There is inherent conflict of interest in the determination of budget for government auditing functions in that the entities that are audit recipients (executive, council, finance) are in decision-making roles around the audit budget. Our charter states that the audit function must be "adequately funded." This is open to wide interpretation.

One way that this conflict could be resolved is to have an independent budget and salary "commission." Does anyone else do this or have other ideas about mitigating this problem?

Kymber -

I would hope that the "auditees" appreciate and value the internal audit function that this would not be an issue. If it is an issue, the chief audit director (you?) has their work cut out and will need to change the perceptions of audit.

That said, in the past our office charged a base rate to the components of the System directly related to their expenditures plus an hourly rate for the audits conducted in the last fiscal year. Currently, that has changed to include only the hourly rate for audits.

I hope this answers your question.

Best practice would be that the Audit Committee should oversee all audit appointments and also ensure that the Audit function is "adequately funded" to perform the forward audit plan.