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Councils in Northern Ireland are facing a tough financial future despite building up reserves of more than £400m during the pandemic, according to a new Audit Office report.

It said the ability of councils to generate income continues to be impacted by Covid-19 measures.

The report found councils had received £117m to support their financial recovery from the pandemic.

But it said that challenges will extend "into the foreseeable future".

Councils have been "heavily reliant" on financial support to maintain services during the pandemic and the report said council financial reserves would be an important resource in their recovery.

The reserves councils can access was increased to £405m, but the report warned they would need to be managed carefully.

Local government auditor, Colette Kane, said: "Councils had to adapt quickly to the challenges of Covid-19.

"I have heard many examples of how they responded in terms of innovation and collaboration to support local people, communities and businesses.

"It is vital that lessons learned from the response to the pandemic are shared and built upon as recovery continues.

"Robust financial planning and management will also be essential to aid decision-making and ensure continued financial resilience."

Ms Kane also noted the continued reliance on temporary staff and the ongoing cost and number of exit packages in some councils.

"As staff will play such a key role in councils' recovery from the pandemic, I strongly encourage councils to focus on stabilising their staffing structures and ensuring they have the capacity and skills to assist with continued recovery," she added.