A report into funding for the territory's community services sector found 47 per cent of community organisations incurred a loss on programs delivered for the ACT government.

It found while demand had increased for a number of services funding had not kept pace.

It also found more than 60 per cent of organisations decided against applying for ACT funds in the last three years due to poor cost coverage.

One-quarter of organisations offered services at below-cost to ensure they were competitive when they were tendering for contracts.

"Increasingly, ACT community sector organisations report that ACT government funding is too low," the report said.

"Inadequate resources to employ and support staff reduces organisational capacity and causes some services to 'cut corners'.

"Underfunding has contributed to unpaid and underpaid work in the ACT community sector; loss of staff, especially to the public sector; and over-reliance on volunteers. As well as affecting the workforce, this affects quality and outcomes for clients and communities."

The report made a series of recommendations, including a review of all ACT funding agreements to ensure costs of providing services were fully covered and an increase in funding for areas of high need.

The report was commissioned by the ACT government and the ACT Council of Social Services.

ACT Council of Social Services chief executive Emma Campbell welcomed the report, which she said amplified the funding challenges faced by the community sector.

She said the organisation was prepared to work with the government to implement the recommendations of the report.

"A sustainable funding model is desperately needed," Dr Campbell said.

"Workers in the community sector continue to do an amazing job delivering essential services, including during the COVID-19 pandemic. However, we are seeing increasing rates of burnout by staff and leaders as they make difficult decisions - including turning people away.

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"It is not sustainable for the community sector to run essential services such as mental health support, community legal or domestic violence services without sufficient funding to cover costs."

ACT Families and Community Services Minister Rachel Stephen-Smith said the report would help to inform how the government would work with the community sector in developing a new way of procuring services, which would focus on outcomes instead of costs.

"The 2021-22 ACT budget included $4 million over four years to support an increase in community sector funding. However, we understand that there is more work to do," Ms Stephen-Smith said.

"Community service organisations are an essential part of a flourishing Canberra, and we value the above-and-beyond efforts of those who work in the sector.

"This report is a valuable platform for improving mutual understanding."

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