Micro, small, and medium enterprises (MSMEs) in Nigeria lose up to N10 trillion annually to employee fraud and internal corruption, according to a new report from the Centre for the Promotion of Private Enterprise (CPPE).
The findings, unveiled during a stakeholder forum in Abuja, highlight how theft, embezzlement, and graft erode the sector’s profitability amid economic pressures like inflation and high borrowing costs.
CPPE director/CEO, Dr Muda Yusuf warned that without stronger governance and digital safeguards, these losses could stifle job creation and economic growth in a segment that employs over 80 per cent of the workforce.
Dr Yusuf acknowledged that while inflation, weak purchasing power, high operating costs, infrastructure deficits, and limited access to finance are well-known pressures, there is a less visible but equally concerning threat, corruption and fraud within the MSME ecosystem.
“These issues can take various forms, including theft of cash and inventory, manipulation of payroll, procurement kickbacks, and falsifying financial records. Although these instances are often viewed as internal management concerns, their cumulative economic impact is significant.
“By applying conservative estimates to Nigeria’s MSME economy, responsible for approximately 50 per cent of the national output, it becomes evident that losses due to fraud can be substantial, potentially reaching N5 to N10 trillion annually. This situation essentially acts as a hidden tax on entrepreneurs, undermining profits, reducing investment capabilities, and hampering job creation,” he explained.
Yusuf emphasised that “many MSMEs operate on extremely thin profit margins, often below 15 per cent of turnover. Therefore, losses of five to ten percent of revenue due to fraud can completely erase profits, deplete working capital, and lead to business closures. Alarmingly, studies indicate that around 80 per cent of small businesses fail within five years, with a significant portion of these failures attributed to employee fraud.
“While fraud can affect all sectors within the MSME landscape, the highest risk areas are typically those with cash-intensive operations, weak documentation practices, and dispersed supervision.”
Yusuf pointed out that “structural vulnerabilities can create an environment where fraud becomes entrenched. Factors such as inadequate internal governance, poor bookkeeping, a heavy reliance on cash transactions, and limited oversight mechanisms contribute to this issue.”
To combat this challenge, CPPE CEO advocates for the implementation of effective governance measures that can notably lessen losses, even in small enterprises.
He urged MSMEs to enhance their internal controls, move towards digital payment systems to reduce cash dependence, implement better hiring and supervision practices, and engage with external oversight and shared compliance services.
He added that “a coordinated effort from the public sector is essential to significantly reduce occupational fraud in MSMEs as key recommendations include establishing a national MSME internal-control framework that aligns with credit and government programs, promoting digital financial inclusion, strengthening legal enforcement, and improving asset-recovery mechanisms. Additionally, expanding governance education will empower entrepreneurs to better manage risks.”
He disclosed that “by focusing on these reforms, Nigeria’s MSME sector can bolster its resilience, protect jobs, and contribute to greater fiscal stability.”
Yusuf stressed that for the sector to fully realise its potential as a driver of growth, prioritizing fraud prevention, strengthening governance, and enhancing digital transparency must become central pillars of business policy and practice.
