The Issue The issue is whether respondent's certified public accountant's license should be disciplined for the alleged violations set forth in the administrative complaint.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Respondent, Flanagan & Baker, P. A. (respondent or firm), was a certified public accounting firm having been issued license number AD 0006179 by petitioner, Department of Professional Regulation, Board of Accountancy (Board). When the events herein occurred, the firm's offices were located at 2831 Ringling Boulevard, Suite E-118, Sarasota, Florida, and John R. Flanagan and Michael L. Baker, both certified public accountants (CPA), were partners in the firm. In addition, Thomas A. Menchinger, also a CPA, was a junior partner. The firm has since been dissolved, and Flanagan and Menchinger have now formed a new firm known as Flanagan & Menchinger, P. A., at the same address. It is noted that Flanagan, Baker and Menchinger are not named as individual respondents in this proceeding, and at hearing respondent's representative assumed that only the firm's license was at risk. Whether license number AD 0006179 is still active or valid is not of record. In 1987, respondent, through its partner, Flanagan, accepted an engagement to prepare the 1986 calendar year financial statements for Ballantroe Condominium Association, Inc. (BCA or association), an owners' association for a fifty unit condominium in Sarasota. Financial statements are a historical accounting of what transpired for an entity during a particular period of time as well as the status of its assets, liabilities and equity on a given date. They are prepared for a variety of persons who rely upon them to see what transpired during that time period. If the statements are not properly prepared, the possibility exists that harm or other problems may accrue to the users of the statements. After the statements were prepared and issued, a unit owner made inquiry with respondent in August 1987 concerning two items in the statements. When he did not receive the desired response, the owner wrote the Department in September 1987 and asked for assistance in obtaining an opinion regarding the two items. Eventually, the matter was turned over to a Board consultant, Marlyn D. Felsing, and he reviewed the statements in question. Although Felsing found no problems with the two items raised by the owner, he noted what he perceived to be other errors or irregularities in the statements. This led to the issuance of an administrative complaint on September 29, 1988 charging the firm of Flanagan & Baker, P. A., with negligence in the preparation of the statements and the violation of three Board rules. That precipitated the instant controversy. The engagement in question represented the first occasion that the firm had performed work for BCA. The association's annual financial statements from its inception in 1980 through calendar year 1983 had been prepared by Touche Ross & Company, a national accounting firm, and for the years 1984 and 1985 by Mercurio and Bridgford, P. A., a Sarasota accounting firm. Some of these statements have been received in evidence. As a part of the Board investigation which culminated in the issuance of a complaint, Felsing visited respondent's firm, interviewed its principals, and reviewed the work papers and financial statements. A formal report reflecting the results of his investigation was prepared in June 1988 and has been received in evidence as petitioner's exhibit 1. In preparing his report, Felsing relied upon a number of authoritative pronouncements in the accounting profession which underlie the concept of generally accepted accounting principles (GAAP). These included various opinions issued by the Accounting Principles Board (APB), Statements on Auditing Standards (SAS) issued by the Auditing Standards Board, and Accounting Research Bulletins (ARB) issued by the Committee on Accounting Procedure. The three organizations are a part of the American Institute of Certified Public Accountants (AICPA). With regard to the concept of materiality, which requires an accountant to consider the relative importance of any event, accounting procedure or change in procedure that affects items on the statements, Felsing did not exclude any matters on the ground they were immaterial. Rather, he included all possible irregularities, regardless of their materiality, on the theory that the probable cause panel (for which the report was initially prepared) should consider all items in the aggregate. According to Felsing, a number of irregularities or errors were found in the financial statements prepared by respondent. These are discussed separately in the findings below. The first alleged deficiency noted by Felsing concerned a change by the association from accelerated to the straight-line method of depreciation. According to APB 20, such a change is considered to be significant, and "the cumulative effect of changing to a new accounting principle on the amount of retained earnings at the beginning of the period in which the change is made should be included in net income of the period of the change." In other words, APB 20 requires the cumulative effect of the change to be reported in the net income of the current year. However, respondent accounted for the change as a prior period adjustment on the statement of members' equity. Respondent justified its treatment of the item on the ground the prior year's statements prepared by Mercurio and Bridgford, P. A., did not show any accumulated depreciation. Thus, respondent asserted it was merely correcting an error because the other firm had not reported depreciation on the balance sheet. In addition, respondent noted that the effect on the balance sheet was only $721, deemed the item to be immaterial, and concluded its treatment of the item was appropriate. However, APB 20 requires the auditor to address the cumulative effect of the change ($2,072) rather than the effect of only the current year ($721), and therefore the cumulative effect should have been reported in current income. By failing to do so, respondent deviated from GAAP. The association had designated several cash accounts as being reserve accounts for deferred maintenance and replacements. Under ARB 43, such accounts must be segregated in the balance sheet from other cash accounts that are available for current operations. This would normally be done in a separate classification called "other assets" so that the user of the statements would be aware of the fact that the reserves were not available for current operations. However, the statements reflect that three such reserve accounts were placed under the classification of current assets. It is noted that these accounts totaled $25,514, $18,550 and $30,927, respectively. While respondent recognized the difference between cash available for current operations and reserves for future use, and the requirements of ARB 43, it noted that the association's minute book reflected the association regularly withdrew funds from the accounts throughout the year to cover current operations. Also, the prior year's statements prepared by Mercurio and Bridgford, P. A., had classified the item in the same fashion. Even so, if respondent was justified in classifying the accounts as current assets, it erred by identifying those accounts as "reserves" under the current assets portion of the balance sheet. Therefore, a deviation from GAAP occurred. One of the most important items in a condominium association's financial statements is how it accounts for the accumulation and expenditure of reserves, an item that is typically significant in terms of amount. The accounting profession does not recommend any one methodology but permits an association to choose from a number of alternative methods. In this regard, APB 22 requires that an entity disclose all significant accounting policies, including the choice made for this item. This disclosure is normally made in the footnotes to the financial statements. In this case, no such disclosure was made. Respondent conceded that it failed to include a footnote but pointed out that when the statements were prepared by Touche Ross & Company, one of the world's largest accounting firms, that firm had made no disclosure on the basis of immateriality. However, reliance on a prior year's statements is not justification for a deviation from GAAP. It is accordingly found that APB 22 is controlling, and footnote disclosure should have been made. The financial statements contain a schedule of sources and uses of cash for the current fiscal year. According to APB 19, all transactions in this schedule should be reported at gross amounts irrespective of whether they utilize cash. However, respondent reported all transactions in the schedule at their net amount. In justifying its action, respondent again relied upon the prior years' statements of Touche Ross & Company and Mercurio and Bridgford, P. A., who reported the transactions in the same manner. It also contended the item was immaterial and that a detailed explanation of the item is found in the statement of members' equity. Despite these mitigating factors, it is found that the schedule was inconsistent with APB 19, and a deviation from GAAP occurred. Felsing's next concern involved the language used by respondent in footnote 6 to the statements. That footnote pertained to the unfunded reserve and read as follows: NOTE VI - UNFUNDED RESERVE As of December 31, 1986, the Association reserves amounted to $103,953 consisting of $18,931 as a reserve for depreciation and statutory reserves of $85,022. The amount funded was $95,422 leaving an unfunded balance of $8,531 due to the reserves from the operating funds. Felsing characterized the footnote as "confusing" because it referred to depreciation as a part of a future reserve for replacements. Felsing maintained the footnote contained inappropriate wording since depreciation relates to assets already placed in service and not to their replacements. Respondent agreed that the footnote, taken by itself, might be confusing. However, it contended that if the user read the preceding footnote, which he should, there would be no possible confusion. That footnote read as follows: NOTE V - RESERVE FOR DEPRECIATION The Association funds the reserves for depreciation through its operating budget. These funds are to be used for the replacement of property and equipment as the need arises. As previously noted, the Association changed its method of computing depreciation to conform with generally accepted accounting principles. As of December 31, 1986, the reserve for depreciation totaled $18,931. According to respondent, the above footnote made clear to the user that the firm was not referring to depreciation as a reserve but rather was setting aside funds equal to depreciation in an effort to have sufficient cash to purchase assets in the future. While the deficiency here is highly technical and minute in nature, it is found that the footnote is not sufficiently clear and that the user might be confused. Felsing next observed that the footnotes did not disclose how the association accounted for lawn equipment or other capital assets. According to APB 22, such a choice is considered a significant accounting policy and, whatever policy is utilized, the same must be disclosed in the footnotes to the statements. In response, Flanagan pointed to a footnote in Note I of the statements which read in part as follows: Property and Equipment and Depreciation Property and equipment capitalized by the Association is stated at cost. During 1986, the Association changed its method of depreciation from the accelerated