THE result of a recent survey of business by Ernst and Young, which was based on the views of 800 senior executives from eleven countries, will be regarded by many as surprising. I would not regard it so.

The Ernst and Young survey, based on interviews with 800 senior executives, found that:

. Fraud is widespread on a grand scale and the situation is likely to continue.

. For virtually all the companies surveyed the risk of loss from fraud is as great or greater than it was five years ago.

. Some 25 per cent of the companies had lost more than $1 million in fraud over the last five years. Some 40 per cent suffered more than five frauds.

. Most of the frauds were committed by staff.

Loss from fraud is more likely to occur when directors do not understand the basic business of the company or that conducted in its overseas locations half of those surveyed felt this was the case in their company.

Most informed commentators believe that the findings should worry all companies and that the conditions for a Barings style collapse still exist. The head of fraud investigation at Ernst & Young privately estimates that the cost of fraud world wide at $40 million per working day.

Recently Bankers Trust were forced to write off $100 million as a result of carelessness. They sold a series of derivatives to Proctor and Gamble who claimed that the instruments were not properly explained to them and that they did not understand the risks involved. And so a world ranking industrial company with sophisticated financial controls and a highly respected banking institution went to law.

How many directors and managers really understand the risks associated with derivatives? And now there are "exotic" derivatives. How many back office people are comfortable with the book keeping? How many accountants are comfortable with the accounting? Who really knows what is going on?

As businesses develop and as the sophistication of technology financial instruments expands, very often directors and senior management do not like to ask questions for fear of showing their ignorance, little realising that most of those around them feel the same way.

What the Ernst & Young report did not say is that 90 per cent of fraud has no sophistication - people just take the money. An example is that of an overseas organisation which lost a lot of money but began as a simple business which its directors, management and staff understood well.

Competition in its basic business area became intense and margins fell. Its customers became more demanding as others in the industry offered lower prices, better services, and additional products.

The company introduced new products and new services. It expanded from its home country into overseas markets.

To spread its risk it diversified into new business areas where it had no previous experience. As all this was going on there was heavy emphasis on cost reduction - with older and experienced staff being replaced by younger and less experienced staff.

The organisation was under severe strain with serious exp sure and finally suffered a massive loss. This arose as a result of reduced staff numbers and less experienced staff meant insufficient attention was given to a new business in an overseas location.

Today it has an appropriate control function, has retrieved lost ground and is again moving forward.

Too often the control function is not correctly focused, positioned or staffed and is not at all geared to a developing business. In that type of situation any organisation is ripe for loss through both carelessness and fraud - for many it is probably already underway.

The next Ernst & Young survey in this area will, I predict, make even more depressing reading than this one, as the pace of change increases.