29 July 2024 – Neil McCausland
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(9.45 am)
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Mr Stevens: Good morning, sir. Can you see and hear us?
Sir Wyn Williams: Yes, thank you.
Mr Stevens: We’re hearing from Mr McCausland this morning.
Sir Wyn Williams: Yes.
Neil McCausland
NEIL WILLIAM MCCAUSLAND (sworn).
Questioned by Mr Stevens
Mr Stevens: Please could you state your full name?
Neil McCausland: Neil William McCausland.
Mr Stevens: Mr McCausland, thank you very much for firstly providing a detailed written statement and, secondly, for attending the Inquiry to give oral evidence today. I want to turn to that witness statement; do you have it in front of you?
Neil McCausland: I do.
Mr Stevens: For the record, that is WITN10290100. Can I ask you, please, to turn to page 76 of that statement. Do you see paragraph 203 and then beneath that a statement of truth?
Neil McCausland: Yes.
Mr Stevens: Then on the other side there’s a signature; is it your signature?
Neil McCausland: Yes.
Mr Stevens: Are the facts stated in that statement true to the best of your knowledge and belief?
Neil McCausland: Yes.
Mr Stevens: Thank you, Mr McCausland, that stands as your evidence in the Inquiry. It will be published shortly on the Inquiry’s website and I am going to ask you some questions about parts of it. I’ll start very briefly with your background. Following various roles with Marks & Spencer you became Managing Director of C&A in 1999?
Neil McCausland: Yes.
Mr Stevens: You then became CEO of a government-owned business called Navy, Army and Air Force Institutes between 2001 and 2002?
Neil McCausland: Yes.
Mr Stevens: Was that your last executive role?
Neil McCausland: Yes, it was.
Mr Stevens: Can I ask you to move slightly closer to the microphones, please, so they pick you up. Thank you.
You’ve then held a number of Non-Executive Chair roles between 2000 and when you joined Post Office in September 2011.
Neil McCausland: That’s correct.
Mr Stevens: A pointer to 2011, at that point you joined Post Office Limited as Senior Independent Director?
Neil McCausland: Correct.
Mr Stevens: Did you know Alice Perkins before you were recruited to Post Office Limited?
Neil McCausland: No, I had no knowledge of her at all.
Mr Stevens: What was the time commitment for the role of Senior Independent Director at Post Office?
Neil McCausland: I cannot quite remember. I have thought about that and it isn’t on my terms of reference. I think that it is – that it was three or maybe three to four days a month. I think it was three days a month but it might have been three to four days a month but I haven’t got a piece of paper that confirms it.
Mr Stevens: Whilst you were a Senior Independent Director at Post Office, did any other representative from Post Office ask you questions about how much time you were spending on Post Office matters?
Neil McCausland: Would you mind repeating that?
Mr Stevens: Yes, of course. Whilst you were Senior Independent Director at Post Office, did anyone else within the Post Office discuss the amount of hours or days you were spending at Post Office Limited?
Neil McCausland: Yes, it was a fairly frequent topic of conversation for me and all of the NEDs, including Alice, in that all of us were spending maybe double the amount of time that we, in theory, should have been. Post Office was a very time-intensive job. So I and all of the other NEDs were spending more time and we did talk about that.
Mr Stevens: So you rightly say your terms of reference don’t refer to time commitment. I think was it you said three to four days a month was your expectation?
Neil McCausland: It was either three days a month or three to four days a month.
Mr Stevens: Does that mean, in practice, you were working between six and eight days a month on Post Office matters during interesting your time as Senior Independent Director?
Neil McCausland: That is about right. I would say two days a week.
Mr Stevens: We don’t need to turn this up on the screen but you give a description of your role as Senior Independent Director at page 3, paragraph 7 of your statement, and I want to just raise some of them with you. The first is that you say you were to assist with the development 1of Post Office Limited strategy –
Neil McCausland: Yes.
Mr Stevens: That effectively means analysing and considering the future direction of the Post Office?
Neil McCausland: Absolutely. Post Office – do you want me to expand?
Mr Stevens: Well, you don’t need to but if you’ve got something to add, then please do?
Neil McCausland: Well, the Post Office that I went into was a very badly run, very messy business. For the 10 years previous it had had a very sharp decline in profitability. It was losing – the year before I joined it lost 120 million in a year and that had been getting steadily worse. The network had been shrinking, the infrastructure was old and creaky and it was separating out from Royal Mail Group. So it didn’t have its own infrastructure and it was about to get its own infrastructure – it needed to have its own infrastructure to stand alone and, therefore, it needed to have a strategy to basically get it back to profitability and make it a sustainable business because it was not sustainable to keep going as it was. So absolutely, developing strategy was an important part of the job.
Mr Stevens: When you say “creaky” infrastructure, what infrastructure are you referring to?
Neil McCausland: Basically everything. The IT infrastructure, we knew, was old and underinvested and creaky; the physical post offices were under-invested. They were dark, barred, fairly dingy places. So –
Mr Stevens: To cut across you, when you said the IT infrastructure, are you including Horizon system within that?
Neil McCausland: Absolutely. The Horizon system we knew was near end of life. I think it was 15 years old by that stage. Most IT systems don’t last more than 10 years. So we knew that we had a clunky underinvested IT infrastructure, which is why an awful lot of work went on during my tenure to develop a new IT strategy which would end up replacing Horizon and Fujitsu.
Mr Stevens: You joined the Post Office in September 2011, yes?
Neil McCausland: Yes.
Mr Stevens: So a year after Post Office and Fujitsu had rolled out the Horizon Online system?
Neil McCausland: So a year after Horizon Online had been rolled out, yes.
Mr Stevens: So, in those circumstances, why did you think that system was creaky?
Neil McCausland: Because Horizon Online wasn’t a rewrite – wasn’t a whole rewrite of Horizon. Horizon was still Horizon. It was basically a modified version of Horizon. It’s more like having an iPhone 15/iPhone 16 release. It’s not necessarily a whole new system. So Horizon was still a clunky, not a particularly intuitive, not particularly easy to use system.
Mr Stevens: When you are using the word “creaky”, are you using that in a user interface way, rather than a technical way of the integrity of the system itself?
Neil McCausland: Absolutely, yes. It wasn’t easy to use. It wasn’t intuitive.
Mr Stevens: One other aspect of strategy, presumably, would have been to developing the Post Office’s strategy in respect of how it responded to complaints against the Horizon IT system; would you agree with that?
Neil McCausland: Yes.
Mr Stevens: Back to paragraph 7 – as I say, we don’t need to bring it up – another point you make is that you needed to monitor performance and hold the Executive to account?
Neil McCausland: Yes.
Mr Stevens: So when doing that, does that mean probing and challenging the Executive on the work that they carry out?
Neil McCausland: Yes.
Mr Stevens: You also say ensuring the risk management system is robust?
Neil McCausland: Yes.
Mr Stevens: Does that mean, in effect, ensuring that or overseeing the Executive in their identification, analysis and mitigation of risk?
Neil McCausland: Yes.
Mr Stevens: That would include risks arising from the integrity of the Horizon IT system?
Neil McCausland: Yes.
Mr Stevens: We’re to look at that aspect in some detail this morning but, before I do, could we have your witness statement on the screen, please, at page 4, paragraph 9. At paragraph 9 you set out some of your non-executive roles. Can I just first clarify, does this list capture all of the non-executive roles you held whilst at the Post Office?
Neil McCausland: I am not 100 per cent sure that it does. That’s saying the companies I’ve worked for since leaving POL.
Mr Stevens: Yes, if we look at Skin Clinics, for example, Joules, Create Fertility?
Neil McCausland: Yes.
Mr Stevens: Those at least have some overlap with your time as Senior Independent Director. Let me ask it another way: during your time as Senior Independent Director, did you work at any other companies as a non-executive, other than those listed here?
Neil McCausland: Again, I cannot remember the dates, so I certainly have worked with companies which are not listed there before. I cannot remember the dates of leaving some of those companies as to whether they overlapped September ‘11 or didn’t.
Mr Stevens: Well, let’s just look at the ones we have here. Skin Clinics, Joules and Create Fertility. Can you summarise the time commitment that you had to give for each of those companies as a Non-Executive Director?
Neil McCausland: Joules was three days a month; create Fertility, at that stage, was very small, it was literally one clinic, so it was probably two days a month; and Skin Clinics was also three days a month.
Mr Stevens: So did you feel that you were able to dedicate sufficient time to the Post Office as Senior Independent Director?
Neil McCausland: Absolutely. I mean, as I said earlier, I gave at least double, you know, maybe more, the amount of time that, in theory, I was meant to, but I never felt constrained for time for Post Office.
Mr Stevens: I’ll move to my first topic I want to look at and that’s some of the assurances in respect of IT that you refer to in your witness statement. Please can we go to page 8 of the statement, paragraph 17. You say:
“I recall being assured by Ernst & Young’s Audit Partner (Angus Grant), the CFO (Chris Day), the COO (Mike Young) and the Chief Information Officer (Lesley Sewell), that the integrity of the accounting systems was sound, albeit slow and clunky. Given that I am not an expert in either IT or accountancy, I deferred to their expertise on these issues.”
When you said “the integrity of the accounting systems”, presumably there you’re including the Horizon IT system within it?
Neil McCausland: Yes.
Mr Stevens: When you say “albeit slow and clunky”, is that the same as we discussed before: more of a user interface matter, rather than a data integrity issue?
Neil McCausland: Yes. I was not of the understanding then that data integrity was at issue.
Mr Stevens: Can you recall the first time that – I want to start internally with the Executive – that the CFO, Chris Day, Mike Young or Lesley Sewell discussed with you the Horizon IT system?
Neil McCausland: I think, if I go to the very first time that it was discussed, it was probably actually Susan Crichton who was doing the discussing, and that took place at a Board before independence, so before I had even met Angus, and at that Board, Les Owen, if I remember rightly, who was still a Director of the Post Office Board at that stage, had asked Susan Crichton about the Access Legal/Shoosmiths letters, and had asked about the strength of the legal claims, and Susan at that stage reassured Les that their legal claims were weak and that the – there had been an audit done, which had been very positive, and that that had been reviewed by an external party, Deloitte, and also that there were no – that in all previous prosecutions where Horizon data had been used, we had been successful.
So at the time, that was probably my first induction into the integrity of Horizon data and, yeah, I was listening to an experienced RMG Director talking to our General Counsel, and there was a very clear, very robust answer from Susan Crichton that the system was sound. So that was probably the first time that Horizon issues really came into my mind. But after that exchange I had the impression that they were strong. As –
Mr Stevens: Yes, please, go on.
Neil McCausland: As we then became independent and had our first Audit Committee meeting with Angus Young from EY, Ernst & Young, and also there was an RMG internal audit report that we looked at, then those documents made it clear that they weren’t questioning the data integrity at all and they weren’t even questioning the controls, but they were questioning the documentation of controls. They were basically saying that the documentation of the controls was not as strong as it’s needed to be.
There was a discussion with EY that it had taken them longer to actually do the audit and that they had not been able to rely on the documentation which existed copied and, therefore, they had had to create some of that documentation themselves, which had led to an overrun in time and cost.
So data integrity wasn’t an issue in my mind. The controls had a small issue but the documentation of controls had a large issue.
Mr Stevens: Could we please just bring up page 68, paragraph 181 of your statement – just go down the page, please. You can see it says:
“The Board were consistently provided reassurance by a multitude of individuals – many of whom had either specialist IT or accountancy expertise – that Horizon was robust and fit for purpose. Examples of this include …”
Then if we turn the page, so I think you’ve effectively, in your evidence, just summarised those bits.
The first bullet point is the Board meeting on 12 January; the second is what you say are RMG/Post Office’s internal audit with the results reviewed by Deloitte; then we have (3), the ISAE IT annual audit, jointly commissioned by Post Office and Fujitsu; and then (4):
“Ernst & Young (the auditors for [Post Office]), regularly audited Fujitsu IT”, and you go on to refer to a discussion at the ARC audit, risk and compliance, meeting on 15 May 2014.
Just so we’re clear, are those the four matters you were referring to in your evidence then?
Neil McCausland: Not quite. So I was referring to the first one, which was Susan Crichton’s assurances, which at the time I believed. With hindsight, it becomes clear that pretty much all of –
Mr Stevens: We are just going to come to those in a moment.
Neil McCausland: – they were wrong.
Mr Stevens: Just take us through –
Neil McCausland: Yeah, okay, the second one I was referring to, the internal audit, I wasn’t referring to the ISAE 3402. That came later. So, by this time, ISAE 3402 was not in existence. However, as a consequence of those meetings, we did force Fujitsu to introduce the ISAE 3402 which, the followed year, did come into existence.
Mr Stevens: Pausing there then, when you say you referred in your evidence to Deloitte – the audit taking longer, needing to create your own paperwork, were you referring to what we’ve heard as the SAS70 issue?
Neil McCausland: No.
Mr Stevens: No.
Neil McCausland: So the – in the first year that I saw the audit reports and my first audit committee meeting with Angus Young (sic) from EY, that audit had run for longer than it was expected to run and had cost more and that was partly because Horizon Online was new, it was partly because EY had a new team who were doing the auditing but it was significantly because the controls were not in place. As a result of all of that – as a result of all of that, then that was one of the reasons why we were saying it can’t be right that this is the case, yeah, EY shouldn’t be needing to work that hard to do that. We should be able to rely on our supplier to have a suite of documentation that our auditor can simply look at and test, rather than needing to construct it themselves.
And that is what led to the request to do SAS70 and SAS70 then morphed into ISAE 3402. So, effectively, they are one and the same thing.
Mr Stevens: Did Mr Grant, the Ernst & Young Audit Partner, say anything to you about the integrity of the Horizon IT system in recording transactions at a branch level?
Neil McCausland: There was absolutely no comment from Mr Grant that the data integrity was in any way compromised or poor.
Mr Stevens: Alice Perkins gave evidence to the Inquiry on 5 and 6 June 2024 and her evidence was that she had a conversation with Angus Grant during her induction, of which she says she made a note. I want to bring that note up, please. It’s WITN00740122.
We see a Post Office notepad. Presumably you didn’t see this note until the Inquiry sent it to you?
Neil McCausland: Correct.
Mr Stevens: If we can look halfway down, please, and it says, right in the middle almost:
“With Fujitsu, [Post Office] drove a [very] hard bargain on price but they took back on quality/assurance.”
Was that something you were aware of at the time?
Neil McCausland: I was not aware of that at the time. I subsequently became aware, not of an issue relating to data integrity, but of an – there was an issue where we had – I’m trying to remember now. So later than this, there were some customer incidents which affected customers, where basically Fujitsu – Horizon dropped out and, when Lesley Sewell investigated that and reported to the Board, the reason for that was because the data – we used to have two back-up data centres and we’d moved to one, which I think had been a cost-saving exercise in the migration to Horizon Online. So that subsequently, I learnt, which was probably – this might have been what I was talking about: quality. But at the time, I certainly had no knowledge that when Horizon Online had been commissioned, we had – RMG had driven a hard bargain and there had been a reduction in quality or assurance.