cost recovery method to a straight line method in which property and equipment is depreciated over its estimated useful life in accordance with generally accepted accounting principles. According to respondent, this footnote was adequate in terms of explaining the method of depreciation. Also, a number of other statements were introduced into evidence to show that other entities routinely used a corresponding footnote. Flanagan's testimony is accepted as being the most credible and persuasive evidence on this issue, and the footnote is accordingly deemed to be adequate disclosure on this policy. In the statement of members' equity, there is an item in the amount of $1,730 described as "capitalization of lawn equipment expensed in previous year." Although Felsing did not question the amount shown, he faulted respondent for not properly describing whether the item was a change in accounting principle or an error correction. According to APB 20, the disclosure of an error correction is required in the period in which the error was discovered and corrected. Although respondent considered the footnote described in finding of fact 11 to constitute adequate disclosure, it is found that such disclosure falls short of the requirements of APB 20. Work papers are records and documentary evidence kept by the accountant of the procedures applied, tests performed, information obtained and pertinent conclusions reached in the engagement. They serve the purpose of documenting the work performed and provide verification for the accountant. In addition, another important, required tool is the audit program, a written plan for how the auditor intends to perform the audit. The plan serves the purpose of documenting the accountant's mental process of deciding what procedures are necessary to perform the audit and to communicate those procedures to the persons actually conducting the audit. The audit plan should include in reasonable detail all of the audit procedures necessary for the accountant to perform the audit and express an opinion on the financial statements. Although a variety of checklists have been prepared by the AICPA and other organizations, each audit program must be tailored to fit the needs of a particular client. Felsing noted what he believed to be a number of deficiencies with respect to respondent's work papers, audit program, and engagement planning. In reaching that conclusion, Felsing relied upon various SAS pronouncements which govern that phase of an auditor's work. Those pronouncements have been received in evidence as petitioner's exhibits 7-14. Although the work papers themselves were not introduced into evidence, Felsing stated that his review of them reflected they were "deficient" in several respects. For example, he did not find a planning memorandum, time budget, checklist or other evidence that planning procedures were performed as required by SAS 22. In this regard, Flanagan corroborated the fact that no formal planning memorandum to the file was prepared. Although respondent's audit program was written for a condominium association, Felsing found it "extremely brief" and was not tailored to this particular client. He opined that such a program should have included reasonable detail of all audit procedures necessary to accomplish the audit and to express an opinion on the financial statements. In particular, it was noted that some required procedures were not on the list while some procedures actually used by respondent were not included. Through conversations with respondent's members, Felsing learned that much of the audit work was performed by Menchinger, the junior partner in the firm. In addition, "a few" other work papers were prepared by an unknown assistant. Although Menchinger reviewed all work performed by the assistant, Felsing found no evidence that the papers were reviewed by the supervising partner, Flanagan. Such review, which is a required step in the audit process, is generally evidenced by the supervising partner placing check marks or initials on the individual work papers. Felsing noted further that the decision to rely on the testing of internal controls was not documented in the work papers by respondent. He added that the amount of time budgeted by respondent for this engagement (around thirty hours) was inadequate given the fact that it was the first year the firm had prepared this client's statements. Finally, Felsing concluded that the violations were not peculiar to a condominium association but were applicable to all enterprises. Respondent pointed out that the association was a small client with less than five hundred line items, and the audit program and engagement planning were planned within that context. Respondent introduced into evidence its audit program which contained the steps taken by the firm in planning for the engagement. Testimony that all steps contained therein were followed was not contradicted. Similarly, Flanagan testified without contradiction that he reviewed all work performed by Menchinger but did not evidence his review with tick marks on each page. According to Flanagan, on a small audit such as this, he considered the signing of the tax return and opinion letter evidence that he had reviewed the work papers. However, Flanagan acknowledged that someone examining the papers would not know they had been reviewed by the supervising partner. Based upon the above findings, and after reconciling the conflicting testimony, it is found that respondent violated GAAP by failing to have a planning memorandum, time budget, and evidence of testing of internal controls within its work papers. All other alleged violations are found to without merit. Respondent has continued to represent the association since the Board issued its complaint. Indeed, Flanagan noted that the association is pleased with the firm's work, and this was corroborated by a letter from the association's board of directors attesting to its satisfaction with the firm. There was no evidence that the association or any other third party user of the statements was injured or misled by relying on the statements.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of the violations discussed in the conclusions of law portion of this Recommended Order, and that license number AD 0006179 be given a reprimand. All other charges should be dismissed. DONE and ENTERED this 30th day of October 1989, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of October 1989.
The Issue The issue is whether Respondent's statements as set forth in a letter dated April 30, 2001, are rules as defined in Section 120.52(15), Florida Statutes, which have not been promulgated as required by Section 120.54(1)(a), Florida Statutes.
Findings Of Fact Respondent is an agency of the State of Florida. At all times relevant here, the Florida Capitol Police was a division within Respondent's Facilities Program. The Florida Capitol Police is an accredited law enforcement agency. Its purpose is to provide building security and other law enforcement services. The State of Florida employs individuals in one of four distinct, statutorily defined services: Senior Management Service, Selected Exempt Service, Career Service, or Other Personal Services. At all times relevant here, the Director of Florida Capitol Police was an employment position that was classified within the Senior Management Service. Petitioner is a sworn law enforcement officer. On February 24, 1998, Respondent offered Petitioner an appointment to the position of Director of Florida Capitol Police. At that time, Petitioner understood that the appointment was to a position classified within the Senior Management Service. To the extent possible, Petitioner negotiated the terms of his employment. However, he understood that his position as Director of Florida Capitol Police included all of the benefits and all of the terms of employment of a position established within the Senior Management Service. He knew that he would serve at the pleasure of Respondent's Secretary, as the agency head, if he accepted the job. On February 25, 1998, Petitioner accepted the appointment to Director of Florida Capitol Police. He executed a document acknowledging that he was relinquishing his career service rights. From that time forward, Petitioner was compensated and evaluated as a Senior Management Service employee. He enjoyed all the benefits of his new position. Petitioner was the highest-ranking sworn law enforcement officer in the Florida Capitol Police, holding the "rank" of colonel. He did not report to any higher sworn law enforcement officer. As Director of Florida Capitol Police, Petitioner was responsible for leading and directing the operation of a statewide law enforcement organization, including the administration and oversight of a $6.2 million-dollar budget. Part of Petitioner's duties required him to maintain appropriate relationships with the Sheriff of Leon County and the Chief of the Tallahassee Police Department for support in joint operations when necessary. Petitioner was a member of the Florida Police Chiefs' Association, the State Law Enforcement Chiefs' Association, and the National Police Chiefs' Association. In 1999, a former employee of the Florida Capitol Police commenced a legal action in the United States District Court for the Northern District of Florida against Respondent. The former employee alleged sex discrimination and sexual harassment by the Florida Capitol Police, specifically by Petitioner. A trial was conducted in the lawsuit, Goldwich v. Department of Management Services, USDC ND Fla., Case No. 99-CV-512 (1999) in early February 2001. Petitioner testified as a defense witness at the trial. Several other Florida Capitol Police officers were interviewed as potential witnesses or called to testify at the trial. Respondent prevailed in the district court action. On February 2, 2001, Respondent's Secretary transferred the internal affairs investigation function of the Florida Capitol Police from the Florida Capitol Police to Respondent's Office of Inspector General. Thereafter, the Chief Investigator, Captain Joe Wallace, worked out of the Inspector General's office. On February 15, 2001, Petitioner and Respondent's Inspector General entered into a Memorandum of Understanding regarding the "credentialing" of Chief Investigator Wallace. The purpose of the memorandum was to formulate and establish a commitment between the Office of the Inspector General and the Florida Capitol Police to support the training and educational requirements for sworn law enforcement personnel assigned to each entity. On March 2, 2001, Respondent's Office of the Inspector General received an internal complaint from Sergeant Edwin Maxwell, a subordinate officer of the Florida Capitol Police. Said complaint alleged that Petitioner had retaliated against Sergeant Maxwell for testifying at the Goldwich trial. Sergeant Maxwell's allegations also implicated Petitioner's subordinate, Major Robert G. Tippett, as having participated in the alleged retaliation. On or about March 7, 2001, Respondent's Inspector General instructed Petitioner to report to the Florida Capitol Building, specifically to the offices of the Governor's Chief Inspector General. Respondent's Inspector General, Chief Investigator Wallace, and an Assistant Florida Inspector General from the Governor's Office of Inspector General were present when Petitioner arrived at the Capitol. At that time, Petitioner was presented with a memorandum advising that he was the subject of a formal investigation. The March 7, 2001, memorandum stated that Respondent's Inspector General initiated the investigation pursuant to a complaint. According to