Councils need to "think radically" to cope with budget cuts including sharing services, a new report has said.
The Accounts Commission for Scotland said the ongoing squeeze on resources would require urgent action.
Budgets are likely to be cut in real terms and more savings are expected over the next few years.
But council body, the Convention of Scottish Local Authorities (Cosla) said sharing services would not solve the shortfall.
The commission's report recognised that councils and their services were generally improving.
But it said it was essential they continued to develop and implement plans to cope with the tough times ahead.
Chair of the Accounts Commission, John Baillie, said local authorities should take "a good hard look" at the services they needed to provide.
"It could be that some services are desirable but not essential, whereas services to vulnerable people will remain essential," he said.
"It's a question of taking a fresh look at the design of the services, including the extent to which they might share services with local councils or other parts of central government."
Last year councils in the Clyde Valley area looked at how they might be able to work more closely together to save money.
One option was for councils and health boards to work more closely together to integrate the health and social care services and running one service to maintain the roads in all eight council areas.
Over the past few weeks, Scottish councils have been setting their budgets for the next financial year.
Many are cutting staff and have taken controversial decisions to reduce services.
The commission says the pressures are extremely challenging and councils need to develop a fresh approach to preparing budgets and planning services.
But the president of the local government body Cosla, Councillor Pat Watters, claimed the report contained nothing new.
Councillor Watters said: "Demands for council services have always outweighed the ability to pay for them but we have officers and elected members managing that process to protect frontline services which is the main concern of us all.
"There seems to be a real misconception that shared services are the panacea - they are not.
"The financial reality facing councils is that with forecast reductions of 12% over the next few years what councils will need to look at is re-prioritising policy commitments - shared services and efficiencies cannot meet this shortfall on their own."