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This case study delves into a real-life scenario where allegations of misconduct were raised against an Enduring Power of Attorney (EPOA) and executor, highlighting the critical importance of funds tracing in uncovering potential financial abuse and ensuring fiduciary responsibilities are upheld.
We were engaged by lawyers acting on behalf of Ben Brown, the son and a beneficiary of Nancy Brown’s estate, his late mother. Ben was engaged in VCAT proceedings seeking to remove his brother, James Brown, who served as the sole EPOA and subsequently as Nancy’s sole executor. We were retained to provide expert evidence quantifying the misappropriation of funds by James over a seven-year period from 2017 to 2024.
Nancy held several assets in her personal sole name, including investments in ASX listed shares, entitlements in a self-managed superfund, and investments through a family trust.
James admitted to a lack of awareness regarding his obligations to maintain accurate records and accounts of all transactions conducted in his role as the EPOA and subsequently as executor.
Nancy was known for her frugal lifestyle, and had recently given up her driver’s licence some time prior to James’ appointment as her EPOA. She did not engage in trading shares herself (as she did not know how to) and primarily spent money on basic necessities and gardening.
James, through his affidavit, also admitted to the receipt of funds for his benefit of ~$150,000 during his role as the EPOA and later as the Executor consisting of:
Payments in excess of $200,000 were transferred directly to James, including amounts deposited into his personal and corporate bank accounts as well as bank accounts associated with his spouse and children.
A key finding during the investigation was one of the payments explicitly listed by James in his affidavit was identified as being directed to a different bank account than the remaining payments.
This enabled us to match an additional three bank transfers totalling approximately $45,000 transferred to James which were not disclosed in his affidavit.
In addition, we were able to identify additional bank transfers of approximately $315,000 to unknown bank accounts, to which our instructing solicitors sought additional disclosure.
In branch cash withdrawals were in excess of $420,000, including two withdrawals on the same day totalling nearly $380,000.
These withdrawals were inconsistent with our instructions regarding Nancy’s lifestyle and spending habits, with the two large withdrawals occurring shortly after James (in his then role as the EPOA) disposed of Nancy’s entire portfolio of ASX listed shares.
We identified substantial spending on petrol, consumer goods, property maintenance, travel and the payment of private school fees, which were inconsistent with our instructions regarding Nancy’s known spending habits.
Further, an examination of the level and location of expenditure for items which may have been for the benefit of Nancy also revealed areas of potential misappropriation which we were able to highlight to the instructing solicitors, including:
We often receive instructions regarding the spending habits or lifestyle of the individual to allow an investigation to focus on area of major concern. These instructions are typically formed by a loved one (son / daughter or other beneficiary), however are unlikely to have any substance or material support and sometimes do not reflect the actual spending habits of the individual.
In our experience, having an assessment of the individuals bank accounts for a period prior to the appointment of an EPOA can assist is establishing a verifiable pattern of expenditure and cash usage which when compared to the pattern post commencement of the EPOA can reveal abnormalities and inconsistencies.
In affidavits or during the course of proceedings, EPOA / executors may disclose a level of misconduct, but like any cognisant fraudster, it is not likely to be the whole story.
In this matter, through his affidavit, James admitted to transactions he referred to as ‘material’ being more than $5,000.
During the course of the investigation, we identified transactions which were potentially to or for his benefit of in excess of $500,000, including petrol and car related expenditure, streaming services subscriptions, consumer goods, excessive grocery spends, alcohol, cigarettes, hospitality, and travel.
It is often challenging to determine the beneficiary of cash withdrawals made at a branch or ATM.
However, having a strong understanding of the necessity for cash can assist – often leaving few options as to whose benefit it could have been for.
Another key aspect is the location of the cash withdrawal, which can assist in establishing the desire of the withdrawal – a critical link to whose benefit it could have been for.
Funds tracing relies on the description included on the bank statement – making it difficult to trace items whereby alternative payment merchants have been used such as PayPal and AfterPay.
Additionally, BNPL merchants pose a unique issue in funds tracing, particularly in tracing expenditure over a certain amount. BNPL transactions result in the purchase amount being spread over multiple charges to a credit card or bank account, reducing the size of the transaction as opposed to making the transaction outright.
As James had disclosed only material transactions over ‘$5,000’ in his affidavit, this would allow a potential purchase of up to $19,999 through AfterPay falling under the $5,000 threshold as each individual charge to the credit card or bank account would have been less than $5,000.
Furthermore, the lack of detail provided in the description makes the identification as to the purpose of the transaction difficult to ascertain. This is why in undertaking funds racing engagements where we identify the frequent use of PayPal or BNPL merchants (such as AfterPay) we suggest additional documentation be sought to supplement the bank statements.
Within 10 business days of appointment, we were able to examine and analyse more than 3,800 transactions from 750 pages of bank statements and deliver a memorandum of findings for the purposes of mediation.
The investigation revealed misappropriation for the benefit of James and his related parties of up to $1.7m, including cash withdrawals and bank transfers in excess of $900,000.
This enabled the instructing solicitors a stronger negotiating position at mediation, within the limited timeframe that was available, whilst still reserving the ability for a formal expert witness report at a later date if this was required as part of the proceedings.
