THE Victorian Government will monitor the finances of one of the state's most remote and largest municipal councils.

Local Government Minister Jeanette Powell today appointed a financial monitor to Buloke Shire Council.

Buloke council is in the north-west of the state, with major centres of Birchip, Charlton, Donald, Sea Lake and Wycheproof.

A report, Independent Assessment: Current and Future Financial Health of the Buloke Shire Council, identifies material errors in budgets and 10 year forecasts as well as possible breaches of the Local Government Act 1989 with respect to prudent management of financial risks, Mrs Powell said.

Mrs Powell said the Buloke Shire Council’s financial health has been assigned a 'high risk' status in the Auditor-General’s last three annual financial audits of Victorian local governments.

"In November 2011, after its second audit qualification by the Auditor-General, I directed the Council to provide evidence of the Shire’s capacity to achieve a more sustainable financial position," Mrs Powell said.

"On assessing the council’s response, I remained concerned that its plans would not secure a sufficiently strong and timely turnaround in the shire’s financial position."

"Consequently I appointed Stephen Roche, a former Partner at Ernst & Young, as an Inspector of Municipal Administration to review the Shire’s finances and advise me of the adequacy of its plans, policies and actions for financial sustainability."

"The Inspector’s report identifies a large number of practices that do not support the Shire’s declared objective of financial sustainability and to which corrective action must be taken," Mrs Powell said.

The government’s Monitor is expected to be in place for least two years to oversee the implementation of the comprehensive recommendations made in the report.

Buloke has a population of about 6300 people and the council covers 8000 square kilometres.

Its latest annual report, Mayor David Pollard said the shire had been hit hard by the 2011 floods.

Cr Pollard also said the shire’s population was fast dwindling as farm sizes became larger.

"Councillors know that some hard decisions are going to need to be made in the next few years as population continues to slowly decline and farming practices change.

"Both of these factors will have an impact on the nature of business opportunities in the shire and will also impact on the continued provision of some services.

"Without intervention from other levels of government, council’s options are limited: either reduce services, increase revenue, or adopt a mix of both."