The ACT Environment Commissioner's office said it was unable to trace spending of a surcharge on Canberrans water bills meant to reflect the value of the capital's scarce water supplies.
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The government said it had collected nearly $60 million from this charge for consolidated revenue in the last two financial years, but had only spent $15.6 million in 2016 -17 on water projects.
In her recent report, The Heroic and the Dammed, commissioner Kate Auty and her co-authors Caitlin Roy and Kirilly Dickson, said this money should be only spent on water projects in the ACT.
Icon Water, the ACT government owned water utility, collects the Water Abstraction Charge from every Canberran.
While not specifically slated for water infrastructure projects, the environments directorate website said the charge "reflects the value of a scarce natural resource vested in the ACT government".
In 2012-13, the government said the charge "covers the cost" of undertaking works to manage water resources, collecting data on water supplies around Canberra and developing management policies on the capital's water supply.
The 2017-18 budget predicted the charge to raise more than $92 million in government revenue over the next three financial years.
The report pointed to the critical risks facing Canberra's Lower Cotter Catchment - the source of the majority of the city's drinking water - including a lack of funding and management framework around the Cotter.
It suggests the more than $90 million in revenue from the charge be spent on catchment management, environmental protection and water policy and planning.
"While [the catchment is] there and people are enjoying it and there's no fires and the water is alright, everybody thinks we don't need to do anything," Professor Auty said.
Currently the charge is set at 0.60 cents per kilolitre, with Canberrans using an average of 150 kilolitres per year.
A spokeswoman for Chief Minister Andrew Barr, who is also the capital's Treasurer, said the charge was not hypothecated - legally set - to be spent on specific expenditures.
"However, a number of projects relating to preserving and managing the ACT’s water supply are funded from consolidated revenue through the normal budget process," Mr Barr's spokeswoman said.
Mr Barr's spokeswoman said the government's $15.8 million spent on water management activities in 2016-17, but this was just more than half of the revenue raised from the charge that financial year.
"This included significant investment in the creation of wetlands to improve water quality in the ACT, downstream in the Murrumbidgee River system and in the wider Murray–Darling Basin," Mr Barr's spokeswoman said.
The spokeswoman said the government reports spending on water planning and management projects to the Australian Competition and Consumer Commission as required by the Murray-Darling Basin Plan.
"Based on our research and consultation with key stakeholders we believe all of these responses to be correct, in essence," Ms Roy said.
The Environment Commissioner's report said the government's report to the consumer commission "purports that the majority of revenue raised for water planning and management activities in the ACT is sourced from the [water abstraction charge]".
But Professor Auty's attempts to correlate water related spending with revenue raised from the charged showed "the amount collected significantly exceeds the amount spent".
"For as long as [charge] revenue is allocated to consolidated revenue, there will be no direct correlation between the amount received and the amount spent," Ms Roy said.
"This does not reflect the true value of water as a scarce resource."'
The Environment Commissioner's report also recommended the government introduce a centralised monitoring group for the Cotter catchment, the charge to be the source of long-term funding for Canberra's water projects and laws introduced to have abandoned cars removed quickly and to ban cars from some sections of the catchment.
