CP 5 Single Audit 2011

AUD ITED FINANCIA L S TA TEMEN TS University of Puerto Rico Years Ended June 30, 2011 and 2010 With
Report of Independent Auditors
University of Puerto Rico Audited Financial Statements

Years Ended June 30, 2011 and 2010
Contents
Report of Independent Auditors........................................................................................................ Managements Discussion and Analysis ........................................................................................... Audited Financial Statements Statements of Net Assets .................................................................................................................. Statements of Revenues, Expenses and Changes in Net Assets ......................................................... Statements of Cash Flows................................................................................................................. Statements of Financial Condition Discretely Presented Component Unit (Servicios Mdicos Universitarios, Inc.) ........................................................................................ Statements of Activities and Changes in Unrestricted Net Assets Discretely Presented Component Unit (Servicios Mdicos Universitarios, Inc.) .............................................. Statements of Cash Flows Discretely Presented Component Unit (Servicios Mdicos Universitarios, Inc.) ........................................................................................ Statements of Financial Position Discretely Presented Component Unit (Desarrollos Universitarios, Inc.) ................................................................................................... Statements of Activities and Changes in Net Assets Discretely Presented Component Unit (Desarrollos Universitarios, Inc.) ........................................................................ Statements of Cash Flows Discretely Presented Component Unit (Desarrollos Universitarios, Inc.) ................................................................................................... Notes to Financial Statements........................................................................................................... Required Supplementary Information Schedules of Funding Progress (Unaudited) ..................................................................................... 65 Other Financial Information Schedules of Changes in Sinking Fund Reserve (Unaudited) ............................................................ 66 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements performed in Accordance with Government Auditing Standards ..................................................................... 68 20 22 23 25 26 27 28 29 30 31 1 3
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Report of Independent Auditors

Board of Trustees University of Puerto Rico We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of the University of Puerto Rico (the University), a component unit of the Commonwealth of Puerto Rico, as of and for the years ended June 30, 2011 and 2010, which collectively comprise the Universitys financial statements, as listed in the table of contents. These financial statements are the responsibility of the Universitys management. Our responsibility is to express opinions on these financial statements based on our audits. We did not audit the financial statements of Servicios Mdicos Universitarios, Inc. (the Hospital) and Desarrollos Universitarios, Inc. (the Company), which represent 100% of the aggregate discretely presented component units, as of and for the years ended June 30, 2011 and 2010. Those financial statements were audited by other auditors whose reports thereon have been furnished to us. Our opinion, insofar as it relates to amounts included for the Hospital and the Company, is solely based on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Universitys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Universitys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the University of Puerto Rico and the aggregate discretely presented component units of the University of Puerto Rico as of June 30, 2011 and 2010, and the respective changes in financial position and cash flows thereon for the years then ended in conformity with US generally accepted accounting principles.
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In accordance with Government Auditing Standards, we have also issued our report dated March 28, 2012, on our consideration of the Universitys internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Managements Discussion and Analysis and the Schedule of Funding Progress, as listed in the table of contents, are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the University of Puerto Ricos financial statements. The schedules of changes in sinking fund reserves included in page 66 are presented for purposes of additional analysis and are not a required part of the financial statements. The schedules of changes in sinking fund reserves have been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole.
ey
March 28, 2012 Stamp No. 2629509 affixed to original of this report.
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University of Puerto Rico Managements Discussion and Analysis
Introduction The following discussion presents an overview of the financial position and financial activities of the University of Puerto Rico (the University) for the years ended June 30, 2011, 2010 and 2009. This discussion and analysis was prepared by University management and should be read in conjunction with the financial statements and notes thereto, which follow. The financial operations and position of two not-for-profit organizations, Servicios Mdicos Universitarios, Inc. and Desarrollos Universitarios, Inc. are considered component units of the University and are discretely presented in the Universitys financial statements. An annual audit of each organizations financial statement is conducted by independent certified public accountants. Financial statements and information relating to the component units may be obtained from their respective administrative officers.
Good Accreditation Standing

In fiscal year 2011, the University restored its good accreditation standing with the Middle States Commission on Higher Education (the Commission), the regional accreditation entity of the eleven units that comprise the University of Puerto Rico system, within the first 15 months of the 24 month period prescribed by the Commission for probationary actions. On June 26, 2010, the Commission had placed on probation ten of the Universitys units for lack of evidence of compliance with two of fourteen accreditation standards. This action was prompted as a result of a student stoppage that interrupted operations of these units for up to 62 days, but less in most cases. After the April 2011 site visit, the Commission found seven of the ten units in full compliance and after the September 2011 site visit, it found the remaining three units in full compliance. Financial Highlights As of June 30, 2011, the University has total assets of $1.51 billion, total liabilities of $1.08 billion and net assets of $426.1 million. The Universitys net assets increased by $58.0 million or 16% when compared to prior year. The reason for this change is explained in the section entitled Analysis of Financial Position and Changes in Financial Position. An overview of the statements is presented below along with a financial analysis of the transactions impacting the statements.
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Condensed financial statements for the University as of and for the years ended June 30, 2011, 2010 and 2009 follow:
Condensed Statements of Net Assets (In thousands) 2011 Assets Current assets Noncurrent assets: Due from Commonwealth of Puerto Rico Capital assets Other assets Total assets Liabilities Current liabilities Noncurrent liabilities Total liabilities Net assets Invested in capital assets net of related debt Restricted: Nonexpendable Expendable Unrestricted (deficit) Total net assets $ 360,562 24,720 965,895 157,929 1,509,106 $ June 30 2010 233,452 56,609 961,168 172,950 1,424,179 $ 2009 285,485 74,890 898,328 220,961 1,479,664
184,902 898,146 1,083,048
204,944 851,142 1,056,086
178,178 933,537 1,111,715
337,279 87,973 65,152 (64,346) 426,058 $
309,055 78,591 72,205 (91,758) 368,093 $
300,279 63,746 69,891 (65,967) 367,949
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Condensed Statements of Revenues, Expenses and Changes in Net Assets (In thousands) Year Ended June 30 2011 2010 2009 Operating revenues Tuition and fees, net $ 73,451 $ 41,809 $ 50,624 Governmental grants and contracts 161,547 131,682 127,969 71,466 Patient services 51,449 55,532 Other operating revenues 48,007 40,118 33,968 Total operating revenues 354,471 265,058 268,093 Operating expenses Salaries and benefits Scholarships and fellowships Supplies and other services and utilities Other operating expenses Total operating expenses Operating loss Nonoperating revenues (expenses) Commonwealth appropriations Federal Pell Grant program Federal ARRA program Other nonoperating revenues (expenses), net Net nonoperating revenues Income (loss) before other revenues Capital appropriations Additions to term and permanent endowments Changes in net assets Net Assets Beginning of year, as previously reported Cumulative impact of change in accounting for intangible assets Beginning of year, as adjusted End of year
860,079 215,205 206,562 68,792 1,350,638 (996,167)
933,653 211,831 198,742 78,585 1,422,811 (1,157,753)
939,531 176,636 207,598 87,544 1,411,309 (1,143,216)
839,372 179,160 15,000 3,976 1,037,508 41,341 5,580 11,044 57,965
839,318 179,165 105,000 1,066 1,124,549 (33,204) 1,288 9,251 (22,665)
923,760 141,101 (452) 1,064,409 (78,807) 17,240 3,494 (58,073)
368,093 368,093 426,058 $
367,949
426,022
22,809 390,758 426,022 368,093 $ 367,949
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Using the Financial Statements The accounting and reporting policies of the University conform to accounting principles generally accepted in the United States of America, as applicable to governmental entities. The Governmental Accounting Standards Board (GASB) is the accepted standards setting body for establishing governmental accounting and financial reporting principles. The financial statement presentation required by GASB provides a comprehensive, entity-wide perspective of the Universitys assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows. Analysis of Financial Position and Changes in Financial Position Statements of Net Assets The statements of net assets present the assets, liabilities and net assets of the University as of June 30, 2011 and 2010. The net assets are displayed in three parts, invested in capital assets net of related debt, restricted and unrestricted. Restricted net assets may either be expendable or nonexpendable and are those assets that are restricted by law on third-party agreements or by an external donor. Unrestricted net assets, while they are generally designated for specific purposes, are available for use by the University to meet current expenses for any purposes. The statements of net assets, along with all of the Universitys basic financial statements, are prepared under the accrual basis of accounting, whereby revenues are recognized when the service is provided and expenses are recognized when others provide the service to the University, regardless of when cash is exchanged. Assets and liabilities included in the statements of net assets are classified as current or noncurrent. Assets Total assets amounted to $1.51 billion, $1.42 billion and $1.48 billion at June 30, 2011, 2010, and 2009, respectively, an increase of $84.9 million or 6% in 2011 and a decrease of $55.5 million or 4% in 2010 when compared with the prior year balances. Current assets primarily consist of cash and cash equivalents, short-term investments and accounts receivable. As of June 30, 2011, cash and cash equivalents, investments and accounts receivable comprise approximately 29%, 36% and 33%, respectively, of the current assets; meanwhile 84% of the noncurrent assets are capital assets. As of June 30, 2010, investments and accounts receivable comprise approximately 51% and 47%, respectively, of the current assets; meanwhile 81% of noncurrent assets are capital assets. Cash and cash equivalents (certificates of deposit) amounted to $108.0 million, $3.4 million and $8.2 million at June 30, 2011, 2010, and 2009, respectively. The improvement in the Universitys cash position of $104.6 million in 2011 mainly resulted from the advances taken from a line of credit obtained during the fiscal year 2011, the stabilization fee established by the Board of Trustees of the University starting in fiscal year 2011 and the strict cost control measures implemented during the fiscal year 2011 to address the Universitys budgetary deficit issues.
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In October 2010, the University obtained a $100 million revolving line of credit facility with the Government Development Bank for Puerto Rico (GDB) for working capital purposes which improved the Universitys cash position at June 30, 2011. The balance outstanding under this line of credit amounted to $93.7 million at June 30, 2011. Also, to address the Universitys budgetary deficit issues, on June 30, 2010, the Board of Trustees of the University established a stabilization fee to be charged to all students in addition to tuition charges and other fees already in place in the University. The stabilization fee amounts to $400 per student per semester and has no set termination date. The stabilization fee increased revenue from tuitions and fees by $41.3 million in the fiscal year ended June 30, 2011. In addition, by virtue of Act No. 176 of November 2010, as amended by Act No. 46 of April 2011, the Commonwealth of Puerto Rico (the Commonwealth) has committed to transfer 10% of the Additional Lotterys net annual income with a guaranteed minimum amount of $30 million per academic year, for the creation of a Special Scholarship Fund for the University of Puerto Rico. The purpose of the fund is to provide financial aid to graduate and undergraduate students. The fund will be administered by the University. Proceeds of this fund received by the University in 2011 amounted to $30.0 million, of which $23.4 million were granted as scholarships during the fiscal year ended June 30, 2011. Unused fund balance at June 30, 2011 amounted to $6.6 million. On the other hand, the ARRA funds, designated for operational purposes, decreased by $90.0 million in 2011. Management compensated the decreases in the ARRA funds with the line of credit with GDB, the stabilization fee and the cost control measures which resulted in a reduction of operating expenses by $72.2 million in 2011. Total investments at June 30, 2011 amounted to $213.5 million, a decrease of $12.0 million or 5% as compared to a balance of $225.5 million at June 30, 2010. In 2010, total investments decreased by $41.0 million or 15% as compared to a balance of $266.5 million at June 30, 2009. The decreases in both periods were mainly due to the disposition of the investments designated to fund the Universitys construction projects. Accounts receivable, net, including due from the Commonwealth of Puerto Rico decreased by $22.5 million or 13% from $167.2 million at June 30, 2010 to $144.7 million at June 30, 2011. In 2010, accounts receivable, net decreased by $77.3 million or 32% from $244.5 million at June 30, 2009. The decrease in 2011 mainly resulted from collections of $12.9 million in the due from Commonwealth and increased provisions for doubtful accounts of $8.8 million for the year ended June 30, 2011. The decrease in 2010 mainly resulted from the cancellation of a receivable from the Commonwealth of $51.2 million against a note payable and increased provisions for doubtful accounts of $26.4 million for the year ended June 30, 2010.
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Capital assets increased by $4.7 million or less than 1% from $961.2 million at June 30, 2010, to $965.9 million at June 30, 2010. For 2010, capital assets increased by $62.9 million or 7 % from $898.3 million at June 30, 2009. The increase in both years mainly resulted from the Universitys investment in construction projects and other capital assets that amounted to $49.2 million in fiscal year 2011 and $84.7 million in fiscal year 2010, which was partially offset by the depreciation and amortization expense of $43.9 million in fiscal year 2011 and $43.7 million in fiscal year 2010. In addition, the University adopted GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB Statement No. 51), effective July 1, 2009. The financial reporting impact resulting from the implementation of GASB Statement No. 51 is the recognition within the Universitys financial statements of $22.8 million in capital assets with a corresponding credit to net assets at July 1, 2009. For further details, refer to Note 15 of the accompanying financial statements. Liabilities Total liabilities amounted to $1.08 billion, $1.06 billion and $1.11 billion at June 30, 2011, 2010, and 2009, respectively, an increase of $27.0 million or 3% in 2011 and a decrease of $55.6 million or 5% in 2010 when compared with the prior year balances. Current liabilities consist primarily of accounts payable and accrued liabilities, the current portion of long-term debt and other liabilities. Noncurrent liabilities primarily consist of long-term debt and leases and compensated absences. Excess of outstanding checks over bank balance, accounts payable and accrued liabilities decreased by $37.9 million or 26% from $143.4 million at June 30, 2010 to $105.5 million at June 30, 2011. In 2010, these current liabilities increased by $20.2 million or 16% from $123.1 million at June 30, 2009. The decrease in 2011 is mainly related to the Universitys positive cash position in fiscal year 2011 which offset the excess of outstanding checks over bank balance of $10.9 million at June 30, 2010 and reduced the unpaid health and medical benefit costs, accounts payable to suppliers and other accounts payable. The increase in 2010 is mainly related to the increased costs in the health and medical benefits to employees and the increase of unpaid utilities. Long-term debt and capital lease obligations increased by $61.3 million or 9% from $666.1 million at June 30, 2010, to $727.4 million at June 30, 2011. In 2010, long-term debt and lease decreased by $72.4 million or 10% from $738.5 million at June 30, 2009. The increase in 2011 mainly resulted from a $100 million line of credit obtained from GDB in October 2010 which was partially offset by principal paid on capital debt and leases of $28.9 million during the fiscal year ended June 30, 2011. The balance outstanding under this line of credit amounted to $93.7 million at June 30, 2011. The decrease in 2010 mainly resulted from principal paid on capital debt and leases of $22.0 million and the cancellation of a note payable of $51.2 million against a receivable from the Commonwealth during the fiscal year ended June 30, 2010. Compensated absences amounted to $156.7 million, $163.1 million and $169.7 million at June 30, 2011, 2010 and 2009, respectively, a decrease of $6.4 million or 4% in 2011 and of $6.6 million or 4% in 2010 when compared with prior year balances. Changes in compensated absences are mainly related to variations on the use of vacations by employees.
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Net Assets Net assets represent the residual interest in the Universitys assets after liabilities are deducted. Net assets amounted to $426.1 million, $368.1 million and $367.9 million at June 30, 2011, 2010, and 2009, respectively, an increase of $58.0 million or 16% in 2011 and of $144 thousand in 2010 when compared with the prior year balances. These changes are explained in the section entitled Statements of Revenues, Expenses and Changes in Net Assets. The major classifications of the net assets at June 30, 2011 are shown in the following illustration:
$400 300 200 100 90 80 70 60 40 20 0 --20 -40 -60 -70 -80
Net assets invested in capital assets, net of related debt, represent the Universitys capital assets less accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted nonexpendable net assets consist primarily of the Universitys permanent endowment funds. The corpus of these funds may not be expended and must remain with the University in perpetuity. Only the earnings from these funds may be expended. Restricted expendable net assets are subject to externally imposed restrictions governing their use. The funds are restricted primarily for debt service, capital projects, student loans and scholarship purposes. Unrestricted net assets represent those balances from operational activities that have not been restricted by parties external to the University such as donors or grant agencies.
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In millions
Statements of Revenues, Expenses and Changes in Net Assets Changes in total net assets as presented in the statements of net assets are based on the activity presented in the statements of revenues, expenses and changes in net assets. The purpose of these statements are to present the revenues earned, both operating and nonoperating, and the expenses paid and accrued and any other revenues, expenses, gains and losses earned or spent by the University. Generally, operating revenues are used to provide goods and services to the various customers and constituencies of the University. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the University. Nonoperating revenues are revenues received for which goods and services are not provided. Approximately 87% of the operating revenues and non-operating revenues of the University are Federal and Commonwealth appropriations, grants and contracts. The remainder consists primarily of tuition and fees and patient services. Operating Revenues Total operating revenues amounted to $354.5 million, $265.1 million and $268.1 million for the years ended June 30, 2011, 2010, and 2009, respectively, an increase of $89.4 million or 34% in 2011 and a decrease of $3.0 million or 1% in 2010. The changes in operating revenues mainly resulted from the changes in tuitions and fees, in governmental grants and contracts and in patient services revenues. Tuitions and fees increased by $31.6 million or 76%, from $41.8 million in 2010 to $73.4 million in 2011, mainly as a result of the stabilization fee established by the Board of Trustees of the University on June 30, 2010 to address the Universitys budgetary deficit issues. This stabilization fee is charged to all students in addition to tuition charges and other fees already in place in the University. The stabilization fee amounts to $400 per student per semester and has no set termination date. This stabilization fee increased revenue from tuitions and fees by $41.3 million in fiscal year ended June 30, 2011. However, the positive effect of the stabilization fee on the revenue from tuitions and fees in 2011 was partially offset by the increase in the scholarship allowances of $22.8 million or 46%, from $49.7 million in 2010 to $72.6 million in 2011. In 2010, tuitions and fees decreased by $8.8 million or 17%, from $50.6 million in 2009, mainly is the result of higher scholarship allowances (about $6.0 million or 14% more than in fiscal year 2010) because of the increase in the Federal Pell Grant program. In 2011 and 2010, the Federal Pell Grant program increased the grant amount per student and reduced the grant qualification requirements which had the effect of increase the scholarship allowances. In 2011, revenues from governmental grants and contracts increased by $29.8 million or 23% from $131.7 million in 2010, to $161.5 million in 2011. In 2010, these revenues increased by $3.7 million or 3% from $128.0 million in 2009. The increase in 2011 mainly resulted from the increases in the federal and in the Commonwealths grants and contracts for agricultural station services and other purposes. The increase in 2010 mainly resulted from the increase in the Commonwealths grants and contracts.
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Patient services amounted to $71.5 million, $51.4 million and $55.5 million for the years ended June 30, 2011, 2010, and 2009, respectively, an increase of $20.1 million or 39 % in 2011 and a decrease of $4.1 million or 7% in 2010. In 2011, patient service revenue increased as a result of more services rendered to patients and lower provision recorded for doubtful accounts. In 2010, patient service revenue decreased as a result of the increase in the provision for doubtful accounts. Non-operating Revenues Total non-operating revenues amounted to $1.04 billion, $1.12 billion and $1.06 billion for the years ended June 30, 2011, 2010, and 2009, respectively, a decrease of $87.0 million or 8% in 2011 and an increase of $60.1 million or 6% in 2010. In 2011, the University received nonrecurring revenues from the American Reinvestment and Reconstruction Act (ARRA funds) of $15.0 million when in 2010 it received $105.0 million, a decrease of $90 million. No such funds were received in 2009. In addition, the Commonwealth appropriations amounted to $839.4 million, $839.3 million and $923.8 million for the years ended June 30, 2011, 2010 and 2009. They remained flat in 2011 while in 2010 they decreased by $84.4 million or 9%. Appropriations from the Commonwealth are the principal source of revenues of the University and are mainly supported by Act No. 2 of January 20, 1966, as amended. Under the Act, the Commonwealth appropriates for the University an amount equal to 9.60% of the average total amount of annual general funds revenues collected under the laws of the Commonwealth in the two fiscal years immediately preceding the current fiscal year (the Commonwealth formula appropriations). The non-operating revenues were negatively impacted by the continued reduction in the Commonwealth formula appropriations as a result of the reduction in the Commonwealths general funds revenues. The Commonwealth formula appropriations amounted to $691.5 million, $729.1 million and $835.1 million for the years ended June 30, 2011, 2010, and 2009, respectively, a decrease of $37.6 million or 5% in 2011 and a decrease of $106.0 million or 13% in 2010. In addition, the Commonwealth has appropriated amounts for general current obligations, for capital improvement programs, and for loans and financial assistance to students. These Commonwealth appropriations amounted to $147.9 million, $110.2 million and $88.7 million for the years ended June 30, 2011, 2010, and 2009, respectively, an increase of $37.7 million or 34% in 2011 and an increase of $21.5 million or 24% in 2010. The increase in 2011 mainly resulted from the appropriations received from the Special Scholarship Fund. By virtue of Act No. 176 of November 2010, as amended by Act No. 46 of April 2011, the Commonwealth of Puerto Rico has committed to transfer 10% of the Additional Lotterys net annual income with a guaranteed minimum amount of $30 million per academic year, for the creation of a Special Scholarship Fund for the University of Puerto Rico. The purpose of the fund is to provide financial aid to graduate and undergraduate students. The fund will be administered by the University. Proceeds of this fund received by the University in 2011 amounted to $30.0 million, of which $23.4 million were granted as scholarships during the fiscal year ended June 30, 2011. Unused fund balance at June 30, 2011 amounted to $6.6 million.
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Federal Pell Grant program revenues amounted to $179.2 million in 2011 and 2010 and to $141.1 million in 2009. They remained flat in 2011, while in 2010 they increased by $38.1 million or 27%. The increase in 2010 was mainly due to the increase in the Federal Pell Grant assistance along with an increase in the number of eligible participants, as previously mentioned. The following illustration presents the major sources of the University revenues (both operating and nonoperating) for the year ended June 30, 2011:
Chart 2 Major Sources of Operating Revenues (In thousands)
18 0 16 0 14 0
$1 61,547
In millions
12 0 10 0 80 60 40 20 0 Tu itions & Fe es Patie n t Se rvice s State and Fede ral G rants & C ontracts Non gove rme ntal Gran ts & C ontracts $1 5,1 06 $7 3,451 $ 7 1,46 6
Chart 3 Major Sources of Nonoperating Revenues (In thousands)

