Financial exploitation of elderly individuals challenges CPAs who provide financial planning, prepare tax returns, or provide accounting and reporting services to recognize potential exploitation and to help their elderly clients identify or prevent abuse and exploitation.
Financial exploitation of elderly individuals includes a range of fraud types. According to a 2020 AICPA survey, CPAs who work as financial planners for the elderly have seen various frauds, including the inability to say no to relatives (60%) and scams or abuse from adult children (43%).
Other evidence also indicates that elderly individuals fall victim to people they know and trust, including family members. Verified cases in a 2016 study from the New York State Office of Children and Family Services found that 67% of elderly fraud perpetrators were family members; 16% involved more than one perpetrator; and 26% included using the elderly victims’ money without approval (the most common method of elderly exploitation identified).
The following true story converts statistics to real experiences. One party in this story was, by coincidence, a CPA. The CPA identified financial irregularities and thus uncovered family members’ financially exploiting an elderly individual’s situation. While CPAs might identify financial irregularities after they occur, this true cautionary tale also indicates CPAs can help their elderly clients prevent exploitation with “internal controls” and other practices that safeguard their finances.
THE TRUE STORY
(The following story is true. Names have been changed to preserve anonymity.)
At 90 years old, George could talk intelligently with others but five minutes later could not remember the conversation. Mary, his wife, was 80 years old. The marriage was a second marriage for both. George and Mary had been married for about eight years and had separate bank accounts, each receiving their Social Security and retirement benefits separately. They lived in a recently purchased condo. Sue, Mary’s daughter, had a power of attorney for Mary. Sue made sure Jack, George’s oldest son, knew the condo was in Mary’s name only.
Mary had recently asked Jack to get George into a care facility. So, Jack obtained a power of attorney for George and took a brief look into George’s finances. Jack, a CPA, was floored to see that George had just a little under $3,000 in his bank account, even though he received about $3,800 income each month from Social Security and retirement benefits combined. Jack also knew that George previously had a fairly good nest egg, having sold his condo about seven years earlier. Jack asked Mary where the income was going and said the bank balance needed to be built up if George was going to be placed in a care facility. Mary responded that Jack and his family either needed to take George in or pay for the care facility themselves.
Soon after Mary’s request that Jack find a care facility for George, Jack learned that Mary and Sue had met with a financial planner to evaluate the couple’s income and assets. Mary and Sue also had several care facility interviews for George. All of these meetings had excluded Jack, even though he had made it clear to Mary and Sue that he held George’s power of attorney and that he wanted to be included in any and all care facility interviews and meetings regarding finances.
As a married couple, George and Mary’s combined income did not allow George to qualify for Veterans Administration (VA) benefits. The financial planner Sue and Mary visited suggested that a divorce would separate George and Mary’s incomes so that George could qualify. Although Mary was reluctant to part with George’s income, she was adamant that he be placed in a long-term-care facility, something she believed would be impossible without the VA benefits. Mary told Jack she would petition for a divorce from George.
Jack wondered what else he did not know about his father’s finances and decided to analyze details. Jack determined the following questions would guide his forensic analysis:
■ If Mary wanted George placed into a care facility, why would she use the needed funds for other purposes?
■ Where did all of George’s savings go?
■ How much money came in monthly to George’s bank accounts?
■ How much money was spent monthly from George’s bank accounts and for what purposes?
■ Who had access to George’s bank accounts and how and when did they gain access?
■ Who, other than George, actually spent money from George’s bank accounts?
Jack’s initial forensic accounting of George’s accounts went back a little more than three years. As Jack answered his guiding questions, the evidence and analysis completed a picture that astonished him.
FORENSIC INVESTIGATION, DOCUMENTS, AND DATA
Jack obtained from Sue the asset planning document prepared as a result of Sue and Mary’s meeting with the financial planner. That document delineated the assets of George and Mary individually and their monthly income sources, $3,800 and $3,300, respectively.