the memorandum, the principal allegation that formed the basis of the investigation was that Petitioner had engaged in one or more of the following: retaliation, conduct unbecoming, and/or violation of law. Sergeant Maxwell's complaint and a copy of Section 112.532, Florida Statutes, was attached to the memorandum. During the March 7, 2001, meeting at the Capitol, Respondent's Inspector General advised Petitioner that he had a right to representation by counsel. After a brief discussion, Petitioner elected to seek private counsel. Later on March 7, 2001, Petitioner and his attorney returned to the Governor's suite at the Capitol. Upon their arrival, Petitioner was advised again of his rights under the law enforcement officers' and correctional officers' rights, which are codified at Section 112.532, Florida Statutes. Respondent's Inspector General and Chief Investigator Wallace then proceeded to interview Petitioner. Respondent's Inspector General inquired into the complaint against Major Tippett, performed an investigation, and issued an Executive Summary of the investigation dated March 22, 2001. This report concluded that Major Tippett's alleged violations related to conduct unbecoming, retaliation, and violation of law were unfounded. Respondent's Inspector General inquired into the complaint against Petitioner, performed an investigation, and prepared a draft report of the investigation. After consulting with the Chief Inspector General in the Office of the Governor, Respondent's Inspector General issued an Executive Summary of the investigation dated March 26, 2001. This report concluded that Petitioner had engaged in conduct unbecoming. The report also concluded that other alleged violations by Petitioner, including retaliation and violation of law, were unfounded. According to the March 26, 2001, Executive Summary, Respondent's Inspector General recommended that Petitioner be removed from his position as Director of Florida Capitol Police. The report states as follows in relevant part: This recommendation is made after carefully considering the following factors and informed by the fact that the Director serves entirely at the discretion of the secretary: The previous OIG report related to Capitol Police and the issues raised therein. (See attached) The finding of the jury in the US District Court case, filed by Officer Lisa Goldwich, that her working conditions were made so intolerable, by the defendant, that she was forced to resign. (See attached) The finding of "conduct unbecoming an employee/officer" contained in the report above. The likelihood that future retaliation will be attempted against those individuals who participated in the Goldwich trial and against those who testified in the OIG investigation reported above. The ongoing morale problem within the Florida Capitol Police. Subsequently, Respondent's Inspector General prepared a Memorandum of Investigation dated April 2, 2001. This memorandum states again that allegations against Petitioner relative to retaliation and violation of law were unfounded but that allegations relative to conduct unbecoming were founded. The April 2, 2001, memorandum cites Respondent's Policies and Procedures Manual, Section 3.27, Discipline of Career Service Employees, as it relates to conduct unbecoming a public employee. It also cites to Section 110.403(1)(a), Florida Statutes, for the proposition that Respondent's Secretary had discretion to discipline Senior Management Service employees. On or about April 3, 2001, Petitioner and Major Tippett filed a civil suit in the Circuit Court of the Second Judicial Circuit, in and for Leon County, Florida, Case No. 01-821. This suit included an Emergency Motion for Temporary Injunctive and Declaratory Relief. It alleged violations of Sections 112.532, 112.533, and 112.534, Florida Statutes. Petitioner subsequently voluntarily dismissed this civil action. On or about April 3, 2001, the General Counsel in the Office of the Governor, requested the Florida Department of Law Enforcement (FDLE) to review and complete Respondent's internal investigation. Thereafter, FDLE's Inspector General performed an investigation into the complaint against Petitioner and Major Tippett. FDLE's Inspector General eventually prepared an undated report of its review and investigation. The FDLE report states as follows in relevant part: As mentioned previously, the OIG report concludes that the alleged violations against Major Tippett were all unfounded. The alleged violations against Colonel Meek for (1) Retaliation and (2) Violation of Law were unfounded. The violation against Colonel Meek for Conduct Unbecoming was founded. Conduct Unbecoming a public employee is a violation of DMS Policy, Section 3.27(C)(2)(e). There is no definition of "Conduct Unbecoming" in DMS' policies or administrative rules. Based upon the interview of the subordinate supervisors regarding the statements made by Colonel Meek, the conclusions rendered by OIG are reasonable. Near the completion of the OIG investigation, IG Varnado prepared a draft report and discussed it with the Chief Inspector General, Marcia Cooke. The draft report did not contain any recommendation regarding a recommended action for the founded violation of Conduct Unbecoming. CIG Cooke instructed IG Varnado to include such a recommendation. IG Varnado recommended that Colonel Meek be removed from his position and discussed the recommendation with Secretary Cynthia Henderson. This RECOMMENDATION was included in the INVESTIGATIVE REPORT dated April 2, 2001. The RECOMMENDATION contained five cited reasons to support Colonel Meek's removal. The OIG investigative report does not specifically support reasons (1), (4), and (5). However, based upon the below recommendation, further discussion of these items is rendered moot. Generally, an investigation regarding possible administrative misconduct is handled independently from the determination to impose action following a sustained finding of a violation. IG Varnado acknowledged that he does not routinely recommend action following an administrative violation. However, according to IG Varnado, the rank of the person involved led him to seek assistance from the Chief Inspector General's Office. It is recommended that the RECOMMENDATION regarding the proposed administrative action be removed from the investigative report. The determination of any action resulting from the OIG investigation should be left solely to the discretion of the Secretary for the Department of Management Services. The FDLE report also addresses Respondent's violations of Sections 112.532(1)(b), 112.532(1)(g), and 112.533, Florida Statutes, which were the subject of the civil suit filed by Petitioner and Major Tippett. The report concludes that these statutory provisions were applicable to Major Tippet but that the question whether they were applicable to Petitioner, as the head of the Florida Capitol Police, was also the subject of the civil suit. By letter dated April 30, 2001, Respondent's Secretary advised Petitioner that the investigation of Sergeant Maxwell's complaint was complete. The letter states as follows in relevant part: [B]ased on the investigation conducted by the DMS Inspector General, as reviewed and completed by the Florida Department of Law Enforcement Inspector General, it has been determined that allegations against you relating to retaliation and violation of law are unfounded, and that allegations against you relating to conduct unbecoming a public employee are founded. Attached hereto for your reference is a copy of the pertinent report of the FDLE Inspector General's Office. As set forth in the attached report (page three), the basis for the conclusions that you are guilty of conduct unbecoming a public employee is that you made statements in the days or weeks following the trial of the civil suit filed by former officer Lisa Goldwich to subordinate officers regarding the removal of duties involving Sgt. Maxwell--who testified for the plaintiff at the trial--and possible adverse action for him and others who testified. Because of this conduct unbecoming a public employee, you are hereby suspended without pay for a period of fourteen (14) days, after which you will return to your post. You are also hereby required to participate in supervisor training with (sic) ninety (90) days. Respondent's agency head, in the exercise of her discretion, made the ultimate decision to suspend Petitioner. In taking the disciplinary action, the agency head did not reference or assert any reliance on career service rules to support Petitioner's discipline. The April 30, 2001, letter was not disseminated to other agencies or to other Senior Management Service employees. The agency head's April 30, 2001, letter was an action taken exclusively regarding Petitioner. It did not affect or impact any other agency, employee, or class of employee. The administration of personnel matters regarding Respondent's Senior Management Service employees did not change following Petitioner's April 30, 2001, discipline. Respondent has not promulgated rules regarding the discipline, suspension, or termination of Senior Management Service employees because such rules are not required. Petitioner resigned his appointment as Director of Florida Capitol Police on July 31, 2001. He is no longer employed by the State of Florida.
Findings Of Fact Lorraine K. Read is President and Chief Operating Officer of Mid-State Industries and owns 60 percent of the stock. Her husband, Ronald C. Read owns the remaining 40 percent of the stock. They are the only employees of Mid- State. The bylaws of the company (Exhibit 2) provides that the President shall be the chief executive officer of the corporation, shall have general and active management of the business and affairs of the corporation subject to the directions of the Board of Directors and shall preside at all meetings of the shareholders and Board of Directors. The application (Exhibit 1) shows that Lorraine Read provided the start-up capital of $600 for her 600 shares of stock and Ronald Read provided $400 for his 400 shares. The business is operated from the Read's home. The only supplies sold by Mid-State which are kept on the premises are sandpaper, assorted nuts and bolts, hydraulic fittings, electric tape, duct tape, brass fittings, wire terminals and cabinet screws with a total value of approximately $1,000. Ronald Read acts as outside salesman visiting businesses having a need for chemicals to ascertain their needs and take their orders. However this is done on a part-time basis as he is the Florida West Coast District Manager for OEC Corporation in Ohio. He sells truck parts for that company. These chemicals, which comprise approximately 80 percent of Mid-State sales, are ordered by Lorraine Read when the orders are called in to her. Those chemicals in 55-gallon drums are delivered to the customer by the supplier but are billed to Mid-State. Mid-State adds a markup to the price paid by Mid-State which forms the price the customers are billed. The customer owes Mid-State for the products and Mid-State owes the supplier. Although Ronald Read has check signing authority for Mid-State, this power is used only when Lorraine Read is unavailable to sign checks. All of the business records of Mid-State are kept and maintained by Lorraine Read. Mid-State has neither the storage facilities necessary to maintain a stock of chemical supplies nor vehicles capable of transporting 55-gallon drums of chemicals. Some of the chemicals sold which are small enough to be handled by one person without mechanical lift equipment are delivered to the purchasers by Ronald Read in his Jeep Cheeokee.
