Victorians who rely on alcohol and drug treatments may be missing out on effective services because of inaccurate data, the state's public service watchdog says.

The Department of Health's dataset on Victorian alcohol and drug services does not accurately represent what providers are doing for their clients, the Auditor-General found in a report tabled in parliament on Thursday.

Poor-quality data means the department is hamstrung when it comes to planning services and managing providers' performance.

While the department has been working to improve the dataset, a plan to address the issues may not have gone far enough, potentially missing root causes including service providers' different capabilities and the dataset specification's complexity, the Auditor-General said.

Of eight characteristics for high-quality data sets, the department's planned improvements would fully address one, partially address six and fail to address another.

"Service providers also told us of instances where they knew the data they submitted did not fully reflect the services they provided," the report said.

The four alcohol and drug service providers that were audited either had internal records of activities that did not match their performance reports or could not pull up evidence to verify their performance reports.

The providers estimated they spent a combined total of at least $2 million on complying with alcohol and drug service data collection since it was introduced in 2018.

The department failed to sufficiently consult with service providers and their vendors about the data collection model, the Auditor-General said.

The watchdog recommended the Department of Health revisit consulting with service providers to minimise the burden of collecting data and look at working with vendors to ensure their content management systems are up to scratch.

It also recommended the department advise the health minister about options to amend the data collection model and manage it in line with data quality guidelines.

The Department of Health accepted all the Auditor-General's recommendations and agreed with the principles of the findings.

However, acting secretary Nicole Brady noted service providers' and peak bodies' contributions were "instrumental" in developing the data collection process.

The department has created a new action plan to put the recommendations into practice, with some to be implemented by December 2024.