POLICE Scotland is operationally stronger than the eight forces it replaced but financial challenges remain, according to the Police inspectorate.

HM Inspector of Constabulary Derek Penman said Police Scotland must focus on sustainability, engagement with local communities and scrutiny in his annual report.

He said: "Crime has continued to fall to the lowest levels in 40 years and my view is that Police Scotland is operationally effective and better-placed to deal with major events than the legacy police forces it replaced.

"However, the creation of the new services was only the beginning of a major change programme and challenges remain in terms of the medium to long-term sustainability.

"Financial challenges persist and although the savings targets were achieved for 2013/14, there is a need for both Police Scotland and the SPA (Scottish Police Authority) to be clear about future structures and have transition plans that deliver sustainable savings."

Mr Penman has called on Police Scotland to improve local accountability and allow councils to escalate concerns around national decisions which have the potential to impact on local policing.

He also warned that the technical challenges of amalgamating the eight legacy forces has absorbed senior management time, reducing capacity for strategic planning, innovation and improvement.

Further challenges remain in workforce planning, ICT integration, performance management information and the development of effective scrutiny, he said.

"It is my opinion that Police Scotland is still at an early stage of a significant programme of transformational change," he said.

"Some of that change will take time to achieve, and only once implemented will it be possible to fully assess whether the intended benefits of reform have been fully realised."

HMICS is conducting specific scrutiny on Police Scotland's divisive stop and search and armed policing policies, and it is also focusing on crime recording following its recent warning that about one in ten sexual and violent offences are not recorded correctly.

The relationship between Police Scotland and public watchdog the SPA has "significantly improved" since last year, when a power struggle between Chief Constable Sir Stephen House and SPA chairman Vic Emery was played out in the press and parliament.

Mr Penman backed the closure of some police call centres - insisting rationalisation is "necessary in terms of both efficiency and operational effectiveness" - but he said communities and staff must "receive an equivalent or improved service from the new call handling structures".

He praised the policing of the Commonwealth Games and the response to the Clutha helicopter crash, said Police Scotland is "prepared to respond to and recover from a terrorist incident" and said the single force has "significantly strengthened capability and capacity around policing major incidents or events".

Mr Penman said: "I conclude that the creation of the single police service and the SPA has been effective to date and that policing is operationally stronger than under the legacy forces.

"However, the reform process has only started and there needs to be an ongoing focus on sustainability, localism and scrutiny to ensure the medium to long-term success and to fully realise the anticipated benefits of reform."