$839,372 900 800 700 600 500 400 300 200 100 0 Commonwealth Appropriations
In millions
$179,160 $15,000 $15,666
Federal Pell Grant
Federal ARRA Program
Gifts
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Federal grants represent 76% of the University operating grants revenues. The following illustration presents the operating grants revenues of the University of Puerto Rico for the year ended June 30, 2011:
Chart 4 - Operating Grants Revenues

(Dollars in thousands)
9%
15%
76%
Federal Commonwealth Nongovernmental Total Operating Expenses
134,210 27,337 15,106 176,653
76% 15% 9% 100%
The Universitys expenses are presented using natural expense classifications. Total operating expenses amounted to $1.35 billion, $1.42 billion and $1.41 billion for the years ended June 30, 2011, 2010, and 2009, respectively, a decrease of $72.2 million or 5% in 2011 and an increase of $11.5 million or 1% in 2010. The reduction in operating expenses is the result of the cost control measures taken by University in the fiscal years 2011 and 2010.
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Salaries and benefits, the most significant component of operating expenses, amounted to $860.1 million, $933.6 million and $939.5 million for the years ended June 30, 2011, 2010 and 2009, respectively, a decrease of $73.6 million or 8% in 2011 and of $5.9 million or less than 1% in 2010. In 2011, these expenses decreased as a result of strict control measures taken by Management which includes the replacement of no more than 33% of retired employees, reductions in employees benefits such as excess compensated absences, among others. In 2011, the University reduced about 800 positions of retired employees and of employees under contracted services. Notwithstanding that salary expense decreased in 2011, the University increased its contribution rate to the retirement plan from 11.4% to 13.0% which resulted in an increase of $10.0 million in the contribution benefit to the retirement plan. In 2010, these expenses decreased as a result of strict control measures taken by Management and the effect was partially offset by the increase in the medical plan expense. Scholarships and fellowships amounted to $215.2 million, $211.8 million and $176.6 million for the years ended June 30, 2011, 2010 and 2009, respectively, an increase of $3.4 million or 2% in 2011 and an increase of $35.2 million or 20% in 2010. The increase in 2011 mainly resulted from $24.0 million in scholarships granted under the Special Scholarship Fund approved by Act No. 176 of November 2010, as amended by Act No. 46 of April 2011. The increase in 2010 mainly resulted from the increase in the Federal Pell Grant assistance. Supplies and other services and utilities amounted to $206.5 million, $198.7 million and $207.6 million for the years ended June 30, 2011, 2010 and 2009, respectively, an increase of $7.8 million or 4% in 2011 and a decrease of $8.9 million or 4% in 2010. The increase in 2011 mainly resulted from additional professional services. In 2010, these expenses decreased as a result of strict control measures taken by University.
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The following illustration presents the major University operating expenses, using natural classification for the year ended June 30, 2011:
Chart 5 - Operating Expenses

(Dollars in thousands)
Salaries Benefits Scholarships and fellowships Supplies and other services Utilities Depreciation and amortization Other expenditures Total
621,981 238,098 215,205 155,973 50,589 43,921 24,871 1,350,638
46% 18% 16% 11% 4% 3% 2% 100%
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Functional expense classification presents University expenses in the operational categories they benefit. The following illustration presents the major uses of University revenues (both operating and nonoperating) on a functional basis for the year ended June 30, 2011:
Chart 6 Expenses by Function (Dollars in thousands)
Instruction Research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Patient service Depreciation and amortization Other Total
402,096 115,531 84,916 90,163 53,078 131,147 172,876 189,385 57,426 43,921 10,099 1,350,638
30% 9% 6% 7% 4% 10% 13% 14% 4% 3% 1% 100%
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Operating Loss and Net Change in Net Assets For the year ended June 30, 2011, the University reported an operating loss of $996.2 million. After adding nonoperating revenues of $1.04 billion, primarily from the Commonwealths appropriations and Federal programs, and capital appropriations and additions to term and permanent endowments of $16.6 million, the net assets increased by $58.0 million or 16% for the year ended June 30, 2011. For the year ended June 30, 2010, the University reported an operating loss of $1.16 billion. After adding nonoperating revenue of $1.12 billion, primarily from the Commonwealths appropriations and Federal Pell Grant program, and capital appropriations and additions to term and permanent endowments of $10.5 million, the net assets decreased by $22.7 million for the year ended June 30, 2010 (prior to effect of adopting GASB No. 51). Statements of Cash Flows The Statements of Cash Flows present information related to cash flows of the University by the following categories: operating activities, noncapital financing activities, capital and related financing activities and investing activities. Net cash provided by noncapital financing activities were primarily due to the receipts of the Commonwealths appropriations and the federal Pell grants, the federal direct loans and the federal ARRA program. Net cash provided by investing activities mainly results from the proceeds from sales and maturities of investments that was partially offset by the purchases of investments. The change in cash and cash equivalents was partially offset by the cash used in capital and related financing activities and in operating activities. Net cash used in capital and related financing activities was primarily due to purchases of capital assets and principal and interest payments on capital debt and leases. Net cash used in operating activities is consistent with the Universitys operating loss. Required Supplementary Information and Other Financial Information The required supplementary information consists of two schedules concerning the following: (1) the supplementary information of the Universitys Employees retirement Plan as required by the GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers, and (2) the supplementary information of the Universitys Postemployment Benefits Other Than Pensions Program as required by the GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The other financial information consists of the schedules of changes in sinking fund reserves. Subsequent Events Subsequent events were evaluated through March --, 2012, the date the financial statements were available to be issued, to determine if such events should be recognized or disclosed in the 2011 financial statements.
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In August 2011, the $5 million line of credit facility with the Government Development Bank for Puerto Rico was amended to increase its authorized balance to $75,000,000. In October 2011, the $100 million line of credit facility with the Government Development Bank for Puerto Rico was amended to increase its authorized balance to $125,000,000, to extent the revolving status of the line from June 30, 2011 until October 1, 2012 and to convert the line of credit into a ten year term loan, with monthly equal principal payments plus interest starting on October 1, 2013. The maturity date of the line of credit was extended to October 1, 2022. Capital Assets and Debt Administration Significant capital assets additions for the year ended June 30, 2011 and 2010, consist mainly of renovation and rehabilitation of existing facilities, restoration of historic buildings, and modifications of existing facilities in light of new technology, educational standards and the requirements of modern building codes. Economic Outlook The Universitys business activities are conducted in Puerto Rico. Its operating results are mainly funded by nonoperating revenues mainly from the Commonwealth of Puerto appropriations and from the United States of America Government grants (Federal Pell Grant Program). Puerto Rico uses the U.S. currency and forms part of the U.S. financial system. Factors affecting the U.S. economy usually have a significant impact on the performance of the Puerto Rico economy. These include exports, direct investment, the amount of federal transfer payments, the level of interest rates, the level of oil prices, the rate of inflation, and tourist expenditures, among others. In the past, the economy of Puerto Rico has generally followed economic trends in the overall U.S. economy. The Puerto Rico economy is currently in a recession that began officially in the fourth quarter of fiscal year 2006, a fiscal year in which the real gross national product grew by only 0.5%. There has been an overall contraction in sectors of Puerto Ricos economy, principally within the manufacturing and construction sectors, coupled with declines in tourism and retail sales, budget shortfalls and diminished consumer buying power driven by the implementation of a sales tax. Appropriations from the Commonwealth are the principal source of revenues of the University and are supported by Act No. 2 of January 20, 1966, as amended. Under the Act, the Commonwealth appropriates for the University an amount equal to 9.60% of the average total amount of annual general funds revenues collected under the laws of the Commonwealth in the two fiscal years immediately preceding the current fiscal year. In addition, the Commonwealth has appropriated amounts for general current obligations, for capital improvement programs, and for loans and financial assistance to students.
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The Commonwealth appropriations for the last five years are illustrated below:
Chart 7 Commonwealth Appropriations (1)
(In thousands)
$935,881
$1,000
$923,760
$896,493
900
In millions
700
$839,318
$839,372
500
400
2006-07
(1)
2007-08
2008-09
2009-10
2010-11
Includes restricted funds for special activities.
If economic conditions worsen more than expected, it could significantly reduce the Commonwealths revenues and therefore reduce the Universitys revenues from the Commonwealths appropriations, which could have an adverse effect on the Universitys financial position or changes in its net assets. The University and PRIDCO (Puerto Rico Industrial Development Company) entered into an agreement to create the Fondo de Investigacin del Centenario de la Universidad de Puerto Rico. As part of the agreement, the University will receive $40 million of which it has received $19,190,000. The University expects to collect the remaining balance. Request for Information This financial report is designed to provide a general overview of the Universitys finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance. The executive offices of the University are located at 1187 Flamboyn Street, Jardn Botnico Sur, San Juan, Puerto Rico 00926.
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University of Puerto Rico Statements of Net Assets
June 30 2011 Assets Current assets: Cash and cash equivalents Restricted cash and cash equivalents Investments at fair value Restricted investments at fair value Accounts receivable (less allowances for doubtful accounts of $169,503,873 and $162,172,647 for 2011 and 2010, respectively) Due from Commonwealth of Puerto Rico Inventories Prepaid expenses and deferred charges Total current assets Noncurrent assets: Restricted cash and cash equivalents Restricted investments at fair value Due from Commonwealth of Puerto Rico Prepaid expenses and other assets Notes receivable, net Capital assets (net of accumulated depreciation and amortization): Land and other nondepreciable assets Depreciable assets Total noncurrents assets Total assets Liabilities Current liabilities: Excess of outstanding checks over bank balance Accounts payable and accrued liabilities Current portion of long-term debt Obligation under capital lease, current portion Other current liabilities Total current liabilities Noncurrent liabilities: Long-term debt, net of current portion Obligation under capital lease, noncurrent portion Other long-term liabilities Total noncurrent liabilities Total liabilities 2010
96,139,332 8,396,509 73,997,945 54,649,613
64,175,315 54,622,873
88,408,504 31,598,442 3,518,775 3,853,165 360,562,285
98,032,981 12,570,127 3,570,531 479,932 233,451,759
3,479,692 84,818,821 24,720,254 66,317,282 3,312,394
3,391,756 106,756,499 56,608,186 59,687,041 3,115,767
158,829,439 807,065,961 1,148,543,843 1,509,106,128
253,000,134 708,167,573 1,190,726,956 1,424,178,715
105,482,890 45,056,638 1,383,308 32,979,704 184,902,540
10,920,460 132,465,972 27,652,000 1,294,247 32,611,390 204,944,069
616,290,379 64,693,128 217,162,554 898,146,061 1,083,048,601
571,052,715 66,076,436 214,012,268 851,141,419 1,056,085,488
(Continues)
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University of Puerto Rico Statements of Net Assets (continued)
June 30 2011 Net assets Invested in capital assets, net of related debt Restricted, nonexpendable: Scholarship and fellowships Research Other Restricted, expendable: Loans Capital projects Debt service Unrestricted (deficit) Total net assets 2010
337,279,006 33,093,435 53,175,807 1,703,227 7,675,624 5,388,897 52,087,812 (64,346,281) 426,057,527
309,054,671 36,470,460 38,195,830 3,924,263 7,859,602 12,441,640 51,904,121 (91,757,360) 368,093,227
See accompanying notes.
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University of Puerto Rico Statements of Revenues, Expenses and Changes in Net Assets
Year Ended June 30 2011 2010 Revenues Operating revenues: Tuitions and fees (net of scholarship allowances of $72,584,268 and $49,740,615 for 2011 and 2010, respectively) Net patient services revenue and other Federal grants and contracts Commonwealth grants and contracts (net of allowances of $2,394,595 and $1,351,870 for 2011 and 2010, respectively) Nongovernmental grants and contracts Sales and services of educational departments Auxiliary enterprises (net of scholarship allowances of $85,476 and $190,290 for 2011 and 2010, respectively) Other operating revenues Total operating revenues Operating Expenses Salaries: Faculty Exempt staff Nonexempt wages Benefits Scholarships and fellowships Supplies and other services Utilities Depreciation and amortization Other expenses Total operating expenses Operating loss Nonoperating revenues (expenses): Commonwealth appropriations Federal Pell Grant program Federal ARRA program Gifts Net investment income Interest on capital assets - related debt Interest on notes payable Other nonoperating revenues, net Net nonoperating revenues Income (loss) before other revenues Capital appropriations Additions to term and permanent endowments Change in net assets Net Assets Beginning of year, as previously reported Cumulative impact of change in accounting for intangible assets Beginning of year, as adjusted End of year
73,451,284 71,465,562 134,209,649 27,337,138 15,106,195 8,991,008 3,000,567 20,909,278 354,470,681
41,809,483 51,448,925 112,158,695 19,522,590 21,578,616 5,674,828 3,570,176 9,294,349 265,057,662
345,848,868 275,398,975 733,512 238,097,899 215,204,518 155,972,533 50,588,808 43,921,130 24,871,422 1,350,637,665 (996,166,984)
386,507,036 298,298,168 818,075 248,029,695 211,830,626 150,226,879 48,515,157 43,737,024 34,848,901 1,422,811,561 (1,157,753,899)
839,372,106 179,160,009 15,000,000 15,666,211 2,568,356 (13,828,789) (1,787,458) 1,357,205 1,037,507,640 41,340,656 5,579,578 11,044,066 57,964,300
839,318,731 179,164,782 105,000,000 18,305,621 1,919,924 (19,905,665) 745,997 1,124,549,390 (33,204,509) 1,288,035 9,251,343 (22,665,131)
368,093,227 368,093,227 426,057,527
367,949,039 22,809,319 390,758,358 368,093,227
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University of Puerto Rico Statements of Cash Flows
Year Ended June 30 2011 Cash flows from operating activities Tuition and fees Grants and contracts Patient services Auxiliary enterprises Sales and services educational departments and other Payments to suppliers Payments to employees Payments for benefits Payments for utilities Payments for scholarships and fellowships Loans issued to students, net of repayments Other receipts (payments) Net cash used in operating activities Cash flows from noncapital financing activities Commonwealth appropriations Federal ARRA program Pell grant Endowment gifts Proceeds from noncapital debt Interest paid on notes payable Other non-operating revenues Gifts and grants for other than capital purposes Net cash provided by noncapital financing activities Cash flows from capital and related financing activities Capital appropriations Purchases of capital assets Proceeds from sales of capital assets Principal paid on capital debt and lease Interest paid on capital debt and lease Deposit with trustee Net cash used in capital and related financing activities Cash flows from investing activities Proceeds from sales and maturities of investments Purchases of investments Collections of interest and dividend income on investments Net cash provided by investing activities Net change in cash and cash equivalents Cash and cash equivalents: Beginning of year End of year $ 3,391,756 108,015,533 $ 8,248,521 3,391,756 69,666,116 (57,551,068) 2,568,356 14,683,404 104,623,777 92,548,050 (51,455,280) 1,919,924 43,012,694 (4,856,765) 5,579,578 (49,217,333) 1,126,820 (28,946,245) (17,420,460) (26,740) (88,904,380) 1,288,035 (84,747,261) (22,033,551) (19,053,529) (99,656) (124,645,962) 852,231,723 15,000,000 179,160,009 11,044,066 93,705,769 (1,334,547) 1,357,205 15,666,211 1,166,830,436 857,600,676 105,000,000 179,164,782 9,251,343 745,998 18,305,620 1,170,068,419 $ 71,155,116 186,752,877 65,391,480 3,000,567 29,900,284 (216,840,623) (618,868,343) (238,665,640) (54,815,847) (215,204,517) (196,627) 405,590 (987,985,683) $ 40,770,442 169,276,645 45,786,745 2,052,195 35,796,361 (204,009,400) (685,130,701) (246,290,184) (35,415,752) (211,830,626) (367,707) (3,929,934) (1,093,291,916) 2010
(Continues)
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University of Puerto Rico Statements of Cash Flows (continued)
Year Ended June 30 2011 2010 Reconciliation of operating loss to net cash used in operating activities Operating loss Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation and amortization Provision for doubtful accounts Changes in operating assets and liabilities: Decrease (increase) in: Grants and contracts receivables Prepaid expenses, inventories and other Increase (decrease) in: Excess of outstanding checks over bank balance Accounts payable and accrued liabilities Accrued salaries, wages, benefits and other liabilities Net cash used in operating activities Supplemental schedule of noncash investing, capital and financing activities: Note payable cancelled againt receivable from the Commonwealth's appropriations
(996,166,984)
(1,157,753,899)
43,921,130 8,831,226
43,737,024 26,470,074
793,251 (10,148,345) (10,920,460) (27,408,513) 3,113,012 (987,985,683)
(18,672,659) (4,843,149) (12,720,956) 30,004,819 486,830 (1,093,291,916)
51,239,135
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Discretely Presented Component Unit Servicios Mdicos Universitarios, Inc. (A Not-for Profit Organization) Statements of Financial Condition
June 30 2011 Assets Current assets: Cash and cash equivalents Patient accounts receivable, net of allowance for doubtful accounts of $14,885,379 in 2011 and $17,449,667 in 2010 Accounts receivable - other Inventories of supplies Prepaid expenses Estimated third-party payor settlements-Medicare Total current assets Property and equipment, net Due from related parties Total assets 2010
3,142,686 13,215,573 1,118,160 1,050,759 250,963 2,079,005 20,857,146 4,816,327 137,650 25,811,123
573,729 17,525,931 510,476 1,120,998 225,266 1,673,539 21,629,939 5,622,711 3,940,275 31,192,925
Liabilities and deficiency in unrestricted net assets Current liabilities: Current portion of long-term debt and capital lease obligation Accounts payable Accrued payroll taxes and employee benefits Accrued expenses Total current liabilities Long-term debt and capital lease obligation, net of current portion Due to related parties Accrued claim losses Total liabilities Deficiency in unrestricted net assets Total liabilities and deficiency in unrestricted net assets
1,681,119 17,464,644 1,502,296 2,013,275 22,661,334 19,222,494 42,041,174 1,134,796 85,059,798 (59,248,675) 25,811,123
820,153 24,421,905 1,726,313 1,085,253 28,053,624 19,070,938 44,722,011 1,029,596 92,876,169 (61,683,244) 31,192,925
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Discretely Presented Component Unit Servicios Mdicos Universitarios, Inc. (A Not-for-Profit Organization) Statements of Activities and Changes in Unrestricted Net Assets
Year Ended June 30 2011 2010 Unrestriced revenues and other support Net patient service revenue Capital revenue Other revenue Total unrestricted revenues and other support Expenses Salaries and benefits Contracted services Professional services Supplies Utilities Interest Provision for bad debts Provision for claim losses Depreciation and amortization Other Total expenses Changes in unrestricted net assets Deficiency in unrestricted net assets, at beginning of year Deficiency in unrestricted net assets, at end of year
47,408,444 3,185,174 1,624,509 52,218,127
47,347,178 2,318,097 1,364,718 51,029,993
15,085,774 3,018,469 3,287,431 12,944,843 2,708,728 1,133,234 9,628,460 150,000 1,634,396 192,223 49,783,558 2,434,569 (61,683,244) (59,248,675)
17,633,685 3,380,700 1,435,525 10,873,319 2,447,258 1,419,244 6,701,855 150,000 1,789,280 1,686,111 47,516,977 3,513,016 (65,196,260) (61,683,244)
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Discretely Presented Component Unit Servicios Mdicos Universitarios, Inc. (A Not-for-Profit Organization) Statements of Cash Flows
Year Ended June 30 2011 2010 Cash flows from operating activities Changes in unrestricted net assets Adjustments to reconcile changes in unrestricted net assets to net cash provided by operating activities: Depreciation and amortization Provision for bad debts Provision for claim losses Decrease (increase) in: Patient accounts receivable Inventory of supplies Prepaid expenses Estimated third-party payor settlement-Medicare Accounts receivable-other Increase (decrease) in: Account payable Accrued expenses, payroll taxes, employee benefits and other Accrued claim losses Total adjustments Net cash provided by operating activities Cash used in investing actitivies Purchases of property and equipment Net cash flows from financing activities Payments on long-term debt, credit line and capital lease obligation Proceeds from credit line Advances to related parties Repay from related parties Other receipts from related parties Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents, at beginning of year Cash and cash equivalents, at end of year Supplemental disclosures of cash flows information Interest paid Supplemental schedule of noncash investing and financing activities Equipment acquired through financing Trade account payable converted into a long term debt $ 2,434,569 $ 3,513,016
1,634,396 9,628,460 150,000 (5,318,102) 70,239 (25,697) (405,466) (569,861) (4,475,910) 704,007 (44,800) 1,347,266 3,781,835
1,789,280 6,701,855 150,000 (12,332,073) 248,826 20,961 (1,926,759) (124,373) 2,111,800 473,101 (12,000) (2,899,382) 613,634
(268,937)
(1,073,129)
(1,765,671) 88,800 (1,038,117) 1,115,847 655,200 (943,941) 2,568,957 573,729 3,142,686
(769,822) (983,315) 897,276 735,400 (120,461) (579,956) 1,153,685 573,729
1,154,459
1,419,242
$ $
559,075 2,220,999
$ $
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Discretely Presented Component Unit Desarrollos Universitarios, Inc. (A Not-for-Profit Organization) Statements of Financial Position
June 30 2011 Assets Current assets: Cash Restricted cash Restricted funds held by trustee Net investment in direct financing lease Property and equipment, net Reimbursable tenant improvements unbilled, net of construction certifications payable of $127,745 Bond issuance costs, net of accumulated amortization of $790,920 in 2011 and $710,384 in 2010 Other assets Total assets 2010
1,721,322 1,322,158 14,621,673 66,230,945 13,092 424,557 1,998,304 274,951 86,607,002
2,221,066 1,157,125 14,195,551 67,533,232 22,018 2,078,840 180,504 87,388,336
Liabilities and net assets Liabilities: Construction contract and other development payables, retainage of $1,553,736 in 2011 and $1,582,078 in 2010 Operating trade accounts payable Accrued interest payable Accrued costs and expenses Due to the University of Puerto Rico, net Unearned student dormitories rental income Commercial tenants and student dormitories security deposits Bonds payable, net of discount of $236,856 in 2011 and $254,897 in 2010 Total liabilities Net assets - Unrestricted Total
1,633,736 85,294 1,970,469 1,139,626 18,844 127,491 76,093,144 81,068,604 5,538,398 86,607,002
1,662,159 61,467 2,018,513 1,134,637 187,352 1,286 37,153 77,760,103 82,862,670 4,525,666 87,388,336
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Discretely Presented Component Unit Desarrollos Universitarios, Inc.
(A Not-for-Profit Organization)
Statements of Activities and Changes in Net Assets
Year Ended June 30 2011 2010 Revenues: Income from investment in direct financing lease Fixed management fee Reimbursable expenditures fee Total revenues Expenses: Project operation and maintenance General and administrative Total expenses Other income (expenses): Interest and other financing, related expenses Interest income Total other expenses, net Changes in unrestricted net assets Net assets - Unrestricted, beginning of year Net assets - Unrestricted, end of year $
4,398,634 900,000 2,382,513 7,681,147
4,481,121 900,000 2,258,410 7,639,531
2,426,816 625,980 3,052,796
2,211,182 664,822 2,876,004
4,040,222 (424,603) 3,615,619 1,012,732 4,525,666 5,538,398 $
4,113,117 (425,213) 3,687,904 1,075,623 3,450,043 4,525,666
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Discretely Presented Component Unit Desarrollos Universitarios, Inc.
(A Not-for-Profit Organization)
Statements of Cash Flows
Year Ended June 30 2011 2010 Cash flows from operating activities Changes in unrestricted net assets Adjustments to reconcile changes in unrestricted net assets to net cash provided by operating activities: Depreciation Bond discount amortization Amortization of bonds issuances costs Changes in operating assets and liabilities: Principal collected from direct financing lease Net decrease in due from Unversity of Puerto Rico Increase in other assets Decrease in construction contract and other development payables Increase (decrease) in operating trade accounts payable Decrease in accrued interest payable Increase in accrued costs and expenses Decrease in unearned student dormitories rental income Increase (decrease) in commercial tenants and student dormitories security deposits Net cash provided by operating activities Cash flows from investing activities Net increase in restricted funds held by trustee Increase in reimbursable tenant improvements, net of related payables Capital expenditures Net cash used in investing activities Cash flows from financing activities Principal payments on bonds payable Net cash collected and receivables managed on behalf of the University of Puerto Rico Net cash used in financing activities Net change in cash Cash, beginning of year Cash, end of year
Supplemental disclosures of cash flows information: Interest paid
1,012,732
1,075,623
8,926 18,041 80,536 1,302,287 (94,447) (28,423) 23,827 (48,044) 4,989 (1,286) 90,338 2,369,476
4,602 19,025 80,631 1,216,429 596,783 (120,507) (43,199) (71,371) (33,413) 22,825 (69,906) (992) 2,676,530
(426,122) (424,557) (850,679)
(27,648) (7,401) (35,049)
(1,685,000) (168,508) (1,853,508) (334,711) 3,378,191 $ 3,043,480 $
(1,620,000) 187,352 (1,432,648) 1,208,833 2,169,358 3,378,191
3,977,000
4,046,000
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University of Puerto Rico Notes to Financial Statements

