Employer Services Assurance Corporation

ESAC Standards & Procedures

Initial Application

Each PEO applicant shall submit a completed Accreditation Application, with all required attachments, and an executed PEO Participation Agreement, if applicable, along with the first year’s accreditation fee. The PEO shall specifically include as part of its initial application a copy of all certificates of licensing and registration as may be required to operate a PEO in the states in which the applicant does business.
Each PEO applicant shall submit as part of its application the names of all its Controlling Persons and a Controlling Persons Application for each individual. Each Controlling Person applicant shall sign a statement authorizing ESAC, its staff, and/or service providers to conduct a background investigation of the applicant to ascertain the accuracy of the statements made in the Controlling Persons Application. Such authorization shall include a release of information that ESAC may send to sources it deems necessary to verify the validity of the information. In lieu of the Controlling Persons Application, a Controlling Person applicant may submit other forms containing similar information which have been filed with the U.S. Securities and Exchange Commission or with any securities or banking regulatory agency so long as the applicant also provides a signed statement of authorization and release of information identical to the statement contained in the Controlling Persons Application. A Controlling Person who has been evaluated by ESAC within the previous 6 months and currently is in good standing, is not required to be reevaluated if that person changes affiliation or employment from one applicant or ESAC-accredited PEO to another.
Each PEO applicant shall submit within 90 days of becoming accredited a Certificate of Insurance from the PEO’s insurance provider for each workers’ compensation policy, or alternative if permitted by law, and for each insurance policy held to comply with Financial Responsibility Standard number 8. Each certificate must show ESAC listed as a certificate holder for notification in the event of policy cancellation. The PEO shall also provide a certificate listing ESAC as a certificate holder for notification for the excess loss insurance policy required for any plan of self-insurance. Such certificates must contain confirmation by the carrier that ESAC will receive at least 30 days notification prior to cancellation of coverage.
Each applicant PEO shall submit with its application a copy of the following documents, including a representative example of all versions or modifications of these documents now in use that contain material differences in content or form, including different versions used by different Affiliated PEO entities or used for different types of clients:

Sales brochure;
Sales proposal;
Client service agreement/contract;
Employment application form;
Form or statement signed by worksite employees documenting their understanding and acceptance of the employment relationship;
Written employment policies given to worksite employees and/or supervisors; and
Worksite employee handbook or manual, if such is used in addition to f., above.

All confidential financial information provided as part of the PEO’s initial application shall be submitted for review by ESAC’s independent financial advisor and surety/insurance carrier. Such information shall be held in strictest confidence except as specifically authorized in writing by the applicant PEO.
An applicant PEO shall submit at the time of application its audited financial statements for the immediately preceding fiscal year. Such audited financial statements will include an audited balance sheet as of the end of the most recent fiscal year and audited statements of income, equity, and cash flows for the most recent fiscal year including such accompanying notes as may be required by generally accepted accounting principles. As part of such financial statements, an applicant PEO also shall submit the computation of its Current Ratio and its Quick Ratio as well as schedules and related footnotes documenting the calculation of financial reserves for any loss sensitive or self-insured workers’ compensation or group employee welfare benefit plan or policy. The CEO and CFO of the PEO shall attest to the audited financial statements filed by the applicant PEO, in a form prescribed by ESAC in its Initial Application.
Audited financial statements shall be accompanied by a certification by management disclosing the methods and sources used to properly project the ultimate liability for all plans of self-insurance or loss-sensitive insurance plans or policies, which shall be in a form provided by ESAC in its Initial Application. A Schedule of Net Worth and Financial Ratio Calculation and a Schedule of Loss Sensitive or Self-Insured Plan Reserves shall also accompany the audited financial statements, as prescribed by ESAC in its Initial Application.
For applications filed within 120 days of the applicant’s most recently completed fiscal year, and where audited financial statements have not yet been completed, audited financial statements for the previous fiscal year shall be filed accompanied by unaudited interim financial statements for the most recent fiscal quarter, which shall also include statements of year-to-date results of operations. Such financial statements shall present fairly the financial position and results of operations of the PEO in accordance with generally accepted accounting principles for interim financial information. As part of such financial statements, the applicant also shall submit the computation of its Current Ratio and its Quick Ratio. The CEO and CFO shall attest to the quarterly financial statements filed by the applicant PEO, in a form prescribed by ESAC in its Initial Application. The applicant PEO will submit its audited financial statements upon completion of the audit, but in any event, no later than 120 days after the PEO’s most recently completed fiscal year.
For applications filed after 120 days from the end of the applicant’s fiscal year, unaudited interim financial statements for the immediately preceding fiscal quarter and for the year to date shall be submitted in addition to the annual audited financial statements. Such financial statements shall present fairly the financial position and results of operations of the PEO in accordance with generally accepted accounting principles for interim financial information. As part of such financial statements, the applicant also shall submit the computation of its Current Ratio and its Quick Ratio. The CEO and CFO shall attest to the quarterly financial statements filed by the applicant PEO, in a form prescribed by ESAC in its Initial Application.
For applicants with insufficient operating history to have audited financial statements for at least 12 calendar months of operation while serving clients as a PEO, the application shall be accompanied by interim financial statements for the fiscal quarter ending at least 45 days before the date of application, which shall also include statements of year-to-date results of operations, if applicable. As part of such financial statements, the applicant also shall submit the computation of its Current Ratio and its Quick Ratio. The CEO and CFO shall attest to the quarterly financial statements filed by the applicant PEO, in a form prescribed by ESAC in its Initial Application. The PEO will also submit its audited financial statements no later than 120 days after the PEO’s first full fiscal year of operations. Start-up applicants with no operating history shall submit a beginning balance sheet audited by an independent CPA.
For applicants covered by 10), above, the application shall be accompanied by monthly projections of cash flow and profit-loss and monthly or quarterly pro-forma balance sheets for the 12 months following the end of the period covered by the interim financial statements. Such projections must be based upon conservative assumptions of income and expenses in the judgment of ESAC as compared to industry norms and the applicant’s prior operating results, if applicable. The applicant also shall provide such additional information as may be requested by ESAC to evaluate the reasonableness of the applicant’s financial projections and business plan. Applicants covered by Financial Responsibility Standard 4) and Initial Application Procedure 10) must provide written authorization to ESAC’s independent financial advisor to provide a copy of the financial projections and business plan to ESAC’s Application Review Committee. Such information shall be held in confidence by the Application Review Committee. The names of the current members of the Application Review Committee may be obtained from ESAC at any time, and such members are bound by a comprehensive non-disclosure agreement. Decisions by the Application Review Committee regarding the adequacy of the Applicant’s financial projections and business plan are subject to appeal to the ESAC Board upon written request of the Applicant.
An applicant PEO shall submit a certification by an independent CPA, the form of which shall be prescribed by ESAC, verifying the appropriate and timely payment of withholding and employment taxes, worksite employee and employer contributions to any employee benefit plan as defined in Section 3(3) of ERISA that is sponsored or co-sponsored by the PEO, and workers’ compensation and group life and health insurance premiums for policies or plans that are sponsored or co-sponsored by the PEO.