Mr Stevens: Further down, it says:
“Horizon – is a real risk for us.
“Does it capture data accurately.
“Cases of fraud – suspects suggest it’s a system problem.”
Alice Perkins’ evidence was that this is something Mr Grant had said, who raised a question as to the accuracy of data being captured by Horizon, and then the second point being referring to the claims of which you became aware.
Did Mr Grant say anything along those lines to you, around the time you joined Post Office?
Neil McCausland: No. I don’t recall meeting Mr Grant before the Audit Committee meeting, which was in 2012. So I don’t believe that I saw him in 2011, and when I did meet him I had the EY report, and neither in his conversation nor in the EY report does he say that he is worried about data integrity.
Mr Stevens: Did Alice Perkins raise or pass on any of this information to you in the early days of being a Senior Independent Director?
Neil McCausland: I have no recollection of her – of her talking about that.
Mr Stevens: That can come down. Thank you.
Can we now look at – I was going to go through the sources of assurance that you referred to, and we’ll start with the Board meeting, I think you are referring to the 12 January one. It’s POL00021503. So we see it’s a meeting of the Board of Directors on 12 January, and you are listed as present as the Senior Independent Director. Please could we turn to page 6 of that document and to the bottom, please.
So, as you said:
“Les Owen asked for assurance that there was no substance to the claims brought by subpostmasters which had featured in Private Eye.”
Now, just pausing there, I understand it’s your evidence that, at this point, you were aware of the claims through the Significant Litigation Report; is that right?
Neil McCausland: Yes, the Significant Litigation Report had just been published for the first time.
Mr Stevens: But your evidence is you hadn’t seen the Letter of Claim by Shoosmiths Access Legal?
Neil McCausland: That is correct. The first time I saw those was in the Inquiry.
Mr Stevens: Again, your evidence is, at this point, you weren’t aware that one of the allegations was that Fujitsu could access remotely branch accounts and either insert, edit or delete transactions?
Neil McCausland: That is correct.
Mr Stevens: I’m going to refer to that in shorthand as “remote access” from now on.
Neil McCausland: Okay.
Mr Stevens: It says:
“Susan Crichton explained that the subpostmasters were challenging the integrity of the Horizon system. However the system had been audited by RMG Internal Audit with the reports reviewed by Deloittes. The audit report was very positive.”
Then at the bottom it says:
“Susan Crichton suggested that she clear the audit report with the external lawyers and if it is possible to give the report privileged status it would be circulate it [sic] to the Board.”
Did you ever see an audit report by Deloitte on these internal audits?
Neil McCausland: No, I don’t believe – I didn’t. I don’t believe there was an audit report by Deloitte, with hindsight. At the time, clearly I didn’t know that. But I don’t believe that there was one.
Mr Stevens: Had you seen the RMG internal audit itself at that point?
Neil McCausland: No, I hadn’t, although I did see it subsequently.
Mr Stevens: The RMG internal audit, is that – a document we may come to it – but what’s been described as an assurance review and a series of slides showing an assurance review?
Neil McCausland: Yes.
Mr Stevens: Did you ask any questions at this stage about what the internal audit investigated or its detailed findings?
Neil McCausland: I did not. At this stage, this was – I was very new, I was still absorbing and this was a conversation between Les Owen, who had been on the RMG Board and had – they were the ones who had commissioned this internal audit and this had been going on for some months. So Les was asking Susan about it and the interchange was between Les and Susan.
I was listening at this stage, absorbing, assimilating, and, as I say, I came out of that reassured – wrongly, with hindsight, but at the time, reassured – that the Horizon system was good, good integrity, and that the claims against us were weak.
Mr Stevens: Finally, the comment:
“The Business has also won every criminal prosecution in which it has used evidence based on the Horizon system’s integrity.”
You may have said this in your evidence earlier but, just so we’re clear, who said that?
Neil McCausland: So Susan said, in answer to Les’ challenge/question, that – she said exactly that, which again, with hindsight I now know is wrong but at the time I didn’t know it was wrong, at the time I didn’t question it. If the General Counsel is talking to an existing RMG and now POL Director in a Board meeting and says something, I believe her.
Mr Stevens: In terms of what you can recall now about her answer, did she provide any other detail or any other context around what we see recorded here?
Neil McCausland: I’m sure she did but I cannot remember it. This was 13/14 years ago and, inevitably, the minutes of a Board meeting – the Board meeting will last all day, and the minutes are maybe eight or ten pages long, so the minutes do not capture all of the conversation. So I’m sure that there was a fairly large conversation around that but I do not know any more than I can see from the minutes. I cannot remember.
Mr Stevens: Could we turn, please, to POL00021430. So this a meeting of the Audit, Risk and Compliance Subcommittee on 13 November 2012 and, again, we can see you are in attendance and, at the bottom, we can see that Angus Grant, the Audit Partner of Ernst & Young, is there, along with another representative of Ernst & Young.
Can we please turn to page 4. If we can just scroll down, please. So (e) refers to “AG”. So it’s Mr Grant setting out matters about the audit. It says:
“He expected that 2012/13 would be a challenging year for the Business in several areas because of separation and major change, and that the audit would need to focus on separation, pensions and taxation with an overlay of IT.”
He set out the method of doing it – the focus, sorry. Then (f):
“The ARC was comfortable with the approach, alongside the separate ISAE 3402 IT audit [which we referred to earlier in your statement] which had been jointly commissioned by the Post Office and Fujitsu.”
It says:
“The Chairman asked at what level of materiality the E&Y team would report. [Mr Grant] explained this would be similar to previous years. Although E&Y did put a figure on [profit and loss] materiality, they would propose to report any identified audit adjustments above £600,000 to the Committee and, as a general rule, insist on changes to the accounts for any single item or accumulation of items with an effect of over £5-6 million. This was accepted.”
When you say you took assurance from the IT audits, did that give you any assurance as to the integrity of the Horizon IT system in recording data at a branch level?
Neil McCausland: There wasn’t a specific – I cannot recall a specific comment about that. However, EY would have spent a lot of time at the – Chesterfield, I think it was – accounting centre and, in order to sign off the accounts, EY would have needed to ensure that they were happy with the integrity of the accounting system, including the branch accounting system and, if they weren’t, there would have been a discussion and there would have been a matter of emphasis in the accounts. Now, I cannot remember that happening, so I cannot remember a specific discussion about branch accounting but, inevitably, they will have done that in their audit, and the fact that I can’t remember it is probably saying that it wasn’t there as an issue. The issues were the things that we primarily concentrated on.
Mr Stevens: So I don’t want to put words in your mouth; I’m just trying to summarise what I think you’ve said. You can’t remember if there was a conversation on integrity of branch accounts in respect of the audit?
I think that’s a yes?
Neil McCausland: Yes.
Mr Stevens: But it would have been your assumption that EY would have satisfied themselves as to the integrity of the accounting system, yes?
Neil McCausland: Absolutely, so –
Mr Stevens: But you can’t help us with knowing what you may have or may not have said or asked to satisfy yourself that that was actually happening?
Neil McCausland: That is correct. So, at this stage, this is an audit planning meeting, and then the audit results meeting will take place subsequently. So here they’re talking about how they’re going to plan it, then they will have done the audit and then they will report on the audit.
And there is a detailed document for each, so after it is document here, there will be a document which came to the Board, not in the minutes, which will have spelt out exactly how the audit was going to take place, which we will have looked at and said okay, and that will have included a large amount of work in – at the Chesterfield – and forgive me if Chesterfield is the wrong place – but at the Chesterfield data centre. And then the report will have come through and we will have looked at that probably May time the following year, once the audit had been done, and they will have reported on all of their findings.
And all of their findings, the ARC, would then have pored over and understood where there were problems and then also made sure there was an action plan in place to clear up those problems. And my name from the – throughout all of the years was that the issue was not about data integrity; the issue was about controls and specifically the documentation of controls, and the first audit from ‘10/’11, they had quite a few findings; the second one, in ‘11/’12, they had materially fewer findings; and then by ‘13/’14 and ‘14/’15, they were actually very complimentary about the controls and documentation of controls, and the audit reports specifically articulate that the level of controls has improved very significantly over the period of time.
Mr Stevens: Thank you. I want to move on, please, to look at the appointment of Second Sight – and we don’t need to turn this up – but in your statement at paragraph 36, paragraphs 98 to 100, I think you make the following points, I just want to confirm them with you:
The first is that you say you were not involved in the decision to instruct forensic accountant or the selection of Second Sight itself?
Neil McCausland: Correct.
Mr Stevens: You also say in your statement, paragraph 100 that:
“I was not involved in any discussion and/or overseeing the drafting of the terms of reference for Second Sight’s investigation”?
Neil McCausland: Correct.
Mr Stevens: Alice Perkins gave evidence to the Inquiry that she spoke to you at some point – she couldn’t be clear when but at some point – about the appointment of Second Sight. We’re going to come to the Board meeting shortly but can you recall any conversation outside of the Board meeting with Alice Perkins concerning the appointment of Second Sight?
Neil McCausland: I have no recollection of that. However, it is quite possible that Alice did. I listened to Alice and I think she was referring to her finding it difficult within the business, in that she was getting pushback from Mike Young and Susan Crichton, and so it is – I cannot remember it but it is perfectly possible that Alice had a conversation with me that said “James Arbuthnot is suggesting this, I think it’s a really good idea, I’m getting pushback in the business, what do you think, Neil?” That would have been the sort of conversation that we would have had and I would have said, “100 per cent right, Alice, go for it. If you upset Mike and Susan, so be it”.
But I have no recollection of that, but it’s a perfectly feasible conversation. Alice spoke to me about those things regularly.
Mr Stevens: Let’s look at one of the Board meetings where I think you say it was the first time you can recollect Second Sight or a forensic accountant being instructed? Please can we bring up POL00021507.
Before we go there, we see 23 May 2012 and you’re present on the second line. Can we turn to page 8, please.
So this is under AOB. It refers to Paula Vennells and Alice Perkins updating the Board on the meeting with James Arbuthnot and Oliver Letwin. At the end it says:
“The business had also agreed to use a forensic accountant to investigate the system and give further comfort to those concerned about these cases”, referring to the MPs’ cases that they were championing.
We don’t need to turn it up but in your statement, page 36, paragraph 99, you say you do recall querying whether they – “they” being Second Sight – had sufficient manpower and sufficient expertise in IT to be competent in undertaking a comprehensive review of Horizon. The Board were assured that they were sufficiently competent and that Susan Crichton had worked with them previously and held them in high regard.
At this stage, what type of investigation into the Horizon IT system was being proposed by Paula Vennells and the Chairman?
Neil McCausland: I think there was a degree of uncertainty at this stage about what the scope of it would be and I have a vague recollection of that, and it is only vague, but I came back to it mentally several times in subsequent years, which is why I do have a vague memory of it. So my questioning at that Board was what are Second Sight going to do, and are they good enough to do it? Have they got enough resource to do it? Because they seemed to be a two-man band and it was very unusual for Post Office to appoint a two-man band to do anything. Normally, we would apply – we would appoint people with large resource.
And the – again, my memory is vague, but I think that I was reassured that they were going to do a review. They were not going to do a fully code-based review, looking at all of the documentation and all of the system. What they instead were going to do was to take the cases that the MPs had given to them and forensically understand what had happened to the money, and follow – find system faults through that way. So if I have lost £5,000 – if there is a loss of £5,000, go through the forensic accounts and understand where that has happened and, from that, identify problems with Horizon.
So, rather than going bottom-up, looking at all of the code, they would basically find the root cause of those problems. So I think that was the discussion at the time and I was reassured. I remember challenging it but I remember also being reassured that Second Sight had the capability and the capacity to do that job well.
Mr Stevens: Could we look, please, at POL00096642. If we can go to the bottom of that at page, please, we see there’s an email from Paula Vennells on 14 June 2012 to you. So we’ve moved forwards a little bit in the chronology. It says:
“Neil, good to see you earlier.”
Then further down:
“The meeting with James Arbuthnot went completely to plan. So well worth insisting on it, and making the effort to go across.
“He has agreed to our TOR [I take it that’s Terms of Reference] and an individual rather than a blanket approach.”
Pausing there, when it’s referring to an individual rather than blanket approach, is that going to the evidence you just gave: that it’s looking at individual cases rather than a code-up review?
Neil McCausland: Yes.
Mr Stevens: Then, if we go up, please, to see your response, you say:
“Paula it’s always a pleasure to see you …”
Further down:
“Well done with James.”
That’s presumably referring to Lord Arbuthnot?
Neil McCausland: Yes.
Mr Stevens: So you agreed, presumably, at this point with the individual approach rather than the overall code review approach?
Neil McCausland: Yes. I did. Again, my memory is slightly vague but I think that it was explained to me that because the code – the original code was so old and because it was so different across the estate, that it would be almost impossible and very expensive to do a proper code review but that what Second Sight were recommending, ie take the individual cases, follow the money forensically, understand where the root cause of that loss had come from, and my belief, then, was very clear that that would be visible, as you went through the audit store, so they would be able to track that down, they were bright people, and from that, if then there were ten instances where there’d been a problem with ATMs had caused a £5,000 loss, that would then say, okay, there’s a problem with the system. So yes, I was happy with that approach.
Mr Stevens: Would you agree that, at most, what that would show was, in an individual case, a loss may have been caused by the Horizon IT system but it wouldn’t show you if the Horizon IT system as a whole had difficulties or problems?
Neil McCausland: Not necessarily. If we were looking at 47 cases, then if there is a reason behind them, I think you’re probably as likely to find it by following the money, and really getting to the root cause of each of those 47, as opposed to doing a code-based review. So I’m not sure that a code-based review would actually come up with a problem either. So actually, it did seem a reasonable way of understanding what that was. If there was one, I’d absolutely agree with you but, if you’re looking at 47, then you should be able to determine where there are themes which actually are a common theme which are a problem/a flaw in Horizon.
Mr Stevens: So was it your view, then, that if the 47 cases came back and no problem was found on those 47 cases alone, then that would have given the Horizon IT system effectively a clean bill of health?
Neil McCausland: I think that’s what I thought and I think that’s what Second Sight were telling us.
Mr Stevens: You say in the email:
“Definitely good to keep control of that process.”
What do you mean by “control of that process”?
Neil McCausland: So this – again, I cannot remember exactly what I meant when I wrote that 12 years ago. If I tell you what I think I meant, it was less about that process and more about how Alice and I were trying to manage Paula. Paula was new in position. Paula was the Managing Director who had effectively presided over the very sharp deterioration in profitability, so she was the MD of POL in RMG Group, and we needed to turn the business around in all sorts of ways: in revenue, in profit, in cost control, in everything.
So Alice and I thought that the CEO and CFO that we had, Paula and Chris, were okay but, actually, Post Office, in the mess that it was, needed somebody that was great. So pretty much every email I wrote to Paula at that stage was encouraging her to grip things, get traction, keep control, make progress. So that isn’t an unusual statement. It’s basically saying, “You are the CEO, yeah, get control, drive things, manage things, lead things, get traction, make progress”.
