In a newly published Best Value report, the watchdog said the council has strong services and a clear vision, but it continues to rely on its large reserves to balance its budget. This is unsustainable and councillors and officers need to take a more strategic, long-term approach to achieving financial balance, the Accounts Commission added.

The council has improved its performance management arrangements over the last three years, as well as its engagement with the local community on budget priorities. But auditors remain concerned about the pace at which the council is delivering its change programme.

Shetland has also been slower than other councils in adopting digital technology to support staff and help deliver services.

Andrew Burns, deputy chair of the Accounts Commission, said: “People living on Shetland are getting a good service right now and we’ve seen some improvements in how the council is run since we last reported.

“But the council continues to draw on its reserves to balance its budget. That’s unsustainable and will impact future generations if not addressed.

“We’re calling on the council to urgently increase the pace of its change programme and prioritise the actions that will help it achieve financial sustainability in the medium to long term.”

Emma Macdonald, leader of Shetland Islands Council, said: “We welcome this report, which recognises that our services generally perform very well, compare favourably to national averages, and have some of the highest levels of public satisfaction in Scotland. The report also highlights that we have a clear vision and priorities, strong partnerships and good engagement with the public about our Corporate Plan and our budget.   

“The gap between the funding we receive and what services we are expected to deliver is significant – and it is an unsustainable situation.  Despite the extremely challenging financial environment in which we operate, difficult decisions need to be made. We are determined to ensure the council addresses its unsustainable use of reserves, whilst innovating and collaborating to address our population challenges, reduce inequalities, and sustaining and growing our economy.

“As our working age population reduces, we know that digital transformation is essential to being increasingly efficient and sustaining service delivery.  We’re ensuring there is a clear focus on this, and our Change Programme is moving ahead.

“Finally, I would like to take this opportunity to thank all council employees for their hard work which these findings are testament to.  We know that it is their commitment that means that we maintain high-quality services for the community we serve when facing staffing and financial pressures.

“The full Accounts Commission report will be considered by elected members at an upcoming meeting of Shetland Islands Council.”