Recommendation It is RECOMMENDED that a final order be entered denying Mid-State Industries, Inc.'s, certification as a minority business enterprise because the company is not performing a useful business function. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 14 day of September 1992. K. N. AYERS Hearing Officer Division of Administrative Hearings 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14 day of September 1992. APPENDIX Proposed findings submitted by Petitioner are accepted except as noted below. Those proposed findings not included in the Hearing Officer's findings as noted below were deemed unnecessary to the conclusions reached. 12. Rejected. Only minor supplies in garage are maintained as "inventory." 16. Rejected. Nearly 80 percent of Mid State sales are large bulk items such as chemicals. 17.-18. While the number of items delivered to Read's home may equal or exceed the number delivered directly to the customer, the value of the items delivered to the customer greatly exceeds that delivered to Read's garage. 14.-20. Accepted as testimony of Ringgold--not as fact. Proposed findings submitted by Respondent are accepted except as noted below. Those proposed findings not included in the Hearing Officer's findings as noted below were deemed immaterial to the conclusions reached. 8. Accept as testimony of Ronald Read. COPIES FURNISHED: Michael William LeBron, Esquire 400 East Dr. Martin Luther King Boulevard Suite 101 Tampa, Florida 33603-3866 Dannie L. Hart, Esquire Suite 309 Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-0950 Larry Strong, Acting Secretary Knight Building, Suite 307 2737 Centerview Drive Tallahassee, Florida 32399-0950 Susan Kirkland, General Counsel Knight Building, Suite 110 2737 Centerview Drive Tallahassee, Florida 32399-0950
The Issue The issue in this matter is whether it is in the public interest to place Petitioner, Lance William Young, on the State of Florida convicted vendor list maintained by Respondent, Department of Management Services. § 287.133, Fla. Stat.
Findings Of Fact The Department of Transportation (DOT), the Respondent herein, is an agency of the State of Florida charged with the duty of certifying Disadvantaged Business Enterprises (DBE). DBEs, by attaining that status, are accorded the opportunity of participating in a certain percentage of contracts and construction contract monies set aside exclusively for DBEs under the statutory and regulatory authority cited below. Thus attaining DBE status allows a "small business concern" owned and controlled by minorities to compete for state contracts and to grow as a viable business in a more favorable competitive climate, ultimately becoming better able to compete with all businesses which seek public contracts. W.R. Johnson, Inc., is a small business concern, having annual gross receipts not exceeding $14 million for the fiscal years ending September 30, 1986, and September 30, 1987. There is no dispute that it qualifies as "small business concern," which is a necessary element of establishing entitlement to Disadvantaged Business Enterprise status. W.R. Johnson, Inc., is a construction company engaged in all types of commercial and public construction jobs. It is undisputed that Terri Johnson Nelson and Dorothy V. Johnson are socially and economically disadvantaged individuals (women) as that term is defined in Chapter 14-78, Florida Administrative Code. Fifty-one percent of the voting stock of W.R. Johnson, Inc., is owned by Terri Johnson Nelson and Dorothy V. Johnson. The preferred stock issued in return for capital contributions to the business, at its inception, is held by Terri Nelson's father, William R. Johnson. That preferred stock carries no voting rights, however. The board of directors is composed of Terri Johnson Nelson and Dorothy V. Johnson, as well as William R. Johnson. A majority of the board of directors is thus made up of economically and socially disadvantaged individuals. Terri Johnson Nelson is president of the corporation and chairman of the board of directors. Dorothy V. Johnson is secretary/treasurer of W.R. Johnson, Inc., and William R. Johnson is vice president. William R. Johnson is a licensed general contractor and formerly was an owner of Martin-Johnson, Inc. He was a 49 percent owner of that corporation and was engaged, with that corporation, in the general contracting, construction business. William R. Johnson's daughter, Terri Johnson Nelson, had been an employee of that corporation. She had no ownership in Martin-Johnson, Inc. Sometime in 1985 or shortly before, Martin-Johnson, Inc., was dissolved, Mr. Johnson received in that dissolution, a substantial amount of funds represented by his 49 percent ownership of that corporation. He then organized W.R. Johnson, Inc., the petitioner corporation in 1985. He was the sole initial director and board chairman at the organizational meeting, and the sole incorporator. Shortly after its incorporation, however, the company issued its first common stock and that first issuance of stock was conveyed in the amount of 49 percent to Mr. Johnson, 49 percent to his daughter Terri Johnson Nelson and 2 percent to his wife, Dorothy Johnson, the mother of Terri Nelson. The company at that same time issued non-voting, preferred stock in the amount of some 800 shares valued at $400,000 to William R. Johnson. Additional shares of preferred stock were issued to Mr. Johnson in return for additional investment capital of $80,000 in July of 1988. This preferred stock was issued to Mr. Johnson in return for his investing the capital funds in the new corporation which he had received from the dissolution of the preexisting corporation, Martin-Johnson, Inc. That preferred stock carried no voting rights, however. The majority of the common stock, which carries voting rights, is held by the female members of the board of directors. The issuance of the preferred stock, in return for the large amount of capital contributed by William R. Johnson, was done so that Mr. Johnson's daughter could acquire her shares of common stock, with the voting power attached, at a price which she could afford. She acquired her shares of common stock, amounting to a 49 percent ownership of the company, in exchange for $20,000 capital she paid into the corporation. The $20,000 was a gift from her father and mother. The intent behind this arrangement on the part of Mr. Johnson was that his daughter have, along with his wife, controlling ownership and voting power in the company and substantial degree of management and control of its operations. Put simply, he wanted to help his daughter have her own business. The contractor's license of William R. Johnson has been used to "qualify" the corporation with the Construction Industry Licensing Board. Terri Nelson has passed the State of Florida General Contractor's Exam (on her first attempt), and an application was pending at the time of the hearing to use her license to qualify the corporation as a general contractor with the Construction Industry Licensing Board. The corporation leases its office space from William R. Johnson, in a building which the corporation built for him. The lease is a written one and provides the normal protections for the corporation as a tenant, as well as a $2,000 per month income to Mr. Johnson. There is no evidence to indicate that it is other than an "arm's length" lease arrangement, nor that the landlord, Mr. Johnson, exercises any degree of control over the affairs and operations of the Petitioner corporation merely because he is the landlord. It is also true that William R. Johnson co-purchased a Chevrolet pickup truck along with W.R. Johnson, Inc., the Petitioner corporation, and that the company's occupational licenses from Santa Rosa County and Escambia County are issued in the name of "William R. Johnson d/b/a W.R. Johnson, Inc." Finally, it is also true that Terri Johnson Nelson resides in her father's home presently. That residence is temporary, however, and is due only to the fact that Mrs. Nelson and her husband are in the process of moving from Foley, Alabama, to Pensacola. None of these last mentioned facts demonstrate that William R. Johnson is, in fact, in control of the management, policies or operations of W.R. Johnson, Inc., or occupies, in any way, a superior decision making position over the management authority of the minority persons who are the controlling owners. In that connection, in addition to being a certified general contractor with a statewide license, Terri Nelson has a B.S. Degree in building construction from Auburn University. She also has approximately five years construction experience, in addition to being the president and chairman of the board of directors of the Petitioner corporation. She is actively engaged in management and control of its operations, including participating in estimating and project managing duties. She has played a pivotal role in decisions concerning which projects to bid on, what prices to charge, determining and allocating costs, and decisions concerning what profit margin should be incorporated in bids to be submitted for projects. She has authority to and makes pricing decisions, has prepared all submittals for architects, manages labor crews, both formerly, as an employee of the predecessor corporation, and as an officer and manager of the Petitioner corporation. In this capacity, she has also exercised her authority as an officer in charge of hiring and terminating employees and otherwise managing payroll functions. She coordinates material deliveries and contracts with and otherwise retains and supervises subcontractors, materialmen and laborers. She recently has had experience in supervising and coordinating all field operations in the construction of an office complex for the United States government at Eglin Air Force Base, a contract valued at approximately $6 million. Dorothy V. Johnson has a degree in accounting and long experience handling bookkeeping and financial transactions for the family construction business. She handles all bookkeeping and financial transactions and operations for W.R. Johnson, Inc., the Petitioner. She has approximately ten years experience. Decisions regarding the operation, management and policy of the company are made by the three directors with a vote being taken after the matters at issue are discussed. The majority vote rules and determines what decisions are made and how they are implemented. Mrs. Nelson's father has no authority legally, or otherwise, to control the way she votes her stock nor does he attempt to tell her how to vote her stock, and the same is true of Dorothy Johnson's voting power. The two women owners have no restriction on the manner in which they vote their majority common stock ownership, nor in the manner in which they exercise their votes as directors of the corporation, by W.R. Johnson or any other person or entity. There is no related business entity or person exercising control or ownership over the Petitioner corporation. Terri Johnson Nelson's demonstration that, as chair an of the board of directors and as president of the Petitioner corporation, she has authority to make major decisions and direct the affairs of the corporation, both operationally and financially, is borne out by the testimony of Johnny Bradley, a masonry contractor. He has dealt with W.R. Johnson, Inc. since it was formed and deals primarily Mrs. Nelson regarding all phase of masonry work on the corporation's jobs. He finds that her decisions are not overruled by any other manager of the corporation and would continue to deal with her even if William R. Johnson were not associated with the company. The same considerations were true of Dan Henderson, owner of an engineering and testing firm which customarily deals with W.R. Johnson, Inc. He has primarily dealt with Mrs. Nelson regarding jobs his firm has undertaken for W.R. Johnson, Inc., for the last five years. He finds her very knowledgeable about construction and will continue to deal with her and her corporation even if her father is not associated with it. Elige Palmer owns Sunbelt Equipment and Rental Company. He supplies construction equipment on a rental basis to W.R. Johnson, Inc., and also repairs the corporation's construction equipment. He has primarily dealt with Terri Nelson regarding all business dealings his firm has had with the Petitioner corporation and would continue to deal with her even if W.R. Johnson were not associated with the Petitioner corporation. Joseph Whitten of Sherman International Corporation sells concrete, masonry and waterproofing supplies and products to the Petitioner corporation. He also has dealt primarily with Terri Nelson and finds her one of the most competent estimators and project managers that he deals with in his sales area. He would continue to deal with her even were her father not associated with the company. This testimony in turn is corroborated by letters admitted into evidence (as corroborative hearsay only), pursuant to Section 120.58, Florida Statutes. These letters corroborate the demonstration by these witnesses and Terri Nelson herself that he is primarily responsible for management and control of the operations of the Petitioner corporation, together with her mother, Dorothy Johnson, the financial operations manager. William R. Johnson is vice president of the corporation and primarily works as an estimator and project manager, as well as handling claims involving the corporation. He participates in solving everyday management problems, but has no authority to overrule the decisions made by Mrs. Johnson and Terri Nelson as majority owners of the corporation and as majority members of the board of directors. Thus, Terri Nelson and Dorothy Johnson have been shown to possess the power to direct the management, policies and operations of the Petitioner corporation, as well as the power to make day-to-day major business decisions concerning the firm's management. Their discretion in this regard is not subject to formal or informal restrictions which would vary the managerial discretion customarily placed in the officers and majority of the board of directors of such business entities in the construction industry. The ownership and control exercised by these two women over the operations of the Petitioner are real, substantial, and continuing, and not merely pro forma.
