Michael Bret Hood’s thoughtful contribution to our most recent Fraud in the News post (http://cvacfes.com/a-rude-awakening/) got me to thinking about the linked problems of identity theft and financial exploitation of the elderly. The U.S. Census Bureau tells us that by the year 2030, it’s estimated that seniors over the age of 65 will comprise 72 million American citizens. My former Medicaid Program colleagues tell me that by the age of 90, fifty percent of seniors will experience some form of disability and/or mental deterioration that will require outside assistance to perform daily tasks. Who will supervise these individuals to ensure financing decisions remain in the best interest of the senior citizens themselves and not those of fraudsters preying upon them?
Every fraud examiner (and assurance professionals in general), as a part of their routine practice, should be thinking of the design of processes and controls to protect these vulnerable individuals and their assets, to decrease the opportunity for financial fraud and to prevent access and exploitation by ethically challenged parties.
But what is financial abuse of the elderly exactly? Experts generally say that such financial abuse, or exploitation is limited to the illegal or improper utilization of an elder’s funds, property, or assets. Such experts usually go on to discuss undue influence or the ability of someone to misuse their power to exploit a weaker person’s trust and influence their decision making as important factors when defining this type of financial crime. The ACFE defines the typical victims as white, widowed females who are ages 70 to 89 years. Elder financial abuse assumes many forms and occurs across varied demographics. Famous personalities such as Mickey Rooney, Zsa Zsa Gabor, J. Howard Marshall (married to Anna Nichole Smith), and Liliane Bettencourt (heiress to the L’Oreal fortune), were all victims of this sad type of financial fraud.
CFE’s should be aware that a senior whose affairs have become part of one of our investigations has usually become a victim under one or more of four different scenarios:
(1) the senior is a financial prisoner, physically and perhaps psychologically dependent on a caregiver;
(2) the senior is losing the ability to handle financial affairs because of physical or cognitive impairment; a “new best friend” gradually assumes the responsibility for handling the senior’s affairs and then abuses that trust;
(3) a widow or widower does not know how to handle financial affairs that their deceased spouse used to take care of and is taken advantage of by someone offering assistance; and
(4) a senior, perhaps out of fear or paranoia, refuses help or financial advice from reliable, responsible relatives or other individuals and instead turns to strangers.
We are fortunate in Virginia in that most of our state agencies that deal routinely with the elderly have mandatory or voluntary reporting requirements for suspected abuse, but reporting and processing requirements, as the ACFE tells us, often vary within each state. Most states have an elder abuse reporting requirement for the following professionals: police, social workers, public assistance and mental health workers, nursing home employees, and licensed health care providers. They are required to report possible instances to state agencies and, thus, an investigation commences within a prescribed period—normally 48 hours. If the agency processing the initial report is not a law enforcement entity, the agency will turn the case over to a law enforcement agency if it is believed a crime had been perpetrated. There are reporting agencies within each state; however, in most states, there is no one comprehensive, centralized entity with the ability to immediately assess the senior’s situation and put processes in place to protect the senior’s assets and interests.
I believe that we CFE’s should strongly advocate for expansion of the scope of professionals who must report abuse to include: financial planners, accountants, attorneys, bankers, funeral home directors, and church officials. Each would be in the position to assess how the individual is affected by life events. For example, a funeral home director helping a family bury an elderly parent might notice that the spouse is not sure of her financial situation or appears to have diminished mental capacity. If the employee of the funeral home were required to report an at-risk senior, the opportunity for those in a positon to take advantage of that senior may be diminished.
Specific laws have been created during the last decade by federal and state agencies to combat the growing problem of elder financial abuse. The Dodd-Frank Wall Street Reform and Protection Act contains the Senior Investment Protection Act of 2008 which protects older Americans from misleading and fraudulent marketing practices with the goal of increasing retirement security through “grants” enabling states to investigate and prosecute those who sell financial products through “misleading and fraudulent marketing practices, provide educational materials to help seniors avoid becoming a victim, establish reporting requirements, etc.
The Affordable Care Act authorized funds to create a federal elder justice coordination team. The team is charged with combining previously fragmented elder abuse initiatives across the federal government and determines what actions are needed to enhance protection efforts. The Elder Justice Act directs the Department of Health and Human Services to develop this “coordination team” among other efforts to focus on education, research, leadership and guidance in establishing programs to prevent elder abuse. Although Congress has authorized 125 million dollars for the directives of the Elder Justice Act, only $8 million was appropriated to the 2013 federal budget.
Federal and state agencies in partnership with professional organizations like the ACFE and AICPA, law enforcement, nonprofits, the private sector, and the court system must work together to develop a new model to eradicate elder financial abuse. This new model’s primary concentration should be creating preemptive measures and processes to immediately protect the senior’s financial resources from circling predators. CFE’s need to be aware that though Federal, state, and local agencies have assumed the responsibility for targeting elder financial abuse, these agencies, as currently constituted, cannot meet demand, generally lack funding, and have limited staffing resources. There are many successful anti-elder abuse leaders within the private and nonprofit sectors, yet accountability of who is responsible and accountable for what is an issue. A balanced partnership between the agencies, nonprofits, and the private sector may be the best long term approach to combating the problem.
Elder financial abuse can only be eradicated if a preemptive approach is adopted. Fraud examiners must understand the history and growth of elder financial abuse, the government’s attempt to enact new laws, the current mostly reactive process, and the cost to society, before brainstorming can commence to develop an effective fraud containment and prevention model. Only through a partnership between agencies, state and local authorities, private sector, law enforcement, and nonprofits can society produce a central authority that could become the shield to protect our aging population from the sad and metastasizing cancer of financial abuse.