By Ann Rankin, CPA, CFF, CFE, and Amanda Blanks
Studies show a person’s financial decision-making peaks at age 53, or more generally in their 50s. With individuals in the United States living longer, we are seeing an increase in financial exploitation of seniors. In fact, financial exploitation is now the fastest growing category of elder abuse. Isolation and uncertainty resulting from the COVID-19 pandemic have further exacerbated this problem.
Recent responses to this crisis by the Virginia General Assembly, regulators and the financial industry create opportunities for CPAs. Early education, awareness and planning can help stem the tide of this crisis. CPAs are in a unique position to help safeguard the financial well-being of our growing older adult population.
I have an uncle (we’ll call him Uncle Bob) who was a victim of financial exploitation. All his life, Uncle Bob had a modest income. He was frugal with a modest pension, a brokerage account and some savings on which to live. Because he had been careful with his money, he had money to steal.
Uncle Bob never had a trusted CPA or family member to help with his taxes or finances. As he aged, he was successful in concealing his cognitive decline from his primary care doctor. As his health declined, his drug-addicted daughter started to forge checks from his accounts, eventually stealing hundreds of thousands of dollars. Both Uncle Bob and his daughter tried to hide this situation from everyone.
Uncle Bob’s daughter financially exploited her father over several years. It was only discovered when Uncle Bob’s daughter no longer served as my uncle’s primary caregiver. At that time, we discovered that he significantly overpaid his taxes, too.
My family’s experience was not an anomaly. Statistics support the widespread financial exploitation of older Americans.
- Uncle Bob’s extended family was unaware of the need to monitor or intervene. Financial exploitation is far more common than you think. In fact, the rate of financial exploitation is extremely high, with one in 20 older adults indicating some form of perceived financial mistreatment occurring in the recent past, according to the National Adult Protective Services Association (NAPSA).
- No one reported the financial abuse until it was almost too late. According to NAPSA, elder abuse is vastly under-reported; only one in 44 cases of financial abuse is ever reported.
- The perpetrator was a family member. Financial exploitation can be perpetrated by anyone — a professional con artist, a paid caregiver, a stranger or casual acquaintance, a professional serving in a fiduciary capacity, or even a son, daughter or other family member. Unfortunately, most abusers are close friends, acquaintances or family members who take advantage of an individual’s cognitive decline and diminished capacity. In fact, NAPSA reports that 90% of abusers are family members or trusted others.
- The cost to Uncle Bob and our family was high. The Virginia Department for Aging and Rehabilitation Services (DARS) estimates the costs in fiscal 2015 to elderly or incapacitated victims to be more than $1.2 billion. To put that number in context, $1.2 billion is 7%of all the taxes administered by the Virginia Department of Taxation that year.
Older Americans’ average financial loss from financial exploitation was $50,000 when they knew the suspect and $17,000 when the suspect was a stranger. These figures are based on Suspicious Activity Reports (SARs) involving elder financial exploitation from 2013 to 2017 from the U.S. Consumer Financial Protection Bureau.
What exactly is financial exploitation?
The financial exploitation of older adults is also referred to as financial abuse and often occurs simultaneously with physical and emotional abuse and neglect.
What constitutes financial exploitation of an older adult is determined by state law (see Code of Virginia § 63.2-100). Loosely stated, it is the illegal, unauthorized, improper or fraudulent use of an adult or his funds, property, benefits or his/her resources for the benefit of someone other than that adult (including depriving the adult access to and use of their resources). Virginia expands protection by utilizing the term “vulnerable adults,” defined as a person who is at least 60 years or older or age 18 to 59 and incapacitated.
In Virginia, DARS administers the laws created to protect vulnerable adults. The Adult Protective Services (APS) Division is a part of DARS. The APS Division Manual provides the following examples of victims’ assets commonly involved in financial exploitation: credit cards, bank accounts, stocks and other investments, public assistance payments, jewelry and other valuables and personal property.
When the financial exploitation involves securities/investment products and the people offering them, the State Corporation Commission (SCC) Division of Securities and Retail Franchising steps in.
Legislative and policy responses
In recognition of the fact that financial exploitation is the fasted growing category of elder abuse, the Virginia General Assembly, along with federal and state agencies and organizations, have responded with new and updated regulations and policies:
- During the 2019 General Assembly, the legislature addressed the growing issue of financial exploitation of vulnerable adults by passing a new subsection L to § 63.2-1606 of the Code for the Protection of Aged or Incapacitated Adults. This new subsection allows financial institutions to delay transactions and refuse disbursements from the accounts of vulnerable adults if the financial institution suspects financial exploitation. Accounting firms along with investment advisors, broker-dealers and banks are defined as financial institutions. Anyone who suspects financial exploitation of a vulnerable adult and makes an APS report in good faith is protected from civil or criminal liability.
- The Virginia SCC added a subsection under its rules for investment advisors and broker-dealers to provide the same relief as provided under subsection L to § 63.2-1606 of the Code for the Protection of Aged or Incapacitated Adults.
