Winston-Salem schools overdrew $11M in state funds, hid $15M more

Winston-Salem/Forsyth County Schools (WS/FCS) told the North Carolina Office of the State Auditor (OSA)⧉ -- the state's independently elected financial watchdog -- that it was running an estimated $46 million budget deficit for fiscal year 2025 as of July 29, 2025.▸ OSA's investigation found the deficit had at least two distinct roots: the district let staffing grow even as enrollment fell, and its Finance Office lost control of its own books so completely that a single September 2024 transfer overdrew a restricted state fund by $4.87 million and kept growing for seven more months before the state cut off further cash. A follow-up report⧉ five months later found the district had also kept roughly $15 million of its real FY2025 spending off its books entirely, not recording it until after the books for that year should have already closed.

North Carolina funds school districts through the State Public School Fund, distributed by the Department of Public Instruction (DPI)⧉ in restricted buckets called Program Report Codes (PRCs) -- one for instructional support, one for disadvantaged-student programs, and so on, each meant to be spent only on its designated purpose.▸ Every North Carolina district is required to transfer money each year into PRC-037, the state's Restart Schools Program, and on September 20, 2024, WS/FCS's Finance Office executed that transfer -- $16.99 million -- out of PRC-003, its Non-Instructional Support allotment. The problem: PRC-003 held only $13.92 million. The transfer alone created an immediate $4.87 million overdraft against money the state had restricted for a different purpose.

DPI's own transfer guidance says the state should pull only the funds actually available in PRC-003 before reaching into other accounts -- but DPI's allotment system had no hard stop preventing the transfer from exceeding what WS/FCS actually had.▸ The district's Finance Office then took until January 2025 to record the transfer in its own accounting system, so for roughly three and a half months WS/FCS's own books showed PRC-003 still holding money that had already left it -- and kept spending against a balance that no longer existed. When the district's Board of Education finally approved the transfer in March 2025, it did so after the fact, ratifying an overdraft that was already six months old without verifying whether the money was there.

DPI's oversight caught up slowly.▸ Not until May 2025 -- eight months after the initial transfer -- did the agency deny WS/FCS further cash advances against the overdrawn fund, freezing the balance at $11,334,545.33 and shifting the district to reimbursement-only status. WS/FCS paid DPI $7.925 million on August 27, 2025 and cleared the remaining $3.4 million on October 28, 2025; the state assessed no penalties. OSA's conclusion was blunt: DPI's system "did not enforce a PRC-level hard stop or automated fund availability check," and its monthly oversight "failed to halt the growing overdraft... until late in the fiscal year, which allowed the condition to compound."

North Carolina funds districts largely by headcount, so a district that keeps more staff than its enrollment supports is spending money the state formula never sent it.▸ WS/FCS's enrollment fell from 53,878 students in fiscal year 2018 to 50,550 in FY2025 -- a 6.2% decline -- while the number of full-time-equivalent positions the district funded rose from 6,538 to 6,783 over the same span, a 3.7% increase. Auditors named the mismatch the first contributing factor in the deficit.

Part of the growth traces to the pandemic: WS/FCS spent $266.5 million in federal Elementary and Secondary School Emergency Relief (ESSER) funds between fiscal years 2020 and 2024, using much of it to pay salaries and benefits for positions the district began adding in March 2020.▸ When the temporary federal money expired, WS/FCS made no effort to eliminate those positions, instead absorbing them into the budget funded by local and state dollars it didn't have. In its written response, the district acknowledged the gap and said it had since instituted a reduction-in-force of 81 Central Office positions, leaving it, as of August 8, 2025, with about 474 fewer full-time positions than it carried the prior school year -- with further cuts expected through 2026.

In fiscal years 2022 and 2023 -- the same two years WS/FCS's own operating revenue fell $3.5 million and $1.0 million short of what it spent -- the district paid out $53.2 million and $22.2 million in bonuses from governmental funds, a combined $75.5 million, without reassessing whether its finances still supported the payouts.▸ Separately, auditors found WS/FCS's Finance Office had approved 311 budget overrides -- purchase orders exceeding their account's approved spending line -- between July 2024 and May 2025 alone, and corrected only 33 of them with a timely budget adjustment, leaving 278 account lines misstated about how much money was actually left to spend. And as of June 5, 2025, the district's suspense accounts -- holding accounts accounting software is supposed to use only briefly, for transactions it can't yet classify -- carried a combined balance of $332,008,316, treated by WS/FCS's Finance Office as permanent equity rather than cleared out.

The March 2026 follow-up report found the deeper problem: WS/FCS was concealing how bad its own numbers were, even from itself.▸ Between July 30, 2025 -- the day OSA received the district's FY2025 trial balance -- and September 25, 2025, WS/FCS's reported General Fund overspending jumped by $29.2 million, from $14.2 million to $43.4 million. Auditors traced $15.02 million of that jump to expenditures the district had actually incurred by June 30, 2025, the last day of the fiscal year, but didn't record in its books until September -- what WS/FCS internally calls "Period 13." Because the spending was never recorded when it happened, the district's own Finance Office was, in OSA's words, "largely unaware of its depleted financial resources" and kept running up more of it.

To cover the resulting cash shortfalls, WS/FCS's Board of Education authorized an internal, zero-interest loan of up to $6 million from the district's Child Nutrition Fund -- the federally funded account that pays for student meals -- without setting clear terms for interest, repayment, or penalties.▸ It is not the only unclear obligation on WS/FCS's books: the district also failed to track its own multi-year contracts closely enough to budget for them, including a staffing contract it let run for years on a single 2021 purchase order, so the recurring bill kept arriving as a surprise each budget cycle.

OSA's two reports together recommend automated fund-availability checks before any PRC-level transfer, a formal policy barring transfers that would create a deficit, monthly reconciliations tied to the general ledger, and a review of prior-year audit findings WS/FCS had left uncorrected.▸ WS/FCS agreed to bring its accounting current by June 30, 2026 and pointed to a new Tyler Munis financial system, meant to replace the decades-old AS400 platform that let budget overrides through in the first place, as the fix already underway. OSA's own conclusion left the outcome open: "What we have seen through these two reports is a school system that has not delivered on the financial management expectations that students, parents, and faculty have. Our office will continue to explore further potential state or county action that can be taken to bring additional accountability to WS/FCS." As of this report, no such action had been announced, and DPI had not said whether it would build the PRC-level hard stop OSA recommended into its own statewide allotment system.