Mr Stevens: Well, the process here that’s being referred to isn’t anything to do with profitability, is it?
Neil McCausland: No, it’s not.
Mr Stevens: It’s nothing to do with the matters that you referred to about the dip in profitability. This is to do with the process of the review of cases by Second Sight?
Neil McCausland: Sure.
Mr Stevens: In fact, is what you were doing here encouraging Ms Vennells to take control of the process to gain a favourable outcome for the Post Office?
Neil McCausland: Absolutely not. So Alice and I are encouraging Second Sight. We want Second Sight. I think Lord Arbuthnot and the MPs had been trying to get traction with Royal Mail Group for some time. Alice is there going “Yeah, I’m listening to you. Yeah, I believe you, I want to find something, so we will appoint somebody”. I am there absolutely supporting the appointment of somebody and actually in my mind going, “Should it be Second Sight or should it be somebody better”. So in no way shape or form were we not trying to find things. We were trying to find things. We were trying to understand and to fix things.
However, in any process, be it about profit or cost or – it’s just leadership of the business. So I want the CEO to lead properly and that means taking control of things.
Mr Stevens: Let’s jump forward to when the Interim Report is about to be announced. Can we have POL00021515, please. That is a Board meeting on 1 July 2013. You’re in attendance – sorry, you’re present. If we can scroll down, please, we see it’s about Horizon and Paula Vennells is giving an update on the Horizon review. Do you have any, now, positive recollection of this meeting?
Neil McCausland: So from the minutes is my only recollection of it. I think actually it wasn’t a meeting about Horizon. I think it was a meeting regarding network subsidy onto which Horizon was tacked on at short notice with no warning.
Mr Stevens: It says:
“… gave an update on the Horizon review which was being undertaken by Second Sight and their Interim Report which was due to be presented at a meeting of MPs on 8 July. The investigation to date has found no systemic issues with the Horizon computer system but had highlighted areas for improvement in support areas such as training.”
What did you understand “systemic issues” to mean?
Neil McCausland: I think I believed systemic issues to refer to the code, the software. So was there a problem with the software, which would be a flaw in Horizon?
Mr Stevens: Were you told how many cases that Second Sight had looked at, at this stage?
Neil McCausland: At this stage, I don’t think I was told. My understanding will have been that they had 47 cases that were in their remit. But I don’t think, on this call, there was a conversation about cases.
Mr Stevens: It goes on to say:
“The CEO explained that the Horizon, like any large computer system, would occasionally have anomalies, and two were known of over recent years. The Business had dealt with these anomalies to ensure no subpostmaster was out of pocket and these anomalies had not affected any of the cases which Second Sight had reviewed.”
What did you understand or take from the word “anomaly”?
Neil McCausland: Again, memory vague but I think that I will have taken that as being – I guess, in my mind, I will have likened it again to an iPhone release. If there is an iPhone release and then some part of that doesn’t link with some other part of the system, then that’s a problem, a flaw. So I think a flaw.
Mr Stevens: Were you told anything about when the anomalies were discovered?
Neil McCausland: I cannot recall if that was conversed on this call. So again, just to stress, this phone call, I believe it was a Board phone call.
Mr Stevens: Yes, we don’t need to go to it but it says at the top “Held by conference call”.
Neil McCausland: Yes, and it was about a totally different issue. So Horizon was just dumped on us in this phone call at short notice. So no papers and squidged on as an extra little piece. So my memory is that it was a very short update about Horizon on this call because the majority of it was about, I think, network subsidy. I might be wrong on that.
Mr Stevens: If we turn over the page, please, it says:
“The CEO was concerned that the report from the independent forensic accountants was not as factual as expected and could lead to loose language at the MP meeting.
“The Board asked the Business to challenge Second Sight to ensure changes were made to the report where possible and asked the Business to prepare their communication to combat any inaccuracies.”
Do you recall if any examples were given of the type of inaccuracy that the CEO was referring to?
Neil McCausland: I do not recall that, I would doubt if that was the case. So again, I’m sure that there were no written papers for this. This is Paula doing a short, verbal briefing over a phone call.
Mr Stevens: What was your view on that the way it was presented to the Board at this time, on what is clearly a significant issue?
Neil McCausland: I was upset. So I was upset that we were being told a week before the report was going to come out that the report was going to come out. So I would have wanted to understand. We had – the Board had asked several times, many times over the year, “How are Second Sight getting on?” So to have it dropped on us not in a proper, written communication, not at a proper Board meeting with proper papers, but just to have it thrown in as an AOB to say, “Actually Second Sight Report is coming out next week, and we’re not happy with it because it’s inaccurate and, by the way, there are these bugs/flaws”, I wasn’t happy with that and I don’t think the rest of the NEDs were happy with that. It’s not a good way to run the business of the Board.
Mr Stevens: Did you discuss with Alice Perkins or – sorry, I’ll start again.
Did you discuss with Alice Perkins your concerns as to how it was handled at this point?
Neil McCausland: I cannot remember if, on that phone call, I had that conversation. I am sure that – the NEDs spoke a lot with each other, so I am sure that I and others did talk to Alice and talk to each other to say that we were unhappy with this process.
Mr Stevens: Can we look, please, at the Interim Report, when it came out. It’s POL00130412. I think your evidence is that you think you read this at some point between 8 July and 16 July; is that correct?
Neil McCausland: Correct.
Mr Stevens: If you turn to page 5, please, and go a bit further down to the bottom. Thank you. It says:
“Did defects in Horizon cause some of the losses for which [subpostmasters] or their staff were blamed?”
Paragraph 6.4:
“In the cause of our extensive discussions with [Post Office] over the last 12 months, [Post Office] has disclosed to Second Sight that, in 2011 and 2012, it had discovered ‘defects’ in Horizon Online that had impacted 76 branches.”
Then, over the page, we see at 6.5 and 6.6 there are references to the number of branches affected and the quantum of the shortfalls and surpluses.
At 6.7 it says:
“[Post Office] was unaware of this second defect until, a year after its first occurrence in 2011, it reoccurred and an unexplained shortfall was reported by [a subpostmaster].”
Now, what were your views when you saw this information as to two defects that had caused shortfalls and gains in branch accounts?
Neil McCausland: Again, I’ll tell you what I think I remembered but my memory is inevitably a little bit vague – more than 10 years ago. I was not as worried as, with hindsight, I should have been when I read this. So we had been told by Paula that these anomalies/bugs were not in any way linked with the cases that Second Sight were reviewing. Second Sight themselves – if you go to the conclusion of this paper, Second Sight say there are no systemic problems with Horizon, and then they – in fact, is it possible to scroll down to the conclusion here?
Mr Stevens: Yes. It’s page – I think it’s page 8.
Neil McCausland: So:
“We have so far found no evidence of system-wide (systemic) problems [that’s the same] with the Horizon software.
“We are aware of 2 incidents where defects or ‘bugs’ in the Horizon software gave rise to 76 branches … which took some time to identify and correct.”
So I am reading that but it’s not actually raising a huge red flag to me. So it is saying that there are bugs but it’s also saying to me that – but it is – it’s underneath the main point, which is there are no systemic problems with Horizon.
So I’m getting the impression from this – wrongly, with hindsight, but I’m getting the impression that “We have found the bugs, okay, one of them took time”, they are not related to the 47 cases that Second Sight are reviewing and, in their report, they also say, “Every system has bugs, it’s inevitable”. So it was probably an amber flag but it wasn’t a red flag to me.
Mr Stevens: You had been dealing or were aware of – I should say aware of – challenges to the integrity of Horizon since at least 12 January 2012; do you agree?
Neil McCausland: Yes.
Mr Stevens: As you say in your statement, you say you’ve been assured by various members of the business that data integrity wasn’t an issue, you agree?
Neil McCausland: Yes.
Mr Stevens: Did it not concern you that, during that time, members of the Executive hadn’t raised the fact that there were two bugs that affected 76 branches in circumstances where there were allegations of a lack of integrity in the system?
Neil McCausland: Yes, it did. So just to be clear on that answer, so I was not overly worried about the bugs. With, hindsight, I should have been more worried but the way this was written and the way that it had been explained to us by Paula, on the 1st and subsequently, it did not make me overly worried. What did make me worried is that we were only finding out about it at this stage. So I thought that the way that it was being communicated to the Board was poor. The way it was launched on the Board on that 1 July phone call was, I think, was unacceptable and I wanted to – I wanted us to have a different relationship with the Board, so that we were told – I wanted information to come to the Board freely and quickly, and clearly it wasn’t.
So the way it was communicated did worry me. The actual fact that we had two bugs did not worry me as much as it should have.
Mr Stevens: Was it not beyond that and do you think it should have caused you to be more questioning or distrustful of the information that was being provided to you by your Executive?
Neil McCausland: So Second Sight are not saying that this is a big problem. I’m reading the Second Sight Report and the thing that I’m getting from Second Sight Report is that there are no systemic, system-wide issues with Horizon but there are significant issues with training, support, call centre, et cetera, and that was the main message that I got from Second Sight. It wasn’t bugs are the issue. What I read Second Sight and understood was the issue is around not the code, not the software, but the support package around Horizon, which was inadequate and needed to be fixed.
And I believed that. I mean, intuitively, that is also what I believed. As I had gone around to post offices, lots of subpostmasters would say “It’s not easy to use, it’s clunky, it’s not intuitive, your helpline isn’t helpful”. So as I read Second Sight’s Report, it resonated with me and I thought “Yeah, okay, I agree”, and I agreed with their broadening definition of the Horizon system. So they were at pains to point out that, in their view, Horizon wasn’t just about the code, the software, which I thought, yes, I agree. The horizon system should be a wider thing. It’s about the user experience.
So as I read the Second Sight Report, which, you know, this document is about, my takeaway wasn’t “We have had two bugs that have been found and weren’t responsible for the subpostmaster losses”, my takeaway from it was that the Horizon system, our old definition has been overly narrow, we need to broaden that definition and we need to fix those things.
Mr Stevens: Sir, that’s probably a good time to take our first break, as we are moving on to a different topic. I know it’s slightly early –
Sir Wyn Williams: No, that’s fine, Mr Stevens. What time shall we resume?
Mr Stevens: 11.05, please, sir.
Sir Wyn Williams: Fine.
Mr Stevens: Thank you.
(10.54 am)
(A short break)
(11.06 am)
Mr Stevens: Good morning, sir. Can you still see and hear us?
Sir Wyn Williams: Yes, thank you.
Mr Stevens: I’ll carry on.
Mr McCausland, we were looking at assurance and we got up to the Interim Report. I now want to look at the assurance after that, so we’ll take the chronology a little bit out of order but stay on this same theme. I’m going to jump to March 2014, so at this point, for context, the Mediation Scheme is in full swing. Post Office Limited are conducting investigations into that and there’s the query of compensation. We then have the Linklaters advice in March, and I want to explore that and what came afterwards.
Can we look, please, at your statement, page 62, paragraph 166. So 166, you’re talking after the Linklaters advice itself but what you say is:
“The Linklaters advice appeared to share the Board’s view that Second Sight’s Interim Report did not adequately address this …”
There you’re referring to getting to the bottom of whether there was any evidence to suggest that Horizon was not working as it should be:
“… particularly where any weaknesses or points of malfunction had been identified.”
So, in terms of your thinking, following the Interim Report, is your position that the Interim Report hadn’t disclosed anything – I think earlier you said it might have been an orange flag, nothing particularly concerning, in terms of bugs, but it hadn’t given you assurance over whether there were, in fact, weaknesses or points of malfunction in the system.
Neil McCausland: So, personally, I actually felt, after the Second Sight Interim Report, I was pleased with it. I thought that we had found what the problem was. So there were – as we went into the Mediation Scheme and 150 people came into the Mediation Scheme, I thought to myself, “Okay, that’s good”. I mean, Second Sight have identified that there is a problem with Horizon system, not the code, but the wider system, and 150 people have come into the Mediation Scheme to say, “We have been affected by this, training, ATMs, support, helpline”, whatever, and therefore I was actually feeling quite good that we had identified what the issue was.
Mr Stevens: Pausing there, you were presumably aware that people coming into the scheme included people alleging that the system had flaws?
Neil McCausland: Yes, alleging that, yes.
Mr Stevens: Just taking what you say at 166 at –
Neil McCausland: Sorry. So I wasn’t – all of the cases were individual and were confidential, so I wasn’t aware of the individual cases, but my feeling was that the – and, as we went through this, again, we were getting reports. So, before we got to the March ‘14 date that you’re talking about, the Board would have had an update, probably a couple of months before that saying, “We have now investigated 74 [I think it was] of the cases and not found anything in Horizon”, but they are about the wider issue, so I wasn’t aware of the individual specifics –
Mr Stevens: If I could just be clear here what you’re saying. You’re not aware of the specifics but between the start of the Mediation Scheme and to March 2014, were you aware, as a matter of generality, that some of the applicants to the Mediation Scheme were alleging that discrepancies had been caused by problems in the Horizon IT system?
Neil McCausland: Inevitably, yes. But my understanding of that is the broader IT system. So I’m not – I wasn’t aware of any of the specifics and my understanding was that, as we were going through, we had a team of 20 people, yeah, trying to work their way through the individual case reports, and the message that we were getting back was that, as they were being worked through, it was consistent with the Second Sight Interim Report, ie that we could explain those things. Nowhere in those, I think, 74 reports was there an indication that there was a software or a bug problem.
Mr Stevens: When you were referring to the 74 reports were you referring to the investigations conducted by Post Office Limited?
Neil McCausland: Yes.
Mr Stevens: I think it’s simplest just to go to the advice at this point. If we go to POL00107317, please. So this is the Linklaters Advice, 20 March 2014. Now, before moving on to the substance, can we just turn to page 2, please, and paragraph 1.4. It says:
“Absent such proof that Horizon is not working as it should, the Post Office should be able to recover losses which the Horizon records indicate are owing on an individual SPMR’s account. If the Post Office is entitled to recover losses, then there can be no question of a consequential loss claim on the part of the [subpostmaster] relating to their recovery …”
Alwen Lyons gave evidence to the Inquiry on 21 May 2024, to the effect that she thought you would have thought this paragraph was good because the Post Office could put a lid back on the can of worms and pay very little. Does that fairly summarise what your views were of the Mediation Scheme at this point?
Neil McCausland: Absolutely not. So I think Alwen was – Alwen’s words were basically that I was the pragmatic one on the Board, and I think –
Mr Stevens: Sorry, when you say Alwen’s words, when are you referring –
Neil McCausland: You just quoted Alwen’s evidence –
Mr Stevens: Yes.
