Moray Council has been warned it must urgently improve services.
According to a report from the Accounts Commission, services provided by Moray Council have been in sharp decline since 2015.
The commission said committed and decisive leadership was needed to make the required changes.
This includes tackling the low educational attainment in a school estate deemed to be in the worst condition in Scotland.
The commission said both councillors and officers need to work together, along with communities, to make difficult decisions that will improve services across the area for local people.
Elma Murray, interim chair of the Accounts Commission, said: “It is deeply worrying that services for local people have declined significantly over the last five years.
“On the basis of past performance there is limited assurance and confidence that the council can make the significant depth of improvement needed.
“The Accounts Commission have instructed auditors to follow up on today’s report, with a further assessment of the council’s position within 18 months.
“Councillors and officers must build on recent steps to work collaboratively to address poor educational attainment, ensure its finances are sustainable in the longer term and better understand how its services are performing.”
A Moray Council spokesman said the report made for “difficult reading”, but said its findings were “welcome” and acknowledged the work under way in the areas highlighted by inspectors.
He added: “The report and findings provide a sharpened focus on the challenges we face, and officers have begun work on a plan to address these over the next 18 months.
“Delivering the committed and decisive leadership called for by the Accounts Commission requires acceptance of change in the way the council works, at both officer and member level.
“Vital to this will be greater collaboration to pave the way for transformation at strategic level in both our school estate and the delivery of our services to the Moray community.
“Our continuing experience dealing with the Covid-19 pandemic has thrown the need for strong partnership working/collaboration into sharp relief and the council will do all in its power to ensure that lessons will be learned from this.
“To deliver transformation, over £3m has been earmarked from council reserves to address issues highlighted in the report – including pace and capacity.
“We are confident this will ensure that Moray is best equipped for the challenges ahead.”