Accounting watchdog launches investigation into Ernst & Young over its audit of scandal-hit NMC Health
The accounting watchdog has launched an investigation into Ernst & Young (EY) over its audit of scandal-hit NMC Health.
The former FTSE 100 hospitals provider crashed into administration after a series of extraordinary revelations, including that it was harbouring billions of pounds in secret debt.
EY, NMC’s auditor since 2012, had repeatedly given the company’s books a clean bill of health. Yesterday the Financial Reporting Council (FRC) revealed it was investigating the 2018 audit.
Probe: EY, NMC’s auditor since 2012, had repeatedly given the company’s books a clean bill of health
The Financial Conduct Authority (FCA), the City watchdog, is already carrying out a separate probe.
The High Court judge who forcibly placed NMC into administration warned ‘something had gone very wrong with the management and oversight’ of the company.
The crisis at NMC erupted after a research paper published by short seller Muddy Waters raised ‘serious doubts’ about the Dubai-based firm’s accounting practices and claimed they bore ‘hallmarks of significant fraud’.
At the time, Muddy Waters claimed EY’s relationship with NMC ‘raises flags’ and likened the firm’s board to a ‘retirement plan for former EY partners’.
Independent directors Jonathan Bomford and Abdulrahman Basaddiq had formerly worked for the auditor.
It later emerged that NMC founder BR Shetty, the Indian billionaire whose empire also includes Travelex, had not properly disclosed his shareholdings in the company and that more than £3 billion in debts had been concealed from the board and shareholders.
The disclosures sent NMC’s shares into freefall and prompted the resignation of chairman Mark Tompkins and sacking of chief executive Prasanth Manghat.
Trading of the company’s stock was later suspended in March, with creditors taking legal action to force it to appoint administrators a month later.
Shetty has since claimed that unnamed bosses at NMC and other businesses he is involved in had forged his signature to create loans, personal guarantees, cheques and bank transfers in his name.
The FRC’s investigation of EY will focus on the audit work of the big four accountant for NMC in 2018.
EY is already under significant scrutiny from the watchdog, with the company also under investigation over its auditing of collapsed travel giant Thomas Cook.
An EY spokesman said: ‘We can confirm that EY has been notified of the FRC’s intention to conduct an investigation into the audit of NMC Health for the year ended December 31. We will be fully co-operating with the FRC during their inquiries.
‘It would be inappropriate to comment further at this time.’