HINDERLITER, DE LLAMAS AND ASSOCIATES (“HDL”)

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DocuSign Envelope ID: 9822D5D4-600B-4A67-B07F-02E780760E1B variances, discrepancies and outliers to produce the most accurate measure of gross receipts on behalf of the City. 2.2 To initiate the process, the City shall provide HdL with a list of all licensed cannabis businesses subject to audit. HdL shall work with the City to determine the appropriate review period for each business and to develop a schedule for conducting all audits. As the time for each audit approaches, HdL will prepare a notification letter informing the licensee of the impending audit and providing a list of all records and documentation the business is required to provide, including remote access to the business's point -of -sale (POS) system where applicable. HdL recommends that the notification letter be sent by the City to communicate HdL's authority to conduct the audit and to encourage cooperation by the business. 2.3 The full annual audit shall include: a. Review Point -of -Sale (POS) system structure b. Review inventory system (subject to METRC data) c. Analyze and compare POS data with other available data sources, including: • City cannabis tax returns • State tax returns • Federal tax returns • METRC sales and inventory data • CDTFA data • Bank statements • Sales receipts • Other financial documents as available d. Identify any variances or over/under reporting e. Calculate any taxes or fees due to the City f. Prepare and issue report 2.4 Where cannabis cultivation is taxed on a square -footage basis, the audit shall include one annual site inspection to verify compliance with maximum permitted canopy area. Square footage audits may also consider documented findings from inspections by the City, DCC or other agencies, where available. 2.5 A business that holds multiple state cannabis licenses shall be considered a single business for audit purposes, provided that all licenses are held and operated under the same name, ownership, location, and a single tax ID number. Any variation may indicate separate business entities requiring separate audits. Any such determination shall be made on a case -by -case basis in consultation with the City. 3. FISCAL COMPLIANCE SITE VISITS (OPTIONAL) 3.1 Activities under this task are deemed optional and must therefore be pre -approved by the City before work may commence. 3.2 HdL shall conduct on -site fiscal compliance site visits of at least three (3) commercial cannabis businesses subject to an audit outlined in Task 2 or as otherwise requested by the City. The site visits shall seek to verify that all documentation and record keeping is in accordance with the City's requirements. Hdl, audit inspectors may be accompanied by City staff, if so desired, to assist them in gaining an understanding of each operator's internal controls and their procedures for recording and reporting sales to the City. 3.3 Each site visit shall be conducted concurrent with the annual cannabis business license tax audit for the business as described under Task 2. The timing for the site visit shall be determined in consultation with the City. HdL recommends that the site visit occur after the business has