Highland Council has been warned to make "significant savings" and radically alter how it delivers services to ensure it can 'live within its means'.
A new report by Scotland's public spending watchdog, the Accounts Commission, has revealed the council has struggled to meet savings targets - and warns it must make major changes if it is to make further budget savings of £77.3 million.
The report also shows the council has struggled over the last five years in delivering services, with standards declining against national indicators, particularly in education, and is poor at evaluating its own performance.
The report states: "We are concerned in particular that the council is not demonstrating that it is financially sustainable. In recent years the council has a poor record of meeting budget gaps, and thus it is critical that it meets a forecast budget gap of up to £77.3 million in the two years from 2020/21. Recent improvements in financial governance and controls will be vital in delivering this requirement."
Overall, it says the Commission is "disappointed with the progress made by the council since our previous audit in 2010".
However it suggests a recent restructure of the council's senior management team might improve financial sustainability. It adds: "Difficult decisions lie ahead for the council, requiring effective leadership. We therefore urge elected members to continue to work constructively together with officers and communities.
"Recent changes to decision-making and scrutiny structures will be integral to this, as will members making use of better quality performance information to fulfil their responsibilities. We note recent and ongoing changes to senior officer team and structure and we encourage the collaborative leadership required with members to maintain an increasing pace of change.
"The ownership and involvement of all staff in continuous improvement is another vital element in moving forward."
Andrew Burns, former leader of Edinburgh CIty Council and a member of the Accounts Commission said the report was clear that "the very challenging financial position of the council and changes to the way services are delivered are vital.
"It is reassuring that change is now happening more quickly and it is really important that this momentum is maintained. It will, however, be very challenging for the council to meet all of its commitments and priorities.
“Given the urgent nature of the issues raised in our report, the Accounts Commission will maintain a close interest in the progress made by Highland Council.“
Leader of Highland Council, Margaret Davidson, welcomed the Accounts Commission report and said it recognised the council's "clear strategic vision" and the "significant strides" it had made.
She added: “We recognise the need for us all, as elected members, to work collaboratively and constructively with officers and communities. Meaningful scrutiny of performance is
key and the changes we have put in place in recent months will enable the council to do this more effectively.
“A new leadership team and organisational structure will help to increase senior officer engagement and visibility across the region, driving performance and community empowerment. A period of stability is now essential to deliver the improvements required to sustain and improve services into the future.
“The Council continues to operate in a very challenging environment and we recognise the effort and investment needed to deliver on our Best Value duty and implement the audit recommendations.”