How to Achieve a Clean Municipal Audit: Step-by-Step SA Guide

In the 2022-23 municipal audit cycle, only 34 of 257 municipalities achieved a clean audit. That is 16%. The rest received qualified opinions, adverse opinions, or disclaimers, often with multiple findings on compliance and performance. If you are a Municipal Manager or CFO asking how to achieve a clean audit in your municipality in South Africa, you are not alone — and the gap between the 16% and the 84% is not luck. It is preparation, systems, and consistent execution over the full financial year. This guide gives you a practical, step-by-step approach to municipal audit readiness: what a clean audit actually means, what the Auditor-General looks for, a 12-month preparation roadmap, the most common AG findings and how to prevent them, role-based responsibilities, and how the right technology supports the goal. Whether you are starting from a qualified audit or building on existing controls, the path to a clean municipal audit is clear if you follow it systematically.

What Does a “Clean Audit” Actually Mean?

A clean audit is the outcome every municipality should aim for. Formally, it means the Auditor-General of South Africa (AGSA) has issued an unqualified audit opinion on your financial statements and your performance report, with no findings on compliance with key legislation and no material findings on internal controls (leadership, financial and performance management, or governance).

In practice, that means:

• Financial statements: The AG is satisfied that your annual financial statements (AFS) are free from material misstatement and prepared in accordance with the applicable reporting framework (GRAP, mSCOA, National Treasury requirements).
• Annual Performance Report (APR): Your reported performance information is reliable and useful; there are no material misstatements in the APR.
• Compliance: No material non-compliance with the key laws and regulations the AG tests (including the Municipal Finance Management Act, the Municipal Systems Act, the Constitution, and supply chain management regulations).
• Internal controls: No material deficiencies in leadership, financial and performance management, or governance that would prevent the municipality from preparing reliable reports or safeguarding assets.

If the AG qualifies the opinion (e.g. “except for” a specific matter), identifies material non-compliance, or reports material findings on controls, the audit is no longer “clean.” Understanding this definition is the first step: your goal is unqualified opinions plus zero material findings across finances, performance, compliance, and controls. For a structured list of checks your finance team should run, see our municipal clean audit checklist for 2026.

The Auditor-General’s Focus Areas

The AG does not audit everything at random. Municipal audits are structured around four main focus areas. Aligning your preparation to these areas is the foundation of audit readiness.

1. Quality of Financial Statements

The AG assesses whether the AFS are prepared in accordance with the prescribed framework and present a true and fair view. This includes correct application of the mSCOA chart of accounts, appropriate classification of revenue, expenditure, assets, and liabilities, adequate disclosure in notes, and reconciliation of the AFS to the underlying records and to the Section 71 monthly in-year reports. Any material misstatement — whether from error or incomplete records — can result in a qualified or adverse opinion.

2. Quality of Annual Performance Reports

The APR must reflect actual performance against the approved Service Delivery and Budget Implementation Plan (SDBIP) and other plans. The AG checks that reported indicators are valid, measurable, and supported by evidence; that targets and actuals are correctly stated; and that the APR is consistent with the underlying performance management system. Weak or missing evidence, incorrect figures, or poor linkage between planning and reporting lead to findings and can affect the audit outcome on performance information.

3. Compliance with Key Legislation

The AG tests compliance with legislation that has a direct impact on the financial statements and on service delivery. The Municipal Finance Management Act (MFMA) and its regulations sit at the centre: timely tabling and adoption of the budget, in-year reporting (Section 71, Section 72), year-end processes, and supply chain management. Non-compliance with MFMA compliance requirements — for example, late or incomplete Section 71 or Section 72 reports, or procurement that does not follow SCM policy — is frequently reported and can be material.

4. Internal Controls: Leadership, Financial and Performance Management, and Governance

The AG evaluates the control environment. This includes:

• Leadership: Tone at the top, ethics, and accountability; whether management addresses prior-year findings.
• Financial and performance management: Budget monitoring, monthly reconciliations, asset management, revenue and receivables management, and the quality of supporting documentation.
• Governance: Oversight by the audit committee and council; risk management; and whether policies and procedures are documented, communicated, and applied.

