Material Weakness Identified in North Kitsap’s Title I Spending Controls

The North Kitsap School District has been flagged for a material weakness in internal controls related to federal Title I funds, following an audit by the Washington State Auditor’s Office. The issue centered on insufficient documentation supporting payroll charges against grants aimed at supporting students facing academic risk.

The finding surfaced in the district’s Financial Statements and Federal Single Audit Report, released July 6, 2026. The audit encompassed the fiscal year spanning September 1, 2024, to August 31, 2025.

Core of the Finding

Title I, a federal program supplying additional resources to districts with substantial populations of students from economically disadvantaged households, accounted for $1,103,151 in expenditures by North Kitsap during the reviewed year. Federal guidelines mandate that payroll expenses charged to such grants be backed by time-and-effort documentation—formal, signed records confirming that employees carried out the duties billed to the program.

Auditors determined that for 16 employees, totaling $796,079 in payroll costs, the district lacked this required documentation. This represented about 72 percent of the district’s Title I outlays. Based on the absence of these records, auditors classified the deficiency as a material weakness, resulting in material noncompliance—the highest severity level for internal control gaps.

Without complete documentation, the district could not conclusively show federal grantors that payroll charges reflected actual work performed under the program.

Root Causes Identified

The root cause was traced to a procedural misstep rather than financial mismanagement. District staff overseeing Title I implementation interpreted existing budget and staffing plans as sufficient proof of effort allocation, overlooking the need for periodic, certified time-and-effort records.

In its official response, the district explained that personnel relied on OSPI Bulletin 039-24, which outlines reporting expectations, and mistakenly concluded that pre-established schedules met federal standards. While North Kitsap had secured state approval to use a “Fixed Schedule” system for tracking employee effort, it did not implement the配套 certification process outlined in the guidance.

Staff emphasized that all eligible payroll expenses were properly recorded and that work assignments were clearly defined at the outset of each academic year.

No Financial Impact to Date

Despite the control gap, auditors found no financial risk associated with the findings. During the audit process, the district proactively secured retroactive time-and-effort certifications for all affected employees. As a result, the reported amount of questioned costs stood at zero.

The auditor issued an unmodified opinion on compliance with major federal programs, affirming that North Kitsap met reporting requirements. Financial statement reporting also earned a clean assessment under the state’s regulatory accounting framework, with no findings reported at the statement level.

The district was categorized as a low-risk auditee under federal standards. As with other Washington school districts, an adverse opinion was rendered regarding adherence to generally accepted accounting principles, though this stems from the state’s standardized reporting model rather than district-specific practices.

Corrective Steps Underway

To address the weakness, North Kitsap has updated its internal procedures to ensure consistent implementation of certified time-and-effort documentation moving forward. Staff training and revised checklists are now part of the annual Title I onboarding process, reinforcing that budget-level assignments alone do not suffice without formal employee and supervisor certifications.

North Kitsap School District has resumed its routine verification procedures for employee work hours, a move mandated by its recent corrective action plan. Under the reinstated protocol, staff members and their immediate supervisors must jointly sign off on completed tasks to certify the time recorded. This semi-annual and annual certification process is already in effect for the 2025-2026 academic year.

The district is concurrently drafting new guidelines regarding permissible expenditures for federal grants, specifically addressing Policy 6106. Officials anticipate finalizing these procedures before the current school year concludes. Renata Sorna, the Assistant Director of Business, Finance and Operations, serves as the district’s point of contact for this specific audit finding.

The independent audit office acknowledged the district’s collaborative approach and indicated it will assess the implementation of these corrective measures during its next review cycle.

Significance of the Documentation

Proper time-tracking serves as the essential mechanism ensuring that federal funds designated for supporting disadvantaged students are applied to actual labor performed. The audit noted that without sufficient records, a school district cannot prove it has met compliance standards or guarantee that payroll costs billed to federal programs are valid and accurate.

While North Kitsap was ultimately capable of providing signed documentation to support its financial claims, the audit revealed that the necessary verification steps were largely absent for the majority of the reviewed period.

District Financial Overview

Headquartered in Poulsbo, the district provides education to students throughout the northern portion of Kitsap County. For the fiscal year 2025, the district reported total revenues of approximately $122.3 million against expenditures of roughly $125.5 million within its governmental funds. The general fund closed the year with a balance of about $10.7 million. Federal awards received during the same period totaled $6,342,010.