Whether or not there is income to report upon receipt now depends on what was or was not previously reported.
If the owner reported the correct total rent and the manager jut took the funds (even though reported on the tax return) then there will now be any additional rent to report.
On the other hand if there was rental income not reported by the owner that was kept by the manager then that does have to be reported now so the correct total income is reported.
So, it depends on if these amounts were or were not included as income whether it has to be reported now as income. As a cash basis taxpayer the income will be reported in the year it was received.
The above changes some if there was a theft loss claimed in a prior year (when discovered), so please let me know if that is a factor in this situation.
Please ask if you need more discussion or clarification.