Mel O'Conner owns rental properties
in Michigan. Each property has a manager who collects rent, arranges for
repairs, and runs advertisements in local newspapers. The property
managers transfer cash to O'Conner monthly and prepare their own bank
reconciliations. The manager in Lansing has been stealing from the
company. To cover the theft, he understates the amount of the
outstanding checks on the monthly bank reconciliation. As a result, each
monthly bank reconciliation appears to balance. However, the balance
sheet reports more cash than O'Conner actually has in the bank. In
negotiating the sale of the Lansing property, O'Conner is showing the
balance sheet to prospective investors.
Identify two parties
other than O'Conner who can be harmed by this theft. In what ways can
they be harmed? Discuss the role accounting plays in this situation.
What internal controls could be put in place to prevent this type of