Catching the crooks who cook the books is a full-time occupation for David Sherwin of the International Forensic Services Group of Ernst & Young.

As a fraud expert, Mr. Sherwin tells companies who are not up to par with their fraud protection: "Think how much effort you put into making the next million dollars of sales and compare that with how much you spend on fraud prevention which could save you millions, not to mention your business or even your career."

Based in London, Mr. Sherwin is in Bermuda this week to promote a new guide to fraud risk and prevention prepared in conjunction with the Bermuda Police Service and to speak at today's one day seminar at the Bermuda Underwater Exploration Institute on `Fraud Detection and Prevention in the Insurance Industry, Catch the Crooks who Cook the Books'.

The billing for the seminar says: "Events of the last six months have highlighted serious flaws in industries due diligence and seminar attendees will get answers to questions such as: Does your company have the checks and balances which alert you to potential fraud? Are claims thoroughly investigated to detect fraud? Are your information systems helping you in these tasks?"

Speaking with The Royal Gazette, Mr. Sherwin said that in Bermuda and the UK, regulators are clamping down on white collar crime and trying to send out strong messages that "this will not be tolerated".

He attributed an increase in fraudulent activity to the forces of globalisation as well as through technological advances and the fact that people can move assets around the globe.

Mr. Sherwin said of the guide to fraud risk and prevention: "The purpose of the guide is twofold; firstly it is designed as a risk management and fraud prevention tool. What it does quite simply is it throws up a number of warning signs for management and companies to look out for. Secondly, if fraud is suspected, what actions should be taken to stop any further leakage from the company, recover assets, and help prevent any reputation issues coming to life."

Mr. Sherwin said the fraud prevention guide was targeted across the board and was pertinent for financial services companies, manufacturing companies, public bodies and said: "We have tried to make it very generic rather than to industry specific."

He said the guide concentrated on three P's.

People - ensuring people are properly trained and understand what they are doing,

Process, which he said was all about internal control and making sure that checks and balances are working properly.

Profitability, which Mr. Sherwin said was a strange but obvious factor and explained: "If you look at the profitability of a company or group, does it make sense what these people are earning. Unfortunately a lot of big companies are putting pressure on people to perform at a level which is unrealistic."

This may lead to "cooking the books", said Mr. Sherwin.

"My view is that if you look at something which is too good to be true in terms of amount of profit or earnings, it often is too good to be true. There is something that needs further investigation."

Mr. Sherwin also highlighted E&Y `s biennial international fraud survey entitled "Fraud - The Unmanaged Risk," which he said raised a number of points.

The survey asks a number of companies what their key risk was in terms of their reputation and also the effective profitability on the business.

"Interestingly enough, the thing that really worried companies the most was money laundering. They thought the reputation risk to their organisation being associated with money laundering was far higher than actual fraud from money laundering," he said.

Mr. Sherwin said that of concern to Bermuda was the financial services arena where there had been a huge amount of consolidation, changes in structure and changes in control and operations of companies and said: "Whenever you have change, there is a real opportunity for fraudsters."

A further area of concern said Mr. Sherwin was: "Derivatives and other financial products. I think companies are quite concerned about some of the derivatives and financial products that are currently in the market because they don't really understand the risk associated with them. And often, the first time they understand the risks is when it comes home to roost and the company has a huge exposure which you didn't realise you had."

A further area which Mr. Sherwin said he thought was the most important was the fact that many directors do not really understand the business they are in, which he said could be due to the consolidation of the industry.

"The role of the director/senior manager now is that they have a lot placed on them in the regulations in terms of what their duties are as custodians of the company and they don't fully appreciate all the risks around the various areas."

On the global nature of business, Mr. Sherwin said: "What you can't afford to do is have one weak link in the chain because if you have a weak operation somewhere in the world and someone can infiltrate that link, basically they are into the company... You are only as good as your weakest point."

Mr. Sherwin said there is no real pattern to fraud and there is no industry immune to fraud which had been borne out following many years of surveys.

"Companies that sit there and pretend that it won't happen to them have really buried their head in the sand. What we are trying to do through both the business guide launch and also the conference is really to raise awareness so people can really examine their own business," he said.

Mr. Sherwin says fraudsters will use technology any way they can and he feels that identity theft will be a major problem in the near future.

"Companies and ourselves as investigators have got to keep looking at what the trends are and trying to predict where the next problems are going to come from and I think the next major problem, what we call identity theft, where people use someone else's identity through the net or some other vehicle and pretend they are somebody else," he said.

The UK is in the process of introducing a law making identity theft illegal.

Mr. Sherwin has headed Ernst and Young's special investigations group in London for eight years and has done some of the highest profile investigations ever carried out such the Nick Leeson affair with Barings Bank.

Mr. Sherwin explained how he started investigating fraud when he was asked to go to the Isle of Man to look at a bank that had collapsed and part of the reason that bank collapsed stemmed from unusual circumstances involving shipping and property companies which ended up being much more complicated than a straight collapse.

As far as fraud post Enron, Mr. Sherwin said: "I think there is more of an awareness at the management level of risk from fraud. I'm not sure it was necessarily as a result of Enron, I think it was something that has been brewing over a number of years. It was suddenly moved up the corporate agenda."

On the web: www.ey.com/bermuda