Scottish Fire and Rescue Service 'faces £43m funding gap'
The Scottish Fire and Rescue Service is facing a "significant potential funding gap", according to Audit Scotland.
The public finance watchdog said a long-term financial strategy was urgently needed.
Audit Scotland warned that potential future reductions in funding could mean a budget gap of £42.7m by 2019/20.
The Scottish Fire and Rescue Service (SFRS) said work had already been undertaken to project future costs and savings.
The single national fire service was created two years ago by merging eight regional brigades. Audit Scotland said the merger was managed effectively.
The watchdog said SFRS made £16m of savings in the first year after the merger with no impact on the public and a continued reduction in casualties.
It said the service was on track to exceed expected cumulative savings of £328m by 2027/28.
But it warned that future cost pressures and likely reductions in funding could lead to a potential funding gap of £42.7m by the end of the decade.
The gap could be even higher if other services are protected during the coming period of public sector spending cuts, the watchdog said.
Caroline Gardner, auditor general for Scotland, said: "The creation of the Scottish Fire and Rescue Service was well managed. This achievement provides a valuable opportunity to share the lessons of how this was done with other public bodies going through a merger process.
"The service is reviewing how it will work in the future, and there is still a lot of hard work to do. Even without the funding gap identified in our report, a long-term financial strategy would be essential.
"It's now crucial that the service agrees this strategy, and supporting plans, to show how it will close the funding gap and achieve savings by 2019/20 and beyond."
The SFRS has a budget of £259.2m for 2015/6, which is a £31.5m reduction on the last year of the old regional brigades.
Audit Scotland said the vast majority of the fire service's spending (79%) related to staff costs.
SFRS Chief Officer Alasdair Hay said the "very positive report reflects the dedication of all our staff across the country".
He added: "SFRS has already delivered very significant financial savings since its inception in 2012/13. These efficiencies will see a reduction to the organisation's budget of £31.5m when compared to legacy services, while the cost base has risen by £16.7m.
"As the Audit Scotland report acknowledges, this has been achieved with no impact on frontline operations or to the public and the services they receive.
"The SFRS will, of course, continue to place community safety and firefighter safety at the forefront of any decisions which are made to ensure that we can continue to deliver the high quality service the public has come to expect from us."
The Scottish government said the report proved the fire reform process "has been a huge success".
Community Safety and Legal Affairs Minister Paul Wheelhouse said: "It is fantastic to see how the Scottish Fire and Rescue Service has coped in responding to budget pressures caused by steep cuts to Scotland by the UK government; achieving its reform savings target in each of the years since it was created and being on track to exceed the expected savings of £328m by 2028."
Opposition parties criticised the Scottish government's handling of the creation of a single force.
Scottish Conservative justice spokeswoman Margaret Mitchell said: "All fire men and women do an amazing job of sacrificing their own life to keep the public safe and they cannot be faulted.
"However, the Audit Scotland report highlights the serious failings of the SNP in managing the amalgamation of the Scottish Fire and Rescue Service."
Scottish Labour's justice spokesman Hugh Henry said: "We've seen what underfunding has done to our police service, with backfilling leading to police officers covering roles previously held by civilian staff.
"With firefighter numbers falling, the SNP must guarantee that the Scottish Fire and Rescue Service will not suffer a similar fate."