden's performance and considered termination of his contract. The September 25, 1989 contract for the one year period of October 1, 1989 to September 30, 1990 is substantially similar to the preceding contract except that the agreement provides "for a six months performance evaluation." Apparently, the concerned Council members were satisfied with the review and the contract was again renewed. The September 10, 1990 contract reflected Mr. Hebden's intention to leave his position. The contract provides as follows: That Robert K. Hebden shall serve the City of Belleair Beach as the City Treasurer, appointed by the City Council. The services of the City Treasurer shall be performed between the hours of 8:00 a.m. to 12:30 p.m. daily, Monday through Friday, except for legal holidays recognized by the City. In addition, attendance will be required at Council meetings, work sessions and committee meetings, as may be determined by the Council or Mayor. The duties of the City Treasurer shall include but not be limited to: compilation of current and capital expense estimates for the annual budget maintenance of a general accounting system submission to the city council of a monthly detailed statement of revenue and disbursements in contrast with the annual budget preparation for submission to council of a detailed financial statement as to the end of each fiscal year * A RETAINER fee shall be paid by the City of Belleair Beach to the City Treasurer for the above service which shall be [[THIRTEEN HUNDRED AND FIFTY DOLLARS AND NO/100 ($1350.00)]] <<FOURTEEN HUNDRED FIFTY DOLLARS AND NO/100 ($1450.00)>> per month. In addition, the City Treasurer shall receive [[three work-weeks vacation annually and twelve]] <<three>> work-days sick leave [[annually. Annual leave, which will only be applied against working days, and shall be taken in not less than four (4) hour increments, may accrue to a maximum of fifteen (15) days. Annual leave in excess of fifteen (15) days will be forfeited on the following anniversary date after the year in which earned.]] <<Annual leave earned through September 30, 1990 and not taken will be paid on completion of this contract.>> [[THIS AGREEMENT shall provide for a six months performance evaluation.]] [[THIS AGREEMENT shall be reviewed annually by the personnel committee of the City Council, the Mayor and the City Treasurer.]] THIS AGREEMENT shall commence October 1, 1985, and shall expire on <<December 31, 1990>> [[September 30 of each year unless renewed by Council prior to that time.]] THIS AGREEMENT shall be cancelled by either party upon a thirty (30) day notice of intent to do so. * Note: In the above quotation, language which has been added is within the <<>>; deleted language is within the [[]]. All the contracts identified herein were between the City and Mr. Hebden personally. Mr. Hebden signed the contracts. Except as otherwise stated herein, the terms of the contracts were negotiated between Mr. Hebden and the City. Mr. Hebden performed all the responsibilities of the contract personally. For a brief period, he was assisted by a man identified as "Mr. Denman," a person employed by the City. He hired no assistants. Mr. Hebden performed his responsibilities according to practices and procedures he created. He was not provided instructions by the City on how to perform his tasks. The City provided no training to Mr. Hebden. Prior to terminating his tenure as City Treasurer, Mr. Hebden trained his successor in the practices and procedures Mr. Hebden had developed. At all times during Mr. Hebden's employment with the City, he worked the hours specified by the contracts in his office at City Hall. Mr. Hebden testified that he could not recall how his office hours had been determined. The space was provided by the City. The responsibilities of Mr. Hebden's position required utilization of city records, and it was therefore appropriate for such tasks to be performed in an office at City Hall. All furnishings for the office and materials used in performing his tasks were provided by the City. During the period between July 1979 and February 1991, Mr. Hebden submitted to the City statements for payment. Generally, the statements were submitted on a monthly basis. Mr. Hebden had no risk of profit or loss based on any actions of the City. He had no personal investment in the City. Mr. Hebden was paid according to the terms of the contract. He did not receive additional remuneration for his appearance at or participation in Council meetings, work sessions or committee meetings as directed by the Council or Mayor. In the first written contract, Mr. Hebden received a payment for "expenses" in addition to the monthly remuneration. Additionally, Mr. Hebden was reimbursed for personal expenses related to City business use of his car and his boat. Although only one formal performance evaluation was completed during his service, the contracts provide for annual review, except for the final contract which terminated Mr. Hebden's service to the City. Upon said termination, Mr. Hebden was paid for the accrued annual leave. Under the terms of the contract, Mr. Hebden's services could be terminated without penalty upon thirty days notice by either party. Mr. Hebden