Mel O’Conner operates rental properties in Michigan. Each property has a manager who collects rent, arranges for repairs, and runs advertisements in the local newspaper. 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 overstates 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. O’Conner is currently putting his entire business up for sale. In negotiating the sale of the business, O’Conner is showing the balance sheet to prospective buyers.

Requirements

1. Identify who, other than O’Conner, could be harmed by this theft. In what ways could they be harmed?

2. Discuss the role accounting plays in this situation.