The New South Wales prison back-log is costing the state more than $200,000 a day as prisons exceed full capacity, an Auditor-General's report has found.

The latest report by Auditor-General Margaret Crawford has found inmates awaiting trial in the District Court are costing an estimated $221,000 a day or $60 million a year.

An increasing number of those cases are more than 12 to 24 months old.

"Increases in the operational capacity of the prison system are not keeping pace with increases in inmate numbers", Ms Crawford said.

"If overcrowding in the prison system is not addressed, rates of reoffending may worsen.

"The Department of Justice should determine if planned capital investment is sufficient to efficiently and effectively manage inmates over the next two to three years."

The report noted that in 2015-16, the average occupancy rate increased to 122 per cent of the prison system's design capacity, compared to 112 per cent in 2014-15.

"According to Corrective Services, a buffer of 5 per cent in the operational vacancy rate is needed for the effective management of prisons," the report said.

"At 30 June 2016, the rate was only 1.2 per cent, and this fell to less than 1 per cent at September 30."

More funds to be invested in prevention

A statement from the NSW Government in response to the report said more funds would be invested into prevention methods.

"The NSW Government is investing $570 million over four years in strategies to reduce the rate of reoffending, ease pressure on the court system and improve community safety," the statement said.

Shadow Minister for Corrections Guy Zangari said the Government needed a new approach in order to ease the burden of overcrowding and the costs of inmate remand.

"A couple of tips for the Government would be that they need to address community concerns regarding preventative programs early so that people actually don't end up in prison," Mr Zangari said.

"The Government also needs to address the backlog by giving the courts the resources they need."

The NSW Government said it had made new appointments to reduce the District Court backlog.

"Five new judges have been appointed and additional resources are being provided, including four more public defenders and additional investment in Legal Aid and the Office of the Director of Public Prosecutions," the statement said.

Meanwhile the overcrowding of jails is predicted to grow as prisons are renovated to accommodate more inmates.

Mr Zangari said with the average prison capacity at 122 per cent and growing, the system was broken.

"This is a perfect storm where you have justice system and the correction system itself fractured," he said.

"Here we have the increase in the prison population with the report saying that the capacity now is at 122 per cent. This is just incredible."

A statement from the NSW Government said the overcrowding of cells had been addressed.

"We are also delivering more than 9,000 new prisoner beds over the next five years, including a new state-of-the-art facility at Grafton and expanding Parklea," the statement said.

But Mr Zangari said the Government needed a rethink on the issue.

"Simply throwing money at the prison system by increasing capacity is not going to solve the problem of people into prison in the first place," he said.