"We have seen with ICAC how important it is that politicians and government are held accountable," Dr McGirr said.

"We should not have any threat or perceived threat to that process because those bodies are being funded by the people they are investigating.

"We saw this last year with ICAC looking into matters that involve the Premier at a time when the funding for ICAC goes through [the Department of] Premier and Cabinet; I think quite rightly that people say that's a potential conflict of interest."

ICAC spent four weeks in September and October holding public hearings into allegations that former Wagga MP Daryl Maguire misused his public office for private gain.

NSW Premier Gladys Berejiklian has been under intense scrutiny from the Labor opposition and the Greens after she admitted at ICAC to previously being in a secret "close personal relationship" with Mr Maguire.

A new report from the upper house Public Accountability Committee said the inquiry's findings "demonstrate an urgent and compelling need for reform of the budget process for the independent oversight bodies".

Dr McGirr last year joined with other independent MPs in calling for ICAC's funding decisions to be taken out of government hands.

"We were quite concerned about the Audit Office report on the independence of a number of agencies, the so-called independent bodies which included ICAC," Dr McGirr said.

Ms Berejiklian has told Parliament that she was "pleased to say that in [the 2020-21] budget the ICAC received a funding increase of more than 21 per cent to carry it forward" but did not back a budget amendment to give the watchdog an extra $7.3 million.

Dr McGirr said the new report contained "sensible recommendations" that "removed the risk of a compromise" to the agencies' independence.

"They do a lot to address the need for those oversight bodies to be completely independent from the government," he said.

The Parliamentary report recommended that ICAC and other oversight agencies "be directly allocated their annual funding through the appropriation legislation, rather than the funding being allocated to the relevant minister".

Auditor General Bret Walker SC said the interim recommendations "would go a long way" in eliminating "undesirable" aspects of oversight funding.