Financial management has improved at Oxford City Council, according to an annual inspection by the district auditor.

The District Auditor's Letter, for the financial year 2001/2, examined the performance and management of the council, and recommended areas for improvement.

The report, received by the council this week, welcomed the establishment of a new management team, and the creation of 18 business units running their own budgets.

It also welcomed significant improvements in the staff's performance in planning and council tax collection.

But it warned that improvement was still needed in managing sickness levels at the council, which are the worst in the country, and are costing the authority £1m a year in lost productivity. The council has adopted a number of measures to tackle the problem.

The district auditor is urging the authority to promote a culture of attendance, set targets and monitor performance against them, and to establish procedures to report sickness management information accurately.

The council's chief executive, Marion Headicar, said: "The district auditor has acknowledged that there has been a significant improvement in the last year, especially with our restructuring programme, and service improvements in planning and benefits and taxation."

Council officers are now preparing an action plan that sets out how the council will tackle problems highlighted by the auditor.

They will present the plan to the executive board in the new year.