State Audits Find Wenatchee Misclassified Millions in Federal Spending

Wenatchee listed about $34 million in federal expenditures under the wrong grant program in its 2025 reporting, according to a state audit published September 30, 2026. A similar error in the city’s 2024 reporting left the correct federal program untested until auditors performed a subsequent audit.

The Washington State Auditor’s Office also found that the city overstated accumulated depreciation on sewer assets by about $4.8 million because it used an unreasonable estimate of how long the assets would remain in service.

The city corrected the grant classification and depreciation errors, according to the reports. Auditors issued unmodified opinions on its financial statements and compliance with requirements for the major federal program examined in each year.

Neither financial and federal audit report listed federal award findings or questioned costs.

The grant-reporting problem affected the Schedule of Expenditures of Federal Awards, which identifies spending by federal program and helps determine which programs auditors must examine.

For 2025, Wenatchee initially reported about $42 million under the Highway Planning and Construction program. Only about $8 million belonged there; approximately $34 million should have been reported under Nationally Significant Freight and Highway Projects, the audit found.

Auditors said the funding source was incorrect in some grant documents. The agency passing the grant money to the city corrected that information, but city departments handling the grant did not communicate the correction to employees preparing the federal spending schedule.

Had the 2025 error not been identified and corrected, auditors would have tested the wrong federal program, the report says.

The State Auditor’s Office reissued the 2024 financial and federal audit report on September 30, 2026. It had originally been published September 18, 2025.

The reissued report includes a finding that about $11 million was reported under Highway Planning and Construction when it belonged under Nationally Significant Freight and Highway Projects.

Because of that error, the original federal compliance audit did not test the correct program. The city corrected the schedule, and auditors subsequently performed the required audit of the proper program.

Auditors warned that an inaccurate schedule can delay audits, increase audit costs and potentially jeopardize future federal funding. The findings do not report that Wenatchee lost grant funding.

In its written responses, the city said it relied on the federal program number supplied by the Washington State Department of Transportation in the local agency grant agreement.

“The City would like to highlight that all INFRA grant funding was expended properly,” the city wrote.

The city said WSDOT later provided supplemental program information to Public Works. Its corrective-action plans say Public Works now forwards those supplements to the Finance Department so staff can identify changes in program numbers. The city listed that corrective action as completed.

A separate schedule in the 2025 report, the city’s summary of prior audit findings, marks the 2024 finding “Not Corrected.” The auditor’s office said it would review the condition during the next audit.

The sewer accounting problem involved approximately $10 million in assets that remained in use after being fully depreciated over 30 years. Depreciation allocates an asset’s cost over its estimated useful life.

City staff told auditors that 64 years was a more accurate estimate for those assets. Using that estimate, auditors calculated that accumulated depreciation was overstated by about $4.8 million.

Auditors found that the city lacked a process to regularly evaluate and adjust the useful lives of capital assets. Staff had not devoted the necessary time and resources to establishing that process and had used unreasonable estimates for some assets in prior years, the finding says.

The city corrected the depreciation error. Auditors recommended regular reviews of asset life estimates, along with stronger procedures for communicating grant information. The city’s written corrective-action plan addresses grant reporting but does not describe a process for reviewing asset lives.

The state classified the financial reporting control problems as a significant deficiency, a category less severe than a material weakness but important enough to require attention from those responsible for oversight. Auditors identified no material weaknesses in financial reporting.

A separate accountability audit of the city’s 2025 operations, also published September 30, found that the city complied in all material respects with applicable state laws, regulations and its own policies, and had adequate controls to safeguard public resources in the areas examined.

Those areas included payroll, property sales, utility billing, general payments, tracking theft-sensitive equipment, open public meeting requirements and indications of financial distress. The accountability audit did not examine every city transaction or activity.