NORTH DAKOTA (KXNET)— North Dakota Auditor Josh Gallion (R) joined Nicholas Quallich for episode 28 of The Voice of the People — where he spoke about his time in office, why he's running again, some things he'd do differently, and more. Below is a full transcription of the podcast. Nicholas Quallich: Thanks for joining us here for the Voice of the People podcast on KXNET.com. I'm Nicholas Quallich and today we are talking about the race for the state auditor. Joining me now is the current state auditor, Josh Gallion. Mr. Auditor, thanks for being here. Josh Gallion: Thanks for having me on. Quallich: People may know your name. They may have heard about you, but they may have not had the opportunity to talk to you at length or at all in person. So why don't you give us a little bit of background about yourself? Gallion: So I've been the State Auditor now for eight years, looking at trying to get re-elected to my third term. Prior to being the State Auditor, I worked for the North Dakota Public Service Commission as their Chief Financial Officer. Before that, I worked at the Department of Transportation in driver's license and in their finance department. I also work for the private sector at Ford Industrial Sales Company, which supports our energy industry here in North Dakota and works on supporting sales, and office management. I've also served in the United States Air Force. My educational background, I have an associate's degree from Bismarck State College. I have two four-year bachelor's degrees from Dickinson State University in accounting and business administration, and I have a master's degree in business administration from the University of North Dakota. I'm also married to my beautiful and amazing wife, Becky, and we have two daughters, and we live right here in Bismarck. Quallich: So why are you running again for office? Gallion: Well, in the last eight years, we've done some really amazing things to modernize the office, but there's still so much more that we can accomplish. You know, these audit reports, as we look at them, they are full of information and data. But right now they are really just, the information is kind of locked up in a PDF. And to be able to take that information, you have to go report by report. And so the modernization of efforts that we've taken, we want to take it to the next step. We want to make sure that we can try to provide greater transparency by pulling some of that data, creating systems and processes that allow for everyday citizens to be able to go onto our website, pull up information on what revenues, expenditures, you know, those types of topics about their local governments. And so really trying to enhance the ability to analyze data. And it wouldn't be right if I didn't give a little bit of credit to Governor Doug Burgum. Back in 2017, when I first took office, he reached out to us, and he was asking about a lot of this information and asked, did we have? I think the information he was looking at at the time was he wanted to know how much debt was on the books for local governments. And we told him, yes, we have it, but most of it is in the reports. And at that time, these were paper reports that we had. And so some of the modernization efforts that we've taken is we've gone from a paper process system to now digital. And all of our reports now for the past, since 2017, we have made those available electronically. They're on our websites and those can be accessed at the click of a button. So we've taken some of those steps. It's been quite a process to modernize. We've developed customer management software to manage the nearly 2,000 local government entities that we oversee. About 1,600 of them require annual reviews. So we help compile simplified financial reports that we go through to make sure that their financials are in order, any transfers, revenues, the expenditures, everything ties out and is accurate to the financial statements. The other 400 actually require audits. And of those 400, we are about 15 percent of the market share. So some of the modernization efforts that we've taken is making sure that we have good communication and good relationships with our private partners. Because our private auditing firms here in North Dakota, they carry the bulk of the weight when it comes to conducting these much-needed audits here in North Dakota. So a lot of that, those steps had to take place first. And now we are looking at developing tools and techniques to try to get that information reported to us that's within those audit reports and make that available in databases through our website. Quallich: Just from a practical standpoint, there are so many offices one can run for in government and on a local level and state level. Why did you decide to run in the first place for state auditor? Gallion: Well, my goal is always to try to have a positive influence on the government. And when I think of trying to accomplish that goal, there's no office like the Office of State Auditor to touch all levels of government here within the state of North Dakota. You know, we audit the nearly 80 state agencies, the campuses, and the university system office. We are auditing, as I talked about, those nearly 2,000 local government entities. We are even involved in the oil patch. We have a federal mineral royalty division that they are tasked with, they're funded by the federal government, but they are really tasked with verifying that the royalty payments owed to the federal government are happening as they should. Now, I'm not always concerned about money going to the federal government. The thing that I love most about that program and the work that that team does is because we know the federal side, we also know the state side. And so, that team works very closely with the