The Issue Whether Commercial Carrier Corporation (Petitioner), has the financial strength necessary to ensure the timely payment of all current and future workers' compensation claims in the State of Florida; Whether Petitioner has maintained a net worth of at least $1 million during the period 1999 to 2004; and Whether Petitioner shall post an additional qualifying security deposit to remain qualified to self-insure and the amount of the additional security deposit to be posted.
Findings Of Fact Upon careful consideration, it is found and determined as follows: Petitioner, Commercial Carrier Corporation, is a privately-owned trucking company headquartered in Auburndale, Florida, which has been in business for over 50 years. Petitioner is one of five operating subsidiaries of Comcar Industries, Inc. (Comcar), whose primary business is truckload transportation of general and specialized commodities in the continental United States. Comcar routinely prepares consolidated financial statements reflecting the operations of all five subsidiary companies. Although Petitioner is the nominal Petitioner, Comcar is the de facto Petitioner in this proceeding. All of Comcar’s subsidiaries operate as self- insured in Florida. Petitioner has been self-insured for workers’ compensation in Florida since January 1, 1973. Pursuant to Florida law, Respondent has jurisdiction over Petitioner as a self-insured employer for purposes of workers’ compensation. Under Florida law, the general requirement is that employers must obtain and maintain workers’ compensation insurance coverage. The exception of this general requirement is found in Subsection 440.38(1)(b), Florida Statutes (2004), whereby an employer can seek to qualify to self-insure by "furnishing satisfactory proof to the Florida Self-Insurers Guaranty Association, Inc., . . . that it has the financial strength necessary to ensure the timely payment of all current and future claims[.]" FSIGA is a not-for-profit corporation established by Section 440.385, Florida Statutes (2004), to guarantee payment of the covered workers’ compensation claims by employees of self-insurers that become insolvent. Other than governmental entities and public utilities, all self-insurers, including Petitioner, must be members of FSIGA. FSIGA pays the covered claims of current and former insolvent self-insurer members to the extent an insolvent self-insurer’s security deposit is insufficient. An insolvency fund is established and managed by FSIGA for the purpose of meeting the obligations of insolvent members after exhaustion of any security deposit. The insolvency fund is funded by assessments from members of FSIGA. Accordingly, FSIGA and all of its members share an interest in ensuring adherence to the legislative standard that only financially strong employers are granted the privilege to self- insure. To maintain self-insurer status, an employer must submit annual financial statements no later than four months following the end of the self-insured’s fiscal year and furnish satisfactory proof to FSIGA that it has the financial strength necessary to ensure timely payment of all current and future claims. The financial statements that must be submitted to FSIGA for financial analysis must be prepared in accordance with the United States Generally Accepted Accounting Principles (GAAP). GAAP-prepared financial statements must show, at all times, a net worth of $1 million. The requirements of furnishing proof of the requisite financial strength and maintaining a net worth of at least $1 million, as shown on the employer’s financial statements, are continuing annual requirements to become and remain qualified to self-insure, and those requirements are applied equally to applicants and current members. FSIGA is required to review the financial strength of its current members. It makes recommendations to Respondent regarding the members’ continuing qualification to self-insure and the amount of security deposit that should be required of each member. If FSIGA determines that a current member does not have the financial strength necessary to ensure the timely payment of all current and estimated future claims, it may recommend that Respondent require an increase in the member’s security deposit. FSIGA operates under a statutorily-approved plan of operations. FSIGA’s plan of operation provides that its executive director has the responsibility to make FSIGA’s recommendations to Respondent. FSIGA’s recommendations are based upon a review of the financial information collected from member employers. It may include recommendations regarding the appropriate security deposit amount necessary for a self-insured employer to demonstrate that it has the financial strength to ensure timely payment of all current and future claims. Respondent is required to accept FSIGA’s recommendations unless it finds, by clear and convincing evidence, that the recommendations are erroneous. 2002 Financial Review of Petitioner Petitioner is currently a member of FSIGA and has posted a qualifying security deposit of $2,500,000.00. On October 2, 2002, Brian D. Gee, C.P.A., who is now FSIGA’s executive director, completed a review of Petitioner’s audited financial statements for 1999, 2000, and 2001. Gee was FSIGA's financial analyst, responsible for conducting financial reviews and developing information for FSIGA's executive director, to determine the financial strength of self-insured members and make recommendations to Respondent. Gee’s review of Petitioner’s financial statement consisted of an assessment of Petitioner’s liquidity, profitability, degree of leverage, liabilities compared to net worth, and cash flow generated by operations. He also reviewed the financial statements to determine if Petitioner was maintaining a net worth of at least $1 million. Gee concluded that Petitioner did not have the financial strength necessary to ensure the timely payment of current and estimated future workers’ compensation claims. On October 8, 2002, FSIGA's executive director forwarded a letter to the Division of Workers’ Compensation, Department of Insurance (now Respondent). He recommended to Respondent that Petitioner be ordered to increase its security deposit to 150 percent of actuarially determined loss reserves. FSIGA’s recommendations were reviewed by Cynthia Shaw, assistant general counsel for the Division of Workers’ Compensation. Shaw drafted a letter for signature by Mark Casteel, General Counsel for Respondent, which adopted FSIGA's recommendations. Casteel signed that letter dated October 28, 2002, without revision or discussion. Shaw, an attorney, has no financial background or expertise. Shaw did not perform any additional financial analysis. Additionally, since Respondent did not have a CPA firm under contract, FSIGA’s recommendation was not reviewed by anyone with financial background before being transmitted to Petitioner. Petitioner responded to the October 28, 2002, directive from Respondent by filing a petition requesting a formal administrative hearing. Petitioner failed to file financial statements with FSIGA within four months following the end of its 2000 and 2001 fiscal years. Petitioner’s failure to timely file financial reports for 2000 and 2001 was due to the fact that it was in default on certain loan covenants and was engaged in negotiations with its lenders. In 1999 and 2000, Petitioner incurred additional long-term debt to finance the purchase of a new fleet of trucks. Petitioner’s creditors had exercised their right for accelerated payment of the outstanding loan balances, which by the end of 2001, was approximately $205 million. In 2001 and 2002, Petitioner entered into negotiations with its creditors to amend and restate its loan agreements. In 2002, Petitioner implemented a business plan calling for the sale of non-core assets, reduction of long-term debt, and transition from purchasing to leasing truck tractors. In July 2002, Petitioner entered into amended and restated loan agreements with its creditors. In order to secure the amended and restated loan agreements, Petitioner was required to pay increased interest, pledge substantially all of its property to secure the loans, pay the lenders $3.3 million, provide certain lenders with warrants to acquire an equity interest in Petitioner under certain conditions and agree to restrictions on how it could use cash generated by its operations and asset sales. Petitioner timely made all principal and interest payments due pursuant to the restated credit agreement and maintained compliance with all required financial ratios and standards. Furthermore, Petitioner continued to timely pay all claims for current and estimated future claims under its workers’ compensation system. Following execution of the amended and restated loan agreements, Petitioner’s auditors prepared the financial statements of 2001, which Petitioner then filed with FSIGA. Separate audited financial statements for 2000 were never filed with FSIGA, although prior-year financial results were shown (without footnotes) on the audited 2001 financial statements. With respect to liquidity, Petitioner’s financial statements showed a current ratio (current assets divided by current liabilities) of 1.41 at December 28, 2001. It did not disclose that Petitioner had any available funds under its revolving credit line as of December 28, 2001. Although Petitioner’s current ratio was acceptable, further analysis raised serious concern regarding Petitioner’s financial strength. With respect to Petitioner’s capital structure, the financial statement review showed that Petitioner’s total liabilities-to-book-equity ratio deteriorated from 4.91 at December 1999 to 30.46 at December 28, 2001. This deterioration reasonably raised concern because Petitioner became much more heavily leveraged from 1999 to 2001, relying much more heavily on debt to fund its operations. FSIGA concluded, Petitioner’s financial statement showed a "very weak capital structure." The impact of the increasing reliance on debt was marked by the end of 2001, when the financial statements showed that Petitioner was in default of its debt covenants at December 28, 2001. To address its defaults, Petitioner entered into an agreement to restructure its debt by which the creditors waived the defaults in return for imposing additional restrictions on Petitioner as described in paragraph 20 above. Although Petitioner maintained a net worth of $11.1 million at the end of 2001, Petitioner’s net worth at the end of 2001 was significantly lower than its net worth of $74.8 million at the end of 2000. In addition, the financial statement review showed that Petitioner had incurred net losses of $24.2 million, $39.5 million, and $5.7 million for the years 2001, 2000, and 1999, respectively. These losses were substantial and raised significant concerns about Petitioner’s financial strength. The 2002 financial review of Petitioner also showed a substantial decline in Petitioner’s cash flow from operations, from positive $32.6 million for 1999 to negative $2.1 million for 2001. This meant that in 2001, Petitioner was spending more cash in its operating activities than it was collecting. At the time FSIGA made its recommendation to Respondent, neither FSIGA nor Respondent had current information from Petitioner regarding the amount of Petitioner’s net outstanding liability for workers’ compensation claims in Florida. This is because Petitioner failed to file the Form SI-20 report that had been due on August 31, 2002. From October 2002 until December 14, 2004, FSIGA and Respondent did not have accurate information in regard to the amount of Petitioner’s outstanding liability for workers’ compensation claims in Florida, because Petitioner did not file its required Forms SI-17 and SI-20 reports or provide an actuarial study. At the final hearing, Petitioner did not present evidence disputing the reasonableness of FSIGA’s 2002 assessment of Petitioner’s financial statements or of FSIGA’s conclusions based thereon regarding Petitioner’s lack of financial strength in 2002. Based on FSIGA’s analysis of Petitioner’s 2001 financial statements and the financial statements for the two preceding years, FSIGA reasonably concluded that Petitioner had not demonstrated that it had the financial strength to ensure payment of current and future workers’ compensation claims. Based on the information then available to it, FSIGA made the correct recommendation to Respondent. There was no clear and convincing evidence available to Respondent that demonstrates FSIGA's recommendation was erroneous, instead, the available evidence supports FSIGA’s recommendation. Accordingly, Respondent’s direction to Petitioner to provide an actuarial report and post additional security was reasonable and appropriate. Continuing Financial Review of Petitioner After 2002. In November 2002, Petitioner challenged Respondent’s determination and requested a formal administrative hearing. Petitioner requested that Respondent hold the petition in abeyance. The request was granted, and the petition was not filed with DOAH until July 9, 2004. During this period, Respondent re-examined Petitioner’s financial strength. Following its business plan, on January 16, 2004, Petitioner refinanced its debt. While there was conflicting testimony regarding whether the actual interest on the refinanced debt was lower than on the debt it replaced, it was undisputed that $30 million of the refinanced debt was carrying an interest rate of 19 percent. This is a higher rate than the nine-percent and 11-percent interest applicable to the earlier debt. It is undisputed that substantially all of Petitioner’s property is pledged to secure the 2004 refinanced indebtedness, and there continues to be restrictions on Petitioner’s use of cash generated by its operations. However, the 19-percent interest on a portion of the January 2004 refinancing has now caused Petitioner to go into the lending market to attempt to refinance its debt once again. Nevertheless, the refinancing of its long-term debt has reduced its financing costs. Since Respondent’s 2002 request that Petitioner provide an actuarial report and post an additional security deposit, FSIGA has reviewed Petitioner’s audited financial statements for the years ended December 27, 2002, and December 26, 2003, as well as Petitioner’s unaudited financial statements for the year ended December 31, 2004. The financial information received from Petitioner