South Kitsap School District Received Estimated $871,000 in Federal Overpayments, According to State Audit
A recent state audit revealed that the South Kitsap School District received an estimated $871,727 in overpayments from a federal grant program meant to support military-connected students with severe disabilities.
According to the Financial Statements and Federal Single Audit Report published May 29, 2026, by the Office of the Washington State Auditor, the district lacked adequate internal controls and failed to comply with federal eligibility requirements for the Department of Defense Impact Aid program during the 2024-2025 school year.
Because of Kitsap County’s significant military presence, local districts regularly receive DoD Impact Aid to help offset the costs of educating military-connected children.
A specific subprogram within the grant reimburses districts for the high costs of educating children with severe disabilities.
To be eligible for these specific funds, a student must both have a severe disability and be a dependent of active-duty military personnel.
The audit found that the district included 22 students in its application for CWSD funds, requesting $1,016,178 and ultimately receiving $961,187.
When state auditors tested a nonstatistical sample of seven students from that application, they discovered that six were ineligible because they were not dependents of active-duty military personnel.
The known questioned costs for those six students amounted to $277,368. Based on a projection of that sample, auditors identified an additional $594,359 in estimated overpayments for other ineligible students, bringing the total estimated overpayment to $871,727.
Because of the material weakness in internal controls and resulting noncompliance, the State Auditor issued an “adverse opinion” regarding the district’s compliance with the requirements for the DoD Impact Aid program.
The district, headquartered in Port Orchard, formally acknowledged the findings in its official response.
District officials attributed the error to staff turnover in 2024, noting that a former Special Services administrator who is no longer employed by the district completed the application.
Because of the turnover, the district’s established practice of obtaining a secondary review of the application prior to submission was bypassed.
“The District has a legitimate population of active-duty military-connected students and incurs significant costs in providing services to students with disabilities,” the district stated in its response.
“The District believes the issue identified was an administrative and internal control error in the application process, rather than an absence of eligible military-connected students or related service costs.”
To prevent future errors, the district has initiated a corrective action plan overseen by Heather Korten, the district’s Director of Business Services.
Moving forward, the Business Services Department will perform an independent, secondary review of all CWSD application data.
Staff will be required to cross-reference each student against source documentation from the U.S. Department of Education’s Impact Aid process to confirm active-duty military status before any application is submitted.
The district anticipates fully implementing its corrective actions by June 30, 2026, and stated it will continue to cooperate with the grantor and the State Auditor’s Office to resolve the questioned costs.
Outside of the specific issues with the DoD grant, the district’s broader financial accounting practices were found to be in compliance with state regulations.
For the 2024-2025 fiscal year, the South Kitsap School District managed a general fund with roughly $189.5 million in revenues and $190.1 million in expenditures.
The state auditor issued an unmodified, or “clean,” opinion on the district’s overall financial statements under the regulatory basis of accounting prescribed by the Washington State Accounting Manual.
As is standard for Washington school districts that do not prepare full government-wide financial statements, the district received a separate adverse opinion regarding Generally Accepted Accounting Principles.
Auditors identified no material weaknesses in the district’s internal controls over general financial reporting.