Accreditation and Participation Maintenance

ESAC reserves on an ongoing basis the authority to request additional information or the release of data for verification procedures to insure that it has up-to-date information regarding the PEO and each Controlling Person.
An ESAC-accredited PEO is obligated to notify ESAC within 10 business days if it, or any of its Controlling Persons, are indicted for or convicted of any criminal activity or wrong doing, or receive any disciplinary action, suspension or revocation of any business license, or file for any sort of bankruptcy protection.
An ESAC-accredited PEO is obligated to notify ESAC within 10 business days of learning of any ESAC-accredited PEO or Controlling Persons, or Affiliate, as that term is defined herein, which is charged, arrested, indicted or convicted of any criminal activity, wrong doing, disciplinary action, suspension or revocation of any business license or that files for any sort of bankruptcy protection.
An ESAC-accredited PEO shall submit all confidential financial information required by these procedures for review by ESAC’s independent financial advisor and surety/insurance carrier. Such information shall be held in strictest confidence except as specifically authorized in writing by the accredited PEO.
An ESAC-accredited PEO shall submit audited financial statements to ESAC within 120 days of the end of its fiscal year. Such financial statements will be prepared in accordance with generally accepted accounting principles and will include an audited balance sheet as of the end of the most recent fiscal year and audited statements of income, equity, and cash flows for the most recent fiscal year including such accompanying notes as may be required by generally accepted accounting principles. As part of such financial statements, an ESAC-accredited PEO also shall submit the computation of its Current Ratio and its Quick Ratio. The CEO and CFO of the PEO shall attest to the financial statements, in a form prescribed by ESAC in its Quarterly Report.
Audited financial statements shall be accompanied by a certification by management disclosing the methods and sources used to estimate the ultimate liability for all plans of self-insurance or loss-sensitive insurance plans or policies, which shall be in a form provided by ESAC in its Renewal Application. A Schedule of Net Worth and Financial Ratio Calculation and a Schedule of Loss Sensitive or Self-Insured Plan Reserves shall also accompany the audited financial statement, as prescribed by ESAC in its Renewal Application.
An ESAC-accredited PEO shall submit interim quarterly financial statements to ESAC within 45 days of the end of each calendar quarter beginning with the calendar quarter in which accreditation is granted. The PEO’s interim quarterly report for the quarter ending December 31 shall be submitted within 60 days after December 31. Such financial statements shall present fairly the financial position and results of operations of the PEO in accordance with generally accepted accounting principles for interim financial information. As part of such financial statements, an ESAC-accredited PEO also shall submit the computation of its Current Ratio and its Quick Ratio as well as schedules and related footnotes documenting the calculation of financial reserves for any loss sensitive or self-insured workers’ compensation or group employee welfare benefit plans or policies. The interim financial statements shall include an attestation by the CEO and CFO of the PEO, in a form prescribed by the Quarterly Report provided each quarter by ESAC.
If an ESAC-accredited PEO’s annual financial report or quarterly report fails to meet the Adjusted Net Worth or financial liquidity ratios as required by Financial Standards 2) and 3), the deficiencies shall be deemed to be cured if, at the time the annual or quarterly reports are due, the ESAC-accredited PEO files additional information evidencing action taken subsequent to the period covered by the required reports which shows that the PEO’s current financial status is in compliance.

