Less than one in five authorities responsible for setting police spending priorities are well-prepared and able to ensure value for money for their forces in the wake of the Government's spending cuts, inspectors said.
The police watchdog said there was "a real concern that police authorities will not find alternative approaches that offer better value for money and they will not be able to protect the public facing policing services that the public rely upon 24/7".
The Police Federation of England and Wales, which represents rank-and-file officers, warned that up to 20,000 officers' jobs could go after the Government announced a 20% cut in their contribution to police budgets last week.
The report by Her Majesty's Inspectorate of Constabulary (HMIC) found only four of the 22 authorities it assessed "performed well in both setting strategic direction for policing in their area and ensuring value for money".
Gwent, Hertfordshire, West Mercia and Surrey police authorities "engage in thoughtful, challenging discussions and negotiations on what goals can be pursued and how best they can be achieved", the inspectors said.
These authorities were clear that their role involved "both setting the direction for the force and challenging" it on progress.
They also maintained a dividing line between governance and leadership, challenged what their forces were doing with their money in both the short and long term and "struck a balance between local issues and national responsibilities" such as tackling terrorism, drugs, gun crime, people trafficking and fraud, the report said.
But in less successful authorities there were "different interpretations as to how far their role extends in influencing and challenging the force about the delivery of operational outcomes".
Inspector Zoe Billingham said: "All the other authorities need to take a hard and honest look at how they might improve in these areas and transform their approach."
The police authorities will be scrapped under Government proposals to replace them with directly-elected police and crime commissioners, but the first elections for these are not expected to be held until 2012.