Neil McCausland: – and Alwen’s evidence was – she wasn’t saying that’s what I had said; she was saying that was her view of what I might have been thinking but she was doing that on the basis that I was the pragmatic person on the Board. I think, actually, exactly around that time, you have already disclosed to me an email from me to Paula, where I was the one actually suggesting that we should pay significant amounts of goodwill compensation. So I said to – I put an email to Paula in advance of a Board discussion that says, “This is growing, and the potential bill to the Post Office is huge. We are at the moment saying that we are not going to pay consequential or goodwill payments of any scale but, actually, why don’t we? Why don’t we just say that the worst cases get 75K, medium 50K, 25K, doesn’t matter how you do it” – I think in the Board meeting I actually doubled those figures – “if you did that and paid a significant amount of compensation, then you might actually get out of this”.
So Alwen, I think, is right in saying that I was the pragmatic one, but I’m not the one – this isn’t EBITDAS. So this is not sustainable profit. This is an exceptional cost. The Post Office has got 1.5 billion that it’s tying to go through. If you spend 15 million, which was my suggestion, as goodwill payments, it’s chicken feed. It’s not an existential crisis. So I’m actually the one – I think I was the only one – who was saying “We should pay something if it will solve it”.
Mr Stevens: So you disagree with the point I just put to you?
Neil McCausland: Yes.
Mr Stevens: We’ll just move on.
We could turn, please, to page 3 paragraph 2.3:
“Importantly, Jo Swinson, Parliamentary Under-Secretary of State for Employment Relations and Consumer Affairs, noted that there was no evidence of a systemic problem with Horizon. This has also been the Post Office’s conclusion on the information so far available to it. We note that there is, so far as we understand it, no objective report which describes and addresses the use and reliability of Horizon. We do think that such a report would be helpful, though there is a decision to be made about how broad and/or thorough it needs to be.”
So, at this point, you’ve referred to past sources of assurance you’d had but you have Linklaters now saying there is no objective report which describes and addresses the use and reliability of Horizon; was that a surprise to you?
Neil McCausland: So when we were having the original Second Sight – “Are Second Sight the right people” discussion, at that stage there was a discussion about could you actually – can you do a system review? Does the code exist? Is it possible to do that? I think, you know, Second Sight had said to us that actually it would be a very difficult, almost impossible, thing to do and, when we subsequently had Deloitte do it they also said, broadly, the same thing. So a proper code-based review was almost impossible and, therefore, I don’t think it was a total surprise –
Mr Stevens: Just pausing there, it doesn’t say that there needs to be a code-based review, does it? It says that there isn’t an objective bespoke report that describes and addresses the use and reliability of Horizon. Did you think that there was such a report, an objective report, describing and addressing the use and reliability of Horizon before then?
Neil McCausland: Probably not. I don’t think it was a surprise, no.
Mr Stevens: So did that strike you as troubling, given it’s a few years down the line of dealing with these claims and there’s no such report available to the Post Office?
Neil McCausland: Well, the whole point of appointing Second Sight was to find the issues and find flaws. So if you go back to Second Sight’s remit, they were there to actually go through the cases and find a flaw in Horizon, and their advice was, and we believed it, we agreed, that that was the best way to do it. And Second Sight were doing a number of reports about the reliability of Horizon.
So Second Sight were, right then, working on an Interim Report – so it wasn’t a – they called it a Part One report, I think – which did describe Horizon and the way it was being worked. So my understanding was that that was what we were using Second Sight to do.
Mr Stevens: Let’s look onwards please, page 9, paragraph 5.30. It says:
“It is the reliability of the Horizon system as a matter of principle which important. If there are doubts about the reliability of the system then this could obviously impact on the Post Office’s ability to claim losses since it calls into question whether such losses exist at all. This is the fundamental question and one which has not yet been satisfactorily addressed.
“Second Sight have not done what we would have expected them to in terms of an investigation into Horizon. The logical and obvious start for their work would have been a thorough review and description of how Horizon is supposed to work, its day-to-day use by the [subpostmasters] and an in principle identification of any weaknesses and likely points of malfunction.”
Pausing there, what Second Sight had been asked to do was look at individual cases, I think, to use your words, trace the money; is that right?
Neil McCausland: Originally but then that morphed. So then the – now, at this stage, Second Sight were doing their Part One and Part Two thematic reviews, which were, to some extent, explaining how Horizon worked and where the points of weakness were.
Mr Stevens: Pausing there, by this stage, the reports, you hadn’t seen them or they hadn’t been released?
Neil McCausland: Correct, yeah, we knew they were working on them but they were taking a long time because Second Sight were trying to do a lot of things at the same time.
Mr Stevens: We see at paragraph 5.32 it refers to Second Sight being due to produce the generic report in due course.
Neil McCausland: Yeah.
Mr Stevens: At this point, having read this, did you think it was important to follow Linklaters’ advice and get an objective report that looked at the use and reliability of the Horizon IT system?
Neil McCausland: Yes, I did.
Mr Stevens: That’s why, presumably, Deloitte were subsequently commissioned?
Neil McCausland: Yes.
Mr Stevens: Can we look at the Board meeting where that was discussed, please. It’s POL00021523.
Neil McCausland: Sorry, can I make one comment about the Linklaters report?
Mr Stevens: Yes.
Neil McCausland: So it does also say in the Linklaters report that, even absent such a report that Deloitte then turned out to be, Post Office still had good reasons to believe that the losses – that they should not be paying consequential losses, due to the level of assurances that existed, such as ISAE 3402, such as Fujitsu, such as Gareth Jenkins and Anne Chambers. So they don’t say “Huge red flag you shouldn’t be doing this”; they say, “Actually, you’ve got a lot of good evidence but, in addition, it would be really helpful to have Deloitte”, and I absolutely agreed with that.
Mr Stevens: We’ve got the Board minute here it’s 26 March 2014. You’re present and we also see in attendance, five down, Christa Band from Linklaters. If we go to page 2, please, we don’t need to go through it but Ms Band makes various criticisms of the Second Sight work.
At (f) we see that, at that point:
“The Board thanked Christa for her report … Christa Band left the meeting.”
So, presumably, in terms of reading these minutes, just to confirm, everything from (f) down is without Christa Band being present?
Neil McCausland: I assume so.
Mr Stevens: We go to (k), it says:
“The Board agreed that they needed to commission a piece of work, to complement that undertaken by Linklaters, to give them and those concerned outside the Business, comfort about the Horizon system.”
Why did the Board wish to obtain a piece of work to give it comfort about the Horizon IT system?
Neil McCausland: I think we – so, back in February, there had been a very large difference in the potential bill that the Post Office would be paying, ranging from 6 million to 100 million and we, internally, on the Board had had some discussions. I was suggesting significant goodwill payments. Others were saying no, the Linklaters work basically said that the key determinant of that was going to be how robust we were with our belief that Horizon was not malfunctioning and, therefore, in the absence of Second Sight’s work that they were still doing, it was going to be very sensible for us to actually have another piece of work.
Mr Stevens: So is that another piece of work to shore up the Board’s position or an objective review to understand whether or not Horizon’s data integrity is satisfactory?
Neil McCausland: I mean, the Board didn’t really have a position. The Board just wanted to get to the truth.
Mr Stevens: Well, if the Board wanted to get to the truth, would it not say at (k) “The Board decided to commission a piece of work which would be an objective investigation into the Horizon IT system and its integrity”, rather than saying that it wanted “comfort about the Horizon IT system”?
Neil McCausland: So that’s a fine point of wording and Alwen wrote the words but I can tell you that the people on the Board, the NEDs on the Board, always just wanted to know the truth.
There is absolutely no benefit for a NED in trying to hide the truth.
Mr Stevens: So did that mean, for you, a report that described the Horizon IT system and commented on how it worked in practice?
Neil McCausland: Yes, and identified potential flaws.
Mr Stevens: It refers to the terms of reference. The first bullet point says:
“The work undertaken by Angela van den Bogerd explaining how the system works.”
Can you help us with what that’s supposed to mean or why Angela van den Bogerd is referred to in respect of these terms of reference?
Neil McCausland: So after the Interim Report from Second Sight, there were a number of workstreams which came out of that, Working Party, Mediation Scheme, Lessons Learned but, to me, probably one of the most important was the Business Support Programme or the Business Improvement Programme – it’s called both things – which basically took the Second Sight Interim Report findings and then tried to wash those through the business and fix things which were not correct. So it fixed the training, fixed the cultural issues, fixed the helpline, fixed the way we suspended subpostmasters. It did a lot of things.
Mr Stevens: So the non-IT issues is what that’s referring to?
Neil McCausland: Yes, so it’s not about – I don’t – some of it, I think, it does touch on IT but it’s primarily the – I say – the word “cultural” is a bad word but, if you understand what I mean by the cultural issues that are identified in the Second Sight Interim Report, I think that is what it means. And as a – if you are going to describe the use of Horizon and articulate that in a document, then the work that that Business Support Programme had done, I think, would be very useful as a starter for ten in that. So that’s as I understand that.
Mr Stevens: So that’s the Business Support Programme. We’ve then got two bullet points on data integrity issues. The final is:
“A response to the most significant thematic issues raised by Second Sight.”
Why did an objective report or investigation need to include a response to the thematic issues raised by Second Sight?
Neil McCausland: I don’t know, to be honest. I don’t remember reading that or thinking about that last bullet point, and I don’t remember any discussion about that last bullet point.
Mr Stevens: Just so we’re clear, when you say you don’t recall it, are you suggesting in any way that this might be inaccurate in terms of what was discussed or not?
Neil McCausland: No, no. I’m simply saying that I do not remember any conversation that the – at that meeting, after Linklaters had gone, which was, “Yeah, and we need to have a response to the significant thematic issues”.
Mr Stevens: Could we look please at –
Neil McCausland: In a way, it doesn’t worry me. If you are getting somebody else to actually do a piece of work, I think it would be sensible for them to see the Second Sight work and to consider that and either to validate or refute those issues.
Mr Stevens: Could we look, please, at POL00148075.
This is a Project Sparrow subcommittee meeting. You weren’t in attendance at this meeting and I understand you didn’t attend the subcommittee; is that right?
Neil McCausland: Correct.
Mr Stevens: In your statement, page 46, paragraph 125, you refer to these minutes going to the Board. Would you have read them?
Neil McCausland: Yes.
Mr Stevens: If we look, please, at page 4 and go down to the “Update on Horizon Online HNG-X (‘Horizon’) Assurance Work”, at point (b) it refers to two parts. I’m not going to read it out because it’s known well to the Inquiry but, effectively, Part 1 is a desktop-based review, and it says, you see at the end:
“The assessment [of Part 1] will not consider the integrity of the Horizon processing environment at implementation. That would form Part 2 of the work.”
It then goes on to say:
“Although no system could be absolutely ‘bulletproof’, no issues had yet been identified through the cases being investigated or any other route that has called into question the integrity of Horizon. Nor have any widespread systemic faults been identified since Horizon Online was implemented. These two points, along with the Part 1 work (depending on the results) should be sufficient to assure Post Office that Horizon is fit for purpose.”
Firstly, can you recall reading this document when you received it?
Neil McCausland: I cannot recall reading it but I’m sure that I did read it. The minutes of the subcommittees would have been in the Board pack and I would have read the whole Board pack.
Mr Stevens: Did you discuss this approach to the Deloitte work with any of the Non-Executive Directors?
Neil McCausland: I cannot remember discussing that. I think it is unlikely that I did. The way that the subcommittee minutes worked was generally they were in the Board pack and the chairman of the subcommittee would generally give a very short – of the relevant subcommittee – would give a very short description of what happened and take questions. But there was rarely a substantive discussion regarding the minutes of the subcommittees, of which there were many subcommittees. So I doubt that there was a substantive discussion about that.
Mr Stevens: Did you see any problem at the time with the plan not to commence or go forward with the Part 2 work?
Neil McCausland: No. I wasn’t in the subcommittee. So I mean – can I just explain the way subcommittees work?
Mr Stevens: Well, we’ve –
Neil McCausland: You know that?
Mr Stevens: We have that, how they work. But you would have read this, yes?
Neil McCausland: I would have read it but –
Mr Stevens: You are there as a Senior Independent Director to assist the Post Office with strategy, yes?
Neil McCausland: Yeah.
Mr Stevens: Part of that strategy is how the Post Office was to respond to claims about the integrity of the Horizon IT system, yes?
Neil McCausland: Yes.
Mr Stevens: That was important, not just for the applicants in the scheme but for how the data that Post Office relied on to produce its account was prepared?
Neil McCausland: Yes.
Mr Stevens: So when you have a suggestion from Linklaters that, firstly, there’s no objective review into the integrity of the Horizon system, (2) that it would be a good idea to get one and the Board has suggested getting one, why did you not see the problem with stopping at a desktop review?
Neil McCausland: I don’t think it said “stopping”. It said that it was going to be a two-part exercise. It’s quite sensible. So – it’s quite sensible to break an exercise down into two parts. The first part being Part 1, and see where you get to at Part 1, and then take a view about Part 2. We already know that it is – we’ve already had conversations that Part 2 is going to be potentially difficult because the data may not exist, its very old, it’s very disparate, and therefore Part 2 may not be possible and, if it is possible, it may be very difficult. So to have it in a bitesized chunk feels sensible now, it felt sensible at the time.
Mr Stevens: So, in your view at this point, Part 2 hadn’t been written off, it was an open question to be assessed after Part 1?
Neil McCausland: Absolutely, yeah, and I think that it says it very clearly that the SSC have a task, which I think is in the minutes here, in the action points, that the SSC have a task to get the CIO to come along and talk about when and how and if – are we going to do Part 2. So Part 2 is absolutely there as a scope but the scope has been split into two parts.
Mr Stevens: I think I should just clarify one thing. When you say “SSC”, I assume you’re referring to Sparrow Subcommittee?
Neil McCausland: Yes.
Mr Stevens: There’s another SSC in this Inquiry, that’s why I just wanted to double check that.
Neil McCausland: Apologies.
Mr Stevens: No, you don’t need to apologise. Let’s move on in the chronology, POL00021524, please. It’s a Board meeting on 30 April 2014. You’re present and, if we can scroll down, we see at the bottom Gareth James of Deloitte is also in attendance.
Can we turn, please, to page 6. If we go down, please, so subparagraph (d), it says:
“Gareth James reported that all the work to date showed that the system that strong areas of control and that its testing and implementation were in line with best practice. Work was still needed to assure the controls and access at the Finance Service Centre.”
Now, I think in your statement – but do correct me if I’m wrong – you criticise that this oral briefing on the work to date was incomplete or inaccurate?
Neil McCausland: Can I just ask, where are you taking that from?
Mr Stevens: Yes. If we could bring up the witness statement on the screen at the same time, and page 75. If we could go to the bottom, please, paragraph 200:
“I do not think that the Board received the full Deloitte Project Zebra Report. I do not know if the Sparrow subcommittee saw it.”
You then say:
“The Board was given a somewhat misleading verbal briefing and an incomplete Board Summary, neither of which clearly exposed the serious problems that Deloitte found.”
Now, the incomplete Board Summary is a reference, I’m sure, to 4 June.
Neil McCausland: Yes.
Mr Stevens: We’re going to come to that in an email from Chris Aujard and Rodric Williams. When you say “somewhat misleading verbal briefing”, is that referring to –
Neil McCausland: Yes.