- In 2018 Congress passed a “Senior Safe Act” to empower financial professionals to act, although the accounting profession is not included in the definition of a financial professional. The Act reduced barriers to reporting to authorities by financial professionals, including investment advisors, bankers and broker-dealers, of suspected senior financial exploitation or abuse by addressing liability concerns and fears that a report could violate a privacy requirement.
- The Financial Industry Regulatory Authority (FINRA) responded in 2018 with a rule for broker-dealers requiring them to “make reasonable efforts” to acquire the name and contact information of a “trusted person” who they can contact if they feel financial exploitation is occurring or if they suspect the investor is suffering notable cognitive decline. Serving as a trusted contact may be an opportunity for CPAs to help address increasing financial exploitation.
Many financial institutions have emergency contact forms and policies. This is another opportunity for CPAs to protect client or their families’ assets. Trusted contacts do not have account access unless the person is a joint account holder.
Cognitive decline increases risk
Elderly people who live in social isolation, need help with the activities of daily living, or are experiencing declining mental or physical health are typically most vulnerable to financial exploitation.
The U.S. population is both aging and living longer. These demographic shifts bring with them an increased risk for diseases affecting cognition, the mental process by which knowledge and understanding are accumulated, actions are taken, and decisions are made.
As we age, our brains undergo changes that can inhibit cognitive abilities such as creative thinking, problem solving, and retaining new information. To some extent, these are considered normal. However, progressive memory loss and abnormal declines in cognitive ability may signal the onset of mild cognitive impairment, a precursor to dementia.
Studies show that the ability to perform simple math problems, as well as handling financial matters, are typically among the first skills to decline in diseases of the mind. A person may appear to have the ability to handle their finances based on an overall cognitive assessment, but not have the ability to understand money. This was the case with Uncle Bob. During his routine medical exams, his doctor did not detect cognitive declines; however, Uncle Bob was in fact having difficulties with his taxes.
Scientists don’t know why cognitive decline occurs, but they have found that those diagnosed with conditions such as dementia have experienced definite biological changes to their brain and its functioning — long before any formal diagnosis can be made. This creates serious financial risks for aging people, still at the helm of their own finances, unaware that impaired cognitive function may be affecting their decisions. Studies show a person’s financial decision-making peaks at age 53, or more generally in their 50s. In terms of preventive measures, this may be the sweet spot in which to begin education and planning.
COVID-19 and financial exploitation
Further complicating the landscape in 2020 — COVID-19. Social isolation has long been a leading factor contributing to the financial exploitation of older investors. With the COVID-19 pandemic, the associated social distancing and unprecedented quarantines, there are new degrees of social isolation even among those previously well connected.
Facing decreases in the stock market and seeing their savings and investments decline, older adults may suffer from financial insecurity, which is also known to make them more vulnerable to financial exploitation. Furthermore, older adults may be experiencing increased health care concerns, like contracting COVID-19 and difficulty accessing health care and supplies to manage their existing conditions and stay healthy.
All of these conditions — social isolation, financial insecurity and concerns about health — create a perfect storm for financial exploitation.
Why should I care?
It is not a surprise how widespread the crisis of financial exploitation of older adults is becoming. The effects are far-reaching, for both the victims and their families.
According to NAPSA, the effects of financial exploitation on a vulnerable adult are devastating and extend beyond the monetary value lost. The individual frequently experiences:
- Loss of trust in others
- Loss of security
- Feelings of fear, shame, guilt, anger, self-doubt, remorse and/or worthlessness
- Financial destitution
- Inability to replace lost assets through employment
- Inability to hire attorney to pursue legal protections and remedies
- Reliance on government ‘safety net’ programs
- Inability to provide long-term care needs
- Loss of primary residence
Furthermore, in January 2020, the Nursing Home Abuse Center reported that elderly victims of financial abuse are three times more likely to die and four more times likely to enter a nursing home. Uncle Bob entered a nursing home immediately after the fraud was discovered. Our family firmly believes his quality of life diminished more quickly as a result of the financial exploitation.
What are the red flags?
My family’s experience has made us more aware of financial exploitation. With education and awareness, we can all do more to prevent, identify and respond to the financial exploitation of older adults.
Red flags of financial exploitation can include:
- Changes in relationships with others that may or may not involve financial matters, such as new “friends” and new financial arrangements.
- Changes to assets or resources indicating financial exploitation, such as abrupt changes to financial documents like power of attorney, account beneficiaries, wills and trusts, property title, and deeds or unexplained disappearance of funds or valuable possessions.
- Changes in financial records such as checks written to “cash,” suspicious signatures on checks or other documents, or others using checks, debit or credit cards without permission.
In hindsight, we did not respond immediately to red flags and risk factors with Uncle Bob. He experienced the loss of a pet, developed a lack of interest in fitness and appearance, and became disorganized and messy, leaving his documents in disarray. In addition, his daughter became increasingly involved with control of his finances without any legal documentation. See below for additional red flags.
We wish we had known before what we know now. Equally important is knowing how to prevent financial exploitation and, when necessary, where to report concerns.
