The print media industry’s “dirty little secret” is public – the secret of how major newspapers and magazines in Australia, and the US, falsely inflate their audited circulation figures to deceive and mislead advertisers.

The secret emerged in the US last year in a scandal involving the Chicago Sun-Times and Long Island Newsday, as this report explains. The Sun-Times – owned by Hollinger, which was then controlled by Conrad Black, who formerly controlled Fairfax in Australia – disclosed circulation overstatements of up to 50,000 copies a day. Newsday had to downgrade its official circulation by 21%, and its owner, the giant Tribune Co, has had to set aside US$90 million to compensate advertisers.

Now Crikey can reveal the same scam operates in Australia. An anonymous insider has provided us with a detailed account of how one of Australia’s biggest newspaper groups routinely and illegally inflates its circulations.

The insider says he worked in the company’s circulation department (“Circulation”), where he was shocked to come across “what was a badly kept secret and somewhat of a pathetic joke” – that the company’s audited circulation figures were “manipulated and, shock horror, surprisingly fraudulent.”

How do they do it? “Well there a number of ways,” he writes – and here’s his story:

Just before the audit period is complete, Circulation do not process some newsagent returns, enough to obtain a satisfactory audit figure for the various products management need. The poor old newsagent is told that a virus has affected the Circulation system and it will take a few weeks to rectify.

Auditors arrive and review the figures, these are all good. Auditors leave with the good figures, Circulation then process the returns after the auditors leave, and newsagents are happy. The Circulation Department get the great audit figures and charges accordingly for advertising in their fine products.

The next option is to have a Company that supplies services to buy bulk copies of the products, not ten or 20 per day but thousands, and dispose of the product, if they actually even print it. The invoice is then paid by Circulation so that the Company does not have to pay it themselves. I understand this Company was then rewarded with a lucrative contract for their participation.

The word is events are big for hiding sold copies. Sponsor an event or ‘sell’ copies to the event organiser, hand out your product and then claim whatever figure you like, provided it does not exceed the attendance and nobody would ever know.

School teachers are very big on the hit list, with this poor profession targeted. Teachers are sold the daily paper for the year at $10 delivered to the school. If the required figures are not reached, they pay newsagents to sponsor the school and the newsagent supplies the papers at no cost to the teacher or newsagent. How long before teachers catch on that the company is paying to supply teachers for free?

Again they target this area by selling papers to schools on the assumption that a reference or an insert in the paper relates to the curriculum that the schools are studying will sell the school papers. Again if the school does not willingly participate, the company pays incentives to the newsagent to sponsor and deliver to the school regardless.

Makes you wonder how the people in charge sleep at night.