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Financial
May 15, 2016

Understanding Financial Elder Fraud

Sponsored Content provided by Adam Shay - Director of VCFO Services, Red Bike Advisors

This Insights was contributed by Richard Pasquantonio, CPA/CFF, CFE, CDFA (NC License Number 33577), an associate at Adam Shay CPA, PLLC, and Jennifer Roden, an associate attorney with Craige & Fox, PLLLC.
 
In this first installment on this topic, we will define financial elder fraud and discuss three categories of schemes and scams that fraudsters use to swindle their victims. The three classes of fraud covered in this section are: telephone and mail, health-related frauds, and financial institution scams.
 
The National Center on Elder Abuse (NCEA) defines financial elder abuse as financial or material exploitation. It can involve financial mistreatment or exploitation, or fiduciary, economic or material abuse. The center explains that financial elder abuse consists of the illegal or improper use of an elder’s funds, property or assets without the elder’s consent.
 
Signs and symptoms of financial or material exploitation include but are not limited to:

  • Sudden changes in bank account or banking practice, including an unexplained withdrawal of large sums of money by a person accompanying the elder;
  • The inclusion of additional names on an elder's bank signature card;
  • Unauthorized withdrawal of the elder's funds using the elder's ATM card;
  • Abrupt changes in a will or other financial documents;
  • Unexplained disappearance of funds or valuable possessions;
  • Substandard care being provided or bills unpaid despite the availability of adequate financial resources;
  • Discovery of an elder's signature being forged for financial transactions or for the titles of his or her possessions;
  • Sudden appearance of previously uninvolved relatives claiming their rights to an elder's affairs and possessions;
  • Unexplained sudden transfer of assets to a family member or someone outside the family;
  • The provision of services that are not necessary; and
  • An elder's report of financial exploitation.
Identifying elder abuse can be very difficult because in instances when elders make decisions to give large gifts or contributions those decisions may seem logical and coherent to them. Elders also often fail to report elder abuse or to reach out for help because of embarrassment, or fear of retaliation from their abuser. However, family members or close friends, with their own biases and agendas, may view such decisions as careless and insensitive to their expectations of inheritance.
 
What is financial elder abuse? Here are just a few examples:
 
Telephone and Mail
 
Seniors are often taken advantage of through telephone and mail scams. Two of the most popular that target seniors are sweepstakes and lottery scams. A senior may receive a telephone call claiming that he or she has won a lottery or sweepstakes. The scammer may convince the senior that before the funds may be turned, he or she must provide bank account numbers so that taxes, fees or other expenses may be withheld. Within a day, the senior’s bank account may be debited hundreds of dollars and unauthorized debits may continue for weeks. The senior may also receive a check that can be deposited into his bank account, knowing that while it shows up in his account immediately, it will take a few days before the check will bounce. During that time, the scammer will quickly collect money for supposed fees or taxes on the prize and pocket the money while the senior has the “prize money” removed from his or her account as soon as the check bounces.
 
Seniors may also fall prey to sweepstakes scams. The senior receives mailings from sweepstakes companies that lead him or her to believe that to win, he or she must purchase products offered by the sweepstakes. The senior may also be led to believe that the more products he or she purchases, the better the chance of winning. Some seniors may spend thousands of dollars purchasing products or magazine subscriptions in hopes of winning a multi-million dollar prize. It is illegal for a sweepstakes to require the purchase of products to enter. In addition, purchasing products does not increase a person’s chances of winning. Sweepstakes companies have a reputation of targeting specific vulnerable individuals and publishing misleading advertisements. Often, these companies will give the false impression that the contest is down to the individual and a few other contestants to convince the individual to purchase more products.
 
Seniors are now facing a telephone scam that can be extremely emotional referred to as the Grandma or Grandparent Scam. The scam begins when a young individual calls a senior and states something similar to “Grandma, it’s me! Don’t you know who this is?” The senior will volunteer a name of a grandchild that the caller will then adopt. The caller pretends to be the grandchild and claims that he or she has been arrested, hospitalized, had a car wreck or gotten in trouble. The caller will also beg the senior not to call the grandchild’s parents. The caller requests that the senior wire money or allow a “friend” to pick up the funds. Often, if the funds are wired, the caller will request additional funds for attorneys, bails or fines. Many victims of this scam believe information was retrieved  from Facebook or other social media accounts established by the senior or the senior’s relatives. However, very little research is needed by the scammer before performing this type of scam.
 
Health Related Frauds and Scams
 
As seniors retire, they begin to depend more on fixed incomes and government-sponsored health insurance programs such as Medicare. Criminals have developed scams to target seniors' insecurities and fears regarding the increasing costs of health care and prescription medications. Scams such as this include Medicare Discount Drug Cards programs where a telephone caller offers a Medicare drug discount card with excellent benefits. The senior is asked to provide bank account information so that his or her account can be debited to pay for the discount card. The individual may never receive a card or may receive a card that is not accepted by pharmacies in his or her community. The scammer will withdraw funds from the senior’s checking account for items and services the senior did not order.
 