since the 2002 review has not resulted in FSIGA changing its 2002 recommendations. Petitioner’s 2002, 2003, and 2004 financial statements revealed that Petitioner’s net worth had fallen below the required $1 million in each of those three years. The 2002 and 2003 financial statements also show that Petitioner continued to experience net losses. Petitioner sustained a net loss of $12.1 million for the year ended December 27, 2002, and a net loss of $9.9 million for the year ended December 26, 2003. Petitioner’s cash flow statement shows a $4.8 million decrease in cash in 2002 and a $2 million decrease in cash in 2003. Petitioner’s 2004 unaudited financial statements indicate net income of $4.1 million for 2004. However, because the 2004 financial statements are unaudited, whether adjustments may be necessary following the audit are unknown at this time. Financial statements prepared without footnotes are not prepared in accordance with GAAP. Even if the unaudited results are confirmed in audited financial statements, 2004 would be the first year that Petitioner has recognized net income since 1998, following a five-year string of annual losses totaling $90 million. Petitioner’s Financial Status Evidenced at Final Hearing At the final hearing, to demonstrate that it had the financial strength necessary to ensure the timely payment of current and future workers’ compensation claims, Petitioner presented testimony of its expert witness, Lawrence Hirsh, C.P.A. He posited that Petitioner's financial strength should be measured by determining its ability to generate cash flow through a calculation of its earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA is a measure commonly used by financial institutions to evaluate the ability of a company to generate cash flows and in determining whether to extend credit or to make investments. Petitioner’s lenders evaluated its EBITDA before deciding to refinance its credit facility in 2002 and to refinance its long-term debt in 2004. However, EBITDA is not a calculation provided for under GAAP. GAAP provides a method for determining cash flows and that method is used in preparing the portion of a GAAP- compliant financial statement called the "Statement of Cash Flows." Evidence presented by Respondent demonstrated that EBITDA has many limitations and is not a good proxy for cash flow. Application of EBITDA to Petitioner’s known financial performance in the past consistently overstates Petitioner’s ability to generate cash flow from operations. In every year from 1999 through 2003, Petitioner’s cash flow from operations, as shown on Petitioner’s cash flow statement that was prepared in accordance with GAAP, was significantly lower than the amount calculated for EBITDA by Hirsh: Year Petitioner's Cash Flow From Operations as Shown on GAAP-Compliant Cash Flow Statement EBITDA 1999 $32.6 million $61.1 million 2000 $344,000 $21.2 million 2001 ($2.1 million) $40.3 million 2002 $11.9 million $54.8 million 2003 $12.3 million $42.3 million Petitioner's unaudited 2004 cash flow statement showed $18.1 million in cash flow from operations. This is significantly lower than the $52.9 million in EBITDA calculated for 2004. Similarly, each year from 1999 to 2003, Hirsh's EBITDA's calculation grossly exceeds Petitioner's net loss as shown on its financial statements that were prepared in accordance with GAAP: Petitioner's Cash Flow From Operations as Year Shown on GAAP-Compliant Cash Flow Statement EBITDA 1999 (5.7 million) $61.1 million 2000 ($39.5 million) $21.2 million 2001 ($24.2 million) $40.3 million 2002 ($12.1 million) $54.8 million 2003 ($9.9 million) $42.3 million EBITDA is also misleading because it includes gain from the sale of assets. To the extent that Petitioner is selling its operating assets, such as trucks, Petitioner will have to expend cash to replace the assets, either by lease or purchase. To the extent that Petitioner is selling non-core assets, such as its unused real property, Petitioner cannot continue this practice indefinitely. Petitioner will soon run out of assets to sell. Therefore, cash generated from the sale of operating assets and non-core assets should not be considered in determining Petitioner's ability to generate cash from operating activities. Petitioner sought to bolster its evidence of its financial strength through testimony that it had received a credit rating in November 2003 from Standard & Poor's of B-plus. However, a B-rating is not an investment grade rating. It means that while a company currently has the capacity to meet its debt obligations, adverse business, financial, or economic conditions likely will impair the obligor's capacity or willingness to meet its financial commitment on the obligations in the future. In addition, Petitioner received a lower credit rating of B-3 from Moody's Investment Services. A B-3 rating from Moody's Investment Services is equivalent to a B minus rating from Standard & Poor's. The Standard & Poor's and Moody's credit ratings do not effectively demonstrate that Petitioner has the financial strength necessary to ensure the payment of current and future workers' compensation claims. Respondent's expert witness, Dr. Sondhi, disputed Petitioner's calculation of its EBITDA interest coverage ratio because Petitioner's calculation was based on interest paid as opposed to interest expense, and it failed to adjust for non-recurring items. Petitioner's interest expense is greater than the interest paid partly because Petitioner's loan agreement provides that a portion of the interest payments will accrue monthly with payments deferred until the final prepayment date or other principal payment milestone dates. Petitioner's calculation of the EBITDA interest coverage ratio was not performed in accordance with Standard & Poor's formula for determining the EBITDA interest coverage ratio. Even if the calculation of EBITDA interest coverage ratio was an appropriate measure of Petitioner's financial strength, the formula used by Petitioner to calculate the ratio overstates the results and shows greater financial strength than would be shown if the Standard & Poor's formula had been used. For the reasons noted above, Petitioner's EBITDA calculations are rejected as an inappropriate, overstated method to assess whether a company has the financial strength necessary to ensure the payment of current and future workers' compensation claims. Petitioner also argued that it had the required financial strength because it has paid all workers' compensation claims to-date and because, at the end of 2004, it had a cash balance of $26.6 million in the bank. The ability to currently pay workers' compensation claims does not demonstrate the financial strength to ensure the payment of workers' compensation claims in the future. Current capacity to pay is only part of the statutory standard, which is a risk-based standard requiring a company to ensure payment into the future because of the long period of time that workers' compensation claim payments continue. Likewise, having cash in the bank in the amount of $26.6 million at the end of 2004, does not demonstrate the required financial strength. Current cash balance is not an indicator, by itself, of financial strength to ensure payment in the future. Given Petitioner's extensive operating expenses, $26.6 million represents a very small amount of operating expenses. Petitioner’s consolidated balance sheets list its assets at historical or book cost, the cost at which those assets were purchased, and not at their current fair market value. Petitioner argues that adjusting the book values of assets to current market value would provide the most accurate assessment of Petitioner's net worth. To demonstrate that it has maintained a net worth of $1 million, Petitioner presented testimony that when determining net worth, the fair market value of its assets should be considered in place of the book value of its assets that is reflected on its balance sheet. However, GAAP does not permit the value of assets to be shown at fair market value and instead, requires that assets be shown at book value. Even if GAAP permitted the use of fair market value of assets to be used on a balance sheet, Petitioner did not offer any admissible evidence to prove the current fair market value of its assets for 2002, 2003, and 2004. Consequently, it cannot be determined whether the use of the current fair market value of assets would result in Petitioner's financial statements showing a net worth at all times of at least $1 million. Respondent has interpreted the term "net worth," as it is used in Florida Administrative Code Rule 69L-5.106, to mean the total assets of a company as reflected on the balance sheet, minus the total liabilities of the company as reflected on the balance sheet. Respondent's interpretation of the term "net worth" is a reasonable interpretation, consistent with the interpretation given to the term by accountants and financial analysts. The more credible expert testimony is that net worth appears on the balance sheet as stockholders' or shareholders' equity. Based on the above interpretation of Florida Administrative Code Rule 69L-5.106, for each year from 2002 through 2004, Petitioner has failed to maintain a net worth of at least $1 million. The preponderance of evidence demonstrates Petitioner's net worth was negative $976,000, and negative $10.8 million for the years ended December 27, 2002, and December 26, 2003, respectively. In addition, Petitioner's unaudited financial statements for 2004 show that Petitioner maintained a negative net worth of $6.7 million as of December 31, 2004. Although Petitioner's financial condition has strengthened significantly from year end 2001 to year end 2004, based on the evidence, Petitioner does not now have the financial strength necessary to ensure payment of current and future workers' compensation claims, nor has Petitioner maintained a net worth of at least $1 million. Therefore, an additional security deposit is required for Petitioner to remain qualified as a self-insurer. In May 2002, Thomas Lowe was employed by Petitioner as its vice-president in charge of Risk Management. Lowe instituted a number of risk management practices which have significantly reduced the number and costs of Petitioner's workers' compensation claims. In 2001, Petitioner's workers' compensation claims were adjusted by three separate third-party administrators (TPAs), resulting in three overlapping data bases of claims information. Petitioner was unable to reconcile this overlapping claims information and, consequently, was unable to accurately determine the amount of its workers' compensation reserves for 2001. As a result of its inability to determine its workers' compensation reserves in 2001, Petitioner did not submit the required SI-17 and SI-20 forms to FSIGA in 2002 and 2003. Petitioner informed FSIGA of the difficulty it was having in reconciling its claims data for 2001 and paid the required penalties for its inability to timely submit Forms SI-17 and SI-20 in 2002 and 2003. Failure to submit these forms did not affect Petitioner's ability to make timely payments of all current and estimated future workers' compensation claims. In 2004, Petitioner submitted Forms SI-17 to FSIGA reflecting incurred workers' compensation losses for calendar years 2002 and 2003. On December 14, 2004, Petitioner submitted Form SI-20 to FSIGA, reflecting that the present value of its estimated loss reserves was $6,894,776.00. Anthony Gripps, Sr., an independent actuary who is a member of the American Academy of Actuaries, reviewed Petitioner's workers' compensation claims data pursuant to Respondent's October 28, 2002, directive. Grippa issued two reports, one dated December 1, 2004, and the other dated December 15, 2004. Grippa concluded that the present value of Petitioner's workers' compensation loss reserves as of September 30, 2004, was $6,831,175.00. The parties stipulated to Grippa's finding that the amount of Petitioner's workers' compensation loss reserves as of September 20, 2004, was $6,831,175.00. Petitioner's financial statements for 2004 had not been audited as of the final hearing, but were received into evidence in unaudited form. There was no evidence presented that Petitioner's 2004 financial statements do not accurately represent its financial performance in 2004 and its financial condition as of December 31, 2004. Florida Administrative Code Rule 69L-5.101(4) does not require Petitioner to submit audited financial statements as it has been self-insured since prior to January 1, 1997. Petitioner timely supplied Respondent with unaudited financial statements at least annually as required by Florida Administrative Code Rule 69L-5.101(4). Petitioner currently has a qualified security deposit of $2,500,000.00 deposited with FSIGA. In 2002, FSIGA recommended that in light of Petitioner's "significant net losses and very weak capital structure," Petitioner's security deposit should be increased to 150 percent of the actuarially determined loss reserves. Upon consideration of all of Petitioner's financial statements from 1999 through 2004, FSIGA's recommendation should be followed. Petitioner's actuarially determined loss reserves for all current and estimated future workers' compensation claims are $6,831,175.00. One hundred and fifty percent of the actuarially determined loss reserves of $6,831,175 equals $10,246,762.50. Petitioner presented no evidence of a different amount of security deposit increase that would be sufficient assuming one were to find that Petitioner lacks the financial strength to ensure payment of future workers' compensation claims or that Petitioner has failed to maintain a net worth of at least $1 million.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that The chief financial officer issue a final order determining that: (i) Petitioner does not have the financial strength to ensure the timely payment of all current and future workers' compensation claims; and (ii) Petitioner has failed to maintain a net worth of at least $1 million; and Because Petitioner has failed to meet the requirements to continue self-insuring, the final order should require Petitioner to post an additional security deposit in the amount of $7,746,762.50. DONE AND ENTERED this 1st day of June, 2005, in Tallahassee, Leon County, Florida. S DANIEL M. KILBRIDE 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 1st day of June, 2005.
