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Use the fоllоwing infоrmаtion to аnswer аll questions in this assignment: Background Mill Valley Youth Counselling Center (the Center) is a well-respected registered charity providing counseling services to emotionally disturbed children and teenagers in the Edmonton area. Its primary funding sources include public and private donations as well as federal and provincial grants. Each year, the Center also hosts an annual fundraising “gala” open to the public that enables participants to enjoy an evening of food, entertainment, and a silent auction where people “bid” to purchase donated goods & services. The Center owns its own building which is attached to a hall. When the hall is not in use for the Center’s own programming and events, it can be rented out to the public for a monetary fee. The Center is incorporated with a fiscal year-end of December 31st. The Board The Board of Directors consist of five volunteer board members who had close ties to the Center. The children of all board members received counselling at some point in the past; as such, these individuals felt a sense of obligation to “step-up” into their volunteer roles despite having busy personal and professional lives. Over the last fiscal year, the board met 4 times to approve the annual budget as well as receive operating and financial updates from the Executive Director. No Board member has specific training in the area of accounting or finance. The Executive Director The Executive Director of the Mill Valley Youth Counselling Center was Dr. Charles Grayson. Grayson came to the center in September 2017 as a consultant engaged to advise the board on how the Center could reorganize operations and diversify funding sources. The board had been so impressed with Grayson's charm, eloquence, and good ideas, they hired him as the Executive Director in January 2017 at an annual salary of $85,000. Dr. Grayson attempted to negotiate a salary of $120,000 per year as he felt this more accurately reflected the quality of his services, but this was rejected by the board due to budget constraints. After being hired, Dr. Grayson moved quickly to modernize the Center's operations. He undertook new quality assurance measures and client satisfaction surveys, re-developed the programs & services offered to teenagers & youth, and sought to improve the Center's image in the community. He even adopted a striking new logo for the Center. Over the past 6 years acting as the Executive Director, Dr. Grayson earned the respect of 5 paid staff as well as numerous service volunteers. Dr. Grayson was mesmerizing and valued a high social image. He was tall, distinguished, impeccably dressed, & enjoyed living like royalty. He took pride in his BMW automobile, membership at a lavish country club, as well as an annual family vacation to Hawaii. Once a month, he travelled to Ontario, telling staff he was checking in on his aging parents when in reality he is checking in with his probation officer. When hired, the board was unaware Dr. Grayson had a previous criminal conviction in Ontario for two counts of theft & fraud related to the "unauthorized spending" of $50,000 in his previous role as an Athletic Director of a major university. Grayson had been placed on five-years’ probation in lieu of a prison sentence and was ordered to pay a fine. Now, Dr. Grayson’s “debt-load” had been increasing. He found it difficult to afford the lifestyle he had become accustomed to while maintaining his loan payments. As a result, he constantly attempted to refinance his loans, replacing one form of debt with another. The Staff The Center employed five permanent full-time staff consisting of Dr. Grayson (Executive Director), two Registered Psychologists (who provided counselling services to the youth), an Accountant (with minimal formal training), and a Fundraising/ Donations Coordinator. The Center also relied on various service volunteers to make solicitation calls to potential donors. Payment for expenses of the Center occurred by cheque requiring dual signatures. The signing authorities over the Center’s bank accounts consisted of Dr. Grayson, the Accountant, and a member of the board. However, since the Board member wasn’t typically active in the day-to-day operations of the Center, the board member rarely signed cheques. Bank reconciliations were prepared by Dr. Grayson and were not reviewed or approved by anyone at the Center. The Suspicions The board, paid staff, and service volunteers of the Center believed fraud risk was low. “Who would steal from emotionally disturbed children and teenagers?” Would someone really be bold enough to misappropriate assets needed by this registered charity to provide counselling services to troubled youth? Unfortunately, the board became suspicious after an employee made an anonymous complaint of a personality conflict between Dr. Grayson and the Accountant. In one instance, the Accountant requested documentation before she would pay a particular bill. Grayson became angry and threatened to fire the Accountant. Dr. Grayson insisted on completing all Bank Reconciliations in an effort to segregate the duties. Concerns of the Board Chairman also increased when Dr. Grayson presented a performance report to the board at the last board meeting. The variances between actual and budgeted targets looked unusual based on knowledge of activities within the Center to date. Upon further investigation, it quickly became apparent that the budget figures had been altered to make variances look more favorable. This discrepancy was discovered when the board Chairman compared Dr. Grayson’s budgeted figures in his performance report to a copy of the budget approved by the board (filed with the board minutes). To substantiate their suspicions, the board told Dr. Grayson an audit was requested from an external donor who had provided the Center with significant funds in the past. The donor would pay for the audit but wanted some additional assurance things were “right” before bequeathing all personal assets to the Center in his will. At that point, Dr. Grayson resigned from his position of Executive Director. Audit Results: Discovery of Fraud Results of the external audit revealed a number of interesting facts: 1. Grayson's Salary Grayson's initial salary was set by the board at $85,000 per year. Grayson's salary payments increased to $98,000 and then to $120,000 during his tenure. Official board minutes, however, did not include approval of either of these increases. While there were addenda to board minutes discussing salary increases, the only official increase was from $85,000 to $95,000. The preliminary audit report concluded there was a salary overpayment. 2. Phantom Employees As the Executive Director, Grayson was responsible for the hiring & dismissal of all paid staff and service volunteers. Due to the lack of experience by the Accountant with payroll, Dr. Grayson decided to outsource payroll to an external agency. The auditors discovered two phantom employees (children of Dr. Grayson) that were being paid by the Center. 3. Donations A review of the donation receipts book revealed Grayson issued tax-deductible receipts to friends & family for donations that were never received by the Center. Furthermore, the auditors identified a number of tax-deductible receipts for “donations-in-kind” that related to goods & services contributed by donors for the annual Gala. Further investigation revealed that some of these items went “missing” and were never sold at the silent auction. 4. Grants Dr. Grayson applied for a $50,000 federal grant on behalf of the Center. In his application, he overstated expenses and understated revenues in an effort to maximize the grant. The federal government provided $75,000 to the Center with the condition it would be directly used to fund the salaries/wages of the psychologists providing services to youth. However, the auditors revealed the money was used to fund travel expenses claimed on Dr. Grayson’s expense reports submit to the Center. 5. Travel & Other Expenses The auditors discovered Grayson spent $52,000 on travel which wasn’t supported by adequate documentation. Many airplane tickets were issued in the name of one of the Psychologists employed by the Center. However, independent confirmation with the travel agent revealed these tickets were issued to Grayson's wife and children for tropical destinations. When submitting expense reports, Grayson presented the Accountant with a copy of Board minutes approving the expenditures. Unfortunately, these were found to be fraudulent prepared by Grayson on a computer belonging to the Center taken home for his personal use. Grayson also spent $2,500 to attend the “Bill Skelley School” for six days for professional training related to management & fundraising techniques. The auditors discovered the documentation and cheque issued to cover the school payment had been altered to remove the word "golf." Grayson had actually attended the "Bill Skelley School of Golf." Required In the spaces provided below prepare your written response for questions 1 through 4. Your responses will be evaluated for “depth in discussion” using case facts and opinions that are substantiated with critical thought and reasoning. Question 1 (6 marks): Why did the fraud committed by Dr. Grayson occur? Discuss in the context of the three elements of the fraud triangle: Incentive, Opportunity & Rationalization.