Impact of fraud on Ghanaian SMEs and coping mechanisms

Purpose - Small and medium-scale enterprises (SMEs) are the engine of growth of most developing countries, as they employ a large number of people as opposed to large firms. Consequently, these enterprises should succeed in expanding to become significant employers and producers. However, what seems obvious at least through cursory observation is that the current state of SMEs betrays an economic loss with respect to the benefits that ought to be forthcoming from their potential. This loss can be triggered by a number of factors. The study determines the drivers of internal fraud and their impact on Ghanaian SMEs and prescribes coping mechanisms. Design/methodology/approach - Primary data collected on 250 SMEs collected from various sectors across Accra, the capital of Ghana, are used for this study. Using a cross-sectional regression, the authors identify the key drivers of internal fraud that hamper the growth of Ghanaian SMEs. Findings - The regression results show that although several fraud variables impact negatively the growth of the SME sector, it is only accounting fraud which is significant. This study also revealed that stealing, fake currency issued for the payment of goods or service and non-payment of goods or service account for almost 83 per cent of fraud cases experienced by SMEs. Research limitations/implications - The study was limited to the SMEs located in the Accra, the capital of Ghana. Practical implications - The study will offer SMEs owners methods that will assist in their determination to fight fraud in the business that they manage. Social implications - The survival of SMEs is paramount to job creation. Consequently, combating fraud that stifle the growth of SMEs will allow SMEs to grow to their full potential and create more job opportunities for the unemployed. This will minimizes the social vices such as robbery, stealing, drug trafficking and prostitution that confront nations. Originality/value - This study should be useful to managers of SMEs, auditors and the security agencies in developing economies in particular, in their quest to combat fraud within SMEs.