Circ Director Weighs Proposals for Preventing Fraud

By: David Horchak One good thing that has occurred with the recent disclosures of rampant circulation fraud is the necessity that the Audit Bureau of Circulations (ABC) change and be more proactive in hunting down circulation fraud, and be less of a force that mainly makes sure numbers balance.

What must be done is a complete review by the ABC board to decide what they are trying to accomplish, and how to do it the best manner. Currently ABC rules are as numerous and complex as the U.S. tax code -- with more rules being added every year and no reflection on whether the old rules are still necessary.

The major newspapers, through their power and influence, have created a process that can be manipulated if you have the time and budget along with the inclination to do so. And at the same time, they have hamstrung the small local paper with rules that are hard to understand as they are written and an auditing process that takes a CPA to make sense of.

A new simple set of rules should be written, clearly outlining what is countable as net paid and what is not; a dollar amount should be set as to what a paper could be sold for, and not a percentage; and the auditor should spend his time verifying the money trail of revenue instead of why the ABC book is off by 20 papers in a zip code that holds thousands of subscribers.

However, several of the suggestions that have been made in guest columns at E&P and elsewhere would go a long way towards violating the independent contractor status between a newspaper and a carrier while not doing much to improve ABC's ability to catch circulation fraud.

Another thing that occurs when events like this happen is the tendency to go overboard in making sure it does not happen again without looking at the costs, and the reasons some of it occurs in the first place. On a point-by-point basis here are some of things ABC has changed, or suggestions that have been made, and how they would affect the every day operation of a newspaper:

1. ABC has already decided to limit the amount of omitted days to 10.

This is a good idea. I have known some newspapers to jump through hoops to count any day that is lower than average as an omitted days. Some newspapers have had more omitted days than days that are counted. Of course, another way to achieve the same goals while not being too taxing on the bookwork would be to allow all newspapers to eliminate the 10 worst days of circulation, with no more than two of them being Sundays.

Large papers have someone dedicated to the ABC Book, whose job it is to squeeze out every paid copy they can. However, small papers do not have the manpower to do this, and to put onerous paperwork on them as a result of the activities of major metros is just not fair.

2. A suggestion has been made to eliminate barter sales.

This is a bad idea and not enforceable. What keeps a large newspaper with a large budget from purchasing the item and then selling something to the provider? A better idea would be to require the newspaper to prove that the value they set for the item is valid based upon what they gave for it (advertising based at open rate) or what it was available for to the public.

3. The auditor should have access to general ledger information.

The auditor has always had it when I have been audited. To take it further, the auditor should ask to see the ledger -- and if denied, should not allow those papers in question to be counted as paid.

4. ABC access to independent contractors' records.

This item would most certainly violate the independent contractor agreement and allow the IRS to classify carriers as employees with all rights and benefits of an employee and the newspaper responsible for taxes over the last few decades.

5. Eliminate hawking.

A lot of newspapers rely on hawking, especially at sporting venues. Why eliminate anything that has the potential to be taken advantage of? If that is the case, nothing would be able to be counted as paid.

Instead, get rid of the rules that allow major metros to set $4-per-year regular prices. I have seen newspapers set subscription prices as low as $3.65 a year. There should be a minimum accepted price point (wholesale and retail) that all newspapers should have to meet, and hawking would be no different as the rate charged would require real sales. In addition the auditor would need access to the general ledger to see all compensation paid to the carrier.

6. Annual route list submission.

Hey, great idea. I would love it. I actually try to get carriers to turn in an updated route list every month without much luck.

What day should be used for the route submittal? Requiring this would also violate the independent contractor status. What happens to customers who go on vacation for the summer? How are they counted? How about people who only buy it for the football season? How about farmers who are too busy during planting season but purchase a subscription for winter?

There are too many variables to state that an annual route list submission would do any good. It is easy to verify Office Pay subscribers by the money trial, not so the subscribers who pay the carrier directly. What can be done here is requiring newspapers to track how many carriers collect papers they sold to each route and verifying this amount with the carrier of record, while also auditing any miscellaneous credits given to a carrier in lieu of payment.