FARGO – The assistant state attorney general has found that North Dakota has no authority to order performance audits of three university foundations, deflating a law recently approved by the state Legislature and criticized by North Dakota State University officials.

The finding was good news for the NDSU Development Foundation and its interim leader, Keith Bjerke, who said Thursday that the state had no business auditing his organization.

“We are audited every year very successfully, and we’ll continue doing that,” Bjerke said. “But the state auditor, you know, is for state agencies, and not for outside entities. And we are an outside entity.”

Assistant Attorney General Nate Martindale took a similar position. In a memo to Attorney General Wayne Stenehjem dated Feb. 25, he concluded that “a university developmental foundation is not a ‘state agency’ subject to a performance audit by the state auditor.”

The performance audits approved by the Legislature were designed to analyze the efficiency and effectiveness of the foundations at NDSU, University of North Dakota and Dickinson State University by looking at their fiscal years 2012, 2013 and 2014. The state auditor was set to begin work on the audits this summer.

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The finding does not mean foundations are completely protected from state auditing. “Insofar as its dealings with its public institution, a private university developmental foundation is subject to state financial audit,” Martindale wrote.

The NDSU foundation, a private fundraising entity closely linked to a public university, has treaded a fine line between private and public. Last June, Stenehjem ordered the foundation to turn over expense records that had been requested under the state’s open records law. Stenehjem wrote that foundations “become ‘public entities,’ despite their status as private, nonprofit corporations,” when they promote and fundraise for a public school.

Stenehjem’s decision opened foundations up to greater scrutiny, but Martindale wrote in his memo that it does not give lawmakers the broad authority to treat foundations like state agencies.

Rep. Ron Guggisberg, D-Fargo, who voted against the performance audit requirement, said the finding did not surprise him.

“We can’t do performance audits of organizations just because they get some public funds,” he said. If that was the case, the same scrutiny could be applied to nonprofits across the state, he said.

“For us to do a performance audit of an organization that isn’t publicly held – no, we can’t do that,” Guggisberg said.

Rep. Bob Skarphol, R-Tioga, the sponsor of the performance audits, could not be reached for comment.