Mr Grace, who will report directly to Audit Commission controller Sir Andrew Foster, said he was quitting his post at SOLACE because of a conflict of interest.
'Solace needs to say things that are pretty robust about the comprehensive performance assessment and other things the commission does,' he said. 'No-one would believe what it was saying if the honorary secretary was a commission employee.'
Mr Grace, who has been at Torfaen since 1995, said he had received an 'avalanche of good wishes'.
Sir Andrew said: 'We wanted someone with strong understanding of Welsh public services, excellent leadership skills and credibility across the Welsh and British public services.
'The commission is always keen to attract high calibre people with up-to-date top management experience in order to keep us refreshed and relevant.'