It says councils can no longer directly control and dictate the shape of education, but that they still can influence its development.
In a report published yesterday, the Audit Commission warns that not all authorities have developed effective working relationships with their schools.
And a survey of 1,500 schools in 21 LEAs revealed none thought their involvement in forming policies was good.
The report, Held in Trust: the LEA of the future is the latest in a series of studies of the role of councils by the commission.
It discloses widespread differences in the distribution of resources between councils - with the amount delegated to schools ranging from less than 60 per cent to more than 85 per cent of the education budget.
With a new system of funding to be introduced from April, the Audit Commission said councils needed to look seriously at the services they were providing.
The Fair Funding regime will force them to delegate an extra pound;1 billion to schools.
The commission urges councils not just to treat Fair Funding as an accountancy exercise. "We would question how the resources are allocated at the moment." Nearly pound;20bn of public money is spent by councils, some pound;15bn of which is delegated to schools to educate more than eight million children.
The commission said that as councils approach their centenary they had much to be proud of.
But it added: "There are concerns with the quality of education ... Although the classroom is at the heart of the education process, LEAs provide the foundations for educational success since they organise and fund the local education system."
Neil Fletcher, education head of the Local Government Association, said the report confirmed that councils were still the best means of providing education.
"The modern, lean LEA spends just 1 per cent of its budget on central management. That is far less than any government department, public utility quango or private company."
Platform, 15,. Document of the week, 22, 6 News.