An ounce of prevention…
With increased prevalence and acknowledgement of the financial exploitation of older adults, there are more resources available than ever to help prevent what happened to my Uncle Bob. As a CPA, you are in a position to promote proactive, preventive measures with your clients, their families and your community.
Prevention efforts should begin early, when a client or family member is in their 50s or even sooner since cognitive decline involving finances starts earlier than other cognitive diminutions. Because of the impact on families, conversations can also be had with clients of aging parents or other relatives.
Often conversations regarding finances are nonexistent between family members. Some may consider it an invasion of privacy, or taboo to share their financial situation. Others may not feel they can trust another family member. Because of this, a trusted advisor like a CPA may be in a better position to present and discuss matters such as preventing financial exploitation.
As a CPA, you can encourage measures a person who is still mentally sharp can take to prevent financial exploitation. Suggestions include:
- Designate a power of attorney and establish health care directives.
- Consult with an estate planning attorney as to available safeguards that can be built into legal documents (e.g., co-agents, co-trustees, a monitor or trust protector).
- Designate an independent person (i.e., independent of the person serving as agent under the power of attorney) to receive financial documents.
- Offer to be designated as “trusted contact” to monitor bank account and brokerage activities.
- Consider arranging for one or more family members to receive bank statements, brokerage reports and other financial reporting documents for a comprehensive safety net.
- Create a team for checks and balances to include the person’s advisors, CPA, attorney, insurance consultant and family members.
- Provide a service such as EverSafe to track financial activity and notify an advocate of unusual withdrawals or spending. (A word of caution: EverSafe is a relatively new commercial product.)
- Set up direct deposit for checks and autopay so others are not involved.
- Consider setting limits on check amounts and account charges or using a pre-paid debit card for transactions.
- Ensure older adults are familiar with cybersecurity tools available to help prevent fraud.
There are simple, old-fashioned ways to help prevent financial exploitation, such as staying connected with older clients through regular phone calls, visits or emails — it is not the quantity of these connections but the quality. Once again, a CPA’s professional reputation puts them in a vital helping role.
Reporting suspicions of financial abuse
During our crisis with Uncle Bob, our family learned the importance of reporting our suspicions. As a CPA, reporting is consistent with your role in protecting your client and their family’s assets. It demonstrates your concern for your clients’ well-being and financial independence.
Although Virginia does have mandated reporters, CPAs are not so designated. Even though you are not a mandated reporter in your CPA role, if you suspect an older adult is being financially exploited, it is imperative to act. In general, any and all forms of elder abuse, including financial exploitation, is everyone’s duty to report to Adult Protective Services (APS).
Conclusion or call to action
CPAs are in a unique position to help with our growing older adult population.
Because of our professional reputation, we are already trusted advisors. We can see the entire picture — the economic impacts on the individual, their family and our economy. We understand the intricacies of financial fraud and how to work with regulators and we know about putting controls in place to protect assets.
The prevalence and projected growth of financial exploitation is a service opportunity. As this issue continues to evolve, serving as our clients’ “go-to” resource for preventive measures is an opportunity. If needed, CPAs are equipped to add value to multi-discipline enforcement teams set up, in part, to protect client assets.
Don’t let your family or clients become the next Uncle Bob. If you suspect financial exploitation, report it. Your first call should be to Virginia’s Adult Protective Services hotline at (888) 832-3858.
Ann Gresham Rankin, CPA, CFF, CFE, retired recently after 17 years with the State Corporation Commission’s Division of Securities and Retail Franchising where she served as manager of audit and previously, manager of enforcement.
Amanda Blanks has been the investor education coordinator for the State Corporation Commission, Division of Securities for 20 years, where she generates public awareness about the Securities Division.
- Department for Aging and Rehabilitative Services, Virginia Adult Protective Services: To report suspected adult abuse, neglect or exploitation, call your local social services departments or the 24-hour, toll-free APS hotline at (888) 832-3858.
- Virginia Department of Social Services
- Virginia Division of Securities & Retail Franchising’s Invest Wisely program: Provides investors with the information they need to make appropriate investment decisions for their financial future and avoid investment fraud. The program distributes educational information in the form of publications, brochures and teaching guides, and provides presentations, all free of charge. For more information, contact the Division at (804) 371-9051 or [email protected].
- U.S. Department of Justice: The Department of Justice’s Elder Justice Initiative also maintains a handy “Report Abuse” page, which includes an interactive “roadmap” questionnaire to help you identify specific authorities to which you can report financial abuse: Find Help or Report Abuse.
- National Adult Protective Services Association Exploitation Resources
- Consumer Financial Protection Bureau (CFPB) resources protecting against elder fraud
- North American Securities Administrators Association (NASAA) Serve Our Seniors
- Securities and Exchange Commission (SEC) Financial Exploitation Resources
- Financial Industry Regulatory Authority help for seniors. Securities Helpline for Seniors, call toll-free: 844-57-HELPS (844-574-3577), Monday to Friday, 9 a.m. – 5 p.m. (Eastern Time).
- Commodity Futures Trading Commission (CFTC) complaints: For example, beware of gold and silver schemes designed to drain retirement savings.