Mr Stevens: – the 30 April Board meeting?
Neil McCausland: Yes.
Mr Stevens: Okay. So if we could bring that Board meeting back, please. It’s POL00021524, page 6, please. Just back down to (d), please. So (d) is the paragraph I read out before. Now, do you have any independent recollection as to what was said at this meeting or are you reliant on the minute?
Neil McCausland: I do not have any recollection of the meeting itself. I am reliant on the minutes. But I – so I probably would have remembered it, had I come out of the meeting with a big worry, and I do not remember coming out of that session with a big worry and, therefore, I think that I listened to Gareth James. He had the day before given a small document but, basically, I came out of that session thinking “Yeah, we’re in pretty good shape”.
Mr Stevens: So Alice Perkins gave evidence to the Inquiry saying that she thought the Board had the impression that Deloitte were going to able to write a report giving, if you like, Horizon a clean bill of health; would you effectively agree with that?
Neil McCausland: Yes.
Mr Stevens: “Work was still needed to assure the controls and access at the Finance Service Centre.”
You accept, presumably, at this point, that it was an interim report, effectively?
Neil McCausland: Absolutely.
Mr Stevens: If we look down – we may as well cover it while we’re here – it says:
“Chris Aujard explained that several subpostmasters who were challenging Horizon had made allegations about ‘phantom’ transactions which were non-traceable. Assurance from Deloitte about the integrity of the system records would be very valuable.”
That’s presumably referring to the remote access issue, is it?
Neil McCausland: It is and, actually, “phantom transactions” was probably a phrase that was used more than “remote access” but, yes, it means the same thing.
Mr Stevens: So, by this point at least, you were aware of the allegations about remote access?
Neil McCausland: And specifically asking Deloitte in their investigation to try to understand is there validity in that.
Mr Stevens: So it was an important matter, you thought?
Neil McCausland: Correct.
Mr Stevens: Then at (f) we see:
“The Board asked what assurance could be given pre-2010 when the different Horizon system was in use.”
It said Gareth James would go on to cost that up, effectively.
Why was the Board concerned to look pre-2010 as well?
Neil McCausland: So the vast majority of the prosecutions took place before 2010, under Royal Mail Group, under old Horizon. We understood that it was going to be difficult to get assurance because of the age and just – mainly because of the age but, if there was an opportunity to get assurance on old Horizon as well as on online Horizon, then that would be helpful and useful.
Mr Stevens: So you specifically mention there that, in the Board processes of thinking when – asking for the pre-2010 work, it was considering how that might affect past prosecutions?
Neil McCausland: I’m not sure that it was yes, implicitly. We just wanted – at that stage, we weren’t really thinking so much about the prosecutions; we were thinking about the integrity of Horizon. So the linkage to past prosecutions wasn’t high in the mind. It was – so Deloitte were looking at what is the integrity of Horizon Online like? We also would like to understand, if we could, what was the Horizon – the old Horizon integrity like?
Mr Stevens: But it was in the background and so, presumably, made this work all the more important?
Neil McCausland: Yes.
Mr Stevens: Could we look, please, at POL00304159. If we could go down, please, to Larissa Wilson’s email. We see it’s from Larissa Wilson, you are in the distribution list, 29 April 2014, so it’s the day before the meeting we’ve just been to:
“Please find attached the draft report for item 6 attached. This paper will also be available on BoardPad and hard possibly will also be provided at tomorrow’s meeting.”
Could we then look at the attachment to that, which is POL00304160. I appreciate you’ve been given this document we’re going to now this morning.
So we see it’s a Deloitte report, “Review of Assurance Sources, Executive Summary”. I think behind “Draft”, it will say, “Emerging findings at 29 April 2014”. Do you remember having read this report or do you remember receiving it?
Neil McCausland: I don’t remember receiving it, although I don’t doubt that I did.
Mr Stevens: If we turn the page, please, to page 2. I should make it clear you didn’t have this report when you drafted your witness statement. You refer to a separate report around this point –
Neil McCausland: (The witness nodded)
Mr Stevens: – so that’s why I’m taking you to it now.
Under “Overall comments” – I’m not sure why the “DRAFT” is appearing in front on this is screen but there we are. It says:
“A significant amount of work has been performed …”
In fact, it may, sir, be better to come back to this at a later stage. Actually, we don’t need that part. We can go and look at the bottom paragraph.
It refers to:
“Our main recommendation for improvement in the assurance provision therefore would be for [Post Office] to extend the formal risk and control framework, already in place for general controls, to also embrace key risks and controls holistically across the [Horizon Online] processing environment. For example, to include controls in specific risk and thus more operational areas of the business, such as the Finance Service Centre.”
So similar as to the minutes we just went to, yes?
Neil McCausland: Yes.
Mr Stevens: If we go back, slightly up, please, we see under “Overall comments” it does say in the first paragraph:
“This work is comparable to that typically see [it will say] in other, similar organisations.”
So you may not be able to recall reading it but, if you had read this at the time, is that consistent with the feeling you remember of being reassured?
Neil McCausland: Yes. I mean, I do not remember reading this at the time. I’m sure I did read this at the time but the combination of reading this and listening to Gareth James the following day at the Board meeting will have not made me feel rosy and warm, and clearly there are things more to do, but not made me feel overly worried.
Mr Stevens: Thank you. That can come down.
Sir, just so you know, the version on the system has the “DRAFT” behind the text, so when you come to read it you won’t have the same difficulties.
Mr Stevens: Could we please bring up POL00105635.
This is a document to which you refer in your witness statement. If we go down slightly, please, we can see it. It says, “Project Zebra – Phase 1 Report … Content and Key Extracts; DRAFT – for validation in advance of Board discussion on Wednesday 30 April”. Now, Gareth James will give evidence to this Inquiry in written form that said that this formed the primary basis of discussion for the meeting on 30 April.
As you say, you referred to it in your statement, do you have any independent recollection of reviewing it now or not?
Neil McCausland: Again, I do not have a recollection of reviewing it but, if it were sent to me for a Board discussion, I will have read it.
Mr Stevens: But, for example, you can’t assist with, now, whether this was in the Board room at the time when the discussion was taking place?
Neil McCausland: I cannot but my instinct is that it was.
Mr Stevens: Could we look, please, at page 5. This is “Key Matters for Consideration”, and you see on the left there’s “Risk Area”, in the middle the “Matters for Consideration”, and on the right the “Nature of Work Done”. If we could turn the page, please. We have “(4) “Specific” on the left and, on the right, it says, “Other work only, no assurance work noted”. At (d), it says:
“Audit Store: This records all transactional activity and certain (key) system events. Work we have seen performed on this store has been performed by Fujitsu and is not ‘evidence based’, as the documentation provides a description of the process they have performed only. It is also not clear from the documentation that we have been provided whether:
“[Post Office] has agreed that the current capturing of certain, key system events is complete and appropriate for potential governance and investigation needs; and
“Investigatory work on the Audit Store has all been performed by Fujitsu who, whilst technically qualified, do not constitute an independent nor experienced party for risk driven assurance purposes, or what risk analytic tools were used for these purposes.”
If we go down to the “Key Potential Next Steps”, we have 2(b) “Audit Store Testing” for a key potential next step:
“An independent party should review and test the Audit Store functionality, as described within the technical documentation provided by Fujitsu. This should include certain data analytical tests or underlying Audit Store data, to better understand, profile and examine the operation of the store, and, potentially use historic characteristics of incidents and errors to analytically search for the characteristics and trends within the audit records.”
Do you recall that being discussed at the meeting, these key potential next steps and points raised about the audit store?
Neil McCausland: I do not recall the conversation at that meeting.
Mr Stevens: Can you assist us with what your understanding would have been of these issues, if you can put yourself in the position of reading it at the time; so what would that have told you?
Neil McCausland: I think that it’s basically saying that a lot more work needs to be done at Fujitsu and to just understand how it works and get some independent – or get them to review it. So they’re basically saying, you know, “We need to look more at the audit store”. I think –
Mr Stevens: Sorry.
Neil McCausland: Yeah, I mean, the – at that meeting – this is the meeting, isn’t it, where we’re basically asking Deloitte to widen their scope? So we’d set up part – the Sparrow Subcommittee had set up the terms of reference for Deloitte, agreed it with Linklaters, agreed it with the Sparrow subcommittee, got Deloitte started, got them started on a Part 1., and then on the 30th, at the Board meeting, that scope was broadened a bit, which included phantom transactions, which undoubtedly would have been in Deloitte – in Fujitsu and I think this is also saying that they should review and test the audit store functionality.
Mr Stevens: Irrespective of whether – well, you don’t remember reading it. Do you recall anyone from the Post Office Executive either briefing you or informing you about these suggestions in this document by Deloitte?
Neil McCausland: I don’t but, to be honest, I wouldn’t really have expected them to, in that the Deloitte work was within the Sparrow Subcommittee and, therefore, had I been on the Sparrow Subcommittee, I might well have, but I wasn’t and, therefore, my – the only notes that I saw at the time and the only notes that the Inquiry have given me, are the minutes of the Sparrow Subcommittee. And, as we talked about before, in the reading of the papers which would have gone to the Sparrow Subcommittee and the hours that they spent to condense that down to a few pages of minutes, inevitably means that I am far less sighted on that than people who are on the Sparrow Subcommittee.
Mr Stevens: In your statement, you refer to this Phase 1 report and you say:
“It did not raise any particular red flags with me, albeit I knew controls around the system needed improving.”
One thing I want to test is you earlier said in your evidence that on 30 April you came away feeling good about Horizon or the work that was being done by Deloitte.
Neil McCausland: So, I mean, I think I said I didn’t feel warm and rosy but I didn’t have – but I didn’t have red flags. I didn’t feel overly worried. So there was clear – so I came away feeling – this is an Interim Report, we have already widened the scope –
Mr Stevens: Yes, I’m just trying to summarise where you are.
Neil McCausland: So I would have felt not warm and rosy but not overly worried.
Mr Stevens: Let me just get to the question. That feeling you’ve described, do you think you would have had that feeling if these issues had been discussed on 30 April?
Neil McCausland: Yes, I don’t think that those issues would have changed. So again, I’m not reading that to say, “Oh my God, I’m really worried”, I’m reading that as to say more work needs to be done and more investigation is required, particularly in the audit store with Fujitsu.
Mr Stevens: Could we look to the product that was given to you, please. It’s POL00029733. We see the email from Alwen Lyons on 4 June, you’re in the distribution list. It says:
“Please [see] below a message from Chris Aujard and Lesley Sewell …”
Sorry, I earlier said Rodric Williams; it was Lesley Sewell who was joint on this.
If we could turn the page, please, so we see it talks about the briefing, and it says:
“The briefing strives to be succinct and intelligible. However, given the subject matter and scope of the review, it remains somewhat technical. Furthermore, it is based on a desktop review of currently available information … It is therefore heavily caveated.
“In the briefing, Deloitte expressly identify a number of limitations and assumptions which underpin their findings … The briefing must be read in this context. That said, its key findings are …”
I’m not going to read them out because I understand you’ve read that summary.
Neil McCausland: Yes.
Mr Stevens: Can you just explain what your view was of the Deloitte work or what you took from this summary?
Neil McCausland: From the summary or from the –
Mr Stevens: From the summary.
Neil McCausland: From the summary, I took, that – well, I took this as a good, affirmative report saying that Horizon was in good shape. So I did not feel overly worried when I read the summary.
Mr Stevens: Did you acknowledge or understand from the summary what the limitations were; what did you think they were?
Neil McCausland: Sorry, so when –
Mr Stevens: How much weight did you think you could place on this report from the summary, based on the described limitations?
Neil McCausland: Let me just be clear. So when I read this email – so there’s an email from Chris and then there is the report from Deloitte. When I read the email from Chris, I felt good, in that the email was basically saying Fujitsu/Horizon is in good shape. When I read the Board summary, which was the condensed version on the full report, I felt less good. It wasn’t an easy read and I don’t have a vivid memory of this but my memory of it is that I felt less good and I thought that there were some questions which still needed to be answered in that Board summary.
Mr Stevens: What were the questions that you thought still needed to be answered from the Board summary?
Neil McCausland: So, again, my memory it’s not complete. I’m trying to remember back more than 10 years ago here. But I do remember that, in one of their matters, which, with hindsight, I can tell you is Matter 3, it basically says that they have not found documented controls which, you know, give Horizon the protection that it should have. So there were questions around that that definitely needed to be answered. That wasn’t how I read the email and so there were two things in my mind: first of all the email is over only positive; and, secondly, the report itself still has some questions to answer.
Mr Stevens: I was going to turn to the report but let’s just pick up on that first. Did it concern you that the summary email was positive in comparison to what you took from the report itself?
Neil McCausland: Yes, again – so I’m trying to remember back 10 years. So I have not got a particularly clear memory of it but I do remember feeling a disconnect between the email and the report.
Mr Stevens: Did you do anything about that?
Neil McCausland: I cannot remember. I mean, if I felt a disconnect, it’s likely that I would have but I cannot remember what I did.
Mr Stevens: Well, let’s look at the report, please. It’s POL00130618. If we could turn to page 3, now you’ve clearly read this report, the Inquiry has seen it, so I’m not going to go to it in any detail and try to summarise it. At the start we see that Deloitte say this:
“… did not constitute an audit or assurance engagement in accordance with UK or international standards.”
Then, when we go to (3), the “Limitations and Assumptions”, the desktop-based exercise:
“… significant gaps existing in the information available …”
The last bullet point:
“We have not validated or commented on the quality of the documentation supplied to us.”
Then, over the page, the assumptions includes at the bottom:
“Assertions made by [Post Office Limited] and Fujitsu staff have been accepted as accurate without corroboration or verification.”
So, taking that together, is this a fair summary of the Deloitte work: they reviewed documents on how Horizon worked and assumed they were accurate?
Neil McCausland: Yes.
Mr Stevens: Yes? They hadn’t tested whether the processes described within the documents had been implemented?
Neil McCausland: Yes.
Mr Stevens: Where there were gaps in documents, they may have spoken to Fujitsu and Post Office staff and, where they have spoken to Post Office and Fujitsu staff, they would have accepted what they said as accurate without corroboration or verification?
Neil McCausland: Yes.
Mr Stevens: That didn’t really meet the form of objective independent review that Linklaters were suggesting; would you agree with that?
Neil McCausland: Yes.
Mr Stevens: Did you acknowledge that at the time?
Neil McCausland: So, at the time, I felt that this was an unsatisfactory piece of work, in that there were lots of limitations, it wasn’t a particularly easy or clear read, it was giving us some assurance but there were a lot of areas that still needed to be followed up.
Mr Stevens: Pausing there, when you say it’s giving you some assurance, this was doing no more than pulling together and summarising other sources of documentation and pre-existing assurance work; would you agree with that?
Neil McCausland: It was desktop exercise using existing documentation but, yeah, we knew that’s what Part 1 was going to be. So what they were not going to do was to go through and look at all the code in Horizon. So it was really all that they could do.
Mr Stevens: So this hasn’t really given any new or independent assurance to the position before the Linklaters advice; would you agree with that?
