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EY missed a chance to spot fraud promptly at collapsed hospital administrator NMC Health because it failed for seven years to access a key financial register, according to a $2.7bn legal claim brought by administrators.

A skeleton argument prepared for a procedural hearing at London’s High Court on Friday said the auditor would have “quickly” identified the alleged fraud that led to NMC’s collapse if it had secured access to the company’s general ledger. Inspecting the general ledger — a record of all a company’s financial transactions — is regarded as a basic yet critical task in an independent audit.

The document also claimed the Big Four firm placed the NMC audit under “close monitoring status” as early as 2015 and escalated it to a separate internal “worry list” by 2018. Despite these alleged concerns, EY gave unqualified audit opinions over NMC’s accounts from its listing in 2012 until its final set of figures signed in 2019.

EY’s UK business has denied that it was negligent in its audits of NMC. When asked about the points raised in the administrator’s skeleton argument on Friday, EY said: “We will continue to defend the claim vigorously.”

NMC, an Abu Dhabi-based hospital operator, fell into administration in April 2020 after discovering that more than $4bn of debt was hidden from its balance sheet in one of the biggest alleged frauds at a London-listed company. Administrators Alvarez & Marsal have been tasked with securing funds to repay NMC’s creditors. They are seeking up to $2.7bn in damages.

The argument marks the first time anyone has claimed EY failed for such a long period to carry out such a standard part of the audit process at NMC.

The skeleton argument referred to evidence from the administrator’s audit expert witness, Jimmy Daboo, a former KPMG partner.

The document said: “It appears that EY failed, for seven years, to obtain access to the general ledger of NMC.”

It added: “Had EY done so, [it] would have quickly led to the identification of fraudulent activity because the fraudulent transactions at issue in this case were recorded in the general ledger.”

EY also allegedly failed to control the process of confirming bank account and lending balances and instead allowed NMC employees to intervene in communications with the banks, according to the court documents.

As a result, EY did not identify billions of dollars’ worth of debts recorded in NMC’s general ledger but not disclosed in NMC’s published financial statements, the administrators claimed.

The High Court allegations come on top of several earlier claims about the shortcomings of EY’s audits of NMC. The administrator previously claimed that the Big Four firm failed to verify NMC’s bank and debt balances — claims similar to those against EY over its audits of collapsed German payments company Wirecard.

Meanwhile, the administrators also claimed that EY had a “practice of escalating serious concerns about the audits” to Hywel Ball, the firm’s then head of audit and current managing partner. They did not make any allegations of wrongdoing against Ball.

Ball, who is preparing to retire from the firm, was alerted in 2018 that NMC was on EY’s audit quality support team’s “worry list”, according to the documents. Ball was on the firm’s “close monitoring board” in 2015 when the NMC audit was elevated to “close monitoring status”, the documents also claimed.

A person familiar with EY’s procedures said it was standard practice for an audit with a higher risk profile to be flagged to the firm’s head of audit, to ensure that teams had sufficient support.

Following a report by short seller Muddy Waters in late 2019 questioning the company’s finances, Ball was “directly involved” in EY’s response to the NMC situation, the administrators claimed.

A trial is set to take place between April and October next year. However, EY is seeking an adjournment until 2026.

The audit firm is under a separate investigation by the UK accounting regulator over its work at NMC.

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One of England’s most senior judges is leaving his role as president of the UK’s influential Competition Appeal Tribunal, two months after he was reprimanded for sending an ‘inappropriate’ letter to a junior member of staff.

Sir Marcus Smith is stepping down as president of the CAT, the venue for class action lawsuits against some of the world’s largest companies including Apple, Google and Mastercard, at the end of his three-year term, which is not being renewed.

His predecessor, Sir Peter Roth, who held the position for about eight years, is to reassume the position on a temporary basis while a permanent replacement is found. Roth’s predecessor, Sir Gerald Barling, was in the role for about six years.

Smith’s departure comes after the Judicial Conduct Investigations Office (Jico), which deals with complaints against judges, said in August that he had been reprimanded for serious misconduct after his communications with a staff member left her feeling “distressed” and “angry”.

An investigation found that he passed her a handwritten letter “expressing his love for her and that he wanted to take things further”, and also that he had “abused his position”.

The reprimand, issued by the Lady Chief Justice, Baroness Carr, and approved by Shabana Mahmood, the Lord Chancellor and justice secretary, was the most serious sanction short of removal from office, the Jico said.

In his response to the complaint, Smith acknowledged that the letter was “plainly inappropriate” and had caused significant emotional distress, according to the Jico.

He had “been ignoring warning signs about his workload and health” and said the letter was a “poorly framed attempt to reach out for support and to discuss his problem”, the office said at the time. He gave an assurance that there would be no repeat of such behaviour.

Smith, who remains a High Court judge, declined through the Judicial Office to comment on his departure from the CAT.

In a brief statement this week, the CAT said the president’s term of office would end on November 4. A spokesperson confirmed that it could be renewed, with the appointment handled by the Judicial Appointments Commission.

The CAT, established in 2003, has since become one of the UK’s most important venues for disputes. They include a wave of class action claims filed on behalf of consumers who complain companies have abused dominant positions.

When your splendid article “Making scents of Myanmar” (HTSI, September 28) was published last Saturday I was coincidentally fundraising for the flooded area of Myanmar where people have lost their homes and crops. So it was good to read that Kathleen Baird-Murray, alongside her commercial activities making a memorable Burmese perfume, is supporting socially beneficial charities in such a poor country.

My money is going to an unimpeachable team helping to relieve the emergency in the flood-stricken areas.

Hopefully your article will stimulate more readers to donate to the poor people of Myanmar.

Mala Tu
Calne, Wiltshire, UK

Regarding Edwin Heathcote’s Weekend Essay on Stevenage and England’s postwar policy of building new towns (“My kind of towns”, Life & Arts, September 28), I grew up in Hitchin, around seven or so miles from Stevenage, and in 1999 was sent to the local state Catholic school in Stevenage, John Henry Newman.

During my secondary school years there, Stevenage was derided as (and was it true?) the teen pregnancy capital of Europe and the “armpit” of the UK. Its sometimes brutalist 1960s architecture and former estuary-inflected cockney inhabitants lent itself handily to this downbeat view. As a teenager from a different, better-off, town (now yet another homogenous grey-door faux-country desirable commuterville) I was encouraged to believe in this and, crucially, to avoid picking up the accent. Sadly, I was not clever enough then to dissent from this view, despite attending school with many from families who had benefited greatly from the idea and reality of Stevenage.

Now, looking back, I see Stevenage new town for what it was — a great deal of quality housing for people in need of homes, and probably the most extraordinary pedestrian and cycling infrastructure in the UK. We should all be so lucky.

Felicity Hawksley
York, North Yorkshire, UK

As someone who has been interested in fashion since the 1970s, and aware of the sadly dull level of fashion journalism, I was enormously cheered by Kati Chitrakorn’s crystal-clear, expertly opinionated and informative piece on Paris fashion (Life & Arts, October 5). I almost felt as though I had been there with her. I also loved her wry comment about her realistic seating position “at the far back, while clients attending with unique, limited-edition Hermès bag styles enjoyed a clearer view of the show, thanks to their raked seating — let’s not kid ourselves, we know who the priority is here”! Chapeau!

Peter Tear
Saint-Omer, Pas-de-Calais, France