Morale problems in North Dakota's workers compensation agency have eased in the last two years, but there is still work to do to improve the agency's operations, a new state audit report says.

The report, presented Monday to the Legislature's Audit and Fiscal Review Committee, followed up on an unflattering October 2006 performance audit of the Workforce Safety and Insurance agency.

Gordy Smith, a state audit manager, said most of the 2006 audit's recommendations for improving WSI's operations have either been fully or partially implemented.

Smith and Bruce Furness, Workforce Safety's interim director, told legislators Monday they have worked to repair fissures in the relationship between the agency and the auditor's office. Furness said Workforce Safety officials still disagree about a small number of audit suggestions.

"I encouraged our staff to accept and adopt an attitude that the auditor is our best friend, the auditor is here to help us improve our problem areas," Furness said.

In some cases, however, "we felt that we were putting out the facts," Furness said. "(The state auditor) felt that we weren't."

In one case, Smith said, Workforce Safety was not notifying state risk managers of all potential lawsuit claims against the state. Furness said agency officials believed the necessary reports were being made.

The agency "has the responsibility to exercise good judgment and prudence when filing incident reports," WSI said in a formal response to the follow-up report.

North Dakota's state auditor does performance audits of selected agencies, often at the direction of the Legislature. Auditors examine how the agency does its business and whether it is complying with state laws, and suggest improvements.

Two years ago, auditors reported significant morale problems at WSI, including complaints about preferential treatment and favoritism, and a widespread belief among employees that they would suffer retaliation if they spoke up about problems.

The audit also questioned the spending practices of WSI's then-director, Sandy Blunt. A criminal investigation ensued, and Blunt is facing a December trial on two felony charges of misspending agency money.

Smith said WSI employees were surveyed again in August, and asked similar questions that led to the October 2006 finding of morale problems. The responses were more favorable to the agency, he said.

When asked if favoritism was not an issue in raises or promotions, 38 percent of the workers surveyed said they strongly disagreed with that statement compared to 50 percent two years ago, Smith said.

When asked separately if they believed they could take their questions to senior management without fear of reprisal, 33 percent said they disagreed that was possible compared to 44 percent two years ago, Smith said.

"Things have, in fact, improved," Smith said. "However, we still think there's a ways to go."

Rep. Bette Grande, R-Fargo, asked whether the morale survey's findings were valid, and whether it was the business of the state auditor to be conducting them.

"Do we do this to everybody? I could go to just about any agency around here and ask, who agrees (and) disagrees, and it all depends on what day it is," Grande said. "I just think this is kind of a petty way of having done something."

Replied Smith: "We survey employees for every performance audit that we do."