BIG FOUR audit firm EY may face more than £1 billion lawsuit from the administrators to former FTSE 100 healthcare group NMC Health over audit work.

Administrator Alvarez & Marsal has said that it had hired law firm Quinn Emanuel to make a claim against EY and issued a preliminary notice to the audit firm.

EY has overseen NMC’s accounts since the healthcare company floated in London in 2012, and earned about £14 million in audit fees over seven years.

“We can confirm that EY has received a preliminary notice to a letter of claim from the administrators to NMC Health. It would be inappropriate to comment further,” EY said.

NMC Health collapsed this year after discovering that more than $4bn was apparently hidden from its balance sheet in a large-scale fraud.

Interestingly, NMC’s board included former EY partners.

According to a report in Financial Times, the administrator is investigating the ‘size and scale of the fraud’ and assess potential claims and recoveries.

The Financial Reporting Council has already opened an investigation into EY’s audit of NMC’s 2018 financial statements.

NMC has been one of the biggest accounting scandals in the City of London in recent years. It was a respected member of the FTSE 100 until the end of last year, when short seller Muddy Waters began questioning its accounts and management.

The hedge fund also raised concerns over the relationship between EY and NMC. It also alleged there was a “lack of rigour” in its audits.

Although NMC initially denied the allegations, the company was quickly forced to conduct its own investigation that found billions in debt that had not been disclosed to the market.

According to the report, Alvarez & Marsal has so far earned more than £10m in fees overseeing the administration.

The lawsuit is the latest blow for EY, which is facing large legal claims and regulatory scrutiny over its audit work in other high-profile scandals, such as Wirecard, the German payments processor that failed this year amid a €1.9bn fraud.