WS Chronicle

By A.J. Daniel

The Winston-Salem Chronicle

WINSTON-SALEM — For months, parents, teachers, and taxpayers across Forsyth County have been asking how a school district already facing a $46 million budget deficit reached such a severe financial crossroads.

A newly released follow-up report from the North Carolina Office of the State Auditor offers troubling insight into how the crisis unfolded, citing weak financial controls, delayed accounting practices, and spending decisions that outpaced available funds.

The report, released March 5 by State Auditor Dave Boliek, concludes that the Winston-Salem/Forsyth County Schools district still has significant work ahead to stabilize its financial management.

“Winston-Salem/Forsyth County Schools remains far from having healthy budgeting practices in place,” Boliek said in the report.

For families whose children depend on the district’s more than 50,000-student school system, the findings raise difficult questions about how long the warning signs were present before the full scope of the deficit became clear.

$15 Million Recorded Months Late

Among the most significant findings in the auditor’s follow-up review is the discovery that approximately $15 million in expenditures incurred during the fiscal year ending June 30, 2025 were not recorded in the district’s accounting system until September 2025.

According to the audit, those expenditures were eventually recorded and backdated to June 30, the close of the fiscal year.

Because the expenses were not recorded when they occurred, the district’s financial reports during that period did not fully reflect the district’s actual spending obligations.

Auditors warned that delayed recording of expenditures can weaken oversight by presenting an incomplete financial picture to district leaders and governing boards responsible for approving budgets.

The report notes that when the expenditures were finally recorded, the adjustments significantly increased the district’s known overspending for the fiscal year.

For a district responsible for educating tens of thousands of students, auditors said the delayed entries highlighted weaknesses in basic financial controls intended to track spending in real time.

The $11 Million Overdraft

The audit also identified a major overdraft in the district’s State Public School Fund, which contains state education dollars distributed through the North Carolina Department of Public Instruction.

In September 2024, district finance officials executed a $16.99 million transfer between internal funding programs.

However, auditors determined that the program from which the funds were transferred did not have sufficient available balance, triggering an overdraft.

According to the report, the overdraft eventually reached $11.34 million by April 30, 2025.

As a result, the Department of Public Instruction placed the district under increased financial monitoring and changed its funding status from a cash-advance system to a reimbursement model, requiring the district to submit documentation before receiving state funds.

Auditors noted that the overdraft reflected broader issues cited in the earlier investigation, including the district’s failure to consistently reconcile budgets and expenditures on a monthly basis.

Borrowing From the Child Nutrition Fund

The report also examined the district’s decision to draw from the Child Nutrition Fund, which supports federally backed school meal programs.

Facing cash flow challenges, the Winston-Salem/Forsyth County Board of Education authorized an internal loan of up to $6 million from the fund to help cover operational expenses.

State auditors flagged the arrangement because the initial loan agreement did not include clearly defined repayment terms, interest, or penalties, raising concerns about the structure of the transaction and the need for stronger financial safeguards.

While the audit did not indicate that meal services were immediately disrupted, it emphasized the importance of protecting funds designated for student nutrition programs.

A Deficit Years in the Making

The follow-up report builds on findings from a Rapid Response audit released in August 2025, which first revealed the district’s $46 million budget deficit.

That earlier investigation identified several contributing factors, including spending decisions that exceeded available funding and the district’s failure to maintain consistent financial reconciliation practices.

The delayed recording of expenditures identified in the new report added further clarity to how the district’s financial position deteriorated.

When the late entries were recorded, auditors found that previously reported overspending increased substantially.

Leadership Changes and Efforts to Restore Stability

The financial crisis has unfolded alongside leadership turnover within the district’s central administration.

In a written response included in the auditor’s report, Superintendent Dr. Don Phipps said the district is working to strengthen financial oversight and implement improved accounting practices.

District leadership has indicated that reforms are underway, including more frequent reconciliation of financial records and additional monitoring of expenditures.

State Auditor Boliek noted that restoring confidence in the district’s financial management will require sustained transparency and stronger internal controls moving forward.

“They owe additional transparency to the people in Forsyth County and the City of Winston-Salem,” Boliek said.

The Trust Deficit

Financial deficits can eventually be repaired through budget adjustments and fiscal discipline.

Rebuilding public trust often takes longer.

For families and educators across Winston-Salem — particularly in schools serving historically underserved communities — the audit’s findings raise broader concerns about how financial decisions at the district level can affect classrooms, staffing, and student resources.

As the district works to stabilize its finances, many in the community will be watching closely for evidence that the systems meant to safeguard public education funding are working as intended.

For thousands of Forsyth County students, the stakes extend far beyond the balance sheet.

BY THE NUMBERS: WS/FCS FINANCIAL FINDINGS

$46 Million

Budget deficit identified in the 2025 state audit

$15 Million

Expenditures recorded months after the fiscal year ended

$11.34 Million

Peak overdraft in the State Public School Fund

$6 Million

Authorized internal loan from the Child Nutrition Fund

50,000+

Students served by the district (but declining)