A dozen Queensland councils broke the law by failing to have audit functions or audit their finances last financial year, according to a new report.
Queensland Auditor-General Brendan Worrall also found 60 per cent of local governments are at moderate or high risk of financial instability in his 2021 audit of the sector.
The report shows six councils didn't have an internal audit function, while another six did not audit their finances in 2020/21.
"Every council in Queensland is required to have an effective internal audit function under the legislation," Mr Worral wrote in the report, released Wednesday.
"Yet, at 30 June 2021, 12 councils were in breach of the legislation."
The auditor-general said 15 local governments still don't have any audit committee and of those which do, three didn't meet at all and two met only once during the 2021 financial year.
"In all, this means 20 councils did not have an audit committee function," he wrote.
"An internal audit function further strengthens a council's control environment by assisting councillors and management to improve internal controls, risk management and governance processes through independent reviews."
More councils recovered an operating surplus after pandemic-related financial strains, the report said, but 45 councils or about 60 per cent remained at moderate or high risk of financial instability.
The worst performers were Indigenous and remote councils, including Aurukun, Barcaldine, Barcoo, Boulia, Carpentaria, Cook, Doomadgee, Kowanyama, Mapoon, Mornington, Narpranum, North Burnett, Northern Peninsula Area, Palm Island, Pormpuraaw, Quilpie, Torres, Torres Strait Islands, Woorabinda, Wujal Wujal and Yarrabah
Mr Worrall said in most years Indigenous and remote and resource areas, local governments were failing to meet legal deadlines to lodge financial statements due to shortages of qualified staff.
"Suggesting that this is a systemic issue for many councils in these segments," he said.
"These three segments have generally found it difficult to attract and retain qualified staff, which has resulted in poor processes, which in turn has affected the timeliness and quality of the financial statements over the years."
A number of councils face a moderate risk of financial instability in the 2021 financial year, including Brisbane, the Gold Coast, Ipswich, Redlands, Gladstone, Cairns and Townsville.
The same level of risk was reported in Balonne, Banana, Blackall-Tambo,Cassowary Coast, Cloncurry, Diamantina, Douglas, Etheridge, Gympie, Hinchinbrook, Lockhart River, Longreach, McKinlay, Murweh, Quilpie and Winton.
Mr Worrall also raised concerns that less than 40 councils had their financial statements certified within two weeks of the legal deadline in the 2021 and current financial years.
He said that was much lower then the 47 which did so in 2019/20 despite having to deal with pandemic, local government elections and new account standards.
The auditor-general called on councils to assess their financial state processes, audit functions, asset manage plans and spending on projects and reporting their cash expenses and balances monthly.