Neil McCausland: No. I –
Mr Stevens: If it’s a desktop report that is looking at other assurance documentation, how does that give you –
Neil McCausland: Because I hadn’t seen all the other assurance documentation. So there were definitely things in this report which had not previously been brought to my attention. So I learnt things in reading this. So I accept that the business may have had all of that information but I’m not sure that it had been pulled together, in a way. So if you go back to what Linklaters were saying here, document the – Linklaters were suggesting that we had somebody actually go through the design of Horizon and its use. So, inevitably, that is going to be using existing documentation.
Mr Stevens: So is this coming back to the original point I put to you earlier, that what was being sought here was a document that collated existing assurance to use in the Mediation Scheme, rather than a true independent investigation itself?
Neil McCausland: I don’t think this was to use in the Mediation Scheme. I think this was to actually understand for ourselves the integrity of new Horizon, Horizon Online.
Mr Stevens: If we go, please, to page 7, Matter 3:
“Baskets of transactions recorded to the Audit Store are complete and ‘digitally sealed’, to protect their integrity and make it evident if they have been tampered with.”
Then, just scrolling further down, it says:
“We have not identified any documented controls designed to:
“Prevent a person with authorised privileged access from deleting a digitally sealed group of data and replacing it with a ‘fake’ group within the Audit Store …”
I think you say this was something you recall earlier being concerned by; is that right?
Neil McCausland: Yes.
Mr Stevens: If we turn the page, please, to look at Matter 5, Matter 5 is:
“Horizon provides visibility to subpostmasters of all centrally generated transactions processed to their branch ledgers.”
We see (3), “Balancing transactions”; do you remember if that caused you any concern at the time?
Neil McCausland: I honestly cannot remember if I, at the time, was concerned by that. I do remember concern about the document. I remember concerns that the email was too positive and I remember the Matter 3. I may well, also have been concerned about that but I honestly cannot remember.
Mr Stevens: Looking at it, what it says is, firstly, Fujitsu can create transactions in branch ledgers, yes?
Neil McCausland: Yes.
Mr Stevens: Post Office said that that was visible to subpostmasters?
Neil McCausland: Yes.
Mr Stevens: But, of course, Deloitte hadn’t been able to test that, just assumed it was true. Fujitsu claimed it had only been used once but hadn’t been tested, and there was no knowledge of its use before 2008.
Now, we saw in the minutes of the Board on 30 April that remote access, or ‘phantom transactions’, as you referred to it then, was a core issue. Surely this would have set off alarm bells for you?
Neil McCausland: I think that – so, even when I read thorough this, I’m still of the impression that a change is visible. So if a change is made that if I then follow the flow of information, either through the central database or through the audit store, that is a visible transaction. The one issue that I think did worry me is the Matter 3 where it said “I haven’t seen any documented controls about this, and if, if, if, then there’s a risk”. So absolutely it would say, okay, so what – are there documented controls that you just haven’t found, are there people who have all that relevant access? So questions that need to be answered. But if they are answered, I am still of the understanding that this needs to be visible.
I didn’t say, “And, actually, previously Gareth James said all transactions are visible”, which is why he thinks it would be easy to do the validation. That is in the Board meeting. So the fact that it is visible, I think, reassured me.
Mr Stevens: I can’t see the [draft] transcript, when you said that Gareth James said to you about transactions being visible, what words did you use: ‘transaction’ and then what was the one that followed?
Neil McCausland: So Chris Aujard, I think it’s in the minutes –
Mr Stevens: Sorry, I asked you to clarify your evidence on what you said Gareth James said about transactions.
Neil McCausland: So Gareth James – it is recorded in the minutes that Gareth James said to Chris Aujard, who reported it to the Board, that because transaction corrections are visible, it would be easy for him to do his work.
Mr Stevens: So, at the time, did you have in your mind the difference between transaction corrections and what I just took you to in Matter 5, which was a balancing transaction? Do you understand the difference between them?
Neil McCausland: At the time, I don’t think that I was probably sufficiently aware of the difference between them but I still had an underlying belief that a change, any change, would be visible.
Mr Stevens: So, based on this desktop report, I think did you accept that it left a lot of questions unanswered?
Neil McCausland: Yes.
Mr Stevens: Why was this report not discussed at the Board?
Neil McCausland: So the Board meeting – it was never due to be discussed at the Board.
Mr Stevens: Well – sorry can you explain why that was because –
Neil McCausland: Sorry, let me answer your question. So it wasn’t ever due to be discussed at the Board. It was due to be discussed at the Sparrow Subcommittee meeting and, actually, that’s the right place for it. This is a very detailed piece of work, the Sparrow Subcommittee had commissioned it, they’d done the terms of reference for it, they had been involved in it on their 9 April and 30 April meeting and we, the Board, had been told late May that it was going to be considered at the Sparrow Subcommittee meeting, and when the email came out, from Chris on the fourth, it also said that it would be considerate at the Sparrow Subcommittee meeting.
It wasn’t due to be considered at the Board. It would be a pointless thing to set up a Sparrow Subcommittee, get them to be spending lots of time understanding it, and then for the document to be considered at the Board.
Mr Stevens: Well –
Neil McCausland: The Sparrow Subcommittee is the right place for it to be considered.
Mr Stevens: – just pausing there. The Board had brought Gareth James in for an interim presentation on where Deloitte was. Correct?
Neil McCausland: Yes.
Mr Stevens: Yes?
Neil McCausland: Yes.
Mr Stevens: So the Board at that point obviously thought that it was sufficiently serious or important to go over with Mr James his findings to date, correct?
Neil McCausland: Yes.
Mr Stevens: The Subcommittee, as you say, can consider the report but the fact that the Subcommittee considers it doesn’t stop the Board also considering it as well, does it?
Neil McCausland: But the Subcommittee should consider it first, in far more detail than the Board would consider it.
Mr Stevens: But why, when we’ve discussed what your views were on the report, why was this never brought back to the Board for a discussion of what’s happening next; what are we doing next?
Neil McCausland: So it should have been. I cannot tell you exactly why it wasn’t. My view is that it should have been considered by the SSC in detail and then a summary of that should have been articulated to the Board, and I do not think that either of those things happened with hindsight.
Mr Stevens: Was it not brought back to the Board because the Board didn’t want to delve into the unanswered questions and know the answers?
Neil McCausland: Absolutely not. The Board – the NEDs, not once in all my time there did the NEDs not want to get to the truth. Not once did they avoid a difficult conversation or an uncomfortable truth. There is no benefit for a NED in doing that and there was no behaviour that I saw from any of the NEDs that did that. So absolutely not. I cannot explain to you why it was not considered at the SSC, and I cannot explain to you why it was not brought back to the Board.
Mr Stevens: Because what – again, just looking here, we’ve had a Magic Circle firm give written advice and a Magic Circle partner go to the Board and talk on that advice, a decision made to commission some work. The work is commissioned by Deloitte, a Deloitte partner comes to the Board and talks about it. This is then sent to the Board and then it appears, from your evidence, that it just drop off everyone’s radar. Why didn’t you ask in any questions of or follow-up on this with, even outside the Board, with Paula Vennells?
Neil McCausland: So it was clear from both the SSC on 31 May and also from the email that we – that came with the report on 4June, both of them were very clear that that is would be considered by the next meeting of the Sparrow Subcommittee. I 100 per cent think that is the right place for it. The Sparrow Subcommittee has got the Chairman, the Chairman of the Audit Committee, the shareholder representative, at the CEO and the General Counsel, so the five perfect people to do that. Two of those are – two of those are accountants, you’ve got legal skills, you’ve got better IT skills than the rest of the Board so the Sparrow Subcommittee have got the expertise and the time to review, ideally not just the Board summary but the full Deloitte report.
Mr Stevens: Can we –
Neil McCausland: So that is –
Sir Wyn Williams: Sorry, stopping you there, Mr McCausland, the obligation – I’m calling it obligation because you said that it should have been considered subsequent to that Sparrow Subcommittee meeting – who bore the obligation to ensure that it was discussed? Tell me how it would work in practice? Who should have, in effect, insisted on a discussion by the subcommittee?
Neil McCausland: So the agenda for the subcommittee, I think, would have been created by Alice, with help from Alwen, who, as Company Secretary, would determine all agenda.
Sir Wyn Williams: Right.
Neil McCausland: There are action points from the previous subcommittee saying that the report would be considered at the next meeting of the Sparrow Subcommittee. So that’s how it would have – it should have been on the agenda for the next meeting of the Sparrow Subcommittee.
Sir Wyn Williams: So I’ll summarise it, then you say whether you agree.
As I see it, there’s a failure in process in ensuring that it’s not on the agenda for the next meeting but then there’s a collective failure of the five people who formed that subcommittee, nonetheless, to ensure that they discuss it; is that fair?
Neil McCausland: That is fair.
Sir Wyn Williams: Fine.
Mr Stevens: Thank you, sir, that actually was my next set of questions, so it’s probably a good time –
Sir Wyn Williams: I’m very sorry, Mr Stevens, I just thought I wanted it clear while it was in my head.
Mr Stevens: Yes, I’m always glad when you ask questions before me.
Sir, on that basis, it’s probably a good time for the break because I’m going to move on to a different topic.
Sir Wyn Williams: Fine. All right, what time shall we resume?
Mr Stevens: 12.25, please, sir.
Sir Wyn Williams: Fine.
Mr Stevens: Thank you.
(12.16 pm)
(A short break)
(12.25 pm)
Mr Stevens: Sir, can you see and hear us?
Sir Wyn Williams: Yes, thank you.
Mr Stevens: I’m going to go on to a different topic, Mr McCausland.
Now, I’m going to ask now about both the Clarke Advice and the review of disclosure to subpostmasters who had been convicted. I’m later going to ask you about the oversight of prosecutions and ongoing prosecutions. At the minute, I’m just limiting to convictions themselves.
Neil McCausland: Okay.
Mr Stevens: Can we please bring up POL00099026, and this is an email from Paula Vennells to you on 6 July 2013. So we’re back in the chronology, after the Board meeting where the upcoming Second Sight Report was discussed, which we went to earlier, but before the report had actually been received.
I don’t need to go through all the summary, if we can turn the page, please, and go to the bottom of page 2. It says:
“One of the main reputational and potentially financial risks arising from the review relates to possible attempts to reopen past prosecutions based on the findings. James Arbuthnot was certainly focused on this. We had a stronger exchange on this point. It is not clear that any new evidence has emerged. If it does, then as pointed out to James, legal routes to appeal already exist. Susan and the Legal Team are working with our external lawyers to consider whether there are any implications arising from the report for past cases and we can provide a further update on this work next week.”
Do you remember when the issue of past prosecutions, to use Ms Vennells’ words, being reopened, do you remember when that was first drawn to your attention?
Neil McCausland: At this stage.
Mr Stevens: What did you make of that?
Neil McCausland: Interested to know more. I mean, to be honest, at that stage, I knew very little about prosecutions. I didn’t know much about civil versus criminal, I didn’t really understand that we did our own prosecutions and I didn’t really understand what it was in the Second Sight review which would lead to past prosecutions being reopened, and therefore read it and went “Interesting, keen to know more”.
Mr Stevens: That can come down. Thank you.
We’re going to turn in a moment to the Board meeting on 16 July 2013 at which you were not present. You received the Interim Report on 8 July and read it at some point before that Board meeting.
Neil McCausland: Yes.
Mr Stevens: Do you recall having a discussion with either a non-exec or a member of the Executive about this issue of past prosecutions, following receipt of that email but before the 16 July Board meeting?
Neil McCausland: I don’t – so I don’t think that that would have prompted it. When the – there was a paper which came out on 12 July from Susan, which did talk about wrongful prosecutions and I would have had a conversation with Alice about the Board meeting. So I will have read the Board papers cover to cover and I will have had a conversation with Alice about anything which I wanted to bring up at the Board meeting.
I honestly cannot remember if wrongful prosecutions were there but I would guess that they were.
Mr Stevens: Was this, to that point of your career, a unique moment, dealing with past prosecutions?
Neil McCausland: Absolutely, yes.
Mr Stevens: But you can’t assist us at all with what you might have discussed with Alice Perkins?
Neil McCausland: I cannot. When I read the minutes of the Board meeting, and when I spoke to – well, I remember reading – sorry. With hindsight, just to be clear, when I read the minutes of the Board meeting, which I was not at, I was not surprised by the questions and the discussion about wrongful prosecutions, and was anybody implicated.
So I would not be at all surprised if I had had – well, I know I would have had a conversation with Alice and I would not have been surprised if, in that conversation, I would have been worried about the concept of wrongful prosecutions because it absolutely would have been unique and I’d never been involved in anything like that before, so I’d have gone “Oof!”
So the concept of who is responsible and is there responsibility on the Board, absolutely that would have been a concern for me.
Mr Stevens: I am going to turn to the minutes in a moment. The Inquiry has heard evidence about that meeting and that Susan Crichton was intended to speak to a paper that she produced – I think you referred to it already, the 12 July paper – but was kept out of the meeting, sat on the other side of the door, by Alice Perkins, and it was Paula Vennells who spoke to the paper.
Were you told about that after the meeting by any of the Non-Executive Directors?
Neil McCausland: I cannot – again, I cannot remember but I would guess that Alice would have briefed me about the breakfast – the pre-Board meeting that took place with the non-execs and about the fact that Susan didn’t come into the meeting. So I would guess that Alice did talk to me about that because we would have had a thorough pre and post-brief but I honestly cannot remember the content of that conversation.
Mr Stevens: So you cannot assist us with the reasons for why, at the time, Alice Perkins made that decision to keep Susan Crichton out of the room?
Neil McCausland: I’m afraid that I can’t, no.
Mr Stevens: From your experience of how these meetings were run, do you consider that to be an unusual decision, to keep Susan Crichton out of the meeting?
Neil McCausland: Yes. I do. It absolutely would have been usual and normal for the people who were on the agenda to turn up. I cannot remember another instance where – no, maybe I can – but if timing – if something really overran, sometimes an agenda item would slip to the next Board meeting but it would be very rare for that to happen.
Mr Stevens: Did you speak to Susan Crichton about the decision to have her excluded from the meeting?
Neil McCausland: I did not.
Mr Stevens: Can we look, please, at the minutes. It’s POL00027514. We see it’s 16 July 2013. You’re noted there as “Apologies for Absence”. If we go over the page, please.
Sorry, if we could go – oh no, apologies.
Could we go to page 6, please. It says:
“The CEO explained that although the Second Sight Report had been challenging it had highlighted some positive things as well as improvement opportunities.”
Then at (b), it says:
“The Board were concerned that the review opened the Business up to claims of wrongful prosecution. The Board asked Susan Crichton, as General Counsel, was in any way implicated …”
An explanation given is there.
Either before the meeting or shortly after it, were you given any information about the number of wrongful prosecutions that the Legal team thought there may or may not have been?
I’ll rephrase the question.
Neil McCausland: Yeah.
