Municipalities are showing a "poor" ability to accurately plan and spend their budgets, a report on the state of local government in South Africa revealed on Wednesday.

It showed that 35 municipalities had overspent their total adjusted budgets to the amount of R2.6-billion while 182 municipalities underspent by R19.1-billion.

"A very significant risk going forward is that municipalities' spending plans outstrip realistically collective revenues," said the report, which was released at a local government indaba in Boksburg.

The indaba tailed a four-hour meeting between President Jacob Zuma and most of the country's 283 mayors and municipal managers, provincial premiers and 15 Cabinet ministers in Khayelitsha, Cape Town on Tuesday.

The national report was an initiative by Sicelo Shiceka, Minister of Co-operative Governance and Traditional Affairs.

The assessments were designed to ascertain the root causes of the current state of distress in many of the country's 283 municipalities in order to inform a national turn-around strategy for local government.

The report found that 64 of the country's 283 municipalities were in financial distress.

In 2007/8, 152 (54.4 percent) municipalities received qualified, disclaimer or adverse opinions.

Of this, 67 municipalities had "fruitless and wasteful expenditure" which led to qualifications.

"The Auditor-General's report has identified a lack of controls, mismanagement and lack of governance principle as the key reasons for the state of despair in municipalities," it said.

At the end of June 2008, there were at least 85 municipalities with debtor levels higher than 50 percent of their own revenue, according to National Treasury reports.

In addition, 43 municipalities reported negative opening cash positions for the third quarter ending 31 March 2009.

"This is a strong indicator that these municipalities are at serious financial risk, especially if there is an ongoing deteriorating trend," the report said.

In June 2009, National Treasury reported that 56 local municipalities and eight districts were on their financial distress list.

The provinces with the highest number of distressed municipalities were the Eastern Cape and the Free State with 11 municipalities on the list, and the Northern Cape with 10,

The report also found that due to political tensions coupled with political instability, many municipalities compromised investment opportunities with the private sector.

"The assessment process has revealed that the financial environment in municipalities is a highly problematic area.

"Many municipalities... with a weak revenue base simply cannot leverage the funds they need for even moderate municipal functionality."

The department said it launched an "Operation Clean Audit 2014" campaign to address audit queries and improve service delivery.