The South Kitsap School District, based in Port Orchard, is estimated to have received $871,727 in excess funds from a federal assistance program designed to aid military-connected students with significant disabilities. This finding was detailed in a report released on May 29, 2026, by the Office of the Washington State Auditor. The audit determined that the district did not maintain sufficient internal controls and did not adhere to federal eligibility rules for the Department of Defense Impact Aid during the 2024-2025 academic year.
Local school districts in Kitsap County frequently utilize DoD Impact Aid to help cover the expenses associated with educating children linked to military service. A specific component of this grant, known as Child With Severe Disabilities (CWSD) funding, reimburses districts for the elevated costs of supporting students with severe impairments. Eligibility for this portion of the grant requires that a student possess a severe disability and be a dependent of active-duty military personnel.
In its application, the district listed 22 students for CWSD reimbursement, asking for $1,016,178 and ultimately securing $961,187. State auditors examined a nonstatistical sample of seven students from this list and found that six were ineligible because they were not dependents of active-duty service members. The direct questioned costs for these six students totaled $277,368. By projecting these sample results to the entire population, auditors estimated an additional $594,359 in overpayments, resulting in the total figure of $871,727.
Due to the significant internal control weaknesses and the resulting noncompliance, the State Auditor issued an adverse opinion on the district’s adherence to DoD Impact Aid requirements. The district formally accepted the audit findings in its official reply. Officials cited staff turnover in 2024 as the primary cause of the error, noting that a former Special Services administrator, who was no longer with the district, had prepared the application. Consequently, the district’s standard procedure of conducting a secondary review before submission was skipped.
District representatives emphasized that the school serves a valid population of military-connected students and incurs substantial costs for disability services. They characterized the issue as an administrative and internal control failure in the application process rather than a lack of eligible students or related expenses.
To address the problem, the district has launched a corrective action plan led by Heather Korten, the Director of Business Services. Under this plan, the Business Services Department will conduct an independent review of all CWSD application data. Employees will be required to verify each student’s active-duty military status against source documentation from the U.S. Department of Education’s Impact Aid process prior to submission. The district expects to complete these corrective measures by June 30, 2026, and has stated it will continue working with the grantor and the State Auditor’s Office to settle the questioned costs.
Apart from the DoD grant issues, the audit confirmed that the district’s overall financial accounting practices complied with state regulations. For the 2024-2025 fiscal year, the South Kitsap School District reported general fund revenues of approximately $189.5 million and expenditures of $190.1 million.
South Kitsap School District received a favorable assessment from the state auditor regarding its financial health. The independent review confirmed that the district’s overall financial statements are accurate under the specific accounting methods mandated by the Washington State Accounting Manual. This “clean” opinion indicates that the district’s books are in order according to those state-specific regulations.
However, the auditors issued a separate, negative opinion concerning the district’s compliance with Generally Accepted Accounting Principles. This dual reporting structure is common among Washington school districts that do not produce comprehensive government-wide financial reports.
The audit team did not find any significant flaws in the district’s internal systems for managing general financial reporting. The full financial statements and the federal single audit report are available for public review.