The Victorian auditor-general has criticised the City of Greater Bendigo council's handling of the doomed tram-around-the-lake plan.

The tram plan was the centrepiece of the Discovering Bendigo project that was first mooted in 2000.

In 2002, the council applied for and was given a $3.7 million state government grant to extend Bendigo's tourist tram around Lake Weeroona.

After the project was announced it was met with strong community criticism and more than 1000 people attended a public rally in 2003 against the plan.

A compromise plan was drawn up, but it, too was attacked, forcing the council in January 2005 to scrap the project.

Later that year, anti-tram leader Kay Dewar requested an auditor general investigation into the project and the council's relationship with the Bendigo Trust, which runs the tourist trams.

This morning, more than two years later, auditor general Des Pearson handed down his report.

Mr Pearson's report criticised the council's handling of the project. He said the council should have "engaged the local community in a more timely manner and identified and resolved any issues they had with the project".

Mr Pearson also attacked the way the council applied for the government grant, saying it should have "taken reasonable steps to ensure information contained in its grant applications was accurate and complete".

The report also highlighted a number of areas council needed to improve its project management practices.

Mr Pearson said the council needed to improve the quality of supporting information for capital project proposals, needed to establish processes to manage risk, costs, timelines, communication and scope changes, and take steps to ensure grant applications are correct.

Mr Pearson also found the relationship between the Trust and the council was not transparent and that transparency was important with such an arrangement.

Mr Peasron also urged the council and the Trust to renegotiate the management agreement between the two parties to better manage the financial risk.

For full information, see Friday's Bendigo Weekly or log on to www.bendigoweekly.com.au Friday afternoon.