There was $1.4 billion in available funding left unspent on Victorian services including hospitals, schools and public transport at the end of the last financial year.
But, apart from the Department of Health, no department could demonstrate it had an appropriate strategy to use the money.
The total amount of money receivable by departments was $3.7 billion as of June 30, 2011, including $2.3 billion in accrued employee entitlements and payables.
Auditor-General Des Pearson said of the remaining $1.4 billion available for spending on infrastructure and services, almost half was held by the Department of Health, which planned to use the funds for capital works over coming years subject to approval in future state budgets.
"However, none of the 10 remaining portfolio departments had plans to use the remainder of their SAU (state administration unit) funds," he said in a report tabled to parliament on Wednesday.
Managers told the auditor-general the main reason the money was not spent was because it needed the treasurer's approval.
"Oversight arrangements should not hinder portfolio departments from planning and delivering additional public services or infrastructure for legitimate purposes," Mr Pearson said.
Opposition treasury spokesman Tim Holding said Premier Ted Baillieu and Treasurer Kim Wells had perpetuated a myth that deep spending cuts were necessary to balance the budget.
"The auditor-general has busted that myth and found that not only is $1.4 billion sitting idle, but also that there are no plans for 10 government departments to use this money to deliver services and infrastructure to Victorians," he said.
Mr Wells said SAU was not a bank account - it did not hold cash, but simply reconciled the balance receivable by a respective government department against its appropriation surplus.
"Tim Holding is inept if he thinks that there's $1.4 billion just lying around in the state's bank accounts," Mr Wells said.
He said much of what was recorded in a department's SAU reflected past appropriation for long-term expenses, like long service leave entitlements.
"If $1.4 billion extra was spent on services now, it would represent $1.4 billion in new spending, driving us into deficit or reducing future surpluses," Mr Wells said.
"This is another unfunded thought bubble from Tim Holding, which would put the budget surplus and state's AAA credit rating at risk."