Mr Stevens: Did anyone explain to you the extent of the risk, in terms of the numbers that they were fearing there may be wrongful prosecutions for?
Neil McCausland: Yes. So I can’t remember if it was – in which piece of paper but, around that time, I was informed by Susan that, in her view or in the view of the external lawyers assisting her, it would be maybe 5 per cent of the – yeah, 5 per cent of cases. So in 5 per cent of the cases, I think, was the figure that was used. Yeah.
Mr Stevens: What was your view of that risk; how serious did you think it was?
Neil McCausland: Yeah, I mean, so it doesn’t matter how many, what percentage. I mean, if there’s one, then that’s serious. So we – I would have been worried about wrongful prosecution.
Mr Stevens: So was this an important issue that the Board needed to grapple and maintain oversight of?
Neil McCausland: Yes.
Mr Stevens: Just so we’re clear, because at various points in the chronology we see subcommittees being made, there was no subcommittee created to look at the past prosecutions, was there?
Neil McCausland: No.
Mr Stevens: Was this considered to be a matter for the full Board itself?
Neil McCausland: Yes. At this stage, there was no Sparrow Subcommittee.
Mr Stevens: If we look down, just to cover one point before carrying on with this theme, it says (c):
“The Board expressed strong views that the Business had not managed the Second Sight review well and stressed the need for better management and cost control going forward.”
Is that something you had discussed with Alice Perkins before the meeting?
Neil McCausland: I’m not sure if I did specifically but I shared that view: that the Second Sight review had taken too long, was taking too long, and the way in which the Second Sight review had been sprung upon the Board, partly with Paula talking about it in the margins of another meeting, on the 1st, and then a very short period of time before it was launched, it just felt like it hadn’t been a well-managed process. It felt like we, Post Office, were disconnected from what Second Sight were doing.
Mr Stevens: That document can come down. Thank you.
The day before this meeting, we now know that the Clarke Advice had been prepared, the 15 July 2013 Clarke Advice. You’ve read that as part of the documents that were provided to you by the Inquiry, haven’t you?
Neil McCausland: I have.
Mr Stevens: You say at paragraph 110 of your statement, that you:
“… were unaware of the existence and/or contents of Simon Clarke’s Advice of 15 July 2013, prior to receiving it as part of the disclosure pack provided by the Inquiry in relation to my Rule 9 Request.”
Elsewhere in your statement, paragraph 199, you say:
“I do not believe that I was told that the reason that we could no longer use Gareth Jenkins was because he had been discredited.”
Neil McCausland: Yes. Correct on both counts.
Mr Stevens: Can we look at your statement, please, at page 68, paragraph 181. I’ve taken you here before, it’s referring to the sources of assurance or reassurance for the Horizon IT system. If we could turn over the page, please.
If you can take it a bit further down, please. Thank you. So on the screen, the third bullet point down, says:
“By Fujitsu and their expert witness who would regularly give evidence in court under oath about Horizon’s reliability which resulted in convictions …”
Presumably there you’re referring to Gareth Jenkins?
Neil McCausland: Yes. I did not know Gareth Jenkins’ name for much of the time but, yes, I was aware that Fujitsu put up an expert witness who would defend the system.
Mr Stevens: When did you become aware of that?
Neil McCausland: I think probably around this time.
Mr Stevens: When you say “this time”, sorry?
Neil McCausland: Summer of ‘13.
Mr Stevens: Summer of ‘13. So the Interim Report comes out on 8 July, there’s the 16 July Board meeting, and you think at some point in between there you have a conversation with Alice Perkins. Do you think it’s around then or later?
Neil McCausland: Yeah, I don’t think it will have been with – the conversation with Alice Perkins but it was around that time that I learnt that we could no longer use the expert witness who we had. I’m not sure that I was aware that his name was Gareth Jenkins but I was told that – and I wasn’t specifically told: I mean, it was in a document that we needed a new expert witness.
Mr Stevens: Okay. We may come to a document like that in a second but let me clarify this: you say it was in a document, did anyone discuss with you the use of expert evidence orally?
Neil McCausland: No. Not that I can recall.
Mr Stevens: That document can come down, thank you.
Following the 16 July 2013 Board meeting and this discussion of a review of past prosecutions – I’m using a very loose term there on purpose – what were you told about the nature of that review or look-back at past prosecutions?
Neil McCausland: Sorry, so just to clarify, are you talking about the Sift Review?
Mr Stevens: I want to know, from 16 July onwards, when you were told about a review of past prosecutions, what you were told that review would entail?
Neil McCausland: So around the – I think it was mentioned in the 12 July letter and then it was mentioned in subsequent letters, in subsequent minutes that Susan Crichton had commissioned an external firm, which I think she specified as Cartwright King, to do a review of past prosecutions and to ascertain what needed to be disclosed to those past – to understand if we needed to disclose the Second Sight review to those past prosecutions. At a consequent time, Brian Altman also then got added into that as an independent review of Cartwright King.
Mr Stevens: Can we look, please, at POL00145891, and can we turn to page 3, please, right at the bottom.
Can we go further down, please. Sorry, if we scroll up, please. Thank you. That’s it. Sorry I disoriented myself.
It’s an email from Alasdair Marnoch to Alwen Lyons on 27 July 2013. We see you’re copied in. If you go down, please, it says:
“For the benefit of other Board members I had a very good review with Susan and Alwen earlier this week focused mainly on the history and immediate actions we are taking to dealing with the urgent case review.”
Then it says:
“In our discussion with Susan, Alwen explained why the case review was any going back to 2010 and the significance of a Horizon upgrade (full reconciliations across every site etc). Could Alwen please elaborate on this point as a critical issue will be determining how far back we need to go.”
Do you recall any discussion firstly on the choice of start date for the review?
Neil McCausland: I do not, no. It is – the choice of start date is referred to in several emails, and I am conscious that Alasdair – so Alasdair had been asked by Alice to do this, and I think that’s in a previous minute. So Alasdair is having a conversation, and Alasdair is talking to Susan and Alwen about the choice of start date but I don’t remember being involved in any of those conversations myself. I was aware of it.
Mr Stevens: Outside of this email did you discuss with either Alasdair, Susan Crichton or Alwen Lyons any of the issues raised in that email?
Neil McCausland: I don’t believe that I did. I certainly had a conversation with Alice regarding these issues but I cannot remember having a conversation with Alasdair, Alwen or Susan.
Mr Stevens: When was the conversation with Alice?
Neil McCausland: It will have been when I was back from France. I cannot tell you the date. I mean, I’m guessing sometime after 16 July.
Mr Stevens: Do you recall what was discussed in that conversation with Alice Perkins?
Neil McCausland: Really a summary of what happened at the Board meeting and at the breakfast meeting. Again, I cannot recall the content of it but it will have been going through the Board meeting and her take on the various discussions in it. So it won’t have been very different from the minutes.
Mr Stevens: If we can go up the page, please. We see there’s an email for Martin Edwards with a different note. If you carry on going up, please. There’s an email from Alice Perkins there, which we will probably come back to later on. If we can carry on going up.
Susan Crichton emails you on 7 August 2013 and says:
“Neil – please let me know if you would like to discuss this issue or want an update and I will put some time in the diary when you are next in the building.”
Your reply is:
“Thanks very much Susan.
“I think I am up to date, and understand the issues, so probably no need for a special update.”
Why did you feel at this point it was not important to talk to Susan Crichton about the criminal case review?
Neil McCausland: Because I believed that I was up to date. I would have had a conversation with Alice, and so Susan isn’t saying, “Neil, I’ve got some really important information I need to share with you”. Susan is saying, “Please let me know if you would like to discuss this issue or want an update”. So I didn’t want update; I was up to date.
Now, clearly, with hindsight, I would have loved to go that Gareth Jenkins had been discredited, that we had the Helen Rose Lepton report, that the Clarke Advice had come out, which had put a fundamentally different spin on things but that wasn’t what she was saying. She was saying do I want an update and would I like to discuss. I believed I was up to date and I was very happy to wait until the next Board meeting or the next time that she was going to update the board.
Mr Stevens: Just so we’re clear at this point, so your email is on 13 August, we’ve discussed the sources of your information as being firstly the 12 July paper from Susan Crichton.
Neil McCausland: Yes.
Mr Stevens: One or two conversations with Alice Perkins?
Neil McCausland: Yes.
Mr Stevens: The email below from Alasdair Marnoch?
Neil McCausland: Yes.
Mr Stevens: There’s a paper which was in your pack and Martin Edwards refers to that paper?
Neil McCausland: Yes.
Mr Stevens: Were there any other sources of information you had at that point on the status of the review?
Neil McCausland: Not that I can recall.
Mr Stevens: That can come down but can we go, please, to POL00030900. This is a meeting of the Audit, Risk and Compliance Subcommittee to be held on 11 February 2014. We see these are the papers for that, it says, “Agenda” in the top left. If we turn to the second page, please, we see it’s a Prosecution Policy paper, and we don’t need to go there but, take it from me, it was signed off by Chris Aujard.
Could you turn to page 4, please. Paragraph 4.5 says:
“It should be noted that, although [Post Office] is still able to bring cases where the evidence concerned is extracted from the Horizon system, there is a such risk that in such cases a defence will be mounted to the effect that the Horizon system cannot be relied upon. We have been advised that in these cases there is a strong likelihood that such a defence will be successful, at least until such time as a new independent expert is identified and has familiarised himself with the system. This is likely to take around 12 weeks, and cost up to £200,000.”
Was that the document you were referring to earlier when you said that you learnt that the expert couldn’t be used in future or did you learn at an earlier point?
Neil McCausland: I think I learned at an earlier – I can’t quite remember but I think that I knew it already by that stage.
Mr Stevens: Admittedly it’s in the context of whether prosecutions are pursued full stop but it’s saying, at the moment, we need to find a new independent expert and that may cost up to £200,000.
Did you ask, in February 2014 or before, why you couldn’t use the expert who had provided evidence in past prosecutions?
Neil McCausland: So at that time I did not ask but my memory is that I’d been told previously that the old Fujitsu expert had moved on and, therefore couldn’t be used.
Mr Stevens: Sorry, this is important, please. Who told you that?
Neil McCausland: I cannot remember. I’m guessing – I cannot remember. But my mind has it that somebody told me that the old Fujitsu expert had moved on but told me in such a way that I didn’t particularly think “Oh, my God, he’s been discredited”. I thought he’s retired, resigned, gone to work somewhere else, we needed to find someone new.
Mr Stevens: So your evidence is it was more of a practical matter: the old expert has gone, we need to find someone else?
Neil McCausland: Yes. There was certainly absolutely no hint that the expert had been discredited. So that was 100 per cent not known by me or the NEDs.
Mr Stevens: It’s quite a significant point. Can you assist even with when it’s likely that that was said? Was this February 2014 or the summer 2013, or in between, I should say?
Neil McCausland: I’m pretty sure that I didn’t know it when the Second Sight Interim Report came out in the summer of ‘13 and I’m pretty sure that I did know it when this paper was reviewed by the ARC. As to when it was between summer and February ‘14, I – it’s somewhere in that period but I honestly cannot tell you when it was. Very happy to –
Mr Stevens: As we’ll turn to – we’ll come to this later on in your evidence – there was a discussion on the future prosecutorial role of Post Office in November 2013.
Neil McCausland: Yes.
Mr Stevens: Could it have been around then?
Neil McCausland: Yes, absolutely. Yes. That was the precursor for this conversation, so the first meeting of the ARC in November deliberately didn’t make a decision. We needed more information, which came to this meeting of the ARC. So I would have been very surprised if I didn’t know about it in the November ‘13 ARC meeting because it would have been very relevant to that. But I have a feeling I didn’t learn about it in the ARC; I have a feeling I learnt about it in some different way.
Mr Stevens: So you don’t think it alerted in the ARC – Audit, Risk and Compliance meeting – you think it was probably at or before November 2013. What other way do you think you may have been told of that information?
Neil McCausland: Either through Susan or Paula or Lesley, probably at a Board meeting. That’s probably the – yeah, that’s the most likely way.
Mr Stevens: You say – we don’t need to bring it up – at page 71, paragraph 186 of your statement:
“It has subsequently become clear that I was not provided with or made aware of Simon Clarke’s appointment or the reports he provided. That is wholly unacceptable. However, I do not regard this as a lack of oversight on my part. I cannot have oversight of matters of which I have no knowledge.”
Can you assist us with what you would have done if you read the report when you were Senior Independent Director?
Neil McCausland: So, if I go back to the Interim Second Sight Report, I was, as I’ve said before, pleased that we seemed to be finding some reasons for the unexplained losses, and that gave us something to do, frankly. So, yeah, we’d gone into the Working Party, the Mediation Scheme, the Business Support Programme. We then reviewed past prosecutions but we reviewed them in the context of is there something in the Second Sight Report which should be disclosed to those past prosecutions?
Had, at that time, I been told Gareth Jenkins is discredited as a witness and has been giving false evidence, the Helen Rose Report and the Simon Clarke really very clear report, basically saying serious risk of wrongful prosecutions, then I think we would have approached the subsequent period very differently. So we went into that subsequent period thinking that there was a – that we needed to disclose information to a small number of past prosecutions, and we were disclosing the Second Sight evidence.
That was my understanding. That was what we were told. So the reason for reviewing the past prosecutions was the Second Sight Report.
The real reason, as I understand it now, is that we had been prosecuting – we had been using a tainted witness and we had had serious risk of wrongful prosecutions and, therefore, the Simon Clarke Advice, coupled with the Gareth Jenkins information, clearly they’re linked, I think would have absolutely made us take a very different tack.
Mr Stevens: In terms of what actually happened, what recollection do you have of how the Board oversaw the review and conducted oversight of it from August onwards?
Neil McCausland: So we were clearly concerned, as the minutes from the July board meeting show, we were concerned about wrongful prosecution and we were concerned about that in a number of different ways. We were concerned – clearly, the very fact that we’re doing wrongful prosecution and the impact on those individuals; we were concerned from the company’s point of view because that exposed us to financial risk, reputational risk, legal risk; we were concerned from an individual point of view who was doing that. So we were concerned about a lot of different aspects and, therefore, we wanted more than just Susan, because Susan might be implicated, and therefore we wanted a legal firm to do that.
And we also then wanted somebody else, which was where Brian Altman came in, to review the fact that we were reviewing it. So, effectively, we were trying to get two layers of assurance.
Mr Stevens: Were you aware –
Neil McCausland: General Counsel, Cartwright King –
Mr Stevens: Were you aware that Cartwright King had been involved in conducting prosecutions for Post Office at the time when they were instructed?
Neil McCausland: No, I wasn’t. It – I was not aware of that. That linked hadn’t been made. I don’t know if I had ever previously seen a piece of paper that said Cartwright King were doing criminal prosecutions but I certainly didn’t put those two things together.
Mr Stevens: In your statement, you refer to the Advices of Brian Altman KC. Were you provided with any of those notes of advice?
Neil McCausland: Sadly not. Again, with hindsight, I understand that Brian Altman also referred to other things that weren’t brought to our attention. We were basically given a very anodyne, positive report to say that Brian Altman said that our approach was sound, which again, with hindsight, is not correct.
