Inside Job: Could Trusted Family Members Turn to Fraud?

Perpetrators of family fraud often are those family members who people would least suspect, says Tiffany Couch CFE CPA CFF, one of the U.S.’s leading forensic fraud experts, Principal at Acuity Forensics, and a Chairwoman of the Board of Regents of the Association of Certified Fraud Examiners.

Couch is often hired by lawyers, beneficiaries, or social service agencies to investigate family fraud.

“In cases of family fraud, it’s not typically the black sheep of the family. In fact, it’s usually the last person anyone would suspect – the most trusted member of the family,” Couch noted. “One of my cases was a professional with a six-figure salary and nice family who was well-known and connected in the community.

“His elderly mother had $500,000 in the bank and, when authorities found her, she was living in a trailer with a disabled son using towels and blankets to keep warm. Over two years the professional son responsible for her care had depleted her bank account to $695. The Department of Health and Human Services became involved when her rent check bounced and the son who robbed her reported he couldn’t take care of her anymore.”

Unlike many fraud cases, fortunately this one had an ending in which justice was served, Couch noted. Since the son has used his mother’s money to pay off his home mortgage and credit debt, along with building up his 401(k), he did have assets. He was prosecuted and his mother received 100 percent restitution.

Much like this case, Couch explained that 78 percent of family fraud involves fraudulent disbursements – tapping into a family member’s checking account or credit.

“You don’t need a lot of money to be the victim of fraud. If there’s money in the bank, there’s money to steal.”

What Drives a Family Member to Commit Fraud?

There’s interesting psychology behind family fraud and what Couch called the fraud triangle:

  • Perceived Need. The motive is generally a perceived need. “I need money to pay off a mortgage or credit card or gambling debt.” That need could be short-term – such as the need to get the brakes fixed on the car. But when that need is gone, some people can’t stop. For some, that fraud just gets easier to continue, Couch noted.

  • Sense of Entitlement. Along with that perceived need comes a sense of entitlement. “My loved one is going to die anyway. This is my inheritance.”

  • Opportunity. Finally, that individual has opportunity, for example, access to their loved one’s accounts or investments as was the case in the example above.

You can minimize the risks of the fraud triangle by putting safeguards in place, Couch recommends. For example, make a will and clearly define the terms of who is entitled to what and when. If possible, try to stay involved with your finances for as long as you can. And put in place a system for a trusted third party – such as a banking or accounting professional, to regularly check your account.

It can be difficult to believe that a family member is taking advantage of you. But it’s important to stay abreast of what’s happening with your finances, if you can. If not, engage the services of a trusted financial professional. And know the signs and what to do if you suspect fraud.

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