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Report to APS. They will look into it..
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"Dad, I'm going to take over paying your bills. Here's why. First, you have enough to worry about without worrying about writing checks and balancing the checkbook. Second, we've got to band together and save Nephew Lazy Ass from himself. He needs to support himself. Third, dad would be just SICK at the way Nephew Lazy Ass is mooching off you. If he were alive, gramps, you know he wouldn't let this go on. How about this? Let's pay him a generous stipend for all the things he does for you. Wouldn't that be better than just handing him money? Let's try it and see what happens, okay?"

In other words, don't be authoritarian with gramps. Manipulate him. Once you have the checkbook, DO pay him for things he does for gramps. If nothing else, he's there during the night in case of emergency. Don't sell his contribution too short. Without him, maybe gramps couldn't continue living there.
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Does Grand-dad write the nephew a check or hands him over cash? If it is a check, maybe it is time to have checks made where each check requires two signatures.... your Grand-dad's signature and that of the Power of Attorney. That would also work if your Grand-dad writes a check for cash and gets money from the bank.
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