June 30, 2011
1. Reporting Entity and Summary of Significant Accounting Policies A. Reporting Entity The University of Puerto Rico (the University) is a public corporation of the Commonwealth of Puerto Rico (the Commonwealth) governed by a seventeen-member Board of Trustees, of which fourteen members are appointed by the Governor of Puerto Rico and confirmed by the Senate of Puerto Rico. The remaining members of the Board consist of one full-time student and two tenured professors. The Governor appointed the original members for a term of six years. The terms for the student and professors are one year. The University is exempt from the payment of taxes on its revenues and properties. The University is a discretely presented major component unit of the Commonwealth. The financial reporting entity of the University consists of the campuses at Ro Piedras, Mayagez, Medical Sciences, Cayey, Humacao, Ponce, Bayamn, Aguadilla, Arecibo, Carolina and Utuado, and the Central Administration. Appropriations from the Commonwealth are the principal source of revenues of the University and are supported by Act No. 2 of January 20, 1966, as amended. Under the Act, the Commonwealth appropriates for the University an amount equal to 9.60% of the average total amount of annual general funds revenues collected under the laws of the Commonwealth in the two fiscal years immediately preceding the current fiscal year. In addition, the Commonwealth has appropriated amounts for general current obligations, for capital improvement programs, and for loans and financial assistance to students. Discretely Presented Component Unit Disclosures: A discretely presented component unit is an entity whose operations are separate from the Universitys but over whom the University has significant accountability. The University has two discretely presented component units as follows: Servicios Mdicos Universitarios, Inc. Servicios Mdicos Universitarios, Inc. (the Hospital) is legally separated entity from the University and is governed by a separate board. The Hospital is a not-for-profit acute care corporation, organized under the Laws of the Commonwealth of Puerto Rico, on February 11, 1998, to operate and administer healthcare units. The principal objectives of the Hospital are to constitute it as the principal medical education institution of the University and to offer healthcare services to the residents of Puerto Rico. The University appoints a voting majority of the Hospital board and is also financially accountable for the Hospital. Complete financial statements of the Hospital can be obtained directly by contacting the Hospitals administrative offices.
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University of Puerto Rico Notes to Financial Statements (continued)
1. Reporting Entity and Summary of Significant Accounting Policies (continued) Desarrollos Universitarios, Inc. Desarrollos Universitarios, Inc. (the Company) is a legally separate entity from the University and is governed by a separate board. The Company was organized on January 22, 1997, under the laws of the Commonwealth of Puerto Rico, as a not-for-profit organization. The Company was organized to develop, construct, and operate academic, residential, administrative, office, commercial, and maintenance facilities for the use of students and other persons or entities conducting business with the University. The Company developed the Plaza Universitaria Project, which consist of a student housing facility, a multi-story parking building and an institutions building to house administrative, student service and support functions and to a lesser extent to lease commercial space. The financing for the Projects was provided by the issuance of $86,735,000 in Educational Facilities Revenue Bonds through the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) on December 20, 2000. In 2008, the University entered into a capital lease agreement with the Company for the Plaza Universitaria project. The Company is fiscally dependent on the University. Complete financial statements of the Company can be obtained directly by contacting the Companys administrative offices. The following is a summary of the significant accounting policies followed by the University: B. Measurement Focus and Basis of Accounting The accounting and reporting policies of the University conform to accounting principles generally accepted in the United States of America, as applicable to governmental entities. The Governmental Accounting Standards Board (GASB) is the accepted standards setting body for establishing governmental accounting and financial reporting principles. For financial reporting purposes, the University is considered a special purpose governmental agency engaged only in business type activities, as defined by GASB Statement No. 35, Basic Financial Statements-and Managements Discussion and Analysis-for Public Colleges and Universities. Accordingly, the Universitys financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant transactions related to internal service activities such as publications, telecommunications and institutional computing have been eliminated where appropriate. The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB pronouncements conflict with GASB pronouncements. The University has elected to not apply FASB pronouncements issued after the applicable date.
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1. Reporting Entity and Summary of Significant Accounting Policies (continued) B. Measurement Focus and Basis of Accounting (continued) The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. C. Reclassifications Reclassifications of prior year balances have been made to conform to the current year presentation. D. Cash Equivalents The University considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash equivalents. E. Investments Investments are reported at fair value in the statements of net assets. Fair value is based on quoted market prices. The changes in the fair value of investments are reported in the statements of revenues, expenses and changes in net assets as a component of net investment income (non-operating activities). Donated investments are recorded at their fair value at the date of donation. Investments of the Deferred Compensation Plan are valued at fair value in order to measure the current liability attributable to plan participants. F. Restricted Funds Held by Trustee Discretely Presented Component Unit Restricted funds of Desarrollos Universitarios, Inc. held by trustee at June 30, 2011 and 2010 consist of money market funds and zero coupon bonds purchased with remaining maturities of six months or less. G. Allowance for Doubtful Accounts The allowance for uncollectible accounts and other receivables is an amount that management believes will be adequate to absorb possible losses on existing receivables that may become uncollectible based on evaluations of the collectability of the receivables and prior credit loss experience. Because of uncertainties inherent in the estimation process, the related allowance may change in the future.
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1. Reporting Entity and Summary of Significant Accounting Policies (continued) H. Inventories Inventories are valued at the lower of cost (first-in, first-out method) or market and consist primarily of books. I. Capital Assets All capital expenditures of $1,000 or more and having a useful life of two or more years are capitalized at cost at the date of acquisition. Donated assets are recorded at estimated fair value at the date of donation. Depreciation and amortization expense is computed using the straight-line method over the estimated useful lives of the assets, or in the case of assets under capital lease, over the term of the lease, whichever is shorter, generally 25 to 50 years for buildings and infrastructure, 5 to 20 years for equipment, library materials and software, and 7 to 30 years for land improvements. Renovations to buildings and other assets that significantly increase the value or extend the useful life of the asset are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense has been incurred. J. Impairment of Capital Assets The University accounts for asset impairment under the provisions of GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. This statement establishes accounting and financial reporting standards for impairment of capital assets. A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. This statement also establishes accounting requirements for insurance recoveries. A capital asset generally should be considered impaired if both (a) the decline in service utility of the capital asset is large in magnitude and (b) the event or change in circumstance is outside the normal life cycle of the capital asset. Impaired capital assets that will no longer be used by the government should be reported at the lower of carrying value or fair value. K. Bond Premium/Discount, Deferred Issuance Costs and Deferred Refunding Loss Bond premium and/or discount and deferred issuance costs are amortized using the effective interest method. Deferred refunding loss is amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter. L. Deferred Compensation Plan The University offers certain employees a non-qualified deferred compensation plan which was created pursuant to Certification No. 94 of the Council of Higher Education, dated February 13, 1984. The plan, managed by independent plan administrators, permits employees to defer a portion of their salary until
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1. Reporting Entity and Summary of Significant Accounting Policies (continued) L. Deferred Compensation Plan (continued) future years. At the employee's election, such amounts may be invested in mutual funds, which represent varying levels of risk and return. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to these amounts, are (until paid or made available to the employee or other beneficiary) solely the property and rights of the University (without being restricted to the provisions of benefits under the plan), subject only to the claims of the University's general creditors. Participants' rights under the plan are equal to that of general creditors of the University in an amount equal to the fair value of the deferred account for each participant. It is the opinion of the University's legal counsel that the University has no liability for the losses under the plan but does have the duty of care that would be required of an ordinary prudent investor. The University believes that it is unlikely that it will use the assets of the plan to satisfy the claims of general creditors in the future. M. Compensated Absences The vacation policy of the University generally provides for the accumulation of 2.5 days per month. Unpaid vacation time accumulated is fully vested to the employees from the first day of work. Employees accumulate sick leave generally at a rate of 1.5 days per month up to a maximum of 90 days. The University pays, annually, the excess of 90 days of accumulated sick leave to the employees. Upon retirement, an employee receives compensation for all accumulated unpaid sick leave at the then current rate, provided the employee has at least 10 years of service with the University. During the years ended June 30, 2011 and 2010, the cost of the excess of 90 days of the accumulated sick leave was approximately $9,744,000 and $11,379,000, respectively. N. Classification of Net Assets The Universitys net assets are classified as follows: Invested in capital assets, net of related debt consist of the Universitys total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent proceeds from issuance debt has been received but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted, nonexpendable net assets consist of endowment and similar type funds which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal.
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1. Reporting Entity and Summary of Significant Accounting Policies (continued) N. Classification of Net Assets (continued) Restricted, expendable net assets include resources that the University is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, hospital revenues, sales and services of educational activities and auxiliary enterprises. Auxiliary enterprises are substantially self-supporting activities that provide services for students, faculty and staff. While unrestricted net assets may be designated for specific purposes by action of management or the Board of Trustees, they are available for use, at the discretion of the governing board, to meet current expenses for any purpose. Substantially all unrestricted net assets are designated for academic and research programs and initiatives, and capital programs.
O. Classification of Revenues The University has classified its revenues as either operating or nonoperating revenues. Operating revenues include activities that have the characteristics of exchange transactions such as student tuition and fees, net of scholarship discounts and allowances; sales and services of auxiliary enterprises, net of scholarship allowances; most federal, state and local grants and contracts; and, hospital patient service revenues, net of allowances for contractual adjustments and doubtful accounts. Non-operating revenues include activities that have the characteristics of non-exchange transactions, such as gifts and contributions, Federal Pell Grants and other revenue sources that are defined as nonoperating revenues by GASB Statement No. 35 and GASB Statement No. 34, such as state appropriations, investment income and gifts. Gifts to the endowment fund are classified as other nonoperating revenues. P. Scholarship Allowances and Student Financial Aid Student tuition and fees, and certain other revenues from students, are recorded net of scholarship discounts and allowances in the statement of revenues, expenses and changes in net assets. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the University and the amount that is paid by students and/or third parties making payments on the students behalf. Certain governmental grants, such as federal grants, state or nongovernmental programs, are recorded as operating revenues in the Universitys financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and certain other student charges, the University has recorded a scholarship discount and allowance.
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1. Reporting Entity and Summary of Significant Accounting Policies (continued) Q. Net Patient Service Revenue The University and the Hospital have agreements with third-party payers that provide for payments to the University and the Hospital at amounts different from its established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payers. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods, as final settlements are determined. R. Grants and Contracts The University has been awarded grants and contracts for which the funds have not been received or expenditures made for the purpose specified in the award. These awards have not been reflected in the financial statements, but represent commitments of sponsors to provide funds for specific research or training projects. For grants that have allowable cost provisions, the revenue will be recognized as the related expenditures are made. For grants with work completion requirements, the revenue is recognized as the work is completed and for grants without either of the above requirements, the revenue is recognized as it is received. S. Gifts and Pledges Pledges of financial support from organizations and individuals representing unconditional promises to give are recognized in the financial statements once all eligibility requirements, including time requirements, have been met. In the absence of such promises, revenue is recognized when the gift is received. Endowment pledges generally do not meet eligibility requirements, as defined by GASB Statement No. 33, Accounting and Financial Reporting for Non-exchange Transactions, and are not recorded as assets until the related gift has been received. Unconditional promises that are expected to be collected in future years are recorded at the present value of the estimated future cash flows. T. Pension The University accounts for pension costs under the provisions of GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers. Under GASB Statement No. 27, pension expense is equal to the statutory required contribution to the employees retirement system. A pension liability or asset is reported equal to the cumulative difference between annual required contributions and actual contributions.
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1. Reporting Entity and Summary of Significant Accounting Policies (continued) U. Postemployment Benefits Other Than Pensions The University accounts for postemployment benefits other than pensions (OPEB) under the provisions of the GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This statement requires a systematic, accrualbasis measurement and recognition of OPEB cost (expense) over a period that approximates employees years of service and provides information about actuarial accrued liabilities associated with OPEB and whether and to what extent progress is being made in funding the plan. GASB Statement No. 45 allows employers to amortize the portion of the cost attributed to past service over a period not to exceed thirty (30) years. 2. Cash and Cash Equivalents and Cash Book Overdraft Position The Universitys cash and cash equivalents as of June 30, 2011 consisted of the following:
Unrestricted Cash on hand Cash equivalents- certificates of deposit with: Commercial banks Economic Development Bank for Puerto Rico Total cash equivalents Total $ $ 776,708 $ Restricted $ Total 776,708
93,182,624 2,180,000 95,362,624 96,139,332 $
11,876,201 11,876,201 11,876,201 $
105,058,825 2,180,000 107,238,825 108,015,533
As of June 30, 2010, the carrying value of the Universitys restricted cash and cash equivalents amounted to $3,391,756 and consisted of certificates of deposit. The Universitys unrestricted cash and cash equivalents resulted in a book overdraft position of $(10,920,460) as of June 30, 2010. All the operating cash of the University is pooled into one bank account. Cash balances by funds represent the cash that is allocated to each fund of the University.
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2. Cash and Cash Equivalents and Cash Book Overdraft Position (continued) Custodial credit risk related to deposits is the risk that in the event of a financial institution failure, the Universitys deposits might not be recovered. The University is authorized to deposit only in institutions approved by the Department of the Treasury of the Commonwealth of Puerto Rico (Treasury), and such deposits are maintained in separate bank accounts in the name of the University. Such authorized depositories, except for the Government Development Bank for Puerto Rico (GDB) and the Economic Development Bank for Puerto Rico (EDB), collateralize the amount deposited in excess of federal depository insurance ($250,000 at June 30, 2011) with securities that are pledged with the Department of the Treasury. The deposits at GDB and EDB, both public corporations of the Commonwealth of Puerto Rico, are uninsured and uncollateralized. These deposits are exposed to custodial credit risk. As of June 30, 2011 and 2010, the cash deposited in the banks amounted to $133,182,213 and $24,706,355, respectively. 3. Investments The Universitys investments held at June 30, 2011 and 2010 are summarized in the following table:
2011 U.S. Treasury notes U.S. sponsored agencies bonds and notes U.S. municipal bonds Foreign government bonds Mortgage-backed securities Corporate bonds Common stock and convertibles External investment pools Certificates of deposit Guaranteed investment certificate Money market funds Total $ 69,643,177 4,277,522 1,158,300 861,208 5,909,223 27,466,545 26,806,449 69,596,673 7,053,784 620,184 73,314 213,466,379 $ 2010 78,992,678 26,738,927 20,675,773 60,092,390 6,955,039 32,099,880 225,554,687
The University is authorized to invest a percentage of total assets, with certain limitations, in the following types of investments; not less than 20% and no more than 80% in fixed income securities, not less than 20% and no more than 80% in equity securities. No international equity, private equity and non-U.S. income security investments other than foreign government bonds are held by the University.
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3. Investments (continued) Guaranteed Investment Certificate The University maintains a Construction Fund account, related to the issuance of the Series Q University of Puerto Rico System Revenue Bonds. As of June 30, 2011 and 2010, the account balance amounted to approximately $620,000 and $32 million, respectively. The account is held under a guaranteed investment certificate whereas the financial institution guarantees the University a fixed rate of return equal to 0.32%. As established in the contract, the financial institution has invested such funds in predetermined securities such as cash, U.S. Treasury and U.S. Government Agency securities. These securities are pledged and serve as collateral for the account balance. The fair value of the guaranteed investment certificate is determined based on the fair value of the underlying investments based on quoted market prices and then adjusted to contract value. As of June 30, 2011 and 2010, the contract value, which represents amounts deposited plus interest credited less withdrawals, is equal to the fair value. Credit Risk Issuer credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. All of the Universitys investments in U.S. Treasury securities and mortgage-backed securities guaranteed by the Government National Mortgage Association carry the explicit guarantee of the U.S. government. As of June 30, 2011, the Universitys credit quality distribution for securities is as follows:
Quality Rating Carrying Value U.S. Treasury notes U.S. sponsored agencies bonds and notes U.S. municipal bonds Foreign government bonds Mortgage-backed securities Corporate bonds Guaranteed investment certificate Common stock and convertibles External investment pools Money market funds Certificates of deposit Total $ 69,643,177 4,277,522 1,158,300 861,208 5,909,223 27,466,545 620,184 26,806,449 69,596,673 73,314 7,053,784 213,466,379 $ AAA to A 4,277,522 1,158,300 861,208 5,632,930 27,466,545 620,184 $ Unrated 26,806,449 69,596,673 73,314 7,053,784 No Risk $ 69,643,177 276,293 $ 69,919,470
$ 40,016,689
$ 103,530,220
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3. Investments (continued) Custodial Credit Risk Custodial credit risk related to investments is the risk that, in the event of failure of the counterparty to a transaction, the University may not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. At June 30, 2011, the custody of these investments is held by the trust department of a commercial bank in the name of the University and the portfolio is managed by a brokerage firm. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value is to changes in market interest rates. Expected maturities will differ from contractual maturities, because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties. No investment in any one issuer other than the U.S. Government and the ING Life Insurance and Annuity Company Fixed Account (external investment pool), represented 5% or more of the total investment portfolio at June 30, 2011. The following table summarizes the type and maturity of investments held by the University at June 30, 2011:
Within One Year U.S. Treasury notes U.S. sponsored agencies bonds and notes U.S. municipal bonds Foreign government bonds Mortgage-baked securities U.S. corporate bonds Certificates of deposit Guaranteed investment certificate External investment pools Money market funds Common stock and convertibles Total $ 54,649,613 $ 5,744,261 7,053,784 620,184 50,210,327 73,314 $ 118,351,483 $
After One to Five Years 6,524,443 $ 908,082 861,208 1,019,040 11,623,254 326,271 21,262,298 $
After Five to Ten Years 8,469,121 $ 2,270,903 122,596 2,586,856 10,004,807 23,454,283 $
After Ten Years $ 1,098,537 1,035,704 2,303,327 94,223 968,628 5,500,419 $
No Stated Maturity Date $ 18,091,447 26,806,449 44,897,896 $
Total Fair Value 69,643,177 4,277,522 1,158,300 861,208 5,909,223 27,466,545 7,053,784 620,184 69,596,673 73,314 26,806,449 213,466,379
At June 30, 2011, the University has variable rate interest investments amounted to $2,962,750, which reset in a semiannual basis at 100% of an interest rate index plus a spread.
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4. Accounts Receivable The Universitys accounts receivable as of June 30, 2011 and 2010 are as follows:
2011 Due from Commonwealth's: Agencies Component units Municipalities Due from Federal Government Due from Servicios Mdicos Universitarios, Inc. Due from medical plans Other Less allowance for doubtful accounts Accounts receivable, net $ $ 27,735,523 45,905,730 2,750,575 24,557,612 34,496,756 82,217,203 40,248,978 257,912,377 (169,503,873) 88,408,504 $ $ 2010 23,613,848 52,417,346 2,710,813 29,347,488 35,996,756 80,229,760 35,889,617 260,205,628 (162,172,647) 98,032,981
Due from Commonwealth of Puerto Rico As of June 30, 2011 and 2010, the University has accounts receivable from Commonwealth of Puerto Rico (the Commonwealth) of $56,318,696 and $69,178,313, respectively. Due from Commonwealth as of June 30, 2011 includes $18,598,442 related to revenue from appropriations for fiscal years 2008 and 2009, which the Commonwealth agreed to pay to the University during fiscal year 2012 and $20,000,000 related to revenue from Commonwealth legislative scholarships for fiscal years 2008 and 2009, which the Commonwealth agreed to pay to the University in annual payments of $5.0 million. In addition, due from Commonwealth includes a payment plan approved on September 7, 2004 in which the Commonwealth agreed to pay $94,710,382 to the University on behalf of the Puerto Rico Department of Health and the Commonwealth of Puerto Rico, over the course of ten years. As of June 30, 2011, the University has received $76,990,636 from this amount. The remaining balance of $17,720,254 will be received as follows: $8,000,000 in fiscal year 2012, $8,000,000 in fiscal year 2013, and $1,720,254 in fiscal year 2014.
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4. Accounts Receivable (continued) Due from Commonwealth of Puerto Rico (continued) Due from the Commonwealth balance will be received as follows:
Fiscal ye ar e nde d June 30, 2012 2013 2014 2015 Total $ Amount 31,598,442 13,000,000 6,720,254 5,000,000 56,318,696
In fiscal year 2010, the University cancelled a note payable to GDB against a receivable from the Commonwealths appropriations for $51, 239,135. 5. Capital Assets Changes in the Universitys capital assets for the years ended June 30, 2011 and 2010 are as follows:
2011 Beginning Balance
Capital assets not being depreciated: Land Construction in progress Other capital assets: Land improvements Building, fixed equipment, improvements and infrastructure Equipment, software and library materials Building and equipment under capital lease
Additions $ 39,271,996 39,271,996 9,945,337 9,945,337
Transfers $ 7,177,210 (140,472,508) (133,295,298) 2,604,589 129,835,293 855,416 133,295,298 $
Disposals (147,393) (147,393) (7,119,985) (7,119,985) $
Ending Balance 49,615,849 109,213,590 158,829,439 35,706,696 954,420,659 274,267,486 99,298,249 1,363,693,090
42,438,639 210,561,495 253,000,134 33,102,107 824,585,366 270,586,718 99,298,249 1,227,572,440
Less accumulated depreciation and amortization for: Land improvements Buildings, fixed equipment, improvements and infrastructure Equipment, software and library materials Building and equipment under capital lease Other capital assets, net of accumulated depreciation Capital assets, net
(17,110,195) (296,691,106) (194,708,980) (10,894,586) (519,404,867) 708,167,573 961,167,707
(1,208,780) (20,171,491) (19,529,945) (3,010,914) (43,921,130) (33,975,793) 5,296,203
133,295,298
6,698,868 6,698,868 (421,117) (568,510)
(18,318,975) (316,862,597) (207,540,057) (13,905,500) (556,627,129) 807,065,961 965,895,400
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5. Capital Assets (continued)