In the case of audited annual financial statements, the information must take the form of a subsequent events note to the audit report issued by the independent CPA that shows that the ESAC-accredited PEO has corrected any financial deficiencies that existed in the financial statements as of the audit date.
In the case of quarterly reports, the ESAC-accredited PEO may (a) submit a guaranty, surety bond, or letter of credit as provided by Financial Standard 5), which shows that the PEO has access to sufficient funds to offset any financial deficiencies that existed in the quarterly statements, or (b) submit financial statements for the PEO reflecting the remediation accompanied by a narrative signed by a Controlling Person outlining the reasons for the deficiencies and setting forth the PEO’s plan to prevent such deficiencies in the future.
An ESAC-accredited PEO with insufficient operating history to have provided audited financial statements for at least 12 calendar months of operation, shall submit along with its interim quarterly financial statements required by Procedure 7), above, an updated monthly projection of cash flow and profit-loss and monthly or quarterly pro-forma balance sheets for the 12 months following the end of the fiscal quarter covered by the interim financial statements. Such projections must be based upon conservative assumptions of income and expenses in the judgment of ESAC as compared to industry norms and the PEO’s prior operating results, if applicable. The ESAC-accredited PEO also shall provide such additional information as may be requested by ESAC to evaluate the reasonableness of thePEO’s financial projections and business plan.
An ESAC-accredited PEO shall submit, in a form prescribed by ESAC, the certification of an independent CPA verifying the appropriate and timely payment of withholding and employment taxes, worksite employee and employer contributions to any employee benefit plan as defined in Section 3(3) of ERISA that is sponsored or co-sponsored by the PEO, and workers’ compensation and group life and health insurance premiums for policies or plans that are sponsored or co-sponsored by the PEO.
Any annual actuarial certification as may be required to comply with Standard of Financial Responsibility number 6, above, must be submitted to ESAC’s independent financial advisor along with the corresponding audited financial statements for each fiscal year.
Each ESAC-accredited PEO shall authorize ESAC to conduct ongoing monitoring by an independent background investigation firm to verify that there are no outstanding tax liabilities, levies or liens filed against the accredited PEO and to verify business creditworthiness and any litigation proceedings of record.
Each ESAC-accredited PEO shall provide to ESAC on an ongoing basis a copy of all current certificates of licensing and registration as may be required to operate a PEO in the states in which the ESAC-accredited PEO does business, and a copy of all additions and notices of restriction, non-compliance or revocation related thereto, within 10 business days of receipt by the accredited PEO.
Each ESAC-accredited PEO shall provide annually and upon any change of coverage, a Certificate of Insurance from the PEO’s insurance provider for each workers’ compensation policy, or alternative coverage if permitted by law, and for each insurance policy held to comply with Financial Responsibility Standard number 9. Each certificate must show ESAC as a certificate holder for notification in the event of policy cancellation. Alternatively, the PEO may either engage an independent CPA to verify workers’ compensation coverage based upon sampling and verification procedures prescribed by ESAC, or provide a Certificate of Insurance for sample clients randomly selected by ESAC, along with evidence of employer liability coverage extended to both the PEO and the client plus the affidavit of an officer that all clients have workers’ compensation coverage. The PEO shall also provide a certificate listing ESAC as a certificate holder for notification for the excess loss insurance policy required for any plan of self-insurance. Such certificates must contain confirmation by the carrier that ESAC will receive at least 30 days notification prior to cancellation of coverage.
Each ESAC-accredited PEO shall submit at least on a quarterly basis a copy of any new or revised versions of the documents listed in Requirement number 4 of the Initial Application Procedures.
Each ESAC-accredited PEO shall report in writing to ESAC any failure to meet any ethical, financial or operational standard or any requirement of participation in the PEO Client Assurance Program (Exhibit A) within 10 business days of discovery by any Controlling Person of the failure to meet such standard or requirement. The notice shall disclose what standard has not been met, the date of failure to comply, the date of discovery, a description of any corrective action, and the date that the corrective action, if any, was completed or is scheduled. The notice shall be in a form similar to Exhibit G and signed by the chief executive officer, president, and chief financial officer of the ESAC-accredited PEO. Any failure to self-report a lack of compliance with any standard or required procedure within 10 business days of discovery by a Controlling Person of an ESAC-accredited PEO shall be grounds for disciplinary action, including termination of accreditation, regardless of the financial or operational condition of the PEO at the time that ESAC learns of the PEO’s failure to self-report. The amount of time that an ESAC-accredited PEO has to correct a self-reported failure to meet a standard or required procedure after discovery varies based on the nature and urgency of the failure according to guidelines provided in the penalty procedures related to probation contained this manual.
If an ESAC-accredited PEO’s quarterly financial report indicates that the PEO has negative net earnings and its financial condition is approaching the compliance threshold with both Financial Responsibility Standards #2 and #3, the PEO will be designated for monthly monitoring by ESAC’s Compliance Committee. The fact that an accredited PEO is being monitored on a more frequent basis will not be disclosed to anyone outside of the ESAC Compliance Committee, ESAC legal and accounting advisors, and ESAC’s surety carrier(s) or insurers, all of which will have executed a non-disclosure agreement. An accredited PEO may also be designated for monthly monitoring at the discretion of the Compliance Committee if the PEO is then on probation for non-compliance with any other Financial Responsibility Standard. The PEO’s financial condition shall be considered to be approaching the compliance threshold with Financial Responsibility Standards #2 and #3 if the following occurs:

If an accredited PEO’s quarterly financial statement shows a negative net income for the quarter (two consecutive quarters for PEOs that have been operating as a PEO for five (5) or more years); and
The PEO’s Adjusted Net Worth is: (1) less than the larger of (a) $150,000 or (b) 7.5% of Total Adjusted Liabilities; or (2) a net loss equal to that incurred for the last fiscal quarter, if repeated, would result in an Adjusted Net Worth below the larger of $150,000 or 7.5% of Total Adjusted Liabilities; and
If the PEO’s Quick Ratio is less than 1.25.

ESAC will notify an accredited PEO in writing if it has been designated for monthly monitoring, to begin effective with the ending date of the last quarter for which financial conditions indicated a need for such monitoring. Following notification, the PEO shall provide ESAC with monthly financial statements prepared and/or approved by company management and due within 45 days following the end of each month, beginning for the month in which monthly monitoring notification was received. Such statements shall be consistent with the criteria contained in Accreditation and Participation Maintenance Procedure #7 and shall be accompanied by a computation of the PEO’s Adjusted Net Worth, Current Ratio and Quick Ratio, using forms and definitions provided by ESAC. For PEOs with loss sensitive or self-insured workers’ compensation or group employee welfare benefit plans or policies, such financial statements also shall include schedules and related footnotes documenting appropriate adjustments to the financial reserves for these plans or policies. Copies of related insurance company or third party administrator claim reports or loss runs documenting the basis for such calculations also shall be provided, if requested by the Compliance Committee. The first monthly financial statement shall also be accompanied by projections of cash flow, profit-loss and pro-forma balance sheets, for the six consecutive months following the effective date of the monthly monitoring requirement. Such projections must be based upon reasonable assumptions of income and expenses in comparison to prior operating history and industry norms;
The accredited PEO shall continue to submit monthly financial statements to ESAC within 45 days of the end of each calendar month until the PEO is notified by ESAC that monthly monitoring is no longer required. Such interim monthly financial statements shall be in lieu of the quarterly financial statements required by Accreditation and Participation Maintenance Procedure #7. Such financial statements shall include a comparison of projected versus actual operating results for the month being reported; and
Each month during the monthly monitoring requirement, the PEO shall update the six-month projections of cash flow, profit-loss and pro-forma balance sheets by one additional month and submit the updated projections, along with the monthly financial statements required by e., above.

An ESAC-accredited PEO shall notify ESAC in writing as part of its quarterly reporting requirements of:

Any change in the location of the ESAC-accredited PEO’s primary business address and any other changes in relevant contact information;
Any change in the states in which the ESAC-accredited PEO is conducting business;
Any change in Controlling Persons; and
Any change in ownership of voting stock, or any stock that is convertible to voting stock or has voting rights upon the occurrence of some condition or event, of 10% or more or any series of changes occurring within 180 days that total a change of 10% or more.

Renewal Application

In addition to completing all required accreditation maintenance procedures, each ESAC-accredited PEO will submit an Annual Renewal Application as directed by ESAC. The required information will be documented on forms provided annually by ESAC to each ESAC-accredited PEO and returned by the due date directed in the instructions.
All annual accreditation fees will be paid as billed per the then current fee schedule approved by ESAC’s Board of Directors.

