EY has been accused of misleading a watchdog about an audit of NMC Health

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EY has been accused of misleading the UK’s accounting watchdog over its audit of NMC Health, as a £2bn trial into alleged negligence by the Big Four firm reaches its final stages.

The FTSE 100 hospital operator collapsed in 2020 after revelations of billions of dollars in hidden debt. In the case that began in May, NMC directors from Alvarez & Marsal have accused EY of negligence, alleging its auditors missed a series of “red flags”, and are seeking damages of around £2bn on behalf of NMC’s creditors who lost money.

Financial Reporting Council The investigation is still being conducted In EY’s work for the hospital group, but did not investigate the year NMC officials claim was misled.

NMC officials said in the High Court on Monday that EY partners led the regulator to believe that its auditors had access to key documents – a complete list of risky transactions in NMC’s accounting system – when they could only view them on a device controlled by NMC employees.

A partner who led EY’s audit work at NMC for three years admitted during the trial that what EY told the FRC was “untrue and misleading”, lawyers for the directors told the court. Officials accepted that EY’s actions that misled the regulator may have been unintentional.

Viewing the complete list of financial transactions is an important part of the audit process. NMC staff gave EY auditors various excuses for their inability to provide the complete download of the journal entries, according to the officials.

However, a 2018 email from a senior EY auditor revealed that he “wasn’t sure[whether]to believe the so-called technical barriers,” mentioned in officials’ closing reports. According to the closing submissions, this lead auditor also told the court that EY staff had described NMC internally as “the UK’s number one red flag audit firm”.

The scandal sparked a series of legal claims and regulatory investigations that extended to London, New York and Abu Dhabi.

EY’s failure to view all transactions or secure access to NMC’s general ledger – a record of all its financial transactions – was a key part of the officials’ claim against the Big Four. They also allege that EY did not properly control communications with NMC’s banks, allowing company executives to manipulate a “substantial proportion” of financial data.

EY, which was paid £14m for NMC audits, has denied any negligence in its work in signing off on NMC’s accounts and is due to give its closing arguments in the case this week.

The accounting firm argued during the trial that auditors should not be held financially liable for the “hidden” fraud involving 80 NMC employees, who EY said circumvented the audit process and led to the company’s collapse — or if officials failed to examine other “obvious” methods such as going after NMC employees.