• by Michael Shields , October 5, 2004

Hollinger International, the parent company of the Chicago Sun-Times, Tuesday released findings of an internal audit following the disclosure last June that the newspaper's circulation had been inflated by more than 20 percent. As a result of the audit's findings, the company announced that it would be compensating advertisers, taking a pre-tax charge of $27 million to cover the estimated cost.

Hollinger revealed that the "circulation inflation" at the Sun-Times dated back to 1997, and worsened significantly over time. The average inflation that occurred in the 12-month period ending March 1997 was just 2,814 copies per day during the week and 672 copies on Sundays. By March of 2003, the average single-copy inflation had grown to 50,191 weekday copies and 17,318 Sunday copies.

Things got even worse during the most recent 12-month period ending March 28, 2004, as daily copies were believed to be inflated by over 70,000 copies--yet these circulation figures were never included in an ABC audit report.

The audit, conducted by the company's Audit Committee of the board of directors, also implicated two other Chicago area newspapers, The Daily Southtown and The Star, as well as at The Jerusalem Post.

Hollinger identified three methods of circulation fraud employed by former staffers, all of whom had been let go in recent months. Two of these methods were directed at suppressing or manipulating the number of newspapers that were counted each day as unsold returns, while the third method involved the use of recycling proceeds to purchase newspapers through a charitable program that distributes newspapers to local schools.

The Sun-Times' announcement is the latest in a string of circulation scandals. Recently, Belo Corp. announced an extensive advertiser compensation plan after revealing inflated circulation figures at the Dallas Morning News. Previously, the Tribune company's Newsday had been involved in a legal tussle with several of its advertisers after a widespread circulation scandal had come to light.

In conducting this audit, Hollinger was assisted by the Chicago law firm of Gardner Carton & Douglas, as well as the company's general counsel and the Forensic Services practice of Deloitte & Touche.