treasurer's office to ensure that the royalty payments coming in to the state are accurate and that they're correct. And so, when we find errors or deficiencies in some of that reporting, we do have to report that to the federal government. But all of those royalties that we find and collect, that also means there's likely a state share coming back to the state of North Dakota to help benefit our citizens. Gallion: You obviously are there to, like you said, make sure everything is productive and follows the regulations that they're assigned to. I want to go back a little bit in time and focus on back in 2019, when the amount of freedom you and your office was restricted, more or less. There was some criticism about more audits being done than your predecessor. What were the reasons that you were told, and to what extent has that affected your ability to carry out your job as an auditor? Gallion: Yes, we've had some challenges with the legislature. We've also had some successes working with the legislature and some of the things that we've been able to accomplish for local governments. We've raised the threshold, reducing the burden. We took a hundred clients away from needing full audits and got them over to these small government reviews. As for challenges, we continue to focus on providing transparency to the government, and educating the citizens, because it's the citizens in North Dakota that hold the government accountable. In the auditor's office, we are just their eyes and ears. We're the ones who are constantly looking, evaluating, and making sure that the government is being a good steward of taxpayer resources. And when we find they aren't, it is our obligation in accordance with the laws, the rules, and the auditing standards to inform all stakeholders, whether it's the agency, the legislature, or the citizens. Quallich: So to walk people through the process, because I don't think a lot of people might know how that works, so most of the time, from what I understand, is that those audits are required unless they meet a certain dollar amount threshold, which was not too long ago, that was lowered, your office gets paid to do the audit, but obviously you have to sort of let them know how much it's going to cost. And so it's a walk us through that process as far as from start to finish, what the, you know, from, you know, letting people know that it's coming up time for an audit and costs and so on. Gallion: So that's, those thresholds that you're talking about, those are really for our local government audit clients. When I first took over as state auditor, that threshold was around $300,000. And when you look at the cost of auditing today, we've all experienced unprecedented inflationary costs. We've seen fuel costs skyrocket, food prices skyrocket, and wages have had to go up to make sure that we are providing competitive compensation to retain our talented workforce. And so what that has caused is for us to reevaluate. And that's where we, two sessions ago, looked at upping that threshold to $750,000, which was the same threshold as the requirement for meeting a single audit, a federal single audit. So if you spend more than $750,000 in federal funds in a fiscal period, you are required by the federal government to have one of these single audits conducted. Now, last session, we really evaluated those numbers. We realized that moving that threshold up was the right thing to do. We just didn't go quite far enough. And so, putting that up to $2 million, and some of the other, it's helped, it's reduced the burden on industry, especially with the private sector. We have challenges with our workforce, just like they do. And so, by taking some of those clients off needing audits, and moving them over to the small reviews, it saves them. The cost of some of these audits is $15,000, $20,000, $30,000, and sometimes $50,000. On the smaller end, those $15,000 to $20,000 audits, getting them over to a small government review, that might go down to $500, $600, $700. And so those savings are real. They help benefit local communities who, when they're on the lower end of that, revenue is an issue. They don't have a lot of funds in the bank. And so we are constantly looking at ways to reduce the burden of providing this transparency that the citizens expect. They want. They want to know how their government is spending their money. And so we are constantly looking at those types of opportunities. Some of the improvements that we have made since the last session, some of the positives that came out of our discussions with legislators, we now do cost proposals. So we actually go out to our clients, we provide them a cost estimate, a cost estimate that they have to approve. And so when they're, there's no surprises. And we wanna make sure that they understand here's the total liability that we estimate that this audit will cost. If there are unforeseen things, if we provide a cost estimate and there is now another component unit, or they require a single audit, we make sure that the clients are clearly notified, that they are aware of those additional costs, and that they actually sign off on change orders. So a lot of the things that we've implemented now are a lot closer to what the private sector does. In the past, we've kind of dealt with our clients on a handshake. And I think in North Dakota, we really like being able to do that kind of business. But in today's day and age, we want to make sure that the auditor's office is not only protected but our clients are also fully aware of what those estimated costs are going to be. So again, another part of our process that we have modernized and improved over the last eight years. Quallich: I've got a couple of follow-ups to those questions as you might imagine, but first