Sydney's embattled Liverpool Council may have been exposed to credit risk by a move to outsource some services to a private company, a forensic audit has revealed.

Liverpool City Council is now seeking legal advice over the $18.5 million, 10-year contract with Queensland-based Propel Partnerships, which was signed last year under the guidance of former CEO Carl Wulff.

The contract outsources some customer and management services, and Mr Wulff, who oversaw a similar contract while working at Queensland's Ipswich council in 2007, said the move would improve the quality of service delivered to the community.

However, an independent audit by Prosperity Audit Services obtained by the ABC has now revealed a number of limitations within the contract that may have left the council vulnerable.

"Based on our investigation, it appears that a number of shortcomings may have exposed LCC (Liverpool City Council) to certain preventable risks," the report reads.

"These risks (such as potential credit risk, failure to obtain value for money and reputational risk) are uncertain at this time as there is limited information available on the efficiency savings achieved to date."

Councillors vote to provide report to ICAC

During a closed session at a council meeting on Wednesday, the majority of Liverpool councillors voted to provide a copy of the report to the Independent Commission Against Corruption (ICAC).

Liverpool council's decision to engage Propel Partnerships has been highly controversial, with council workers fearing it would threaten their job security.

They also criticised a lack of community consultation and transparency, with the council remaining tight-lipped on exactly how much the contract was worth.

Those fears, as well as allegations Mr Wulff mishandled asbestos contamination in the area, saw workers, the union and some councillors continuously call for Mr Wulff to step down.

He ultimately resigned in March.

The audit also found the council would not save any money on the services until the partnership entered its fifth year.

However, should the contract be terminated prior to that, it could incur a fee as high as $9.8 million.

"The financial model is driven by a number of assumptions which calculate a "net saving" over the life of the contract," the report said.

"For example, should the population growth rate increase faster than expected, this will increase council's financial exposure and the fees absorbed by Propel."

Audit recommends re-evaluation of arrangement

The audit recommended council re-evaluate its arrangements with Propel.

In a statement, the council's CEO Michael Cullen said the council was seeking legal advice.

"Council's response is governed by the confidentiality stipulations imposed by Prosperity Audit Services on their report being made public without their permission," he said.

"However, ratepayers can be assured that council is seeking independent external legal advice in regard to some concerning recommendations in the report."

"Council will also be implementing other recommendations in the report as it continues to explore new ways to improve its business practices and ensure ratepayers get full value for money."

The general secretary of the United Services Union, Graeme Kelly, welcomed the move by councillors to refer the contents of the audit to ICAC.

"While the union is yet to see the contents of this report, the fact that councillors felt it warranted referral to the corruption watchdog confirms the serious nature of its findings," he said.