The Issue The issue in this case is whether Petitioner's application for a certificate of need was complete.
Findings Of Fact Petitioner and Intervenor each filed applications in the same batching cycle for certificates of need to establish Medicaid-certified home health agencies in Collier County, District 8. By letter dated October 6, 1994, Respondent advised Petitioner that its application omitted certain elements. The letter requests, among other things, an "audited financial statement," including a balance sheet and profit-and-loss statement for the previous two years' operation. Petitioner's application contained an unaudited financial statement for the part of the year that it had been operation. Incorporated in 1994, Petitioner had been receiving patients only since September or October 1994. Petitioner's agent contacted a representative of Respondent and discussed the omissions letter. A misunderstanding ensued in which Petitioner's agent thought that Respondent's representative said that Petitioner would not be required to submit an audited financial statement because Petitioner had not been in operation for a full fiscal year. In fact, Respondent's representative did not say that. Respondent's policy is to permit applicants to file audited financial statements for a partial year, if that is how long they have been in business. For example, Intervenor included with its application an audited financial statement covering the six-week period that it had been in existence. In this case, it would have been possible for Petitioner to obtain an audited financial statement for a period of time including at least its first month of operation.
Recommendation It is hereby RECOMMENDED that the Agency for Health Care Administration enter a final order dismissing Petitioner's challenge to the administrative withdrawal of the subject application for a certificate of need. ENTERED on April 24, 1995, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings on April 24, 1995. APPENDIX Rulings on Petitioner's Proposed Findings 1-6: rejected as subordinate. 7-8: rejected as unsupported by the appropriate weight of the evidence. 9: adopted or adopted in substance. 10-11: rejected as not finding of fact. 12-14: rejected as recitation of evidence. 15: rejected as unsupported by the appropriate weight of the evidence. Rulings on Proposed Findings of Respondent and Intervenor All are adopted or adopted in substance. COPIES FURNISHED: Harold D. Lewis, General Counsel Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, FL 32303 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, FL 32303 Attorney Robert E. Senton P.O. Box 963 Tallahassee, FL 32302 Richard A. Patterson Assistant General Counsel Agency for Health Care Administration 325 John Knox Road Suite 301--The Atrium Tallahassee, FL 32303 Attorney Alfred W. Clark 117 South Gadsden Street Suite 201 Tallahassee, FL 32301
Findings Of Fact Stipulated Facts The parties stipulated at the final hearing to factual findings set forth in paragraphs 1-3, below. The Department received the Application for Qualification on April 27, 1995. An audited financial statement of Tony DePaul & Sons, Inc., was completed on December 31, 1994. The deadline for the Department to have received the annual audited financial statement of Tony DePaul & Sons was May 1, 1995. Other Facts Petitioner in this proceeding is Tony DePaul & Sons, Inc. Respondent is the Florida Department of Transportation. Respondent's Contracts Administration Office administers a contractor qualification program in which the Department qualifies contractors to subsequently bid on Respondent projects which exceed the sum of two hundred and fifty thousand dollars. Petitioner's application was received on April 27, 1995, minus Petitioner's annual audited financial statement which had been completed on December 31, 1994. The deadline for receipt of the application and Petitioner's annual audited financial statement was May 1, 1995. Respondent's representative contacted Petitioner on May 9, 1995, as a courtesy to inform Petitioner that the annual audited financial statement had not been received. Thereafter Respondent received the annual audited financial statement on May 11, 1995. Respondent's interpretation of law applicable to the subject application dictates that an application, such as Petitioner's, must be denied where the application and annual audited financial statement are submitted more than four months after the ending date of the annual audited financial statement, unless the applicant submits an additional interim audited financial statement. Petitioner made no inquiry of Respondent's offices to ascertain whether Respondent had timely received Petitioner's application and audited financial statement. Notably, Respondent's Contracts Administration Office has not lost or misplaced a document since 1982. The total elapsed time between receipt by Respondent's offices of Petitioner's Application for Contractor Qualification on April 27, 1995, and Respondent's issuance of a Notice of Intent to deny Petitioner's application is thirteen (13) days. Respondent is required to process applications within thirty (30) days.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered denying Petitioner's application. DONE and ENTERED in Tallahassee, Florida, this 16th day of October, 1995. DON W. DAVIS, 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 16th day of October, 1995. APPENDIX In accordance with provisions of Section 120.59, Florida Statutes, the following rulings are made on the proposed findings of fact submitted on behalf of the parties. Petitioner's Proposed Findings None submitted. Respondent's Proposed Findings 1.-11., Accepted. COPIES FURNISHED: William J. Cummings Tony DePaul & Sons, Inc. P. O. Box 1650 Blue Bell, PA 19422 Peter DePaul, President Tony DePaul & Sons, Inc. P. O. Box 1650 Blue Bell, PA 19422 Michael J. Lerner, C.P.A. Tony DePaul & Sons, Inc. P. O. Box 1650 Blue Bell, PA 19422-0465 Mary Dorman, Esq. Dept. of Transportation 605 Suwannee St., MS-58 Tallahassee, FL 32399-0450 Ben Watts, Secretary Dept. of Transportation 605 Suwannee Street Tallahassee, FL 32399-0450 Thornton J. Williams General Counsel Dept. of Transportation 562 Haydon Burns Building Tallahassee, FL 32399-0450
The Issue Whether various statements or policies attributed to the Department of Health (Department) and the Board of Medicine (Board) in connection with the assessment of costs related to the investigation and prosecution of disciplinary cases coming before the Board are unpromulgated rules in violation of Section 120.54(1)(a), Florida Statutes.1
Findings Of Fact Petitioner is a Florida licensed physician, who received his Florida medical license numbered ME 46054 in 1985. He currently practices medicine at 620 Eichenfeld Drive in Brandon, Florida. Petitioner is currently the subject of a pending disciplinary action initiated by the Department against his medical license. The disciplinary case is styled Department of Health vs. Mohamed I. Abdel-Aziz, Department of Health Case No. 2000-07849, DOAH Case No. 02-4429PL. On June 2, 2003, a Recommended Order was issued in DOAH Case No. 02-4429PL, finding that Petitioner violated Subsection 458.331(1)(t), Florida Statutes. Petitioner is subject to the assessment of the costs related to the investigation and prosecution of his case pursuant to Section 456.072(4), Florida Statutes, should the Board adopt the finding of a violation. Neither the Department nor the Board has promulgated a rule defining "costs related to the investigation and prosecution of the case." Petitioner has challenged the validity of the following statements, which he attributes to Respondents. Complaint Cost Summary. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the costs of the time (salary and benefits) spent by employees of the Department of Health Prosecution Services Unit. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the "overhead expense" of the Prosecution Services Unit. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the "OPS expense" attributable to the Prosecution Services Unit. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the salary and benefits paid by the Department of Health on behalf of employees who have no time keeping responsibility with respect to the time tracking maintenance system of the Department of Health. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the salary and benefits of the attorneys who have been assigned responsibility for and/or who have provided services in connection [sic] a license disciplinary case. Costs of the investigation and prosecution that are incurred as a part of a license disciplinary case include the "expense" of the individual components of the Prosecutions Services Unit. Time Tracking Report. Methodology for Calculating Rate for Billable Hours (pre-January 13, 2003) assessed as costs of the investigation and prosecution. The Department of Health, Board of Medicine procedure for the assessment of costs of the investigation and prosecution of a licenses [sic] found to have violated the disciplinary provisions of Chapters 456 and 458, Florida Statutes, as set forth in the Notice of Voluntary Dismissal of Paragraph (G) of the Prayer for Relief of the Administrative Complaint. Methodology for Calculating Rate for Billable Hours (effective January 24, 2003) assessed as costs of the investigation and prosecution. Notice Regarding Assessment of Costs which stated: Respondent is placed on notice that Petitioner has incurred costs related to the investigation and prosecution of this matter. Pursuant to Section 456.074(4), Florida Statutes, the Board shall assess costs related to the investigation and prosecution of a disciplinary matter, which may include attorney hours and costs, on the Respondent in addition to other discipline imposed. The Department and its predecessor agencies, the Agency for Health Care Administration and the Department of Business and Professional Regulation, have been keeping data of direct and indirect expenses incurred by the Department since at least 1988. Historically, the reason this cost data has been kept is for use in billing the various boards for the amount spent in investigating and prosecuting each board's cases. Section 456.025(8), Florida Statutes, and its predecessors Sections 455.220 and 455.587, Florida Statutes, require that the Department maintain an accounting, by profession, of the expenses incurred by the Department to regulate those professions. These expenses are then, to the maximum extent possible, charged back to the accounts of each regulated profession. Direct expenses include, but are not limited to, costs for investigations, examination, and legal services. For indirect expenses, the Department is to proportionally allocate to the boards the expenses incurred by the Department in the performance of its duties with respect to the regulation of each of the professions. The Department is required to maintain sufficient records to support its allocation of agency expenses and to provide each board an annual report of revenues and direct and allocated expenses related to the operation of that profession. The Department or its predecessors have been keeping data of the costs related to the investigation and prosecution of professional license disciplinary cases. The collection of data includes determining an hourly rate for those persons whose activities are directly attributable to individual and specific cases and an hourly overhead rate for administrative costs and indirect costs. The overhead rate includes salaries plus benefits of clerical staff, rent, office supplies, OPS expense, telephone services, utilities, copier maintenance fees, and other similar expenses. From 1994 until January 13, 2003, the methodology for calculating the overheard hourly rate, called "Methodology for Calculating Rate for Billable Hours," provided as follows: Determine the number of timekeepers and non-timekeepers. Determine the rate for non-timekeepers (annual rate plus + benefits [27.5%]) ? number of timekeepers ? 2080 hours = hourly rate. Determine the rate for expenses (budget expenses and OPS) from operating budget ? number of timekeepers ? 2080 = hourly rate. Add results of steps 2 & 3, for total hourly rate per timekeeper. All employees of the Department's Medical Quality Assurance (MQA) Enforcement Program, which consists of the Consumer Services Unit, the Investigative Services Unit, and the Prosecution Services Unit, are designated either as timekeepers or non-timekeepers. Timekeepers are those employees who perform activities directly related to specific cases. All other employees are considered to be non-timekeepers, and their salary and benefits are part of the costs that are apportioned within the overheard rate calculation. The hourly rate for a timekeeper is calculated by dividing that timekeeper's salary plus benefits by the total annual hours. Under the pre-January 13, 2003, methodology, the total number of hours used was 2080. Benefits were determined based on 27.5 percent of the timekeeper's annual salary. In October or November 2002, James D. Hentz, the Financial Manager for the trust fund of the MQA section of the Department saw this methodology for the first time. He believed that the use of 2080 hours in the methodology was flawed because it included holidays, annual leave, sick leave, and non-billable administrative time, thereby, precluding any possibility of recovering all the costs. Mr. Hentz believed that using 1720 hours better represented the number of hours available to be worked and billed to specific cases, and he proposed that the methodology be adjusted by using 1720 hours instead of 2080 hours. The adjusted methodology proposed by Mr. Hentz was disseminated to the enforcement program units of the Department by Charlene G. Willoughby to be effective January 13, 2003. The methodology, also entitled "Methodology for Calculating Rate for Billable Hours" provided as follows: Determine the number of timekeepers and non-timekeepers. There are 1720 billable hours per year (2080 possible hours worked minus average annual, sick and holiday leave). Determine the rate for non-timekeepers (annual rate + benefits [28%]) ? number of timekeepers ? 