The number of clean audits remained at 5% the past three years, he said on Tuesday in Pretoria.
Releasing the 2011/12 consolidated report on local government audit outcomes, Makwetu said the lack of improvement was cause for concern.
"That stagnation has come with some improvements in a number of municipalities, where even though the clean audits have remained the same, new ones have come into that space and some have gone backwards."
The number of municipalities with unqualified audit outcomes – with no findings (clean) – in the 2011/12 report, was a low 17 out of 278.
The total number of clean audits in the 2010/11 reports was also 17.
"From the mapping we have set out [in the 2011/12 consolidated audit report], which points to the different of audit opinions, you will find that there is a glaring absence of green. Green represents the clean audits in the report," Makwetu said.
"You will also find there is quite a number of reds and purples. Largely, that is the picture we are having across the country, which reflects a number of reversals, some improvements and generally a stagnant picture."
The auditor general completed the audits of 317 (94%) of the 338 entities which submitted financial statements by August 31 last year.
Local government consisted of eight metropolitan municipalities, 44 district municipalities, and 60 municipal entities.
The Democratic Alliance said the poor performance of municipalities was a result of cadre deployment.
Spokesperson John Steenhuisen said there was a clear lack of leadership, accountability, and commitment as a result of this.
"I will write to the chairperson of the portfolio committee on co-operative governance and traditional affairs to request that the auditor general's report be tabled before the (parliamentary) committee for scrutiny," said Steenhuisen.
"I will also table a motion for debate in Parliament that the house, as soon as possible, consider the disastrous impact that cadre deployment has had on service delivery, specifically on the poor."
The South African Local Government Association (Salga) said the previous auditor general report had identified risks in local government and human resource management, areas which continued to plague municipalities in the latest 2011/12 audit outcomes report.
"Despite the fact that the clean audit concept is not known anywhere else in the world, it continues being a pursued outcome for South African municipalities.
However, the reputational damage and perceptions generated by the clean audit concept cannot be measured," Salga said in a statement.
The South African Institute of Chartered Accountants expressed concern over the slow progress made by municipalities to achieve clean audits.
The lack of human resources capacity in municipalities showed the need to speed up skills development and improve capacity, said the institute's public sector project director Mohammed Lorgat. – Sapa