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Yes, you are running it wrong, but your players are also wrong. It is worse for your players than they realize.
Draw a line from ONE of the shooter's corners to EACH corner of the target.
If any of those 4 lines crosses an obstacle or creature, then the target has cover.
If none of those 4 lines crosses an obstacle or creature, then the target does not have cover.
What this means is, an archer can fire around a corner at someone and maintain cover while the target gains no benefit of cover.
As an added bonus, it also means that an archer can be around the corner and shoot a medium creature 5' away without provoking an AoO.
Here is a picture illustrating this. The target on the left does not have cover from the shooter. The target on the right has cover from the shooter (red lines).
To determine whether your target has cover from your ranged attack, choose a corner of your square. If any line from this corner to any corner of the target’s square passes through a square or border that blocks line of effect or provides cover, or through a square occupied by a creature, the target has cover (+4 to AC).
So in the case of your kobolds, they continue to have cover (+4 AC) even while shooting. The PCs would not have cover unless they have an obstacle granting them cover (which is probably not the same object granting the kobolds cover).
Basically, this is the equivalent of shooting a gun around a corner, you don't have to expose yourself much.