The City of Edinburgh Council is on target to meet its planned savings of £49 million for the current financial year after making “considerable progress” in addressing its financial challenges.

Highlighting managers’ and elected members’ efforts to prioritise key frontline services while remaining willing to make difficult decisions where necessary, a new report by Audit Scotland said the council has succeeded in setting a balanced budget for 2016/17.

By engaging with the public throughout the budget-setting process the council has also been able to agree a four-year budget framework, it said.

Audit of Best Value 2016 signals a step-change in the council’s performance since last year’s report, and recognises its strategy for changing the way it delivers services, reducing its workforce while realising significant savings.

The report acknowledges operational changes made under the council’s transformation programme, including the signing of a new ICT contract, the restructuring of departments based around four localities and the development of a full workforce strategy, which aims to make savings of more than £25m a year from 2016/17.

Council leader, Councillor Andrew Burns, said: “We welcome Audit Scotland’s report, which demonstrates just how far the council has come over the last year to address its financial challenges.

“With an increasing demand for services and limited funds, setting the council budget for 2016/17 has involved some of the toughest decisions of my 17 years in local government. But by prioritising the services that really matter to people I think we have achieved a budget that meets the needs of the public.

“We now look to the future of the council as we undergo our transformation programme, which will allow us to deliver services more efficiently, providing best value to the citizens of Edinburgh.”

Finance convener, Councillor Alasdair Rankin, said: “It was obvious to us that we needed to change the way in which the council delivered services to residents and I am delighted that Audit Scotland has recognised the strong leadership required to make this happen. We will continue to drive this transformation forward in order to protect frontline services while achieving the necessary savings.

“As part of this we are in the process of implementing a number of cost-effective measures, including an updated workforce strategy and further development of Channel Shift, making more customer transactions available online.

“Moving forward, we will continue to work closely with residents, community groups and partner organisations to ensure we continue to offer the best quality of service possible.”

Andrew Kerr, council chief executive, added: “Now that the budget has been set, we need to implement the changes, making more efficient use of resources while continuing to improve the services we provide. Staff have told us that they are keen to maintain the pace of council transformation so it is crucial that we deliver these changes while ensuring continuity of service.”

The report will be considered on Thursday, 11 February by the Accounts Commission, the public spending watchdog for local government which assesses councils’ performance in relation to best value and community planning.

In 2014, the Commission highlighted a number of areas for improvement concerning the council’s financial position and the actions needed to address this.

Read the full report on the Accounts Commission’s website.