Forensic Accountingfor Difficult Financial Exploitation CasesKaren Webber, CPA, CFE

Adult Abuse Training InstituteOctober 30, 2019

AgendaWho We Are

How We Work

Common Concepts

Complex Cases

Making the Case

Who We Are

Forensic Accountants• “Forensic” refers to evidence.

• Forensic accountants provide numbers-based evidence to support legal action and other nontraditional services

• Forensic accountants add credibility to evidence produced in a financial exploitation case

Litigation support Expert witness testimony Business valuation Divorce matters Bankruptcy Business dissolution Fraud investigation Internal auditing Compliance auditing Business consulting

Education & Certifications

CPA CFE

CFF CIA

College Other

Involvement in NYS E-MDTs

• with caseworker/supervisor when financial abuse is suspected

Consult

• bank and other records to determine whether an allegation is verified

Review

• a concise, written report summarizing findings for use by APS, Client, law enforcement, court evaluator, and other interested parties

Issue

• fact/expert witness testimony in court for guardianship, criminal or civil cases

Testify

When to Use Forensic Accountants• Amount of records is unbearable!

• Victim has multiple bank and/or investment accounts, multiple institutions, and frequent funds transfers

• Abuse has occurred over many years

• There are or may be multiple perpetrators

• Comingled funds

• Criminal charges are desired

• Law enforcement, Victim, or Family needs a better understanding of what happened and how

Where to Find Them• CPAverify.org

• State Society of CPAs

• American Institute of CPAs (AICPA) http://www.aicpa.org/forthepublic/findacpa/pages/findacpa.aspx

• Association of Certified Fraud Examiners (ACFE) http://www.acfe.com/findacfe.aspx

• Retired investigators

• Student internship programs

How We Work

Referrals

NONPROFIT SERVICE

ORGANIZATION

ADULT PROTECTIVE

SERVICES

PHYSICIAN; GERIATRIC

PSYCHIATRIST

DISTRICT ATTORNEY

POLICE FINANCIAL INSTITUTION

E-MDT

Enhanced Multidisciplinary Teams (E-MDTs)

E-MDT

APS

District Attorney’s

Office

Physician; Geriatric

Psychiatrist

Forensic Accountants

Police

Financial Institution

Workflow

Intake Data Cleanup

Data Analysis

“Recs” & Questions Reports

Intake & Data Cleanup• Sort documents by type

Statements Signature cards Deposit Items Checks POA Real Estate records Other docs

• Run statements through OCR text recognition program to produce dataset

• Run dataset through parsing program to sort transactions by type and date

• Calculate beginning and ending account balances and compare to financial institution records

• Enter any missing data, noting any strange elements

Statement Reading Programs• PerfectAudit/Ocrolus

• ScanWriter

• BankScan

• Others

Analyzing Data

Extract

Statements to pdf

Pdfs to Excel

Clean and Parse

Error checks

Sort and categorize

Run Analytics

Frequency

Amount

Data Analysis• Create a reconciliation or “Rec” to show flow of cash into and out of

the account

• Consider patterns among each transaction type during the period, especially during period of suspect’s involvement

• Search details of underlying dataset for more specific patterns and consider notations made during data cleanup

• Develop preliminary findings, including list of missing documents and questions for referral source

Sample Case

Considerations: Deposits Is social security, pension, and/or investment income deposited regularly? Is social security income present in at least one account for the duration of the

period reviewed? If “Transfers” from other accounts exist, who owns those other accounts and did

we receive records for these? If not, did you request them? Are you able to see a change in deposit patterns after the suspect became

involved? Do deposits other than income appear in the statements? Where are these

from: other accounts, assets, or individuals? Is there any pattern to these deposits?

If a joint account or POA, did any deposits belong to an individual other than the victim, indicating that funds are being comingled?

Were there refunds from rejected payments, indicating that the account was occasionally or frequently overdrafted?

If you are aware of any sales of assets during the period? If so, are there corresponding deposits for the proceeds of the sale(s)?

Considerations: Withdrawals Are you able to see a change in spending patterns after the suspected

perpetrator became involved? What is the victim’s experience/level of comfort with ATM use, debit card use,

and online banking? If you observe ATM transactions or debit card purchases, who had possession

of the card? If withdrawals were made at the bank, who signed the slips? If there are checks, who signed them? Did you compare handwriting on signature card to checks and withdrawal

slips. Are check numbers used out of sequence? If checks were written to cash, who endorsed them? If checks were written to the suspected perpetrator, did endorsements contain

bank information that would be helpful to subpoena? If there are payments to credit cards or loans, have you requested a credit

report to determine the total outstanding debt? Are there regular payments for expenses like utilities, property taxes,

insurance premiums, or housing? If any payments are missing or skipped in a certain month, is the victim in danger of shutoff, dropped coverage, or eviction? Are any payments made more than once in a given month, such as to multiple accounts?

