Financial embezzlement is a form of financial fraud where an individual responsible for managing funds steals or diverts them for personal use. This type of embezzlement can take various forms and occurs for different reasons. Below are the types and causes of financial embezzlement:

Types of Financial Embezzlement

1- Asset Misappropriation

• Cash: Involves directly stealing cash from company vaults or bank accounts.
• Inventory: Stealing or using company inventory for personal purposes.
• Fixed Assets: Diverting fixed assets such as equipment or vehicles for personal use or selling them.

2- Fraudulent Disbursements

• Fake Invoices: Submitting invoices for goods or services that were never provided, and collecting the funds.
• False Expenses: Claiming reimbursements for expenses that were never incurred, such as fake travel costs.
• Payroll Manipulation: Adding fictitious employees or unearned overtime to receive undue payments.

3- Financial Statement Fraud

• Revenue Inflation: Recording revenues that are not real to improve the company's financial image.
• Expense Reduction: Delaying or not recording expenses to present a healthier financial position.
• Inventory Manipulation: Inflating or undervaluing inventory records.

Bank Fraud

• Check Forgery: Altering or forging bank checks to divert funds to personal accounts.
• Unauthorized Bank Transfers: Using system access to make illicit transfers without authorization.

To address this, the Anti-Fraud Guide for banks and financial institutions operating in Saudi Arabia has been created to prevent bank-related embezzlement.

Causes of Financial Embezzlement

1- Financial and Personal Pressure

• Debt: Personal financial pressures due to large debts may drive individuals to embezzle.
• Lifestyle: A desire to maintain an extravagant lifestyle beyond one's financial means.

2- Opportunity

• Weak Internal Controls: Lack of strong internal control systems makes it easier for embezzlement to occur without detection.
• Excessive Trust: Over-reliance on employees without regular reviews or audits.

3- Rationalization

• Justifying the Act: The embezzler may rationalize their actions by believing they deserve the money as compensation for their hard work or unforeseen circumstances.
• Perceived Minimal Harm: The belief that the company won’t be harmed by a small theft, or that the money can be repaid later.

4- Lack of Awareness and Training

• Unawareness of Risks: Employees not understanding the risks and legal consequences of embezzlement can lead to an increase in incidents.
• Absence of Ethics Training: A lack of ethics training may contribute to fraudulent behavior.

Preventing Financial Embezzlement

To prevent financial embezzlement, companies can implement the following measures:

1. Enhance Internal Controls: Ensure a robust internal control and regular review system is in place.
2. Segregation of Duties: Separate sensitive tasks so that no single employee has complete control over a financial process.
3. Continuous Auditing: Conduct regular internal and external audits to detect any irregularities.
4. Employee Awareness: Train employees on professional ethics and potential financial risks.
5. Improve Work Environment: Create a positive work environment that reduces financial and psychological pressure on employees.

By applying these measures, companies can reduce the risk of financial embezzlement, enhance transparency and integrity in their financial operations, and contribute to sustaining local content and increasing state investments in Saudi Arabia.