Recommendation In consideration of the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a Final Order be entered certifying W.R. Johnson, Inc. as a disadvantaged business enterprise. DONE and ORDERED this 26th day of May, 1989, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF 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 26th day of May, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-5238 Petitioner's Proposed Findings of Fact All of Petitioner's proposed findings of fact were accepted. Respondent's Proposed Findings of Fact 1-8 Accepted. 9-10 Accepted, but not dispositive of material issue. 11 Accepted, but subordinate to Hearing Officer's findings on this subject matter. 12-14 Accepted, but not dispositive of material issue. 15-16 Accepted. Rejected as not in accordance with the Hearing Officer's findings on this subject and with the evidence. Accepted. COPIES FURNISHED: Harry B. Stackhouse, Esquire 125 West Romano Street Post Office Box 13010 Pensacola, Florida 32573 Bruce A. Campbell, Esquire Florida Department of Transportation Haydon Burns Building 605 Suwannee Street Tallahassee, Florida 32399-0450 Thomas H. Bateman III, Esquire General Counsel 562 Haydon Burns Building Tallahassee, Florida 32399-0450 Kaye Henderson, Secretary Florida Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0450
The Issue Whether Petitioner, Rebecca Hernandez ("Hernandez"), is entitled to the $22,943.81 her late mother, Darlene Rice ("Rice" or "Mother"), paid to buy into the Florida Retirement System Pension Plan ("Pension Plan"), as well as other monies transferred from Rice's Investment Plan account to the Pension Plan account, or is Hernandez only entitled to the $2,654.17 in employee contributions that Rice paid into the Pension Plan while an active member of that plan.
Findings Of Fact Based on the evidence presented and the record as a whole, the following facts were established: Darlene Rice was a Broward county teacher and member of FRS beginning September 1, 2011. Sometime in 2016, she became interested in transferring from the FRS Investment Plan to the FRS Pension Plan and actively began to investigate that option. Petitioner, Rebecca Hernandez, is the daughter of Rice and is entitled to Rice's benefits from FRS as determined by the Order of Summary Administration entered by the Circuit Court of Broward County, Florida, on October 2, 2018. Prior to transferring from the Investment Plan and as a part of her investigation, Rice contacted the FRS guidance line, on numerous occasions to seek guidance and inquire about the process to transfer into the Pension Plan. Resp. Ex. 20. The calls were recorded.3 More precisely, on March 7, 2017, Rice called the FRS guidance line to obtain information and ask questions regarding her contemplated transfer 3 The undersigned listened to all nine audio recordings. from the Investment Plan to the Pension Plan. On this call, the representative informed Rice that if she terminated FRS employment prior to having eight years of service, she "could not really recover anything." Resp. Ex. 20. During another call to the FRS guidance line, Rice was told that if she left the Pension Plan before vesting, monies she paid to "buy in" would be lost. Rice also acknowledged during one call that if something happened to her, she understood she would lose everything.4 Ultimately, after multiple telephone consultations and discussions with the FRS guidance line, Rice made the decision to transfer plans and buy into the Pension Plan. To do so, Rice was required to complete and submit a 2nd Election Retirement Plan Enrollment Form dated March 7, 2017. Resp. Exs. 2 and 16.5 On March 9, 2017, the Department sent a letter to Rice, confirming her 2nd Election into the Pension Plan. Resp. Ex. 16. The letter included the following: You have elected to move from the FRS Investment Plan and buy into the FRS Pension Plan. The effective date of this election is April 1, 2017. This is your final Plan Choice Election under the Florida Retirement System. You must remain in the FRS 4 The undersigned reasonably infers that this comment was based on what she had been told during previous phone calls to the FRS guidance line. The extensive information and consultation provided to Rice by the FRS guidance line was commendable, useful to her, and no doubt, very well intended. The representatives were patient and thorough with Rice. Regardless, their general admonitions and advice to Rice do not carry the force of law, nor do they necessarily dictate the outcome of this case. Rather, as will be explained, the correct decision in this case is derived by identifying and interpreting the applicable FRS laws and rules to the facts. 5 The top of the form notified her that "before using your 2nd Election, be sure you understand the impact of changing from one plan to another." By signing the form, at Option 2, Rice also acknowledged language that stated "I want to use my existing Investment Plan account balance and possibly other personal resources to 'buy' into the Pension Plan." Other disclosures were also made to her on page 3 of the form. Pension Plan until your retirement from FRS- covered employment. As a member who is switching from the FRS Pension Plan using the available balance in your FRS Investment Plan account. If your account is not sufficient to cover the cost of the buy-in, you will need to submit personal funds. * * * If you terminate employment prior to vesting in the Pension Plan benefit (less than 6 or 8 years) you are only entitled to receive: A refund of your contributions paid into the Pension Plan since April 1, 2017 (the effective date of your 2nd election). * * * If you feel that this retirement Plan election was made in error, you may be able to cancel it … Failure to notify us no later than 4:00 PM EST on the last business day of the month following your election month will void your right to cancel this election. Rice's election to transfer from the Investment Plan to the Pension Plan was slated to become effective on April 1, 2017. On April 18, 2017, Rice was informed by the Department that it received her notification of her second election and the accrued liability (costs) to transfer to the Pension Plan was $58,366.00; $35,422.19 was liquidated from her investment account and transferred to the FRS Trust Fund and $22,943.81 was the out of pocket cost to her to complete the transfer. Resp. Ex. 7. On June 6, 2017, the Department sent a letter to Rice confirming receipt of her personal payment of $22,943.81, which finalized her transfer to the Pension Plan effective April 1, 2017. Resp. Ex. 8. Less than a year later, on March 17, 2018, Rice passed away unexpectedly. Her death certificate listed a pulmonary embolism as the primary cause of death. Pet. Ex. 8.6 Rice did not have at least eight years of service credit in FRS at the time of her passing. After her mother's passing, Hernandez was contacted by the FRS guidance line to discuss the process and survivor benefits related to the Pension Plan.7 Naturally, Hernandez was shocked and dismayed when the representative informed her that she was only entitled to the total contributions her mother made while she was working and in the Pension Plan. He also regrettably informed Hernandez that she was not entitled to recover the buy-in costs paid by her mother, nor was she entitled to the balance she had in the Investment Plan when the transfer was made. During this telephone discussion, Hernandez lamented that she and her mother had made the decision together to transfer her from one plan to the other. On June 28, 2018, the Department sent a formal letter to Rice's daughter, Hernandez, acknowledging her mother's death and notifying her that since her mother did not have eight years of service, the benefit available to Hernandez was limited to a refund of retirement contributions in the amount of $2,654.17. Resp. Ex. 9. At Hernandez's request, the Department manually calculated the amount Rice paid into the FRS. When Rice transferred to the Pension Plan, the Department's system, which is called the Integrative Retirement Information System ("IRIS"), only showed the accumulation of the contributions that she paid into the Pension Plan after the transfer, since her contributions in the Investment Plan had already been liquidated for the transfer. Resp. Ex. 1. 6 The cause of her death is mentioned primarily to show that her death was unexpected. The undersigned infers from the evidence, particularly the CD recordings, that Rice had no forewarning or suspicions regarding her health when she made the transfer. 