There may be an industry organization that audits circulation numbers, but I'm not aware of it. Typically newspapers will use the number of papers printed as a guide to their circulation. I know that a number of newspapers have been caught overstating their circulation in order to keep ad rates up.
The Milwaukee Journal Sentinel was (don't know if they still are) sending papers to people even after they'd cancelled, just to keep the circulation numbers up. They were sued by advertisers a few years back for fudging the numbers.