Audit supervision is an important part of the supervision system in China. Financial audit can effectively supervise the authenticity, legitimacy and efficiency of government fiscal revenue and expenditure. We exploit the local fiscal governance effect of the pilot reform of human and property management of local audit institutions below the provincial level. Based on the natural experiment of the pilot and using the difference in differences method, we find that the pilot reform of human and property management of local audit institutions below the provincial level can effectively improve the efficiency of local government financial expenditure by 1. 87%. Heterogeneity analysis found that the fiscal governance effect of improving audit independence is more significant in cities with low fiscal transparency, far from provincial capital and high level of fiscal autonomy. Mechanism analysis finds that the pilot policy improves the efficiency of local government fiscal expenditure through two paths: improving the quality of audit supervision and optimizing the structure of fiscal expenditure. This study shows that improving the independence of local audit institutions has a positive governance effect on local government fiscal expenditures.