Nearly 40% of South Africa's tap water, worth about R7bn, is lost annually through leaks or theft, according to the report.
Poor management, and sloppy record keeping are other factors for water loss, according to a report in The Witness.
The report indicates that Johannesburg was second worst on the list with 38,2%, followed by Durban 37,5%, then Tshwane (Pretoria) 26,5% and Cape Town 25%.
Project leader, Ronnie Mckenzie said unfortunately several municipalities were operating in crisis mode and had no energy to deal with requests for information.
"Another important aspect of non-revenue water reduction is effective billing and metering," he said.
"We cannot rely on such a commission because we don't know what criteria they used to arrive at such a conclusion," Msunduzi Municipal spokesperson Brian Zuma said.
He said the Auditor-General's report, which audits the municipality, shows that they were improving when it comes to saving water.
Zuma said according to the A-G report, statistics indicate that they had improved from the 2010/11 to the 2011/12 financial year.
He said they had improved physical water leakage from 35% to 30% of the total volume of water purchased from Umgeni Water.
"Our non-revenue-water programme was beginning to yield results," he said.
Zuma said a number of interventions had been made and these had resulted in a financial saving to the municipality of approximately R9?580 per day, or almost R3.5m per year.
He said the municipality will be rolling out a programme of intelligent pressure management systems that will "learn" the operating characteristics of the water distribution network and optimise water supply.
"Essentially the intelligent system will supply sufficient pressure to maintain a sufficient level of service to customers while at the same time reducing water losses."
He said this system was cutting edge internationally and had already been tested in the city with extremely positive results.