OTHER INFORMATION

Authority of ESAC

ESAC has the authority to require the submission of any information, document, attestation or certification from an ESAC-accredited PEO, applicant, Controlling Person or Affiliate that it deems necessary to grant or maintain accreditation or to grant or maintain participation in any program administered by ESAC.
ESAC has the authority to visit an ESAC-accredited PEO’s business locations and client worksites or the business locations of an Affiliate, and shall be given access to all records of the PEO as needed to conduct site reviews, verifications, or investigations of allegations or claims. Site reviews may be conducted by ESAC as the result of an investigation of a complaint, a discovery of a possible failure to comply, or as part of an ongoing program of random selection and compliance monitoring. Such visits and reviews and any findings related thereto shall be conducted and handled in a professional and confidential manner in conformance with the confidentiality provisions of this manual.
ESAC has the authority to correspond with insurers, their agents, third party administrators, regulators and government agencies to inquire about or verify information relative to an ESAC-accredited PEO, applicant or Affiliate.
ESAC has the authority to approve, deny, suspend or revoke accreditation, to issue a letter of warning, to assess fines, to place the ESAC-accredited PEO on probation including specifying the conditions for probation, to require a certification of compliance, or to assess costs associated with an investigation and determination of final judgment.
ESAC has the authority to change the standards and procedures contained herein with 30 days prior written notice to ESAC-accredited PEOs, except in cases where the change is required by law or by ESAC’s surety or insurance carriers in which case such mandatory changes shall be made with written notice to ESAC-accredited PEO. Except for such mandatory changes, all changes shall be made by majority vote of the ESAC Board of Directors after considering review comments made by the Industry Advisory Board and all ESAC-accredited PEO, at a minimum.

Limitation of Liability of ESAC and Standard of Review

Except as expressly provided in these standards and to the fullest extent permissible by law, as a condition of application for accreditation, an ESAC-accredited PEO, former ESAC-accredited PEO, applicant, a controlling person, and the respective owners, officers, employees or agents thereof agrees that such person shall not bring a legal action of any type against ESAC, its Board of Directors, any Committee of ESAC, or any officer, employee, agent or representative thereof with respect to any action, omission or decision taken by ESAC, its Board of Directors, any Committee of ESAC, or any officer, employee, agent or representative thereof so long as such action, omission or decision was made in good faith. Neither ESAC, its Board of Directors, any Committee of ESAC, nor any officer, employee, agent or representative thereof shall be shall be liable, responsible or accountable for damages or otherwise to any ESAC-accredited PEO, former ESAC-accredited PEO, applicant, or controlling person or respective owners, officers, employees or agents thereof for any acts taken or performed or for any omission to act, if such conduct is taken in good faith, without regard to fault or negligence. It is intended that limitation of liability shall constitute qualified immunity from liability for defamation, libel and slander. Such qualified immunity shall not apply only if it is shown that such allegation was false and made willfully with the intent to damage or injure the person claiming injury or was otherwise made with malice.
Except as expressly provided in these standards, any action or decision taken by ESAC, its Board of Directors, or any Committee of ESAC, so long as in accordance with these standards, may be made in the sole discretion of ESAC, its Board of Directors, or any Committee of ESAC, as the case may be, and shall be final, conclusive, and not subject to review or appeal.

Prohibitions & Requirements

No ESAC-accredited PEO shall represent its accreditation or its participation in any program administered by ESAC to mean more than factually supported and authorized by ESAC.
A PEO, whose application for accreditation is rejected or denied, must wait three months before reapplying for accreditation.
An ESAC-accredited PEO shall conduct business as a PEO only in the name(s) under which it is granted accreditation. Such names can be amended from time to time subject to notification and approval of ESAC. ESAC may not authorize the use of a name that is so similar to that of another ESAC-accredited PEO or to a government or industry organization or program that the public may be confused or misled by the name’s use. Nothing in this section shall prohibit an ESAC-accredited PEO from using a trade name, trademark, service mark, or parent company name provided that ESAC is properly notified and such name is approved; the name or mark is added to the PEO’s certificate of accreditation and participation; and the PEO registers the name if required by applicable state or federal law.
Accreditation is not transferable.
No PEO shall be denied accreditation if it is unable to meet any requirement of accreditation because of the need to operate in compliance with a state law, regulation or administrative rule.
No ESAC-accredited PEO shall allow the use of its name(s) and/or trademark(s) by any Entity that is not an ESAC-accredited PEO except that an accredited PEO may allow another Entity to market the services of the accredited PEO so long as the services are marketed and delivered under the name of the accredited PEO and the accredited PEO retains both contractually and in fact the responsibility and liability for delivery of services to all of its clients and worksite employees. Nothing herein shall prohibit the PEO or an Affiliate of an ESAC-accredited PEOr from also engaging in the sale and provision of privately labeled administrative services such as payroll administration, to another PEO or other Entity that is not an accredited PEO so long as the accredited PEO is not a party to any PEO service arrangement involving such services and the accredited PEO has a written agreement with the recipient Entity that such services will not be represented as being provided by an -accredited PEO or by a PEO participating in the PEO Client Assurance Program.

Grounds for Disciplinary Action

Any of the following violations by an ESAC-accredited PEO shall be considered grounds for disciplinary action:

Failure to meet or maintain any of the accreditation standards or required procedures or failure to comply with the terms and conditions of the PEO Participation Agreement (Exhibit A), if applicable.
Failure to provide ESAC with information requested or with access to the PEO’s records or premises in a timely manner.
Failure to abide by the terms of any conditions for probation as established by ESAC and provided in writing to the PEO.
Allowing the use of accreditation status by an affiliated entity or marketing agency not properly granted accreditation by ESAC or using an unauthorized Entity or trade name or names in marketing its services, except as provided in Prohibitions & Requirements number 6, above.
Knowingly giving incomplete, false or forged information to ESAC or purposefully withholding relevant information.
Failing to provide required information and reporting in a timely manner or to respond to requests or directives for information in a timely manner.
Being convicted of or found guilty of, or entering a plea of nolo contendere, regardless of adjudication, to a crime in any jurisdiction which relates to the operation of a PEO or the ability to engage in business as a PEO or as a Controlling Person of a PEO.
Failure to inform ESAC within 10 business days of discovery of any material fact adversely affecting the PEO’s accreditation status, participation status in the PEO Client Assurance Program, or the qualification of a Controlling Person to serve in such capacity with the PEO.
Failure to pay accreditation fees in a timely manner.

