State Auditor Flags "Material Weakness" in North Kitsap School District's Handling of Federal Title I Funds

The Washington State Auditor’s Office has cited the North Kitsap School District for a material weakness in its internal controls after finding the district failed to properly document how it spent federal money intended for students at risk of falling behind academically.

The finding appears in the district’s Financial Statements and Federal Single Audit Report, published July 6, 2026, by State Auditor Pat McCarthy’s office. The audit covers the fiscal year running from September 1, 2024, through August 31, 2025.

What the Auditors Found

At the center of the finding is the federal Title I program, which sends money to school districts serving high concentrations of children from low-income families. During fiscal year 2025, North Kitsap spent $1,103,151 in federal Title I funds.

Federal rules require districts to support every payroll dollar charged to the program with what is known as time-and-effort documentation: signed records verifying that employees actually performed the work being billed to the grant.

According to the audit, North Kitsap did not obtain that documentation for 16 employees whose payroll costs totaled $796,079, roughly 72 percent of the district’s Title I spending for the year.

Auditors labeled the lapse a material weakness that led to material noncompliance, the most serious category of internal control deficiency.

The report states that without adequate documentation, the district could not demonstrate to federal grantors that the payroll costs it charged to the program were accurate and valid.

How It Happened

The audit traces the failure to a misunderstanding, not misconduct. District staff responsible for the documentation incorrectly believed that staff assignments and budget allocations set at the beginning of the school year were enough to satisfy federal requirements. They were not.

In its formal response, the district acknowledged that personnel responsible for the Title I program misunderstood the requirements in OSPI Bulletin 039-24, which governs time-and-effort reporting.

The district had been approved by the Office of the Superintendent of Public Instruction to use a “Fixed Schedule” substitute system, but misinterpreted the guidance and did not obtain the required certifications.

The district emphasized in its response that it consistently tracked all allowable payroll costs and maintained documentation of employee salary distribution through work schedules established at the start of each school year.

No Questioned Costs

There is a significant mitigating fact in the report: the auditor is not questioning any of the costs. During the audit, the district went back and obtained the signed time-and-effort records supporting the payroll charges.

The known questioned cost amount is listed as zero, and the auditor’s office issued an unmodified, or clean, opinion on the district’s compliance with the requirements of its major federal programs.

The district also received a clean opinion on the fair presentation of its financial statements under the state’s regulatory basis of accounting, and auditors reported no financial statement findings.

The report notes the district qualified as a low-risk auditee under federal guidance. As is standard for Washington school districts, the auditor also issued an adverse opinion with respect to generally accepted accounting principles.

That opinion reflects the fact that districts prepare their statements under the state-prescribed Accounting Manual for Public School Districts, which does not require the government-wide statements GAAP calls for; it is not a judgment specific to North Kitsap’s bookkeeping.

The Fix

According to the district’s corrective action plan, North Kitsap has reinstated its semi-annual and annual certification process, which requires signatures from both employees and their direct supervisors verifying work after it is completed.

That step has already been implemented for the 2025-2026 school year. The district says it is also developing a procedure for its Policy 6106 on allowable costs for federal programs, which it expects to finalize by the end of the current school year.

The district’s listed contact for the finding is Renata Sorna, Assistant Director of Business, Finance and Operations.

The auditor’s office thanked the district for its cooperation and said it will review the corrective action during the next audit.

Why It Matters

Time-and-effort documentation is not bureaucratic box-checking. It is the primary safeguard confirming that federal dollars earmarked for disadvantaged students pay for work actually performed on their behalf. As the audit puts it, without adequate documentation a district cannot demonstrate compliance or assure federal grantors that the payroll costs charged to the program were accurate and valid.

In North Kitsap’s case, the district was ultimately able to produce signed records supporting the charges, but for most of the year the required verification simply was not happening.

North Kitsap, headquartered in Poulsbo, serves students across the northern end of Kitsap County.

The district reported total revenues of roughly $122.3 million and expenditures of about $125.5 million across its governmental funds in fiscal year 2025, ending the year with a general fund balance of approximately $10.7 million. Its total federal awards for the year came to $6,342,010.