NEWS INTERNATIONAL is conducting an internal investigation into a suspected fraud after findingadiscrepancyof around £500,000 in its advertising sales department in Ireland.

Several weeks ago it obtained court injunctions against Sean McCrave, the former advertising sales manager for Ireland, and David Dwyer, who oversaw advertising in the local editions of the Sun and the News Of The World. There were also injunctions taken out against Dwyer's father, David senior, and two companies called DM Media Services and Tower Hatch.

The discrepancy was discovered just before Christmas, around three months after McCrave left to become the chief executive of the Institute of Advertising Practitioners in Ireland (IAPI).

Shortly afterwards, it is understood that Dwyer was escorted from the building. Depending on the results of the investigation, News International could press criminal charges.

The timing of the scandal is unfortunate, to say the least, for Colin McClatchie, News International managing director for Ireland and Scotland, and Ken Hutton, the commercial director for Ireland, who have both resigned from the company. There is no suggestion that either McClatchie or Hutton are in any way connected with the alleged financial irregularities. It is also deeply embarrassing for the IAPI.

McClatchie announced his resignation last week to develop a portfolio of private non-executive directorships to add to those he already has at Scottish Enterprise and Scottish Opera.

He is a well-known figure in Scottish business circles. Last weekend, he held a party at his house for over 100 guests including first minister Jack McConnell and Douglas Alexander, secretary of state for Scotland at Westminster.

He is generally seen to have done a good job during his 12-year tenure in Scotland, having overseen strides forward by the Sun and the Sunday Times and played an invaluable role as an ambassador for the titles.

This made it all the more surprising to observers that he was neither working a notice period nor waiting to oversee the switch to a new printing plant and new editorial offices in Glasgow in April.

As one source put it: "Colin has been working towards these changes for the past couple of years. Even if he resigned now, it would havemade sense for him to stay until the summer."

As for Hutton, who was McCrave's direct superior, his departure has been known to theIrishadvertising community for the past few weeks.

Awell-placedsource told the Sunday Herald that McClatchie had been a victim of changing senior executives at News International's Wapping headquartersratherthanbeing made a fall guy for the events in Ireland. It was suggested that managing director Mike Anderson, who arrived in September 2005, has wanted his own people in place for some time.

It will not go unnoticed that McClatchie's replacement, Steven Walker, the former managing director of The Scotsman Publications, has connections with Anderson dating back many years. Both men worked in advertising sales at the Edinburgh-based company in the same period early in their careers.

Walker is to receive the title of general manager rather than managing director, and is taking charge of the Scottish operations only. This returns both the area of responsibilities and the jobtitletowhat they were before McClatchie's briefwasextended to includeIrelandinlate2004.While Walker is starting tomorrow, no general manager for Ireland has yet been appointed.

McClatchiedistancedhisand Hutton's departures from the events in Ireland, pointing out that Hutton has now been asked to stay on for four more months. He said: "I can categorically say that there is absolutely no connection between the two.

"There is never a good time to leave but I haveachieved a lot of what I wanted todo, including getting the Scottish Sun to its current position as market leader."

James McManus, director of corporate affairs at News International, said: "I can categorically deny that the departures have anything to do with Ireland."