2010 Beginning Balance
Capital assets not being depreciated: Land Construction in progress Other capital assets: Land im provem ents Building, fixed equipm ent, im provem ents and infras tructure Equipm ent, software and library m aterials Building and equipm ent under capital lease
Effect of Adoption GASB No. 51 $ 26,834,493 26,834,493 $
Beginning Balance, As Adjusted 42,438,639 178,518,020 220,956,659 31,733,888 786,506,901 262,749,890 99,298,249 1,180,288,928 $
Additions 72,329,653 72,329,653 12,417,608 12,417,608 $
Transfers $ (39,701,435) (39,701,435) 1,368,219 38,078,465 254,751 39,701,435
Disposals $ (584,743) (584,743) (4,835,531) (4,835,531)
Ending Balance 42,438,639 210,561,495 253,000,134 33,102,107 824,585,366 270,586,718 99,298,249 1,227,572,440
42,438,639 178,518,020 220,956,659 31,733,888 786,506,901 235,915,397 99,298,249 1,153,454,435
Less accum ulated depreciation and am ortization for: Land im provem ents Buildings, fixed equipm ent, im provem ents and infras tructure Equipm ent, software and library m aterials Building and equipm ent under capital lease Other capital assets, net of accum ulated depreciation Capital assets, net
(15,947,119) (277,254,243) (174,998,147) (7,883,670) (476,083,179) 677,371,256 898,327,915
(4,025,174) (4,025,174) 22,809,319 22,809,319
(15,947,119) (277,254,243) (179,023,321) (7,883,670) (480,108,353) 700,180,575 921,137,234
(1,163,076) (19,436,863) (20,126,169) (3,010,916) (43,737,024)
4,440,510 4,440,510 (395,021) (979,764) $
(17,110,195) (296,691,106) (194,708,980) (10,894,586) (519,404,867) 708,167,573 961,167,707
(31,319,416) 39,701,435 41,010,237 $
The University adopted GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB Statement No. 51), effective July 1, 2009. The financial reporting impact resulting from the implementation of GASB Statement No. 51 was the recognition within the Universitys financial statements of $22.8 million in capital assets with a corresponding credit to net assets at July 1, 2009. As of June 30, 2011 and 2010, the carrying value of the Universitys assets recorded under capital leases amounted to approximately $85,393,000 and $88,404,000, respectively. Amortization expense on these assets amounted to approximately $3,011,000 in 2011 and 2010. Capitalized interest on construction in progress amounted to approximately $7,655,000 and $11,243,000 for the years ended June 30, 2011 and 2010, respectively. 6. Notes Payable In October 2010, the University obtained a $100 million line of credit facility with the Government Development Bank for Puerto Rico (GDB) for working capital purposes. The line of credit is collateralized by the Universitys accounts receivable from the Commonwealth of Puerto Rico and its agencies as well as by the Commonwealth of Puerto Rico income guaranteed appropriations under Act No. 2 of January 20, 1966, as amended. This line of credit matures on June 1, 2016 and bears interest per annum equal to prime rate plus 150 basis points, with a floor of 6% (6% at June 30, 2011). The balance outstanding under this line of credit amounted to $93,705,769 at June 30, 2011. The unused balance of this line of credit amounted to $6.3 million at June 30, 2011.
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6. Notes Payable (continued) As disclosed in Note 16, this line of credit was amended in October 2011 to increase its authorized balance to $125,000,000, to extend the revolving status of the line from June 30, 2011 until October 1, 2011 and to convert the line of credit into a ten year term loan, with monthly equal principal payments plus interest starting on October 1, 2013. The maturity date of the line of credit was extended to October 1, 2022. In June 2011, the University obtained a $5.0 million non-revolving line of credit facility with GDB to complete certain construction projects of the Universitys Program for Permanent Improvements. This line of credit matures on January 31, 2013 and bears interest per annum equal to prime rate plus 150 basis points, with a floor of 6%. At June 30, 2011, no advances have been taken from this line of credit. As disclosed in Note 16, this line of credit was amended in August 2011 to increase its authorized balance to $75 million. During fiscal year 2010, a non-revolving line of credit with GDB was cancelled against the receivable from the Commonwealths appropriations for $51,239,135. 7. Noncurrent Liabilities Changes in the Universitys noncurrent liabilities for the years ended June 30, 2011 and 2010 are as follows:
2011 Beginning Balance Long-term debt: Notes payable Bonds payable Total long-term Other long-term liabilities: Deferred compensation payable Claims liability Compensated absences Capital lease obligation Total other long-term liabilities $ $ 598,704,715 598,704,715 $ Additions 93,705,769 $ 1,563,296 95,269,065 $ Reductions $ (27,652,000) (27,652,000) $ Other $ (4,974,763) (4,974,763) $ Ending Balance 93,705,769 $ 567,641,248 661,347,017 $ Less Due Within One Year 18,016,638 $ 27,040,000 45,056,638 $ Noncurrent Liabilities 75,689,131 540,601,248 616,290,379
60,092,390 $ 23,425,232 163,106,036 67,370,683 313,994,341 $
9,469,226 $ 5,489,606 14,958,832 $
$ (2,337,408) (11,845,822) (1,294,247) (15,477,477) $
$ 2,742,998 2,742,998 $
69,561,616 $ 23,830,822 156,749,820 66,076,436 316,218,694 $
$ 2,337,408 30,642,296 1,383,308 34,363,012 $
69,561,616 21,493,414 126,107,524 64,693,128 281,855,682
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7. Noncurrent Liabilities (continued)

Beginning Balance $ $ 51,239,135 618,677,576 669,916,711 52,979,837 27,355,166 169,731,759 68,579,237 318,645,999 $ $ $ 2010 Additions 2,321,773 2,321,773 7,112,553 24,701,771 31,814,324 $ $ $ Reductions (51,239,135) $ (20,825,000) (72,064,135) $ $ Other $ (1,469,634) (1,469,634) $ $ (2,370,668) (2,370,668) $ Ending Balance 598,704,715 598,704,715 60,092,390 23,425,232 163,106,036 67,370,683 313,994,341 Less Due Within One Year $ $ $ 27,652,000 27,652,000 $ $ $ Noncurrent Liabilities 571,052,715 571,052,715 60,092,390 21,865,966 132,053,912 66,076,436 280,088,704
Long-term debt: Notes payable Bonds payable Total long-term
Other long-term liabilities: Deferred compensation payable$ Claims liability Compensated absences Capital lease obligation Total other long-term liabilities $
(1,559,266) (31,327,494) (1,208,554)
1,559,266 31,052,124 1,294,247 33,905,637
(34,095,314) $
Notes payable and bonds payable are further discussed in Notes 6 and 8-A, respectively. 8. Bonds Payable A. Bonds The University has issued revenue bonds designated as University System Revenue Bonds, the proceeds of which have been used mainly to finance new activities in connection with its educational facilities construction program and to cancel and refinance previous debts incurred. The following is the balance of bonds payable as of June 30, 2011 and 2010:
Series C- Serial D-Serial F - Term N - Capital Appreciation Serial Bonds O - Serial P - Serial P - Term Q - Serial Q - Term Plus unamortized premium Less: Unaccreted interest Future appreciated principal Deferred refunding loss $ Balance as of June 30, 2011 4,525,000 20,590,000 2,315,000 229,095,000 47,645,000 109,270,000 132,415,000 545,855,000 27,299,914 (430) (1,765,522) (3,747,714) 567,641,248 $ Balance as of June 30, 2010 169,000 218,000 6,000,000 31,050,000 7,060,000 234,855,000 47,645,000 114,095,000 132,415,000 573,507,000 32,697,720 (1,295) (3,328,818) (4,169,892) 598,704,715 Annual Interest Rate (%) 3.00% 3.75% 5.50% 5.75% 4.80% 5.00% 5.00% 5.00% 5.00% Due Date June 30, 2011 2012 2012-2013 2012 2012-2026 2027-2030 2012-2026 2027-2036
$ $
$ $
On Capital Appreciation Serial Bonds interest is accreted semi-annually and is added to the principal.
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8. Bonds Payable (continued) B. Debt Service Requirement At June 30, 2011, bonds payable require payments of principal and interest as follows:
Fiscal Year Ending June 30 2012 2013 2014 2015 2016 2017 to 2021 2022 to 2026 2027 to 2031 2032 to 2036 $ Principal 27,040,000 29,930,000 18,110,000 19,015,000 19,970,000 115,840,000 135,890,000 105,815,000 74,245,000 545,855,000 $ Interest 26,281,245 25,306,500 24,444,250 23,538,750 22,588,000 96,928,000 64,922,000 33,670,750 11,498,500 329,177,995 $ Total 53,321,245 55,236,500 42,554,250 42,553,750 42,558,000 212,768,000 200,812,000 139,485,750 85,743,500 875,032,995
C. Pledged Revenues The bonds are general obligations of the University and are collateralized by the pledge of, and a first lien on, all revenues derived or to be derived by the University, except for appropriations and contributions, as defined in the Trust Agreement governing the bonds issued. In the event that the pledged revenues are insufficient to pay the principal of, and the interest on, the bonds, the University agrees to provide any additional required monies from other funds available to the University for such purposes, including funds appropriated by the Commonwealth of Puerto Rico. The Universitys revenues pledged were as follows for the years ended June 30, 2011 and 2010:
Pledged Revenues: Tuition and other fees collected Student fees collected Stabilization Fee Rental and other charges received for the right of use and occupancy of the facilities in the University system Interest on investment of University funds, excluding funds invested pursuant to Article VI of the Trust Agreement Funds paid to the University in respect to overhead allowance on federal research projects Other income Total $ 2011 86,413,916 4,455,726 41,326,364 1,764,561 306,052 16,924,540 28,577,584 179,768,744 $ 2010 78,524,637 5,906,244 1,559,611 85,280 15,818,290 27,007,597 128,901,659
Interest earned on investments in the sinking fund reserve account amounted to $691,439 and $1,520,530 for the years ended June 30, 2011 and 2010, respectively.
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8. Bonds Payable (continued) C. Pledged Revenues (continued) The University is required to maintain a sinking fund and construction fund as described in the following paragraphs: The funds for retirement of indebtedness consist of a sinking fund which includes three separate accounts designated as Bond Service Account, Redemption Account and Reserve Account. The Trustee shall, upon the receipt of the pledged revenues, make deposits to the credit of the following accounts in the amounts specified and in the following order: Bond Service Account - such amount thereof as may be required to make the amount then to its credit equal to the interest then due, or to become due, within the next ensuing six (6) months on the bonds of each series then outstanding, and the amount of principal of the serial bonds of each series then due, or to become due, within the next ensuing twelve (12) months.
Redemption Account - such amount, if any, after making the deposit to the Bond Service Account, as may be required to make the amount then to its credit equal to the amortization requirements, if any, for the fiscal year in which such deposit is made for the term bonds of each series then outstanding plus redemption premiums, if any. Reserve Account - such amount, if any, after making the deposit to the above accounts as may be required to make the amount then to its credit equal to the maximum principal and interest (less any federal debt service grant payments) requirements for any year thereafter, on account of all bonds then outstanding. Monies in the Bond Service Account and the Redemption Account shall, as nearly as may be practicable, be continuously invested and reinvested in direct obligations of, or obligations, the principal of and interest on which are unconditionally guaranteed by the United States Government. Monies in the Reserve Account may be invested in a broader range of investments including interest bearing bank accounts, federal agency obligations, repurchase agreements, commercial paper and other highly rated obligations.
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8. Bonds Payable (continued) D. Bonds Payable Discretely Presented Component Unit On December 21, 2000, AFICA issued, on behalf of Desarrollos Universitarios, Inc., Educational Facilities Revenue Bonds, 2000 Series A, in the amount of $86,735,000. The bonds were issued to (i) finance the development, construction and equipment of the Plaza Universitaria Project (the Projects), (ii) repay a portion of certain advances made by the Government Development Bank for Puerto Rico under a line of credit facility for the purpose of paying certain costs of the development and construction of the Projects, (iii) make a deposit to the Debt Service Reserve fund and, (iv) pay the costs and expenses incurred in connection with the issuance and sale of bonds. The principal and interest on the bonds are insured by a financial guaranty insurance policy issued by MBIA Insurance Corporation, and by the assignment of the lease agreement with the University. Bonds payable at June 30, 2011 and 2010, consist of:
Interest Description Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Serial Bonds Total Less unaccreted interest Total $ Rate 4.25% 5.63% 5.63% 5.63% 5.63% 5.63% 5.63% 5.63% 5.63% 5.63% 5.00% 5.00% 5.00% Maturity July 1, 2010 July 1, 2011 July 1, 2012 July 1, 2013 July 1, 2014 July 1, 2015 July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 July 1, 2020 July 1, 2021 July 1, 2033 $ 2011 Face Amount 1,760,000 1,860,000 1,960,000 2,075,000 2,190,000 2,315,000 2,445,000 2,580,000 2,725,000 2,880,000 3,020,000 50,520,000 76,330,000 (236,856) 76,093,144 $ $ 2010 Face Amount 1,685,000 1,760,000 1,860,000 1,960,000 2,075,000 2,190,000 2,315,000 2,445,000 2,580,000 2,725,000 2,880,000 3,020,000 50,520,000 78,015,000 (254,897) 77,760,103
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8. Bonds Payable (continued) D. Bonds Payable Discretely Presented Component Unit (continued) The activity of the principal balance of the bonds payable for the years ended June 30, 2011 and 2010, is as follows:
2011 Beginning Balance Reductions Ending Balance $ $ 78,015,000 (1,685,000) 76,330,000 $ $ 2010 79,635,000 (1,620,000) 78,015,000
At June 30, 2011, bonds payable require payment of principal and interest as follows:
Fiscal Year Ending June 30 2012 2013 2014 2015 2016 2017 to 2021 2022 to 2026 2027 to 2031 2032 to 2034 Total $ Principal 1,760,000 1,860,000 1,960,000 2,075,000 2,190,000 12,945,000 16,700,000 21,315,000 15,525,000 76,330,000 $ Interest 3,841,938 3,737,313 3,627,063 3,510,344 3,387,155 14,848,625 10,961,750 6,117,000 801,500 50,832,688 $ Total 5,601,938 5,597,313 5,587,063 5,585,344 5,577,155 27,793,625 27,661,750 27,432,000 16,326,500 127,162,688
Interest on the bonds is payable each January 1 and July 1. Bonds maturing after July 1, 2011 may be redeemed, at the option of the University in whole or in part, at a redemption price equal to 100% of the principal amount plus accrued interest, without premium. In addition, term bonds are subject to mandatory redemption in part commencing on July 1, 2022 to the extent of the sinking fund requirement for said bonds set forth below at a redemption price equal to 100% of the principal amount thereof plus accrued interest.
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8. Bonds Payable (continued) D. Bonds Payable Discretely Presented Component Unit (continued)
Redemption Period July 1, 2022 July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 July 1, 2028 July 1, 2029 July 1, 2030 July 1, 2031 July 1, 2032 July 1, 2033 Total $ $ Amount 3,175,000 3,330,000 3,500,000 3,675,000 3,855,000 4,050,000 4,255,000 4,465,000 4,690,000 4,925,000 5,170,000 5,430,000 50,520,000
9. Obligation under Capital Lease In October 2007, the University entered into a capital lease agreement with Desarrollos Universitarios, Inc., a nonprofit corporation and discretely presented component unit of the University. The agreement is for the use of Plaza Universitaria, a residential and commercial facility for the use of students and other persons or entities conducting business with the University. The agreement began on October 1, 2006 and expires on June 25, 2033. The outstanding liability at June 30, 2011 and 2010 on this capital lease is $66,076,436 and $67,370,683, respectively. The effective interest rate was determined at 6.60%.
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9. Obligation under Capital Lease (continued) The future minimum lease payments under the capital lease are as follows:
Year Ending June 30, 2012 2013 2014 2015 2016 2017-2021 2022-2026 2027-2031 2032-2033 Total future minimum lease payments Less amounts representing interest costs Present value of minimum lease payments $ Amount 5,701,938 5,697,312 5,702,063 5,700,344 5,702,156 28,498,625 28,496,750 28,502,000 11,401,499 125,402,687 (59,326,251) 66,076,436
10. Commitments and Contingent Liabilities A. Insurance The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The University was insured through January 1993 under claims-made insurance policies with respect to medical malpractice risks for $250,000 per occurrence up to an annual aggregate of $500,000. Subsequent to such date, the University was unable to obtain insurance at a cost it considered to be economically justifiable, consequently, the University is now self-insured for such risks. Under Law Number 98 of August 24, 1994, the responsibility of the University is limited to a maximum amount of $75,000 per person, or $150,000 if it involves actions for damages to more than one person or where a single injured party is entitled to several causes of action. Self-insured risk liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The process used in computing claims liabilities does not necessarily result in an exact amount, because actual claims liabilities depend upon such complex factors as inflation, changes in legal doctrines, and damage awards. Claims liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors.
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10. Commitments and Contingent Liabilities (continued) A. Insurance (continued) Changes in the claims liability amount for the years ended June 30, 2011 and 2010 were:
2011 Claims payable - July 1 Incurred claims and changes in estimates Payments for claims and adjustments expenses Claims payable - June 30 $ 23,425,232 2,742,998 (2,337,408) 23,830,822 $ 2010 27,355,166 (2,370,668) (1,559,266) 23,425,232
The University continues to carry commercial insurance for all other risks of loss. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. B. Federal Assistance Programs The University participates in a number of federal financial assistance programs. These programs are subject to audits in accordance with the provisions of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, or to compliance audits by grantor agencies. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time. Management believes the impact will not be material to the Universitys financial statements. C. Discretely Presented Component Units Servicios Mdicos Universitarios, Inc. (the Hospital) operates and administers the healthcare unit located in Carolina. This facility was acquired by the University and includes land, building and medical equipment. During 2009, the Hospital restructured its line of credit facility with GDB and accrued interest in the aggregated amount of $23,360,913, to extend the maturity date to June 30, 2025. As part of the loan agreement, the Hospital was required to make a down payment of $2,700,000. The activity of the principal balance of the long- term debt for the years ended June 30, 2011 and 2010 is as follows:
2011 Beginning Balance Additions Reductions Ending Balance $ 19,891,091 2,683,120 (1,670,598) 20,903,613 $ 2010 20,660,913 (769,822) 19,891,091
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10. Commitments and Contingent Liabilities (continued) C. Discretely Presented Component Units (continued) Scheduled principal repayments of the long-term debt for the next five years and thereafter are as follows: Fiscal Year Ending June 30 2012 2013 2014 2015 2016 2017-2021 2022-2025 $ Amount 1,681,119 1,810,317 1,356,857 1,087,054 1,128,100 6,833,537 7,006,629 20,903,613
Desarrollos Universitarios, Inc. (the Company) operates the Plaza Universitaria facilities for use by students, faculty members, administrators, employees, visitors, invitees, and other members of or persons and entities related to or conducting business with the University community, or other activities conducted in such facility. On May 11, 2000, the Universitys Board of Trustees ratified a Memorandum of Agreement (the Agreement) to establish a contractual agreement between the University and the Company. The Agreement, dated May 22, 1998, states among other things the following: (1) the University will lease to, or otherwise grant to, the Company the right for the long-term use of the land, for the sole purpose of developing, constructing and operating Plaza Universitaria, (2) the Company shall finance the development of Plaza Universitaria from AFICA Bond proceeds and/or line credit and/or any other structure or credit facility, (3) the Company will own the Plaza Universitaria improvements and will lease them exclusively to the University, during the life of the AFICA Bonds, (4) the University shall have the right to prepay or refinance the Bonds at any time, consistent with the restrictions on refinancing contained in the financing documents, (5) upon the payment or prepayment in full of all the AFICA Bonds, the lease on the land shall terminate and the University shall become, ipso facto, owner of all the Plaza Universitaria improvements, without the need or obligation to make any additional payment of any kind (other than any bargain purchase payment as may be required under the project documents), and (6) rental payments (lease payments) from the University shall have a fixed component
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10. Commitments and Contingent Liabilities (continued) C. Discretely Presented Component Units (continued) and a variable component. The fixed component shall be in an amount sufficient to guarantee to bondholders the payment of principal and interest on the AFICA Bonds as may be established in the financing documents, and will be pledged to guarantee such payments. The variable component of the lease payments will be used to cover operating, maintenance, administrative, management, and other fees and costs, which will be established periodically and reviewed annually between the parties, as well as such amounts for reserves and special funds, which may be required under the financing documents related to the bond issue. In October 2003, the Plaza Universitaria Projects general contractor submitted a claim for extended overhead (field and main office) and subsequently a Proposal for Settlement for an amount exceeding $10 million. It is the Companys legal counsels opinion that some of the allegations are invalid under the terms of the contract and that the general contractor has already been compensated for some of the claimed amounts by Company approved change orders. Management of the Company believes, based on the advice of counsel, that there is a minimal financial exposure to the Company in connection with this claim. 11. University of Puerto Rico Retirement System The University of Puerto Rico Retirement System (the System) is a single-employer, defined benefit pension plan that covers all employees of the University of Puerto Rico (the University) with the exception of hourly, temporary, part-time, contract and substitute employees, and visiting professors. It is qualified and exempt from Puerto Rico and United States taxes. The System issues stand-alone audited financial statements and can be obtained from the Systems administrative offices.
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11. University of Puerto Rico Retirement System (continued)

