Groups that get the best results in cultural support, reunification with kin and connection to culture for children are receiving the least funding, a new report from Australia's peak body for Indigenous children has found.

As reported by National Indigenous Times last week, 22,908 First Nations children were in out-of-home care (OOHC) across the country—41 per cent of all children in out of home care (OOHC).

The 2024 Family Matters Report by SNAICC – National Voice for our Children, found Aboriginal community-controlled organisations (ACCOs) received only six per cent of government funding, despite Indigenous children being 10.8 times more likely to be in OOHC than non-Indigenous children.

On Thursday, SNAICC chief executive Catherine Liddle said First Nations children had never been more likely to be placed on OOHC, yet the community sector - which was proved to work - continued to be "woefully" underfunded.

"This report shows the immediate and effective impact the ACCO sector is having in connecting Aboriginal and Torres Strait Islander children with kin and culture," Ms Liddle said.

"It shows how services are working to prevent and intervene in child removal and work to keep vulnerable children and families safe, supported and connected."

Ms Liddle added: "This over-representation grows as family interventions become more intrusive at each stage of the system, pointing to a systemic failure to respond and support children and families rather than issues driven at a community level."

Earlier this year, the Productivity Commission revealed the OOHC rate for Aboriginal and Torres Strait Islander children nationally was 57.2 per 1,000.

With Victoria seeing more than one-in-ten Aboriginal children removed, it prompted Yoorrook Justice Commission Deputy Chair, Sue-Anne Hunter, to exclaim: "Victoria's child protection system isn't broken; it's working exactly as it was intended to based on the state's colonial foundations, which decimated Aboriginal family structures and communities."

The data revealed the National Agreement on Closing the Gap's Target 12 - to reduce the over-representation of Aboriginal and Torres Strait Islander children in OOHC care by 45 percent by 2031 - will not be met.

Highlighting the data, Ms Liddle said the target was going backwards.

"In 2022–23, we saw the rate of child removals exceeded exits, reversing a previously positive trend," she said.

"What's most disappointing is that the solutions to these challenges are clear, and they have been articulated by communities for decades."

The report also revealed only 15 percent of government funding in child protection is going towards early intervention and family support service, with Ms Liddle saying investment in ACCOs was critical to meeting Target 12, as is investment in early intervention and family support services.

Chief executive of Life Without Barriers, Claire Robbs, said the latest Family Matters Report showed the need for transformative change is "more urgent than ever".

"We know that Aboriginal and Torres Strait Islander children are disproportionately impacted by child protection systems and the consequences of these inequities are devastating, not only for children, but for entire families and communities," Ms Robb said.

In February, the federal government said the old ways were not working, with Prime Minister Anthony Albanese saying: "If we want to close the gap, we have to listen to people who live on the other side of it."

Ms Liddle said a lack of investment in "programs and projects that work" from Federal, State and Territory governments was the reason the gap was widening.

"Governments must get serious about transforming the way they do business with ACCOs by transferring authority and adequate resourcing that will keep families together and prevent the landslide of children entering the misnamed protection system," she said.

"Our sector, communities and families are sick of seeing our children removed. The number of children who are crossing over from child protection into youth justice systems is increasing, yet there continues to be a focus at the tertiary end of responses.

"We have major NGOs committed to transitioning out-of-home care and support services to ACCOs through the work of Allies for Children. It is way past time for governments to do the same."