State auditor asks legislature to shift small‑government review costs to general fund, seeks cybersecurity and staffing funding

State Auditor Josh Galley told the Senate Appropriations Committee’s Government Operations Division that House Bill 1004 would convert two special‑funded positions to general fund and restore several operating lines to help the State Auditor’s Office expand training and transparency services for small local governments.

Galley said the change would eliminate the practice of billing small towns and other political subdivisions for certain audit and review services and estimated the conversion cost to the general fund at about $380,344 in his original request (OMB adjusted the number to $412,845 during the budget process). He told the committee that shifting the funding would save hundreds of dollars a year for many small local governments and allow the office to focus more on education and support.

Why it matters: The Auditor’s Office reviews roughly 1,100–1,400 small governments and currently charges for small‑government review services. Converting the two positions to general fund would remove that direct fee and, according to Galley, free staff time to provide training, extend the Office of Good Government services and reduce the financial burden on cash‑strapped local entities.

The office’s other requests presented in the hearing included:

- Continued funding for the second year of a legislatively approved 4% salary increase (the office said it received only 12 months of that increase in its OMB budget limit and is asking for the additional 12 months to be funded). James Carroll, the auditor’s chief financial officer, said the request to continue salaries appears in the house budget and was carried forward for Senate consideration.

- Restoration of base operating reductions the agency took to meet a 3% budget cut; the auditor’s office asked the committee to “zero out” a $139,007 general‑fund reduction that was applied to operating lines during the OMB budgeting process.

- Additional temporary salary authority and funding for the agency’s internship program: the office said it fully expended $100,000 in temporary salary authority and requested an additional $100,000 (total $200,000) to maintain a pipeline that has converted many interns into full‑time auditors.

- A request to general‑fund a cybersecurity assessment for state agencies and higher education at $585,000 (the office said the house approved funding at that level but did not adopt the funding mechanism). The Auditor’s Office contracts an outside firm to perform periodic IT security assessments; Galley and James Carroll told the committee the scope of those reviews has shrunk if funding is not increased.

- A $25,000 peer‑review travel request for the National State Auditors Association peer review (scheduled June 2026), and $36,000 for concurrent operating costs tied to migration of the office’s audit software from TeamMate AM to TeamMate Plus (driven in part by a steep NDIT data‑storage rate increase).

- One federally funded FTE requested for the Mineral Royalty Division (the office said that position depends on federal funding from the Office of Natural Resource Revenue and is currently uncertain given federal hiring freezes).

Galley outlined non‑budget items and process changes the office has pursued: expanding virtual training for local governments, publishing financial data via Power BI, improving project management to reduce the annual comprehensive financial report audit hours, and adding a training and education coordinator to help local officials comply with reporting rules.

Questions from senators focused on specifics of the funding conversion and on NDIT billing. Carroll told lawmakers the office is seeing a large NDIT data‑storage increase in NDIT rates (described to the committee as a jump from about $125 per month to $2,000 per month for storage at the point the office exceeds a given threshold), which is driving a significant share of the agency’s operating increase.

The office also described policy changes and clarifications: petition audits under the North Dakota Century Code were amended in the last session to change language from “shall” to “may,” which gives the auditor discretion to decline petitions that would be costly and unlikely to produce audit‑level findings. Galley and his staff described an “extended review” option for small governments as a lower‑cost alternative to full audits.

Local government representatives endorsed the conversion. Corey Peterson of the League of Cities (and former Horace mayor) testified in support, saying smaller cities sometimes lack municipal accounting knowledge and that removing the review fee would make compliance and training more accessible.

The House approved several of the auditor’s requests, Carroll said; other items remain under Senate consideration.

The committee recessed the hearing on House Bill 1004 after public testimony and questions; no committee vote on the bill was recorded during the hearing.