Use of investigative accounting to carve out financial exploitation

YOUR IMPACT ON FINANCIAL EXPLOITATION

According to the National Adult Protective Services Association (NAPSA), financial exploitation is one of the fastest growing forms of abuse against vulnerable adults. As the population of the United States continues to age, it is an unfortunate reality that the attempts to exploit vulnerable adults will only rise. A conservator and/or guardian can prevent financial exploitation by closely managing the vulnerable adult’s accounts and how the accounts are accessed. If financial exploitation is suspected, a meticulous review of financial records will be necessary. Depending upon the complexity and volume of financial documents, the services of a forensic accountant should be considered.

WHAT IS FORENSIC ACCOUNTING

Forensic accounting is actions taken in order to attempt to piece together or reconstruct a past event, or events, using financial information. In the context of vulnerable adults, forensic accounting is focused on following the money, and identifying cases of misuse of assets owned by the vulnerable adult. This process is done using bank records, credit card statements, tax returns, public records and other information obtained throughout the engagement.

Investigations typically begin with the examination of bank and investment account records, tax returns, loan files and credit card account statements. Through an examination of these records, forensic accountants will likely be able to identify all accounts held by the vulnerable adult. Examining these records will also allow the forensic accountants to determine if there are any expenses not associated with the vulnerable adult or if there is any missing income.

These misuses can be identified and documented using unique forensic investigative software and advanced spreadsheet tactics, such as pivot tables, charts, and graphs. After the investigation, work papers and/or a narrative report is published by the forensic accountants. The work product created by forensic accountants will provide you and legal authorities with the information they need to draw conclusions regarding whether or not financial exploitation has taken place.

Exploitation Case 101[1]

“Mrs. Ethel Crane” is an eight-one year old individual suffering from dementia. She has been in a relationship with fifty-eight year old “Mr. Smith” for the past few years. Mr. Smith is a construction worker in the area and visits Ethel on occasion. Taking advantage of his relationship with Ethel, and her vulnerability, Mr. Smith begins exploiting Ethel’s finances and using them for his own gain.

Dating back to the year prior to the beginning of Ethel and Mr. Smith’s relationship, over 4,250 financial transactions were examined. These transactions consisted of everything from checks and check card purchases to deposits and transfers. It was discovered that after gaining access to Ethel’s financial accounts, Mr. Smith began to use the money to support a lifestyle beyond his means. Mr. Smith used Ethel’s money to make payments on vehicle loans, including a snowmobile, and an ATV he bought after gaining access to Ethel’s funds. In addition to making payments on multiple vehicles, Mr. Smith took cash advances against Ethel’s account and used her assets to cover monthly bills for telecommunications, utilities, and insurance.

[1] Names have been changed to protect identities

In the year prior to the beginning of Ethel and Mr. Smith’s relationship, Ethel disbursed approximately $52,600 from her accounts. During the four years between the beginning of their relationship and the investigation of financial exploitation, Ethel’s accounts disbursed more than $410,000; three of the four years, amounts disbursed were more than double what Ethel was spending before the relationship began. In the third and fourth years in question, nearly half of the disbursements were flagged as suspicious. After the investigation was complete, it was determined that Mr. Smith had exploited Ethel of more than $199,000.

HOW TO IDENTIFY POTENTIAL EXPLOITATION

Due to the trusting nature created by the abuser and the nature of certain financial transactions, it can be difficult to identify financial exploitation. If it is suspected that financial exploitation of a vulnerable adult is taking place, there are a few steps that can be taken to ease the suspicions and help confirm them. Although you may be able to identify financial exploitation without having access to the vulnerable adult’s financial records, it is practically impossible to verify and document the totality of financial exploitation without examining financial records. Using financial records, no matter how voluminous they may be, will shed light on patterns of financial exploitation if it has been occurring.

One of the simplest actions to take when attempting to uncover exploitation is examining the purchases from the vulnerable adult’s accounts. For most vulnerable adults, spending is fairly consistent. One indication of possible exploitation is an increasing pattern of disbursements from financial accounts. This increase may be caused by multiple individuals using the assets, no longer just the vulnerable adult. Examining individual transactions rather than the sum of spending within the accounts will provide additional details on the nature of the transactions. For example, you may come across a purchase of rock concert tickets or gas purchases although the vulnerable adult has not driven in several years.

When examining financial records over a period of time, you will gain sense for the types of transactions made by the vulnerable adult on a monthly basis. This is especially true when examining transactions before the alleged exploitation began. This develops a baseline for the vulnerable adult’s “typical” spending habits. The transactions that do not appear to fit the baseline pattern when examining financial records during the period of potential exploitation, may be the exploitation items in question. Further investigating these items and other transactions will assist you in uncovering potential financial exploitation.

THINGS TO REMEMBER

Conservators and/or guardians most likely do not specialize in forensic accounting nor might they get excited about spending hours documenting questionable financial transactions through the use of pivot tables and investigative software. Generally speaking, adult protection service workers, police and prosecutors do not specialize in forensic accounting either. The good news is that forensic accountants have the experience needed to document exploitation matters for the court of law. Forensic accountants are available to help during any step of the exploitation investigation process. Depending upon the complexity of the matter, the services provided by forensic accountants may range from consultation on how to locate financial records to assisting with the examination of financial records to creating a comprehensive forensic report for prosecution purposes.

 

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