Dare Babalola
Nigeria’s Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the country’s economy, employing millions and contributing 50% to the non-oil GDP.
However, a new policy brief by the Centre for the Promotion of Private Enterprise (CPPE) reveals that employee corruption and occupational fraud are crippling these businesses, costing an estimated ₦5-10 trillion annually.
The brief, authored by CPPE CEO Muda Yusuf on Sunday, highlights the devastating impact of fraud on Nigeria’s MSMEs. “Employee corruption and occupational fraud constitute one of the largest hidden drains on Nigeria’s entrepreneurial economy, with annual losses ranging from ₦5–₦10 trillion.” These losses silently destroy profitability, suppress investment, eliminate jobs, and weaken government revenue.
Yusuf noted that the problem is widespread, with sectors like retail, hospitality, and agribusiness being most vulnerable, adding that cash-intensive businesses with weak internal controls and limited audit capacity are easy targets for employee fraud.
According to the CPPE, “the aggregate economic consequences are profound, with MSMEs losing 5-10% of annual revenue to employee-related fraud.”
He argued that the impact on MSMEs is severe.
“Many operate on thin margins, often below 15% of turnover. Fraud losses of 5-10% of revenue can eliminate profits entirely, deplete working capital, and accelerate business closure. This dynamic contributes to the high mortality rate of small businesses, with up to 80% failing within five years.
“The sectors most affected include retail and wholesale trade, hospitality, food services, and entertainment. These businesses are characterized by high daily cash turnover, weak reconciliation systems, and inventory pilferage. Agribusiness and produce trading are also vulnerable, with informal procurement chains and weak record-keeping enabling commodity diversion.
“Employee fraud also has a broader impact on the economy. Leakages from corruption reduce retained earnings available for reinvestment, technology adoption, and productivity-enhancing upgrades. This results in a persistent low-productivity trap, weakening competitiveness and suppressing enterprise scaling.”
The CPPE identifies several factors that contribute to the prevalence of employee fraud in Nigeria’s MSMEs. These include weak internal governance, lack of segregation of duties, poor bookkeeping, and heavy reliance on cash transactions. “These conditions allow fraud to remain undetected for extended periods, magnifying cumulative losses.”
To combat employee fraud, the CPPE recommends that MSME owners strengthen basic internal controls. This includes separating cash handling, record-keeping, and approvals, as well as routine reconciliation of sales, cash, and inventory. Periodic independent review of accounts can also help detect and prevent fraud.
CPPE said reducing cash dependence through digital payments is another key strategy, stressing, “Digitalisation is one of the most powerful low-cost anti-fraud tools available to MSMEs.
“By adopting digital payment channels and basic accounting software, businesses can create transaction traceability, making diversion and concealment more difficult.”
The statement added, “MSME owners should conduct background and reference checks, establish written employment terms and disciplinary procedures, and monitor unexplained lifestyle changes. Early detection can dramatically limit financial losses.”
The CPPE also calls for coordinated public-sector support to reduce occupational fraud in MSMEs. This includes developing a national MSME internal-control framework, accelerating digital financial inclusion, strengthening legal enforcement, and expanding governance education.
A national MSME governance framework could provide a roadmap for businesses to improve their internal controls and reduce fraud. Accelerating digital financial inclusion can also help reduce cash dependence and increase transaction transparency.
Stronger legal enforcement and asset-recovery mechanisms are also needed to deter employee fraud. The CPPE recommends expanding governance education to equip MSME owners and stakeholders with the skills to prevent and detect fraud.
He added, “Addressing this challenge is therefore not only an ethical or managerial concern but a strategic economic priority.
“By prioritizing fraud prevention, governance, and digital transparency, Nigeria’s MSMEs can unlock their full potential and drive economic growth.”
The CPPE’s recommendations offer a roadmap for MSME owners, policymakers, and stakeholders to work together to combat employee corruption and occupational fraud. With concerted effort, Nigeria’s MSME sector can overcome this hidden threat and contribute to the country’s economic development.
In conclusion, the CPPE’s policy brief highlights the urgent need for action to address employee corruption and occupational fraud in Nigeria’s MSMEs. By working together, we can create a more transparent and resilient business environment, driving economic growth and prosperity for all Nigerians.
