Discussion: Role of Accounting

Please Read other students' posts and respond to at least two other students. Again, use any personal experience if appropriate to help support or debate other students' posts. If differences of opinion occur, debate the issues professionally and provide examples to support your opinions. 

I have included the topic and both replies. 

Topic: 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.

Respond to the following questions and, if appropriate, include personal experience as part of your answers.
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? 

Response 1: 
Identify two parties other than O'Conner who can be harmed by this theft. In what ways can they be harmed?
The two parties that can be harmed by this theft are the property managers and the banks. The banks are begin harmed because they are accepting the checks without even so much as a second glance even though the amount of money that the manager in Lansing is so far-fetched and inaccurate. This will screw up the count and balance at the banks in which are accepting his fraudulent checks. The other property managers are being harmed because that means that they are being shorted in the amounts of money that they also are entitled to.

Discuss the role accounting plays in this situation. What internal controls could be put in place to prevent this type of theft?
If there was a more accurate entry into the account journals, this would not happen because everything would be recorded down to the very last dollar, meaning that the manager in Lansing would easily be sought out and arrested for theft. 

Response 2: 
Identify two parties other than O'Conner who can be harmed by this theft. In what ways can they be harmed?

Since the balance sheets are reporting more money than O’Conner actually has in the bank, the bank has the potential to be harmed by this theft. Since the records show money that is not there, O’Conner can overdraft her account and bounce checks. Additionally, any party receiving a check or debit payment linked to this bank account can be harmed by the theft. This is because, if a party accepts payment from the account and the money is not there, they can be charged a fee by their bank for the bounced check.

Discuss the role accounting plays in this situation. What internal controls could be put in place to prevent this type of theft?
Cases like this can become very complex and difficult to prevent. However, it sounds as if the current system is dated and involves little computer work. If O’Conner could somehow develop a more sophisticated, updated system for her managers to use, it would minimize the risk of theft. Since the managers take care of repairs and advertising, and report them to O’Conner, it is easy to steal––managers can claim repairs that have never taken place, and overestimate repairs and advertising costs. Additionally, O’Conner can help eliminate theft by requiring all checks to be signed by her, and not the property managers. This would allow O’Conner to track all expenses; thus eliminating theft from these sources.