During the audit of Irreg. Company, Betty Bestow was examining the endorsements on payroll checks and comparing the endorsements to the names of the payees on the face of the checks. In prior audits, there had been no comparison of endorsements with authorized signatures of employees kept on file in the personnel office.

Betty noticed that a remarkable number of endorsements looked like the writing of the same person. On a hunch, she checked the signature of the payroll supervisor in the personnel office and discovered that his signature was similar to those on the suspicious checks. Betty traced all of these checks to the personnel files and found that all of them were written to recently terminated employees.

Required:

a. To whom should Betty report this apparent fraud?

b. Betty's first inclination was to show these checks to the payroll supervisor, thinking that the matter could easily be resolved. Should Betty do this? Why or why not?

c. What additional procedures should Betty perform to investigate this matter?

d. How could this fraud affect the fairness of the financial statements?