North Dakota's Racing Regulator Overspent Its Cap by $327,447

The North Dakota Racing Commission (NDRC) -- the small state agency that licenses horse racing and wagering in the state, and administers the funds that pay purse supplements and breeding incentives to keep the sport running -- is capped by law on its own operating spending: up to 25% of a dedicated Promotion Fund's balance per year (N.D.C.C. 53-06.2-11(6)).▸ A four-year audit by North Dakota's independently elected State Auditor's Office⧉ -- the officer responsible for reviewing every state agency once every two to four years -- found the NDRC blew past that 25% cap in all four fiscal years it examined, worst in the most recent one: by fiscal 2025, the agency's operating expenditures charged to the fund ran to about 301% of the legal limit. The Auditor's Office's own release⧉ put the FY2025 excess at 'up to 201% more than allowed.'

The Promotion Fund exists for one purpose: to promote horse racing and develop racetracks in North Dakota.▸ Every dollar the NDRC diverts to its own operations instead is a dollar not spent on that. Over the four audited years the fund's balance fell from $415,171 to $255,119 -- a drop of nearly 40% -- even as the agency's operating charges against it kept climbing. Auditors put the risk plainly: continued overspending 'creates a risk that the fund could be depleted entirely.' It gets worse on paper: had the excess expenditures been correctly charged instead to the NDRC's General Fund appropriation -- the separate pool of money the Legislature actually authorizes the agency to spend -- auditors calculated it would have blown that appropriation ceiling by $210,710 across two budget bienniums. Parking the money in the Promotion Fund instead let the agency, in the auditors' own words, 'circumvent appropriation authority' -- the legislature's control over how much the agency spends, period.

State law never spells out how to calculate the 25% limit, and the NDRC never calculated it either -- it did not track its own spending against the cap at all.▸ Auditors built the limit themselves, using each year's prior ending fund balance as the base (a method they confirmed with legal counsel), and found the agency over the line every single year, the gap widening each time: from $46,292 over in fiscal 2022 to $128,155 over in fiscal 2025.

The same Promotion Fund also pays out grants -- 43 of them, totaling $1.8 million over the audit period, meant for promoting racing in the state.▸ Auditors sampled 13 and found three, totaling $25,500, awarded with no application on file at all, and three more, totaling $7,500 (for two stallion auctions and a steward certification), where the grantee never filed the itemized report the NDRC's own grant conditions require. A separate account, the Breeders' Fund, pays owners of North Dakota-bred horses; it paid 306 awards worth roughly $1.1 million in the period. Two of those awards, worth $1,957 combined, went to owners who had not filed proof they actually owned the horse before it raced -- a registration requirement meant to keep the money going to the right people. The NDRC initially withheld the payments, then reversed itself two weeks later, telling the owners the file 'now appears to be complete' and calling it a 'one-time exception.'

The fourth finding traces to a staffing gap.▸ Of $590,300 the NDRC procured from ten vendors during the audit period, $63,675 in advertising services -- 94% of everything the agency spent on advertising in that stretch, all to a single vendor -- had no written contract, a requirement the State Procurement Office had already flagged the NDRC for missing back in 2024. The cause auditors identify is direct: the Director position, the person previously responsible for procurement and trained on the rules, turned over during the audit period, and no one was trained to take over the duty. The state Office of Management and Budget then stepped in and told the NDRC to route any purchase over $10,000 through the State Procurement Office instead -- and the agency kept making the purchases on its own anyway.

The NDRC concurred with the recommendations on overspending, grants, and Breeders' Fund awards, and says it will build a real-time tracking mechanism for the 25% Promotion Fund limit, reinforce internal controls so expenditures land in the correct fund, and formalize grant-application and reporting requirements.▸ On procurement, its response is more defensive: it calls its practices 'generally consistent with state procurement requirements' even while agreeing to complete the staff training the finding says was missing. Auditors' own conclusion frames how contained the damage otherwise was: 'Except for the findings identified in this report, no errors, internal control weaknesses, or potential violations of law were identified' in the four-year review. But none of the Commission's four written responses names a date by which any of these fixes takes effect -- the next test of whether they held is North Dakota's next scheduled audit of the agency, due within the same two-to-four-year cycle that produced this one.