Material weaknesses in any of these areas are reported as findings and can prevent a clean audit even when the financial statements themselves are correct. Strengthening internal controls is therefore not optional; it is how you sustain a clean audit over time.

The 12-Month Clean Audit Preparation Roadmap

Achieving a clean audit is not a year-end sprint. It requires a disciplined approach across the full financial year. The following roadmap gives you a clear timeline from baseline assessment to AG engagement.

Months 1–3: Baseline Assessment and Gap Analysis

In the first quarter of the financial year, establish where you stand relative to the AG’s focus areas.

• Review the prior year’s management report and AG report. List every finding and recommendation. Assign owners and target dates for remediation.
• Conduct a gap analysis. Compare your current processes and systems against MFMA and mSCOA requirements. Identify missing reconciliations, weak documentation, or areas where Section 71 data does not tie to the general ledger.
• Assess your asset register. Incomplete or inaccurate asset registers are a recurring AG finding. Confirm that all material assets are recorded, correctly classified, and reconciled to the AFS.
• Map your chart of accounts to mSCOA. Ensure every account is correctly segmented (e.g. segment classification) and that there are no legacy or non-compliant codes still in use.
• Document roles and responsibilities. Clarify who is responsible for month-end close, reconciliations, Section 71 submission, and year-end AFS preparation. Gaps here often show up as control findings.

By the end of month 3, you should have a written action plan with owners and deadlines. Share it with the audit committee and council so oversight is aligned with the clean-audit objective.

Months 4–6: Systems and Process Remediation

Use the second quarter to fix the gaps you identified.

• Implement process improvements. For each prior-year finding and each gap from your analysis, implement a concrete change: revised procedures, additional reviews, or system configuration updates. Focus on areas that have historically attracted AG attention: revenue and receivables, procurement and SCM, asset management, and month-end close.
• Strengthen month-end disciplines. Ensure Section 71 reports are prepared from the same source data as the general ledger and that reconciliations (bank, debtors, creditors, assets) are completed and reviewed before submission. Late or inconsistent Section 71 reporting is both a compliance finding and a red flag for financial statement quality.
• Improve documentation. The AG relies on evidence. Ensure that approvals, reconciliations, and supporting schedules are filed in an organised way and can be retrieved quickly. Consider a single “audit file” structure (electronic or hybrid) so that nothing is missing at year-end.
• Train staff. Where gaps are due to skills or awareness, schedule training on mSCOA, MFMA reporting, and internal control requirements. The mSCOA chart of accounts guide and MFMA compliance requirements are good reference points for your team.

By the end of month 6, the majority of remedial actions should be in place and operating. The audit committee should receive updates on progress so they can hold management accountable.

Months 7–9: Pre-Audit Preparation and Internal Reviews

The third quarter is for testing and hardening your processes before year-end.

• Run internal or outsourced pre-audit reviews. Have someone independent of the preparers (e.g. internal audit or an external firm) perform a mock audit on a sample of transactions, reconciliations, and disclosures. Use the AG’s methodology where possible so you find and fix issues before the AG does.
• Complete a dry run of year-end procedures. Simulate the AFS preparation process: draft notes, run trial balances, reconcile all material accounts, and ensure Section 71 year-to-date ties to the ledger. Resolve any discrepancies and document the approach.
• Verify performance information. Ensure that every indicator in the APR has a defined source, that data is collected consistently, and that there is a clear audit trail from source system to reported figure. Address any indicators that are poorly defined or unsupported.
• Revisit the asset register. Conduct a physical verification sample and reconcile to the register. Update classifications and useful lives where necessary so that the year-end AFS asset note is accurate and complete.
• Confirm SCM compliance. Review a sample of procurement transactions for compliance with SCM policy and MFMA. Fix any deviations in process or documentation before they become AG findings.

By the end of month 9, you should have high confidence that your financial and performance information is complete, accurate, and supportable. Any remaining high-risk items should have a clear mitigation plan for the final quarter.

