An audit by state officials highlighted significant lapses in Lynnwood's management of late utility fees, which were not collected for eight months following the expiration of a state moratorium in January 2022. This oversight resulted in a potential loss of $350,000 and was classified as a possible violation of the city's financial regulations. During the pandemic, Governor Jay Inslee's orders prohibited municipalities from shutting off utilities or collecting late fees, but Lynnwood's failure to act promptly once these restrictions lifted raised concerns about fiscal oversight. The city collected only $461,435 of the $819,286 owed as of February 2023, while waiving around $375,000 in fees without the required City Council resolution. City spokesperson Nathan MacDonald explained that the extended delay was due to a citywide meter change-out project.

Following the audit's findings, Lynnwood officials are working on implementing the state auditor's recommendations to improve revenue collection and internal controls. The city collects approximately $26 million in utility fees annually, with late fees constituting 10% of the total bill. The state plans to review the city's changes during its next scheduled audit in three years.