Nkonki’s woes worsened on Tuesday after affiliated audit companies said they had terminated their relationships with the troubled firm and were planning to ditch it.

The affiliates, which are independent legal entities within the Nkonki network, say they hope the auditor-general will act rationally in handling their relationships with the office.

“I hope that sanity will prevail, that we don’t effectively hamstring an entire network for the actions of one office in that network,” the network’s spokesman, Willem Oberholzer, said. Public sector work remained a “substantial” portion of their income, he said.

Nkonki, the largest firm in the network — effectively its Sunninghill office — announced on Monday it had applied for voluntary liquidation after the auditor-general’s decision to terminate its contracts with the company ruined plans by executives to buy out the managing partner and majority shareholder, Mitesh Patel. This could bring to an end a 25-year-old company founded in January 1993 by Sindi Zilwa (née Nkonki) and her brother, Mzi Nkonki.

Nkonki is also one of a handful of black-owned audit firms in the country accredited to audit JSE-listed companies.

Nkonki’s network companies, which comprise independent audit firms in Alberton, Bloemfontein, Port Elizabeth, Cape Town, KwaDukuza, Durban, North West and Pretoria, had agreed to terminate the network agreement and affiliation with Nkonki.

The decision was based on the “unconscionable action” of Patel, said Oberholzer.

These companies, which were separate legal entities, would rebrand under a commonly held entity.

“Pockets within Nkonki Sunninghill” had reached out to the network, with a view to joining the new entity, Oberholzer said. “We are open to discussions with them.”

The auditor-general’s decision was based on reports by investigative journalism unit amaBhungane, which revealed that Gupta lieutenant Salim Essa had funded Patel’s R107m management buyout of Nkonki from its founders in 2016.

Nkonki’s lawyer, Nicqui Galaktiou, said the company was given no opportunity to make written representations to the auditor-general. Oberholzer said the auditor-general’s decision was made before any official findings against Nkonki.

Following the amaBhungane report, Patel resigned and Thuto Masasa was appointed acting CEO. Nkonki hired an independent law firm to conduct a forensic investigation into the allegations against Patel.

Before the forensic investigation could be conducted and the sale of Patel’s shares concluded, auditor-general Kimi Makwetu terminated his office’s relationship with Nkonki. “The value of the shares plummeted dramatically and there was no possibility of the company continuing to be viable with an ongoing revenue stream, given the loss of approximately 80% of its contracts,” Masasa told Business Day.

Makwetu said his decision was based on media reports relating to Nkonki’s shareholder transactions and the reputational risk this posed to his office.

Yet his office was not as hasty in terminating its contracts with KPMG, following the firm’s own admission that it had performed substandard work for Gupta-family companies and the South African Revenue Service. This led to eight partners resigning.

That decision — initially put on hold pending the outcome of investigations — was made only following reports relating to the external audit of distressed mutual bank VBS and the behaviour of two KPMG partners in that regard.

Oberholzer said clients had dictated that network firms terminate relationships with Nkonki. They “were willing to stay with us, but not willing to have Nkonki on the letterhead”, he said. The network agreement had afforded these firms the opportunity to benefit from the Nkonki brand and reputation, said Masasa.

In return, these firms paid a minimal management fee to Nkonki, totalling about R60,000 a month, she said.

The auditor-general’s actions could leave the 180 people at Nkonki’s Sunninghill office without work.

The other offices, which employed 267 people, would “try and absorb and incorporate [Nkonki] staff as much as possible”, Oberholzer said. Meanwhile, the Independent Regulatory Board for Auditors, which has issued an investigation letter to Patel, said that it had no jurisdiction over the auditor-general or its procurement decisions.

“In response to the matter, we have scheduled a meeting with [Nkonki’s] interim management team to be fully briefed on its plans,” said the board’s CEO, Bernard Agulhas.

The auditor-general responded to Business Day on Wednesday morning to say that it would not be making any further comments on the Nkonki issue, other than what it had already said in its April 17 statement.