Despite extensive efforts - backed by significant financial resources, including $71 million in the 2010-11 budget for targeted programs to strengthen community engagement - the ability of Aboriginal students to read and write continues to lag significantly behind non-Aboriginal students.

However, the report is ''damning'' of the efforts of the Education Department, Cindy Berwick, the president of the NSW Aboriginal Education Consultative Group, said.

Good work is being done in ''isolated pockets'' but no improvement is being made at a systemic level, Ms Berwick said.

''You will find those isolated pockets have good leadership, good principals, with a focus on good teaching that recognises what the kids come to school with and engages kids on their cultural level,'' she said.

''Until that happens on a systemic level we're never going to close that gap.''

The 2021 state plan sets the goal of halving the gap between NSW Aboriginal and non-Aboriginal students in reading and numeracy by 2018. But the Auditor-General, Peter Achterstraat, found no evidence that this was attainable.

The achievement gap worsens the longer Aboriginal students stay at school.

"By year 3, around 40 per cent of Aboriginal students are at or below minimum standard for reading. Unfortunately, this is almost triple the rate of non-Aboriginal students," Mr Achterstraat said. "By year 5, around 50 per cent of Aboriginal students are at or below the minimum standard.''

Mr Achterstraat acknowledged an extensive range of programs that have been developed to try to improve the education of Aboriginal children, but said the state was failing when it came to making sure the right resources and support reached every child, and assessing the needs of individual students.

Ms Berwick said the level of educational opportunity offered in some schools was ''appalling' and said the way forward was to focus on students' particular cultural background.

''The cornerstone is engagement of children through their culture and language. That way they will be more engaged with school, it will be more relevant and they will be more inclined to get better outcomes,'' she said.

Mr Achterstraat endorsed the approach. "I would like to see a greater focus on Aboriginal community members being used as in-class tutors, Aboriginal learning processes such as story-telling, and a stronger emphasis on literacy in students' learning plans," he said.

The Education Minister, Adrian Piccoli, backed the report. ''Unfortunately the Auditor-General's findings are correct and that is exactly why the government has changed approach since we were elected,'' he said.