Jack then acquired bank statements and access to George’s online bank account by going to the bank with George and being added as a signatory to the account. Jack also had George remove Mary as a signatory on George’s bank accounts. Jack reviewed transactions from January 2017 through March 2020. He found that Mary had been added as a signatory on the account in June 2018. At that time an additional debit card number with withdrawals and payments to vendors appeared on the bank statements. To establish benchmarks as to income, sources of income, expense amounts, and expense purposes in George’s account prior to Mary being added to the account, Jack examined bank transactions prior to June 2018. He also looked at the recorded checks written and found a few checks written to Sue before Mary was added to the account.
Jack then analyzed 778 bank transactions between June 2018, after Mary was added as a signatory to George’s account, and April 2020. Jack calculated that over the 20-month period, about $76,000 of income was deposited into George’s bank account and a little over $77,000 was paid out. By sorting the transactions several ways, Jack was able to focus on transactions that seemed irregular as compared to benchmark transactions before Mary was added to the account.
Jack found payments to credit card numbers that he did not recognize. Further, the credit card payments found on George’s bank account were not to credit card accounts listed on his credit report. Jack also found some more checks written to Sue. Some of these checks were signed by Mary, some were signed by George, and some had been forged in George’s name. Finally, Jack obtained vehicle titles, insurance documents, and documents related to other assets. Jack also noted that the credit reports listed George as being on the mortgage loan when George and Mary’s condo was purchased, but the mortgage loan was later paid off, and George was not listed as an owner when the condo was refinanced.
Jack prepared a conservative dollar summary of his findings, backed up by the details of the irregular transactions, and gave it to George’s divorce attorney (see the table, “Summary of Irregular Transactions,” below).
George’s attorney prepared a letter to Mary’s divorce attorney summarizing the forensic findings. The attorney’s letter included Jack’s summary of irregular transactions and supporting transaction-detail worksheets prepared by Jack from his forensic investigation.
THE OUTCOME
The pressure involved with divorce proceedings, finances, and evidence of irregular transactions, along with George’s deteriorating mental state and care needs, increased tensions between the two parties and their families. The divorce attorneys helped temper these emotions and focus the case on the relevant facts and legal issues. During the divorce negotiation, Mary’s attorney initially offered $8,000 or to divide the assets and income according to state law. Ultimately, the parties came to an amicable agreement that economically benefited them both and, again, settled the case based on the relevant facts and legal issues. Per the settlement as stated in the final divorce agreement, Mary paid George $20,000. Each party kept their own assets and income. Also, as part of the final divorce agreement, both parties agreed to indemnify and hold harmless Mary’s daughter, Sue.
Although in relative terms, the sum of money was not very large, the fraud had an emotional impact on both the victim and his family. The fraud also seriously jeopardized the finances needed for initial and ongoing costs of a long-term-care facility. In the end, George’s income was barely enough to cover his care facility expenses.
Note that the final divorce agreement includes both parties’ agreeing to indemnify and hold harmless Mary’s daughter. This clause in the divorce agreement leads to multiple questions. Were Sue and Mary co-conspirators in financially exploiting George? Was Mary a victim of Sue’s financial exploitation as well? As is often the situation when financial exploitation involves more than one person, it is hard to separate Sue’s and Mary’s individual actions to gain access to and use George’s money. The forensic evidence indicates that Sue was acting in her own financial interest as well as helping Mary use George’s money for Mary’s benefit. Although some evidence suggested Sue was the mastermind behind the fraud, Mary was a willing participant by using George’s funds to preserve her own money. Either way, George was unaware of the financial exploitation perpetrated by Sue and Mary. In the end, Mary had to pay the settlement, not Sue. So, in that sense, Mary was a financial victim of Sue.
ELDERLY FRAUD ABUSE RESOURCES AND PROTECTION FROM FINANCIAL EXPLOITATION
As this story indicates, CPAs should encourage their clients with elderly family members to put policies and procedures in place as “internal controls” to help prevent and detect irregular transactions. One way to protect the elderly from financial exploitation is to have someone acting in the elderly person’s behalf as a power of attorney. Of course, it is vital that the individuals with a power of attorney be trustworthy persons — unlike Sue as illustrated in this case — who will carry out the elderly person’s affairs without exploiting the situation.
Another action is for the elderly individual to have a living trust and, if necessary, a will. Again, the appointed trustee should be someone of integrity. From Jack’s point of view, he wished he would have obtained a power of attorney for George much earlier and had a living trust in place several years before George started losing his memory.
