micro-enterprises. They contribute directly and often signiﬁcantly to aggregate
savings and investment, and they are involved in the development of appropriate
technology the world over.
Particularly, from the perspective of developing countries, such as Ghana, SMEs
contribute quite signiﬁcantly to economic growth and development. Evidence from
literature reveals that SMEs provide about 85 per cent of manufacturing employment and
contribute up to about 70 per cent of national gross domestic product (Abor and Quartey,
2010). Additionally, they constitute about 92 per cent of businesses in Ghana including
retailing, manufacturing and trading businesses (Abor and Quartey, 2010). Available data
from the Registrar General’s Department in Ghana indicate that 90 per cent of companies
registered in Ghana are either micro-enterprisesor SMEs (Mensah, 2004), which underpins
SMEs as the catalyst for Ghana’s economic growth. In view of the strategic importance of
SMEs to socio-economic development, their growth is critical, especially in a developing
country like Ghana wherethe issues of unemployment and income distribution have become
persistent challengesfor successive governments (Palma, 2005).
However, despiteefforts made by successive Ghanaian governments to promote the SME
sector, there has been little success. In fact, it is not far-fetched to indicate that effort to
promote the SME sector has been bedeviled with problems. These challenges include the
absence of adequate and timely banking ﬁnance; limited capital and knowledge; non-
availability of suitable technology; low production capacity, ineffective marketing
strategies, lack of capacityto identify new markets, non-availability of highly skilled labour
at affordable cost; bureaucratic delays andthe complex maze of rules in following up with
various governmentagencies to resolve problem.
To address such challenges, several empirical studies have been conducted to establish how
these constraints can be minimized to ensure SMEs’growth. Notwithstanding the effort by
researchers to investigate these problems thus facilitating the growth of SMEs, very little effort
has gone into investigating the effect of fraud on the expansion of SMEs. Yet, the impact of
fraud on SME operations cannot be discounted. For instance, almost half (48 per cent) of
companies surveyed in a recent survey by PricewaterhouseCoopers (PwC) reported being
victims of fraud and the average direct cost of this economic crime was estimated at £1.75bn
(www.managers.org.uk). In fact, the true cost of fraud goes beyond the ﬁnancial loss and has
implications for ﬁrm’s reputation, morale and management time, as well as trust within the
business sector (Savage, 2003).
Similarly, US Chamber of Commerceestimated employee fraud cost businesses $20-40bn
yearly (Hanno and Hughes, 1999). Other authors reported that 30 per cent of workers look
for ways to steal from employers, and another 30 per cent willsteal if given the opportunity
(Krambia-Kapardisand Zopiatis, 2010).
Interestingly, fraudis costlier to SMEs than large businesses (Thomas and Gibson, 2003;
Bierstaker et al.,2006). Bressler and Bressler (2007) corroborate this view by noting that
fraud accounted for 30 per cent of small business failure in the 1990s. Hanno and Hughes
(1999) added that small businesses arelikely to be more susceptible to fraud, owing to their
limited number of employees and the lack of resources to implement efﬁcient internal
controls. Bierstakeret al. (2006) argued that SMEs do not have the resources or the capital to
invest in anti-fraud technology despite the fact that they are the most in need of fraud
detection and prevention technology. Wells (2004) added that SMEs are vulnerable because
they are hardly audited and lack hotlinesand internal controls.
The juxtaposition of the lack of research into the impact of fraud on SMEs with their
vulnerability to fraud as a result of the lack of safeguards to prevent and detect fraudulent
activity, warrants an investigation into the impact of fraud on the growth of Ghanaian