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1. Introduction
Small and medium-scale enterprises (SMEs) are important to almost all economies in the world. They contribute to output and to the creation of jobs; they are a nursery for large firms of the future and serve as the next (and important) step up for expanding 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-enterprises or 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 where the issues of unemployment and income distribution have become persistent challenges for successive governments (Palma, 2005).
However, despite efforts 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 capacity to identify new markets, non-availability of highly skilled labour at affordable cost; bureaucratic delays and the complex maze of rules in following up with various government agencies 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...