7 The date of this phone call is not in the record. Kathy Gould ("Gould"), the Department's Bureau Chief of Retirement Calculations, testified that the manual calculation revealed that a total of $16,042.58 was contributed by Rice since her participation began in the FRS. Based on the calculations and figures provided, her total contributions had two components: (1) $13,388.41 while Rice was in the Investment Plan and (2) $2,654.17 while Rice was in the Pension Plan. In addition to a return of these sums, Petitioner also seeks the return or refund of the "buy in" fee--$22,943.81--Rice paid to transfer to the Pension Plan. Testimony of Kathy Gould Gould's team handles the calculation of costs involved with transfers from the Investment Plan to the Pension Plan. She testified that there are two plans under the FRS, the Pension Plan and the Investment Plan. At all times related to Rice's tenure under the FRS, the funds for the FRS retirement plans came from employer and employee contributions. Employee contributions are currently three percent of salary. In the Pension Plan a member vests after eight years of service. If a member dies before the member vests, it was her position that the beneficiary would be eligible to receive the accumulated contributions. She referred to the applicable statute, section 121.091(7), Florida Statutes. Conversely, the State Board of Administration administers the Investment plan, and is separate from Respondent. A member vests after only one year in the Investment plan. Exhibit 1 was a screenshot of Rice's profile in the IRIS. This is a computer database that contains the Department's membership information. Rice's total employee balance as reflected in Respondent's Exhibit 1 was $2,654.17. This includes only Rice's payroll contributions while a member of the Pension Plan. Rice's "personal payment" to buy into the Pension Plan was $22,943.81. Gould explained that if a member of the Investment Plan left after only five months, the member would be entitled to receive the employee's contributions only. Tr. pp. 55-56. This would not include the employer's contributions. After one year, an employee is fully vested in the Investment Plan and would be entitled to all contributions made, both employee and employer, if employment was terminated while still in the Investment Plan. The payment that Rice made to buy into the Pension Plan was in the form of a personal check, not a deduction from her payroll. Respondent's Exhibit 21 is an email Gould prepared for the Department's legal counsel. Gould analyzed Rice's reported salaries while she was a member of the Investment Plan and multiplied them by three percent to provide the total amount that Rice had paid into both plans. This totaled $16,042.58. This was the amount from Rice's first payroll through her last payroll while in the FRS. The amount was the total of both the Investment Plan and the Pension Plan. Gould admitted that there are essentially two types of contributions into the FRS, employer contributions and employee contributions. She acknowledged that the $22,943.81 Rice paid to transfer to the Pension Plan was not an employer contribution. Rice was not in the Investment Plan when she died. When she died, Rice was participating in the Pension Plan. As a result, Gould admitted that the state would pay out any benefits utilizing the statutes relating to the Pension Plan. The calculation of the buy-in amount performed by the Department in Rice's case was done on the "calculator" provided by their actuary, Milliman. Testimony of Matthew Richard Larrabee Matthew Larrabee ("Larrabee") was called by the Department. He is a pension actuary with Milliman and specializes in governmental pension plans. He discussed the Department's use of a "calculator" that is designed by Milliman. It is provided and created to allow agency staff to determine actuarial pension calculations without relying upon a certified actuary. The actuarial accrued liability ("AAL") determined by the calculator, establishes the "buy-in" or purchase price for a member that chooses to transfer from the Investment Plan to the Pension Plan. The components of the buy-in cost to transfer from the Investment Plan into the Pension Plan consist primarily of the projected monthly annuity amount, the state multiplier percentage for the employee's position, the years of service, and the member's pay level. There is also an assumption of projected pay increases and the life expectancy of the member. Age is also a factor in the formula. The funds collected and related to the transfer into the Pension Plan are deposited into a commingled, legally restricted pension trust. Respondent's Exhibits 4, 5, and 6 were prepared by the Department's staff at different date intervals using the Milliman calculator. These exhibits represent output sheets produced by the calculator, which was developed by Milliman under Larrabee's supervision. The sheets are accurate. They show different actuarial accrued liability amounts based, in part, on age.8 The final calculation in Respondent's Exhibit 6 is for a transfer date of April 2017 for Rice. The calculated actuarial accrued liability was $58,366.00. Larrabee explained that this calculation is a sound estimation or valuation of the financial present value of the total future retirement benefits for a given member--in this case, Rice. 8 Different dates are notated on the calculator sheets based on differing dates being considered for the effective transfer date by Rice when the individual sheet was run. The actuarial accrued liability calculation and resulting "buy in" amount is premised on the fact that the actuaries do not take into account a potential refund feature, such as the return of funds sought by Hernandez.9 Larrabee went on to explain that if potential refunds, such as those requested by Hernandez, were accounted for in the actuarial calculations, the cost to "buy in" would only be "modestly higher." This is because the mortality rates for people like Rice in their 50's or 60's are "quite low." As a result, the added costs to cover such an infrequent contingency, if that were an option, "would be low." Allison Olson Allison Olson ("Olson") is the Director of Policy, Risk Management and Compliance for the State Board of Administration ("SBA"). Her duties include the review and determination of compliance with contracts and policies by outside vendors for the FRS Investment Plan. She also reviews complaints that are received from Investment Plan members. The Investment Plan is a defined contribution plan, similar to a traditional 401(k). The SBA is a separate agency from the Department. A member has an option of making an election, as part of their initial choice, to be a member of the Investment Plan. Vesting for the Investment Plan occurs after one year of service. Then the member owns the contributions in their account. Under the Investment Plan, each account is funded by employer contributions as well as a mandatory three percent monthly employee contribution. Members in the FRS with questions about their accounts may consult with representatives on a financial guidance line managed by the SBA vendor.10 9 No evidence was offered to explain why this type of feature was not built into the actuarial calculation, or why it was not offered as an option to potential transferees. 10 As previously noted, Rice took advantage of this service on numerous occasions. The Department offered into evidence Respondent's Exhibit 14, an FRS Investment Plan Summary Plan Description (sometimes referred to as an "SPD"). However, this SPD was not issued until July 2018. Because it was issued after Rice passed away and there was no proof she ever received it or a prior version, it was excluded as evidence and not considered based on the objection of Petitioner.11 Garry Green Gary Green ("Green") is the Chief of Research and Education for Respondent. He handles the administrative aspects of the actuarial contract and services provided by Milliman. The liquidation of an investment plan account is the sale of all assets that the member has in the account. It includes all money, both employer and employee contributions. After applying to transfer from one plan to another, an employee has 60 days to "roll in" her "buy in" money, or to cancel the transfer. The money a member pays to buy-in to the Pension Plan, is deposited into the pension trust fund with all the other assets of the trust fund. His view was that if the member is not vested in the Pension Plan, the contributions used to "buy in" are not refundable. Respondent's Exhibit 6 calculates the actuarial accrued liability of $58,366.00. It is a calculation of the total cost to buy in to the Pension Plan. He explained that it is not a statement of the liquidated assets from Rice's Investment Plan or any funds owed to Rice. 11 It should be noted that, aside from notices she received in the enrollment forms she signed or guidance from FRS guidance line representatives, there was no proof presented by Respondent that any of the mandatory educational components required by section 121.4501(10)(a)-(g), Florida Statutes, entitled "Education Components," were complied with, or offered to Rice. This is particularly significant in this case since material "must be prepared under the assumption that the employee is an unsophisticated investor." § 121.4501(10)(e), Fla. Stat. Additional Facts Established by Discovery Petitioner's Exhibits 9-1 and 9-2 establish that Rice contributed $16,042.58 in employee contributions into the FRS. $2,654.17 was into the Pension Plan and $13,338.41 was while Rice was a member of the Investment Plan. The Department admitted that Rice paid $22,943.81 of her personal funds on or before June 6, 2017, to transfer from the Investment Plan to the Pension Plan. Request for Admission No. 19. The Department admitted that Petitioner is entitled to receive $2,654.17, the amount of contributions after Rice was in the Pension Plan. Request for Admission No. 21. The Department admitted that it received the Order of Summary Administration and Death Certificate. Requests for Admission Nos. 25 and 26. The Department admitted that Rice contributed at least $13,388.41 into the Investment Plan. Request for Admission No. 29.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of Retirement, pay to Rebecca Hernandez, Darlene Rice's daughter and beneficiary, the sums of $2,654.17, $13,388.41, and $22,943.81, totaling $38,986.39, plus the appropriate statutory rates of interest which have accrued from October 2, 2018, the date of the circuit court's Order of Summary Administration, to the date of payment. DONE AND ENTERED this 21st day of September, 2020, in Tallahassee, Leon County, Florida. S ROBERT L. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 21st day of September, 2020. COPIES FURNISHED: Gayla Grant, Esquire Department of Management Services 4050 Esplanade Way, Suite 160 Tallahassee, Florida 32399 (eServed) Larry Allan Karns, Esquire Spink, Shrouder & Karns, P.A. 9700 Griffin Road Cooper City, Florida 33328 (eServed) Nikita S. Parker, Esquire Department of Management Services 4050 Esplanade Way, Suite 160 Tallahassee, Florida 32399 (eServed) David DiSalvo, Director Division of Retirement Department of Management Services Post Office Box 9000 Tallahassee, Florida 32315-9000 (eServed) William Chorba, General Counsel Office of the General Counsel Department of Management Services 4050 Esplanade Way, Suite 160 Tallahassee, Florida 32399-0950 (eServed)
