SPH Media files police report after investigation into inflated circulation numbers finds potential offences

SINGAPORE: SPH Media Group on Wednesday (Jun 21) filed a police report over inflated circulation numbers after potential offences were flagged in an investigation by its audit committee.

The media company, which publishes news titles such as the Straits Times, The Business Times and Lianhe Zaobao, revealed in January that daily circulation numbers had been inflated by about 10 per cent of the reported daily average circulation.

The company then tasked its audit and risk committee, with the help of legal advisers, to further investigate the matter and decide on what steps should be taken.

In a media statement on Wednesday, SPH Media said that the committee, which concluded its investigations on Jun 16, recommended that a police report be made as the probe found several issues that may potentially constitute offences.

The potential offences were redacted in the committee's report that was made public on Wednesday. 

The Straits Times reported that Mr Max Loh, who chairs the audit and risk committee, told an internal briefing for SPH Media publications that the police report was not made against specific individuals or entities but comprised the findings of the investigation.

When asked about the specific offences that were laid out in the report but redacted, Mr Loh said it was not for the committee to determine the offences, the Straits Times reported.

The police have access to the full, unredacted report, added Mr Loh, a member of SPH Media Trust's board and former managing partner of EY ASEAN & Singapore.

The names of people and parties involved were also redacted in the report that was made public.

The audit committee had commissioned legal advisers from Allen & Gledhill, which appointed Deloitte to assist with the investigations.

Their findings also concluded that there was no material accounting impact on the financial statements of SPH Media for the financial year ended Aug 31, 2022; that the actions taken against several employees and former staff were in compliance with the company's policies; and there is no evidence of the involvement of the journalism and editorial departments in the inflated circulation numbers.

KEY FINDINGS

The inflated circulation numbers were uncovered after an internal review that covered the period from September 2020 to March 2022. SPH Media Trust began operations in December 2021 after it was hived off from its listed parent company Singapore Press Holdings (SPH) to become a not-for-profit entity.

In its report, the audit committee found that daily circulation numbers were overstated by about 82,600.

This comprised 49,000 bulk copies via the Newspapers in Education (NIE) Fund that were reported but not distributed, 13,600 copies attributed to school, airline, agency and all-in-one copies, 5,000 copies under an arrangement referred to as “Y Deal” and 15,000 copies under “X Barter Deal”. 

On the issue of bulk copies, the report noted that printing and distributing bulk copies to third parties appear to be an acceptable practice in the newspaper industry. However, copies cannot be counted if they are returned, unsold or undelivered.

There were several instances when this was done, the report stated.

The people involved in the inflated figures were from the circulation division, said the report, adding that there has been no evidence to suggest that the board or its senior management were involved.

During the course of the investigations, the report said the term "avatar" was understood among the interviewees to mean "throw away".

This referred to NIE bulk copies and the reading corner copies which were not distributed during the temporary school closures during the COVID-19 pandemic.

The NIE bulk copies would be stacked and stored at the print centre and on instructions of the circulation division, eventually discarded, delivered to a client at a later date, or delivered to halfway houses and charities in case of audit checks. 

The reading corner copies were also printed during the school closures and delivered to the SPH warehouse in Kaki Bukit. Some of these copies were eventually disposed of, said the report. 

Due to limited records available, the report noted that it could not be conclusively determined when the practice of disposing of print copies first started due to conflicting responses from the interviewees. 

It also could not determine the number of print copies that were disposed of, and the number of print copies that were delivered to clients, halfway houses or charities. 

"Knowledge of 'Avatar' and the practice of disposing (of) print copies were limited to employees within the circulation division," said the report.

There was also no evidence to suggest that the board was aware of this practice or of the term "Avatar".

"Y DEAL" AND "X BARTER DEAL"

The "Y Deal" specified in the report involved an entity only identified as "Y" who paid SPH royalty fees each month in exchange for an exclusive limited licence to print and distribute 5,000 daily copies of Straits Times from 2013 to March 2022. 

These figures were reported as part of SPH’s circulation numbers even after the "Y deal" stopped in February 2021.

An unnamed individual then instructed that Y be charged a “nominal sum” under the deal from November 2021 onwards, in order to allow the 5,000 copies under the deal to continue being reported SPH’s circulation numbers. 

With regard to the "X Barter Deal", SPH had an arrangement with a company identified only as "X" between 2013 and 2022. 

The deal involved X providing e-paper digital subscriptions to SPH in exchange for 15,000 Straits Times and Business Times digital subscriptions

"The amounts to be paid by X to SPH and vice versa were offset against each other, and no real cash changed hands under this arrangement," said the report, noting that 15,000 circulation copies arising from this arrangement were included in SPH’s reported circulation numbers.

The report found that only seven digital codes for the Straits Times and Business Times digital subscriptions were accessed within the first 18 months of the deal, indicating limited efforts to distribute these codes. 

Although barter deals between media organisations are legitimate and long-established practices, "the X Barter Deal could potentially have evolved into a questionable arrangement entered into for the sole purpose of inflating circulation numbers and revenue, without a genuine intention to execute the arrangement", the report stated.

“As the X Barter Deal may not have been a genuine arrangement, there was an overstatement of revenue and expense of approximately S$830,000 (but no impact on profit and loss) in the financial statements of SPH Media Group for the financial year ended Aug 31, 2022," it added.

"The accounting impact is not deemed to be material to the financial statements of SPH Media Group for the financial year ended Aug 31, 2022, taken as a whole."

In response to CNA's queries on Thursday, SPH Media said that the amount was "below the accounting materiality thresholds as set by the external auditor for SPH Media Group’s FY22 financial statements".

SPH Media previously said that it had taken action against the employees involved in the inflated circulation numbers. Four of them left the company as a result, and three were served warning letters.

Allen & Gledhill concluded that the actions taken against the employees or former staff were "reasonably justified" in the circumstances and in compliance with SPH Media Group’s policies. 

The employees who were involved but are still with the company had acted under the instructions of their superiors, Allen & Gledhill said. "(They) had appeared to have operated under the mistaken belief that the practices directed by these superiors were accepted practices in SPH," the report stated.

In response to media queries on the audit report, the Ministry of Communications and Information (MCI) said it is studying the findings and working with SPH Media Holdings to understand the details.

"We will share our views in due course," the ministry added.

SPH Media said on Thursday it has since strengthened the separation of duties among staff, with enhanced checks and balances, to ensure data accuracy and accountability.

"We have implemented regular internal audit reviews, set up risk registers and regularly train staff on risk management to create better awareness across the company. We have also set up a code of ethics which all staff have to comply with."