The responsibility of the administration and auditing of billions of dollars in taxpayer funds to Indigenous services and other sectors via the Federal Government is in the spotlight.

Opposition legal affairs spokesperson, Michaelia Cash, raised the issue when referencing corruption claims against the North Australian Aboriginal Justice Agency, in a letter to Commonwealth Auditor-General Grant Hehir earlier this month.

Mr Hehir and the Australian National Audit Office were urged to investigate the alleged misuse of millions of dollars in taxpayer funds within Australia's largest Indigenous legal organisation, after claims of corruption and fraud among senior staff.

The NAAJA receives close to $20m in Commonwealth funding each year but dozens of serious allegations of criminal conduct among its leadership team are the subject of a federal court case next month.

NAAJA currently receives $83m over five years from the National Legal Assistance Partnership (NLAP), a federal government agency, but Ms Cash requested Mr Hehir and ANAO consider "an audit of arrangements under the NLAP that may result in the payment of Commonwealth money to NAAJA" in a letter seen by The Australian newspaper, which has been reporting on the allegations against the administration.

"The reports raise serious concerns about the potential misuse of Commonwealth money provided under the National Legal Assistance Partnership, and the efficacy of governance arrangements under that agreement," Ms Cash wrote.

She took aim at federal Attorney-General Mark Dreyfus, who indicated the onus was on the Northern Territory government to administer the NLAP funds.

"With respect, if that is the case, that is all the more reason for an audit," Ms Cash wrote.

"If NLAP arrangements are such that the administration of Commonwealth funding is done at arm's length, as the Attorney-General appears to contend, then the governance provisions in the intergovernmental agreement that allow the Commonwealth to appropriately monitor expenditure (and respond to any misuse of Commonwealth funds) are all the more important."

NAAJA conducts the majority of Indigenous legal cases in the territory, where it has 200 workers across the NT, which has suffered a huge spike in crime the past year.

Senator Cash said any recommendations from a performance audit of NAAJA could signal more robust governance of how Commonwealth funding is spent and tracked was required.

"I ask that you consider a performance audit to assess the adequacy of data collection, performance monitoring and other governance arrangements under the NLAP, and whether adequate safeguards are in place to ensure that Commonwealth money is not being misused," she wrote.

She said any improvements identified through an audit potentially "ought to be implemented more generally in respect of funding to other service providers that is governed by the NLAP".

The ANAO recently found an alarming lack of audit controls at Australia's leading Indigenous funding organisation, the National Indigenous Australians Agency.

The NIAA employs more than 1300 people across Australia and had its budget in 2022-23 increased to $4.5 billion, which funds programs through the Federal Government's Indigenous Advancement Strategy.

The ANAO report said in 2021–22 the NIAA spent $1.03 billion on more than 1000 external providers to deliver IAS activities and services, yet failed to initiate a single fraud investigation, an anomaly among similar-sized federal government agencies.

Indigenous Affairs minister Linda Burney told National Indigenous Times at the time the audit shortfalls at the NIAA were "concerning".

The Australian reported the NT Commission Against Corruption was also investigating the allegations against the NAAJA, many of which have emerged in a Federal Court case filed by an employee who alleges she was fired after discovering the corrupt conduct of two senior members of its leadership team, who have both denied the claims and remain employed.

The matter is scheduled for trial from October 23.