Fraud costs firms 25m pounds every day

FRAUD is costing British business pounds 25m a day or pounds 9bn a year, nearly twice the figure for 1989, according to the chartered accountants Ernst & Young, writes John Willcock.

The accountants conclude that despite numerous high- profile frauds such as Barlow Clowes, BCCI and Maxwell, British management 'seems largely to be ignoring the cost of fraud to their business at a time when the majority of companies are likely to be victims of significant fraud'.

Ernst & Young admitted, however, that there was still a yawning 'expectation gap' between how far businessmen expect fraud to be detected by auditors, and what in reality auditors can achieve.

The firm surveyed 100 leading UK companies and found that only 2 per cent of frauds were detected through the audit process, yet 60 per cent of respondents said they would expect auditors to detect fraud.

David Sherwin, head of Ernst's Fraud Investigations and Risk Management Group, said that many directors adopted a fatalistic attitude to fraud, viewing it as part of business life. Over a third of those surveyed had suffered fraud but not reported it.

Mr Sherwin hit back at critics, saying that if auditors were expected to detect all frauds committed by companies they audit they would be forced to increase audit fees 'five to ten times or even more'.