According to a legal claim by the hospital operator's administrators, the auditor did not properly carry out basic checks and failed to flag a multi-billion dollar fraud.
NMC was placed into administration in April 2020 after it was discovered that more than $4 billion of debt was hidden from the public.
According to a copy of the legal claim seen by the Financial Times, NMC's post-tax profits were overstated by $317 million between 2012 and 2018. NMC, the largest private hospital group, reached a market valuation of $10.9 billion.
According to the lawsuit, NMC's accounts had been fraudulently misstated, that its client did not keep adequate accounting records, and that it had inadequate controls to prevent or detect fraud.
It should have been clear to EY that there were material uncertainties that cast significant doubt on NMC Group's ability to continue as a going concern.
The claim was filed in London's High Court, which is where a number of high-profile lawsuits against EY have been filed.
The UK business of EY said it would defend the legal action.
The firm is being investigated by the UK accounting regulator. The NMC founder filed an $8 billion claim in New York last year against the auditor, banks and the hospital group's former chief executive.
There is an allegation that the Big Four auditor failed to verify NMC's bank and debt balances. The Big Four auditor failed to request account information from a Singapore bank where the company claimed it had up to $1 billion in cash.
According to the lawsuit, EY failed to obtain cash or debt balances from several of NMC's banks. Auditors allowed NMC to contact banks directly to get confirmation of its debt balances, and some of these confirmations had been doctored.
NMC's management had dishonestly caused the hospital operator to incur large hidden debts and enter into guarantees over both hidden and reported revenues, according to the administrators.
The NMC group had entered into a large number of unreported and improper transactions with related parties for the purpose of enriching senior management.
According to the claim, the risk that NMC management would draw no clear distinction between the interests of the founder and the two other large shareholders is one of the factors that should have been identified by EY.
The administrators of the Middle East operations of the audit firm claimed that there were deficiencies in the IT systems. The fact these were developed in-house gave management an opportunity to manipulate records or beselective about which records were accessible during the audits, they alleged.
The UK arm of the firm should be held responsible for the failures in the Middle East because it signed off on the accounts and should have been involved to lead and control the audit.
The claim seeks damages to cover the guarantees given by NMC on undisclosed borrowing, dividends paid since 2012 in reliance on the accounts, bonuses paid to NMC's senior managers, and an undisclosed sum for the value of the guarantees.
The amount claimed is four times more than the most recent annual profits of the company. Most lawsuits against auditors end in a fraction of the amount claimed.
NMC's operations in the U.S. came out of a separate administration process this year.
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