Mangawhai Ratepayers Association says large borrowing by Kaipara District Council appears to have been illegal and creditors may be at risk.
A report from the law firm Simpson Gierson concludes the council collected $9 million worth of sewerage and forestry rates without statutory authority.
But the association says that is just the tip of the iceberg.
It says the council also borrowed large amounts of money without authority to pay for massive cost blow-outs in a sewerage scheme at Mangawhai.
Association chairman Bruce Rogan says the costs rose from $23 million to $58 million - but there was no consultation and no apparent chain of approval for the extra borrowing.
He says some Mangawhai residents are already withholding rates in the belief their rates were collected without lawful authority.
Kaipara Mayor Neil Tiller says he and new chief executive Steve Ruru asked the Auditor General last week to conduct an inquiry into the entire sewerage scheme and its funding.