Funding Policy and Annual Pension Cost Contribution rates: University Plan members Annual pension cost Contributions made Actuarial valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method
13.0% 7%-11% $66,761,754 $70,761,490 6/30/2011 Entry age normal (traditional) Level percentage of payroll 30 years constant (open basis) Market value adjusted to reflect investment gain and losses over a five (5) year period. The actuarial value of assets at June 30, 2011 is $1,041,628,000. 8.00% 5% 3.50% 3% every two (2) years applicable to salary cap or Certification 139, no postretirement benefit increases are assumed. RP-2000 with projection
Actuarial assumptions: Investment rate of return* Projected salary increases* *Includes inflation at Postretirement benefit increases
Mortality table
Fiscal Year Ending 6/30/2011 6/30/2010 6/30/2009
Annual Pension Cost (APC) $ $ $
Employer Contribution 70,761,490 71,176,599 72,605,262
Percentage of APC Contributed 106.0% 114.3% 115.4% $ $ $
Net Pension Obligation (Asset) (59,088,385) (55,088,649) (46,187,467)
66,761,754 $ 62,275,417 $ 62,929,059 $
Pension asset has been recorded in prepaid expense and other assets. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.
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12. Post-Employment Benefits Other Than Pensions (OPEB) The University provides post-employment health care benefits for its retired employees. Substantially all of the employees may become eligible for this benefit if they reach normal retirement age while working for the University. Health care benefits are provided through insurance companies whose premiums are paid by the retiree and by the University up to maximum of $125 per month for each retiree. The cost of providing such benefits are recognized when paid. GASB Statement No. 45 requires employers to accrue the cost of postemployment benefits other than pensions while employees who will receive these benefits are providing services to the employer. The University does not pre-fund its postemployment benefits program and retiree benefits are paid out of the Universitys general assets each year. Accordingly, the discount rate is based on the long-term rates of return that the University expects to earn on general assets which are used to pay plan benefits. The Annual OPEB Cost is calculated based on the Annual Required Contribution of the employer (ARC), an amount actuarially determined in accordance with the provisions of GASB Statement No. 45. The ARC represents a level of funding that, if paid on ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The following table shows the Universitys net OPEB obligation movement:
2011 ARC Interest on the net OPEB obligation Adjustments to the ARC Annual OPEB cost (expense) Employer contribution Change in the net OPEB obligation Net OPEB obligation- beginning of year Net OPEB obligation- end of year Percentage of annual OPEB cost contributed $ $ 9,651,667 102,822 (89,113) 9,665,376 (9,772,691) (107,315) 2,570,557 2,463,242 101.11% $ $ 2010 9,651,667 57,584 (49,907) 9,659,344 (8,528,399) 1,130,945 1,439,612 2,570,557 88.29%
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12. Post-Employment Benefits Other Than Pensions (OPEB) (continued) The following table shows the Universitys funded status of the OPEB:
Actuarial Valuation Date Actuarial Accrued liability (AAL) Unfunded AAL Funded Ratio July 1, 2009 $ 189,417,225 $ 189,417,225 0%
The Universitys annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the Net OPEB Obligation on a funded and unfunded basis are as follows:
Fiscal Year Ended 6/30/2011 6/30/2010 6/30/2009 Annual OPEB Cost $ $ $ 9,665,376 9,659,344 9,690,994 Percentage of Annual OPEB Cost Contributed 101.1% 88.3% 99.5% Net OPEB Obligation $ $ $ 2,463,242 2,570,557 1,439,612
The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. OPEB Actuarial Valuation The Universitys other Post-Employment Benefits Program actuarial valuation was conducted by Deloitte Consulting LLP as of July 1, 2009, members of the American Academy of Actuaries. As permitted by GASB Statement No. 45, the actuarial valuation is performed every two years.
Significant Actuarial Methods and Assumptions: Actuarial Valuation Date Actual Cost Method Amortization Method Medical Subsidy Tuition Remission Payroll Growth Discount Rate July 1, 2009 Projected Unit Credit Level Dollar amortization over 30 Years 85% $517 per retiree in fiscal 2011 increasing 4.0% per year 4% 4%
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12. Post-Employment Benefits Other Than Pensions (OPEB) (continued) Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future, and actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about the actuarial value of program assets relative to the actuarial accrued liability for benefits. Calculations are based on the types of benefits provided at the time of each valuation and on the pattern of sharing of costs between the employer and members to that point. The projections of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. The actuarial calculations reflect a longterm perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce shortterm volatility in actuarial accrued liabilities and actuarial value of assets. 13. Management Business Plan and Operation - Discretely Presented Component Unit During most of the preceding years (up to June 30, 2009), the Hospital experienced significant operating losses having an accumulated net assets deficiency of $59,248,675 as of June 30, 2011. The Hospital has received advances from the University to cover its cash needs from operations. Most of these accumulated losses are mainly related to the fact that, as a former public hospital operated by the Puerto Rico Department of Health, it provides a significant amount of services to indigent population for which the Hospital does not obtain a payment. Most of these patients are indigent persons not subscribed to the Health Reform Program, homeless and resident aliens without medical insurance coverage, among others. The medical services provided to these persons were supposed to be paid to the Hospital by the Puerto Rico Department of Health. However, since the beginning of the operations, the Puerto Rico Department of Health has been unable to pay for such services. As shown in the accompanying financial statements, the Hospital has provided allowances for uncollectible accounts receivable in the approximated amount of $14,885,379 as of June 30 2011. The Hospitals management believes that all these factors had a material impact in the Hospitals results of operations during its years of operations and, consequently, has resulted in the accumulated deficit at June 30, 2011. The Hospitals management, with the assistance of its Board of Directors, are working with a management plan toward its operational activities as well as the Hospitals ability to get cash to comply with its current obligations.
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13. Management Business Plan and Operation - Discretely Presented Component Unit (continued) Among the matters included in such management plan are the following: To officially open a new Imaging Center with the acquisition of a new generation 8 channel light performance MRI 1.5T System with the existing C.T. Increasing the Hospitals operating cash flow by improving the reimbursement rate through more aggressive negotiations with medical insurance companies and restructuring the billing and collection department with the acquisition and implementation of a new accounting, billing and collection, and emergency room tracking and clinical documentation information systems, in order to reduce to at minimum denied reimbursement for services provided. Continue development of an integrated information system to recover more efficiently the revenue charges for the services provided. Expansion of the Intensive Care Unit area with sixteen new beds. This will improve the service provided to the critical patients and as result of this an increase in patient days. Marketing of the ophthalmology, urology and orthopedic services. Increased the ambulatory surgery service. Refurbishing clinical wards included patients rooms and other hospital general and common areas to improve the Hospital image and be able to attract insured patients sector. Refurbishing the emergency rooms facility. An implementation of an aggressive cost containment program, including the bottom line control with effective labor management. Develop quality improvement strategy that includes priorities to improve the delivery of health care services and the quality measures to be used in reporting to and payment under the federal health programs.
Some of these measures had an impact in the Hospitals operations and as a result, the Hospitals operations reported an excess of revenue over expenses of approximately $2,435,000 and $3,513,000 during the years ended June 30, 2011 and 2010, respectively. The University has expressed its commitment to provide the Hospital with the necessary financial support, if needed, to continue its operations for at least one year after June 30, 2011.
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14. Functional Information The Universitys operating expenses by functional classification during the years ended June 30, 2011 and 2010 were as follows:
2011 Supplies and other Scholarships and Services Fellowships 11,470,578 $ 24,124,214 29,508,182 16,744,465 8,987,773 20,839,230 24,618,057 674,373 41,462 16,508,105 2,456,094 155,972,533 $ 8,330,607 $ 16,929,661 1,951,412 998,539 447,149 302,188 1,544 185,814,778 9,967 387,658 6,108 24,907 215,204,518 $
Functional Classification Instruction Research Public service Academic support Student service Institutional support Operation & maintenance Student aid Independent operation Patient service Auxiliary enterprises Depreciation and amortization Other $
Salaries and Benefits
Utilities
Depreciation and Amortization Other Expenses $ 43,921,130 43,921,130 $ 1,053,349 $ 15,248,777 2,407,258 1,656,614 1,006,335 1,240,077 118,947 46,193 657 1,730,718 362,497 24,871,422 $
Total 402,095,843 115,531,118 84,915,561 90,162,742 53,078,214 131,147,002 172,876,332 189,384,520 88,251 57,426,082 3,768,032 43,921,130 6,242,838 1,350,637,665
381,034,096 $ 58,562,681 48,788,342 70,501,131 42,628,220 105,990,193 103,791,274 2,848,635 36,165 38,772,457 908,129 6,217,931 860,079,254 $
207,213 $ 665,785 2,260,367 261,993 8,737 2,775,314 44,346,510 541 27,144 35,204 50,588,808 $
Functional Classification Instruction Research Public service Academic support Student service Institutional support Operation & maintenance Student aid Independent operation Patient service Auxiliary enterprises Depreciation and amortization Other
Salaries and Benefits $ 422,805,042 $ 57,774,851 49,671,297 78,163,791 46,193,644 144,117,430 89,148,806 2,662,156 36,252 41,876,245 1,203,460 933,652,974 $
Supplies and other Services 10,844,522 $ 18,563,207 17,528,548 19,353,626 9,712,232 31,392,332 25,756,494 500,389 39,026 15,525,670 1,010,833 150,226,879 $
2010 Scholarships and Fellowships 8,259,472 $ 14,553,005 918,800 747,096 325,656 278,590 285 186,259,662 7,103 459,698 21,259 211,830,626 $
Utilities 189,681 $ 694,195 1,522,553 79,703 2,742 4,012,642 41,976,290 690 23,374 13,287 48,515,157 $
Depreciation and Amortization $ 43,737,024 43,737,024 $
Other Expenses 2,167,391 $ 12,146,071 1,434,555 2,219,323 632,554 10,833,455 1,210,740 56,174 633 400,685 264,241 3,483,079 34,848,901 $
Total 444,266,108 103,731,329 71,075,753 100,563,539 56,866,828 190,634,449 158,092,615 189,479,071 83,014 58,285,672 2,513,080 43,737,024 3,483,079 1,422,811,561
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15. Significant New Accounting Pronouncements New Accounting Standard Adopted In June 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB Statement No. 51). This Statement requires that all intangible assets not specifically excluded by its scope provisions be classified as capital assets. Accordingly, existing authoritative guidance related to the accounting and financial reporting for capital assets should be applied to these intangible assets, as applicable. This Statement also provides authoritative guidance that specifically addresses the nature of these intangible assets. Such guidance should be applied in addition to the existing authoritative guidance for capital assets. The objective of this Statement is to establish accounting and financial reporting requirements for intangible assets to reduce inconsistencies relating to recognition, initial measurement, and amortization, thereby enhancing the comparability of the accounting and financial reporting of such assets among state and local governments. The Statement requires that an intangible asset be recognized in the Statement of Net Assets only if it is considered identifiable. Additionally, the Statement establishes a specified-conditions approach to recognizing intangible assets that are internally generated. Effectively, outlays associated with the development of such assets should not begin to be capitalized until certain criteria are met. Outlays incurred prior to meeting these criteria should be expensed as incurred. This Statement also provides guidance on recognizing internally generated computer software as an intangible asset. This guidance serves as an application of the specified-conditions approach described above to the development cycle of computer software. The Statement also establishes guidance specific to intangible assets related to amortization. Guidance is provided on determining the useful life of intangible assets when the length of their life is limited by contractual or legal provisions. If there are no factors that limit the useful life of an intangible asset, the Statement provides that the intangible asset be considered to have an indefinite useful life. Intangible assets with indefinite useful lives should not be amortized unless their useful lives are subsequently determined to no longer be indefinite due to a change in circumstances. The financial reporting impact resulting from the implementation of GASB Statement No. 51 is the recognition within the Universitys financial statements of $22.8 million in capital assets with a corresponding credit to net assets at July 1, 2009. Management is evaluating the impact that these statements will have on the Universitys financial statements.
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15. Significant New Accounting Pronouncements (continued) The GASB has issued the following accounting standards that have effective dates after June 30, 2010: GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. The objective of this Statement is to improve financial reporting by addressing issues related to service concession arrangements (SCAs), which are a type of public-private or public-public partnership. As used in this Statement, an SCA is an arrangement between a transferor (a government) and an operator (governmental or nongovernmental entity) in which: (i) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a facility) in exchange for significant consideration; and (ii) the operator collects and is compensated by fees from third parties. This statement is effective for periods beginning after December 15, 2011. GASB Statement No. 61, The Financial Reporting Entity: Omnibus- an amendment of GASB Statements No. 14 and No. 34. The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. The requirements of Statement No. 14, The Financial Reporting Entity, and the related financial reporting requirements of Statement No. 34, Basis Financial Statements and Managements Discussion and Analysis for State and Local Governments, were amended to better meet user needs and to address reporting entity issues have arisen since the issuance of those Statements. This statement is effective for periods beginning after June 15, 2012. GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The objective of this Statement is to incorporate into the GASBs authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements. (i) Financial Accounting Standard Board (FASB) Statements and Interpretations; (ii) Accounting Principles Board Opinions; and (iii) Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure. This statement is effective for periods beginning after December 15, 2011. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The objective of this Statement is to provide financial reporting guidance for deferred outflows of resources and deferred inflows of resources. The requirements of this Statement will improve financial reporting by standardizing the presentation of deferred outflows of resources and deferred inflows of resources and their effects on a governments net position. It alleviates uncertainty about reporting those financial statement elements by providing guidance where none previously existed. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2011.
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15. Significant New Accounting Pronouncements (continued) GASB Statement No. 64, Application of Hedge Accounting Termination Provisions. The objective of this Statement is to clarify whether an effective hedging relationship continues after the replacement of swap counterparty or swap counterpartys credit support provider. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2011.
The impact of these statements on the Universitys financial statements has not yet been determined. 16. Subsequent Events Subsequent events were evaluated through March 28, 2012, the date the financial statements were available to be issued, to determine if such events should be recognized or disclosed in the 2011 financial statements. In August 2011, the $5 million line of credit facility with the Government Development Bank for Puerto Rico was amended to increment its authorized balance to $75 million. In October 2011, the $100 million line of credit facility with the Government Development Bank for Puerto Rico was amended to increment its authorized balance to $125 million, to extend the revolving status of the line from June 30, 2011 until October 1, 2012 and to convert the line of credit into a ten year term loan, with monthly equal principal payments plus interest starting on October 1, 2013. The maturity date of the line of credit was extended to October 1, 2022.
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Required Supplementary Information
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University of Puerto Rico Schedules of Funding Progress
(Unaudited)
Actuarial Valuation Date 6/30/2011 6/30/2010 6/30/2009 6/30/2008 6/30/2007 6/30/2006
Actuarial Value of Assets (a)
Employees Retirement Plan Actuarial Accrued Liability Unfunded (AAL) AAL Funded Entry Age (UAAL) Ratio (b) (b a) (a / b) 41.0% 42.2% 44.4% 46.1% 46.1% 45.0%
Covered Payroll (c) $ 510,706,620 $ 540,867,018 $ 570,122,184 $ 542,603,556 $ 513,486,180 $ 484,886,628
UAAL as a Percentage of Covered ((b a) / c) 293.9% 260.3% 227.5% 220.8% 217.1% 218.8%
$ 1,041,628,000 $ 2,542,444,021 $ 1,500,816,021 $ 1,028,918,000 $ 2,436,913,244 $ 1,407,995,244 $ 1,034,645,000 $ 2,331,619,466 $ 1,296,974,466 $ 1,024,987,000 $ 2,223,219,684 $ 1,198,232,684 $ $ 953,197,000 $ 2,068,102,695 $ 1,114,905,695 869,211,000 $ 1,930,131,983 $ 1,060,920,983
Postemployment Benefits Other Than Pensions Program Actual Accrued Liability (AAL) (b)
Actuarial Valuation Date 7/1/2009 7/1/2007
Actual value of Assets (a) $ $
UAAL (b - a)
Funded Ratio (a / b) 0% 0%
$ 189,417,225 $ (189,417,225) $ 184,232,820 $ (184,232,820)
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Other Financial Information
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University of Puerto Rico Schedules of Changes in Sinking Fund Reserve (Unaudited)
Bond Service Account Additions: Transfer from Reserve Account Transfer from unrestricted current funds Interest earned on investments Total receipts Deductions: Payments of bond interest Payments of bond principal Net increase in fair value of investments Transfer to Reserve Account Total disbursements Net increase for the year Balances at beginning of year Balance at end of year $ $ 87,258 54,676,678 136,071 54,900,007 33,335,995 21,443,885 120,326 54,900,206 (199) 199 $ $
2011 Bond Reserve Account 555,368 555,368 464,421 87,258 551,679 3,689 54,681,921 54,685,610 $ $
Total 87,258 54,676,678 691,439 55,455,375 33,335,995 21,443,885 584,747 87,258 55,451,885 3,490 54,682,120 54,685,610
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University of Puerto Rico Schedules of Changes in Sinking Fund Reserve (Unaudited)
Bond Service Account Additions: Transfer from Reserve Account Transfer from unrestricted current funds Interest earned on investment Total receipts Deductions: Payments of bond interest Payments of bond principal Net decrease in fair value of investments Transfer to Reserve Account Total disbursements Net increase for the year Balances at beginning of year Balance at end of year $ $ 70,793 48,397,362 56,650 48,524,805 33,574,076 14,898,479 52,053 48,524,608 197 2 199 $ $
2010 Bond Reserve Account 1,463,880 1,463,880 1,378,161 70,792 1,448,953 14,927 54,666,994 54,681,921 $ $
Total 70,793 48,397,362 1,520,530 49,988,685 33,574,076 14,898,479 1,430,214 70,792 49,973,561 15,124 54,666,996 54,682,120
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Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards
Board of Trustees University of Puerto Rico We have audited the financial statements of the business type activities and aggregate discretely presented component units of the University of Puerto Rico (the University) as of and for the year ended June 30, 2011, and have issued our report thereon dated March 28, 2012. We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Other auditors audited the financial statements of Servicios Mdicos Universitarios, Inc. (the Hospital) and Desarrollos Universitarios Inc. (the Company), as described in our report on the Universitys financial statements. This report does not include results of other auditors testing of internal control over financial reporting or compliance and other matters that are reported on separately by other auditors. The financial statements of the Hospital and the Company were not audited in accordance with Government Auditing Standards. Internal control over financial reporting Management of the University is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Universitys internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Universitys internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Universitys internal control over financial reporting. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the following paragraphs, we identified certain deficiencies in internal control that we consider to be material weaknesses. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entitys financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the next paragraphs to be material weaknesses.
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2011-1 Financial Statement Close Process Criteria A fundamental element of a sound system of internal controls is an effective financial statement close process. Such a process is essential in enabling organizations to prepare timely and accurate financial statements. This process helps to ensure that all financial transactions are properly recorded, appropriately supported and subjected to supervisory review. The financial statement close process begins with accounting data recorded in the Universitys general ledger and culminates in the preparation of the Universitys financial statements, including identification and documentation of the relevant disclosures that are required under generally accepted accounting principles. Condition During our audit, we noted deficiencies in the Universitys financial statement close process, including the following: Multiple audit/post-closing entries that were not initially identified by the Universitys internal controls were required to properly record revenues and expense activity, accounts receivable activity, prepaid expenses activity and certain liabilities. These entries were considered material to the financial statements. The compilation of financial data and reconciliation processes are not completed in a timely manner. The lack of procedures and controls in these areas result in inefficiencies during the financial statements preparation process. The accounting and financial reporting operations of certain units of the University, specifically Recinto de Ciencias Mdicas (RCM) and Recinto Universitario de Mayaguez (RUM), are not able to detect or prevent accounting errors effectively nor efficiently which results in multiple audit adjustments. As of June 30, 2011, the University had health insurance payable for approximately $16.4 million. Upon further audit procedures and our request for supporting evidence, it was determined that appropriate evidence was not available to support a significant amount of the account balance. As result, we proposed an audit adjustment to reduce the health insurance payable for $11.6 million.
Cause The lack of adequate controls during the implementation of the new accounting system has resulted in an ineffective and inefficient financial statements close process. In addition, the lack of integration between the units and the central administration finance and accounting functions has an adverse impact in the financial reporting of the University as a whole.
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Effect There were numerous post-closing and audit adjustments that were recorded by the University as noted above. Recommendations Management should improve the annual closing process, including more effective monitoring controls over financial information. All general ledger accounts should be supported by reconciliations, rollforward schedules and other appropriate documentation which are timely reviewed at two levels, and evidenced by supervisory and signature approval. Journal entries should be supported by complete documentation and timely reviewed as well as reviewing the processing of journal entries at year end. All accounting judgments and estimates should also be properly supported and reviewed. In reviewing and developing the closing process, the University should ensure that it has sufficient accounting personnel with the appropriate experience and training to effectively perform the financial statement close process. Additionally, key accounting personnel needs to review the draft financial statements for correctness of accounting, presentation and disclosure prior to its presentation to the auditors. This may include holding internal training programs for the preparers and first level reviewers related to the financial statement close process. The University should consider changing or reinforcing the organizational structure to improve monitoring controls over the accounting and financial reporting functions of units. The accounting and financial reporting responsibilities should be centralized and units should respond directly, timely and effectively to the Central Administration Finance Director and Controller. An effective control environment requires that those in charge of governance monitor the accounting and financial reporting functions effectively. By implementing these recommendations the monitoring of the accounting and financial reporting activities of the University will be reinforced.
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2011-2 Accounting of Federal Grant Revenues (Servicios de Extensin Agrcola - RUM) Criteria A sound system of internal controls is essential in enabling the University to prepare timely and accurate financial statements by helping ensure that all financial transactions are properly recorded, appropriately supported, and subjected to supervisory review. Condition During fiscal year 2011, Servicios de Extensin Agrcola (SEA), a RUM division recorded $5.4 million of federal grant revenue which should have been recognized in prior fiscal years. Accounting for federal grants requires federal revenue to be recognized when a federal expenditure has been incurred. The SEA failed to recognize the associated revenue in the periods incurred. In addition, Management did not request the reimbursement of these federal expenditures timely. For this reason we proposed an audit adjustment to increase the allowance for doubtful accounts related this account receivable by $7.5 million. Cause The monitoring and supervisory controls over these federal expenditures and revenues were not effective. Effect The lack of monitoring and supervisory controls led to significant adjustments in the Universitys financial statements. Recommendations Management should be more closely involved in the monitoring and review of the federal expenditures and revenues processes. Management should consider performing this process on a monthly basis in order to detect and correct errors on a timely basis, while enhancing the Universitys knowledge over its financial condition.
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Compliance and other matters As part of obtaining reasonable assurance about whether Universitys financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of management, the Board of Trustees, others within the entity, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
ey
March 28, 2012 Stamp No. 2629510 affixed to original of this report.
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OM B CIRCU LAR A- 133 R EPOR T ON FEDERA L FINANCIA L AS SI S TANCE PROGRAMS University of Puerto Rico Year Ended June 30, 2011
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University of Puerto Rico OMB Circular A-133 Report on Federal Financial Assistance Programs
Year Ended June 30, 2011
Contents
Report of Independent Auditors on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and on the Schedule of Expenditures of Federal Awards ............................................................................................................... 1 Schedule of Expenditures of Federal Awards ......................................................................... 4 Notes to Schedule of Expenditure of Federal Awards ............................................................. 10 Schedule of Findings and Questioned Costs ........................................................................... 12 Summary Schedule of Prior Audit Findings ........................................................................... 32
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Report of Independent Auditors on Compliance with Requirements That Could Have a Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and on the Schedule of Expenditures of Federal Awards
Board of Trustees University of Puerto Rico Compliance We have audited University of Puerto Rico (the University)s compliance of the with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Universitys major federal programs for the year ended June 30, 2011. The Universitys major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the Universitys management. Our responsibility is to express an opinion on the Universitys compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Universitys compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Universitys compliance with those requirements. In our opinion the University complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal programs for the year ended June 30, 2011. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 11-03 through 11-08.
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Internal Control Over Compliance The management of the University is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the University's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Universitys internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items 11-03, 11-04, 11-05, and 11-06 to be material weaknesses. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items 11-07 and 11-08 to be significant deficiencies.
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The University's responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the University's responses and, accordingly, we express no opinion on the responses. Schedule of Expenditures of Federal Awards We have audited the financial statements of the University as of and for the year ended June 30, 2011, and have issued our report thereon dated March 28, 2012. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of expenditures of federal awards is presented for the purpose of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of management, Board of Trustees, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
ey
September 11, 2012 Stamp No. 2659079 affixed to original of this report.
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University of Puerto Rico Schedule of Federal Assistance

