Report finds business complacent over fraud

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The Independent Online
Businesses are increasingly complacent about fraud, despite the high profile of the cases involving the Maxwells, Bank of Credit and Commerce International and others, according to a survey of senior executives in Britain's top companies published today.

Nearly half have been the victims of fraud more than once between January 1993 and last July, yet fewer than a quarter have a written fraud prevention policy. Fewer than four out of 10 companies have explicit fraud reporting policies although, in more than 70 per cent of cases, their employees were involved.

The findings by the fraud investigation and risk management group of Ernst & Young, the accountants, come as the rise in fraud in recent years appears to confound the view of commentators that it would fall as the economy recovered. Although there was a temporary fall in the value of large reported frauds in the first half of last year, the Serious Fraud Office alone was as at April 1993 dealing with 57 cases with an aggregate value of £6bn.

Pointing out that there is little evidence that the relationship between the economy and fraud is straightforward, Ernst & Young suggests that increasing employee insecurity about the future may be contributing towards lower levels of trust.

The average total fraud suffered in the 18 months covered was £304,000 per company, plus additional costs of £76,000 per company. The banking and financial services sector was worst hit, with total losses averaging nearly £4m per company, with additionalcosts of an average of £753,000. Smallest losses were suffered by paper, printing and textiles organisations.

The average size of each company's worst suspected fraud was £188,000, with the largest insurance sector seeing the largest individual frauds - averaging more than £lm obtained - and paper, printing and textiles lowest, averaging £333 per case.

The suspected offender - where known - was an employee in half of cases and collusion was a factor in one out of five, meaning that employees were involved in 71 per cent of cases.

According to the survey of 106 senior executives from Times Top 1000 companies, only 84 per cent of the most serious frauds were reported to the authorities. The most common reasons given for not doing so were the management time that would be taken up, the poor chances of retrieving money.

But David Sherwin, head of Ernst & Young's fraud investigation and risk management group, which conducted the survey in conjunction with Professor Michael Levi, a leading criminologist, said: "I am alarmed at the level of acceptance shown by companies that fraud is just part of commercial life. The only way to deter the fraudster is to show him that you mean business."

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