LOCAL governments do not have to fear facing consequences from inaction in cleaning up their finances, Auditor-General Terence Nombembe said on Monday, as he announced that only 5% of municipalities had clean audits.

He complained in May about the lack of accountability of public servants; that poor financial outcomes were regarded as the norm; and that no action was taken to combat poor performance.

Now, Mr Nombembe's local government audit outcomes for 2010-11 paints as dismal picture as last year's report, with R11bn in unauthorised, irregular, fruitless and wasteful expenditure.

The report showed a deterioration, as none of the eight metros received a clean audit, including the City of Cape Town, which had clean audits for the past two years.

Mr Nombembe said there was still an absence of consequences for poor performance and transgressions among the audited municipalities and 60 municipal entities such as City Power, Johannesburg's electricity utility.

"We are seeing the impact of a lack of skills, the slow response of leadership to owning key controls as well as the absence of managing poor performance and risks that municipalities continue to face. At the moment these risks are beyond tolerable levels," he said.

The risks included the management of supply chains - where there was a "growing trend" of irregular spending - poor human resource management and few controls to ensure the security of information and the accuracy of reports, despite an increase in the use of consultants.

There was unauthorised, irregular or fruitless and wasteful spending in 86% of the bodies examined, with accounting officers in 84% of them failing to take reasonable steps to prevent it.

Irregular spending rose from R6bn in 2009-10 to R10bn in the next year. This did not necessarily mean fraud had been committed, but it was a "measure of the auditees' ability to comply with laws and regulations relating to expenditure", Mr Nombembe said.

The biggest contributors to irregular spending were KwaZulu-Natal with R2,1bn and the Eastern Cape with R1,4bn. It was most prevalent in the Northern Cape, at 90% of councils, the Free State (89%) and Limpopo (83%).

Fruitless and wasteful expenditure increased from R253m in 2009-10 to R260m, with the Free State wasting R115m.

Finance Minister Pravin Gordhan told the briefing on Mr Nombembe's audit that the Treasury was about to appoint a chief procurement officer to address growing concern about supply chain management.

He said he was disappointed that none of the well-resourced metros had received clean audits.

Five municipalities in the Western Cape were among those that failed to submit their financial statements on time, although the overall audit outcomes for the province remained unchanged.

The dire situation in the City of Johannesburg was unchanged, and it received a financially qualified opinion.

Mr Nombembe gave 156 of the 343 audited entities unqualified audit reports with "internal control concerns" or findings - a decrease from 46% of entities last year to 45% this year.

He said the unqualified reports were obtained only after corrections during the audit process with the help of the auditors.

The auditor-general's office gave 18% of municipalities financially qualified reports and 19% received adverse opinions or disclaimers.

There was no opinion on 13% of the 283 municipalities that had failed to submit their financial statements on time.

Mr Nombembe said 13 municipalities received clean audits - four in KwaZulu-Natal, five in Limpopo, two in Mpumalanga and two in the Western Cape.

No municipality in the Eastern Cape, the Free State, Gauteng, the Northern Cape and the North West received a clean audit report.

Only four municipal entities received clean audits, dropping from 10 last year.

marriann@bdfm.co.za