Nearly half of English councils are providing only the minimum value for taxpayers' money, a report has said.
Council performance tests include the views of residents
While the Audit Commission report said it was concerned about those findings its annual study said 70% of councils were improving strongly or well.
"Improving value for taxpayers' money is the real challenge for the year ahead," said chairman James Strachan.
The study inspects services, assesses how councils run themselves, and audits how well they use their money.
It also decides if they have improved their performance since the previous year - something which councils are legally obliged to demonstrate.
The report covers county, metropolitan, unitary and London councils in England and does not include district councils.
Speaking on BBC Radio 4's Today, Mr Strachan said interpretations that the study implied half of the £80bn spent by councils every year was being wasted, were "absolutely not the case".
He said it was important to "keep it in context", with so many councils having successfully "revolutionised" the way they work over the last few years.
"But because far more public money is being poured into public services value for money is at a premium these days. We pay taxes, we want to know that the maximum value has been extracted from those pounds," he said.
Earlier he said: "It is widely agreed that council services must deliver good value for money, and we are concerned that half of all councils are only achieving at or below what we consider to be the minimum acceptable level."
Following the commission's analysis each local authority is given both a star rating of one to four, with four being the best score, plus an indication of how they have improved on the previous year.
Focus groups of council workers and residents are asked their views when services are being rated. Some services - such as the delivery of benefits - are assessed by other agencies.
The report gave 68% of councils a three or four star rating.
Five councils reached the top score in both categories, with a four star rating and an assessment that they were improving strongly.
COUNCIL STAR RATINGS OVERALL
Four stars: 37
Three stars: 66
Two stars: 37
One star: 9
No stars: 1
But 10 councils failed to deliver services of an acceptable standard, with a rating of just one or zero.
The commission, a public spending watchdog, found almost half were doing the minimum to make themselves cost effective - 41% delivered "adequate" value for money and 5% did not manage that.
Out of 150 local authorities only North East Lincolnshire Council was awarded no stars.
And the City of London, Wandsworth and East Riding of Yorkshire were the only councils to get four stars for their "use of resources".
The commission also judges the level of improvement - with 5% doing "strongly" and 65% "well".
Local Government Association chairman Sir Sandy Bruce-Lockhart said: "Over the last few years councils have dramatically improved their services and are determined to continue doing so."
He added: "It is gravely disappointing that during regular private meetings with James Strachan, and the Audit Commission, not once have they told us they now believe that 'half of councils are not providing value for money'.
FOUR STARS FOR RESOURCES
City of London
Local Government Minister Phil Woolas congratulated local governments for an overall "impressive performance" and called for the trend of improvement to continue.
But Shadow Minister for Local Government Eric Pickles said despite the government's promises of cutting inspection red tape, "even England's top councils have received hardly any respite".
"This shows that Labour's ever higher taxes are being used to fund tiers of bureaucratic officialdom sent by John Prescott rather than providing better local public services."
Liberal Democrat spokeswoman Sarah Teather MP agreed the money spent on the rating process would be better diverted to frontline services.
"This year's test was much harder, but continued good scores show that, broadly, councils are performing well. This begs the question of why we spend £1.8bn of taxpayers' money on making councils jump through these hoops."