A THIRD of all NSW local councils have had their financial accounts called into question amid evidence the $300 million lost in bad investments during the global financial crisis could worsen and push some councils to the brink.Councils said the twin hit from bad investments and rising costs meant the state government must abandon ”rate pegging” and allow councils to impose inflation-busting rate rises to bolster their balance sheets.Councils want a 6 per cent rate increase, adding an average of about $70 to annual household bills. Of the 152 councils, 43 had their 2009 accounts returned with ”qualified” audit opinions, indicating they did not comply with accepted accounting standards. Most relate to the book value of investments in subprime-related securities that took a hammering during the crisis.Auditors of the Wingecarribee Council in the southern highlands raised concerns about $29 million in assets, about half of the council’s $62.8 million investment portfolio.At Kur-ring-gai Council, more than $7 million of its $75 million investments were collateralised debt obligations. Auditors Spencer Steer said there was ”limited market evidence available to verify their reasonableness”. Other councils with question marks over their accounts include Canada Bay, Hornsby, Rockdale and Tenterfield.Opposition treasury spokesman Mike Baird accused the state government of having hung local councils out to dry. He said the government chose not to invest in CDOs but failed to pass on the same advice to councils.The government has issued new investment guidelines for councils and last month announced training workshops for councillors. The opposition plans to take investment and debt decisions out of the hands of local councillors with a pool of advisers in Treasury.The Local Government and Shires Association said councils would be forced to reduce services unless the government agreed to rate rises and to get rid of rate pegging.