Wenatchee Misclassifies $34 Million in Federal Spending, Overstates Sewer Depreciation
Wenatchee reported roughly $34 million in federal outlays under an incorrect grant program for fiscal year 2025, per a state audit released September 30, 2026. An analogous oversight in 2024 went undetected until auditors conducted a follow-up review.
State auditors also determined the city inflated accumulated depreciation on its sewer infrastructure by approximately $4.8 million. This stemmed from an overly optimistic projection of asset lifespans—city staff cited a 64-year service life for certain assets, while the standard assumption had been 30 years. As a result, assets still in active use were already fully depreciated, leading to the overstatement.
Both the grant classification and depreciation issues have since been resolved. Auditors issued clean opinions on the city’s financial statements and federal compliance for the two years reviewed, with no findings of unallowable costs or questioned expenditures.
The discrepancy most notably impacted the Schedule of Expenditures of Federal Awards. This document categorizes federal spending by program and informs which initiatives must undergo mandatory audit scrutiny.
In the 2025 filing, the city initially placed $42 million under the Highway Planning and Construction program. However, only $8 million fit that category; the remaining $34 million belonged under Nationally Significant Freight and Highway Projects, according to the audit. The misallocation originated from inconsistent grant documentation, with the state agency distributing the funds updating the program designation but failing to relay those changes to city departments responsible for compiling the federal spending report.
Had the correction not occurred, auditors would have examined the wrong program, potentially overlooking compliance issues in the more relevant initiative.
The auditor’s office republished the 2024 financial and federal audit report on September 30, 2026, revising an earlier version released a year prior. The updated report includes a finding that $11 million was incorrectly assigned to Highway Planning and Construction instead of Nationally Significant Freight and Highway Projects. This led to the original compliance audit omitting the correct program, prompting a later review once the schedule was adjusted.
City officials acknowledged reliance on the program number provided by the Washington State Department of Transportation in local grant agreements. They added that Public Works now receives and forwards supplemental program updates to the Finance Department, ensuring timely adjustments. Documentation shows this corrective measure is complete.
Nonetheless, the city’s own summary of prior audit findings—listed as part of the 2025 report—still marks the 2024 finding as “Not Corrected,” prompting auditors to flag it for reassessment in the next cycle.
State auditors emphasized that inaccurate federal award schedules may prolong audit timelines, raise costs, and influence eligibility for future federal support. Still, no reduction in grant awards or repayment obligations resulted from the errors.
State auditors determined that the municipality failed to maintain a systematic approach for periodically assessing and modifying the estimated useful life of its capital assets. According to the audit findings, city personnel did not allocate sufficient time or resources to implement such a procedure and relied on implausible estimates for certain assets in previous fiscal years.
Although the city has since rectified the depreciation mistake, auditors advised the establishment of routine evaluations for asset longevity projections and the enhancement of protocols for sharing grant-related data. The administrative body’s documented plan for corrective measures outlines steps to improve grant reporting but omits details regarding a specific workflow for reassessing asset lifespans.
The state categorizing these financial reporting control issues as a significant deficiency, a classification that is less critical than a material weakness yet still demands attention from oversight authorities. The auditors did not identify any material weaknesses in the city’s financial reporting practices.
A distinct accountability audit covering the city’s 2025 activities, which was also released on September 30, concluded that the municipality adhered to all relevant state statutes, regulations, and internal policies in all material respects. The audit further noted that the city possessed sufficient controls to protect public funds within the specific areas under review.
These examined areas encompassed payroll administration, real estate transactions, utility fee collection, general disbursements, the inventory of high-theft-risk equipment, adherence to open meeting mandates, and signs of fiscal strain. The accountability audit did not cover every financial transaction or operational activity conducted by the city.