did not advertise his services to the general public, because he was not interested in taking on additional work, however, for a time, he provided accounting consulting services to the Indian Rocks Fire Control District and was compensated for his work. He also provided volunteer services to the Church of the Isles. During the period relevant to this proceeding Mr. Hebden held no business or occupational licenses. For the years 1979 through 1982, the City reported Mr. Hebden's compensation to the Internal Revenue Service Form by using IRS Form 1099-NEC, the form used to report "Nonemployee Compensation." For the years 1983 through 1991, the City reported Mr. Hebden's compensation to the Internal Revenue Service Form by using IRS Form 1099-MISC, the form used to report "Miscellaneous Compensation." The City did not provide health or life insurance coverage to Mr. Hebden. The City did not pay federal social security or withholding taxes for Mr. Hebden. The City did not provide or pay workers compensation benefits or unemployment benefits for Mr. Hebden. The City did not pay retirement contributions to the FRS for Mr. Hebden.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Management Services, Division of Retirement, enter a Final Order determining that as City Treasurer of the City of Belleair Beach from July 1979 through February 1991, Robert K. Hebden was an employee of the City, and as such was a compulsory member of the Florida Retirement System for which contributions from the City are due. DONE and RECOMMENDED this 21st day of March, 1994, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of March, 1994. APPENDIX TO CASE NO. 93-6518 The following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3. Rejected, contrary to the greater weight of the evidence. Mr. Hebden submitted invoices for payment as early as July, 1979. 11. Rejected, not supported by greater weight of the evidence. Because Mr. Hebden developed his own procedures for performing the duties of the City Treasurer, and trained his successor in performing the tasks of City Treasurer, it is not possible to conclude that Mr. Hebden's services were "not essential to the success or continuation of the City's operation." Rejected, irrelevant. Rejected, contrary to greater weight of evidence. Mr. Hebden testified on direct examination that he could not recall who chose the work hours set forth by contract. All contracts specify the hours to be worked. As to leave time, the first contract provided that such leave could be used only "at times mutually agreeable...." Subsequent contracts required annual leave to be used in four hour increments. Rejected, contrary to greater weight of evidence. Mr. Hebden testified that some auto and boat expenses had been reimbursed. First contract and invoices for payment through September 30, 1982 include payment of sums for "expenses." Rejected, contrary to greater weight of evidence. The contracts specify standard hours of employment and require attendance at meetings as directed by the Mayor and Council. The Respondent's assertion that Mr. Hebden "could make a profit or suffer a loss" is unsupported by credible evidence. Respondent The Respondent's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 5. Rejected, as to employment status of Mr. Hebden's predecessor or successor as City Treasurer, irrelevant. 28, 30. Rejected, as to employment status of Mr. Hebden's successor as City Treasurer, irrelevant. COPIES FURNISHED: A. J. McMullian, III, Director Division of Retirement Cedars Executive Center, Bldg. C 2639 N. Monroe St. Tallahassee, Florida 32399-1560 William H. Lindner, Secretary Knight Building, Suite 307 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950 Paul A. Rowell, General Counsel Knight Building, Suite 312 Koger Executive Center 2737 Centerview Drive Tallahassee, FL 32399-0950 Thomas J Trask, Esquire Frazer, Hubbard, Brandt & Trask 595 Main Street Dunedin, Florida 34698 Jodi B. Jennings, Esquire Division of Retirement Cedars Executive Center, Building C 2639 North Monroe Street Tallahassee, Florida 32399-1560
The Issue Whether various statements or policies attributed to the Department of Health (Department) and the Board of Medicine (Board) in connection with the assessment of costs related to the investigation and prosecution of disciplinary cases coming before the Board are unpromulgated rules in violation of Section 120.54(1)(a), Florida Statutes.1
Findings Of Fact Petitioner is a Florida licensed physician, who received his Florida medical license numbered ME 46054 in 1985. He currently practices medicine at 620 Eichenfeld Drive in Brandon, Florida. Petitioner is currently the subject of a pending disciplinary action initiated by the Department against his medical license. The disciplinary case is styled Department of Health vs. Mohamed I. Abdel-Aziz, Department of Health Case No. 2000-07849, DOAH Case No. 02-4429PL. On June 2, 2003, a Recommended Order was issued in DOAH Case No. 02-4429PL, finding that Petitioner violated Subsection 458.331(1)(t), Florida Statutes. Petitioner is subject to the assessment of the costs related to the investigation and prosecution of his case pursuant to Section 456.072(4), Florida Statutes, should the Board adopt the finding of a violation. Neither the Department nor the Board has promulgated a rule defining "costs related to the investigation and prosecution of the case." Petitioner has challenged the validity of the following statements, which he attributes to Respondents. Complaint Cost Summary. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the costs of the time (salary and benefits) spent by employees of the Department of Health Prosecution Services Unit. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the "overhead expense" of the Prosecution Services Unit. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the "OPS expense" attributable to the Prosecution Services Unit. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the salary and benefits paid by the Department of Health on behalf of employees who have no time keeping responsibility with respect to the time tracking maintenance system of the Department of Health. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the salary and benefits of the attorneys who have been assigned responsibility for and/or who have provided services in connection [sic] a license disciplinary case. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the "expense" of the individual components of the Prosecutions Services Unit. Time Tracking Report. Methodology for Calculating Rate for Billable Hours (pre-January 13, 2003) assessed as costs of the investigation and prosecution. The Department of Health, Board of Medicine procedure for the assessment of costs of the investigation and prosecution of a licenses [sic] found to have violated the disciplinary provisions of Chapters 456 and 458, Florida Statutes, as set forth in the Notice of Voluntary Dismissal of Paragraph (G) of the Prayer for Relief of the Administrative Complaint. Methodology for Calculating Rate for Billable Hours (effective January 24, 2003) assessed as costs of the investigation and prosecution. Notice Regarding Assessment of Costs which stated: Respondent is placed on notice that Petitioner has incurred costs related to the investigation and prosecution of this matter. Pursuant to Section 456.074(4), Florida Statutes, the Board shall assess costs related to the investigation and prosecution of a disciplinary matter, which may include attorney hours and costs, on the Respondent in addition to other discipline imposed. The Department and its predecessor agencies, the Agency for Health Care Administration and the Department of Business and Professional Regulation, have been keeping data of direct and indirect expenses incurred by the Department since at least 1988. Historically, the reason this cost data has been kept is for use in billing the various boards for the amount spent in investigating and prosecuting each board's cases. Section 456.025(8), Florida Statutes, and its predecessors Sections 455.220 and 455.587, Florida Statutes, require that the Department maintain an accounting, by profession, of the expenses incurred by the Department to regulate those professions. These expenses are then, to the maximum extent possible, charged back to the accounts of each regulated profession. Direct expenses include, but are not limited to, costs for investigations, examination, and legal services. For indirect expenses, the Department is to proportionally allocate to the boards the expenses incurred by the Department in the performance of its duties with respect to the regulation of each of the professions. The Department is required to maintain sufficient records to support its allocation of agency expenses and to provide each board an annual report of revenues and direct and allocated expenses related to the operation of that profession. The Department or its predecessors have been keeping data of the costs related to the investigation and prosecution of professional license disciplinary cases. The collection of data includes determining an hourly rate for those persons whose activities are directly attributable to individual and specific cases and an hourly overhead rate for administrative costs and indirect costs. The overhead rate includes salaries plus benefits of clerical staff, rent, office supplies, OPS expense, telephone services, utilities, copier maintenance fees, and other similar expenses. From 1994 until January 13, 2003, the methodology for calculating the overheard hourly rate, called "Methodology for Calculating Rate for Billable Hours," provided as follows: Determine the number of timekeepers and non-timekeepers. Determine the rate for non-timekeepers (annual rate plus + benefits [27.5%]) ? number of timekeepers ? 2080 hours = hourly rate. Determine the rate for expenses (budget expenses and OPS) from operating budget ? number of timekeepers ? 