Question

(dis.3)

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 theft?

Answer 1

Couple different parties who can be hurt by this theft : Prospective buyer, Resident and Banker/financer

What ways they can harmed are given below :: Because the insight sheet decreases money, a potential client may consider the construction based upon the amounts conferring on the balance sheet. If that client holds the equivalent director, he longing not to have the cash flow he assumes. The other party through danger is the lender. If a bank grants based on a false balance sheet, the bank may suffer if the client does not proceed to produce payments

Performance of Account including Internal Control:

Mel O'Connor, equals the chief part hurt by aforementioned crime, first for putting his spirit in this director and providing the very person to manage rent and extra cash services moreover do bank adjustments, and secondary by the false granting he has on his business stable earnings. Put Interior control system to designate another person to do bank settlement and accounting method, which confirm cash receipt and bank.

The supervisor at the crime is found will be failing his job and departing in jail, and sway be returning the money back; the accountant in management of Mr. O’Connors business by missing the job and yet the license due to the inadequacy in identifying the crime or because he/she accepted with it; as well the residents may understand that they had settled the rent while the director has stolen the cash for something they can be evicted from residence while they lost their cash.

Accounting plays a huge purpose within full businesses, little or huge; in here circumstance the accountant should be capable to determine the false balances while performing bank settlements and making together balance sheets for the business. and need have effective internal control over the plan of the business to stop crime.

It should be capable to trace down to the director who was cheating also report to his client, O’Connor.