"Lose money for the firm and I will be understanding, lose a shred of reputation for the firm and I will be ruthless," said the world’s most successful investor Warren Buffett in a 1991 congressional hearing into the rigging of US Treasuries at Salomon Brothers.
It was with that ruthlessness last week that the Auditor General Kimi Makwetu, after describing South Africa’s accounting profession as being “in the gutter”, signed the death warrant of the 180-person Sunninghill office of the small, 25-year-old black controlled audit firm Nkonki.
Makwetu summarily fired both Nkonki and KPMG from its list of some 40 suppliers of audit services to the public sector amid further damning allegations of unprofessional, unethical and possibly criminal activity linked to senior individuals at the firms. Together the two firms’ contracts were worth about R90m of an estimated R450m in annual billings by private sector audit companies to the public sector. KPMG will weather the losses for as long as it can keep big clients on board, the remaining Nkonki businesses will find it hard to survive.
For Nkonki, already reeling from a blaze of negative publicity linked to the acquisition last year of a controlling stake in the firm by Gupta-linked Mitesh Patel, it was going to be hard to survive. While Nkonki has private sector clients, most of its work comes from the public sector.
It has another eight branches and in an announcement on the Sunninghill office, the firm did not disclose the fate of the remaining units.
“The termination of these contracts arose as a direct result of negative media publications against the majority shareholder‚ Mr Mitesh Patel‚ concerning the purchase of his shareholding in Nkonki Inc. (Sunninghill),” the company said in a statement. “In order to avoid any further reputational damage‚ Mr Patel immediately resigned as the CEO of Nkonki and Ms Thuto Masasa was appointed as the Acting CEO.” It was too little, too late.
Patel had resigned in early April following an amaBhungane expose in which it revealed Gupta connections to the Nkonki Sunninghill takeover. It reported that the controversial businessman Salim Essa had funded part of the transaction. That association coupled with new revelations against KPMG - which saw the resignation of two of its senior financial sector audit partners over alleged conflicts of interest linked to work they had done for VBS Mutual Bank - saw the Auditor General act decisively as a warning to the industry to get its house in order.
Nkonki maintains there was a desperate attempt by other executives in the business to buy out Patel, but cancellation of the public-sector contracts came too quickly for a suitable deal to be structured.
“Nkonki did not have sufficient opportunity to address the concerns arising from the recent negative media exposure pertaining to the company and the serious and damaging allegations in respect of Mr Patel’s shareholding in Nkonki,” the firm’s statement read.
The winding up of the Sunninghill office will take several months and the firm says it will endeavour to complete outstanding work. Typically, however, senior staff are the first to be approached by rivals seeking new clients and this may be harder to achieve that the company statement suggests.