Scrutiny of the Horizon software scandal, which saw hundreds of sub-postmasters wrongly accused of stealing, is to be expanded with a new investigation looking at EY, auditors of the Post Office.

Regulators at the Financial Reporting Council (FRC) announced today they will look at audits of Post Office Limited for the financial years ending March 2015, 2016, 2017 and 2018.

The FRC said in a statement: “In accordance with its remit, the FRC investigation will be focused specifically on the role of statutory auditors in meeting the auditing standards that pertained at the time, and not the broader issues related to the Horizon IT itself.”

EY issued its own statement. “We have been notified of the FRC’s intention to open an investigation into the EY audits of Post Office Limited for the financial years ending March 2015 – March 2018. 

“We take our public interest responsibilities extremely seriously and will be fully cooperating with the FRC during their investigation.”

The FRC has waited until now to avoid interference with the Horizon public inquiry which ran from February 2022 to December last year.

The inquiry was launched to examine why more than 900 sub-postmasters faced allegations of theft between 1999 and 2015 based on the evidence of a faulty IT system. Some even went to prison or were bankrupted as a result.

Though the scandal and inquiry were well established on the news agenda, the treatment of sub-postmasters became a cause célèbre after the airing of a four-part drama on ITV, Mr Bates vs the Post Office, in January last year.

Issues of governance were addressed by the public inquiry, but it intentionally avoided a detailed examination of external audit questions.

It was unclear for some time whether the FRC could investigate EY because the Post Office was not classified as a “public interest entity”. A probe was therefore left to the “recognised supervisory body”, in this case the Institute of Chartered Accountants in England and Wales (ICAEW).

However, the FRC has “reclaimed this matter given the heightened public interest considerations”.

Corporate governance at the Post Office has already been under fire, not least from the Institute of Directors (IoD).

In October last year the IoD put out a report arguing the Post Office board was “excessively passive” and had become “absorbed in a culture of mistrust”.

The IoD called for the “professionalisation” of boards at state-owned businesses, as well as a new corporate form — a public interest entity — in which directors would have a duty to balance the pursuit for profit against public interest.

Roger Barker, director of policy and corporate governance at the IoD, said the scandal’s beginnings were not entirely in the computer program.

“The roots of the scandal are hence not to be found in the lines of code in the Horizon software but in the performance of the board, management and ownership function of the Post Office who should have delivered better supervision,” he said.

Directors have offered a defence of their time at the Post Office. When former chair, Allan Leighton appeared at the public inquiry, he said that during his time at the Post Office, from 2002 until 2009, no member of staff gave any indication that the accounting derived from Horizon was unreliable.

The Public has yet to report on its own findings about governance at the Post Office.