Only seven municipalities out of 237 received a clean audit for the 2009/10 financial year, Auditor General Terence Nombembe announced on Wednesday.

He was heartened by improvements at municipalities, but at the same time warned that much improvement was needed, he told the National Press Club in Pretoria at the release of his Consolidated General Report on the Local Government Audit Outcomes.

There were 51 municipalities whose audit reports had not been finalised by January 31, 2011.

Of the 237 municipalities audited, 60 received adverse findings or a disclaimer, 50 received qualified audit reports and 120 financially unqualified reports with findings. Seven got clean audit reports, up from three in the previous financial year.

"We need a lot of effort to move them away from that status," Nombembe said.

A disclaimer is issued when the auditor could not form an opinion on the financial statements. This could happen where the entity being audited concealed or failed to provide relevant information, if it was involved in litigation, or if its status as a going concern was threatened.

Those that received clean audit reports are the Ehlanzi district municipality, the Steve Tshwete and Victor Khanye municipalities (all three in Mpumalanga), the City of Cape Town, Metsweding (Gauteng), Frances Baard (Northern Cape) and the local municipality of Fetakgomo (Limpopo).

Clean audit municipalities disclosed all required information.

A municipality with a financially unqualified audit with findings is described in the report as “not having fully addressed deficiencies in their reporting on predetermined objectives and/or compliance with laws and regulations”.

A total of 57 municipalities had improved audits compared to the previous financial year, while 15 had audit reports that were worse than in the previous year.

Municipalities in Gauteng and KwaZulu-Natal had shown the greatest improvement.

The report revealed that only in the Free State had there been a decline in unauthorised expenditure.

Municipalities in Gauteng accounted for 33% of all unauthorised expenditure. The figure increased from R522-million in 2008/09 to R1.7-billion in 2009/10. Tshwane accounted for R1.5-billion of that.

Nombembe said he did not necessarily see this “spike” as a bad thing. The fact that the audits had caught this unauthorised expenditure meant problems that led to the situation could be addressed.

The report revealed problems in relation to quotes and contracts for goods and services provided to municipalities. Of 289 audits of the supply chain management processes, the AG raised concerns with regard to 214. Some of the issues included contracts going to municipal employees or their family members.

“The possibility of undue influencing of the procurement process by the identified persons cannot be discounted,” the report reads.

Some R138-million in contracts were awarded to “persons in the service of the state”. Of those 19 were councillors, one was a mayor, one a municipal manager and two senior managers.