Bishop Hubertus Leteng, 58, was accused of borrowing $94,000 from the Indonesian bishops' conference, as well as $30,000 from the Diocese of Ruteng. He called allegations he had a relationship with a woman "slanderous".
According to Ucanews, the bishop said the money financed the education of a poor youth, though he declined to provide details.
After accepting the resignation, the Vatican said that Monsignor Sylvester San, the Denpasar Bishop, will run the diocese for the time being, until a permanent replacement is found.
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In June, more than 60 priests of the diocese resigned from their assignments in protest of Leteng's administration of the diocese.
The Vatican also did not address the scandal or clarify why Leteng was retiring early.
Though Indonesia is a heavily majority-Muslim country, the island of Flores, on which Ruteng is located, is largely Catholic. Often the cases go unnoticed, particularly when they involve in-house financial mismanagement, because the Vatican never explains why bishops are leaving their posts. In the United States, two bishops accused of botching clerical sexual abuse cases resigned under Vatican pressure in 2015.
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