State Auditor seeks funding for audits, interns and single-audit expertise; committee discusses shifting special-funded positions to general fund

State Auditor Josh Galley and his staff outlined budget requests for the State Auditor’s Office and answered questions from the Government Operations section of the House Appropriations Committee about staffing, billable audit activity and options for moving some positions from special fund authority to general fund.

Galley and James Carroll, the office chief financial officer, told the committee the auditor’s office received several new FTEs in the last session, but many special-funded positions remain unfilled as private audit firms have rebuilt capacity. Carroll said four FTEs were approved last session: one general-funded training-and-education coordinator and three special-funded audit positions. The auditor asked the committee to consider converting three special-funded positions to general fund — two small-government review positions and one quality-assurance position focused on federal single-audit standards — to increase flexibility in serving local governments and state programs.

“Right now we have 21 FTE in the special fund. We would propose removing five of those to give flexibility,” Carroll said; auditor staff later clarified that removing five would reduce the special-fund head count to about 16. The office proposed keeping a small reserve in the special fund (staff cited roughly $350,000 cash on hand) because operating costs for the special-funded audit work require a cushion to cover a few months of costs.

The office also asked for an additional $100,000 in a temporary salary line for the general fund to maintain an intern pipeline. Carroll and Galley said the new and vacant FTE pool used in prior biennia provided salary savings previously used to pay interns; if the committee and legislature place some positions in that pool or change the funding mechanism, the auditor’s office said it needs an explicit temporary-salary appropriation to preserve internships and training.

The office described a decline in billed revenue tied to agency comprehensive audits after statutory changes removed the ability to bill the university system for agency audits. Carroll said the auditor’s office billed about $747,000 in the 2021–23 biennium; that billing dropped to about $304,000 in the current biennium after the university-system change. The office projects about $343,000 for the next biennium under current rules. Carroll said federal single-audit billing remains an important revenue source — the office bills the costs of federal-single-audit hours to federal programs that permit it and projected those amounts in testimony.

Lindsay Slappy, director of quality assurance, described the case for converting one special-funded single-audit expert to general fund. Slappy said the volume and complexity of federal grant compliance work has increased and that a general-funded position would allow the auditor’s office to support local governments that do not meet the single-audit threshold but still receive federal funds and need guidance. “A lot of those small governments are receiving the same grants that the larger governments do,” Slappy said; she added the staff member would support compliance education alongside the training-and-education coordinator.

Carroll and Galley told the committee the auditor’s office would consider removing five special-funded positions from its authority and offered a proposed list of specific position numbers for removal; they said the office wants to retain enough staffing to step in if private firms stop serving local governments. Galley and Carroll said the state auditor’s office generally does not intend to compete with the private sector but to fill a public-service role when private capacity is absent.

The auditor’s office requested one federally funded FTE for the mineral-royalty compliance program (federal funds would pay the position). It also requested cyclical, one-time funding for a peer review and server migration costs related to audit software. The office briefed the committee on a security-assessment contract it provides to NDIT and NDUS and asked the committee to consider whether judicial or legislative IT infrastructures should be offered a similar optional assessment; staff described those assessment reports as confidential.

The League of Cities offered testimony in support of converting three special-funded positions to general fund, saying small cities benefit from auditor office education and that the change would relieve some local cost burdens. “We appreciate working with the state auditor’s office on efforts to help educate cities on audits and accounting methods,” League representative Corey Peterson told the committee; he described Horace’s experience converting accounting practices after an audit finding and said it took time and outside help.

No formal committee vote was taken on the auditor’s budget during the hearing excerpt in the transcript; committee members asked staff to add options to the long sheet and to return with additional materials. Committee members asked for more detail on position numbers, cost breakdowns and the fiscal impact of converting positions from special fund to general fund before a final recommendation.

What’s next: The auditor’s office will provide the committee with the long-sheet materials, position listings and the requested breakdowns. Committee staff added the auditor’s items to their worksheet for follow-up and flagged the auditor’s proposals for further discussion before any final appropriation or statutory changes are recommended to the full committee.