The Victorian Auditor-General said the "main driver" of the poor financial results was a $116.3 million - or 15 per cent - cut in government operating and capital grants.

The report said five TAFEs had a high rating of financial sustainability risk, while eight were assessed as medium risk. Only four TAFEs reported a surplus and improved financial performance for last year.

The 14 TAFEs generated a surplus of $58.6 million in 2012.

Auditor-General John Doyle said performance reporting in the sector had been poor. He said the TAFE sector lacked a framework that "mandates a core suite of relevant and appropriate key performance indicators".

"As a result, the sector's performance reporting remained underdeveloped and inconsistent, lacked clear direction and targets,'' he said.

But Mr Doyle said a new reporting framework had been introduced for 2014. This year, several TAFE institutes have said they would merge, including Kangan Institute and Bendigo TAFE.

The report said NMIT had reported a net operating deficit of $31.7 million and projected "substantial cash flow deficits" for the next two years. The TAFE has cut staff and increased fees in response to its financial position.

The Education Department also agreed to help NMIT secure $16 million to remain solvent and assist with restructuring, the report said.

In April, The Age reported a leaked assessment by the Auditor-General's office found seven out of 14 public TAFEs were in deficit, including two in doubt "as a going concern".

Higher Education and Skills Minister Nick Wakeling said the report, tabled in Parliament on Wednesday, confirmed the government's understanding of the TAFE sector. He said the Coalition had strengthened the governance of TAFEs and made them more accountable.

"The Auditor-General has confirmed that the actions taken by this government have strengthened the positions of TAFE," he said.

Mr Wakeling said some TAFEs were struggling because of arrangements introduced by the former Labor government, which created a challenging, competitive environment. "We have worked with the TAFE sector to ensure they are better placed to compete with private providers."

Mr Wakeling said his department would further investigate probity issues at Box Hill Institute, which were identified in the report. "There needs to be a clear separation between the board and the chief executive officer.''

He denied the Coalition had made cuts to the sector, saying funding had increased.

But opposition higher education spokesman Steve Herbert said funding cuts revealed in 2012 continued to "create havoc" in the TAFE sector. He said there had also been "massive fee increases" and large-scale job losses. "This report paints a bleak future for Victorian TAFEs," he said.

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