By Stephen A. Pedneault, CPA/CFF, CFE, FCPA, Principal, Forensic Accounting Services, LLC
There’s a lot you can learn about fiduciary relationships from a game of Monopoly®.
I found that out recently when I took a look at the rules after being away from the game for many years. The section I found most interesting pertained to “The Banker.” The instructions said that the banker should be someone who “will look after the Bank and take charge of auctions. It is important that the Banker keeps his personal funds and properties separate from the Bank’s.”
Clearly the instructions establish a fiduciary relationship between the individual chosen to be the Banker, the Bank and the other players. They also make it clear that keeping the Bank’s funds separate from the Banker’s personal funds is a critical part of that relationship. That’s a good lesson for anyone engaged in a fiduciary relationship such as administrators of estates, trustees managing assets on behalf of beneficiaries, guardians and conservators.
But, the real lesson comes from what the rules don’t include and what that says to anyone with a fiduciary relationship. The rules don’t mention the consequences to the Banker if he or she co-mingles their personal “funds” with the Bank’s, or worse, if they inappropriately “borrow” funds from the Bank for their own use, providing them an unfair advantage over the other players. The directions also fall short of identifying the consequences to any other player found to be cheating at the game. This would certainly be a great deterrent if they were included. And here’s where the game and real life mimic each other.
How about a few additions to the Monopoly® rules to make the game much more realistic given today’s society and climate? For example, how about something like: “Should the banker be found to have co-mingled their property and/or funds with those of the Bank’s, the Banker shall forfeit all property and funds in their possession to the Bank, and a new player will be assigned the responsibility of the Banker for the remainder of the game. Should any player be found to have cheated during the game, the player shall forfeit to the Bank three times the value of the transaction in which they cheated, if the amount can be determined. If the amount cannot be determined, the player shall forfeit all property and funds to the Bank, and be eliminated from the game. The player’s pawn will go directly to jail and remain there for the duration of the game as a reminder to all the other players.” That should keep the players honest, right?
As a forensic accountant, I am often called in after an abuse of a fiduciary relationship. I may be asked to help my clients prove that fraud was involved. If prove can be proven, the victim could be entitled to recover three times the amount that was lost.
A common scheme perpetrated against elderly individuals is for a family member or friend to obtain a durable power of attorney over the individual’s affairs and eventually use this for his or her personal gain. Once granted, the designated individual has full control over the individual’s finances, including bank accounts, investment accounts, safe deposit box contents, and all of their other assets. As a fiduciary, this person’s role is to act in the best interest of the individual and ultimately their beneficiaries. This means, ensuring the funds are property maintained and safeguarded from abuse or theft. Unfortunately, there are some individuals who abuse this responsibility. They co-mingle their own personal funds with the individual’s ultimately depleting the individual’s funds and assets for their personal gain. Sadly, this often means there is little or nothing left for the individual and their beneficiaries. Worse of all, these crimes often go undetected because there is no recording or reporting of durable power of attorneys within Connecticut. Sometime, they will be revealed when a family member or potential beneficiary starts asking questions. But often, they are never revealed at all.
Investigating, proving and resolving embezzlement perpetrated through a fiduciary relationship can prove difficult and costly. Often the records have not been maintained, or worse have been intentionally discarded, requiring subpoenas and court orders to obtain and reconstruct the activity. It is not uncommon for cases to take months if not years to fully determine what occurred, and in many instances, the full extent of the theft can never be determined.
Can measures be taken to reduce the risk of fiduciary theft and embezzlement, as well as increase the rate of detection early in a scheme? Definitely.
And that brings us back to Monopolyâ If there are clear and defined written instructions whenever a fiduciary relationship is established they could lay the foundation for preventing this kind of abuse. These instructions would include a clear definition of the fiduciary relationship. They would clearly identify that a fiduciary relationship has been established, define exactly what that means, identify the person to whom the individual owes the fiduciary duty, and outline how the fiduciary would perform their duties on behalf of the benefiting individual. And like Monopolyâ there should be an explicit warning that the fiduciary must keep personal funds separate from the individual’s funds and property. Included should be a reporting mechanism to account for the fiduciary’s actions and activity, as well as the venue and frequency to which the fiduciary needs to report. The documentation should also clearly identify the consequences to the fiduciary in the event the fiduciary does not act in the best interest of the individual, or worse, inappropriately embezzles funds for personal purposes.
In Monopolyâ an unscrupulous banker can spell the end of an evening or a friendship. In life, an unscrupulous fiduciary threatens the health, safety and security of another person. Both situations are sad. The second is dangerous. Neither should be tolerated.
About the Author
Stephen A. Pedneault is the principal and founder of Forensic Accounting Services, LLC, a public accounting firm specializing in fraud investigations, forensic accounting, employee embezzlement, fraud prevention, litigation support services, internal control evaluations, due diligence analysis and various other special projects. A forensic accountant, Steve is also certified fraud examiner, certified in financial forensics and a forensic certified accountant. He is an author and frequent public speaker on issues related to fraud. He has authored or co-authored three books on the subject and is currently working on a fourth. Steve is frequently quoted in the media because of his ability to make sense of the complicated issues surrounding white collar crime, including fraud and embezzlement. For more information, see: www.forensicaccountingservices.com.