Audit firm feels the pinch after losing contracts
AUDIT firm Nkonki’s largest office has applied for voluntary liquidation, after the auditor-general’s decision to terminate its contracts with the company scuppered plans by executives to buy out disgraced majority shareholder Mitesh Patel.
Nkonki Sunninghill, which employs 180 people, was left with no other option but to voluntarily wind up the company, the firm said in a statement on Monday issued via its lawyers, Nicqui Galaktiou Inc.
The Sunninghill office accounts for nearly half of Nkonki’s nationwide staff complement. It remains to be seen what the effect of that office’s winding up will have on the firm’s other eight branches.
Nkonki said the winding-up process could take “several months” and it intended, where possible, to complete outstanding work and ensure clients were not compromised. The liquidation will be viewed as a major blow for transformation in the audit profession. Nkonki is one of a handful of sizeable black-owned audit firms in SA.
Patel resigned this month following reports by investigative journalism unit amaBhungane, which revealed that Gupta lieutenant Salim Essa had funded his R107-million management buyout of the black-owned audit firm.
Auditor-General Kimi Makwetu’s announcement that his office would terminate audit contracts with Nkonki and KPMG, which is implicated in VBS Mutual Bank’s collapse, followed soon after.
Both firms conducted public sector audits on behalf of the auditorgeneral. Media reports on “matters arising from the shareholder transactions involving [Nkonki] were of grave concern and pose significant risk [to] the reputation of my office”, Makwetu said.
While Nkonki serviced “substantial private clients”, the majority of its contracts were with the public sector, the firm said. “The sale of [Patel’s] shares could not be finalised as a result of the cancellation of Nkonki’s public sector contracts.”
Patel’s 2016-17 Gupta-funded purchase of roughly 82% of Nkonki from founders Sindi Zilwa and her brother, Mzi Nkonki, is one of the latest scandals to rock the increasingly discredited audit profession. Nkonki has become the freshest casualty of the Guptas’ statecapture project, joining the ranks of KPMG and McKinsey.
According to amaBhungane, the intention was for Patel to hold 65% of the shares he bought as a front for his funders – ultimately Essa. After the transaction, Nkonki landed new work “potentially worth hundreds of millions at Eskom, then under the sway of the Guptas”.
Patel denied this when confronted by amaBhungane but resigned on April 9. In a letter to staff, Patel said his resignation was “amicable” and was reached in consultation with the firm’s executive committee.
Thuto Masasa was appointed acting CEO and Nkonki hired a law firm to conduct a forensic investigation into the firm.
“It was impossible for Nkonki to have conducted and obtained the outcome of a thorough forensic investigation into the serious allegations posed in the media prior to the [auditor-general] terminating its mandate with the company,” Nkonki said.
Neither did the firm have the opportunity to address the “serious and damaging allegations in respect of Mr Patel’s shareholding in Nkonki”, it said.