1720 hours = hourly rate). Determine the rate for expenses (budget expenses, including OPS) from operating budget ? number of timekeepers ? 1720 hours = hourly rate Add results of steps 3 & 4 for total hourly overhead rate per timekeeper. Add overhead rate to hourly salary + benefits of each timekeeper for individual timekeeper rate. This methodology proposed by Mr. Hentz differed from the previous methodology by the use of 1720 hours instead of 2080 hours and the use of 28 percent of the annual salary to calculate benefits rather than 27.5 percent. These changes resulted in an increase in both the overhead hourly rate and the timekeepers' hourly rate, thereby, increasing the total hourly rate per timekeeper, which is also known as staff rate. The methodology that was disseminated on January 13, 2003, was not implemented by the Investigative Services Unit or the Prosecution Services Unit at the Department. On January 24, 2003, Mr. Hentz sent out another methodology for use in computing overhead and timekeepers' hourly rates. He drafted the methodology in a narrative form, which Ms. Willoughby converted to a format similar to the previous formulas. The January 24, 2003, methodology provides as follows: Determine the number of timekeepers and the non-timekeepers. There are 1720 billable hours per year (2080 possible hours worked minus average annual, sick and holiday leave). Determine the rate for non-timekeepers (annual rate + benefits [as reflected in the COPES Report] ? number of timekeepers ? 1720 hours = hourly rate. Determine the rate for expenses (budget expenses, including OPS) from operating budget ? number of timekeepers ? 1720 hours = hourly rate. Add results of steps 3 & 4 for total hourly rate per timekeeper. Add overhead rate to hourly salary + benefits of each timekeeper for individual timekeeper rate. The salary plus benefits associated with each individual position number for each employee is reported on the COPES Report. In calculating the timekeepers' hourly rate and the overhead hourly rate, the January 24 methodology uses the actual salary plus benefits from the COPES Report instead of calculating benefits by using a percentage of salary as was done in previous methodologies. Timekeepers maintain and submit a daily activity report (DAR) which identifies the cases on which they worked, the activities they performed, and the amount of time they spent in six-minute increments. The DARs are entered into a data system called the Time Track System, where that data is kept by timekeeper identification number, case number, activity, and time spent on each activity. The total hourly rate is also entered into the Time Track System so that the rate can be applied to the time spent on a case by each timekeeper. The total hourly rate is updated at least annually when the new spending plan or budget is issued. It is also reviewed quarterly to make adjustments for salary or benefit changes. The compilations of data from the Time Track System at issue are the Time Tracking Report and the Complaint Cost Summary. The Time Tracking Report is a detailed time accounting report and has two components, the Itemized Cost by Complaint and the Itemized Expense by Complaint. The Itemized Cost by Complaint itemizes the specific activities that have been performed on a specific case by activity code and description, the date of those activities, the timekeeper who performed the activities, the amount of time spent on those activities, and a staff rate for each timekeeper who worked on a specific case. The Itemized Cost by Complaint contains a column that reports "Cost," which is the time spent by a timekeeper for a particular activity multiplied by the staff rate. The Itemized Cost by Complaint is subtotaled by each unit in the MQA Enforcement Program and is finally totaled for all the time spent on a particular case to the date that the report is printed. The Itemized Expense by Complaint itemizes the expenses directly attributable to the specific case. Typical direct expenses would include expert witness fees, travel, and court reporting services. These expenses are ones for which an invoice has been received and paid for a specific expense on a specific case. The Complaint Cost Summary is a summary of the accounting information contained in the Time Tracking Report. It summarizes the total hours spent on a case, by unit, the cost per unit, and the expenses. The total reflected in the Complaint Cost Summary corresponds to the individual subtotals by unit, plus the expenses, which are detailed in the Time Tracking Report. When a specific case goes before the Board for entry of a Final Order that will impose some discipline, various procedures have been used to bring the data concerning the costs related to the investigation and prosecution of that case before the Board. The procedures have varied over time and type of case. For example, when the Board considers defaults and informal hearing recommended orders, it may be informed about the costs in one of several ways, including by written motion, ore tenus motion, or simple statement of the costs. Consent agreements may be considered for assessments of costs in other ways because the amount of the costs would be included in the consent agreement. In the past, cost summaries have not been presented to the Board in cases involving recommended orders; however, more recently cost summaries are being provided to the Board and may include additional materials such as an affidavit from Ms. Willoughby. In some cases, there have been motions to assess costs filed and in others there were oral presentations made to the Board regarding the costs. In the last 13 months, there has been no consistent procedure used by the Department to request the assessment of costs related to the investigation and prosecution by the Board. However, the Department has consistently included its direct and indirect expenses, including an attorney's time in its requests for costs. In Petitioner's disciplinary case, the Department originally requested the assessment of the costs related to the investigation and prosecution in the prayer for relief in the Administrative Complaint, Paragraph (G). Prior to the final hearing, the Department filed a Notice of Dismissal of Paragraph of the Prayer for Relief of the Administrative Complaint, stating that it was dismissing the request concerning the assessment of the costs for the investigation and prosecution of the case. The Department further included the following in the motion: Should the Board enter a final order imposing discipline in this matter, the [Department] intends to request the Board of Medicine to assess costs in the following manner: Upon entry of Recommended Order by the Division of Administrative Hearing, an appropriate Motion to Assess Costs shall be filed with the Board to be considered immediately following Board consideration of said Recommended Order. The motion shall provide [Dr. Abdel-Aziz] an opportunity to file timely written objections to the amount of costs incurred by the Petitioner related to the investigation and prosecution of the case. If a timely written objection to the assessment of costs incurred by the Petitioner related to the investigation and prosecution of the case is filed by [Dr. Abdel-Aziz], the Department shall request the Board to conduct a hearing on the assessment of costs. That hearing shall be conducted either after consideration of the Recommended Order and prior to entry of the Final Order disposing of the case or [sic] a part of a separate bifurcated proceeding if it is appropriate to enter a Final Order before the hearing can be conducted. If a disputed issue of material fact arises, then the matter concerning such dispute shall be forwarded to the Division of Administrative Hearings for a formal hearing. The Department has filed similar notices in at least two other cases before the Division of Administrative Hearings. The Board has not used a specific procedure in the manner in which it addresses the issue of costs related to the investigation and prosecution. It has considered written motions, oral motions, and has, at least on one occasion, just asked the Department representative at the Board meeting what the amount of the costs were. The Board has been interpreting Section 456.072(4), Florida Statutes, to require the inclusion of the direct and indirect expenses of the Department, including those costs listed in subsections b, c, d, e, f, and g of paragraph 4 of this Final Order, when assessing the costs related to the investigation and prosecution of a case against a physician, who is before the Board as a result of a recommended order. In doing so, the Board has implicitly adopted those costs appearing in subsections b, c, d, e, f, and g of this Final Order as the costs it will assess related to the investigation and prosecution of a case.
Findings Of Fact Basic is a general contractor specializing in asphalt resurfacing and related construction activities. Its principal offices are in Orlando, Florida. Basic is not currently qualified to bid on construction projects to be let by DOT. Its certificate of qualification expired on June 30, 1984. Until the expiration, Basic had been continuously qualified by DOT to bid on such jobs since 1975. During the time it was qualified, Basic successfully performed approximately fifty state jobs. In early September, 1984, Basic received its annual audited financial statement from its accountants, Fox and Company (Fox), which reflected Basic's financial condition for the year ending on March 31, 1984. On or about September 14, 1984, Basic filed its application for renewal of its certificate of qualification. With the application, Basic filed the audited financial statement prepared by Fox and Company and an additional financial statement prepared by Basic's new accountants, Colley, Trumbower and Howell (Colley). This Colley financial statement was merely a compilation and covered the period April 1, 1984 through June 30, 1984. The audited statement of Fox contained the opinion of a certified public accountant; the compilation of Colley contained no opinion. The audited statement preceded the date of filing by approximately 170 days. DOT reviewed the application and denied it on the ground that the financial statements submitted were of a date more than 120 days prior to the application DOT did not perform a fiscal analysis or further review of the application after it determined that the application did not contain what it believed to be the necessary financial statements. In response to the denial, Basic had Colley prepare an additional financial statement which reflected its financial condition through September 30, 1984. This financial statement was a review and did not contain an opinion of a certified public accountant (See transcript p 47, lines 22 and 23). DOT declined to accept this review. An "audited" financial statement is a financial statement that has been subjected to full audit scrutiny and verification. A compiled financial statement is merely a compilation of financial information as supplied by the client. A reviewed financial statement consists of inquiries and compilation of financial data with application of analytical procedures and is less in scope than an audited financial statement. An "opinion" is a term of art in the field of accounting and refers to an opinion that the basic financial information taken as a whole is fairly stated in all material respects and is in accordance with generally accepted accounting principals. A qualified opinion is subject to the same definition and level of scrutiny, but is qualified as it relates to one or more items in the financial statement. DOT only accepts audited financial statements which express an opinion. The financial information in the reviewed financial statement, when read in conjunction with the audited financial statement reflects that Basic is in an adequate financial situation with positive current rates and a substantial adjusted net worth. Basic is making a profit.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered denying the application of Basic for a certificate of qualification. DONE and ORDERED this 8th day of February, 1985, in Tallahassee, Florida. DIANE K. KIESLING Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 FILED with the Clerk of the Division of Administrative Hearings this 8th day of February, 1985.
