Victoria's financial watchdog has been forced to delay annual audits across the local government sector after some councils' financial reports were riddled with errors or missed submission deadlines.

About 149 mistakes were found in council reports and financial statements in 2021/22 compared to 130 errors the year prior, including errors with councils' property, infrastructure, plant and equipment balances and issues with the quality of disclosures.

In its annual audit report tabled in parliament on Thursday, the Victorian Auditor-General's Office said staffing shortages brought on by the COVID-19 pandemic was among the factors to blame for the increase in blunders.

"Of most significance was a disconnect between councils' finance teams and other teams across the business, staff changes (and) the quality of the local government model report," the report said.

The Victorian local government sector consists of 105 agencies made up of 79 local councils, 10 companies controlled by local councils, 10 regional library corporations and six associated entities.

Each council and agency prepares a financial report and each council also prepares a performance statement.

At least 10 of the 79 councils did not finalise their financial reports and performance statements in time, causing delayed audits.

Four of the 10 regional library corporations also did not finalise their financial reports before the deadline.

Seven agencies' financial reports and one council's financial report and performance statement are still awaiting audits.

The pandemic meant there was a shortage of finance and accounting professionals across Australia, impacting councils' ability to prepare financial reports and performance statements on time.

Elsewhere in the report, the auditor-general's office warned of potential cashflow issues for some councils unless the federal government steps in.

About 75 per cent of 2022/23 financial assistance grants were advanced to councils in 2021/22.

The report said unless the government advances 75 per cent of its 2023/24 grants in 2022/23, councils will get 25 per cent less funding in the coming financial year.

This may impact the financial performance and net result of the sector, or cause cashflow challenges for some councils, it said.