Rights of Applicants and ESAC-Accredited PEOs

Any applicant or ESAC-accredited PEO has the right to request by prior written notice the recusal of any Board member it reasonably believes possesses a bias against it, has a conflict of interest, or is otherwise unable to make an objective decision on the matter at hand.
Any party to a proceeding who is adversely affected by an order or finding of the ESAC Compliance Committee has the right to file a motion for appeal to the ESAC Board, and any other party to such proceeding has the right to file a response to a motion for appeal, except in the case of a “Substantial Failure” of an ESAC-accredited PEO to perform its employer “Financial Responsibilities” as defined in Exhibit A, in which case the findings of the Compliance Committee shall be ratified by a majority vote of the Board of Directors and shall be final.
PEO or Controlling Person applicants have the right to cure deficiencies in their application noted by the Board or staff within the time frame prescribed by ESAC in a letter notifying the applicant that the application is incomplete or deficient.
All ESAC-accredited PEO have the right to vote (one vote per PEO or PEO Group) on all matters provided for by ESAC’s Bylaws, including the election of officers and directors.
All ESAC-accredited PEO have the right to use ESAC’s logo within ESAC guidelines and restrictions.
Loss of Rights and Privileges: Whenever an ESAC-accredited PEO allegedly fails to comply with the accreditation standards and procedures, the PEO will be investigated by ESAC. Upon a finding by ESAC that the PEO is in violation and upon a failure of the PEO to cure such violation within the prescribed time period, the PEO will lose all the rights and privileges of being an ESAC-accredited PEO and will not represent itself in any fashion to be an ESAC-accredited PEO and in good standing with ESAC. The PEO’s status as an ESAC-accredited PEO and its participation in any ESAC-administered programs shall be terminated. A terminated PEO shall not be entitled to a refund of any fees, but it shall remain liable to ESAC for any fees or other amounts owed.

Procedures for Handling Alleged Violations, Defaults & Claims

The following procedures shall be used for the reporting and handling of an allegation of a failure to comply with accreditation standards and procedures, a default of “Financial Responsibilities” and related claims made under the PEO Client Assurance Program, or a failure to comply with the terms of the PEO Participation Agreement (Exhibit A), as may be amended from time to time. If these procedures conflict in any manner with the terms of the PEO Participation Agreement (Exhibit A), the terms of the PEO Participation Agreement shall prevail and be followed.

The ESAC Board reserves the right to amend and exercise its best judgment with regard to these procedures depending on the nature and severity of the alleged violation and the urgency with which corrective action needs to be taken. In all cases, the goal will be to preserve the right of each ESAC-accredited PEO to due process and to considerate, confidential and professional treatment, while making fair and impartial decisions that are in the best long-term interest of the PEO industry by protecting the PEO’s clients, worksite employees, insurers and taxing authorities, and by protecting the surety and insurance carriers that back ESAC’s programs.

Notwithstanding anything provided for in these procedures, a “Substantial Failure” by a PEO participating in the PEO Client Assurance Program to perform in a timely manner its “Financial Responsibilities,” as defined in Exhibit A, shall be handled according to the terms of Section J. 8. of Exhibit A. For other failures or alleged violations, the procedures to be followed shall vary depending upon whether the alleged violation involves a “Reported Failure” to perform one of the PEO “Financial Responsibilities” or involves a failure to comply with some other standard or procedure with less urgent consequences.

All claims made under the PEO Client Assurance Program shall be handled according to the terms of the Client Participation Agreement (Exhibit A to the PEO Participation Agreement), as may be amended from time to time.

Compliance Committee

A Compliance Committee, established by the ESAC Board of Directors in accordance with its Bylaws, shall handle all reported or discovered violations, failures to comply, and any other allegations made against an ESAC-accredited PEO. The Board shall determine the exact size and composition of the Compliance Committee on a case-by-case basis depending upon the nature and urgency of the matter to be considered. At a minimum, the Compliance Committee shall include ESAC’s chairman or president and two directors, with ESAC’s legal counsel serving as a non-voting advisor.

The Compliance Committee shall be responsible for conducting or supervising investigations by staff or professional advisors, determining probable cause, conducting mediation hearings, conducting arbitration hearings, reporting findings, establishing appropriate penalties and corrective measures, and rendering final judgments. All final decisions and findings of the Compliance Committee shall be made by majority vote and signed by the Committee chair. Compliance Committee decisions involving termination of accreditation or participation in any ESAC-administered program must be ratified by majority vote of the Board of Directors.

An ESAC-accredited PEO shall have the right to an appeals hearing before the ESAC Board of Directors for all final judgments of the Compliance Committee except those involving a “Substantial Failure” (as defined in Exhibit A). Such hearings shall be granted liberally by majority vote of the Board based on factual justification presented by the accused PEO in a written motion filed within 10 business days of receipt of the final decision of the Compliance Committee.

An ESAC-accredited PEO shall have the right to request the recusal of any Compliance Committee member. Such request shall be made in writing and shall set forth the justification for such recusal along with any supporting evidence. Requests for recusal shall be acted upon by majority vote of the entire Board and shall be granted liberally for just cause based on factual information provided by the requesting PEO.

Reporting of an Allegation of a Default or Failure to Comply

Allegations or complaints involving an ESAC-accredited PEO may be reported to ESAC by e-mail, fax, courier, or mail, or by telephone followed by a method of written verification.

An alleged failure may be discovered and reported by ESAC staff, by the PEO’s clients, worksite employees, insurers, or government regulators, or by any other third party. A $250 filing fee is required to discourage frivolous allegations in the case of an allegation made by a third party not having a material interest in the PEO’s affairs through a client service agreement, employment relationship, insurance policy, ESAC accreditation or related program participation, or by regulatory authority. The complainant shall pay such filing fee at the time of filing the written complaint. If the allegation is found to be true, the filing fee will be returned to the complainant. If the allegation is found to be untrue, the filing fee will be paid to the accused PEO.