Months 10–12: Year-End Procedures and AG Engagement

The final quarter is about execution and cooperation with the AG.

• Stick to your year-end timetable. Adopt a formal closing schedule with dates for trial balance, draft AFS, audit committee review, and council adoption. Missing statutory deadlines (e.g. tabling of AFS) is a compliance finding and damages credibility.
• Complete all reconciliations and supporting schedules. No open items should remain on material accounts. Provide the AG with a well-organised audit file so that fieldwork can proceed efficiently.
• Respond promptly to AG requests. Designate a single point of contact (often the CFO or a dedicated audit liaison) to coordinate with the audit team. Quick, complete responses reduce the risk of the AG inferring that information is missing or that controls are weak.
• Manage the exit meeting. Ensure that management and the audit committee understand every finding and recommendation. Commit to an action plan for the following year so that the same issues do not recur.

A clean audit is the result of 12 months of consistent discipline, not a last-minute push. Municipalities that achieve it typically treat audit readiness as a standing agenda item for management and the audit committee throughout the year.

Top 10 Auditor-General Findings in Municipalities (and How to Prevent Them)

The AG’s consolidated reports and individual municipal reports highlight recurring themes. Addressing these 10 areas will significantly reduce your risk of findings and move you toward a clean audit.

1. Material Misstatements in Financial Statements

Finding: The AFS contain errors or omissions that are material to the financial position or performance (e.g. incorrect revenue or expense classification, wrong asset values, or missing disclosures).

Prevention: Implement strict month-end close and reconciliation procedures. Ensure the chart of accounts is mSCOA-compliant and that all users are trained. Conduct a pre-audit review of the draft AFS before submission. Use a financial system that enforces valid account codes and segments so that misclassifications are caught early.

2. Procurement Irregularities and Irregular Expenditure

Finding: Procurement did not comply with SCM policy or MFMA; contracts were awarded without proper processes; or expenditure was incurred in violation of legislation (irregular expenditure).

Prevention: Document and enforce your SCM policy. Ensure that all deviations are properly motivated, approved, and reported. Maintain a register of all contracts and ensure that requisition, quotation, and award documentation is complete and filed. Train SCM and budget managers on what constitutes irregular expenditure and how to avoid it. Implement segregation of duties so that the same person does not both request and approve procurement.

3. Incomplete or Inaccurate Asset Registers

Finding: The asset register does not reflect all assets; assets are incorrectly classified or valued; or the register is not reconciled to the general ledger or to physical existence.

Prevention: Assign clear ownership of the asset register (often the CFO or a dedicated asset manager). Conduct periodic physical verification and reconcile to the register. Apply GRAP-compliant valuation and useful-life policies and update the register for acquisitions, disposals, and impairments. Integrate asset management with the general ledger so that movements are recorded once and consistently.

4. Revenue and Receivable Misstatements

Finding: Revenue is not recognised in the correct period or in the correct amount; debtors are overstated or understated; or there is insufficient evidence for revenue and bad-debt provisions.

Prevention: Reconcile revenue and debtors to the billing and collection system monthly. Document the basis for bad-debt and impairment provisions and review them regularly. Ensure that revenue recognition policies are aligned with GRAP and that all revenue streams (rates, service charges, grants, etc.) are correctly classified and supported. Use systems that maintain a clear link between billing, cash receipt, and general ledger.

5. Non-Compliance with mSCOA

Finding: The municipality has not fully implemented the Standard Chart of Accounts (mSCOA); accounts or segments are incorrectly used; or data submitted to National Treasury does not conform to mSCOA.

Prevention: Adopt a compliant mSCOA chart of accounts and ensure that all transactions are posted using valid segment combinations (e.g. segment classification for project, fund, function, item). Remove or map any legacy codes. Validate data before submission to Treasury. Train finance and revenue staff on segment rules and run periodic checks for invalid or inconsistent classifications.

6. Late or Incomplete Section 71 and Section 72 Reports

Finding: Section 71 monthly reports were submitted late or contained material errors; Section 72 mid-year reports were not tabled or adopted on time; or reported figures did not reconcile to the general ledger.