Findings Of Fact William H. Mathias was initially employed by SWFWMD as Director of Employee Relations on January 30, 1980, at pay grade At the time of Petitioner's employment William C. Tatum was Executive Director of SWFWMD. Petitioner has over ten years' experience in personnel relations and security and holds two master's degrees. Due partly to Petitioner's aggressiveness and strong personality, he began exerting influence in the personnel division in pushing the Personnel Department in directions not necessarily approved by Tatum. Tatum wanted to reduce the influence the Personnel Department was having on SWFWMD. On July 26, 1982, Petitioner was transferred to the Field Operations Division with no change in grade. Exhibit 5, which announced this transfer, stated Petitioner was transferred as Assistant Director. On July 28, 1982, a subsequent memorandum, Exhibit 6, was issued by Tatum changing Petitioner's title from Assistant Director to Acting Administrative Assistant. Prior to this transfer Tatum spoke with William F. Sietman, Director of Field Operations, who advised Tatum that he had no need for Petitioner in the Field Operations Division however, Tatum insisted that Petitioner, with his two master's degrees, could make a valuable contribution to SWFWMD if placed in the right niche. Shortly thereafter, Tatum was replaced as Executive Director by Gary W. Kuhl, who was promoted to that position from Assistant Executive Director. The first evaluation report submitted by Sietman on Petitioner, at the end of his first six months on the job, was unsatisfactory. Petitioner appealed to Kuhl, who withdrew his evaluation partly because no job description had been prepared for the position occupied by Petitioner. Kuhl directed the preparation of a job description for the work to be done by Petitioner. When the job description_ was prepared, the position was given the title of Program Management Analyst and the duties to be performed are as contained in Exhibit 1. Principally, Petitioner's function was to do some coordinating of the budgets prepared by the various sections in Field Operations, coordinate planning and negotiate and oversee the building maintenance contract. This position was a staff function as opposed to a line function in which the incumbent would exercise direction, or command, over the section heads. As a staff function his duties were coordination as opposed to direction. Subsequent to his initial unsatisfactory evaluation at the end of his six months probationary period, Petitioner's evaluations improved each evaluating period and at the time of his termination his performance can be described as very good. However, on several occasions complaints about Petitioner giving personnel advice to Respondent's employees regarding overtime, job classifications, and pay grades reached Kuhl. This was the subject of a memorandum addressed to Petitioner and Sietman by Kuhl on May 15, 1984 (Exhibit 7). Petitioner was told to leave personnel matters and advice to the Personnel Department or face disciplinary action. Changes in the functions imposed on Respondent in 1984 necessitated the employment of additional technical people and the establishment of additional technical positions at SWFWMD. The Governing Board indicated to the Executive Director that the budget could not be raised by the amount needed to fund all of these positions and that cuts would have to be made. Kuhl met with the various division heads to require more justification for the proposed new positions and to ascertain which existing positions they could eliminate. This resulted in a proposed list of positions including the librarian, Petitioner's position, and other positions currently unoccupied. As a result of these discussions it was concluded the unfilled positions and the position of Program Management Analyst could be eliminated. By memorandum dated August 17, 1984 (Exhibit 4), Kuhl advised the Governing Board of the proposed reduction in work force. By letter dated August 20, 1984 (Exhibit 15), Kuhl advised Petitioner that the position of Program Management Analyst was eliminated effective immediately and that he was eligible to apply for any other position in SWFWMD for which he was qualified. Petitioner appealed the termination to the Governing Board and, when the Board affirmed his termination, he filed the instant petition. Prior to the transfer of Petitioner to the Field Operations Division, the budget was prepared by each section chief for his section, and the division director coordinated the budgets. While Petitioner was assigned to Field Operations, he performed this budget coordination role previously taken by the director. When Petitioner's position was eliminated, the division reverted to the way it operated before Petitioner's arrival, with little, if any, noticeable effect. The role Petitioner had assumed in supervising the maintenance contract also reverted back to where it was before Petitioner's arrival, again with no noticeable effect.
The Issue Whether respondent violated Section 112.3142(2)(b), Florida Statutes, with regard to her 1996 financial disclosure obligations, and, if so, what penalty is appropriate.
Findings Of Fact Respondent, Eileen McGuire, is now and at all times material to this proceeding has been a member of the Town Council of the Town of Welaka, Florida. As a public official, Respondent is subject to the applicable requirements of Chapter 112, Florida Statutes. Respondent was first appointed to the Welaka Town Council (Town Council) on October 24, 1995. Subsequently, she was elected to the Town Council in March 1996, and was re-elected in 1998. As an elected public official, Respondent was required to file an annual CE Form 1, Statement of Financial Interests (Statement of Financial Interests), for the year 1996 with the Supervisor of Elections Office of Putnam County, Florida (Putnam County Supervisor of Elections or Supervisor of Elections). The 1996 Statement of Financial Interests was required to be filed by July 1, 1997. On June 23, 1997, Respondent submitted her 1996 Statement of Financial Interests with the Putnam County Supervisor of Elections. However, Respondent failed to sign and date the 1996 Statement of Financial Interests she submitted to the Supervisor of Elections. Respondent's failure to sign and date her 1996 Statement of Financial Interests was inadvertent and unintentional. All the official records of the Putnam County Supervisor of Elections reflect that Respondent's 1996 Statement of Financial Interests was submitted to that office on June 23, 1997. Moreover, on that same day, Respondent's 1996 Statement of Financial Interests was accepted, received, stamped, and deemed filed by the Supervisor of Elections. The Putnam County Supervisor of Elections, deemed Respondent's 1996 Statement of Financial Interests filed on June 23, 1997, notwithstanding the fact that the form was not signed or dated. Respondent was not given any written notice of any alleged defect in or failure to properly file her 1996 Statement of Financial Interests either by the Putnam County Supervisor of Elections or any other government officer or agency. In October 1997, Respondent received a telephone call from an employee of the Putnam County Supervisor of Elections who advised that she needed to sign some documents that she had previously filed. Soon after Respondent received the aforementioned telephone call from the Supervisor of Elections Office, she went to that office and signed the document which was presented to her for her signature. The form that Respondent mistakenly signed was the CE Form 10, Annual Disclosure of Gifts From Governmental Entities and Direct Support Organizations and Honorarium Event Related Expenses (CE Form 10), which was attached to the Form 1 when it was presented for signature. Notwithstanding the voluntary mutual effort of the parties to correct the oversight relative to Respondent's failure to sign her 1996 Statement of Financial Interests, the original form was thereafter filed away unnoticed until the advent of this proceeding.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby: RECOMMENDED that the Florida Commission on Ethics determine that the public interest would not be served by proceeding further against Respondent, and dismiss the complaint. DONE AND ENTERED this 20th day of January, 2000, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of January, 2000. COPIES FURNISHED: Virlindia Doss, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Allen C.D. Scott, II, Esquire Scott & Scott 101 Orange Street St. Augustine, Florida 32084 Sheri L. Gerety, Complaint Coordinator Florida Commission on Ethics 2822 Remington Green Circle, Suite 101 Post Office Drawer 15709 Tallahassee, Florida 32317-5709 Phil Claypool, General Counsel Florida Commission on Ethics 2822 Remington Green Circle, Suite 101 Post Office Drawer 15709 Tallahassee, Florida 32317-5709
The Issue The issues to be resolved in this proceeding concern whether the Respondent willfully violated Section 106.07(5), Florida Statutes, by filing a campaign treasurer's report which was allegedly incorrect, false or incomplete, and whether the Petitioner agency had jurisdiction to proceed against the Respondent.