Additionally, the power of attorney or trustee can find and organize financial documents, insurance documents, medical documents, asset documents, etc. as early as possible while the elderly person still has full mental and physical faculties. Even better is for individuals to obtain trusts and wills in their younger years and to get into the practice of organizing important documents. Then as each person grows older, they should continue updating these documents as personal situations change. Attorneys, CPAs, and other financial advisers can be helpful in these matters, suggesting updates and even safekeeping digital copies of the documents. A trusted family member should know where physical or digital documents are located.
If possible, two people should handle transactions for elderly individuals who cannot do it adequately themselves. This reduces the temptation for one person to take funds without authorization. Authorization of transactions, access to financial records, and transaction processing should ideally be done by separate individuals. Separating these duties reduces the risk of financial exploitation of elderly individuals. Regular reviews of transactions by an independent third party — other than the assigned power of attorney or trustee — is also a wise detective internal control.
When prevention fails, the elderly person or family member should contact adult protective services in their state or local law enforcement. Resources are available to help elderly people avoid becoming a victim or to report abuse to authorities. A 2017 federal law, the Elder Abuse Prevention and Prosecution Act, P.L. 115-70, requires the U.S. Department of Justice (DOJ) to collect data on elder abuse investigations as well as provide training and support to states to fight elder abuse. The DOJ has a website that provides a way to report elderly financial exploitation by family members or trusted individuals. The DOJ’s website links to the National Adult Protective Services Association (NAPSA), a not-forprofit organization that provides state and local adult protective services contacts. Each state also has its own elderly abuse center, agency, or hotline.
It is likely that CPAs who provide financial planning, tax preparation, or accounting services and reporting to elderly individuals will encounter some type of financial exploitation. CPAs aware of possible types of fraud can look for irregularities in their clients’ accounts and also help their clients establish safeguards to protect their finances. By preventing abuse and exploitation, CPAs providing various services to elderly individuals can reduce the likelihood of their clients becoming another true cautionary tale.
About the authors
Jefferson T. Davis, CPA, Ph.D., CISA, is professor of accounting at Weber State University in Ogden, Utah. Halston T. Davis, J.D., is an attorney with Davis & Sanchez in Salt Lake City. To comment on this article or to suggest an idea for another article, contact Courtney Vien at Courtney.Vien@aicpa-cima.com.
AICPA RESOURCES
Articles
“When Seniors Are Targeted in Schemes,” JofA, Nov. 1, 2021
“Forensic Accountants Team Up to Fight Elder Abuse,” JofA, June 2020
“How to Guard Client Finances Against Dementia,” JofA, Jan. 2020
“How CPAs Can Help Prevent Elder Fraud,” JofA, May 7, 2018
Podcast episodes
“Guiding Clients With Diminishing Mental Capacity,” AICPA.org
“Tips to Help Your Clients Identify Fraud During COVID-19,” AICPA.org
“Preventing and Responding to Elder Financial Exploitation,” AICPA.org
“Guiding Your Clients Who Are Financial Caregivers,” AICPA.org
Publications
Guide to Retirement & Elder Planning: Healthcare Coverage Planning, issued by the AICPA Personal Financial Planning (PFP) Section
Financial Decisions Guide — Elder Planning (exclusively for PFP Section members)
Webcast
“How to Advise Your Clients on Elder Care” (exclusively for PFP Section members)
Personal Financial Planning Certificate Programs
The Personal Financial Planning Certificate Programs are a series of certificates covering the core areas of PFP, including retirement, estate, risk management/insurance, and investment planning, as well as practical application of knowledge. Tax planning and how it relates to each area is incorporated throughout each certificate.
Personal Financial Planning (PFP) Section and PFS credential
The Personal Financial Specialist (PFS) credential highlights your tax expertise and comprehensive knowledge of financial planning. All areas of personal financial planning — estate, retirement, investments, and insurance — have tax implications, and only CPA/PFS professionals have the experience, ethics, and expertise to get the job done right. Visit the PFP Section for more information.
OTHER RESOURCE
Report
The New York State Cost of Financial Exploitation Study, New York State Office of Children and Family Services (2016)
