Barely a week after accounting firm Ernst & Young announced that it was suing embattled former client Healthsouth, the medical rehabilitation provider has returned the favor, charging that if E&Y had done a proper job as auditor this whole billion dollar fraud thing could have been avoided.

Via Reuters:

HealthSouth countersues Ernst & Young: Company says auditor's inability to discover fraud was a breach of contract, also accuses Scrushy

April 5, 2005: 5:49 PM EDT

NEW YORK (Reuters) - HealthSouth Corp., struggling to overcome a massive accounting fraud scandal, filed a lawsuit against its former outside auditor Ernst & Young, claiming its inability to discover the fraud was a breach of contract and amounted to negligence.

The suit, filed late last week in the circuit court of Jefferson County, Alabama, was a countersuit to one filed last month in which Ernst & Young accused HealthSouth of damaging its reputation and exposing it to lawsuits.

The suit also marked the first time HealthSouth had directly accused its founder and former Chief Executive Richard Scrushy of directing the $2.7 billion accounting fraud from 1996 to 2002.

The suit, which seeks unspecified damages for lost fees, profits and business opportunities, as well as for legal fees and the cost of unraveling the fraud and restating earnings, accuses Ernst and Young of acting "recklessly, wantonly and with gross negligence in performing its duties.

Read the rest.

E&Y is also facing a suit in the recent Tower Air Bankruptcy.

-- MDT

Labels: 2006, Health South