With an aging population worldwide, soaring health care costs and people outliving their financial foundations, fraudsters increasingly are taking advantage of the elderly and aging. Many are defrauded in their own homes. (An aunt of one of this column's editors swindled his late grandmother.) This serious and emotionally devastating issue soon could reach crisis proportion if relatives and friends of elders aren't aware of how to prevent abuse. Samantha Dillhoff, a student at North Seattle Community College (NSCC), writes about the problem and areas to which we should pay attention. (Dillhoff submitted this column as a paper to an NSCC fraud accounting course taught by Lauren Psomostithis, CFE.)
During a five-year volunteer program, I worked in eldercare facilities and private and group homes to provide vulnerable high-risk wanderers with tracking bracelets. This experience gave me the chance to study elder abuse.
THE ELDER ABUSE PROBLEM
An Internet search on "elder abuse" yields an overwhelming amount of information including physical, emotional, neglect, sexual and financial abuses.
Financial elder fraud is repeatedly cited as a growing crime. The increasing elderly population often is vulnerable because they have sizeable retirement nest eggs, or, conversely, they're concerned about not having enough during retirement. Also, fraudsters have easy access to retirees and can exploit them via technology, such as sharing lists of seniors who previously fell for scams.
A FRAUD IS A FRAUD
Accurate elder fraud statistics are hard to find. Elders may either be too embarrassed to report crimes, unsure where to report it or mentally unable to recognize the frauds. These frauds can be complex because in many cases the victims willingly (but unwittingly) participated in them.
According to the guide, "Financial Crimes Against the Elderly," published by the Center for Problem-Oriented Policing, "Many elderly victims do not report fraud because they feel ashamed, or they fear others will think they cannot care for themselves, which may trigger placement in a nursing home or long-term care facility."
Fraudsters can outright defraud elders or they can exploit them.
Strangers, family members, trusted friends or professional advisors can commit elder fraud; victims often willingly fall for scams after seeking services or opportunities that ultimately either didn't exist or were completely inappropriate.
Elders' families and close caregivers generally commit exploitation. Victims trust them and give exploiters easy access to finances and property. Prosecution for financial exploitation requires a specific "vulnerable adult" designation. Without any sort of prosecution "age deterrent" it definitely makes it more inviting for fraudsters to attack the people most likely to fall for frauds.
Obviously, deterring elder fraud and exploitation is better than prevention; however, few American states have laws with teeth to deter elder abuse.
INVESTIGATING ELDER ABUSE
Prosecuting elder crimes are challenging because: 1) a victim may not provide reliable testimony because of age, health and mental faculties, 2) a fraudster may challenge a victim's statements and 3) family issues may devolve into a "he said/she said" argument. In addition, local police agencies' limited investigative resources often make these cases difficult to prosecute.
During a recent interview I had with Bellevue, Wash., police detective Bob Herst, he told me that in his 12 years of investigating about 400 elder abuse cases, he wasn't able to successfully prosecute one person because "…the elderly person was not willing to provide a statement when they are cognizant of their surroundings and mentally alert. " The elderly victim only assumed it was a theft. Often initial reports "lack merit and detail … or the money was legitimately spent on routine and substantiated medical bills, prescriptions or other bills."
IDENTIFYING THE FRAUDS
Elders often succumb to sweepstakes, poor investments, fake charities, sham auto/home repair services and telemarketing frauds. "The most common type of elderly fraud is a relative taking or getting money from the victim's account or multiple accounts, and then supposedly they are spending the money on the victim, but they are actually spending it on themselves," Herst says.
Fraudsters rip off elders when the victims need house and auto repairs and then sell them unneeded services.
Telemarketing, sweepstakes and fake charity fraudsters often take advantage of homebound retired, aging adults who will answer their phones or doors. In all cases, fraudsters will convince victims they're making informed and wise decisions for the benefit of themselves, their properties or social causes.
NO FREE LUNCH
Disreputable financial service firms and con artists target and exploit the senior population through "free lunch seminars." During these lunches, fraudsters peddle penny stocks and sham investment opportunities. They lure their targets with fancy presentations, complex financial structures and the promise of fantastic returns. And they make "serious misrepresentations of risk and return, [will liquidate] accounts without the customer's knowledge or consent, and [make unauthorized] sales of fictitious investments," according to the Retirement Industry Trust Association.
Jennifer Levitz in her May 19, 2009, article, "Laws Take On Financial Scams Against Seniors," in The Wall Street Journal, wrote, "(I)n Arkansas, state agents found that dozens of seminars they attended all featured hard-sell pitches for financial products, many of which weren't appropriate for elderly investors."
According to the article, Arkansas is one of a number of states that are passing or amending securities and criminal laws to impose "enhanced penalties" on people who commit financial crimes against seniors. In response to this raid, Arkansas passed senior-victim laws doubling penalties on securities violations when a victim is 65 or older.
U.S. FEDERAL RESPONSE
On Dec. 7, 2011, I participated in a webinar hosted by the National Council on Aging, which presented some of the more current trends in elder fraud and the federal government's renewed efforts to fight it.
I learned about the Office of Older Americans within the Consumer Financial Protection Bureau, which the 2010 Dodd-Frank Act created. Section 989A of the act mandated "Senior Investor Protections" and created the office to enhance the protection of seniors. Hubert H. ("Skip") Humphrey III, director of the office, led the webinar.
Humphrey answered several questions about Medicare insurance fraud, including "hard-selling" policies and services that are either excessive or inappropriate for the elderly victim. While Congress didn't give his office authority to conduct medical investigations, Humphrey and his staff are allowed to investigate financial transactions. He fully expects to expose many health care-related fraudulent transactions.
Humphrey said that some community senior services often certify unscrupulous individuals to work with elders by only requiring that they sit through simple seminars. They don't have to abide by regulations, and they don't have to renew their certifications. These fraudsters then are free to enter elders' homes and victimize them.
The Office of Older Americans, Humphrey says, wants to formalize certification processes to help combat elder fraud and abuse and support legitimate businesses and individuals serving the elderly population.
During the webinar, we also discussed enforcement and prosecution. Police often are reluctant to investigate fraud or abuse allegedly committed by family members because the alleged crimes probably will fall under domestic violence jurisdiction; prosecutors often don't focus on these difficult cases. One webinar caller requested a federal review for prosecuting some of these family financial abuses in civil court instead of criminal court.
I hope that the Office of Older Americans can actually accomplish change and not get too bogged down in the legislative restrictions that sometimes come with governmental agencies. Unifying government participation may be what our society needs to start taking the financial protection of seniors more seriously.
Adults who have been fraud victims often wish that there were more aggressive prosecutions with clear penalties. It's incredibly horrifying to watch elder fraud victims lose entire life savings and be so isolated or ashamed that they don't seek help until the fraudsters are long gone. The growing elderly population is giving fraudsters a large pool of victims who often have substantial savings and properties. We have the responsibility to find ways to protect aging adults while still preserving their independence and dignity.
Samantha Dillhoff is an administrator/web developer at The Evolving Earth Foundation. She's also an accounting fraud student at North Seattle Community College.
Colin May, M.S., CFE, is a forensic financial investigator with a government agency (the views in Starting Out are his own) in Baltimore, Md.
Mark F. Zimbelman, Ph.D., CPA, Educator Associate Member, is the Selvoy J. Boyer Fellow and professor of accounting at Brigham Young University in Provo, Utah.
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