The Issue Whether Respondent Corporation, Southern Insight, Inc., failed to secure payment of workers' compensation coverage as required by Chapter 440, Florida Statutes, and the Florida Insurance Code, and if so, whether the Department of Financial Services, Division of Workers' Compensation (Department) has lawfully assessed the penalty against Respondent in the amount of $27,805.11.
Findings Of Fact The Department is the state agency responsible for enforcing Section 440.107, Florida Statutes, which requires that employers secure the payment of workers' compensation coverage for their employees and otherwise comply with the workers' compensation coverage requirements under Chapter 440, Florida Statutes. Respondent has been a Florida corporation, actively involved in the construction industry providing framing services, during the period of February 16, 2006, through August 17, 2007 (assessed penalty period). At all times material, Respondent has been an "employer," as defined by Chapter 440, Florida Statutes. At all times material, John Cauley has been Respondent's president and sole employee. At no time material did Respondent obtain workers' compensation insurance coverage for John Cauley. On August 17, 2007, Department Investigator Lynise Beckstrom conducted a random workers' compensation compliance check of a new home construction site in Palm Coast, Florida. At that time, Ms. Beckstrom observed four men, including John Cauley, framing a new home. Utilizing the Department's Compliance and Coverage Automated System (CCAS) database, which contains all workers' compensation insurance policy information from the carrier to an insured and which further lists all the workers' compensation exemptions in the State of Florida, Ms. Beckstrom determined that for the assessed penalty period, Respondent did not have in effect either a State of Florida workers' compensation insurance policy or a valid, current exemption for its employee, John Cauley. During the assessed penalty period, Respondent paid remuneration to its employee, John Cauley. John Cauley admitted that during the assessed penalty period he was not an independent contractor, as that term is defined in Section 440.02(15)(d)(1), Florida Statutes. Section 440.05, Florida Statutes, allows a corporate officer to apply for a construction certificate of exemption from workers' compensation benefits. Only the named individual on the application is exempt from workers' compensation insurance coverage. On or about April 15, 2006, John Cauley, as Respondent's President, applied for such an exemption. That application was denied. Mr. Cauley received neither an exemption card nor a denial of exemption from the Department. During the assessed penalty period, Respondent was a subcontractor of the contractor, Mass Builders, Inc. 9. Sections 440.107(3) and 440.107(7)(a), Florida Statutes, authorize the Department to issue stop-work orders to employers unable to provide proof of workers' compensation coverage, including proof of a current, valid workers' compensation exemption. Based on the lack of workers' compensation coverage and lack of a current, valid workers' compensation exemption for Respondent corporation's employee, John Cauley, the Department served on Respondent a stop-work order on August 17, 2007. The stop-work order ordered Respondent to cease all business operation for all worksites in the State of Florida. Immediately upon notification by Investigator Beckstrom of his lack of valid exemption, Mr. Cauley submitted a new exemption application, which was granted, bringing Respondent corporation into compliance. However, in order to have the stop-work order lifted so that he can work as a corporation again, Mr. Cauley must pay a percentage of the penalty assessment and enter into a payment plan with the Agency. In the meantime, Mr. Cauley cannot pay the percentage required by the Department if he cannot find work as someone else's employee, which he had been unable to do as of the date of the hearing. Herein, it is not disputed that Respondent was inadvertently out of compliance. Mr. Cauley seeks merely to reduce the amount of the penalty assessment so that removal of the stop-work order against Respondent corporation can be negotiated. On the day the stop-work order was issued, Investigator Beckstrom also served Respondent with a "Request for Production of Business Records for Penalty Assessment Calculation," in order to determine a penalty under Section 440.107(7), Florida Statutes. Pursuant to Florida Administrative Code Rule 69L-6.015, the Department may request business records for the three years preceding the date of the stop-work order. Logically, however, Ms. Beckstrom only requested business records dating back to February 14, 2006, Respondent's date of incorporation in Florida. The requested records included payroll, bank records, check stubs, invoices, and other related business records. Ms. Beckworth testified that, "Business records requests usually consist of payroll, bank records, taxes, check stubs, invoices, anything relating to that business." This is a fair summation of a much more detailed listing of records required to be kept pursuant to Rule 69L-6.015, Florida Administrative Code, which was in effect at all times material. In response to the Request for Production, Respondent provided Southern Insight Inc.'s corporate bank statements for the assessed penalty period, detailing corporate income and expenses through deposits and bank/debit card purchases. However, Investigator Beckworth did not deem the corporate bank statements produced by Respondent to be an adequate response, and she did not base her calculations for penalty purposes thereon. Mr. Cauley expected that the Department would, and has argued herein that the Department should, have subtracted from the total deposits to Respondent's corporate account (the minuend) the total corporate business expenses (the subtrahend) in order to determine the Respondent's payroll to Mr. Cauley (the difference), upon which difference the Department should have calculated his workers' compensation penalty. In fact, the Department, through its investigator, did not utilize the total amount deposited to Respondent's corporate account, because some deposits "could" have come from a family member of Mr.Cauley. That said, there are no individual names on the account; the account is clearly in the name of the Respondent corporation; and there is no proof herein that any deposits to Respondent's corporate bank account were derived from anyone other than Mr. Cauley, as Respondent's President. Ms. Beckstrom testified that if the Agency had accepted the total of the deposits to this corporate account for the assessed penalty period as Respondent's payroll, the result would have been more than the total amount actually determined by her to constitute Mr. Cauley's payroll, but that statement was not demonstrated with any specificity. The Department also did not use any of the subtracted amounts shown on the corporate bank statements, even though the bank statements listed the same information as would normally be found on a corporate check, including the transaction number, recipient of the money, the date, and the amount for each bank/debit card transaction. All that might be missing is the self-serving declaration of the check writer on the check stub as to what object or service was purchased from the recipient named on the bank statement. Ms. Beckstrom testified that if Mr. Cauley had provided separate receipts for the transactions recorded on the bank statements as bank/debit card entries, she could have deducted those amounts for business expenses from the corporation's income, to arrive at a lesser payroll for Mr. Cauley. In other words, if Mr. Cauley had provided separate receipts as back-up for the transactions memorialized on the corporate bank statements, the Department might have utilized the bank/debit card transactions itemized on Respondent's corporate bank statements as the amount deducted for Respondent corporation's business expenses, so as to obtain the payroll (difference) paid to Mr. Cauley. It is the amount paid to Mr. Cauley as payroll, upon which the Department must calculate the workers' compensation penalty. The reason Ms. Beckworth gave for not using Respondent's bank statements was that without more, the transactions thereon might not be business expenses of the corporation. However, she also suggested that if, instead of submitting bank/debit card statements, Mr. Cauley had submitted checks payable to third parties and if those corporate checks showed an expenditure for a deductible business expense, like motor vehicle fuel, she might have accepted the same expenditures in check form (rather than the statements) in calculating Respondent's payroll. Ultimately, Ms. Beckworth's only reasons for not accepting the bank statements showing recipients, such as fuel companies like Amoco, was "agency policy," and her speculation that Amoco gas could have been put into a non-company truck or car. She also speculated that a prohibition against using bank statements showing deductions might possibly be found in the basic manual of the National Council on Compensation Insurance (NCCI) or in a rule on payrolls (Rule 69L-6.035) which became effective October 10, 2007, after the assessed penalty period. However, the NCCI manual was not offered in evidence; a rule in effect after all times material cannot be utilized here; and no non-rule policy to this effect was proven-up. In addition to not using Respondent's bank statements to calculate a penalty, the Department also did not "impute" the statewide average weekly wage to Respondent for Mr. Cauley. Ms. Beckworth testified that to impute the statewide average weekly wage would have resulted in a higher penalty to Respondent. As to the amount of the statewide average weekly wage, she could only say she thought the statewide average weekly wage was "about $1,000.00". Instead of using Respondent's corporate bank statements or imputing the statewide average weekly wage, Investigator Beckstrom determined that Mass Builders, Inc., was the prime contractor on the jobsite being worked by Respondent, and that Mass Builders, Inc., had not produced proof of securing workers' compensation coverage for Respondent, its sub- contractor. Therefore, she sought, and received, Mass Builders, Inc.'s "payroll records" of amounts paid by the prime contractor, Mass Builders, Inc., to Respondent Southern Insight, Inc., via a separate site-specific stop-work order and business records request directed to Mass Builders, Inc. The only "payroll records" that Mass Builders, Inc., offered in evidence were Mass Builders, Inc.'s check stubs, which Ms. Beckstrom utilized to come up with an income/payroll amount for Respondent Southern Insight, Inc. Mr. Cauley did not know until the hearing that Mass Builders, Inc.'s check stubs had been utilized in this fashion by the Department. However, he ultimately did not dispute the accuracy of the check stubs and did not object to their admission in evidence. In calculating Respondent's total payroll for the assessed penalty period, Investigator Beckstrom considered only the total of the check stubs from Mass Builders, Inc. It is unclear whether or not she reviewed Mass Builders, Inc.'s actual cancelled checks. No one from Mass Builders, Inc., appeared to testify that the stubs represented actual cancelled checks to Respondent or Mr. Cauley. The Department also did not deduct from the total of Mass Builders, Inc.'s check stubs any of the bankcard deductions made by John Cauley from Respondent's corporate bank account, for the same reasons set out above. Mr. Cauley testified, without refutation, that some of the expenses noted on Respondent's bank statements, paid by bank/debit card, most notably expenses for gasoline for his truck, constituted legitimate business expenses of Respondent corporation, which should have been deducted from either the bank statement's total income figure or from the amounts paid by Mass Builders, Inc., to Respondent corporation, before any attempt was made by the Department to calculate the amount paid by Respondent corporation to Mr. Cauley as payroll. Utilizing the SCOPES Manual, which has been adopted by Department rule, Ms. Beckstrom assigned the appropriate class code, 5645, to the type of work (framing) performed by Respondent. In completing the penalty calculation, Ms. Beckstrom multiplied the class code's assigned approved manual rate by the payroll (as she determined it) per one hundred dollars, and then multiplied all by 1.5, arriving at an Amended Order of Penalty Assessment of $27,805.11, served on Respondent on August 22, 2007. Subsequent to the filing of its request for a disputed-fact hearing, in an effort to have the penalty reduced, Respondent provided the Department with additional business records in the form of portions of Southern Insight, Inc.'s 2006 and 2007 U.S. Income Tax Returns for an S Corporation (2006 and 2007 income tax returns). However, neither