CFDA NO.
FEDERAL GRANTOR / PROGRAM OR CLUSTER TITLE / CFDA NUMBER
DIRECT AWARDS
COMMONWEALTH OF PUERTO RICO
INDIRECT AWARDS - PASS-THROUGH ENTITY PUERTO RICO PUERTO RICO DEPARTMENT OF OFFICE OF THE EDUCATION GOVERNOR
PUERTO RICO DEPARTMENT OF HEALTH
TOTAL FEDERAL AWARDS
STUDENT FINANCIAL ASSISTANCE CLUSTER:

UNITED STATES DEPARTMENT OF EDUCATION (ED) 84.007 FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANTS 84.033 FEDERAL WORK-STUDY PROGRAM 84.037 PERKINS LOAN CANCELLATIONS 84.063 FEDERAL PELL GRANT PROGRAM 84.268 FEDERAL DIRECT STUDENT LOANS 84.375 ACADEMIC COMPETITIVENESS GRANTS 84.376 NATIONAL SCIENCE AND MATHEMATICS ACCESS TO RETAIN TALENT (SMART) GRANTS TOTAL UNITED STATES DEPARTMENT OF EDUCATION (ED) UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) ARRA 93.407 ARRA SCHOLARSHIPS FOR DISADVANTAGED STUDENTS 93.925 SCHOLARSHIPS FOR HEALTH PROFESSIONS STUDENTS FROM DISADVANTAGED BACKGROUNDS TOTAL UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) TOTAL STUDENT FINANCIAL ASSISTANCE CLUSTER
1,969,134 3,578,259 15,979 179,074,441 46,719,031 6,565,290 8,314,526 246,236,660
1,969,134 3,578,259 15,979 179,074,441 46,719,031 6,565,290 8,314,526 246,236,660
403,363 664,316 1,067,679 247,304,339
403,363 664,316 1,067,679 247,304,339
RESEARCH AND DEVELOPMENT CLUSTER:

