The report identifies the Hunter JO as one of only four councils or organisations with a 'high'risk' finding in the area of governance for failing to "invite tenders before entering any contracts", a process which is stipulated in the Local Government Act.

The Hunter's ten local councils are members of the organisation which is involved in large-scale, region-wide projects, in areas including planning and advocacy.

In a statement issued on Wednesday, Hunter JO chief executive Joe James said the findings related to Arrow Collaborative Services, a not-for-profit entity owned and controlled by the Hunter JO's ten member councils, governed by a board made up of those councils' general managers.

Arrow Collaborative Services provided policy, advocacy and grant program services to the organisation, and it was relationship which had been in place for many years, he said.

"While this is the first time that the Auditor General has raised the matter, we agree that the strict compliance issue with the local government procurement guidelines should be addressed," Mr James said. "I will work with the board on addressing compliance."

In terms of demonstrating probity, which was the purpose of the relevant guidelines, his preliminary assessment was that their specialist 'in-house team' was providing 'outstanding value for money'.

It would be unfair to go to market, and put any third party tenderers to the cost of competing with the Hunter JO's own specialist team, he said.

In 2020-12, councils collected $7.6 billion in rates and annual charges, received $5.1 billion in grants and contributions, and managed $161.7 billion in infrastructure, property, plant and equipment.

The only council that did not receive an unqualified audit report was the Central Coast Council for the second consecutive year.

Its budgetary woes first surfaced in the public arena in 2020 when the 13-member council was suspended due to a "significant deterioration in its budgetary position" and the possible use of restricted funds for purposes other than those for which they were restricted.

This year it was unable to provide evidence to "support the carrying value of $5.5 billion of roads, bridges, footpaths, bulk earthworks, storm water drainage, water supply and sewerage network assets" and was consequently subject to three "high-risk" findings in the area of governance.

NSW councils were impacted by recent emergency events, including bush fires, floods and the COVID-19 pandemic, the report said.

The financial implications from these events varied across councils, with most able to adapt systems, processes and controls to enable staff to work flexibly.

More than half of the issues identified in the report were repeat issues, having already been identified in previous reports.

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