Two-thirds of NSW government agencies are failing to properly safeguard their data, increasing the risk of improper access to confidential information about members of the public and identity fraud by cyber criminals.

The finding has emerged from an audit of dozens of government agencies, including those holding highly sensitive personal information collected from millions of citizens, such as NSW Health, the department of education, NSW Police Force, Roads and Maritime Services and the justice department.

While the report by auditor-general Margaret Crawford does not name the agencies failing to properly manage privileged access to their systems, it highlights the potential consequences.

"Personal information collected by public sector agencies about members of the public is of high value to cyber criminals, as it can be used to create false identities to commit other crimes," she says in the report.