Angelina is in the rental property business. She employs property managers who collects rent, arranges for repairs, and runs advertisements in the local newspaper.

The property managers transfer cash to Angelina monthly. The property managers prepare their own bank reconciliations. Bob, 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 is actually in the bank.

Angelina is currently putting his entire business up for sale. In negotiating the sale of the business, Angelina is showing the balance sheet to prospective buyers.

1. List all who could be harmed by this theft and identify in what ways could they be harmed?

2. Explain internal controls.

3. Discuss specific internal controls that were lacking in this situation.

4. If you start a company, what are the most important internal controls to implement.