Prevention: Treat Section 71 and Section 72 as non-negotiable deadlines. Build your month-end close so that Section 71 can be prepared from the same data as the AFS. Assign a single owner for submission and ensure that the CFO or Municipal Manager reviews before submission. Use a reporting calendar and escalate any risk of late submission early. Software that automates Section 71 and Section 72 from the general ledger reduces both delay and reconciliation errors.

7. Weak Leadership and Oversight

Finding: Management did not respond adequately to prior-year findings; there was no clear accountability for financial and performance reporting; or the tone at the top did not support compliance and control.

Prevention: The Municipal Manager and CFO must visibly own the clean-audit objective. Track every prior-year finding to closure and report progress to the audit committee and council. Implement a formal governance framework with clear delegations and escalation. Hold regular management meetings focused on financial and performance discipline and on audit readiness.

8. Inadequate Financial and Performance Management Controls

Finding: Reconciliations were missing or not reviewed; there was no effective budget monitoring; or performance information was not validated before inclusion in the APR.

Prevention: Document and enforce a minimum set of monthly controls: bank and key balance-sheet reconciliations reviewed by someone other than the preparer; budget vs actual reports reviewed by budget managers and the CFO; and performance data validated by the responsible official before it is reported. Use checklists and sign-offs so that the AG can see that controls operated.

9. Poor Quality or Missing Supporting Documentation

Finding: The AG could not obtain sufficient appropriate evidence for transactions, balances, or disclosures; supporting documents were missing or inconsistent.

Prevention: Maintain a structured audit file. Every material balance and disclosure should be supported by a reconciliation or schedule that is dated, reviewed, and filed. Ensure that approval and authorisation evidence exists for procurement, revenue write-offs, and other sensitive areas. Train staff on what “audit-ready” documentation looks like and conduct periodic self-checks.

10. Governance and Audit Committee Effectiveness

Finding: The audit committee did not provide effective oversight; risk assessments were not updated; or the council did not hold management accountable for financial and performance reporting.

Prevention: Ensure the audit committee has the right skills, independence, and mandate. Provide them with timely, accurate information and with a clear action plan for audit readiness. Table risk registers and progress on findings at committee meetings. Encourage the committee to ask tough questions and to follow up until issues are resolved. Council should adopt the audit committee’s reports and hold the Municipal Manager and CFO accountable for implementing recommendations.

By targeting these 10 areas, you address the majority of what the AG finds in municipalities. Combine this with the 12-month roadmap and you have a practical path to a clean municipal audit.

Role-Based Responsibilities: Who Does What

A clean audit requires clear ownership. The following roles are critical.

The Municipal Manager’s Role

The Municipal Manager is the accounting officer. He or she is ultimately responsible for the AFS, the APR, and compliance with the MFMA. In practice, the Municipal Manager should set the expectation of a clean audit, allocate resources to achieve it, and hold the CFO and line managers accountable. He or she should engage with the audit committee and council on audit readiness and prior-year findings, and ensure that the organisation does not tolerate late reporting, missing documentation, or weak controls. When the AG raises findings, the Municipal Manager must ensure that management responds with a credible action plan and that it is implemented.

The CFO’s Role

The CFO leads the preparation of the AFS, the Section 71 and Section 72 reports, and the financial components of the APR. He or she is responsible for the design and operation of financial controls: month-end close, reconciliations, asset management, revenue and receivables, and compliance with mSCOA and MFMA. The CFO should own the relationship with the AG during the audit, coordinate the audit file, and ensure that all requests are answered accurately and on time. He or she should also drive the 12-month audit readiness plan and report progress to the Municipal Manager and the audit committee. A CFO who treats audit readiness as a continuous process, not a year-end event, is one of the strongest predictors of a clean audit.