2080 = hourly rate. Add results of steps 2 & 3, for total hourly rate per timekeeper. All employees of the Department's Medical Quality Assurance (MQA) Enforcement Program, which consists of the Consumer Services Unit, the Investigative Services Unit, and the Prosecution Services Unit, are designated either as timekeepers or non-timekeepers. Timekeepers are those employees who perform activities directly related to specific cases. All other employees are considered to be non-timekeepers, and their salary and benefits are part of the costs that are apportioned within the overheard rate calculation. The hourly rate for a timekeeper is calculated by dividing that timekeeper's salary plus benefits by the total annual hours. Under the pre-January 13, 2003, methodology, the total number of hours used was 2080. Benefits were determined based on 27.5 percent of the timekeeper's annual salary. In October or November 2002, James D. Hentz, the Financial Manager for the trust fund of the MQA section of the Department saw this methodology for the first time. He believed that the use of 2080 hours in the methodology was flawed because it included holidays, annual leave, sick leave, and non-billable administrative time, thereby, precluding any possibility of recovering all the costs. Mr. Hentz believed that using 1720 hours better represented the number of hours available to be worked and billed to specific cases, and he proposed that the methodology be adjusted by using 1720 hours instead of 2080 hours. The adjusted methodology proposed by Mr. Hentz was disseminated to the enforcement program units of the Department by Charlene G. Willoughby to be effective January 13, 2003. The methodology, also entitled "Methodology for Calculating Rate for Billable Hours" provided as follows: Determine the number of timekeepers and non-timekeepers. There are 1720 billable hours per year (2080 possible hours worked minus average annual, sick and holiday leave). Determine the rate for non-timekeepers (annual rate + benefits [28%]) ? number of timekeepers ? 1720 hours = hourly rate). Determine the rate for expenses (budget expenses, including OPS) from operating budget ? number of timekeepers ? 1720 hours = hourly rate Add results of steps 3 & 4 for total hourly overhead rate per timekeeper. Add overhead rate to hourly salary + benefits of each timekeeper for individual timekeeper rate. This methodology proposed by Mr. Hentz differed from the previous methodology by the use of 1720 hours instead of 2080 hours and the use of 28 percent of the annual salary to calculate benefits rather than 27.5 percent. These changes resulted in an increase in both the overhead hourly rate and the timekeepers' hourly rate, thereby, increasing the total hourly rate per timekeeper, which is also known as staff rate. The methodology that was disseminated on January 13, 2003, was not implemented by the Investigative Services Unit or the Prosecution Services Unit at the Department. On January 24, 2003, Mr. Hentz sent out another methodology for use in computing overhead and timekeepers' hourly rates. He drafted the methodology in a narrative form, which Ms. Willoughby converted to a format similar to the previous formulas. The January 24, 2003, methodology provides as follows: Determine the number of timekeepers and the non-timekeepers. There are 1720 billable hours per year (2080 possible hours worked minus average annual, sick and holiday leave). Determine the rate for non-timekeepers (annual rate + benefits [as reflected in the COPES Report] ? number of timekeepers ? 1720 hours = hourly rate. Determine the rate for expenses (budget expenses, including OPS) from operating budget ? number of timekeepers ? 1720 hours = hourly rate. Add results of steps 3 & 4 for total hourly rate per timekeeper. Add overhead rate to hourly salary + benefits of each timekeeper for individual timekeeper rate. The salary plus benefits associated with each individual position number for each employee is reported on the COPES Report. In calculating the timekeepers' hourly rate and the overhead hourly rate, the January 24 methodology uses the actual salary plus benefits from the COPES Report instead of calculating benefits by using a percentage of salary as was done in previous methodologies. Timekeepers maintain and submit a daily activity report (DAR) which identifies the cases on which they worked, the activities they performed, and the amount of time they spent in six-minute increments. The DARs are entered into a data system called the Time Track System, where that data is kept by timekeeper identification number, case number, activity, and time spent on each activity. The total hourly rate is also entered into the Time Track System so that the rate can be applied to the time spent on a case by each timekeeper. The total hourly rate is updated at least annually when the new spending plan or budget is issued. It is also reviewed quarterly to make adjustments for salary or benefit changes. The compilations of data from the Time Track System at issue are the Time Tracking Report and the Complaint Cost Summary. The Time Tracking Report is a detailed time accounting report and has two components, the Itemized Cost by Complaint and the Itemized Expense by Complaint. The Itemized Cost by Complaint itemizes the specific activities that have been performed on a specific case by activity code and description, the date of those activities, the timekeeper who performed the activities, the amount of time spent on those activities, and a staff rate for each timekeeper who worked on a specific case. The Itemized Cost by Complaint contains a column that reports "Cost," which is the time spent by a timekeeper