Ariz. Admin. Code § 4-39-108

Current through Register Vol. 30, No. 50, December 13, 2024

Section R4-39-108 - Surety Bond, Cash Deposit, or Letter of Credit; Insurance; Financial Statement Requirements; and Finance Committee

A. An applicant or licensee under R4-39-104, R4-39-105, R4-39-106, or R4-39-107 shall have a surety bond, cash deposit, or letter of credit as required under A.R.S. § 32-3023(A). The Board shall determine the dollar amount of the surety bond, cash deposit, or letter of credit under A.R.S. § 32-3023(C).

B. The Board may require an applicant or licensee under R4-39-103 or R4-39-110(D) or (E) have a surety bond, cash deposit, or letter of credit as allowed under A.R.S. § 32-3023(B). The Board shall determine whether a surety bond, cash deposit, or letter of credit is required of an applicant or licensee under R4-39-103 or R4-39-110(D) or (E) and if so, the amount of the surety bond, cash deposit, or letter of credit. In determining whether and the amount of surety bond, cash deposit, or letter of credit to require, the Board shall consider the following factors:

1. Whether the institution has sources of funding other than tuition and the percentage of the institution's funding contributed by the other sources;

2. The amount of time programs offered by the institution require for completion; and

3. The criteria regarding financial responsibility specified under subsection (I)(4).

C. The Board shall use the following guidelines to determine the amount of surety bond, cash deposit, or letter of credit to require of an applicant or licensee:

1. The minimum amount required for applicants and licensees is $15,000;

2. Additional amounts required of an accredited institution:

a. If the annual GTR is less than $400,000, 15 percent of annual GTR; and

b. If the annual GTR is $400,000 or more, 10 percent of annual GTR; and

3. Additional amounts required of a non-accredited institution:

a. If the annual GTR is less than $400,000, 20 percent of annual GTR; and

b. If the annual GTR is $400,000 or more, 15 percent of annual GTR.

D. An applicant or licensee that meets the requirement under subsection (A) or (B) with a surety bond shall purchase the surety bond from a surety company that has a rating of A or higher from a national rating service.

E. An applicant or licensee shall:

1. Have and maintain with an insurance company authorized to transact business in this state coverage that is adequate to protect the applicant or licensee's assets in the event of damage or a finding of liability:

a. For an applicant or licensee with annual GTR of $1,000,000 or more:

i. A minimum single occurrence of $1,000,000 for educators' errors and omissions or malpractice liability insurance; and

ii. A minimum single occurrence of $1,000,000 for general liability coverage for operation of the institution;

b. For an applicant or licensee with annual GTR more than $500,000 but less than $1,000,000:

i. A minimum single occurrence of not less than the previous year's GTR plus 10 percent for educators' errors and omissions or malpractice liability insurance; and

ii. A minimum single occurrence not less than the previous year's GTR plus 10 percent of general liability coverage for the operation of institution;

c. For an applicant or licensee with annual GTR equal to or less than $500,000:

i. A minimum single occurrence of not less than $500,000 for educators' errors and omissions or malpractice liability insurance; and

ii. A minimum single occurrence not less $500,000 of general liability coverage for the operation of institution; or

2. Be self-insured for the amounts in subsection (C)(1).

F. An applicant or licensee shall submit to the Board a fiscal year-end financial statement that complies with the following requirements:

1. If the applicant or licensee has annual GTR greater than $350,000:

a. Is prepared and compiled, reviewed, or audited by a certified public accountant in accordance with generally accepted accounting principles; and

b. Includes a statement of cash flows and disclosures; or

2. If the applicant or licensee has annual GTR equal to or less than $350,000:

a. Is compiled, reviewed, or audited in accordance with generally accepted accounting principles; and

b. Includes supporting documentation requested by the Board; and

3. Includes additional financial information if required by the Board under subsections (G) and (H).

G. The Board shall require an applicant or licensee to submit additional financial documentation if:

1. The fiscal year-end financial statement is for a reporting period that ended more than six months before the date of license application; or

2. The applicant has not previously operated in this state or any other jurisdiction.

H. The Board may require an applicant or licensee to submit additional financial documentation if:

1. The Board has concerns based on the applicant's or licensee's responses to questions regarding the distribution of ownership, business type, and legal structure; or

2. The financial documentation submitted shows:

a. Current ratio of assets to liabilities less than 1:1,

b. Current negative net worth,

c. Net losses during each of the last two years,

d. Subject to additional DE reporting requirements or has a composite score of less than 1.5,

e. Current cash reserves are insufficient to make required refunds,

f. Current financial obligations are not being met,

g. Applicant or licensee has a history of revocation or negative action in this or another state,

h. Current negative cash flow, or

i. Financial responsibility standards for accreditation are not being met.

I. The Board shall appoint a Finance Committee that consists of at least three member of the Board:

1. The Finance Committee shall comply with the open meeting requirements at A.R.S. Title 38, Chapter 3, Article 3.1.

2. The Finance Committee shall assess the financial responsibility of an applicant or licensee.

3. If the Finance Committee determines that the information submitted under this Section is not sufficient to demonstrate that an applicant or licensee has financial responsibility, the Finance Committee shall work with the applicant or licensee to improve the demonstration.

4. After reviewing the information submitted under this Section, the Finance Committee shall determine that the applicant or licensee:

a. Has demonstrated financial responsibility and grant a license;

b. Has not demonstrated financial responsibility but grant a license contingent on the licensee doing one or more of the following:

i. Submitting quarterly reports,

ii. Submitting a financial improvement plan,

iii. Submitting two-year financial projections, and

iv. Posting a surety bond, cash deposit, or letter of credit that exceeds the amount determined under subsection (C);

c. Has not demonstrated financial responsibility and postpone action to allow the applicant or licensee to provide additional information; or

d. Has not demonstrated financial responsibility and refer the matter to the whole Board for Board action.

Ariz. Admin. Code § R4-39-108

Adopted effective May 21, 1985 (Supp. 85-3). Amended effective November 6, 1998 (Supp. 98-4). Section repealed; new Section made by final rulemaking at 11 A.A.R. 2262, effective August 6, 2005 (Supp. 05-2). Amended by final rulemaking at 22 A.A.R. 921, effective 6/4/2016.