The Audit Committee’s Role

The audit committee provides independent oversight. It should review the draft AFS and APR before they are tabled to council, assess the quality of internal controls and the response to prior-year findings, and satisfy itself that management is prepared for the AG’s audit. The committee should meet with the AG without management present when appropriate and should ensure that management’s action plans are implemented. An effective audit committee holds management to a high standard and supports the Municipal Manager and CFO in creating a culture of compliance and control.

Council’s Oversight Role

Council is responsible for adopting the budget, the AFS, and the APR, and for holding the Municipal Manager accountable. Council should receive clear, timely reports on audit readiness and on the AG’s findings when they are available. By taking the audit outcome seriously and demanding improvement when results are poor, council reinforces the message that a clean audit is a priority. Council should also ensure that the audit committee is properly constituted and resourced so that oversight is effective.

When these roles are clearly defined and exercised, the municipality is much better positioned to achieve and sustain a clean audit.

How Technology Enables Clean Audits

Manual processes, spreadsheets, and disconnected systems are a major source of the errors and control weaknesses that lead to AG findings. The right technology does not replace good governance or skilled people, but it can make clean audits more achievable by embedding compliance and control into daily operations.

• Automated mSCOA compliance: A financial system that enforces the mSCOA chart of accounts and valid segment combinations prevents many of the classification errors that cause material misstatements. When every transaction is validated at entry, the general ledger and Section 71 reports are consistent and compliant by design.

• Real-time budget vs actual dashboards: When budget holders and the CFO can see budget vs actual position throughout the year, overspending and misallocations are caught early. Real-time visibility supports the financial management controls the AG assesses and reduces the risk of year-end surprises.

• Complete audit trails: Systems that log who did what, when, and from which source create the evidence the AG needs. Approvals, amendments, and reversals should be traceable. That level of audit trail is difficult to achieve with spreadsheets and paper.

• Automated reporting (Section 71, Section 72, AFS): When Section 71 and Section 72 reports are generated from the same general ledger that feeds the AFS, reconciliation errors and late submission risk fall. Automated reporting also frees finance staff to focus on analysis and control rather than manual re-keying and reconciliation.

• Clean-audit dashboards: Some municipal systems offer a “clean audit” or “audit readiness” view: a single screen that shows the status of reconciliations, open prior-year findings, and key compliance deadlines. This gives the CFO and Municipal Manager a quick picture of readiness and helps prioritise action.

Dolobha is built for South African municipalities with mSCOA, MFMA, and audit readiness in mind. It supports the chart of accounts, segment compliance, Section 71 and Section 72 reporting, and the kind of controls and audit trails that underpin a clean audit. If your municipality is still relying on spreadsheets or legacy systems that struggle with mSCOA and reporting deadlines, evaluating a modern municipal financial management system is a logical next step. Technology alone will not guarantee a clean audit — but without it, the path is steeper.

Resources and Next Steps

• Auditor-General of South Africa: agsa.co.za — Audit reports, methodology, and consolidated local government reports. Use these to understand the AG’s focus and the types of findings reported in your category of municipality.

• National Treasury: mfma.treasury.gov.za — MFMA, regulations, circulars, and reporting frameworks. Essential for MFMA compliance requirements and reporting deadlines.

• Dolobha blog: For step-by-step guidance, use our mSCOA chart of accounts guide, MFMA compliance requirements for 2026, municipal clean audit checklist, and Section 71 monthly report guide. These resources are designed to support municipal managers and CFOs working toward a clean audit.

• Internal action: Start with a baseline assessment. Use the 12-month roadmap in this guide and the clean audit checklist to build your own plan. Assign owners, set deadlines, and put audit readiness on the agenda of every relevant management and audit committee meeting. If you would like to see how Dolobha can support your municipality’s audit readiness, get in touch or visit the Dolobha product page to learn more about mSCOA-compliant municipal financial management.

Only 16% of municipalities achieved a clean audit in 2022-23. The difference between them and the rest is not size or budget — it is discipline, preparation, and the right systems. By understanding what a clean audit means, aligning to the AG’s focus areas, following a 12-month roadmap, preventing the top 10 findings, and clarifying roles and technology, your municipality can join the 16% and build a foundation for sustained clean audits in the years ahead.