I want to give you an opportunity. What have you heard or have been told since you've been the auditor as a criticism or perhaps a misunderstanding that you hear a lot and you'd like to clear up for our viewers about what the office does and what it doesn't do perhaps? Gallion: Well, I think a lot of times, you know, some of the criticism is, you know, that we're out there to play getcha or gotcha to try to make people look bad. That's never our goal. You know, our focus is on transparency. We stick to the facts, the information, and the documentation that we collect. And so, the audit reports that we produce, we do take independence very seriously. We want to make sure that we are in compliance with all laws, all rules, and that we not only meet the auditing standards, but we exceed the standards. And so, you know, that's where we are really focused on making sure that we can provide that transparency. And it's not about trying to play get you or make anybody look bad. We just wanna be factual. We wanna make sure that we provide that information. And so that the people of this state, again, know how their government is spending their money. So with that, obviously you wanna not only to make organizations better, but as you said, transparent. Quallich: At the same time, tell us what the process is without obviously getting into too much detail. Tell us about the process as far as once you get done with an audit, is there a certain amount of or limitation you try to put on as far as releasing? Because obviously, no one wants to hear that. Not to say that you say they're doing a bad job, but in other words, when you put out an audit report, people see that and then they see, oh, this is where everybody needs to improve. So, how do you balance out doing your job without making a certain organization, bring them negative attention, I guess? Gallion: That's where when we talk about these things, especially when I'm out discussing this with either legislators or the media, I always refer to these as opportunities for improvement. When we have findings, a lot of times they are taken negatively. Now, from an audit standpoint, in accordance with standards, we have to report deficiencies. So by nature in audit, if there is a finding in there, it is going to have that negative connotation. Because if everything's going right, for us, no news is good news. And so if we have to put information out there, we make that information available, unfortunately, yes, a lot of times it is negative, but our goal is to try to bring attention to the deficiency to make sure that the organization is fully aware on how to make those corrections. When it's serious enough, we need to make sure that the other stakeholders, whether it's legislators or the citizens, are aware. Because the auditor's office does not have the authority to force those improvements. It has to come from outside. And so, it's so important that these other stakeholders and those charged with governance are made aware of this so that those correct pressures can be placed on making sure that any of these deficiencies that we identify are corrected and approved. I mean, nothing makes us happier than going in and identifying a deficiency. And when we do our follow-up audits, we see those corrective actions, when we retest to verify that those steps have been taken and done properly, that that finding no longer exists. That makes us extremely happy to know that, again, using our skills, our talents, and our workforce, we are making government better, more transparent, and ultimately more accountable to those that we serve. Quallich: So if you could get in a little more detail, so in your purview, to what extent do you have the authority to say, let's not publicly, you know, let's back off on a certain agency and not put the results out there? Are you able to do that? Gallion: So just to make sure I understand, I mean, we don't issue press releases on every single audit. We don't put that information out there on every single engagement. What we're looking at and kind of how we've developed this over time and how we've improved is when we do need to make something more widely known. So the most recent example that I can kind of point to is our audits of the Department of Health and Human Services. We did do a press release on that audit. And the reason why we felt that was so important is because when we have child abuse cases, and this is something that we have really pushed on for nearly a decade, and we just have not seen the level of improvement, these are the things that we need to make sure that the public is aware of. That some of those in our communities, the most vulnerable, we're not doing everything we can. And to me, the state of North Dakota, with our vast resources, I believe we can do better. I think we must do better when we're dealing with some of these cases. And now, I don't want this to sound like I'm disparaging those people on the front lines who are really doing God's work out there. You know, some of the things that they see are horrific. Some of the worst things imaginable. And I've had people tell me stories that they could no longer do the job because they couldn't handle seeing any more dead babies. You know, that to me is just awful to hear, to know that that is happening in our communities. And so really, I wanna make sure that we are bringing awareness to this, to making sure that, you know, these agencies, Department of Health and Human Services, the social service zones, even the governor's office is aware that this needs to be a priority. You know, when you look at the Department of Transportation, we have Vision Zero. If you drive on the roads, a single fatality is unacceptable. Well, to me, you know, I think we could apply the same pressure on