Question :

Mel O'Conner owns rental properties in Michigan. Each property has a manager who collects rent, arranges for repairs, and runs ads in the local newspaper. The property managers transfer cash to O'Conner monthly and create 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 seems to balance. Thus, the balance sheet reports more cash than O'Conner essentially has in the bank. O'Conner is presently putting his entire business up for sale. In negotiating the sale of the business, O'Conner is indicating the balance sheet to prospective buyers.

1. Recognize who, other than O'Conner, could be harmed by this theft. In what ways would they be harmed?

2. Show the role accounting plays in this situation.