itemized deductions nor original receipts for Respondent's business expenses were provided to Ms. Beckworth at the same time, and she determined that without itemized deductions, there was no way to calculate Respondent's legitimate business deductions so that they could be deducted from the total of Mass Builders, Inc.'s, check stubs to determine a lesser payroll applicable to Mr. Cauley. Investigator Beckstrom testified that the tax returns, as she received them, did not justify reducing Respondent's payroll used in calculating the penalty. The vague basis for this refusal was to the effect that, "The Internal Revenue Service permits different business deductions than does the Department." Itemization pages (schedules) of Respondent's income tax returns were not provided until the de novo disputed-fact hearing. Confronted with these items at hearing, Ms. Beckworth testified that ordinary business income is not used by the Department to determine payroll, but that automobile and truck expense and legitimate business expenses could be deducted, and that she would probably accept some of the deductions on Respondent's 1020-S returns. Also, if Respondent's bank statement corresponded to the amount on the tax form, she could possibly deduct some items on the bank statements as business expenses before reaching a payroll amount. However, she made no such calculations at hearing. Ms. Beckworth testified that if she had Respondent's checks or "something more" she could possibly deduct the motor fuel amounts. Although Respondent's 2006, and 2007, income tax returns reflected Respondent corporation's income minus several types of business deductions, Ms. Beckstrom testified that the tax deductions were not conclusive of the workers' compensation deductions, because the Internal Revenue Service allows certain deductions not permissible for workers' compensation purposes, but she did not further elaborate upon which tax deductions were, or were not, allowable under any Department rule. She did not "prove up" which deductions were not valid for workers' compensation purposes. Respondent's 2006, tax deductions for "automobile and truck expense" were $2,898.00, and for 2007, were $4,010.00. There was no further itemization by Respondent within these categories for fuel. Other business deductions on the tax returns were also listed in categories, but without any further itemization. The only supporting documentation for the tax returns admitted in evidence was Respondent's bank statements. Respondent believed that the tax returns and possibly other documentation had been submitted before hearing by his accountant. It had not been submitted. The Department never credibly explained why it considered a third party's check stubs (not even the third party's cancelled checks) more reliable than Respondent's bank statements or federal tax returns. Even so, at hearing, the Department declined to utilize the business deductions itemized on Respondent's tax forms or any bank/debit card deductions on its bank statements so as to diminish the amount arrived-at via the Mass Builders, Inc.'s check stubs, and ultimately to arrive at a difference which would show a lesser payroll to Mr. Cauley. Although Mr. Cauley's questions to Ms. Beckstrom suggested that he would like at least all of the fuel company deductions on his bank statements to be considered as business deductions of Respondent Southern Insight, Inc., and for those fuel company expenditures to be subtracted from either the total deposits to the corporate bank account or deducted from the payroll total as calculated by Ms. Beckstrom from Mass Builders, Inc.'s check stub total, he did not testify with clarity as to which particular debits/charges on the bank statements fell in this category. Nor did he relate, with any accuracy, the debits/charges on the bank statements to the corporate tax returns. Upon review by the undersigned of Respondent's bank statements admitted in evidence, it is found that the bulk of Respondent's bank/debit card deductions during the assessed penalty period were cash withdrawals or ATM debits which cannot be identified as being paid to fuel companies or purveyors of construction material. As Investigator Beckstrom legitimately observed, "Big Al's Bait" is not a likely source of motor fuel. "Publix" and "Outback Steak House" are likewise unlikely sources of fuel or construction material, and cannot stand alone, without some other receipt to support them, as a legitimate corporate business entertainment expense. Other debits/charges on the bank statements are similarly non-complying, ambiguous, or defy categorization. However, the undersigned has been able to isolate on the corporate bank statements purchases from the known fuel distributors "Amoco" and "Chevron" on the following dates: 7/09/07, 7/10/07, 6/04/07, 6/04/07, 6/11/07, 5/03/07/ 4/09/07, 4/10/07, 4/13/07, 4/16/07, 3/02/07, 3/05/07, 3/13/07, 3/15/07, 3/20/07, 1/29/07, 5/01/06, 6/02/06, 8/02/06, 11/03/06, totaling $556.98.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers' Compensation, that affirms the stop-work order and concludes that a penalty is owed; that provides for a recalculation of penalty to be completed, on the basis set out herein, within 30 days of the final order; and that guarantees the Respondent Southern Insight, Inc., a window of opportunity to request a Section 120.57 (1) disputed-fact hearing solely upon the recalculation. DONE AND ENTERED this 1st day of July, 2008, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 1st day of July, 2008. COPIES FURNISHED: Anthony B. Miller, Esquire Department of Financial Services Division of Workers' Compensation 200 East Gaines Street Tallahassee, Florida 32399-4229 John Cauley, President Southern Insight, Inc. Post Office Box 2592 Bunnell, Florida 32110 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue There are seven alleged violations at issue, six of which are related to alleged financial disclosure violations. As stipulated by the parties, at issue is whether Respondent violated: Section 112.313(6), Florida Statutes,1/ by requesting and/or accepting State reimbursement for travel expenses that were paid by campaign accounts and/or State office expense accounts; Article II, section 8, Florida Constitution, by failing to or not properly reporting income; and/or stocks and bonds; and/or secondary source income on his 2005 CE Form 6, Full and Public Disclosure of Financial Interest; Article II, section 8, Florida Constitution, by failing to or not properly reporting income; and/or stocks and bonds; and/or bank accounts; and/or real property; and/or secondary source income on his 2006 CE Form 6, Full and Public Disclosure of Financial Interest; Article II, section 8, Florida Constitution, by failing to or not properly reporting income; and/or stocks and bonds; and/or bank accounts; and/or real property; and/or secondary source income on his 2007 CE Form 6, Full and Public Disclosure of Financial Interest; Article II, section 8, Florida Constitution, by failing to or not properly reporting income; and/or stocks and bonds; and/or bank accounts; and/or real property; and/or secondary source income on his 2008 CE Form 6, Full and Public Disclosure of Financial Interest; Article II, section 8, Florida Constitution, by failing to or not properly reporting income; and/or stocks and bonds; and/or bank accounts; and/or real property; and/or secondary source income on his 2009 CE Form 6, Full and Public Disclosure of Financial Interest; and Section 112.3144, Florida Statutes, by failing to file a CE Form 6F “Final Full and Public Disclosure of Financial Interests” within 60 days of leaving his position with the Florida House of Representatives.
Findings Of Fact Based upon the testimony and documentary evidence presented at hearing, the demeanor and credibility of the witnesses, and on the entire record of this proceeding, the following findings of fact are made: Background At all times material to the Complaint, Respondent was a public officer. Respondent no longer holds public office. Respondent successfully ran for the Florida House of Representatives in 2002, 2004, 2006, and 2008. Respondent briefly ran for election to the Florida Senate in 2010 and opened a campaign account for that purpose. Respondent successfully ran for U.S. House of Representatives in 2010, but was defeated in 2012 for re- election. Respondent also ran for State Committeeman, a private, political party office of the Republican Party of Florida, in 2003, 2004, and 2008, and opened campaign accounts for that purpose. State Reimbursement for Travel Expenses that were Paid from Respondent's Campaign Accounts or State Office Expense Accounts The State of Florida allows reimbursement to employees and elected officials for travel and related expenses incurred during the conduct of official state business. Such expenses include, among other things, airfare, rental cars, hotels, and meals while travelling. The Florida House of Representatives' Office of Legislative Services is responsible for reviewing and approving expense reimbursements for members of the Florida House of Representatives. Respondent's state travel expenses were reimbursed by the Office of Legislative Services when he served as a member of the Florida House of Representatives from 2002- 2010. Kelly Kimsey, at the time a Senior Crime Intelligence Analyst II with the Public Corruption Unit of the Florida Department of Law Enforcement (FDLE), testified that she conducted the forensic analysis for this case utilizing financial records subpoenaed from financial institutions. In doing so, Ms. Kimsey analyzed Respondent's personal bank accounts, as well as his campaign accounts, and compared them against his campaign records. Ms. Kimsey created a summary showing Respondent's Bank of America campaign accounts ending in 1626, 9269, and 0856. The account statements, as well as the actual cancelled checks, reflect payments directly from the campaign accounts to Respondent’s credit card accounts, in payment of the full balance due on Respondent's personal credit cards. Notwithstanding the fact that Respondent had several credit cards, including a Chase Visa, American Express, and U.S. Senate Federal Credit Union Visa Gold, Respondent did not pay for expenses relating to his official duties as a state representative on a designated credit card. Rather, Respondent testified that his personal expenses, political party expenses, state house campaign expenses, and state house official expenses were all comingled among all of his credit cards “because the Florida House of Representatives does not issue credit cards.” On twenty-nine separate occasions throughout the period at issue, Respondent requested and received State of Florida direct-deposit reimbursement into his personal bank account for travel that was paid for by one of his campaign accounts, either his official campaign account or his committeeman account. The total reimbursement Respondent improperly received in this manner totaled tens of thousands of dollars. Three such examples follow. Respondent requested reimbursement of $622.90 for official state travel in March of 2006. Respondent's travel expenses were charged to his Chase credit card. The Chase credit card balance, which included the travel expenses, was paid for by Respondent's Campaign account numbered 1626. The State paid $622.90 for that travel into Respondent's personal bank account. Respondent requested reimbursement of $738.59, also for travel in March of 2006. Respondent's travel expenses were charged to his U.S. Senate Federal Credit Union credit card. The U.S. Senate Federal Credit Union credit card balance, which included the travel expenses, was paid by Respondent's Campaign accounts numbered 9269 and 1626. The state paid $738.59 for that travel into Respondent's personal bank account. Respondent requested reimbursement of $1,692.32 for official state travel in December of 2008. Respondent's travel expenses were charged to his American Express credit card. The American Express credit card balance, which included the travel expenses, was paid by Respondent's Campaign account numbered 9269. The state paid $1,692.32 for that travel into Respondent's personal bank account.2/ The Advocate established by clear and convincing evidence that Respondent received State of Florida reimbursement for travel and related expenses that were in fact paid for by one of his campaign accounts. Thus, Respondent was reimbursed for tens of thousands of dollars of expenses which he did not “incur.” The evidence also clearly and convincingly established that this double-reimbursement was knowing and intentional, since Respondent himself authorized the travel-related credit card charges, and then subsequently personally drafted the campaign account checks used to pay off the credit card balances. He also personally signed and submitted the State of Florida reimbursement requests. The amounts reimbursed by the State of Florida for travel-related expenses that were paid by