The NSW Government splashed $1.5 billion on contractors and short-term workers last financial year — a massive increase a new report has warned does not deliver "value for money".

Key points: A report reveals NSW is spending 75 per cent more on short-term public sector employees than it was in 2013

A report reveals NSW is spending 75 per cent more on short-term public sector employees than it was in 2013 The NSW Auditor-General said more staff need to be made permanent to deliver better value for money

The NSW Auditor-General said more staff need to be made permanent to deliver better value for money The report also found some agencies do not have proper policies for screening contractors, exposing them to high risks of staff misconduct

The spend is up 75 per cent, or $627 million, since 2013.

The biggest employer of short-term staff was Transport for NSW with close to $400 million spent in 2018-19, followed by the Finance Department with $176.6 million and the Education Department with $176 million.

The findings are contained in a report by the NSW Auditor-General who examined Government spending on "contingent labour" and recommended more oversight of contractors to deliver better outcomes for taxpayers.

The report also found that around 30 per cent of agencies do not have policies to screen their contractors' backgrounds during hiring — exposing them to the risk of fraud and misconduct.

It cites an example where the Department of Finance failed to check the background of a project manager whose history of misconduct was easily discoverable on Google.

The project manager was then implicated in a scam involving $500,000 in falsified invoices and referred to ICAC where he was found to have engaged in serious corrupt conduct.

Big spenders: 1. Transport - $392.2 million 2. Finance Services and Innovation - $176.6 million 3. Education - $176 million 4. Industry - $165 million 5. Health - $161 million

The report also said many agencies were inappropriately hiring short-term contractors for long-term engagements, sometimes without proper documentation, for years at a time.

While the average tenure was around 375 days, the report cites two extreme cases where contractors were each employed for over 20 years on short-term arrangements.

While official public service guidelines recommend a six-month hiring limit on contingent labour, only 48 per cent of agencies mandated rules for a "maximum period of tenure".

The Auditor-General warned the "higher rates of pay" offered to short-term contractors do not deliver "value for money" and more permanent arrangements were desirable.

Another concern raised was a growing risk that poor workforce planning and oversight meant service agencies such as NSW Police, Sydney Trains and Roads and Maritime Services were being overcharged for their business needs.

Simple solutions to improve oversight had also been routinely ignored by bureaucrats, according to the report.

The Auditor-General discovered 43 per cent of agencies had not implemented a recruitment system called "Contractor Central" which was introduced in 2015 to boost governance and financial outcomes.

The report said many agencies had "out-of-date policies or an absence of policies" to guide appropriate decision-making, and that more than 1,300 outstanding recommendations by auditors remained to be implemented.

A Transport spokesman said the NSW Government would "implement where needed" the new recommendations.

He said the short-term nature of projects like "Sydney Metro, light-rail and motorways" meant "it makes sense to engage labour hire as needed for the duration of the projects".

"A skills shortage in the IT industry also means that sometimes, the best qualified persons for particular roles are only available under labour hire agreements," the spokesperson said.