Financial Embezzlement is a type of financial fraud where a person responsible for managing funds steals or diverts them for personal use. Financial Embezzlement can take many forms and occur for various reasons. Below are the types and causes of Financial Embezzlement:

Types of Financial Embezzlement

1. Asset Misappropriation

• Cash: Includes theft of cash directly from company safes or bank accounts.

• Inventory: Stealing or using inventory for personal purposes.

• Fixed Assets: Converting fixed assets like equipment and vehicles for personal use or selling them.

2. Fraudulent Disbursements

• Fake Invoices: Submitting invoices for purchases or services not delivered and receiving the transferred funds.

• False Expenses: Claiming expenses that were never incurred, such as fake travel costs.

• Payroll Manipulation: Adding fake employees or false overtime hours to receive undeserved payments.

3. Financial Statement Fraud

• Revenue Inflation: Recording fictitious revenues to enhance the company’s financial image.

• Expense Understatement: Delaying or omitting expense recording to present better financial outcomes.

• Inventory Manipulation: Inflating or reducing recorded inventory values.

4. Bank Fraud

• Check Forgery: Forging or altering bank checks to transfer funds to personal accounts.

• Unauthorized Transfers: Using system access privileges to transfer funds without proper authorization.

As a response, an Anti-Financial Fraud Manual was established for banks operating in Saudi Arabia to prevent bank-related Financial Embezzlement.

Causes of Financial Embezzlement

1. Financial and Personal Pressure

• Debt: Personal financial pressure from large debts may push individuals toward embezzlement.

• Lifestyle: The desire to maintain a luxurious lifestyle beyond financial means.

2. Opportunity

• Lack of Internal Controls: Absence of strong control systems allows embezzlement without detection.

• Excessive Trust: Overtrust in employees without regular audits or reviews.

3. Rationalization

• Behavior Justification: The embezzler may justify the act by believing they deserve the money due to hard work or emergency needs.

• Perceived Harmlessness: Belief that stealing a small amount won’t harm the company or that it can be returned later.

4. Lack of Awareness and Training

• Risk Unawareness: Employees unaware of the risks and legal consequences may be more likely to embezzle.

• Absence of Ethical Training: Not training employees in professional ethics may lead to fraudulent behavior.

Preventing Financial Embezzlement

To prevent Financial Embezzlement, companies can implement the following measures:

• Improve Internal Controls: Ensure a strong internal control system with regular reviews.

• Segregation of Duties: Separate sensitive tasks to prevent a single employee from having complete control over a financial process.

• Continuous Auditing: Conduct regular internal and external audits to detect any irregularities.

• Employee Awareness: Train staff in professional ethics and potential financial risks.

• Enhance Work Environment: Create a positive work environment to reduce financial and emotional pressures on employees.

By implementing these actions, companies can reduce the risk of Financial Embezzlement and enhance transparency and integrity in their financial operations, supporting local content in Saudi Arabia and increasing national investments.