A survey of its members by the Association of Local Authority Risk Managers reveals many are concerned at the trend towards large awards to public sector staff claiming compensation for stress-related illnesses.
The survey, published at ALARM's annual conference at Warwick University, saw 85% of respondents rank stress at work in their top 10 emerging risks in the public sector.
Nine out of 10 felt there was an unhealthy 'compensation culture' developing in the UK.
ALARM members are also concerned about the potential risks posed by the government's modernisation programme for councils. More than 60% said the replacement of the committee system with mayors and cabinets could fuel risks as delegation to officers increased and audit trails were reduced.
Three-quarters said corporate governance guidelines for the private sector should be extended to public bodies.