Mel O'Connor 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'Connor 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'Connor actually has in the bank. In negotiating the sale of the Lansing property, O'Connor is showing the balance sheet to prospective investors.
- Identify two parties other than O'Connor who can be harmed by theft. In what ways can they be harmed?
- Dicuss the role accounting plays in this situation. What internal controls could be put in place to prevent this type of theft?