The Big Four firm is being sued in the High Court by Alvarez & Marsal, the administrators of NMC Health, a Middle East based hospital group listed on the FTSE 250, which went bust owing millions of pounds in debt amid accusations of fraud and accounting misconduct.

NMC allege that EY had failed to identify that its client NMC’s accounts were fraudulently misstated and that the company did not keep proper accounting records.

While the day to day audit work was conducted by EY Middle East, the lead audit engagement partners were appointed out of EY UK with full oversight. However, EY Middle East refused to give evidence at the High Court, despite being a member of the EY network.

The court heard that by 2018, EY UK had flagged NMC as its ‘number 1 red label audit’, highlighting concerns about the client’s failure to provide access to a complete list of journals. EY Middle East handled the day to day audit from 2012 to 2018.

During the trial, Cameron Cartmell, EY’s audit engagement partner for the 2012-2015 audits, was shown some of EY Middle East’s work, and gave evidence that he ‘would have been shocked, to be honest, if [he] had seen some of the stuff which [was] highlighted to [him]’.    

The NMC barristers told the court that the journals were ‘particularly vulnerable to management override’ due to ‘manual interventions’, and questioned Cartmell on why he did not escalate the issue to the audit committee.

‘My understanding at the time was that it did not rise to the level that it needed to be reported separately,’ Cartmell said.

EY’s witnesses, including its audit expert Stephen Mount, admitted that the occasions on which EYME asked NMC to select its own journal voucher samples for testing was ‘shocking and unacceptable audit practice’ and ‘completely inappropriate’.

There were also concerns about an audit quality inspection report conducted by the Financial Reporting Council (FRC) on the 2013 audit. The NMC team argued that FRC was not given access to the audit workpapers showing what journal testing had been carried out; and ‘on the mistaken basis that sequential lists of accounting entries had been provided to the auditors’.

As a result, the NMC 2013 audit quality inspection review (AQI) resulted in a ‘2A’ rating, which means ‘limited improvements required’, rather than a potentially very serious ‘3’ rating which means the audit ‘requires significant improvements’ and is the worst score available from the FRC. Email correspondence from EY even indicated that the firm partners were worried about a possible ‘3’ rating.

In the course of the AQI review, FRC audit inspectors found that EY had failed to provide sufficient evidence of the direction and review by the group audit team of certain aspects of the group audit. In addition, ‘there was insufficient detail of the work performed on the consolidation and the group financial statements disclosures, and most of the underlying workpapers for the audit of the consolidation were not included in the group audit file’.

The court heard that Carmell had sent an email to EY partner, Robert Overend, writing that he was  ‘very concerned over the content and implications of the comments raised’ by the FRC, adding that some of the comments ‘sound fairly devastating in respect of the quality work’.

When the 2A grade was issued, Cartmell sent another email to Overend, stating: ‘Great News on NMC AQRT review we have ended up with a 2A - pretty good given pre close meeting they [sic] was talk of a 3!’.

Under cross-examination, expert witness Mount said that he could no longer sustain his earlier assumption that the FRC was ‘aware of the facts’.

There were also questions about NMC Management’s excuses for being unable to provide a full download of journal entries from FAS (which would have enabled EY to confirm they were testing a complete population of journals). The High Court was told that , Victor Veger, EY’s audit engagement partner for the 2016-2018 audits, sent an email on the journals issue in June 2018, in which he wrote: ‘I am not sure I believe their so-called technical barriers.’

EY’s Middle East auditors failed to test a complete population of journals over the course of the audits. The issue was raised again with the lead audit partner in the UK in 2018, when another senior auditor joined the team, who had even worked as an FRC audit inspector, and warned that the ‘approach taken in prior year does not really address… completeness of the [journal] population’.

But no action was taken, and the situation appeared to be treated as normal in terms of the NMC audit with a senior manager at EY writing to Verger in an email: ‘Nothing [Ms K] raises is new to us – we are all aware of that and have been for many years.’

EY has always strenuously denied any negligence over the NMC Health audit, arguing that it had ‘properly carried out its duty as group auditor’, and gave detailed instructions to overseas auditors, primarily EY Middle East. 

In a statement when the trial opened, EY said: ‘This was a complex, pervasive and collusive fraud, and responsibility for it lies with its perpretrators, including NMC’s owners, directors and the treasury and finance team. This case is without merit.’

EY’s legal team is currently presenting closing arguments and is represented by a team of four barristers appointed by RPC.

Aidan O’Rourke, a partner at Quinn Emanuel Urquhart & Sullivan acting for NMC, said: ‘NMC is one of the largest corporate collapses in UK history. At its peak, NMC had a market capitalisation of more than £8.6bn. It now has unpaid debts exceeding £3.4bn, and all its shareholders, approximately 40% of whom were independent investors who purchased their shares on the London Stock Exchange, have been wiped out. 

‘EY audited the NMC Group for all of its time on the LSE and issued an unqualified audit opinion every year. However, each year NMC’s financial statements were materially incorrect. Over the company’s eight years on the LSE, profits were inflated by more than £1.1bn and more than £3.7bn of debts were not disclosed to the market. 

‘The Joint Administrators are confident in their case that EY failed to discharge its duties as NMC’s auditor, and that those failures by EY caused significant loss.’

A final ruling is expected early in the new year.

Related articles

Two sets of books in £2bn NMC audit negligence claim | 15 Oct 2025

NMC finds ‘suspected fraudulent behaviour’ | 16 Mar 2020

FRC to investigate EY’s auditing of NMC | 4 May 2020

EY faces £2bn legal claim over NMC Health audit work | 4 May 2022