October 2018

America’s aging population, who hold trillions of dollars in assets, are a common target for financial abuse.  Every year, millions of American seniors are scammed by fraudsters who exploit their financial vulnerability, or in some cases diminished cognitive capacity, through a variety of financial schemes.  The National Adult Protective Services Association (“NAPSA”) describes significant growth in these cases over the last decade, with one in twenty older adults reporting recent perceived financial mistreatment.  Despite this high incidence rate, elder financial abuse is believed to largely go underreported.

Financial abuse can take a myriad of forms.  Common scams include, but are not limited to:

  • Predatory Lending, often using reverse mortgage loans
  • Pyramid or Ponzi schemes with promises of unreasonably high returns
  • Internet/Email phishing to obtain access to bank account or other financial data
  • Threatening demands for payments of taxes or other obligations that are not actually owed
  • Lottery and inheritance schemes, requiring fake taxes or transactional costs be paid upfront
  • Fake charities or misdirection of funds claimed to be collected for legitimate charities
  • Urgent requests for funds purportedly to assist a family member in trouble

Even greater than the risk from strangers is the risk from family members or other trusted associates such as caretakers, friends, attorneys, accountants, bankers, financial advisors or religious leaders.  NAPSA reports that 90% of abusers are family members or trusted others.  The New York State Cost of Financial Exploitation Study reports that the perpetrators in 67% of verified cases were family members.

The most common method of financial elder abuse is the misappropriation of funds or assets.  Misappropriation involves the unauthorized use of cash or other property.  In the case of elder abuse, this often involves a victim who was mentally unfit to be approving such activity.  The New York State Report estimates statewide losses to elderly victims in 2016 at well over $100 million and that adjustments for underreporting could increase that number from between $352 million to $1.5 billion.

In order to discover whether assets were misappropriated, a fraud investigator or forensic accountant is often employed to identify and locate assets and their usage through asset tracing.  This asset tracing is often commonly described as an effort to “follow the money” even though it can involve all types of assets, such as bank accounts, stock portfolios, property rights, businesses, real estate and vehicles, among others.  This can be especially challenging in cases of elder financial abuse when the rightful owner may not be able to assist in identifying what assets should exist, either because they are unaware of their own financial matters (as might occur with a widow who was not previously involved with financial planning or recordkeeping) or an individual who has either lost the ability to recall or has even passed away by the time the abuse was discovered.

The first step in such an exercise is gathering documents and reviewing existing financial records to summarize known assets and sources of funds.  Transactional detail contained therein can identify unexpected activity and fluctuations, transactions with other accounts, and asset purchases that should be investigated.  Any statements of personal net worth that were prepared for financial planning, lending or other purposes can provide a helpful snapshot at various points in time.  Tax returns can provide sources of funds that should be flowing through the individual’s accounts and identify income-generating assets, along with any asset sales.

The completeness and format of the records available and the time period in question will be the biggest determinants of the level of effort involved.  Unfortunately when the abuse is ongoing over a long period of time, there is increased risk that records may no longer be available through financial institutions, even if such records are requested or subpoenaed.  As with any type of asset misappropriation or embezzlement, there is also a high risk that the assets taken have been squandered before they can be recovered.

Fulcrum Inquiry regularly performs forensic accounting services.