Audit 297811

Title: NOTE 1 – REPORTING ENTITY Accounting Policies: Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements, regardless of the measurement focus applied. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. The proprietary and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Expenditures of Federal Awards reported on the Schedule are recognized when incurred. De Minimis Rate Used: N Rate Explanation: The City has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance. The Schedule of Expenditure of Federal Awards (the Schedule) includes expenditures of federal awards for the City of Morgan Hill, California and its component units as disclosed in the notes to the Basic Financial Statements.

Title: NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Policies: Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements, regardless of the measurement focus applied. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. The proprietary and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Expenditures of Federal Awards reported on the Schedule are recognized when incurred. De Minimis Rate Used: N Rate Explanation: The City has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance. Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements, regardless of the measurement focus applied. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. The proprietary and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Expenditures of Federal Awards reported on the Schedule are recognized when incurred.

Title: NOTE 3 – INDIRECT COST ELECTION Accounting Policies: Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements, regardless of the measurement focus applied. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. The proprietary and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Expenditures of Federal Awards reported on the Schedule are recognized when incurred. De Minimis Rate Used: N Rate Explanation: The City has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance. The City has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance.