EY hit by probe over its audit of the Post Office following the Horizon IT scandal

Accountancy giant EY is facing scrutiny over its audit work for the Post Office in the wake of the extensive Horizon IT scandal. Financial audit reviews are now underway as the Post Office scandal continues to unfold.

FRC Launches Inquiry into EY’s Post Office Audits

The Financial Reporting Council (FRC), the UK’s auditing regulator, has initiated a formal investigation into the standards of audits conducted by EY for the Post Office. The probe will examine audits carried out between March 2015 and 2018, a period coinciding with the height of the Horizon scandal.

Horizon IT Scandal Overview

The Horizon IT scandal involved the wrongful prosecution of hundreds of postmasters and postmistresses due to critical flaws within the Horizon software system. This faulty system led to significant financial discrepancies, which the Post Office erroneously attributed to misconduct by its staff.

Over 900 individuals were unjustly accused and, in many cases, imprisoned for offenses including theft and false accounting between 1999 and 2015. These prosecutions were based on unreliable data generated by the Horizon system.

Beyond those prosecuted, numerous other postal workers faced bankruptcy, public humiliation, and profound personal distress as a result of the scandal.

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Compensation and Ongoing Fallout

While the government has announced compensation of £600,000 for those whose convictions have been overturned, many victims are still awaiting payouts and resolution. The long-term repercussions of this miscarriage of justice continue to affect countless lives.

“Biggest Miscarriage of Justice”

The Horizon scandal, brought to wider public attention by the popular ITV drama “Mr Bates Vs The Post Office,” has been described as potentially the most significant miscarriage of justice in British legal history. The drama starring Toby Jones has increased public awareness and scrutiny of the events.

Scope of the FRC Investigation

The FRC clarified that its investigation will specifically concentrate on the statutory auditors’ adherence to auditing standards prevalent during the relevant period. It will not delve into the broader technical issues surrounding the Horizon IT system itself but rather the audit quality.

The regulatory body delayed the commencement of its investigation until the completion of public hearings related to the wider inquiry into the scandal. The formal findings from this broader inquiry are still pending publication.

EY’s Response

An EY spokesperson stated, ‘We are fully cooperating with the FRC during their investigation as we take our public interest responsibilities with utmost seriousness.’

Background on EY and Post Office Audits

EY served as the Post Office’s auditor from the late 1980s until 2019, when PwC, another Big Four firm, assumed the role. Typically, the Institute of Chartered Accountants in England and Wales oversees such audits.

FRC Reclaims Oversight

However, the FRC announced it had ‘reclaimed’ jurisdiction over this particular case due to the substantial public interest and gravity of the Post Office Horizon scandal.

Recent Fines Against EY

Notably, EY was recently penalized £4.9 million for deficiencies in its audits of Thomas Cook prior to the travel company’s collapse six years ago. Furthermore, another fine of £500,000 was imposed on EY on Monday concerning its audit of Stirling Water Seafield Finance’s 2019 accounts, highlighting ongoing regulatory pressure on the firm.