State auditor, North Dakota lawmakers welcome session's outcomes after acrimony

BISMARCK — North Dakota lawmakers passed bills to audit State Auditor Josh Gallion and to increase transparency of his billing practices for local governments following a scrap during the recently ended legislative session over the audit fees his office charges.

Key budget writers say they hope the issues are at an end after disputes over critical audits of the Gwinner Rural Fire Protection District and Killdeer Area Ambulance, increases and discrepancies in audit costs and frustration over how Gallion publicized audit findings.

"I think that we've had some real good discussions. Some of them have been hard. It's been hard on both sides," said Rep. Mike Brandenburg, R-Edgeley, whose district includes Gwinner. "My hope is that ... we've got things so that the auditor just goes out and takes care of the audits and tries to help them, and if somebody's doing something wrong, get them on the right track so that they're doing it right."

Gallion said, "During these four months (of session), the Legislature is very passionate about what they do. I'm very passionate about what the auditor's office does, and so when we have these debates and discussions on policy and direction and funding and resources, it doesn't come without conflict."

Lawmakers bristled at a February op-ed by Gallion, in which he referenced "corrupt government officials." Gallion took issue with Rep. David Monson's use of the term "money laundering" in reference to the auditor's office.

Senate Bill 2015 contains $500,000 for a performance audit of the state auditor to "address the efficiency and effectiveness of the state auditor's office relative to industry best practices."

A performance audit is the typical type of audit Gallion's office conducts for state government agencies, "to make sure that these state agencies are being good stewards of public resources, they are implementing best practices, they are achieving the desired results," he said.

The audit will include "a review of the appropriateness of the number of hours to complete audits; methods used to monitor staff time and allocate hours charged to audits; billing processes; quality assurance processes; the adequacy and timeliness of communications with audited entities, governing boards, and the public; and other areas as determined by the chairman of the legislative management."

A House-Senate conference committee adjusted the proposal from a forensic audit to a performance audit. Some House Republicans decried a forensic audit, saying its nature suggests suspected criminal wrongdoing.

"Looks like a witch hunt to me, and totally unnecessary," Rep. Mike Schatz, R-New England, told the House.

Rep. Brandy Pyle, R-Casselton, said the governor and state K-12 superintendent have been targets of more bills to change their offices' operations than the auditor in the last four sessions.

"You guys can try and continue to think that this is an attack. It's not. ... Everything has been done on the up and up," Pyle told audit opponents.

Senate Majority Leader David Hogue, R-Minot, said the audit is to address invoice and payment discrepancies raised by dozens of local governments regarding the state auditor's services.

House Majority Leader Mike Lefor, R-Dickinson, said the audit is "an attempt to get answers for the political subdivisions."

Gallion said the audit "is going to be about additional clarification, educating the Legislature more on some of the challenges that not just we face but the local government clients face."

The coronavirus pandemic and federal spending in the last two years resulted in added hours and challenges for audits, such as local governments that lacked digital records and had restricted on-site visits, he said.

Some increases resulted from additional audits required by the federal government due to additional funding flowing to local governments, he said.

Gallion noted his office is audited regularly by the Legislature and peer-reviewed by the National State Auditors Association .

The Legislature passed House Bill 1508 by Rep. Emily O'Brien, R-Grand Forks. The bill would require the state auditor to report quarterly to the Legislature's audit review committee about his communication processes with audited entities, billing practices, information on completed audits, and audit schedule.

A House-Senate conference committee removed an optional 2023-24 interim legislative study for lawmakers to look into the process for validating signatures submitted on local and statewide petitions. Gallion's office receives citizen petitions requesting audits.

Jeremy Turley / Forum News Service

O'Brien said she brought the bill to cap audit fees after she probed concerns of increases and discrepancies in various costs. Gallion has disputed that his office's billing "is getting out of hand."

The bill initially sought to cap audit fees for local governments at one-one-thousandth of a percent of their annual operating budget and sought retroactive reimbursement from the state auditor for audit fees charged to North Dakota colleges and universities since July 2021.

O'Brien said "the important thing overall on the situation is the conversation piece that happened, no matter what has passed or didn't pass."

Gallion said his office previously offered to provide local government information to the audit committee, and O'Brien's bill "now mandates it."

The state auditor's budget in Senate Bill 2004 includes $11,000 for reimbursing the Gwinner fire department, triggered by Senate Bill 2180 , which raises the dollar threshold of a local government's revenues that require a full audit from $750,000 to $2 million.

Sen. Jim Roers, R-Fargo, said Gwinner "was charged an exorbitant amount, and upon further negotiation it was decided that a certain portion of that fee would be refunded. It is a one-off."

Gallion touts 2180 as a money-saver for local governments, who will still be required to submit financial information to his office for review.

"It's done at a much lower cost, applying the right tool for the job," he said.

The budget also has an optional 2023-24 legislative interim study of local government audit services and the challenges local governments have in obtaining audit services.

The budget also would require the auditor to report to the Legislature's audit committee instances when an audited entity could not or did not review an audit prior to its completion.

Senate Bill 2180 also takes away the requirement of the auditor to conduct an audit if petitioned; now the auditor "may" do so.

"There have been some areas where they've been petitioned to do an audit, and it was kind of ... sour grapes," said Sen. Jerry Klein, R-Fessenden. "(Gallion) would like to look at that and make that decision based on actual information based on actual visiting with people in the community."

Auditor's Office Quality Assurance Manager Dan Cox told a House panel the change is to ensure petition audits are not weaponized, "just to give us the opportunity to look at what the concerns are and see whether or not it's justifiable."

Gallion said issues in some petition audits are local problems his office doesn't address, such as a public library's hours and who drove a city vehicle.

"We need to evaluate is there really something here, or is this process trying to be weaponized against either a political opponent or against somebody who they're not happy with," he told lawmakers in March.