Property services group Erinaceous has put aside 拢4.4m to cover an alleged fraud that was discovered at its City of London office last March.

One year ago it was reported that Cheshire 好色先生TV Society planned to sue Erinaceous subsidiary Dunlop Haywards for fraud, after one of its valuations was used to secure a loan of 拢11.5m on a building said to be worth 拢2m.

The fraud provision, combined with 拢6.1m of restructuring costs led Erinaceous to post a 19% drop in pre-tax profit to 拢18.8m for the year ending 31 December 2006.

Erinaceous is also thought to be in the final stages of talks to acquire property consultant Dearle & Henderson. A source said that although negotiations had not been finalised, an agreement was close. He said: 鈥淓veryone has been informed that there will be an announcement made by the end of the week. It should be by Wednesday or Thursday.鈥�

It is believe that after Alan Yates, chairman of Dearle & Henderson, died two years ago, Erinaceous was brought in to oversee the company鈥檚 affairs, which led to the bid.

Philip Darby, a director at Dearle & Henderson, denied that a deal had been done, but confirmed the company had been in talks with Erinaceous and McBains Cooper.

Erinaceous declined to comment.