child abuse cases to make sure that we are responsive, we are meeting the needs of these most vulnerable, and using the resources and the capabilities of the state of North Dakota to help improve for these unfortunate situations. Quallich: You know, one of the things I like about this format on the Voice of the People is, you know, we don't normally get to, in the news business, on our side of things, have an at-length conversation about certain topics that you might see little snippets in. So, I appreciate it and I hope my other guests have as well. One of the things that people may not know, but it's certainly public knowledge, is that your office itself is required to undergo the National State Auditors Association audit every three years, correct? Gallion: Correct. So, there's been a lot of discussion about who audits the auditor. In accordance with government auditing standards, we are required to undergo a peer review. Now, that peer review process is actually administered by the National State Auditors Association. It is a group of state auditors and within that, our peer review program, what we wind up doing is sharing state resources. These are other government auditors from around the country. And so we have to undergo our peer review. A team of government auditors is sent and they look at our audits, making sure that our work papers, our documentation, and everything is done in accordance with the standards that we're required to follow. And we've been fortunate enough to have some very good outcomes over the last several years. We've had the highest rating, which is just, it's pass. You know, you don't want to have a fail. So that's where, you know, internally within the North Dakota State Auditor's Office, we've really focused on making sure that our quality assurance team, the individuals within the auditor's office that verifies that our work papers, our documentation, our conclusions, the audit reports, everything doesn't just meet the standards but exceeds the standards for our state agency audits, our local government audits. It's a lot of work. It takes a lot of time. But in the end, we want to make sure that the information that we put out there to all of our key stakeholders is accurate, it's objective, and everything is supported within the work papers. Quallich: So, then, if you could explain, Mr. Auditor, what was or what is your understanding as to why our state legislators, at their behest, wanted to have another audit of your office? Gallion: You know, I'm not sure exactly what their individual rationales were. You know, what we look at is we see this performance audit as an opportunity, again, to look at our internal processes. We believe in continuous improvement. We are working with that audit team. That audit is undergoing right now. And we are working on getting them all of the information that they asked for in the end You know, I'm very confident that my team does amazing work, and that they are fantastic. That being said if there are opportunities that these external auditors see they can make recommendations that we can make our office even better for the citizens in North Dakota. I welcome that extra review I've said I don't think it's necessary. Again, I think my team does fantastic work, but we have it. The legislature passed it. It's happening. So, we are doing everything we can to make sure that we are complying with all of their information requests, and we look forward to hopefully learning potentially ways that we can enhance our procedures. Quallich: Do you have any ideas for one that might be completed? Would that be after the start of the legislative session? Gallion: I don't have an end date. I know we're in the process of complying with information requests and records requests. So, we have several people in the office that are working on that. I don't know when we'll have that final report. Quallich: Okay. So, as you look forward to not too many weeks left until election day. Anything since your time in office that you look back on and think you could have done differently or better? Gallion: Well, I think there's always, again, continuous improvement. There are always things that we can enhance. You know, I look at some of the things that we've had to fix early on with some of our internal processes and procedures and some of the modernization. You know, I look back and think, you know, we should have probably had more dialogue with private firms earlier on, but there were a lot of other processes that we needed to fix before we could get to that point where we talk about establishing form and content for audits. Yeah, you know, I think continuous improvement is something that we're always looking at doing and looking past what we've done, what we can learn from it. We're always doing that in the auditor's office. One of the things that we always talk about is R&D, rip off and duplicate is what we look at that as. And we're always evaluating not just ourselves, but other state organizations around the country. You know, what can we look to improve and enhance? Who's doing it the best? How can we take that information, and adjust it to have it fit here in North Dakota so that we can be better at our jobs? Quallich: And explain, if you wouldn't mind, as far as the relationship, as far as, you know, how it works when you talk about working with your, you know, the staff and the legislature, you have the, you know, you are obviously the state auditor, but as far as how everyone is sent out to perform an audit, can you give us a little bit of an insight as far as how that process is initiated and then kind of people sent out to do their job? Gallion: Well, within the auditor's office, we're broken down into different divisions. We have our agency team comprised of three