Procedure for Handling an Allegation of a Default or Failure to Comply

The following general procedure will be followed by ESAC upon discovery or receipt of an allegation of a possible default or failure to comply, excluding a “Substantial Failure” as defined in Exhibit A and discussed above:

ESAC staff shall gather preliminary facts by telephone from the complainant and the accused ESAC-accredited PEO and report such findings to the Compliance Committee ordinarily within 2 business days of discovery or receipt of the allegation.
At any time during the proceedings, from the time the written complaint is received until a final determination is made, the ESAC-accredited PEO may decline to contest some or all of the allegations. In order to do so, the ESAC-accredited PEO must provide ESAC with written assurance that it will not contest in any manner the allegation of the specific violation(s). The Compliance Committee shall then determine if further investigation is warranted and the penalty, if any, to be assessed as provided below under “Penalties.”
The Compliance Committee shall consider the information gathered by staff, conduct such additional investigation as it deems appropriate, and make a determination of probable cause. If the Compliance Committee determines that probable cause does not exist, the matter shall be dismissed and a report of findings shall be distributed to the accused PEO, the complainant(s), if any, and the ESAC Board.
Upon a finding by the Compliance Committee of probable cause that a default or failure to comply has occurred (“Probable Cause Finding”):

The Compliance Committee shall schedule and conduct a mediation hearing by telephone or in person, in its sole discretion, within 20 business days of the probable cause determination, provided however, such mediation hearing shall be held within 5 business days of receipt of a “Reported Failure” of an ESAC-accredited PEO to perform its employer “Financial Responsibilities” made by a client, worksite employee, insurer, taxing authority or other regulator of the accused PEO.
As a condition of contesting a Probable Cause Finding, the accused PEO agrees that (a) it will bear its own costs in connection with any such contest and will not seek to recover any portion of such costs from ESAC, the Compliance Committee, or any representative of either, and (b) it will pay the expenses incurred by ESAC in connection with any contest of the Probable Cause Finding, including without limitation ESAC’s attorney fees and other direct costs incurred in connection with the investigation of the alleged default or failure to comply through the final resolution of any contest of the Probable Cause Finding regardless of the outcome of such contest (“ESAC Expenses”).
The Compliance Committee shall determine the amount of a retainer (“Retainer”) that shall be required of the accused PEO, which Retainer shall be used to pay ESAC Expenses. Throughout the pendency of the contest of the Probable Cause Finding, in its discretion, the Compliance Committee may increase and/or require periodic replenishment of the Retainer.
The accused PEO shall pay the Retainer, including any increase(s) or replenishment(s), within five (5) business days of notice by the Compliance Committee or prior to the conduct of any mediation, arbitration or other hearing with respect to the contest of the Probable Cause Finding, if sooner. The failure of the accused PEO to make any required payment to the Retainer will result in the dismissal of the accused PEO contest of the Probable Cause Finding, in which case the alleged default or failure to comply may lead to disciplinary action up to and including termination of accreditation.
To the extent ESAC Expenses exceed the amounts paid into the Retainer, the accused PEO shall pay any such excess upon written notice from ESAC. Upon final resolution of the Probable Cause Finding, after payment of all ESAC Expenses, any remaining balance of the Retainer shall be refunded to the accused PEO. Should the accused PEO be completely exonerated of all allegations, ESAC reserves the right to (i) refund all or part of the Retainer and/or (ii) assess the complainant, if it is an accredited PEO, with all or a portion of the costs.

If the matter is not resolved in the mediation hearing, the Compliance Committee shall conduct any other investigation that it deems appropriate and shall issue a written judgment of findings and required cures or penalties, if any. Such findings shall be distributed to the accused PEO, the complainant(s), if any, and to the ESAC Board. Provided, however, if the allegation was made by a client, worksite employee, insurer, taxing authority or regulator of the accused PEO and the matter was not resolved in the mediation hearing, the Compliance Committee shall schedule an arbitration hearing as soon as possible and within not more than 30 days after the mediation hearing, with at least 10 business days prior written notice to all parties involved.
The arbitration hearing, if such is held, shall be conducted by the Compliance Committee according to the provisions of these Standards and to the extent not inconsistent, the rules of the American Arbitration Association, and a written report of findings shall be distributed to the accused PEO, the complainant(s), if any, and the ESAC Board.
Upon receipt of the Compliance Committee’s final judgment following either a mediation or arbitration hearing, the accused PEO shall have 10 business days to file a motion to appeal the Compliance Committee’s findings to the ESAC Board. The Board shall schedule the appeals hearing at such time and place as it deems appropriate with at least 10 business days prior written notice to all involved parties. The judgment of the Board at the end of the appeals hearing, if one is held, shall be final.

All information, communications, investigative reports, hearing records, findings and related materials, other than public information, shall be considered confidential and shall be kept in strictest confidence by ESAC, its Board, staff, advisors and service providers to the extent allowed by law except as specifically provided by these procedures and by the terms of Exhibit A, as may be amended from time to time.

Standards for Hearings

The following standards shall apply to the conduct of ESAC Hearings.

Types of Hearings: A hearing may be held for the purpose of mediation, arbitration, consideration of a motion for an extension of time to cure a violation, or appeal of a decision of the Compliance Committee to the ESAC Board.
Hearing Tribunal: The “Hearing Tribunal” shall consist of the ESAC Compliance Committee or the Board of Directors. The Board of Directors shall appoint a “Hearing Officer.”
Location and Time: All hearings except those held for the purpose of arbitration or appeal may be conducted telephonically, or at ESAC headquarters or a mutually agreed upon location, at a time and date set by ESAC. Hearings held for the purpose of arbitration or appeal shall be held at a location, time and date set by ESAC.
Notice: Notice of a hearing shall be mailed confidentially to the parties by certified mail or overnight courier, return receipt requested. A copy of the written complaint and investigative report shall also be mailed to all involved parties.
Procedure: The Hearing Officer shall preside over the hearing making the final determination as to the procedures to be followed. The Hearing Tribunal shall consider all evidence it deems relevant to its final decision. Final decisions of the Hearing Tribunal shall be made by majority vote, documented in writing and signed by the Hearing Officer.
Representation: One or more members of management and other representatives, including legal counsel, may represent the ESAC-accredited PEO under investigation. The complainant and ESAC may also be represented by legal counsel.
Order of Presentation: The following is intended to serve as a general guide to the conduct of the hearing:

The opening statement by the Hearing Officer as to the guidelines of the hearing, its purpose, and the rights and privileges of parties involved.
The opening statement on behalf of the ESAC-accredited PEO under investigation, not to exceed 10 minutes in length, should concisely indicate what he/she intends to show. This statement may be deferred until the conclusion of the investigator’s presentation at the option of the PEO.
The report of ESAC’s investigation will be presented by the party(ies) who conducted the investigation and will not exceed 30 minutes. It shall set out all of the relevant matters contained in the investigative report, as discussed above.
ESAC investigator(s) shall present such testimony and exhibits as deemed appropriate, not to exceed one hour.
The PEO under investigation and related witnesses, if any, may present testimony and exhibits, not to exceed one hour.
Cross-examination of witnesses by opposing parties, not to exceed one hour total for all witnesses, will be allowed and shall not count against the time permitted for a party to present its case.
If desired, the investigator(s) and the PEO under investigation may present a summation, not to exceed 15 minutes per party.
At the conclusion of the hearing, the Hearing Tribunal will make a finding of violation or lack of violation or a ruling as to continuance of investigation or hearing. In the event of a finding of violation, one or more of the penalties described below will be assessed. If the hearing is to be continued, the date shall be determined at the time of the hearing. The findings shall be set forth in a written order setting out the parties involved, the nature of the allegations, the findings, the actions required to correct any deficiency, and the assessment of penalty, if any.