Respondent’s campaign accounts represent income to Respondent. Respondent characterized the “double-reimbursement” allegation as an “accounting dispute.” Respondent testified that he had loaned his campaigns personal funds, and that the payments made from his campaign accounts directly to his credit card accounts should be considered repayments of his loans to his campaign accounts. However, Respondent provided no corroborative evidence to substantiate personal loans to his campaign accounts, and his testimony in this regard is rejected as not credible. Additional Sources of Income Millennium Marketing, Inc. (Millennium) and Southwest Florida Enterprises entered into a Consulting Agreement (Agreement) effective November 1, 2006. Pursuant to that agreement, Millennium (Consultant) was to provide consulting and strategic advice relative to a Miami-Dade County referendum campaign for approval of slot machine gaming. Respondent acted as the chief strategist and primary provider of services under the Agreement. Indeed, the Agreement expressly stated that Respondent was to be the person primarily responsible for leading the strategic effort to win approval of the referendum: The Consultant agrees, as a condition precedent to this Agreement, that it shall engage David Rivera as the key person to act as the primary provider of service pursuant to the terms and conditions of this Agreement and to act as the intermediary on behalf of the Consultant with the Company for all purposes, and that the failure of David Rivera to act in these capacities shall be grounds to terminate immediately this Agreement, without notice and without the Company's being required to pay any further amounts or damages, except for accrued, payable and incurred amounts due and previously invoiced as the date of termination. The Agreement provided for a base compensation to Millennium of $250,000.00, with an additional bonus of $750,000.00 should the gaming referendum prove successful. The officers of Millennium were Respondent's mother, Daisy Magarino-Rivera, and Ileana Medina. On October 13, 2010, a Miami Herald article was published in which Respondent’s income was questioned. In response to the article, the Florida Department of Law Enforcement (FDLE) immediately began a criminal investigation of Respondent’s sources of income and financial reporting. A subpoena was issued to Millennium on December 2, 2010, requesting any and all financial records from the inception of Millennium to the present concerning any and all payments made to or received from David Rivera and/or Interamerican Government Relations. Millennium supplied documents pursuant to the subpoena in two separate productions. FDLE received the first group of documents on December 17, 2010, and a second group on January 24, 2011. The first response included 11 checks made payable to Respondent, totaling $132,000. The checks have no notation on the “For” line, whether loan, contingent loan, compensation, or otherwise. The following checks were drafted by Millennium, made payable to David M. Rivera, and deposited into Respondent's personal bank account: Check No. 1006, dated January 8, 2007, $25,000 deposited January 10, 2007; Check No. 1007, dated February 20, 2007, $10,000 deposited February 22, 2007; Check No. 1024, dated February 26, 2008, $10,000 deposited March 11, 2009; Check No. 1015, dated June 12, 2008, $20,000 deposited July 10, 2008; Check No. 1025, dated October 2, 2009, $18,000 deposited October 6, 2009; Check No. 1026, dated October 3, 2009, $12,000 deposited October 6, 2009; Check No. 1031, dated February 12, 2010, $10,000 deposited March 16, 2010; Check No. 1032, dated February 26, 2010, $8,000 deposited March 16, 2010; Check No. 1033, dated March 10, 2010, $7,000 deposited March 18, 2010; Check No. 1036, dated August 10, 2010, $8,000 deposited August 16, 2010; Check No. 1038, dated August 12, 2010, $4,000 deposited August 16, 2010. As can be seen, Check No. 1024 is out of check number sequence for the date, and was not deposited until March 11, 2009, more than a year after it is dated. While it is possible that this check was intentionally pulled from the back of the checkbook and drafted, such seems extremely unlikely given that the rest of the check numbers are in numerical order for the dates of issuance. Rather, the more plausible explanation for this anomaly is that the check was actually drafted shortly before it was deposited by Respondent in March 2009, and for some reason intentionally backdated to February 26, 2008. This inference is supported by the fact that with one exception, all of the other checks were deposited by Respondent within 30 days, and most within just a few days, of the check date.3/ Given this inference, the promissory note purporting to correspond to the February 26, 2008, loan was, in all likelihood, also inaccurately dated. Respondent contends that the above payments represent the proceeds of loans made to him by Millennium. In support of this contention, Respondent introduced 11 promissory notes whose dates correspond exactly to the dates of the 11 checks above. Copies of the promissory notes were not included in Millennium’s first document production to FDLE, but rather were included with the second group of documents provided by Millennium on or about January 24, 2011. The promissory note dated February 26, 2008, corresponds directly with check number 1024. As noted, the corresponding proceeds of that purported loan ($10,000) were not actually received by Respondent until the following year when check number 1024 was deposited on March 11, 2009. Respondent testified that he repaid the Millennium loans in November 2010 with two checks from his personal account in the amounts of $29,760.27 and $11,845.21, and the conveyance of ownership of the condominium unit identified as collateral in the promissory notes. Ileana Medina of Millennium and Respondent's mother (Ms. Magarino-Rivera) loaned Respondent the cash to timely repay the loans to Millennium. Specifically, on October 29, 2010, Respondent's personal account received a deposit of $49,000 from Ileana Medina's Bank of America Home Equity Line of Credit (HELOC). The deposit raised his balance to $55,418. That deposit allowed Respondent to clear two checks to Millennium on November 24, 2010, totaling $41,605.48, both checks identified as “loan repayment.” Between December 21 and 24, 2010, Respondent deposited $19,714.72 from his mother's savings bonds into his personal account. On December 22, 2010, Respondent deposited $10,000 into his personal bank account from his Charles Schwab account. These two deposits allowed Respondent to repay nearly $30,000 towards Ms. Medina's HELOC on December 28, 2010. On January 6, 2011, Respondent deposited $20,000 from his inactive campaign account number 92694/ into his personal account. The $20,000 had been deposited into Account No. 9269 by cashier's check, remitter Daisy Rivera. That deposit allowed Respondent to pay off the remaining $18,286 of Ms. Medina's HELOC. Respondent testified that he secured the $49,000 HELOC loan from Ms. Medina for his congressional campaign in case he needed more money than what had been budgeted for media time. However, as of October 2010 (the time of the loan from Ms. Medina), Respondent's congressional campaign account had a balance of $96,645.19. Notably, the campaign had donated $87,000 to charitable organizations just the month before. Brett Lycett was the lead investigator for the FDLE criminal investigation of Respondent. Being skeptical of the legitimacy of the promissory notes, Inspector Lycett asked Millennium for the original promissory notes and the computer on which the promissory notes were prepared in order to conduct a forensic analysis. A forensic analysis of the computer and the original documents would have helped identify when the actual documents were created and/or signed. Ms. Magarino-Rivera (Respondent’s mother) told Investigator Lycett that the computer on which the promissory notes were created had been discarded. Ms. Magarino-Rivera also advised Investigator Lycett that the original promissory notes had been given to Respondent once he had repaid the loans. The Advocate propounded discovery to Respondent in this case requesting the original promissory notes. In response, Respondent stated “[O]nly copies of such promissory notes are in Respondent's possession.” The greater weight of the evidence supports the conclusion that the $132,000 in payments made to Respondent from 2007 through 2010 were compensation paid to Respondent for his consulting work on the gaming referendum, rather than the proceeds of loans from Millennium. This evidence includes: the absence of any notation on the actual checks that they represented a loan to Respondent; the Check No. 1024 anomaly discussed in Finding of Fact 25 above; and the absence of the computer and original promissory notes upon which a forensic analysis could be performed to determine the legitimacy of the dating. That having been said, the evidence of record does not rise to the “clear and convincing standard” required in this proceeding. Respondent testified that repayment of the $132,000 in Millennium loans was contingent on whether Respondent consummated a business relationship with or joined Millennium by January 15, 2011. Thus, for financial disclosure purposes, Respondent treated the loans he received from Millennium as “contingent liabilities,” and did not report the loans on his CE Form 6's for the years 2007-2010. Respondent offered no evidence to support his contention that Millennium considered the loans to Respondent to be contingent on whether Respondent consummated a business relationship with or joined the company. Moreover, Respondent’s contention is belied by the express language of the promissory notes themselves, which make no mention of Respondent’s repayment obligation being contingent on any future event. Respondent’s assertion that the loans from Millennium were contingent liabilities is rejected. Rather, the best evidence of Respondent’s obligation to repay the loans are the promissory notes, which clearly state that Respondent’s obligation to repay the loans was unconditional. Respondent’s Form 6 Financial Disclosures for 2005 through 2009. On his 2005 CE Form 6, Respondent disclosed only his State of Florida, House of Representatives' salary of $29,916. However, review of Respondent's personal bank account records reflects income of approximately $52,473 in 2005, and personal expenditures of approximately $75,000. On his 2006 CE Form 6, Respondent disclosed only his State of Florida, House of Representatives' salary of $30,576. However, review of Respondent's personal bank account records reflects income of approximately $44,968 in 2006, and personal expenditures of approximately $54,000. On his 2007 CE Form 6, Respondent disclosed only his State of Florida, House of Representatives' salary of $31,932. However, review of Respondent's personal bank account records reflects income of approximately $101,000 in 2007, and personal expenditures of approximately $128,000. On his 2008 CE Form 6, Respondent disclosed only his State of Florida, House of Representatives' salary of $30,336. However, review of Respondent's personal bank account records reflects income of approximately $79,789 in 2008, and personal expenditures of approximately $88,000. On his 2009 CE Form 6, Respondent disclosed only his State of Florida, House of Representatives' salary of $29,697. However, review of Respondent's personal bank account records reflects income of approximately $93,000 in 2009, and personal expenditures of approximately $113,000. The Advocate clearly and convincingly established that for reporting years 2005 through 2009, Respondent had income well in excess of what he reported on his CE Forms 6 for those years. Even assuming the $95,000 received from Millennium during 2007, 2008, and 2009 was a loan, not income, Respondent’s other income still exceeded by tens of thousands of dollars the amounts that he reported on his CE Form 6’s for the years at issue. No loans, contingent or otherwise, were disclosed as liabilities in Respondent's 2006, 2007, 2008, or 2009 CE Forms 6. CE Form 6 requires a specific description of each asset valued over $1,000. On his 2005 through 2009 CE Forms 6, Respondent listed “real estate,” “401K,” “stocks and bonds” and “bank accounts.” In his Proposed Recommended Order, Respondent conceded that he did not list certain assets with the level of detail required by the Commission for the years 2006-2009. CE Form 6 asks for major clients under section D as Secondary Sources of Income. For purposes of the CE Form 6, “Secondary Sources” are not second jobs. Rather, the reporter is required to disclose major customers, clients and other sources of income to business entities of which they have an interest. Under “Secondary Sources of Income,” Respondent listed Interamerican Government Relations as a “business entity” with the U.S. Agency for International Development as a “major