Another scam targeting seniors, and low income families, is the Public Health Department-Health Care Voucher Call scam. The senior receives a call from someone who says they are a state or local public health official who can provide the individual with special health care vouchers. The caller will request the senior’s Social Security Number and personal financial information, including bank account information. The senior may also be subjected to abusive comments and repeated calls.
 
Seniors may also be susceptible to scams that involve claims for guaranteed free prescription medications. After paying a fee, the senior receives an application form for pharmaceutical companies’ free prescription drug assistance programs. The senior could have gotten the forms directly from the companies at no cost, and admission into the companies’ drug assistance programs is never guaranteed.
 
Seniors often fall victim to scams that concern a product or service that claims to provide relief for an illness or chronic medical condition. The product comes with a money-back guarantee, which helps convince the senior to try the product. However, the guarantees usually require the senior to try the product or service for several months, and by then the company that sold the product has disappeared. The senior may be able to get a refund through his credit card company, but most credit card companies will not grant a refund after several months.
 
Finally, seniors may fall for a Medical Insurance “Gap” policy scam. The senior is already well-served by a combination of Medicare, Medicaid, retirement health plans or other insurance. Somehow, the senior is convinced to enroll in an additional health insurance plan that supposedly covers only items or charges not covered by the other policies. This “gap” insurance is extremely expensive and comes with limitations, deductibles and exclusions that make it of little to no value for the senior.
 
Financial Scams
 
Annuity Sales and Estate Planning Seminars. The senior may be invited to an estate planning seminar. This seminar is deceptive and hides behind names that make them sound like nonprofit organizations for seniors. In reality, the people conducting the seminar want to sell the senior a living trust estate planning package as well as unneeded insurance policies, annuities or investments. The senior may end up paying more for this living trust plan than he would have if he went to an estate planning attorney for advice.
 
In addition, the senior’s new estate plan may result in huge commissions for the person conducting the seminar and expensive problems for the senior and his or her heirs. Scare tactics are often used to encourage the senior to liquidate holdings and invest in long-term deferred annuities, which may not be an appropriate investment for someone over the age of 75 years.
 
Predatory Mortgage Lending. A mortgage lender offers a senior a loan to consolidate the senior’s debts, help the senior’s grandchildren go to college, or pay for home improvements. The loan, however, is a bad deal because it includes a high interest rate, expensive fees for unnecessary options like credit life insurance or disability insurance, brokerage commissions, “points” or origination costs. The loan’s terms may also include a balloon payment so that the entire amount of the mortgage loan is due after just a few years. The lender may offer to refinance the loan when the balloon payment is due and offer to lower payments. Instead, more fees are tacked on to the loan. In the end, the senior may lose equity in his home while continuing to face high payments for what might have originally been a modest mortgage loan. Often, predatory mortgage lenders target seniors who have already paid off their mortgage.
 
External Resources. There are many resources available to seniors, their loved ones and caregivers regarding scams aimed at senior citizens, ways to prevent falling victim to a scam, and who should be notified when a senior has fallen victim to a scam.
 
Below are a list of organizations and agencies and their contact information of which seniors should be aware: In the second installment on this topic, we will cover three additional categories of financial elder abuse: sweetheart scams, utility terminations, and home construction schemes. We will also highlight measures that family members can take to safeguard their loved ones and limit their risk of falling prey to these types of crimes, including preventive measures that family and service providers can employ as part of their care.
 
Richard Pasquantonio, CPA/CFF, CFE, CDFA (NC License Number 33577), is an associate at Adam Shay CPA, PLLC. He focuses on forensic accounting, fraud prevention and detection, and tax controversy resolution. He is also an AICPA CFF Champion. The purpose of the CFF Champion program is to inform the professional community about the vital role of forensic accounting professionals, the knowledge required to become a CFF, and the benefits of the CFF credential. For more information, visit http://www.wilmingtontaxesandaccounting.com/ or email him at [email protected]. Pasquantonio can also be reached by phone at (910) 256-3456.
 
Jennifer Marshall Roden is an associate attorney with Craige & Fox, PLLC in Wilmington, N.C. She was a 2012-13 Borchard Foundation Center on Law and Aging Fellow and focuses her practice on elder law and estate planning. She is licensed to practice law in North Carolina and Alabama. She is a member of the Alabama State Bar, North Carolina Bar Association, and the Elder Law and Special Needs Law Sections of the North Carolina Bar. She is also a member of the National Academy of Elder Law Attorneys (NAELA).
 
Adam Shay, CPA (N.C. License Number 35961), MBA, is managing partner of Adam Shay CPA, PLLC. He focuses on minimizing taxes and improving the financial results of entrepreneurs, and is actively involved in supporting the Wilmington entrepreneurial and startup community. For more information, visit http://www.wilmingtontaxesandaccounting.com/ or email him at [email protected]. He can also be reached by phone at (910) 256-3456.
 

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