Considerations: General Did the address listed on the statements change at any point during the

period of your review? Whose address are the statements forwarded to? Was a POA, new owner, or beneficiary added at any point during the

period of your review? Did you note the specific transactions or patterns referenced in the initial

case referral? If not, is this documented? Is the activity observed indicative of financial exploitation or

mismanagement? What is the theme of this case, and what specific evidence exists that

would support that theme?

Questions & Attributions• Communicate any findings and questions to date to the referral

source

• Based on their responses, attribute spending to client/victim, suspect/target, and/or unaccounted for

Reports• Draft

• Final

• Memo

• Supporting Schedules/Appendices

Summary Charts: Net Spending

Account WithdrawalsLess:

Transfers Net SpendingAttributed to

ClientAttributed to

SuspectUnaccounted

ForM&T Bank checking account ended 1597 271,036.91$ -$ 271,036.91$ 204,744.51$ 24,004.00$ 42,288.40$ M&T Bank savings account ended 0217 516,212.47 (168,475.39) 347,737.08 27,990.03 - 319,747.05 Key Bank checking account ended 6257 76,446.79 (0.48) 76,446.31 18,100.00 58,346.31 - Summit FCU checking account ended 3127 159,391.60 - 159,391.60 154,364.25 - 5,027.35 Summit FCU checking account ended 3564 156,196.19 (176.19) 156,020.00 - - 156,020.00

Net Spending 1,010,631.90$ 405,198.79$ 82,350.31$ 523,082.80$ Plus: Checks to Client deposited to Suspect's accounts 238,449.58 - 238,449.58 -

Adjusted Net Spending 1,249,081.48$ 405,198.79$ 320,799.89$ 523,082.80$ % of Net Spending 100.0% 40.1% 8.1% 51.8%

Summary Charts: Suspect

Spending Attributed to Suspect 1597 6257 TotalTransfer to Suspect's account -$ 58,346.31$ 58,346.31$ Checks payable to Suspect 22,904.00 - 22,904.00 Checks endorsed by Suspect 1,100.00 - 1,100.00 Plus: Check Deposits into the Suspect's accounts payable to Client - - 238,449.58

Net spending attributed to Suspect 24,004.00$ 58,346.31$ 320,799.89$

Account Ended

Common Concepts

Gaining an Understanding

• General mobility

• Own or rent

• If at a facility, what expenses are covered?

• Where do they bank?

• Income and how it is deposited

• Regular expenses and how they are paid

• Possession/use of debit card, credit card

• Management of finances

• Other permissions regarding finances

• Use of ATM

• Use of internet (banking, shopping)

• Others in the home - do they contribute to household?

• Use/tolerance of debt

• Any other assets, investments? Where?

• Relationship to suspect

Victim’s Lifestyle

Requesting Financial Records Use APS agency letterhead/law enforcement subpoena Ask for any and all account held individually and jointly Specifically reference each of the following items:

Monthly statements Account opening/change documents Deposit items Withdrawal slips Copies of canceled checks (front and

back) Teller notes

Transfer details that show origin/destination account numbers & financial institutions

Power of Attorney documents on record Bank checks Mortgage/loan statements/records Credit card statements

Key Legislation• Gramm-Leach-Bliley Act 15 U.S.C. §6802 (a) Except as otherwise provided in this subchapter, a financial institution may

not, directly or through any affiliate, disclose to a nonaffiliated third party any nonpublic personal information, unless such financial institution provides or has provided to the consumer a notice that complies with section 6803 of this title.

(e) Subsections (a) and (b) shall not prohibit the disclosure of nonpublic personal information— (3)(B)to protect against or prevent actual or potential fraud, (8)to comply with Federal, State, or local laws, rules, and other applicable legal

requirements; to comply with a properly authorized civil, criminal, or regulatory investigation or subpoena or summons by Federal, State, or local authorities; or to respond to judicial process or government regulatory authorities having jurisdiction over the financial institution for examination, compliance, or other purposes as authorized by law.

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Requesting Credit Information• Consumers are entitled to one free

annual credit report from each of the three credit reporting agencies.

• Credit reports can be requested online, via telephone, or by mail with client consent.

• Credit card statements can usually be downloaded online, but may also be obtained via mail with client consent.