Burden of Proof: The investigator shall have the burden of establishing a violation of a standard or required procedure by a preponderance of the evidence.
Admissibility: Statutory and case-made rules relating to the order of proof, conduct of the hearing, and presentation and admissibility of evidence shall not be applicable to such hearings. Any relevant evidence, including hearsay, shall be admitted by the Hearing Officer if it is the sort of evidence upon which responsible persons are accustomed to rely in the conduct of business affairs, regardless of the admissibility of such evidence in a court of law.
Participants and Witnesses: Each participant is responsible for providing its own witnesses, including the payment of all expenses associated with their appearance at the hearings. All witnesses shall give testimony under oath or other affirmation administered by the Hearing Officer.
Exhibits: Not less than 5 business days prior to the hearing, the investigator shall provide the party under investigation with a list of witnesses that the investigator intends to call and copies of all exhibits the investigator intends to introduce at the hearing. At the hearing, both parties shall provide each member of the Hearing Tribunal with copies of exhibits when introduced in evidence. Documentary evidence must be of a size consistent with the ease of handling, transportation, and filing. Large exhibits may be used during the hearing, but reduced copies must be provided for the record.
Non-Responsiveness by the Investigated PEO: In the event that the PEO being investigated does not appear for the hearing, or does not supply information requested as part of the investigative process, the PEO’s accreditation status will automatically be suspended pending a final decision by the Hearing Tribunal as to further disciplinary actions.

Penalties

Upon an admission or finding of a violation of a standard or required procedure, ESAC shall stipulate and enforce any one or a combination of the following actions:

Letter of Warning: Such letter shall describe the nature of the offense and warn the ESAC-accredited PEO that a continued failure to comply shall result in further disciplinary action up to and including permanent revocation of accreditation and participation in ESAC programs. Under this action, ESAC may require documentation of the nature and date of actions taken to rectify the alleged violation, and repayment of the complainant’s $250 filing fee, if any. For repeated violations that are not materially severe in nature, but which result in additional expense to ESAC, a fine not to exceed $1,000 per occurrence may be assessed. Failure of an ESAC-accredited PEO to comply with the terms of the warning letter and to pay any fine that may be assessed in a timely manner shall be subject to additional penalties.
Probation: Under this action, the PEO shall be given a specified period of time to cure any deficiency or violation of a standard or required procedure. ESAC may also stipulate a set of conditions or limitations for the PEO. Such conditions may range from requiring more frequent financial reporting to other requirements or limitations. Failure to abide by all the limitations and conditions of probation established by ESAC shall result in the suspension and possible revocation of the PEO’s accreditation. The period of time allowed for curing a deficiency or violation shall vary according to the nature of the offense as follows:

Five business days for an ESAC-accredited PEO to fully cure a “Substantial Failure” to perform one or more of the “Financial Responsibilities” covered by the PEO Client Assurance Program, provided however, if ESAC determines in its sole judgment that the PEO does not have the ability to fully cure the “Substantial Failure” within 5 business days, the PEO shall be found to be in default and subject to immediate and irreversible revocation of accreditation and program participation. Since swift and decisive action is essential in such an event, the ESAC-accredited PEO shall not have the right to request an extension of the time to cure or to appeal a final decision of the Compliance Committee that has been ratified by the ESAC Board of Directors.
Five business days for an ESAC-accredited PEO to fully cure a “Reported Failure” to perform one or more of the “Financial Responsibilities” covered by the PEO Client Assurance Program or a violation of any other term or condition of the related PEO Participation Agreement (Exhibit A). In such case, the ESAC-accredited PEO shall have a right to request an extension of the time to cure, not to exceed a total time to cure of 30 days, and shall have a right to appeal a final decision of the Compliance Committee.
For all other violations or failures to comply, whether self-reported, detected by ESAC staff or service providers, or reported by others, the ESAC-accredited PEO shall have 45 days to fully cure the deficiency. In such cases, the ESAC-accredited PEO shall have the right to request a hearing to consider an extension of time to cure of up to an additional 30 days beyond the expiration of the 45-day period and shall have a right to appeal a final decision of the Compliance Committee.
In its sole discretion, the ESAC Board of Directors may grant one or more additional periods of probation and may otherwise impose such terms, conditions or restrictions upon an ESAC-accredited PEO as the Board shall determine is necessary or desirable in protecting the interests of ESAC, its programs, and surety and insurance carriers.

Suspension: If an ESAC-accredited PEO shall fail to fully cure a deficiency within the time specified by ESAC and no additional extension of time to cure is available or is granted, the accreditation and participation of the PEO in ESAC programs shall be suspended subject to any right to appeal. If the suspended PEO fails to appeal, has no remaining right to appeal, or has its appeal denied, then the revocation of accreditation and participation of the suspended PEO shall be final on the day following the final day of suspension.
Revocation of Accreditation and Participation: Subject to any right to appeal, this action is final and entails the complete and total loss of ESAC accreditation and termination of participation in ESAC-administered programs.
In determining the amount of penalty(ies) to be assessed, if any, ESAC shall consider the seriousness of the violation, any history of previous violations, the amount necessary to deter future violations and to protect affected third parties, efforts made to correct the violation, and any other matters that justice may require.
ESAC shall specify in its written finding the sanctions imposed against an ESAC-accredited PEO and shall provide a copy of such findings to the PEO by certified mail or overnight courier, with return receipt requested, at its address of record. Except for a “Substantial Failure” to perform “Financial Responsibilities” as provided above, an ESAC-accredited PEO is entitled to request a hearing in all cases where ESAC warns or proposes to fine, places on probation, suspends or revokes the PEO’s accreditation and program participation.

