Audit 301818

Title: NOTE 1- REPORTING ENTITY Accounting Policies: Funds received under the various grant programs have been recorded within the special revenue, capital projects, and enterprise funds of the City. The City utilizes the modified accrual basis of accounting for the special revenue and capital projects funds, and accrual basis of accounting for the enterprise funds. The accompanying Schedule of Expenditures of Federal Awards (the Schedule) is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). Therefore, some amounts presented in the Schedule may differ from amounts presented in, or used in, the preparation of City’s basic financial statements. De Minimis Rate Used: N Rate Explanation: The City has not elected to use the 10 percent de-minimis indirect rate as allowed under the Uniform Guidance. The financial reporting entity consists of the primary government, the City of Morro Bay (the City); organizations for which the primary government is financially accountable; and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete.

Title: NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Policies: Funds received under the various grant programs have been recorded within the special revenue, capital projects, and enterprise funds of the City. The City utilizes the modified accrual basis of accounting for the special revenue and capital projects funds, and accrual basis of accounting for the enterprise funds. The accompanying Schedule of Expenditures of Federal Awards (the Schedule) is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). Therefore, some amounts presented in the Schedule may differ from amounts presented in, or used in, the preparation of City’s basic financial statements. De Minimis Rate Used: N Rate Explanation: The City has not elected to use the 10 percent de-minimis indirect rate as allowed under the Uniform Guidance. Basis of Accounting Funds received under the various grant programs have been recorded within the special revenue, capital projects, and enterprise funds of the City. The City utilizes the modified accrual basis of accounting for the special revenue and capital projects funds, and accrual basis of accounting for the enterprise funds. The accompanying Schedule of Expenditures of Federal Awards (the Schedule) is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). Therefore, some amounts presented in the Schedule may differ from amounts presented in, or used in, the preparation of City’s basic financial statements. Schedule of Expenditures of Federal Awards The accompanying Schedule presents the activity of all federal financial assistance programs of the City. Federal financial assistance received directly from federal agencies, as well as federal financial assistance passed through the State of California, is included in the Schedule. The Schedule was prepared only from the accounts of various grant programs and, therefore, does not present the financial position or results of operations of the City. Indirect Cost Rate The City has not elected to use the 10 percent de-minimis indirect rate as allowed under the Uniform Guidance.