• Equifax Equifax Information Services, LLC PO Box 105169, Atlanta, GA 30348 1-800-525-6285/www.equifax.com

• Experian PO Box 9554, Allen, TX 75013 1-888-397-3742/www.experian.com

• TransUnion Fraud Victim Assistance Department PO Box 6790, Fullerton, CA 92834-

6790 1-800-680-7289/www.transunion.com

Other DocumentationLocating Assets• Tax returns

• Medicaid application

• County Clerk/ACRIS records

• Real estate closing documents

• Life insurance policies & beneficiaries

• Credit reports/credit card statements

• Investment account statements

Other Key Considerations• POA

• Capacity evaluation

• Medical records

• Health Care Proxy

• Resident facility records

• Other court records Guardianship Bankruptcy Probate

Key ConsiderationsPower of Attorney

Key ConsiderationsDecision-Making Ability

Capacity Evaluation or formal diagnosis

Specific reference to financial decision-making

Communicated to suspected perpetrator

Other evidence• Doctor’s notes or

statement• Attorney or APS

assessment• Information that

suspected perpetrator was aware of memory problems

Suspicious Activity Reports (SARs)• Bank Secrecy Act (BSA)• Financial Crimes Enforcement Network (FinCEN)• Filed by banks, credit unions, casinos, and other financial

services providers Suspicious activity that may indicate money laundering or tax evasion Involves at least $2,000-$5,000 Elder Financial Exploitation (EFE)

• Accessible by subpoena “Financial institutions are filing an increasing number of EFE SARs,

but in most cases the SARs do not indicate that financial institutions are reporting elder financial exploitation to law enforcement or adult protective services.” (CFPB, 2019) – It’s up to you to go get them!

Complex Cases

Investment AccountsTypes• Brokerage accounts

• IRAs RMDs

• Annuities

Considerations• Ownership

• Beneficiaries

• Risk tolerance

• Taxation

• Penalties

Business EntitiesTypes• DBAs

• LLC/PLLC

• LP/FLP

• Corporation/PC

Considerations• Ownership

• Protection from Liability

• Taxation

• Cost of Setup

Locating Information (NYS)• County Clerk

• https://appext20.dos.ny.gov/corp_public/CORPSEARCH.ENTITY_SEARCH_ENTRY Name Filing Date County/Jursidiction Entity Type Status Service Address Officers (if named) Office location (if named) Stock information (if given) Name History

TrustsTypes• Living

Revocable Irrevocable

• Testamentary

• Charitable Remainder

• Special Needs

• Pooled

Considerations• Wealth Transfer

• Taxation

• Privacy

https://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf, Section 6.8.1d, at page 138.

Real Estate/Other Records• County Clerk/ACRIS Deeds Mortgages Liens Judgments Pistol Permits Related Parties

Reverse Mortgages• Home Equity Conversion

Mortgage

• No payments required until death or sale of the home

• Interest accrues each month and is added to loan balance

• Maximum payout = $726,525 (Appraisal x Principal Limit Factor)

• NOTE: ACRIS records maximum value of principal & interest vs. actual payout

Professional Oversight• Lawyers

• Certified Public Accountants

• Doctors

• Nurses NYS Office of the Professions http://www.op.nysed.gov/opsearches.htm

• Financial Advisors FINRA Broker Check https://brokercheck.finra.org/

Making the Case

Independence & Objectivity• AICPA.org Independence: the state of mind that permits a member to perform [a]

service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.

Objectivity: the state of mind that imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.

Fraud TriangleOpportunity

Pressure

Rationalization

Elements of Financial Exploitation• We are trying to show: Assets were taken Authorization for the taking was

unlikely Spending was influenced by or for

the benefit of the suspect Spending harmed the victim Suspect was aware of harm being

caused

Elements of Financial Exploitation• Authorization for the taking was unlikely because: Cognitive impairments observed by involved parties Client was hospitalized or resided in facility Client denies transactions Payments were made on credit cards or loans not known to Client Payments for care/reimbursement were higher than expected CDs, annuities, or insurance policies were redeemed before maturity

Elements of Financial Exploitation• Spending appeared to be influenced by/and or benefit the Suspect

because: Increase in spending after Suspect became involved Increase in gifting after Suspect became involved Spending consistent with Suspect’s known addiction(s) Spending consistent with spending noted in Suspect’s accounts Multiple payments for utilities No spending in Suspect’s accounts appeared to be used for Client

Elements of Financial Exploitation• That spending harmed the Client because: Account balances declined significantly Bills were not paid in full, on time, or at all Debt increased Credit score declined Excessive fees for ATM use, overdrafts, failure to maintain minimum

balance

Elements of Financial Exploitation• The Suspect was aware of the harm being caused because: Suspect received bank statements Suspect made balance inquiries via ATM when accounts were low Suspect applied for credit/loans to cover spending Suspect made payments or partial payments for overdue bills Suspect made some indication of awareness of Client’s impairment

Discussion