These findings were disclosed during a trial where the collapsed hospital operator’s administrators are suing the Big Four firm for approximately £2 billion in negligence on behalf of creditors.

Administrators from Alvarez & Marsal allege EY auditors missed numerous “red flags” before the FTSE 100 group failed in 2020 following the discovery of billions of dollars in undisclosed debts. The scandal has triggered extensive legal claims and regulatory investigations across London, New York, and Abu Dhabi, Financial Times reports.

EY denies any negligence in signing off NMC’s accounts. The firm argued in written submissions that it was a “principal target” of a “pervasive” fraud, which it had neither the duty nor the ability to uncover. EY is scheduled to commence its defence on Wednesday, with the trial anticipated to continue until October.

The administrators claim EY neglected to check NMC’s general ledger, a critical financial register, which they argue would have exposed the alleged fraud. They also contend that EY failed to properly control communication with NMC’s banks, permitting “a large proportion” of financial statements to be manipulated by NMC executives before EY relied on them.

In support of their negligence claim, lawyers for the administrators cited the FRC’s provisional 563-page report. This report found that EY had “failed to perform adequate audit procedures, to bring objectivity to bear, and to exercise professional scepticism”. The FRC reportedly also found that EY did not adequately question why NMC denied access to the general ledger and ignored a “very significant inconsistency” between NMC’s reported debts and a creditor’s statement, which should have “prompted major investigation.”

Furthermore, the FRC’s report allegedly raised concerns about EY’s independence due to two EY Middle East employees remaining on the audit beyond standard time restrictions. It was also claimed that one EY partner in the UK “bowed to the pressure being exerted by [NMC’s] clear threats to terminate the… engagement… and failed to exercise objectivity from this point”.

The FRC initiated its investigation into EY’s work at Abu Dhabi-based NMC in April 2020. Its initial report was issued privately to EY, which has stated it “comprehensively challenged” the findings. The report will only be publicised after the FRC considers EY’s rebuttals, a process which could lead to a settlement, potentially including a fine for the audit firm. EY received £14 million for its audits of NMC from its flotation in 2012 until its collapse.