Forensic Accounting - Commercial Aspects

1. Main Line Association For Continuing Education 11-15-18 David E. Goss, CPA/CFF/CGMA,CIA,CFE Forensic Accounting - Commercial Aspects

2. Elder Fraud & Forensic Accounting

3. NORTH AMERICAN FORENSIC ACCOUNTING PC CONTACT INFORMATION • David E. Goss CPA/CFF/CGMA, CIA, CFE • North American Forensic Accounting PC • 901 Dawn Avenue Suite A • Ephrata, PA 17522 • 717-466-6800 • dave@naforensics.com

4. OBJECTIVES • Improve awareness of elder fraud and its potential impact on you, your relatives, friends or neighbors • Explain why the elderly are targets for fraud • Examples of various fraud schemes • What you can do to help prevent elder fraud • What you should do if elder fraud is suspected • Hiring a forensic accountant • Testifying in court • Case studies • Questions / What is your experience in this area?

5. DEFINING ELDER FRAUD • Financial exploitation • Durable power of attorney • Joint bank account ownership • Misused authority – guardians or conservators • Undue influence – emotional, physical abuse • Consumer scams, telemarketing fraud, sweepstakes fraud, etc.

6. EXAMPLES OF ELDER FRAUD • Stealing money • Committing identity theft • “Borrowing” funds without intent to repay • Cashing an elder’s check(s) – such as Social Security or pension checks – without authorization • Withdrawing cash from an elder’s bank account with an ATM card without the elder’s permission 6

7. EXAMPLES OF ELDER FRAUD • Collecting and cashing checks after the person has died (See final slide) • Convincing or forcing an elder to sign a contract, power of attorney, or other document that results in unwanted financial or material commitments • Home repair services that are paid for and no work is done (home improvement scams). Scammers typically work in teams of two.

8. EXAMPLES OF ELDER FRAUD • Handling an elder’s moneywithout durable power of attorney(The POA authorizes the person to manage the elder’s finances.) • Misuse of an elder’s monies, assets under a POA • Scamming an elder by convincing him/her to withdraw money from the bank, and then taking the money • Using an elder’s charge card number for one’s own benefit

9. EXAMPLES OF ELDER FRAUD • Telemarketing scams • Enrolling an elder in unneeded services or subscriptions • Travel scams (high pressure sales tactics) • Marrying someone for his or her money (sweetheart swindle), either for immediate financial gain or to inherit their money after death

10. EXAMPLES OF ELDER FRAUD • Obtaining donations from an elder under false pretenses – knocking on your door • Stealing household goods, valuables or money while caring for an elder • Convincing or forcing an elder to change a will or deed or create a power of attorney agreement • Fake emergency appeals

11. EXAMPLES OF ELDER FRAUD • Internet fraud schemes • Lottery scams • Selling bogus items – even fake shares of stock. • Adult children who have not separated financially from the parents (still living at home) may become financially abusive or become too financially involved.

12. Aging Population • The number of people aged 65 and older is projected to reach 83.7 million by 2050, compared with 43.1 million in 2012, the bureau reported. • One in nine people 65 and older has Alzheimer's disease, and about 30 percent of Americans over the age of 85 has the disease. • There are 75 million Baby Boomers. 5 million Boomers a year enter retirement. Each day,10,000 baby boomers retire and begin receiving Medicare and Social Security benefits. • Approximately 80% of seniors have at least one chronic disease and 77% have two or more chronic diseases. • Age 50 is the optimal age for financial decision making. Skills decline after that. Financial decision making ability begins to decline by age 60 and is significantly impacted by age 80. By 2030 it is estimated that 1/5th of all Americans will be age 65 or older.

13. ELDERLY AS TARGETS • Elderly manage a large percentage of the nation’s liquid assets • More vulnerable to fraud and deception due to age-related physical and cognitive limitations • Hesitant to report financial abuse • Embarrassment • Afraid of loss of independence • Loss of control over finances • Fear of being moved from their home • The TRUST factor

14. ELDERLY AS TARGETS • 80% of the victims of telemarketing scams are over the age of 65 (Source: Federal Trade Commission) • Fastest growing segment of our society • Elderly individuals want to be“helpful” • Less likely to take action if defrauded. • Elderly are vulnerable – isolated, lonely, physically or mentally disabled, unfamiliar with handling their own finances or have recently lost a spouse.

15. ELDERLY AS TARGETS • Senior citizens are most likely to have a “nest egg”, to own their own home and have excellent credit – makes them attractive to con artists • People who grew up in the 30’s, 40’s and 50’s were generally raised to be polite – hard to say “no” or just hang up the phone • Elderly victims often make poor witnesses – effects of age on memory – difficulty in remembering details • Senior citizens tend to be interested/susceptible to products promising increased cognitive function, anti-cancer properties, etc.

16. KEY ELEMENTS OF FRAUD SCHEMES • Clandestine • Violates the perpetrator’s fiduciary duties to the victim(i.e. Power of Attorney (POA)) • Committed for the purpose of direct or indirect financial benefit to the perpetrator • Costs the elder assets, income, reserves or life savings

17. Life Savings Lost Marv and Penny were careful with their money. They saved for their retirement and had only one credit card, which they paid off in full every month. The couple, who were wary of potential scammers when contacted by strangers, listened to the man who claimed he was a Los Angeles Police Department detective and asked for their help in an investigation designed to arrest identity thieves. In the end, they lost their entire life savings, nearly $500,000, and were once left unable to buy groceries.

18. ADDITIONAL CONSIDERATIONS • Elder fraud is not always detected. All too often it goes unreported. Elderly victims are often too confused, fearful, or embarrassed by the crime to report it. • If detected, the crimes are seldom prosecuted • Restitution in some instances is limited or not realizable

19. WHY PEOPLE STEAL • Unspeakable problem (usually financial) resolved by “borrowing” the money • Economic distress • Elaborate lifestyles • Compulsive behavior – substance abuse/gambling problem

20. FRAUD TRIANGLE • Opportunity • Lack of oversight by relatives, friends, others • Elders need assistance from others • Elders living alone • Pressure – personal financial problems • Rationalization – justification for fraudulent activities, greed

21. Jury Duty Scam – May 2, 2017 The Cumberland County Court is warning residents after receiving more inquiries about phone scams. The court said it has received reports of callers who claim there is an arrest warrant for a resident for failing to appear for jury duty. You are offered a choice to either pay the warrant or have an officer sent over to arrest you. They demand money be paid by money transfer or by loading a prepaid card.

22. “SILVER DIVORCE” • Since 1990 the divorce rate for Americans over the age of 50 has doubled. • When an elderly couple divorces, is it safe to rely on the current spouse to serve in the role as a fiduciary? • Is cognitive deterioration an issue?

23. DUTIES OF AGENT UNDER POWER OF ATTORNEY • Exercise the powers for the benefit of the principal • Maintain funds/assets of the principal separate from those of the agent • Exercise reasonable caution and prudence • Keep afull and accurate record of all actions, receipts and disbursementson behalf of the principal (Source: 20 PA.C.S.CH.56. (PA Statute)) 23

24. POA’S - ISSUES • Laws and process can vary from state to state • Does the Principal have capacity? • Health care provider may petition the court to invalidate the POA or obtain an order regarding improper modifications or revocation of existing POA • May face challenges from family members • Fiduciary duties may involve seeking second opinions, exploring alternative treatment options, ensuring religious or spiritiual beliefs are considered etc. 24

25. THE REPORTING DILEMMA • Accountants , CPA’s • Reporting may violate State Board of Accountancy rules and Professional Standards regarding Confidentiality • Confidential Information – Any information obtained from the client/employer that is not available to the public. • Except by permission of the client engaging him or the heirs, successors or personal representatives of a client, a licensee or person employed by a licensee shall not be required to and shall not voluntarily disclose or divulge …

26. THE REPORTING DILEMMA • Attorneys – No duty to report. • Lawyer may reveal confidential information under certain circumstances: • To prevent reasonably certain death or substantial injury • To prevent a client from committing a criminal act which could result in substantial injury to financial interest of another • No protection from the client if he/she discloses • Disclose abuse under circumstances where clients name was not disclosed

27. Confidential Information Any information obtained from the client/employer that is not available to the public.

28. Confidential client information “Any information obtained from the client that is not available to the public. Information that is available to the public includes, but is not limited to, information in a book, periodical, newspaper, or similar publication; in a client document that has been released by the client to the public or that has otherwise become a matter of public knowledge; on publicly accessible websites, databases, online discussion forums, or other electronic media by which members of the public can access the information;  Source: AICPA Code of Professional Conduct

29. EARLY WARNING SIGNS: RED FLAGS NOTE: The following examples do not necessarily mean that an elder is the victim of fraud; however, the following situations may be indicators which require follow-up • A relative, caregiver, neighbor or other individual becomes extremely interested in the elder’s financial affairs • A relative or caregiver is reluctant to spend money on necessary medical treatment

30. EARLY WARNING SIGNS: RED FLAGS • A relative or caregiver claims that money is “missing” • New or recently changed legal documents, such as wills and powers of attorney, that give the relative or caretaker rights to conduct transactions • Unauthorized withdrawals from checking or savings accounts • The elder is prevented from talking on the phone or doesn’t pass along or acknowledge phone messages

31. EARLY WARNING SIGNS: RED FLAGS • Signatures on checks don’t match the elder’s signature • Life circumstances don’t match the size of the estate • Switching of bank accounts • Unusual ATM activity

32. EARLY WARNING SIGNS: RED FLAGS • Large or frequent withdrawals from bank accounts • New, previously unknown, investment advisors • Unusual gifts being given

33. PREVENTION TECHNIQUES • Reconcile your bank accounts (ask for help if needed) Fulton Bank et al • Review all transactions on your credit card bills – match each transaction to your receipts • ATM – Skimming devices • Unlocked doors, open garage doors

34. PREVENTION TECHNIQUES • Keep in touch (social contact) with the elder through phone contact, personal visits, correspondence • Be alert to thered flagearly warning signs • Have dual POAs such that one person can act as a control and watchdog over the other • Watch for signs of emotional or physical abuse, sometimes indicative of the possibility of financial fraud

35. PREVENTION TECHNIQUES • Know your neighbors or those of the elder • Get to know the bank officials where the elder typically conducts most of their banking business • Be alert to mailings, offers, requests • Don’t respond to a phone call or e-mail with any personal information

36. ENGAGING A FORENSIC ACCOUNTANT • Timing – earlier the better • Expertise – court testifying (biography /training) • Typical contact – attorneys, relatives Need attorneys for legal issues, subpoena’s Attorney’s want independent expert to crunch the numbers and possibly testify • Law enforcement • Cost considerations • Consulting vs full engagement 36

37. TESTIMONY IN COURT • Qualifications of expert • Challenges by defense counsel • Education/ training • Licenses • Has testimony ever been limited or excluded? • Curriculum Vitae – accurate and complete? • Case experience • Intimidate the expert! • Compensation • Always testify for one side? • Always tell the truth! • Don’t argue with counsel. • Don’t exaggerate, speculate or guess. • Choose your words carefully. 37

38. CASE STUDY 1 – ESTATE JAMES MILLER • General Durable Power of Attorney And Designation Of Guardian • Elder Miller lived in the home of his nephew (Howard Miller) and nephews son (David Miller) • Threatened to put Elder Miller is a home in Maryland • Sale of home – check had endorsements which were not those of the Elder Miller - $98,478. Proceeds were not used for the benefit of Elder Miller • Sale of family farm $157,593. Deposit made one day after POA granted to Howard Miller (nephew). $100,690 of proceeds could not be traced to the benefit of the Elder Miller. • Cert. of Deposit $53,097 – withdrawals and account closed by David Miller 38

