Research Administration Office

University of California



June 15, 1995


Subject: HHS/DAR Determinations on FY93 A-133 Audit Comments

The HHS/OIG desk review of the University's A-133 audit reports for the year ended June 30, 1993 included a number of findings and recommendations which were previously distributed to you by letter dated January 9, 1995. For nine of the findings the HHS Division of Audit Resolution (HHS/DAR) was designated as the Resolution Agency. Enclosed for your information is a letter from HHS/DAR communicating their determinations on those nine findings.

HHS/DAR has accepted our previous comments on all findings except one, which relates to the consistent identification and classification of capital leases. Our office will work in conjunction with Corporate Accounting to develop any additional University guidance that may be appropriate in this area.


Robert Baum

(510) 987-9844

Subject Index: 04

Organization Index: U-115, F-350

Jorge Ohy

Manager, Financial Group

Research Administration Office



Office of the Secretary

Washington, D.C. 20201

David F. Mears, Director

Research Administration Office

Office of the President

University of California

300 Lakeside Drive

Oakland, California 94612-3550

Dear Mr. Mears:

We have reviewed Audit Report No. A-09-95-32848, dated December 22, 1994, on the University for the year ended June 30, 1993. KPMG Peat Marwick, Certified Public Accountants, prepared the audit report. We believe that your comments as included in the audit report and as submitted by your office on January 31, 1995 satisfy all of the recommendations cited in the audit report for which we have resolution responsibility (Resolution Agency designation - HHS/DAR) with the exception of Recommendation Code 217900100. The other recommendation codes are the resolution responsibility of other components of our Department who will individually advise you of their final determinations.

Recommendation Code 217900100 comments on the inconsistent classification of a lease under $100,000 as capital or operating by the Berkeley Campus Purchasing Department. This recommendation is repeated from the University's fiscal year 1992 audit. Your private auditors indicated that the Berkeley Purchasing Department does not consider the generally accepted accounting principle criteria in the University's Accounting Manual in making this determination. The Purchasing Department will often negotiate a lease with a bargain purchase option or with terms transferring title with the last lease payment. Although such leases are capital leases, Purchasing will code these leases as operating leases. This treatment is inconsistent with the requirements contained in Paragraph 38.d. of the OMB Circular A-21. Accordingly, your office should ensure that all campuses of the University, including the Berkeley Campus, consistently apply the criteria for classifying a lease as capital or operating and that the charges to Federal awards for a capital lease be limited to the amount that would be allowed if the institution purchased the property on the date the lease agreement was executed.

Your independent auditors will determine, in your next financial and compliance review, the effectiveness of the actions taken by your organization. The auditors should specifically describe any additional improvements which may be necessary.

Thank you for your cooperation. If we can be of any further assistance, please contact Mr. James A. Schneider of my staff at (202) 401-2755.

Sincerely yours,

Harold Greenberg

Acting Director

Division of Audit Resolution

Office of Grants Management