for a particular activity multiplied by the staff rate. The Itemized Cost by Complaint is subtotaled by each unit in the MQA Enforcement Program and is finally totaled for all the time spent on a particular case to the date that the report is printed. The Itemized Expense by Complaint itemizes the expenses directly attributable to the specific case. Typical direct expenses would include expert witness fees, travel, and court reporting services. These expenses are ones for which an invoice has been received and paid for a specific expense on a specific case. The Complaint Cost Summary is a summary of the accounting information contained in the Time Tracking Report. It summarizes the total hours spent on a case, by unit, the cost per unit, and the expenses. The total reflected in the Complaint Cost Summary corresponds to the individual subtotals by unit, plus the expenses, which are detailed in the Time Tracking Report. When a specific case goes before the Board for entry of a Final Order that will impose some discipline, various procedures have been used to bring the data concerning the costs related to the investigation and prosecution of that case before the Board. The procedures have varied over time and type of case. For example, when the Board considers defaults and informal hearing recommended orders, it may be informed about the costs in one of several ways, including by written motion, ore tenus motion, or simple statement of the costs. Consent agreements may be considered for assessments of costs in other ways because the amount of the costs would be included in the consent agreement. In the past, cost summaries have not been presented to the Board in cases involving recommended orders; however, more recently cost summaries are being provided to the Board and may include additional materials such as an affidavit from Ms. Willoughby. In some cases, there have been motions to assess costs filed and in others there were oral presentations made to the Board regarding the costs. In the last 13 months, there has been no consistent procedure used by the Department to request the assessment of costs related to the investigation and prosecution by the Board. However, the Department has consistently included its direct and indirect expenses, including an attorney's time in its requests for costs. In Petitioner's disciplinary case, the Department originally requested the assessment of the costs related to the investigation and prosecution in the prayer for relief in the Administrative Complaint, Paragraph (G). Prior to the final hearing, the Department filed a Notice of Dismissal of Paragraph of the Prayer for Relief of the Administrative Complaint, stating that it was dismissing the request concerning the assessment of the costs for the investigation and prosecution of the case. The Department further included the following in the motion: Should the Board enter a final order imposing discipline in this matter, the [Department] intends to request the Board of Medicine to assess costs in the following manner: Upon entry of Recommended Order by the Division of Administrative Hearing, an appropriate Motion to Assess Costs shall be filed with the Board to be considered immediately following Board consideration of said Recommended Order. The motion shall provide [Dr. Abdel-Aziz] an opportunity to file timely written objections to the amount of costs incurred by the Petitioner related to the investigation and prosecution of the case. If a timely written objection to the assessment of costs incurred by the Petitioner related to the investigation and prosecution of the case is filed by [Dr. Abdel-Aziz], the Department shall request the Board to conduct a hearing on the assessment of costs. That hearing shall be conducted either after consideration of the Recommended Order and prior to entry of the Final Order disposing of the case or [sic] a part of a separate bifurcated proceeding if it is appropriate to enter a Final Order before the hearing can be conducted. If a disputed issue of material fact arises, then the matter concerning such dispute shall be forwarded to the Division of Administrative Hearings for a formal hearing. The Department has filed similar notices in at least two other cases before the Division of Administrative Hearings. The Board has not used a specific procedure in the manner in which it addresses the issue of costs related to the investigation and prosecution. It has considered written motions, oral motions, and has, at least on one occasion, just asked the Department representative at the Board meeting what the amount of the costs were. The Board has been interpreting Section 456.072(4), Florida Statutes, to require the inclusion of the direct and indirect expenses of the Department, including those costs listed in subsections b, c, d, e, f, and g of paragraph 4 of this Final Order, when assessing the costs related to the investigation and prosecution of a case against a physician, who is before the Board as a result of a recommended order. In doing so, the Board has implicitly adopted those costs appearing in subsections b, c, d, e, f, and g of this Final Order as the costs it will assess related to the investigation and prosecution of a case.
