Cosatu has called for a national debate on a turn-around strategy for municipalities across the country.

Reacting to the Auditor General's (AG) report on local government on Tuesday, the Congress of SA Trade Unions (Cosatu) said it painted a grim picture of incompetence, maladministration and waste of public money.

"Cosatu demands that there must be an urgent national debate on how we are going to turn round this disaster," it said in a statement.

On Monday, AG Terence Nombembe's report revealed that only five percent of municipalities had obtained clean audits for the financial year 2010/2011.

None of the metros received clean audits and 13 percent of the audities did not submit financial statements on time for auditing.

Procurement to the value of R3.5 billion could not be audited because municipalities had not provided the required information or documentation.

In 46 percent of the audited municipalities, contracts were awarded to employees, councillors, and other state officials.

A total of 54 municipalities collectively underspent their budgets by R3.7bn.

"This is R3.7bn which should have been used to improve the lives of the people, especially the poorest South Africans, with more and better services," Cosatu said.

It said the report explained the number of angry and violent service delivery protests in poor communities.

"There is now clear evidence that money which had been budgeted for schools, houses, clinics, running water, sewers and roads was simply not being used for its intended purpose."

In his report, Nombembe identified skills shortage, service delivery, procurement procedures and errors in financial information as major concerns.

Oppositions parties also called on the government to take action against those found to be on the wrong side of the law.

Cosatu said there was a need for a change in the mindset of those running the municipalities.