Appeals Procedure

The following procedures shall apply to allow for the appeal of a final judgment rendered by the Compliance Committee:

The ESAC-accredited PEO that is adversely affected by a finding of the Compliance Committee, and that appeared at the hearing, if any, may file a motion for appeal, except in the case of a “Substantial Failure” to perform “Financial Responsibilities” as defined in Exhibit A, in which case a decision of the Compliance Committee that has been ratified by the Board of Directors shall be final. Such motion for appeal must be filed within 10 business days of the party’s receipt of the written finding. All motions to appeal shall be considered by the ESAC Board.
The Compliance Committee may file a response to a motion to appeal within 10 business days of service of the motion to appeal.
Such motions and responses will be filed in writing with ESAC with copies provided to all involved parties.
A finding of the Compliance Committee shall not be effective until the time to file a motion to appeal has expired or until a motion to appeal has been denied.
Failure to file a motion to appeal within the specified time limit will constitute waiver of the right to do so.
Upon the timely filing of a motion for appeal and following the time period within which a response may be filed, or following the filing of a timely response, the Board shall consider the motion and response, if any, and shall either grant or deny an appeal hearing. Consideration by the Board of such motion and response, if any, may be by telephone conference. If an appeal is granted, the Board shall set a date, time and location for the appeal hearing.
The ESAC-accredited PEO making the appeal shall have the burden of showing that the findings of the Compliance Committee were clearly erroneous.
Filing a motion to appeal shall automatically stay the effective date of the finding until the ESAC Board issues a finding on the motion.
All findings on matters of appeal shall be final and not subject to further reconsideration or appeal.
Any motion filed pursuant to these procedures shall contain a concise statement of the grounds for appeal.

FEES

Accreditation Fee

A PEO or PEO Group must pay an annual accreditation fee to submit an application for initial and renewal accreditation and for participation in the PEO Client Assurance Program. A PEO’s interim accreditation fee is based upon the fee schedule established by the ESAC Board of Directors and the PEO’s estimated annual gross wages as projected for the upcoming year, but in no case less than four times the most recent calendar quarter IRS Form 941 wages. A final accreditation fee will be determined, with any necessary adjustments made, based upon the actual Form 940 for the PEO’s participation year. The accreditation fee schedule in effect at the time of publication of this manual is shown in Exhibit D of Exhibit A and may be amended from time to time. A copy of the current fee schedule may be found at www.ESACorp.org or obtained by contacting ESAC at info@ESACorp.org or (501) 219-2045.

Reinstatement Fee

If a PEO or PEO Group ceases to be an ESAC-accredited PEO and then elects to apply for reinstatement, it may do so for a fee of $1,000 as long as the request for reinstatement along with any necessary cures are received by ESAC within the accreditation period in which accreditation ceased. If the request for reinstatement along with any necessary cures is received after such accreditation period, the PEO or PEO Group must repeat the initial application process and be subject to the applicable accreditation fee.

Changes and Additions

Changes or additions to a PEO’s Controlling Person application(s) must be accompanied by a $500 application change fee. Material changes and additions to a PEO or PEO Group application must be accompanied by a $500 application change fee. Requests forchanges in an ESAC-accredited PEO’s name, except at time of annual renewal, shall be accompanied by a $50 name change fee for each authorized change of name. A fee of $12 per certificate shall accompany requests for the issuance of additional certificates of accreditation. Requests to add a trade name, trademark, service mark, or parent company name to a certificate of accreditation and program participation shall be accompanied by a one-time fee of $50 plus a fee of $12 per each additional certificate.

Delinquent Reporting Penalties

Accurate and complete accreditation maintenance reports must be submitted to ESAC by no later than the deadlines published in the “Accreditation and Participation Maintenance” section of this manual. Submission of materially inaccurate or incomplete reports, in ESAC’s sole discretion, shall be disregarded for purposes of compliance and treated as delinquent reports. Should an extension be necessary for completion of a report, the PEO is required to contact ESAC in writing at least five (5) business days prior to the deadline to request an extension. The extension must be approved by ESAC staff in writing before the extension will be granted. Failure to submit accurate and complete accreditation maintenance reports by the deadline, or to obtain an approved extension, shall result in the immediate assessment of a $500 delinquent report penalty plus an additional $250 penalty assessed every seven (7) days thereafter. If a report is more than 30 days late or if more than one reporting deadline has been missed in a calendar year, the accredited PEO will be referred to the Compliance Committee for further disciplinary action. ESAC shall be allowed to deviate from these disciplinary actions in its sole discretion in instances of aggravating or mitigating circumstances, such as habitual offenders or unexpected, one-time events.

Acquisitions and Mergers

If an ESAC-accredited PEO or PEO Group makes an acquisition of or merges with a non-ESAC-accredited PEO, a one-time fee must be paid to ESAC within 60 days of the close of the transaction to allow ESAC to perform the necessary reviews to ensure that the post-acquisition Entity still meets ESAC’s standards. The amount of the fee will be determined by the following schedule:

Amount of Annual Gross Wages for each Affiliate Non-ESAC Member(s)	One-Time Acquisition/Merger Fee per Affiliate
$0 to $10 million	$5,000
$10 million and above	$5,000 plus $50/million over $10 million (capped at $10,000 maximum fee)

Denial of Application and Treatment of Pending Applications

In the event that an applicant is not approved for accreditation and participation in the Client Assurance Program, the Accreditation Fee will be refunded after deduction of a $1,000 application processing fee and a $500 per Controlling Person processing fee. If accreditation and participation are not denied but a final decision is pending receipt by ESAC of additional or modified materials, then the Accreditation Fee will be retained by ESAC until the application is acted upon by ESAC or withdrawn by the applicant.

If an applicant that has been denied accreditation chooses to re-apply or if an application is pending further action by the applicant, the Controlling Person application(s) will remain valid and will be considered current for a period of 6 months from the date of receipt of the initial application by ESAC. After a period of 6 months, the Controlling Person applications as well as the PEO’s application must be updated and the applicable Changes and Additions fees must be paid. Such additional fees are necessary because background investigations must be repeated along with a current financial evaluation to make the application again current.

If an applicant fails to complete or fails to withdraw a pending application within 12 months of written notice from ESAC that the application is pending receipt of additional information or modifications, then the Accreditation Fee shall be forfeited by the applicant and existing application materials shall be destroyed in a confidential manner.