Corruption Drains N10trn Annually From Nigeria’s MSME Sector – CPPE

The Centre for the Promotion of Private Enterprise (CPPE) has warned that employee corruption and occupational fraud are draining between N5trn and N10trn annually from Nigeria’s Micro, Small and Medium Enterprises (MSMEs), describing the development as one of the largest hidden threats to the country’s entrepreneurial economy.

Its Chief Executive Officer, Dr Muda Yusuf, the organisation said the estimated losses represent a significant erosion of business revenue within a sector that accounts for roughly half of Nigeria’s national output and sustains millions of jobs.

According to CPPE, global occupational fraud studies consistently show that organisations lose between five and 10 per cent of annual revenue to employee-related fraud. Applying conservative assumptions to Nigeria’s MSME sector suggests that the cumulative impact runs into trillions of naira each year.

The think tank described the losses as a “massive hidden tax” on small businesses, weakening profitability, discouraging reinvestment, and constraining job creation.

The organisation noted that MSMEs are central to Nigeria’s economic resilience, contributing significantly to non-oil GDP while serving as a critical engine of employment and poverty reduction.

However, beyond visible pressures such as inflation, weak consumer purchasing power, high operating costs, infrastructure deficits, and limited access to finance, internal fraud has emerged as a deeply corrosive and less visible challenge.

CPPE explained that employee corruption within MSMEs manifests in multiple forms, including theft of cash and inventory, diversion of sales proceeds, payroll manipulation, procurement kickbacks, customer diversion, collusion with suppliers, abuse of expense reimbursements, and falsification of financial records.

Though often treated as internal management concerns, the organisation stressed that the aggregate macroeconomic consequences are profound.

The policy brief emphasised that small businesses are disproportionately vulnerable due to weak internal control systems, heavy dependence on cash transactions, limited audit capacity, high levels of informality, and lower recovery rates when fraud occurs.

With many Nigerian MSMEs operating on thin profit margins, often below 15 per cent of turnover, losses of five to 10 per cent of revenue can eliminate profits entirely, deplete working capital, and accelerate business closure.

CPPE linked occupational fraud to the high mortality rate among small businesses, citing evidence suggesting that a significant proportion fail within their first five years of operation.

Fraud-induced financial strain, it said, contributes meaningfully to this trend by undermining stability and long-term sustainability.

The economic impact extends beyond enterprise owners. The organisation warned that because many MSMEs are labour-intensive, financial leakages caused by fraud quickly translate into job losses, declining household incomes, rising informality, and deeper poverty.

Occupational fraud, it stated, is therefore not merely a governance issue but a national welfare concern with broader implications for inclusive growth.

Certain sectors within the MSME landscape were identified as particularly vulnerable, especially those characterised by high cash intensity, inventory handling, weak documentation, and dispersed supervision.

Retail and wholesale trade, hospitality and food services, agribusiness and produce trading, transport and logistics services, small-scale manufacturing, and personal services were highlighted as areas where fraud risks are elevated.

The think tank attributed the persistence of fraud in many enterprises to structural weaknesses, including poor bookkeeping practices, lack of segregation of duties, discretionary procurement processes, informal hiring systems, weak disciplinary frameworks, and slow legal processes that limit asset recovery.

These vulnerabilities often allow fraudulent activities to remain undetected for extended periods, compounding cumulative losses.

To address the challenge, CPPE called for stronger internal controls within MSMEs, stressing that even simple governance improvements can significantly reduce fraud risks.

It urged business owners to separate cash handling from record-keeping and approval functions, conduct routine reconciliation of sales and inventory, and ensure periodic independent reviews of accounts.

The organisation also emphasised the importance of reducing cash dependence through digital payment systems and basic accounting software, noting that transaction traceability is one of the most effective low-cost anti-fraud tools available to small businesses.

Improved hiring practices, clearer employment terms, rotation of sensitive responsibilities, and closer supervision were also recommended as preventive measures.

Beyond enterprise-level reforms, CPPE advocated coordinated public-sector support, including the development of a national MSME internal-control framework linked to credit schemes and government programmes, accelerated digital financial inclusion, stronger legal enforcement and asset recovery mechanisms, and expanded governance education for entrepreneurs.

The policy brief concluded that tackling employee corruption and occupational fraud must become a strategic economic priority if Nigeria’s MSME sector is to fulfil its potential as a driver of growth, job creation, and inclusive development. Without deliberate governance strengthening and greater digital transparency, CPPE warned, the silent drain on entrepreneurial capital will continue to weaken enterprise resilience and slow economic progress.