Fraud and Abuse

Preventing fraud through notification and blocking of large transactions

The discovery of financial fraud often happens after the fact. Seniors are cajoled into giving a large donation or gift to a swindler and it if lucky, the family will find out about this event shortly after the money moves out and before another event occurs. Sadly, once a senior has been identified as a soft target, the perpetrators come back multiple times. What can be done to prevent this?

Limit accounts that can be easily accessed

The first step in preventing fraud is to limit the accounts that can be easily accessed.

• Do not keep large sums of money in checking.
• Keep large emergency funds in savings in an institution separate from the checking account so that it takes a day or two to make a transfer.
• Use one credit card to autopay recurring bills and pay the credit card off each month. Fraud that occurs through credit cards is easier to recover than fraud through checking accounts.
• Use another credit card for purchases and pay it off each month. This credit card should have a low credit limit.
• Do not use debit cards other than in ATM machines.

Notifications of large transactions

The next step is to allow your future financial caretaker the ability to monitor your accounts. The easiest way to do this is to use an account aggregator such as Mint, Yodlee, or eMoney.

• Some credit cards will allow you to notify others of large credit purchases.
• Banks generally do not have an alert system. This is the reason to use an account aggregator as these allow you to set up alerts on large transactions.
• One benefit of using a financial adviser is they can be instructed to notify your future financial caretaker if you ask for additional distributions from your brokerage accounts.

Blocking large transactions

Banks will not allow large transactions to be blocked, and this is why it is not wise to keep large sums of money in checking accounts and a reason that large amounts in savings should be held in institutions separate from checking.

Most significant assets are in retirement accounts and other brokerage accounts. If you are using large brokerage firms directly, they generally will not provide a service to notify others about large withdrawals or allow blocking large withdrawals. However, if you hire an adviser directly, you can instruct your adviser to involve your future financial caretaker in suspicious transactions or block large withdrawals you request until an additional okay is provided by your surrogate.

These steps may seem intrusive, but by engaging a financial surrogate you trust and gradually involving them in overseeing your finances, you can greatly reduce the risk of financial fraud and abuse.