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