audit managers. So, three small teams. They are responsible for conducting the audits of state government. We have a local government team, one team here in the Bismarck office, and another team in our Fargo office. They conduct the audits for our clients for local governments. And then we have our federal mineral royalty team and they are conducting those royalty reviews. The audits are assigned to the teams. We do rotate those audits from time to time. The audits are conducted for state agencies once every two to four years, depending on complexities. Risk is also something that we evaluate. So if it's a smaller organization, it might be something where we do it every four years. And what we'll wind up looking at is if it's a four-year audit. We'll conduct that audit, that performance-based audit over the previous four years. Larger organizations like the Department of Health and Human Services, and the Department of Transportation are going to be our two-year audits that we routinely conduct. Then our university system team for our state agency side, they're in our Fargo office. They're part of our state agency division. They're looking at the campuses and then some other commodity groups. They audit the state mill and elevator. So those are done on a two-year basis. But those audits are assigned to the different audit managers and then they work within their teams and with our clients to get those scheduled out for the next 12 to 24 months. Quallich: I know every agency is a little bit different. Every sort of audit is different, but is there such a thing as a common issue you find across all sorts of audits? Gallion: Well, so if we look at local governments, you know, we do have some common findings that, you know, it's something that we, by standard, we have to make people aware. But when you're dealing with a lot of these small entities that just don't have the human resources, segregation of duties is a finding that we see often. We're a very rural state. We have small local governments. They might only have a city auditor or business manager and nobody else. And so, we have to identify that lack of segregation of duties, if one person has too much control or authority, we have to report it. And, you know, the typical response is they'll address that if resources become available. But as we know, workforce issues here in the state continue to be a challenge. Financial statement preparation, right now, is another finding that we see with local governments that is very routine. If the auditors, any auditors, whether it's us or a private firm assisting in the financial statement preparation, we do have to identify that as a finding and issue that in the report to make sure that the readers are aware that the auditors had, you know, some, they supported the financial statement preparation, even though the management has to take ownership of those. Anytime that we help, that's a required finding. As for state agencies, those vary a little bit more, whether it's procurement issues, you know, those can be a case by case. And when we look at state agencies, some of these agencies are very large. And one of the things that I'm constantly kind of reminding people of is when we look at an audit, we're only looking at one small sliver of the pie. We might take samples, we might take some reviews on some of the financials, but when we do tests, we're only testing a few items to give us a level of assurance that the sample that we have is a good representation of the total population. So, we don't look at everything. And I think that's a misconception that people have about auditing. We do the best that we can through the risk assessment process to identify where should we focus that testing and sampling to try to make sure that if there are any deficiencies or if there are any errors, you know, how can we develop those auditing procedures to ensure that we try to capture and see all of that. It doesn't mean that it still gets detected, it can still go undetected in our procedures, but we try to make sure that we use analytics, different sampling, and the risk assessment process to try to give us the best opportunity to verify that when we look at something, that information is accurate. And any of the reports or the financial statements are a fair representation of management. Quallich: And finally, Mr. Auditor, why should North Dakotans reelect you? Gallion: Well, for me, I've been focused on transparency. I've been focused on education, making sure that the auditor's office is working for the citizens of North Dakota. We have put more information into the hands of the people than any auditor before me. The information that people have at their fingertips today is so much better and so much more readily available. And to me, we have plans to go even beyond that. You know, with our data acquisition or data access initiative, we want to make sure that we've got information on local governments that people can look up, you know, what are the revenues? What are the expenditures? What kind of debt? You know, to make sure that, again, we continue to be transparent, we continue to build these tools and these resources and enhance the capabilities of the auditor's office to make sure that we can educate all of our stakeholders, our agencies, our legislators, and most importantly the citizens of North Dakota. Quallich: Okay, well, State Auditor Josh Gallion, thank you so much for your time. I deeply appreciate it. And thank you for watching The Voice of the People podcast here on KXNET.com. We'll be back soon with more on the questions and answers affecting you. Remember, it's your voice that matters: The Voice of the People. Close Thanks for signing up! Watch for us in your inbox. Subscribe Now Today's Top Stories SIGN UP NOW