UNITED STATES DEPARTMENT OF AGRICULTURE (USDA) 10.001 AGRICULTURAL RESEARCH BASIC AND APPLIED RESEARCH 10.200 GRANTS FOR AGRICULTURAL RESEARCH SPECIAL RESEARCH GRANTS 10.202 COOPERATIVE FORESTRY RESEARCH 10.203 PAYMENTS TO AGRICULTURAL EXPERIMENT STATIONS UNDER THE HATCH ACT 10.215 SUSTAINABLE AGRICULTURE RESEARCH AND EDUCATION 10.223 HISPANIC SERVING INSTITUTIONS EDUCATION GRANTS 10.250 AGRICULTURAL AND RURAL ECONOMIC RESEARCH COOPERATIVE AGREEMENTS AND COLLABORATIONS 10.303 INTEGRATED PROGRAMS 10.310 AGRICULTURE AND FOOD RESEARCH INITIATIVE (AFRI) 10.479 FOOD SAFETY COOPERATIVE AGREEMENTS 10.500 COOPERATIVE EXTENSION SERVICE 10.652 FORESTRY RESEARCH 10.664 COOPERATIVE FORESTRY ASSISTANCE 10.771 RURAL COOPERATIVE DEVELOPMENT GRANTS 10.901 RESOURCE CONSERVATION AND DEVELOPMENT 10.903 SOIL SURVEY TOTAL UNITED STATES DEPARTMENT OF AGRICULTURE (USDA) UNITED STATES DEPARTMENT OF COMMERCE (DOC) 11.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS 11.417 SEA GRANT SUPPORT 11.419 COASTAL ZONE MANAGEMENT ADMINISTRATION AWARDS 11.426 FINANCIAL ASSISTANCE FOR NATIONAL CENTERS FOR COASTAL OCEAN SCIENCE 11.432 NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION (NOAA) COOPERATIVE INSTITUTES 11.467 METEOROLOGIC AND HYDROLOGIC MODERNIZATION DEVELOPMENT 11.468 APPLIED METEOROLOGICAL RESEARCH 11.478 CENTER FOR SPONSORED COASTAL OCEAN RESEARCH COASTAL OCEAN PROGRAM ARRA11.609 MEASUREMENT AND ENGINEERING RESEARCH AND STANDARDS TOTAL UNITED STATES DEPARTMENT OF COMMERCE (DOC) UNITED STATES DEPARTMENT OF DEFENSE (DOD) 12.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS 12.107 NAVIGATION PROJECTS 12.300 BASIC AND APPLIED SCIENTIFIC RESEARCH 12.420 MILITARY MEDICAL RESEARCH AND DEVELOPMENT 12.431 BASIC SCIENTIFIC RESEARCH 12.630 BASIC APPLIED AND ADVANCED RESEARCH IN SCIENCE AND ENGINEERING 12.910 RESEARCH AND TECHNOLOGY DEVELOPMENT TOTAL UNITED STATES DEPARTMENT OF DEFENSE (DOD)
20,786 545,219 106,669 3,835,277 40,253 740,427 513,567 2,806 52,307 24,985 6,262,959 34,992 15,527 119,018 24,541 12,339,333
74,752 8,756 26,076 86,695 3,288 31,828 10,904 242,299
20,786 619,971 106,669 3,835,277 49,009 766,503 513,567 89,501 55,595 24,985 6,294,787 34,992 15,527 10,904 119,018 24,541 12,581,632
334,682 1,195,250 715,046 710 1,141,035 187,788 302,538 14,650 3,891,699 288,412 80 36,372 283,687 291,827 55,815 (799) 955,394
5,807 4,415 10,222
334,682 1,195,250 5,807 715,046 5,125 1,141,035 187,788 302,538 14,650 3,901,921 288,412 80 36,372 283,687 291,827 55,815 (799) 955,394
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University of Puerto Rico Schedule of Federal Assistance (continued)
CFDA NO.
DIRECT AWARDS
UNITED STATES DEPARTMENT OF INTERIOR (DOI) 15.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS 15.630 COASTAL PROGRAM 15.657 ENDANGERED SPECIES CONSERVATION RECOVERY IMPLEMENTATION FUNDS 15.805 ASSISTANCE TO STATE WATER RESOURCES RESEARCH INSTITUTES 15.807 EARTHQUAKE HAZARDS REDUCTION PROGRAM TOTAL UNITED STATES DEPARTMENT OF INTERIOR (DOI) UNITED STATES DEPARTMENT OF LABOR (DOL) 17.201 REGISTERED APPRENTICESHIP AND OTHER TRAINING TOTAL UNITED STATES DEPARTMENT OF LABOR (DOL) UNITED STATES DEPARTMENT OF TRANSPORTATION (DOT) 20.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS TOTAL UNITED STATES DEPARTMENT OF TRANSPORTATION (DOT) UNITED STATES NATIONAL AERONAUTICS AND SPACE AD (NASA) 43.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS 43.001 SCIENCE 43.008 EDUCATION TOTAL UNITED STATES NATIONAL AERONAUTICS AND SPACE AD (NASA) UNITED STATES NATIONAL ENDOWMENT FOR THE HUMANITIES (NHE) 45.129 PROMOTION OF THE HUMANITIES FEDERAL/STATE PARTNERSHIP TOTAL UNITED STATES NATIONAL ENDOWMENT FOR THE HUMANITIES (NHE) UNITED STATES NATIONAL SCIENCE FOUNDATION (NSF) 47.041 ENGINEERING GRANTS 47.050 GEOSCIENCES 47.070 COMPUTER AND INFORMATION SCIENCE AND ENGINEERING 47.074 BIOLOGICAL SCIENCES 47.076 EDUCATION AND HUMAN RESOURCES 47.079 INTERNATIONAL SCIENCE AND ENGINEERING (OISE) 47.081 OFFICE OF EXPERIMENTAL PROGRAM TO STIMULATE COMPETITIVE RESEARCH ARRA47.082 TRANS-NSF RECOVERY ACT RESEARCH SUPPORT UNITED STATES NATIONAL SCIENCE FOUNDATION (NSF) UNITED STATES ENVIRONMENTAL PROTECTION AGENCY (EPA) 66.034 SURVEYS STUDIES RESEARCH INVESTIGATIONS DEMONSTRATIONS AND SPECIAL PURPOSE ACTIVITIES RELATING TO THE CLEAN AIR ACT 66.509 SCIENCE TO ACHIEVE RESULTS (STAR) RESEARCH PROGRAM 66.714 REGIONAL AGRICULTURAL IPM GRANTS TOTAL UNITED STATES ENVIRONMENTAL PROTECTION AGENCY (EPA) UNITED STATES NUCLEAR REGULATORY COMMISSION (NRC) 77.006 U. S. NUCLEAR REGULATORY COMMISSION NUCLEAR EDUCATION GRANT PROGRAM 77.008 U.S. NUCLEAR REGULATORY COMMISSION SCHOLARSHIP AND FELLOWSHIP PROGRAM TOTAL UNITED STATES NUCLEAR REGULATORY COMMISSION (NRC) UNITED STATES DEPARTMENT OF ENERGY (DOE) 81.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS 81.041 STATE ENERGY PROGRAM 81.089 FOSSIL ENERGY RESEARCH AND DEVELOPMENT 81.119 STATE ENERGY PROGRAM SPECIAL PROJECTS TOTAL UNITED STATES DEPARTMENT OF ENERGY (DOE)
3,074 3,887 27,370 87,531 18,794 140,656
19,078 19,078
3,074 3,887 27,370 106,609 18,794 159,734
23 23
23 23
332 332
332 332
481 2,585,515 33,413 2,619,409
481 2,585,515 33,413 2,619,409
13,624 13,624
13,624 13,624
1,578,137 312,561 436,564 3,186,302 6,844,232 51,567 316,287 3,194,718 15,920,368
197,328 30,013 123,824 31,902 53,920 71,664 41,515 550,166
1,775,465 342,574 560,388 3,218,204 6,898,152 51,567 387,951 3,236,233 16,470,534
13,183 115 13,298
12,364 12,364
13,183 12,364 115 25,662
32,960 39,554 72,514
32,960 39,554 72,514
10,387 325,416 249,883 585,686
303,330 14,564 317,894
10,387 628,746 249,883 14,564 903,580
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CFDA NO.
DIRECT AWARDS
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) 93.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS 93.121 ORAL DISEASES AND DISORDERS RESEARCH 93.143 NIEHS SUPERFUND HAZARDOUS SUBSTANCES BASIC RESEARCH AND EDUCATION 93.173 RESEARCH RELATED TO DEAFNESS AND COMMUNICATION DISORDERS 93.226 93.242 93.243 93.249 93.262 93.273 93.276 93.279 93.281 93.283 RESEARCH ON HEALTHCARE COSTS QUALITY AND OUTCOMES MENTAL HEALTH RESEARCH GRANTS SUBSTANCE ABUSE AND MENTAL HEALTH SERVICES PROJECTS OF REGIONAL AND NATIONAL SIGNIFICANCE
PUBLIC HEALTH TRAINING CENTERS GRANT PROGRAM OCCUPATIONAL SAFETY AND HEALTH PROGRAM ALCOHOL RESEARCH PROGRAMS DRUG-FREE COMMUNITIES SUPPORT PROGRAM GRANTS DRUG ABUSE AND ADDICTION RESEARCH PROGRAMS MENTAL HEALTH RESEARCH CAREER/SCIENTIST DEVELOPMENT AWARDS THE AFFORDABLE CARE ACT: CENTERS FOR DISEASE CONTROL AND PREVENTION INVESTIGATIONS AND TECHNICAL ASSISTANCE 93.286 DISCOVERY AND APPLIED RESEARCH FOR TECHNOLOGICAL INNOVATIONS TO IMPROVE HUMAN HEALTH 93.307 MINORITY HEALTH AND HEALTH DISPARITIES RESEARCH 93.361 NURSING RESEARCH 93.375 MINORITY BIOMEDICAL RESEARCH SUPPORT 93.389 NATIONAL CENTER FOR RESEARCH RESOURCES 93.393 CANCER CAUSE AND PREVENTION RESEARCH 93.397 CANCER CENTERS SUPPORT GRANTS 93.398 CANCER RESEARCH MANPOWER ARRA 93.411 ARRA EQUIPMENT TO ENHANCE TRAINING FOR HEALTH PROFESSIONALS 93.632 UNIVERSITY CENTERS FOR EXCELLENCE IN DEVELOPMENTAL DISABILITIES EDUCATION RESEARCH AND SERVICE 93.701 TRANS-NIH RECOVERY ACT RESEARCH SUPPORT 93.837 CARDIOVASCULAR DISEASES RESEARCH 93.838 LUNG DISEASES RESEARCH 93.846 ARTHRITIS MUSCULOSKELETAL AND SKIN DISEASES RESEARCH 93.853 EXTRAMURAL RESEARCH PROGRAMS IN THE NEUROSCIENCES AND NEUROLOGICAL DISORDERS 93.855 ALLERGY IMMUNOLOGY AND TRANSPLANTATION RESEARCH 93.859 BIOMEDICAL RESEARCH AND RESEARCH TRAINING 93.865 CHILD HEALTH AND HUMAN DEVELOPMENT EXTRAMURAL RESEARCH 93.866 AGING RESEARCH 93.880 MINORITY ACCESS TO RESEARCH CAREERS 93.889 NATIONAL BIOTERRORISM HOSPITAL PREPAREDNESS PROGRAM TOTAL UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) UNITED STATES DEPARTMENT OF HOMELAND SECURITY (DHS) 97.061 CENTERS FOR HOMELAND SECURITY TOTAL UNITED STATES DEPARTMENT OF HOMELAND SECURITY (DHS) TOTAL RESEARCH AND DEVELOPMENT CLUSTER
340,594 857,731 5,267 24,851 2,454,132 306 177,489 3,508 570,496 71,692 466,697 156,923 659,543 100,941 2,249,209 41,254 8,195 13,514,178 (365) 2,013,873 26,350 298,420 532,666 5,127,579 169,642 2,196,028 2,434,089 11,385,333 798,674 48,808 (4,603) 46,729,500
(1,200) 164,781 463,266 293,824 12,369 32,812 71,184 55,717 30,594 (782) 156,216 239,763 152,387 88,208 36,162 1,212,605 232,097 88,834 (38,770) 557,244 (590) 434,729 358,337 4,639,787
339,394 1,022,512 463,266 5,267 24,851 2,747,956 12,675 177,489 36,320 641,680 71,692 522,414 156,923 690,137 100,941 2,248,427 197,470 8,195 13,753,941 152,022 2,102,081 62,512 298,420 532,666 6,340,184 169,642 232,097 88,834 2,157,258 2,991,333 11,384,743 1,233,403 48,808 (4,603) 358,337 51,369,287
83,268,212
543,364 543,364 1,709,011
4,639,787
543,364 543,364 89,617,010
TRIO CLUSTER:
UNITED STATES DEPARTMENT OF EDUCATION (ED) 84.042 TRIO_STUDENT SUPPORT SERVICES 84.044 TRIO_TALENT SEARCH 84.047 TRIO_UPWARD BOUND 84.217 TRIO_MCNAIR POST-BACCALAUREATE ACHIEVEMENT TOTAL UNITED STATES DEPARTMENT OF EDUCATION (ED) TOTAL TRIO CLUSTER CCDF CLUSTER:
2,580,095 775,936 1,263,579 254,669 4,874,279 4,874,279
2,580,095 775,936 1,263,579 254,669 4,874,279 4,874,279
1207-1377105
CFDA NO.
DIRECT AWARDS
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) 93.575 CHILD CARE AND DEVELOPMENT BLOCK GRANT ARRA 93.713 ARRA - CHILD CARE AND DEVELOPMENT BLOCK GRANT TOTAL UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) TOTAL CCDF CLUSTER
76,923 76,923 76,923
1,806,100 1,806,100 1,806,100
1,806,100 76,923 1,883,023 1,883,023
OTHER PROGRAMS:
UNITED STATES DEPARTMENT OF AGRICULTURE (USDA) 10.025 PLANT AND ANIMAL DISEASE PEST CONTROL AND ANIMAL CARE 10.304 HOMELAND SECURITY_AGRICULTURAL 10.443 OUTREACH AND ASSISTANCE FOR SOCIALLY DISADVANTAGED FARMERS AND RANCHERS 10.558 CHILD AND ADULT CARE FOOD PROGRAM 10.675 URBAN AND COMMUNITY FORESTRY PROGRAM 10.680 FOREST HEALTH PROTECTION 10.769 RURAL BUSINESS ENTERPRISE GRANTS 10.773 RURAL BUSINESS OPPORTUNITY GRANTS 10.902 SOIL AND WATER CONSERVATION 10.912 ENVIRONMENTAL QUALITY INCENTIVES PROGRAM TOTAL UNITED STATES DEPARTMENT OF AGRICULTURE (USDA) UNITED STATES DEPARTMENT OF COMMERCE (DOC) 11.303 ECONOMIC DEVELOPMENT_TECHNICAL ASSISTANCE 11.435 SOUTHEAST AREA MONITORING AND ASSESSMENT PROGRAM 11.463 HABITAT CONSERVATION 11.473 COASTAL SERVICES CENTER TOTAL UNITED STATES DEPARTMENT OF COMMERCE (DOC) UNITED STATES DEPARTMENT OF DEFENSE (DOD) 12.109 PROTECTION CLEARING AND STRAIGHTENING CHANNELS 12.609 SELECTED RESERVE EDUCATIONAL ASSISTANCE 12.901 MATHEMATICAL SCIENCES GRANTS PROGRAM TOTAL UNITED STATES DEPARTMENT OF DEFENSE (DOD) UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) 14.231 EMERGENCY SOLUTIONS GRANT PROGRAM ARRA 14.257 ARRA-HUD HOMELESSNESS PREVENTION AND RAPID REHOUSING PROGRAM 14.262 HOMELESS PREVENTION AND RAPID REHOUSING PROGRAM TECHNICAL ASSISTANCE 14.511 COMMUNITY OUTREACH PARTNERSHIP CENTER PROGRAM 14.514 HISPANIC-SERVING INSTITUTIONS ASSISTING COMMUNITIES TOTAL UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) UNITED STATES DEPARTMENT OF INTERIOR (DOI) 15.615 COOPERATIVE ENDANGERED SPECIES CONSERVATION FUND TOTAL UNITED STATES DEPARTMENT OF INTERIOR (DOI) UNITED STATES DEPARTMENT OF JUSTICE (DOJ) 16.525 GRANTS TO REDUCE DOMESTIC VIOLENCE DATING VIOLENCE SEXUAL ASSAULT AND STALKING ON CAMPUS 16.541 PART E DEVELOPING TESTING AND DEMONSTRATING PROMISING NEW PROGRAMS 16.588 VIOLENCE AGAINST WOMEN FORMULA GRANTS TOTAL UNITED STATES DEPARTMENT OF JUSTICE (DOJ) UNITED STATES DEPARTMENT OF LABOR (DOL) 17.502 OCCUPATIONAL SAFETY AND HEALTH SUSAN HARWOOD TRAINING GRANTS TOTAL UNITED STATES DEPARTMENT OF LABOR (DOL)
107,707 118 262,556 17,312 14,959 13,621 9,708 30,994 8,761 5,739 471,475
42,615 16,047 4,099 9,098 3,168 75,027
107,707 42,733 262,556 33,359 19,058 13,621 9,708 40,092 11,929 5,739 546,502
232,486 73,186 19,001 1,486,659 1,811,332
11,214 11,214
232,486 73,186 30,215 1,486,659 1,822,546
11 4,178 8,131 12,320
7,414 7,414
11 4,178 15,545 19,734
76,570 21,376 (229) 125,472 223,189
51,467 88,033 139,500
51,467 76,570 21,376 (229) 213,505 362,689
1,338 1,338
1,338 1,338
301,810 23,422 325,232
22,302 136,957 159,259
324,112 136,957 23,422 484,491
85,594 85,594
85,594 85,594
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CFDA NO.
DIRECT AWARDS
UNITED STATES DEPARTMENT OF TRANSPORTATION (DOT) 20.200 HIGHWAY RESEARCH AND DEVELOPMENT PROGRAM 20.205 HIGHWAY PLANNING AND CONSTRUCTION 20.215 HIGHWAY TRAINING AND EDUCATION 20.600 STATE AND COMMUNITY HIGHWAY SAFETY TOTAL UNITED STATES DEPARTMENT OF TRANSPORTATION (DOT) UNITED STATES NATIONAL AERONAUTICS AND SPACE AD (NASA) 43.002 AERONAUTICS TOTAL UNITED STATES NATIONAL AERONAUTICS AND SPACE AD (NASA) UNITED STATES NATIONAL ENDOWMENT FOR THE HUMANITIES (NHE) 45.024 PROMOTION OF THE ARTS GRANTS TO ORGANIZATIONS AND INDIVIDUALS 45.301 MUSEUMS FOR AMERICA TOTA LUNITED STATES NATIONAL ENDOWMENT FOR THE HUMANITIES (NHE) UNITED STATES NATIONAL SCIENCE FOUNDATION (NSF) 47.UNKNOWN OTHER UNSPECIFIED GRANTS AND CONTRACTS 47.049 MATHEMATICAL AND PHYSICAL SCIENCES 47.075 SOCIAL, BEHAVIORAL, AND ECONOMIC SCIENCES TOTAL UNITED STATES NATIONAL SCIENCE FOUNDATION (NSF) UNITED STATES VETERANS AFFAIRS (VA) 64.117 DEPENDENTS EDUCATIONAL ASSISTANCE 64.124 ALL-VOLUNTEER FORCE EDUCATIONAL ASSISTANCE 64.125 VOCATIONAL AND EDUCATIONAL COUNSELING FOR SERVICEMEMBERS AND VETERANS TOTAL UNITED STATES VETERANS AFFAIRS (VA) UNITED STATES ENVIRONMENTAL PROTECTION AGENCY (EPA) 66.436 SURVEYS STUDIES INVESTIGATIONS DEMONSTRATIONS AND TRAINING GRANTS AND COOPERATIVE AGREEMENTS SECTION 104(B)(3) OF THE CLEAN WATER ACT 66.513 GREATER RESEARCH OPPORTUNITIES (GRO) FELLOWSHIPS FOR UNDERGRADUATE ENVIRONMENTAL STUDY TOTAL UNITED STATES ENVIRONMENTAL PROTECTION AGENCY (EPA) UNITED STATES DEPARTMENT OF ENERGY (DOE) 81.049 OFFICE OF SCIENCE FINANCIAL ASSISTANCE PROGRAM TOTAL UNITED STATES DEPARTMENT OF ENERGY (DOE) UNITED STATES DEPARTMENT OF EDUCATION (ED) 84.010 TITLE I GRANTS TO LOCAL EDUCATIONAL AGENCIES 84.031 HIGHER EDUCATION_INSTITUTIONAL AID 84.103 TRIO STAFF TRAINING PROGRAM 84.120 MINORITY SCIENCE AND ENGINEERING IMPROVEMENT 84.129 REHABILITATION LONG-TERM TRAINING 84.186 SAFE AND DRUG FREE SCHOOLS AND COMMUNITIES STATE GRANTS 84.224 ASSISTIVE TECHNOLOGY 84.243 TECH-PREP EDUCATION 84.287 TWENTY-FIRST CENTURY COMMUNITY LEARNING CENTERS 84.298 INNOVATIVE EDUCATION PROGRAM STRATEGIES 84.331 GRANTS TO STATES FOR WORKPLACE AND COMMUNITY TRANSITION TRAINING FOR INCARCERATED INDIVIDUALS 84.366 84.367 84.378 ARRA 84.394 MATHEMATICS AND SCIENCE PARTNERSHIPS IMPROVING TEACHER QUALITY STATE GRANTS COLLEGE ACCESS CHALLENGE GRANT PROGRAM ARRA- STATE FISCAL STABILIZATION FUND (SFSF) EDUCATION STATE GRANTS RECOVERY ACT (EDUCATION STABILIZATION FUND)
292 43,179 43,471
56,021 36 5,926 315,526 377,509
56,313 36 49,105 315,526 420,980
1,371 1,371
1,371 1,371
16,294 63,948 80,242
16,294 63,948 80,242
209 1,520,453 6,952 1,527,614
33,302 33,302
209 1,553,755 6,952 1,560,916
1,222 120 1,065 2,407
1,222 120 1,065 2,407
(3,121) 19,730 16,609
(3,121) 19,730 16,609
607,997 607,997
607,997 607,997
4,094,088 129,723 625,254 267,204 (1,000) 428,378 8,041 1,158,440 6,710,128
977,982 611,965 6,861 8,720 603 38,688 1,540,732 40,235 3,225,786
15,000,000 15,000,000
977,982 4,706,053 129,723 625,254 267,204 (1,000) 428,378 6,861 8,720 603 38,688 1,540,732 8,041 1,198,675 15,000,000 24,935,914
TOTAL UNITED STATES DEPARTMENT OF EDUCATION (ED)
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CFDA NO.
DIRECT AWARDS
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) 93.110 MATERNAL AND CHILD HEALTH FEDERAL CONSOLIDATED PROGRAMS 93.127 EMERGENCY MEDICAL SERVICES FOR CHILDREN 93.145 AIDS EDUCATION AND TRAINING CENTERS 93.015 HIV PREVENTION PROGRAMS FOR WOMEN 93.215 HANSEN'S DISEASE NATIONAL AMBULATORY CARE 93.217 FAMILY PLANNING_SERVICES 93.236 GRANTS FOR DENTAL PUBLIC HEALTH RESIDENCY TRAINING 93.247 ADVANCED NURSING EDUCATION GRANT PROGRAM 93.282 MENTAL HEALTH NATIONAL RESEARCH SERVICE AWARDS FOR RESEARCH TRAINING 93.358 ADVANCED EDUCATION NURSING TRAINEESHIPS 93.399 CANCER CONTROL ARRA 93.405 ARRA - PUBLIC HEALTH TRAINEESHIP PROGRAM 93.591 FAMILY VIOLENCE PREVENTION AND SERVICES/GRANTS FOR BATTERED WOMEN'S SHELTERS GRANTS TO STATE DOMESTIC VIOLENCE COALITIONS 93.630 DEVELOPMENTAL DISABILITIES BASIC SUPPORT AND ADVOCACY GRANTS 93.884 GRANTS FOR TRAINING IN PRIMARY CARE MEDICINE AND DENTISTRY 93.910 FAMILY AND COMMUNITY VIOLENCE PREVENTION PROGRAM 93.964 PUBLIC HEALTH TRAINEESHIPS 93.977 PREVENTIVE HEALTH SERVICES SEXUALLY TRANSMITTED DISEASES CONTROL GRANTS 93.996 HHS BIOTERRORISM TRAINING AND CURRICULUM DEVELOPMENT PROGRAM TOTAL UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) UNITED STATES DEPARTMENT OF HOMELAND SECURITY (DHS) 97.039 HAZARD MITIGATION GRANT 97.062 SCIENTIFIC LEADERSHIP AWARDS TOTAL UNITED STATES DEPARTMENT OF HOMELAND SECURITY (DHS) TOTAL OTHER PROGRAMS:
53,125 226,368 249 68,378 86,976 2,584,215 279,605 28,883 (1,997) 50,836 (5,834) 62,534 10,962 342,754 86,426 3,873,480
89,962 664,705 7,684 63 2,593 14,834 779,841
143,087 226,368 664,954 68,378 86,976 2,584,215 279,605 28,883 (1,997) 50,836 (5,834) 62,534 10,962 7,684 342,754 63 86,426 2,593 14,834 4,653,321
78,208 93,708 171,916 15,357,718 $ 350,881,471 $
2,850 2,850 1,414,072 3,123,083 $
3,225,786 3,225,786 $
15,000,000 15,000,000 $
779,841 7,225,728 $
78,208 96,558 174,766 35,777,417 379,456,068
TOTAL EXPENDITURES OF FEDERAL AWARDS
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University of Puerto Rico Notes to Schedule of Expenditures of Federal Awards

1. General The accompanying Schedule of Expenditures of Federal Awards presents the expenditures of all Federal Awards Programs of the University of Puerto Rico (the University). The Universitys reporting entity is defined in the notes to the financial statements. 2. Basis of Accounting The accompanying Schedule of Expenditures of Federal Awards (Schedule or SEFA) is presented using the accrual basis of accounting. 3. Matching Costs Matching costs, such as the nonfederal share of certain program costs, are not included in the accompanying Schedule. 4. Relationship to Federal Financial Reports The regulations and guidelines governing the preparation of federal financial reports vary by federal agency and among programs administered by the same agency. Accordingly, the amounts reported in the federal financial reports do not necessarily agree with the amounts reported in the accompanying schedule, which is prepared on the basis of accounting explained in Note 2. Office of Management and Budget (OMB) Circular A-133 requires that federal financial reports for claims for advances and reimbursements contain information that is supported by the books and records from which the basic financial statements have been prepared. The University prepares the federal financial reports and claims for reimbursements primarily based on information from the internal accounting records of the respective Campuses of the University. 5. Relationship to Financial Statements Federal awards revenues and expenses are reported in the Universitys statement of revenues, expenses and changes in net assets in accordance with standards issued by the Government Accounting Standards Board (GASB) No. 35. Because the Schedule of Expenditures of Federal Awards presents only federal activities of the University, it is not intended to and does not present either the financial position, assets, liabilities, net assets, revenues, expenses, changes in net assets, and cash flows, as a whole.
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University of Puerto Rico Notes to Schedule of Expenditures of Federal Awards (continued)

6. Program Clusters OMB Circular A-133 defines a cluster of programs as a grouping of closely related programs that share common compliance requirements. According to this definition, the TRIO programs, CCDF programs, Research and Development programs, and the Student Financial Assistance programs were identified as clusters.
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11
University of Puerto Rico Schedule of Findings and Questioned Costs

June 30, 2011
Part ISummary of Auditors Results

Financial Statements Section Type of auditors report issued (unqualified, qualified, adverse, or disclaimer): Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified? Noncompliance material to financial statements noted? Federal Awards Section Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified? Type of auditors report issued on compliance for major programs (unqualified, qualified, adverse, or disclaimer): Any audit findings disclosed that are required to be reported in accordance with section .510(a) of OMB Circular A-133? Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster Various Student Financial Assistance Cluster Various Research and Development Cluster Various Trio Cluster 84.031 Higher Education Institutional Aid ARRA 84.394 State Fiscal Stabilization Fund Dollar threshold used to distinguish between Type A and Type B programs: $3,000,000 Auditee qualified as low-risk auditee? X Yes No X X Yes Yes No None reported X Yes Yes Yes X X No None reported No Unqualified
Unqualified X Yes No
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University of Puerto Rico Schedule of Findings and Questioned Costs (continued)
Part IIFinancial Statement Findings Section

Finding Number: 11-01 and 11-02 Refer to separately issued Report of Independent Auditors on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards, date March 28, 2012.
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Part IIIFederal Award Findings and Questioned Costs Section

Finding Number: 11-03 Program All Major Programs Topic Complete and accurate compilation of SEFA not provided timely and single audit reporting package not submitted on time. Category Internal Control / Compliance Compliance Requirement General regulations of OMB Circular A-133 Criteria or Specific Requirement OMB Circular A-133, Subpart C, Section .320, requires that the audit shall be completed and that the reporting package shall be submitted within the earlier of 30 days after the receipt of the auditors report or nine months after the end of the audit period, unless a longer period. Pursuant ____.310 (b) of OMB Circular A-133 related to financial statements, the auditee shall also prepare a schedule of federal expenditures of federal awards (SEFA) for the period covered by the auditees financial statements.
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Part IIIFederal Award Findings and Questioned Costs Section (continued)

Finding Number: 11-03 (Continued) Condition The Data Collection Form (DCF) and the Single Audit reporting package were not submitted within nine months after the end of the audit period as required by OMB Circular A-133. The University did not timely provide a complete compilation of the SEFA for the period covered by the auditees financial statements. On November 2011, we obtained the detail of expenditures of the Student Financial Assistance Cluster. However, a complete SEFA was provided approximately nine (9) months after the period covered by the auditees financial statement. After review the detail of expenditures of the SFA Cluster included in the SEFA, we noted the information provided in November 2011 by the UPR Mayagez was incomplete. Additionally, the SEFA provided by the University included two programs, Improving Teacher Quality and Public Health Emergency Preparedness, for which the University is a Vendor not a subrecipient. Therefore, these programs were removed from the SEFA resulting in an adjustment to the SEFA of $7,845,301. The SEFA provided by the University also did not properly identify three programs that were Recovery Act funded (11.609, 12.910 and 47.082) and did not properly identified a cluster as defined in OMB Circular A-133 Compliance Supplement (CCDF Cluster 93.575 and ARRA93.713). Cause The University does not have procedures in place to ensure a timely complete compilation of the SEFA in accordance with ____.310 (b) of OMB Circular A-133. Effects The lack of appropriate procedures to ensure a complete compilation of the SEFA may cause material omissions of certain grant expenditures and also may cause delays in the audit process thus affecting future grant awards. In addition, the grantors and the Pass-through Agencies did not receive the audit results within the required timeframe.
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15