39. CASE STUDY 1 – ESTATE JAMES MILLER • PNC Stock - $474,425 converted by Howard Miller • Stock was retitled using a new POA • Social Security checks misappropriated $33,000 • Dividend checks misappropriated – 2,505. • My testimony – 5 hours on the stand • Doctor testimony regarding dimension and second POA 39

40. CASE STUDY 2 – DUAL POA’S • Two adult sisters served as dual POA’s • One sister lived in mom’s house and took care of her • Second sister brought lawsuit against the first for misappropriation of funds • Threat of physical harm - Sister 1 to Sister 2 • Withdrawals from bank ATM • “Mother drove to the bank and withdrew funds” • Gift from mother to Sister 1 ? • Bank video records and Mother’s limited physical condition – only had one leg and did not drive! 40

41. CASE STUDY 3 – YOUNGEST SIBLING • Five adult siblings – two lived in Florida, two in Colorado • Four out of state siblings were retired • Youngest sibling lived locally in parents house • Concern that youngest sibling was draining the parents accounts. • Upon death of the parents the youngest sibling became the Executrix • Bottom line – the four out of state siblings collectively could not afford to hire and attorney and CFE to investigate the youngest sibling 41

42. CASE STUDY 4 – THE ACCOUNTANT Five adult siblings – four daughters, one son Son had a permanent brain injury Father set up a trust so that four daughters could care for the son in case of fathers death Son- in law – “The Accountant “ offered to invest the funds for father – in law I was called when father became concerned that he had not received any broker statements Suspected that the money was never invested in the first place Son- in –law stole the entire funds that was to be put in trust – between $800,000 and $1,000,000 Legal settlement 42

43. Cheated Out of Funeral FundsSource: Michael Hedges, AARP Bulletin, October 2017 • Of all the ways to defraud people, one of the worst has to be cheating them out of the promise of an appropriately dignified funeral. • One group of thieves produced that outrageous outcome many times over, by running a scam that lasted years and cheating nearly 100,000 people nationwide out of more than $450 million. • James “Doug” Cassity, his son Brent Cassity and four other people pleaded guilty to organizing and running a massive prepaid funeral scam that went on for more than 15 years. As part of the plea agreements, the group drew prison sentences ranging from 18 months to 10 years.

44. The elder Cassity was an attorney who had been disbarred in the 1980s after his conviction for an earlier scam, according to news accounts of his trial. Far from being rehabilitated, he simply hit on an even more devastating con game, becoming the mastermind of the prepaid funeral fraud, said prosecutors at his trial. The judge at that proceeding described the business set up by Cassity as “an enormous Ponzi scheme.” His company, National Prearranged Services Inc., made an alluring promise to customers: Pay an upfront fee of up to $10,000, and that money will guarantee that your funeral expenses will be paid. The elder Cassity was an attorney who had been disbarred in the 1980s after his conviction for an earlier scam, according to news accounts of his trial. Far from being rehabilitated, he simply hit on an even more devastating con game, becoming the mastermind of the prepaid funeral fraud, said prosecutors at his trial. The judge at that proceeding described the business set up by Cassity as “an enormous Ponzi scheme.” His company, National Prearranged Services Inc., made an alluring promise to customers: Pay an upfront fee of up to $10,000, and that money will guarantee that your funeral expenses will be paid.

45. The company then acted as a broker with whatever funeral home a customer wanted to use. The money was supposed to be placed in a trust and grow through safe investments or through the purchase of a life insurance policy, as long as the client lived. But instead, the money was stolen, sometimes by altering documents so that the company became a beneficiary of the client. The conspirators lived lavishly on the stolen funds, which paid for vacations in the Caribbean, numerous extravagant shopping excursions and the purchase of expensive properties in places such as South Florida, Nantucket and Manhattan. How many people trusted the company set up by Cassity? More than 97,000, according to prosecutors at the sentencing hearing. The scam victims included private customers, owners of funeral homes, and executives at insurance companies and other financial institutions.

47. QUESTIONS ?