R.R. Donnelley Settles Reorder Settlement

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R.R. Donnelley & Sons Co., Chicago, has signed a settlement agreement with the U.S. Attorney in Philadelphia saying it will pay the U.S. Postal Service $22 million for falsely under-reporting and underpaying postage on thousands of catalog and periodical mailings since August 1989.

The settlement was announced last week by Miles R. Stiles, U.S. Attorney for the Eastern District of Pennsylvania. The case was investigated by the Philadelphia Metro Division of the U.S. Postal Inspection Service, and the settlement includes damages under the False Claims Act.

The settlement involves the handling of "reorders" -- mail that has been damaged or misrouted during the production and sorting process and has to be replaced -- by Donnelley, the USPS' largest nongovernment customer. While according to postal regulations, Donnelley receives postage discounts for presorting its mail by ZIP codes and delivery route sequence, these reorders usually fall out of the intended discount postage sortation and must be mailed separately at a higher price.

However, according to Assistant U.S. Attorney John N. Joseph, Donnelley knowingly submitted false postage statement and other reports to the USPS and failed to keep accurate records to reflect mail pieces for which added postage was due. As a result, the USPS received lower postage payments than were due for mailings that included such reorders. In addition, he said, Donnelley secretly placed the damaged or unsorted mail pieces back into the bundles of mail that had already been processed for distribution in the mailstream.

The inspection service began investigating Donnelley's Lancaster, PA, plant and subsequently other Donnelley facilities across the country.

Joseph said Donnelly failed to pay about $7 million in postal charges, which are tripled under the U.S. False Claims Act.

William H. Lowe, vice president at Donnelley, called the situation a case of misunderstanding.

"We made a mistake," Lowe said. "This is not a matter of not paying postage, but a matter of paying postage at the wrong rate. We were not getting catalogs and periodicals that had to be reproduced and rebound back into the correct mail-sortation sequence."

To address the situation, Lowe said, Donnelley is creating a senior executive position to focus full-time on postal processes and postal compliance companywide. The company also is reviewing and strengthening its systems, processes and procedures. The USPS has given Donnelley a 120-day grace period to solve the situation.

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