client” on his 2005-2009 CE Form 6's. According to Respondent, while serving in the Florida House, Respondent was engaged in international democracy building programs with the U.S. Government. Funds paid to the Respondent under these grant programs were nominal and intended to pay only for expenses incurred while Respondent participated in the programs. Respondent also disclosed Millennium as a secondary source of income on his 2005 CE Form 6, but not on his 2006 through 2009 CE Form 6’s. Respondent filed the first set of CE Form 6X, Amendment to Full and Public Disclosure of Financial Interests, on October 15, 2010. These amendments delete the secondary source of income disclosed for 2003 through 2009, but make no other changes. Respondent filed a second set of CE Form 6X on January 4, 2011, for the years 2006 through 2009, which specifically identifies parcels of real estate, provides the address for Respondent's bank account with Bank of America, and lists stocks and bonds with particularity. The amendments for 2007, 2008, and 2009 also list contingent loans from Ileana Medina and/or Millennium for those years. A CE Form 6F, “Final Full and Public Disclosure of Financial Interest” was required to be filed within 60 days from November 2, 2010, the date Respondent left office as a state representative. The significant difference between a CE Form 6 and a CE Form 6X is that the CE Form 6 asks for the financial information as of December 31, or a more current date. The CE Form 6X asks for financial information as of the date the discloser left office. On March 25, 2011, Respondent filed CE Form 6 which refers to an attachment under liabilities. Attached is a United States House of Representatives' Disclosure Statement which lists a “contingent liability/loan” from Ileana Medina and/or Millennium as paid in full in 2010. On August 7, 2012, and August 24, 2012, Respondent filed two CE Forms 6X. The accompanying cover letter refers to the forms as amendments to Respondent's CE Form 6F filed for 2010. The Form filed on August 24, 2012, lists Millennium as a contingent liability and also lists a loan from Ileana Medina for $49,000. Respondent testified that he was not aware that he was required to file a CE Form 6F in January 2011. He stated that he thought the report was due in May or June of the following year. He also testified that he filed the report in March 2011, because he received a call from the Florida House counsel advising him that the report was overdue.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Commission on Ethics issue a Final Order finding that Respondent: Violated section 112.313(6), Florida Statutes, by requesting and accepting State of Florida reimbursement for travel expenses that were not incurred by him, but rather were paid by his campaign fund accounts; Violated Article II, section 8, Florida Constitution, by failing to or not properly reporting income and/or stocks and bonds; and/or secondary source income on his 2005 through 2009 CE Form 6, Full and Public Disclosure of Financial Interest; Violated section 112.3144, Florida Statutes, by failing to file a CE Form 6F “Final Full and Public Disclosure of Financial Interests” within 60 days of leaving his position with the Florida House of Representatives. DONE AND ENTERED this 6th day of June, 2014, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS 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 6th day of June, 2014.
The Issue The issue is whether Respondent properly denied Petitioner's application for a certificate of qualification, pursuant to Chapter 337, Florida Statutes, and Rule 14-22, Florida Administrative Code, for failure to timely file the application.
Findings Of Fact Petitioner is a family-owned construction firm located in Hattiesburg, Mississippi. It primarily acts as a contractor on pile driving projects. Petitioner is also involved in property management, oil, pre-stressed concrete, and general construction. Respondent selects its highway and bridge contractors from those who qualify under Section 337.14(1), Florida Statutes, and Rule 14-22.002(2), Florida Administrative Code. Petitioner has been a qualified bidder and construction contractor in Florida for Respondent continuously since the early 1940s. Contractors desiring to bid on state highway construction contracts in excess of $250,000 must apply annually to Respondent for a certificate of qualification. The application must be accompanied by the applicant's most recent annual financial statement, showing its financial condition no more than four months before Respondent receives the application. The application directs applicants to "mail" the completed forms to Respondent's Contracts Administration Office. Respondent sent Petitioner a Notice of Expiration of Qualification on or about February 3, 1999. The notice advised Petitioner of the following: Your qualification with this Department will expire on 04/30/99. Pursuant to Florida Statutes, your pre-qualification application must be 'filed' with the Department within four (4) months of the ending date of your financial statement. Filing is defined as receipt of the application by the Contracts Administration Office. Enclosed are two copies of the application form. Please return an original and one (1) copy of the application and all attachments. Please be advised all information must be filed in duplicate. In preparing your new application, please carefully follow the instructions on the application form and those enclosed with this notice. Additional reference material and a copy of Rule 14-22, F.A.C., are also enclosed for your convenience. Petitioner mailed its 1999 application for qualification, together with its most recent audit report dated December 31, 1998, to Respondent's Contracts Administration Office on April 27, 1999. Petitioner's fiscal year ends on December 31. An independent accounting firm begins preparing Petitioner's audit report shortly thereafter. The accounting firm's field work for Petitioner's 1998 audit was not complete until March 10, 1999, the date of the audit certification. This certification means there were no material changes in Petitioner's financial condition up to that date. There was no material change in Petitioner's financial condition over the holiday weekend from Thursday, December 31, 1998 to Monday, January 4, 1999. Changes in the amount of interest earned by Petitioner or charged against it during this brief interval would not make a difference in anyone's decision process. Any significant change up to March 10, 1999, would have been disclosed by the accounting firm in the December 31, 1998, audited financial statement. The same accounting firm has been auditing Petitioner's books for at least 15 years. Petitioner is in very sound financial condition. The Board of Governors of the United States Postal Service has set no more than three days as the standard for delivery of first class mail between Hattiesburg, Mississippi, and Tallahassee, Florida. This standard is not a guarantee. However, 90-94 percent of the time, the postal service delivers first class mail within two or three days throughout the country, as measured by an internal service measurement standard. The postal service also contracts with Price- Waterhouse to perform an independent external service measurement system called EXFC. Under that system, the postal service scored 100 percent on test mailings, delivered to Tallahassee from Mississippi within three days, over the past three years. The post office in Tallahassee, Florida, provides dedicated carrier service for the delivery of first class mail to state agencies five days a week. The postal service also delivers mail on Saturdays for the agencies that request weekend delivery. The postal service delivers Respondent's mail to its mailroom between 7:30 and 9:00 a.m. on weekdays. Respondent also receives mail on the weekends. Respondent's security guard pushes the weekend mail cart into the building on the weekends. Respondent's mailroom staff sorts incoming mail and places it in various bins for each mail station by 11:00 a.m. each week day. The mail stations send individuals down to the mailroom to pick up the mail from their assigned bin. If a station has not picked up its mail by 2:30 p.m., mailroom personnel deliver it to that station. Occasionally, first class mail is placed in the wrong bin and delivered to the wrong mail station. That mail is retrieved by the mailroom staff sometime after 2:30 p.m. and delivered to the correct office. At the end of the business day, no first class mail remains in the mailroom for delivery within the building. There is no evidence that first class mail intended for the Contracts Administration Office has ever been misdelivered. Bessie White, Administrative Assistant in the Contracts Administration Office, picks up the mail for her office from bin number 55. After she opens the mail, she stamps qualification applications and financial statements using an electric date and time clock. Ms. White saves envelope postal markings by cutting them out and attaching them to the applications. She then distributes the mail to various personnel in her office. The date and time clock that Ms. White uses to stamp incoming mail has to be reset manually when a calendar month ends in less than 31 days. April 30, 1999, was a Friday. Ms. White did not reset the date and time clock at the end of the business day. She did not work on the weekend of May 1-2, 1999. On Monday, May 3, 1999, Ms. White dated and time stamped Petitioner's application and financial statement before she reset the clock on the stamp machine. Consequently, the date and time stamp erroneously reflected that Petitioner's application and financial statement were received on Sunday, May 2, 1999, at 11:42 a.m. Ms. White distributed Petitioner's application and financial statement to the appropriate staff member in her office. Later that day, she reset the date and time clock to reflect the correct date of May 3, 1999. She did not go back to correct the erroneous stamps on mail, including Petitioner's documents, which she had already distributed. Ms. White discovered the error on Petitioner's application and financial statement seven months later, after Petitioner filed its protest in this matter. At that time, she made a handwritten notation on the documents, indicating their receipt on May 3, 1999. Petitioner mailed its 1999 application for qualification and its audited financial statements with a reasonable expectation that Respondent would receive them within three days, on or before April 30, 1999. Petitioner relied upon the postal service standard, and its own experience, in anticipating delivery of the documents within that time frame. Petitioner has an affiliate company located in Monticello, Florida. The Florida affiliate normally receives mail from Petitioner within three days. The record here contains no explanation for the delay by one business day in the receipt of Petitioner's application by Respondent's Contracts Administration Office. Petitioner mailed similar applications to Georgia, Arkansas, Missouri and Louisiana on April 27, 1999. All of these applications were approved. Respondent sent Petitioner a Notice of Intent to Deny Application for Qualification by certified mail on May 24, 1999. Respondent made this decision because the financial statements accompanying the application were dated more than four calendar months prior to the date the application was filed. Respondent counts calendar months in making its decision whether a qualification application is timely. In this case, Respondent took the position that the four-month time period ended on April 30, 1999, 120 days after December 31, 1999. 1./ If Petitioner's fiscal year had ended on June 30, 1999, Respondent would have required Petitioner to file its application within 123 days, on or before October 31, 1999. In determining whether a qualification application is timely, Respondent does not allow the five-day grace period for service by mail as set forth in Rule 28-106.403, Florida Administrative Code, and adopted by Respondent in Rule 14- 22.0011, Florida Administrative Code. Respondent approves over 400 qualification applications a year. It denies an average of 20 applications because they are late. When an application is denied as untimely, the applicant has an opportunity to furnish Respondent with an audited interim financial statement. An interim audit requires the same work and preparation as a regular annual audit. An interim audit would cost Petitioner between $25,000 and $30,000. Performing and filing an interim audit would also cause a three-month delay in the processing of Petitioner's application.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Respondent enter a final order approving Petitioner's application for a certificate of qualification. DONE AND ENTERED this 23rd day of December, 1999, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD 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 23rd day of December, 1999.
