(1) Except as otherwise provided by subsection (2) of this section, each university, community/junior college and state agency shall, subject to specific appropriation of available funding, employ an agency internal audit director who shall be appointed by the university president or chancellor, the community/junior college president, elected official or executive director or his counterpart of a state agency without a governing board or commission. The university president or chancellor, the community/junior college president of the agency head shall ensure that the university, community/junior college or agency shall employ, subject to specific funding being appropriated, a sufficient number of professional and support staff to implement an effective program of internal auditing. Compensation, training, job tenure and advancement of internal auditing staff shall be based upon the rules of the State Personnel Board for other business employees in the system. The internal audit organization shall have organizational status outside the agency’s staff or line management functions or units subject to audit, and shall be free of operational and management responsibilities that would impair the ability to make independent audits of any aspects of the agency’s operations. An agency, university or community/junior college internal audit director may be terminated by the appointing authority in accordance with State Personnel Board rules and regulations for any state employee after a seven (7) day notification period to the State Auditor.

(2) The university president or chancellor, the community/junior college president or agency head of a university, community/junior college or state agency, respectively, may outsource the internal audit function if he determines that it is more cost efficient than establishing the audit personnel and procedures provided in subsection (1) of this section. Internal audit services may not be outsourced to the same firm or individual who performs independent audit or other consulting services to the university, community/junior college or agency.