Finding Number: 11-03 (Continued) Known Questioned Costs None. Recommendation We recommend that the University designate a process owner to ensure a complete compilation of the SEFA is timely prepared that will capture all federal awards expended during the period and properly identifies all Recovery Act funding and clusters. The SEFA should be provided to the external auditors with sufficient time to complete and issue the reporting package within the required period. Managements Response The A-133 Single Audit process could not begin until the financial statements were completed. Nonetheless, on February 2012 the SEFA, along with a detailed transactions file, was provided to auditors. On November 2011 we provided a document of expenditures of the Student Financial Assistance Cluster. However, we warned auditors that this was preliminary information. At that time, the University had not completed the closing process and the appropriate adjustments were not recorded. The completed SEFA and the final Trial Balance was provided on February 2012. Our 2011 Financial Statements were completed on March 28, 2012. This delay was caused by the delay in the audit of the financial statements. On August 29, 2011, our Board of Trustees issued Certification Number 7. This Certification approves the implementation of a new version of Oracle e-Business Suite for the Financial Module which is expected to conclude in three years. This version should improve the issuance of the financial statements. Also, it approves the implementation of a Grant Module across the University units. We expect this module will improve the compilation of the SEFA and, as a result, further allow us to issue in a timely fashion the Single Audit reporting package.
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Finding Number: 11-03 (Continued) Managements Response (continued) Furthermore, the fact that there are contracts included in the SEFA for which the UPR was a vendor, we noted that the way the contracts were worded implied that the UPR was a subrecipient. For example, there were contracts that included some of the following clauses: The UPR must maintain evidence of: proposals, cancelled checks, payments for goods and services. The UPR must maintain evidence of: the total amount received by the Department of Education, the use of the amount received, the project total cost, evidence of incurred expenses. The UPR will maintain the documents related to property and equipment and will submit an inventory including the following information about the equipment: description, serial number, funding source, acquisition date, cost, location, use, invoice, property number, and other information. The UPR could not transfer the property without federal authorization and must take actions in order to prevent loss or damage of such property. The UPR must perform an audit in accordance to OMB Circular A-133. Every equipment and material acquired with Title II-B funds will be property of the Department of Education.
During the audit process we contacted the director of Federal Affairs in Puerto Rico, and she clarified that the UPR was a vendor, not a subrecipient.
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Finding Number: 11-04 Program Research and Development Cluster Category Internal Control / Compliance Compliance Requirement Equipment and Real Property Management Criteria or Specific Requirement OMB Circular A-110 (__.33 and __. 34) Condition For 10 of the 17 projects selected for testing out of a population of 28, the Institution did not provide evidence that a physical inventory count of the equipment was performed within the time frames required by the Federal Government. Therefore, since we did not receive an inventory listing for 10 of the projects selected for testing, we were unable to determine the total amount of federal funds disbursed related to property and equipment purchases. CFDA No. Projects 93.389 401390550024 47.041 331431640101 93.242 401390790016 93.701 402020110001 93.855 401390200204 93.121 401391430001 10.901 321590270010 93.701 402020090002 47.041 331431640101 47.076 331431310201
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Finding Number: 11-04 (continued) Condition (continued) The University was unable to provide us with evidence that a physical inventory was performed two years prior to the fiscal year under audit or during the year under audit in order to ensure that the list of equipment is accurate and up to date. The University should perform a physical inventory observation in order to properly account for equipment purchased with Federal Funds and ensure they are used for their intended purpose. Cause The University does not have appropriate controls in place to ensure compliance with the Equipment and Real Property Management requirements. Effects Due to the lack of an accurate equipment inventory detail list, the University will not be able to verify the existence of the equipment, in case the equipment is lost or stolen. Known Questioned Costs Not applicable. Recommendation The Universitys management should verify that the required physical inventory observations take place in a timely manner and is reconciled to property acquired with federal funds records and that these procedures are properly documented. Managements Response This situation was found in the Mayagez Campus and the Medical Sciences Campus. Mayaguez Campus Property Office will conduct periodical visits and keep an updated inventory and maintain registry and evidence of physical inventory of said property.
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Finding Number: 11-04 (continued) Managements Response (continued) The Medical Sciences Campus will assign additional personnel to help with the inventory count. Also a barcoding system is been evaluated as an alternative to facilitate the labeling and inventory counting. Also, to assure compliance with federal equipment/property standards, Circular 12-18 has been released by the Central Administrations Finance Office regarding pertinent regulations 2 CFR 215.30 through 2 CFR 215.35-37. Furthermore, workshops on Property management, education and training sessions have been conducted by the Central Administrations Finance Office on federal property management policies, principles and procedures. The trainings include adequate equipment identification guidelines, proper reconciliation process within accounting records and physical spaces, and detail process to manage a physical inventory of equipment acquired with federal funds.
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Finding Number: 11-05 Program Student Financial Assistance Cluster Category Internal Control / Compliance Compliance Requirement Special Tests and Provisions: Enrollment Reporting Criteria or Specific Requirement Per 34 CFR Section 682.610 for FFEL and 34 CFR Section 685.309 for Direct Loans, the Student Status Confirmation Report (SSRC should be transmitted electronically to NSLDS. Under the FFEL and Direct Loan programs, schools must complete and return within 30 days of receipt, the SSCR sent by Department of Education (DE) or a guaranty agency. The University determines how often it receives the SSCR, but the minimum is twice a year. Once received, the University must update for changes in student status, report the enrollment status was effective, enter the new anticipated completion date, and submit the changes electronically through the batch method or the NSLDS web site. Institutions are responsible for timely reporting, whether they report directly or via third-party servicer. Unless the school expects to complete its next SSCR within 60 days, the school must notify the lender or the guaranty agency within 30 days, if it discovers that a student who received a loan either did not enroll or ceased to be enrolled on at least a half-time basis.
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Finding Number: 11-05 (continued) Condition From a sample of forty (40) students (out of population of 4,007 students) that graduated, withdrew, dropped out, or enrolled but never attended during the audit period selected for testing, enrollment status confirmations for nine (9) cases tested were not reported within sixty days as required by the NSLDS or were not reported at all. Campus Ro Piedras Ro Piedras Ro Piedras Ro Piedras Ro Piedras Ro Piedras Ro Piedras Ro Piedras Ponce Student ID 801-07-4640 804-03-5037 801-05-5220 801-02-9159 801-08-0063 801-06-2084 801-09-5596 443-06-0748 843-06-2912 Status Not reported Not reported Not reported Not reported Reported late Reported late Not reported Reported late Reported late
Cause Internal controls to ensure that the status change is updated timely to the NSLDS were not in place during the fiscal year under audit. Effects This condition prevents the University to report the students status in a timely matter to the NSLDS, which can cause funds being loaned to individuals who are not entitled to receive aid. Known Questioned Costs None
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Finding Number: 11-05 (continued) Recommendation We recommend that the University review the process and controls surrounding the reporting of student status changes to the NSLDS. The University shall establish procedures to ensure that enrollment status changes are updated, reviewed and submitted in a timely manner to the NSLDS database. Managements Response In the Ro Piedras campus the Registrar indicated that in one case, the student returned in the second semester. The other three cases were not detected on a timely basis because most of the process is performed manually. The implementation of the new student information system in the Ro Piedras campus (Power Campus) will allow the University to properly fulfill this responsibility in a timely manner. Our goal is to have the system fully implemented by next year. In the Ponce campus, the registrars office will conduct double checks to detect graduated students, as in the case reported in the finding.
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Finding Number: 11-06 Programs Higher Education Institutional Aid CFDA No.84.031 Research and Development Cluster Category Internal Control /Compliance Compliance Requirement Suspension and Debarment Criteria or Specific Requirement In accordance with 34 CFR parts 80 and 85, the University shall establish procedures for the effective use of the List of Parties Excluded (EPLS) from Federal Procurement or Non-procurement programs to assure that they do not award assistance to listed parties in violation of the Executive Order. Condition We selected a total sample of 20 transactions consisting of 17 transactions belonging to the Research and Development (R&D) Cluster and 3 transactions belong to the Higher Education Institutional Aid (out of a total population of 191 transactions; from which 169 transactions were related to the R&D Cluster and 22 transactions were related to the Higher Education Institutional Aid Program) to determine whether the University performed a verification check for covered transactions, by checking the EPLS, collecting a certification from the entity, or adding a clause or condition to the covered transaction with the entity. For 14 of the 20 transactions selected (which include 11 transactions from the R&D Cluster and 3 transactions from the Higher Education Institutional Aid), we did not observe a suspension and debarment clause within the contract and the University was unable to provide us with supporting documentation to evidence the verification of
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Finding Number: 11-06 (continued) Condition (continued) such transactions. However, the University verbally assured us that verification is made upon initial requisition, but not formally documented. Furthermore, for all transactions selected, we noted that all related vendors were excluded from EPLS without exception.
Program or CFDA No. 84.031 84.031 84.031 Disbursement Document Number 10524293 10508676 10461764
Amount $ 81,087 39,008 37,000 $157,095
Program or CFDA No. R&D R&D R&D R&D R&D R&D R&D R&D R&D R&D R&D
Disbursement Document Number 10459437 10557855 10369025 10434689 10509107 10358162 10374595 10350285 10480255 10204725 10519151
Amount $ 55,994 94,891 222,924 36,248 58,272 88,968 29,955 52,288 29,599 91,815 136,297 $897,251
Cause Internal controls to ensure evidence of the required EPLS verification were not in place during the fiscal year under audit.
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Finding Number: 11-06 (continued) Effects The University may have entered into transactions with suspended or debarred vendors, which could lead to disallowance of Federal funds. Known Questioned Costs Not applicable. Recommendation The University should establish a procedure to ensure all required verifications are documented and maintained in vendor files. Managements Response We do not accept the finding. The UPR units verify if the vendor is included in the EPLS, but do not print the evidence; neither includes it as part of the documents justifying the transactions. We understand that the federal regulation does not require to maintain this evidence for review. As the auditors noted, none of the 14 vendors for the transactions mentioned in the finding were included in the EPLS. Auditors Conclusion Managements response acknowledges the finding, but seems to ignore the fact that any sound internal control system requires appropriate documentation to evidence the procedures performed. The finding remains as stated.
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Finding Number: 11-07 Federal Program Research and Development Cluster Category Internal Control / Compliance Compliance Requirement Reporting Criteria The Grant Agreement between the National Institute of Food and Agriculture and the University of Puerto Rico College of Agricultural Sciences Agriculture Experiment Station, Section VII states that the report SF-425 should be submitted by December 31, 2011. Condition Found During our current year audit of the Research and Development Cluster, we noted that Form SF-425 is applicable for project 321680140111 (The Hatch Act of 1887-Regular Research) with CFDA number 10.203 for the time period from 10/1/2010-9/30/2011. The report was not filed as management was not aware of requirement until being notified by the auditors. As result, this report was not submitted in a timely matter as required by the National Institute of Food and Agriculture. It was submitted in 5/10/2012 or five months after the date required. Cause The University was unaware of its requirement to file SF-425. Internal controls for the University to ensure compliance with reporting requirements are either not in place or not effective.
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Finding Number: 11-07 (continued) Effects Not filing reports timely could prevent the Federal agency to monitor the Universitys spending of funding provided. Known Questioned Costs None Recommendation The University should establish procedures to understand the reporting requirements applicable to the programs included in the Research and Development cluster and prepare a checklist by program/project with the reports required by program to monitor its submission. Managements Response The Form SF-425 was not submitted on time because we were unaware of this new requirement. We sent the report as soon as we became aware of the requirement.
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Finding Number: 11-08 Program Student Financial Assistance Cluster Category Internal Control / Compliance Compliance Requirement Special Tests and Provisions: Disbursements To or On Behalf of Students Criteria or Specific Requirement 34 CFR __668.164(e) Credit balances. Whenever an institution disburses title IV, HEA program funds by crediting a students account and the total amount of all title IV, HEA program funds credited exceeds the amount of tuition and fees, room and board, and other authorized charges the institution assessed the student, the institution must pay the resulting credit balance directly to the student or parent as soon as possible but (1) No later than 14 days after the balance occurred if the credit balance occurred after the first day of class of a payment period; or (2) No later than 14 days after the first day of class of a payment period if the credit balance occurred on or before the first day of class of that payment period. OMB Circular A-110 requires nonfederal entities receiving Federal awards establish and maintain internal controls designed to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure that credit balances on students accounts are refunded within 14 days of credit origination.
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Finding Number: 11-08 (continued) Condition The University did not pay credit balances resulting from the application of student financial aid to the students in a timely manner. We noted that during the first semester of fiscal year 2010/2011, the campuses selected for testing did not pay the Pell awards directly to any of the students or parents within the first 14 days of classes. The following schedule provides more information: Campus UPR-Ro Piedras UPR-Aguadilla UPR-Mayagez UPR-Utuado UPR-Ponce Ciencias Mdicas Cause Payments were not made during the 14-day period, since effective July 1, 2010, all the campuses were required to have their own institutional bank accounts separate from the central administration. This caused the campuses to become free standing and responsible for the request and disbursement process of the campus. Effects In the first semester of fiscal year 2011-2012 all credit balances were paid after the 14-day time limit. Known Questioned Costs None First day of classes (First semester) 8/30/2010 8/23/2010 9/17/2010 8/23/2010 8/23/2010 8/9/2010 Date of first payment (First semester) 9/24/2010 9/30/2010 10/21/2010 10/7/2010 10/7/2010 10/10/2010 Days elapsed 25 38 34 45 45 62
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Finding Number: 11-08 (continued) Recommendation We recommend the University properly monitor student accounts and improve procedures to provide refunds for all credit balances within the 14-day time limit in accordance with the Federal regulation. Managements Response As of July 6, 2010, the University of Puerto Rico was suspended to participate under Title IV programs. It was not until July 27, 2010 that the units eligibility to participate was reinstated. This means that all actions to be taken in order to process and determine students eligibility were to begin after July 27, 2010, not considering the information to be provided to the Department of Education such as units contact persons, account creation and accounts numbers by program by unit, phone numbers and all IT support to be requested, and programming to be done. All the aforementioned activities were very time consuming, as a result the eleven units disbursed their first payment after the 14-day requirement. We expect to keep on complying as required.
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University of Puerto Rico Summary Schedule of Prior Audit Findings

June 30, 2011
Finding 10-02
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status All Major Programs All Major Programs Other None Gloria I. Soto, Finance Officer 1 Comment repeated. See Finding 11-03
Finding 10-03
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status All Major Programs All Major Programs Other None Gloria I. Soto, Finance Officer 1 Comment repeated. See Finding 11-03
Finding 10-04
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status Research and Development Cluster Research and Development Cluster Allowable Costs/Cost principles $885 Jos Lasalde, Vice President of Research and Technology Corrected
Finding 10-05
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status Research and Development Cluster Research and Development Cluster Equipment and Real Property Management Could not be determined Gloria I. Soto, Finance Officer 1 Comment repeated. See Finding 11-04
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University of Puerto Rico Summary Schedule of Prior Audit Findings (continued)
Finding 10-06
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status Research and Development Cluster Research and Development Cluster Matching, Level of Effort, Earmarking Could not be determined Gloria I. Soto, Finance Officer 1 Corrected
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Finding 09-02
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Persons Responsible for Corrective Action Plan Status 84.032 Federal Family Education Loan SFA Cluster Special Tests and Provisions: Enrollment Reporting None Juan Aponte- Ro Piedras Campus and Francisco Bengochea, Register-Ponce Campus Comment repeated. See Finding 11-05
Finding 09-03
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Persons Responsible for Corrective Action Plan Status 84.063 Federal Pell Grant Program SFA Cluster Special Tests and Provisions: Disbursements To or On Behalf of Students $820 Damarys Arocho, Fiscal Officer-Aguadilla Campus and Luz Esther Snchez, Fiscal Office Director-Ro Piedras Campus Comment repeated. See Finding 11-06
Finding 09-04
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 84.063 Federal Pell Grant Program SFA Cluster Special Tests and Provisions: Return of Title IV Funds None Luz Esther Snchez- Fiscal Office DirectorRo Piedras Campus Corrected
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Finding 09-05
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 84.038 Federal Perkins Loan Program SFA Cluster Special Tests and Provisions: Student Loan Repayments None Pedro Martnez, Finance DirectorPonce Campus Corrected
Finding 09-06
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 84.038 Federal Perkins Loan Program SFA Cluster Special Tests and Provisions: Student Loan Repayments None Lissete Soto, Claim and Collection OfficerAguadilla Campus Corrected
Finding 09-07
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 93.307, 93.859 HHS Minority Health and Health Disparities Research; HHS Biomedical Research and Research Training R&D Cluster Allowable Costs None Mara M. Santiago, Acting Dean of Administration of Cayey Corrected
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Finding 09-08
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status All CFDA under the following clusters: 84.031 R&D Cluster, TRIO Cluster, Higher Education University Aid (Title IV) Equipment and Real Property Management None Maribel Hernndez, Acting Finance Director Corrected
Finding 09-09
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 93.389 National Center for Research Services R&D Cluster Allowable Costs/Cost Principles; Cash Management $6,200 Antonia Reyes, Accounting Supervisor Corrected
Finding 09-10
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 84.042; 84.044; 84.047 Student Support Services; Talent Search; Upward Bound TRIO Cluster Earmarking None Mara Santiago, Acting Dean of Administration of Cayey Corrected
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Finding 09-11
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 84.031 Higher Education University Aid (Title V) Allowable or Unallowable Activities; Allowable Costs/Cost Principles; Cash Management $17,370 Juan Torres, Carolina Finance Director Corrected
Finding 09-12
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status 84.031 Higher Education University Aid (Title V) Period of Availability of Federal Funds $182 Juan Torres, Carolina Finance Director Corrected
Finding 09-13
CFDA Number Name of Federal Program Type of Compliance Requirement Amount of Questioned Cost Contact Person Responsible for Corrective Action Plan Status All Programs All Programs General Regulations of OMB Circular A-133 None Anthony Cordero, Finance Director UPR Central Administration Comment repeated. See Finding 11-03
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AUD ITED FINANCIA L S TA TEMEN TS University of Puerto Rico Years Ended June 30, 2011 and 2010 With

Report of Independent Auditors

University of Puerto Rico Audited Financial Statements

Report of Independent Auditors

University of Puerto Rico Managements Discussion and Analysis

Good Accreditation Standing

University of Puerto Rico Managements Discussion and Analysis

184,902 898,146 1,083,048

204,944 851,142 1,056,086

178,178 933,537 1,111,715

337,279 87,973 65,152 (64,346) 426,058 $

309,055 78,591 72,205 (91,758) 368,093 $

300,279 63,746 69,891 (65,967) 367,949

University of Puerto Rico Managements Discussion and Analysis

860,079 215,205 206,562 68,792 1,350,638 (996,167)

933,653 211,831 198,742 78,585 1,422,811 (1,157,753)

939,531 176,636 207,598 87,544 1,411,309 (1,143,216)

839,372 179,160 15,000 3,976 1,037,508 41,341 5,580 11,044 57,965

839,318 179,165 105,000 1,066 1,124,549 (33,204) 1,288 9,251 (22,665)

923,760 141,101 (452) 1,064,409 (78,807) 17,240 3,494 (58,073)

368,093 368,093 426,058 $

22,809 390,758 426,022 368,093 $ 367,949

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

$400 300 200 100 90 80 70 60 40 20 0 --20 -40 -60 -70 -80

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

Chart 3 Major Sources of Nonoperating Revenues (In thousands)

$179,160 $15,000 $15,666

Federal Pell Grant

Federal ARRA Program

University of Puerto Rico Managements Discussion and Analysis

Chart 4 - Operating Grants Revenues

Federal Commonwealth Nongovernmental Total Operating Expenses

134,210 27,337 15,106 176,653

76% 15% 9% 100%

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

Chart 5 - Operating Expenses

621,981 238,098 215,205 155,973 50,589 43,921 24,871 1,350,638

46% 18% 16% 11% 4% 3% 2% 100%

University of Puerto Rico Managements Discussion and Analysis

Chart 6 Expenses by Function (Dollars in thousands)

30% 9% 6% 7% 4% 10% 13% 14% 4% 3% 1% 100%

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

University of Puerto Rico Managements Discussion and Analysis

Includes restricted funds for special activities.

University of Puerto Rico Statements of Net Assets

96,139,332 8,396,509 73,997,945 54,649,613

88,408,504 31,598,442 3,518,775 3,853,165 360,562,285

98,032,981 12,570,127 3,570,531 479,932 233,451,759

3,479,692 84,818,821 24,720,254 66,317,282 3,312,394

3,391,756 106,756,499 56,608,186 59,687,041 3,115,767

158,829,439 807,065,961 1,148,543,843 1,509,106,128

253,000,134 708,167,573 1,190,726,956 1,424,178,715

105,482,890 45,056,638 1,383,308 32,979,704 184,902,540

10,920,460 132,465,972 27,652,000 1,294,247 32,611,390 204,944,069

616,290,379 64,693,128 217,162,554 898,146,061 1,083,048,601

571,052,715 66,076,436 214,012,268 851,141,419 1,056,085,488