Findings Of Fact The Respondent, Catherine King, was Clerk of the Circuit Court in Walton County, Florida, from her first elected term of office beginning January 1, 1981, continuously until December 31, 1996, when she was deposed in an election. The Respondent is a member of the Democratic party and ran for re-election for the office of Clerk of the Court in the 1996 elections. She was opposed by one Newton Peters in the Democratic party primary. On August 29, 1996, a political advertisement supporting the Respondent appeared in the DeFuniak Herald newspaper. Photographs and comments of thirteen employees of the clerk's office appeared in that advertisement in support of the Respondent. A Mr. Harry Riley saw that advertisement in the newspaper and accosted the Respondent at two separate political functions concerning the content and import of the newspaper advertisement, as he perceived it. He told the Respondent that he intended filing a complaint against her based on this advertisement. Mr. Riley apparently has a penchant for filing numerous complaints against public officials in Walton County, all of whom are members of the Democratic party. Mr. Riley is a Republican. He did not express any complaint or concern to the Respondent about any matter other than the advertisement in question. On September 2, 1996, Mr. Riley indeed filed a Sworn Complaint against the Respondent with the Florida Elections Commission, the Petitioner, and a similar complaint with the Florida Ethics Commission. In the complaints he alleged that the employees whose photographs and comments appeared in the August 29, 1996 political advertisement in the newspaper had been coerced into participating in the advertisement. His complaint was investigated by both commissions and both the Florida Ethics Commission and the Petitioner, the Florida Elections Commission, found his complaint to be unfounded. In fact, all of the evidence showed that the employees whose photographs and comments were used in the advertisement participated freely and voluntarily and that Mr. Riley never spoke to any of them concerning their participation in the advertisement. On October 7, 1996, Mr. Riley sent an un-sworn letter to the Petitioner agency in which he referenced the Respondent's campaign treasurer's report of July 1, 1996 through July 26, 1996. He suggested that that report might contain a violation of campaign finance laws. The issue raised in this report was the reporting of an "in-kind contribution" of T-shirts. Prior to sending this letter to the Petitioner, Mr. Riley had not spoken to any persons about their involvement in the production, purchase or sale of the T-shirts, nor the circumstances in which it was done. He had not spoken with the Respondent even to voice a complaint about that activity, nor to any individual who participated in the concept of purchase of campaign T-shirts or their production. Mr. Riley, nor any other person, has ever filed any sworn complaint with the Petitioner agency concerning any campaign treasurer's report filed by the Respondent or the Respondent's campaign treasurer. The specific item or items in the campaign treasurer's report at issue because of Mr. Riley's un-sworn letter to the commission involved the reporting of $562.14, for payment for campaign T-shirts and another $71.16, for additional campaign shirts. All the evidence is clear and consistent to the effect that a group of supervisors in the Clerk of Court's office, including Martha Ingle, Janice Anderson, Cindy Reddick and Louise Pippen, had a meeting in which they discussed ways to assist in the Respondent's campaign. They had seen individuals wearing T- shirts supportive of other candidates at political rallies and concluded among themselves that it would be a good idea for their group to show their support for the Respondent by obtaining such T-shirts. Janice Anderson volunteered to follow-up on the concept by contacting a silk screen T-shirt production shop near her residence. The Respondent did not attend that meeting of supervisors concerning the T-shirt issue and had no role in the conceptualization or acquisition of the T-shirts, nor the circumstances under which they were acquired. In fact, Janice Anderson went to James King Sr. of Westville, Florida (no relation to the Respondent), and ordered the T-shirts. Mr. King then billed Ms. Anderson $562.14 for the T-shirts. Ms. Anderson subsequently ordered several more shirts from Mr. King which were of a different type, and Mr. King billed her $71.16, for these shirts. The Respondent was unaware at the time of either of the shirt orders, or the whole concept. The T-shirts were ultimately delivered to the Walton County Courthouse. Employees were advised by Ms. Anderson, or Martha Ingle that they were there and that the employees could pick up their T-shirts. Ms. Anderson collected the money from those employees who wished to purchase T-shirts. The Respondent had no involvement in the ordering, receiving, selling, or payment for any of the T-shirts. The Respondent neither collected nor received any money for T-shirts. The Respondent did not sell any of her employees a shirt or T-shirt during her re-election campaign in 1996. After the supervisors ordered, received, paid for and distributed the T-shirts for those employees who wished to purchase them, it became apparent to them that they would have to report their activity in some manner pursuant to the provisions of Chapter 106, Florida Statutes. These employees approached the Respondent concerning their belief that their activity needed to be reported. The Respondent told the employees she would report the T-shirts on her campaign treasurer's report form. When she filled out her treasurer's report form (exhibit 3), she first listed the amount Janice Anderson collected, the $562.14, as cash and showed a corresponding expenditure to King Enterprises, the maker of the T-shirts. Respondent was uncertain that this was the correct way to report the item, however, because she had had no involvement in the T-shirts being ordered, paid for or sold and had never actually received the $562.14, as cash in her campaign. Additionally, she had never had any situation arise before similar to this one in any earlier election she was involved in. Because of this she sought the advice of the Supervisor of Elections, Miss Nellie Thompson, concerning how to properly account for and report the T-shirts effort. The Respondent knew that Miss Thompson had been Supervisor of Elections for fourteen years and felt that she had the knowledge and expertise to advise her if she had entered these items on her campaign treasurer's report correctly. The Respondent went to Miss Thompson's office shortly after lunch on August 22, 1996, showed Miss Thompson the report she had prepared and explained what the employees in the clerk's office had done with respect to the issue of T-shirts. Near the end of that day Miss Thompson called the Respondent who returned to Miss Thompson's office. Miss Thompson advised the Respondent to strike through the letters "CAS" (meaning cash) in column (9) of "itemized contributions" and insert "T-shirts" in column (10). She also advised the Respondent to strike through "King Enterprises" and its address in column (7) of itemized expenditures. The Respondent then suggested to Miss Thompson that she would take her report back upstairs to her office and rewrite it. Miss Thompson told her to just mark through it and leave it like it was. Miss Thompson concedes that her memory of the conversation with the Respondent and the sequence of events concerning submittal of the report, when it was "stamped in" and when the corrections or adjustments to the report were done at her suggestion by the Respondent is unclear. She believes that she did not talk to the Respondent until after 4:18 o'clock that afternoon because the report shows, according to Miss Thompson's testimony, that it was stamped in at 4 o'clock, and that such reports are always stamped in immediately upon their receipt. She professed to not have any recollection of the nature and time of any conversation had with Miss King, the Respondent. The Respondent, on the other hand, appeared to have a clear memory of events that day surrounding her contact and communication with Miss Thompson and testified in a clear, logical, forthright fashion about them. The Respondent's testimony was not contradicted by any other evidence and by her own admission, Miss Thompson's recollection of events that day is either non-existent or not clear. Accordingly, the Respondent's testimony in these particulars is fully credited and accepted in making the foregoing Findings of Fact. It can thus be inferred that the fact that the document in question was stamped as received after 4:00 p.m., that day could just as easily have resulted from the document not being considered "filed" and not "stamped in" until Miss Thompson's suggested adjustments had been made. It can easily be inferred that when the Respondent made the change in Miss Thompson's presence and then handed the report back to her that it would have logically been then stamped as filed in final form. The evidence is clear and uncontradicted that the Respondent never intended to submit an inaccurate or incomplete report nor did she intend to submit a false report. There is no evidence to show that the Respondent willfully submitted an inaccurate, incomplete or false report. On the contrary, the Respondent clearly intended to disclose all facts concerning her campaign finances and events, for the time period to which the report related. In fact she did fully disclose them in terms of reporting the T-shirts on her report form and the value of the campaign contribution they represented. Even if the report is technically incorrect for the Respondent's failure to itemize an individual dollar amount per T-shirt per employee contributing that amount instead of simply giving the total amount involved in the T-shirt "in kind contribution" there was no intent to submit a false, inaccurate or misleading report and the Respondent did not willfully do so. The Respondent did not report the expenditure of $71.16, for the collared campaign shirts because she had no knowledge of that expenditure. She could not have reported the expenditure when she was unaware that it had occurred. There was no evidence adduced to indicate that the Respondent intended to evade, avoid or conceal any campaign contribution or expenditure. No evidence was offered to say that she intended to submit an inaccurate, false or incomplete report and all of the evidence shows that she made an extra effort to be sure that she reported the T-shirt situation correctly by consulting with the Walton County Supervisor of Elections before she filed the report. In conducting its investigation, the Petitioner simply relied upon phone calls to several employees of the clerk's office, Miss Thompson and James King, Sr., the maker of the shirts, by a commission representative. That person, Ms Fuchs, never conversed or attempted to converse with any witness in person and never conversed with the Respondent or, for instance, the Respondent's husband at all. She never conferred with a number of employees who had purchased the T-shirts. In an investigation involving a purported violation of a statute involving the element of willfulness and intent on the part of such a Respondent, an interview of the Respondent and persons who might best be able to give information relevant to her intent underlying the submittal of such a campaign treasurer's report would seem to be well-advised. Such was not done, however. Moreover, the Petitioner never dispatched an investigator or any other officer or agent of the Petitioner to Walton County to conduct an investigation, including conversations with other employees and persons who might have knowledge of this situation, as the Florida Ethics Commission had done in its own investigation. Hence the investigation was conducted in a cursory fashion and facts revealed by the testimony and evidence adduced at the formal hearing were unknown to the Petitioner but could have been known to it had it more thoroughly investigated the case before issuing the Statement of Findings. There is a substantial likelihood that if a more thorough investigation had been conducted by the Petitioner, that probable cause would not have been found, as with the case of the complaint against the Respondent which Mr. Riley had filed with the Florida Ethics Commission and which was determined by it and by the Elections Commission to be unfounded. The testimony presented in this case establishes that the Respondent is a truthful and honest person. Her testimony which was largely uncontradicted by any other evidence, is therefore fully credited and accepted in making the foregoing Findings of Fact.