Mr Stevens: Without hindsight now, that’s what I want to look at, do you think the Board, when presented with such a serious issue, should have requested to see the notes of advice of Brian Altman, of which it was aware?
Neil McCausland: So with hindsight, I wish we had. At the time, if I have the General Counsel of the company saying something to me, backed up by an external law firm, backed up by a KC, frankly, I’m not expecting the General Counsel to be lying or misleading me.
Mr Stevens: Sir, I’m going to go to a different topic, so it’s probably a good time to stop there for lunch. I don’t have much more to go and there’s a few questions from Core Participants but I don’t think it would merit working through lunch at this stage.
Sir Wyn Williams: That’s fine, Mr Stevens.
Mr McCausland, I want you now just to answer this question from your general experience as a Non-Executive Director and, therefore, what you would expect to happen as a Non-Executive Director of a company like the Post Office. Can you think of any good reason why the substance of Mr Clarke’s Advice, even if not the actual Advice itself, would not have been discussed at Board level?
Neil McCausland: I cannot think of any good reason, sir. I think, under any circumstance of any Board that I have served on, I would have expected that information to have come to the Board and to be, you know, rigorously and in a very untainted way, laid out in front of the Board.
If I am honest, sir, I think the bit about Susan being left outside on a chair is a bit of a red herring. It’s clumsy, it shouldn’t have happened but it is Susan’s job, as General Counsel, to inform the Board of hugely relevant pieces of information, which, as I’ve said, I fundamentally believe would have changed the way that we operate, and for those pieces of information not to have been disclosed – and it’s not a case of doing it on a phone call. I mean, it’s a very important piece of paper which should either have been in her Board report or sent around as a note or sent around on a phone call. We arranged Board meetings and Board information very regularly and, for those pieces of information not to have been shared, I think it’s wrong.
And subsequently, I don’t think those pieces of paper, that information was shared at all. So I don’t think it went to the CCRC. I think it was airbrushed from history very consistently, which I have absolutely no reason why that would be the case which is acceptable.
Sir Wyn Williams: All right. Thank you.
2.05 okay, Mr Stevens?
Mr Stevens: Yes, sir. Thank you.
Sir Wyn Williams: Fine.
(1.04 pm)
(The Short Adjournment)
(2.05 pm)
Mr Stevens: Good afternoon, sir. Can you see and hear us.
Sir Wyn Williams: Yes, thank you very much.
Mr Stevens: I will continue.
Mr McCausland, I’ve got a few more, more discrete smaller topics to cover this afternoon morning, and I want to start with the resignation of Susan Crichton. We don’t need to turn it up but in your witness statement at paragraph 146, you say you aren’t aware of the reasons as to why Susan Crichton resigned, correct?
Neil McCausland: Correct.
Mr Stevens: The Inquiry sent you or gave you this morning two documents, so you didn’t have those at the time you made your witness statement. I want to look at them now and explore them with you. Please could we bring up POL00381628. It’s an email from Paula Vennells on 2 September 2013 to you. That says:
“Neil, I have tried to help our discussion tomorrow (today!) by providing a background brief. This is a private note; and views in it may change as more information comes to light. I’d be grateful if you would treat it as such.
“Thank you for being available at such short notice.”
My reading of that is there’s a note being sent to you for discussion in the future; is that your understanding?
Neil McCausland: That is.
Mr Stevens: The subject says, “Our meeting – P&C”; do you know what that means?
Neil McCausland: Private and confidential, I guess.
Mr Stevens: I’ll come to the note in a moment but do you recall receiving this and the discussion which we’re about to turn to?
Neil McCausland: I didn’t have any recollection of it before you showed it to me this morning. Now that you have showed it to me, I do have a vague recollection of it, yes.
Mr Stevens: That document can come down for the time being. Before we turn to the note, can you recall what Paula Vennells told you was the reason she wanted to speak, before that email was sent?
Neil McCausland: I – my memory, which is not perfect at this stage, but my memory is that she was coming to me in my position as SID because the Chair, Alice, and the General Counsel, Susan, were having an issue and Paula probably felt caught in the middle and Paula came to me, which is appropriate in the case where there is some issue with the Chair, and wanted my advice, wanted my guidance, my opinion, my counsel. So I think Paula is trying to draw me into the issue regarding Susan and Alice and the chain of emails which follows.
Mr Stevens: Let’s have look at the note that was attached, please. It’s POL00381629. You see it says, “File notes SC/PV [Susan Crichton/Paula Vennells], Friday 30/9”. That’s been established should be 30 August, rather than 30 September.
I’m not going to read all through this but could we please turn to page 3, first. It says.
“Neil, this the end of the brief for our discussion. There are more notes below as context if you have time. But not imperative.”
So that’s just to coordinate where we are in the notes. So if you go back up, please, thank you.
Go back up to page 1, thank you. Further down, please. So there’s a note here of the conversation. In the paragraph that says, “She again raised that Alice had made mistakes”, it goes on to say:
“And I said that whilst I would be asking Alice about a couple of challenges Susan raised (Alice believing Donald and BIS [Department for Business, Innovation and Skills] comments about a PO cover-up?) …”
Do you remember discussing that aspect of the note with Paula Vennells?
Neil McCausland: I saw that this morning and was – yeah, was interested in it but I do not have any recollection of that at the time.
Mr Stevens: If we go back to page 3, please, we’ve got the “Reflections” section. Now, just up slightly again, please. Thank you. It says, as we’ve said here before:
“Neil … There are more notes below as context if you have time. But not imperative.”
Would you have read the remainder of the document?
Neil McCausland: Yes.
Mr Stevens: Third paragraph down, it says:
“Susan had said to me prior to my leave, that she would never have put a business she worked for in the situation we found ourselves with the [Second Sight] Interim Report, and she wished she had never allowed Alice to persuade her to do the independent review.”
Do you recall discussing that aspect with Paula Vennells?
Neil McCausland: Well, this is fresh in my mind from this morning and my mind hasn’t had a long time to think about it, so I really cannot remember the conversation I had with Paula, you know, more than 10 years ago. I’m sorry, I can’t flesh that out. I’m sure I would have read the note; I’m sure I spoke to her about everything in the note but I cannot remember the details of that conversation, I’m afraid.
Mr Stevens: So if I asked you any more questions on this, you wouldn’t be able to assist us with what was said at the conversation?
Neil McCausland: I can – I won’t – I will not be able to remember the actual conversation. I’m happy to reflect on what I think I would have said but, as to what I actually did say, I would struggle.
Mr Stevens: Do you have any recollection at all about how the conversation went? If it’s not precisely words that were used but the overall tenor of the conversation?
Neil McCausland: Yes. So – or do I? I’m not sure if it’s an actual recollection or what it’s what I am imagining what was said. But I think that I – my reaction to Paula would have been that Susan is being overemotional about it. She should have resigned over the Second Sight Review nonsense. You know, we were right to do the Second Sight Review, there was nothing wrong with doing the Second Sight Interim Report, that’s no reason at all to resign. That’s daft. And, being left in the corridor outside the board meeting, yes, it’s clumsy, but it’s not a resigning matter.
I mean, Post Office was in a real mess. We were doing all sorts of things. There were lots of other members of the Executive who would come in to the Board meeting and frankly get a hard time. So Kevin would come in and be, you know, talked about, about the network. Martin, Nick – it was a robust environment. So for somebody to be upset about being left in a corridor: get over it. It’s not a resigning issue.
So I think I would have been relatively robust with Paula that this Susan’s job. Just, you know, tell her to get on with her job and not be so sensitive. That’s probably what I would have said. That’s my vague recollection but I honestly cannot remember the specifics of that conversation.
Mr Stevens: Can we look at an email sent around that time. It’s POL00146244. So the email I took you to earlier was on 2 September 2013 in the evening. This is an email from Paula Vennells to you on 3 September in the morning.
“Neil, sorry to bombard you with emails but this is useful; ideally you should read this after my briefing note.
“I think indicates a way through.”
This is also dealing with what you were discussing at that conversation. If we look down, please, it’s Hugh Flemington, he sort of sets it out and says:
“[Please] see comments below from both Simon Richardson and Andrew Parsons regarding risks of LL review …”
That’s the Lessons Learned Review, isn’t it?
Neil McCausland: Yes.
Mr Stevens: Just for context, the Lessons Learned Review is the review the Board asked to be carried out into how the Second Sight Review had been handled within the business?
Neil McCausland: Yes.
Mr Stevens: As we see, we have an email there from Simon Richardson and, if we turn, please, to page 2 at the bottom. We’ve got one from Andrew Parsons, also of Bond Dickinson. Would you have read these emails?
Neil McCausland: Yes.
Mr Stevens: Do you recall speaking about them with Paula Vennells?
Neil McCausland: Vaguely.
Mr Stevens: What is your vague recollection?
Neil McCausland: So Alice had asked for a Lessons Learned Review after the Board meeting on the 16th, where the whole Board were dissatisfied with the progress. Initially, that was due to be done by Alasdair as Chairman of ARC. That had then migrated, which I’m not sure I was aware of, but it migrated to Richard Hatfield, and this email here is basically then Susan arguing – Susan getting a lawyer’s opinion to ask why we shouldn’t be doing it.
So, at the time, I think I was frustrated and I was – I remember being frustrated by the whole of the Lessons Learned Review because, actually, I wanted to do a Lessons Learned Review. I don’t think the business had handled it well and, therefore, you should understand it and learn from it. And we were being steered away from this Lessons Learned Review by lawyers telling us it was a bad thing and we would put ourselves at risk and, therefore, I think that I would have accepted it because it was quite strong legal advice saying, from a business point of view, we should not do that but, at the time, I do remember being very frustrated by the Lessons Learned Review.
With hindsight, I see it very differently and it feels like Susan is – one of the reasons that she’s so against it is because she’s frightened that the Lessons Learned Review is going to turn up some of the things that, frankly, should have come to the Board and didn’t.
Mr Stevens: Pausing there, we’ve seen a document by Belinda Crowe setting out Lessons Learned and how to deal with things like Second Sight Review going forward.
Neil McCausland: Yes.
Mr Stevens: In your evidence then you accepted it. Were you referring to the legal advice here in these emails, that you accepted this legal advice?
Neil McCausland: Yes.
Mr Stevens: So we know that there was a Lessons Learned Review that was actually commissioned and finished by Belinda Crowe. Did this legal advice here change the scope of that review?
Neil McCausland: Very much so, yes. So the original scope was going to be done by Alasdair, understanding, talking to Susan, then it went to Richard Hatfield and then I think Susan – we all hoped it would become a big review but clearly Susan didn’t hope that. And then, after this legal advice, the scope changed and got downsized very significantly into a fairly dull piece of work that then did come out from Belinda as the Lessons Learned Review.
Mr Stevens: If we turn to page 3, please, one of the points made by Mr Parsons refers to disclosure of the review. We see something the Inquiry sees a lot, a point on privilege:
“This Review will not be legally privileged.”
But then it says under “Criminal disclosure”:
“Should the review reveal any concerns about Horizon or branch accounting processes, then Post Office may be obliged (under Criminal Procedure Rules) to proactively pass this information to subpostmasters involved in criminal prosecutions (both ongoing and historic). In particular, recommendations for change could be interpreted as highlighting historic problems that would need to be disclosed.”
Are you saying you accepted that legal advice?
Neil McCausland: So there is quite a lot of argument here. I think there are two documents there, aren’t there? There are two different people?
Mr Stevens: Yes.
Neil McCausland: There’s an email basically saying why we shouldn’t do it and then there’s a report saying why we shouldn’t do it. So I don’t think that would have gone into any of the individual lines in that much detail but I would have read it and thought we were being told very clearly by two different external lawyers that it is a bad idea for the business to do this and, therefore, I am not a lawyer, I have no legal experience and to go against my General Counsel, backed up by two external lawyers – I mean, I wouldn’t; I would take their advice.
Mr Stevens: Is it fair to summarise it this way: you and Alice Perkins wanted more of a larger review than, in fact, happened?
Neil McCausland: Yes.
Mr Stevens: Susan Crichton obtained this legal advice from Bond Dickinson, you felt you needed to accept the advice from the lawyers and that resulted in the Lessons Learned Review being narrowed in scope?
Neil McCausland: Yes.
Mr Stevens: Thank you, that document can come down.
At the time, did you have any concerns as to Susan Crichton’s motives for seeking to narrow the scope of the Lessons Learned Review?
Neil McCausland: No. I didn’t and, frankly, even when Susan Crichton resigned, I didn’t suspect that she had bad motives in doing that. As this Inquiry has peeled away the layers, frankly, I have become appalled. At the time, I had no feeling of that at all.
Mr Stevens: I want to move now to another topic, it’s oversight of prosecutions and future prosecution policy. In your statement, we don’t need to turn it up, but it’s paragraph 55, you say that, during the recruitment process, you had no knowledge whatsoever with regards to the investigation and prosecution of subpostmasters for theft, fraud, or false accounting. That was September 2011. We saw the Board minute on September 2012, which referred to prosecutions. So you were aware, in broad terms, of the prosecutorial function by then?
Neil McCausland: Not really. So I was aware that prosecutions were happening. I wasn’t aware that we were bringing the prosecutions.
Mr Stevens: If we just bring that note back up of the – actually, no, we don’t need to.
So your evidence is January, you were aware that prosecutions were happening?
Neil McCausland: Yeah.
Mr Stevens: But just explain what you mean by “not that we were bringing them”?
Neil McCausland: So when the November ‘13 report came out for the ARC, explaining the prosecutorial functions, which you took me to earlier this morning, that explained that Brian Altman had done a review and that he explained that Royal Mail Group and POL were virtually the only people to bring their own prosecutions. And when – if you go back to ‘11/’12, I was aware that prosecutions were happening but I assumed that they were happening through the CPS or the police.
So the concept of a company itself bringing a prosecution, I just had never heard of that, I didn’t know about it, I hadn’t thought about it. So when I was reading about these prosecutions have happened, in any other world that I’d lived in, there would be an internal investigation team, who would understand the issue but then present evidence to the CPS, and they would bring the prosecution. So that’s how originally assumed it had happened.
Mr Stevens: Would you agree that, if a company pursues prosecutions as Post Office did, that is an unusual type of operation for it to be involved with?
Neil McCausland: Absolutely.
Mr Stevens: Would you agree that – and I’m not here pointing to what you were or weren’t aware of but, in terms of what the board should be doing, would you accept that the Board should have oversight of how those prosecutions are conducted?
Neil McCausland: Yes.
Mr Stevens: Do you think you should have –
Sir, it sounds like we have a fire alarm.
Yes, so we have a fire alarm. We may have to break for a moment.
Sir Wyn Williams: Yes, by all means. I will remain nearby, so to speak, and you can let me know when we’re ready to resume.
Mr Stevens: Yes, we will remain nearby, sir, but we’ll come back as soon as we can. Thank you.
(2.25 pm)
(A short break)
(2.50 pm)
Mr Stevens: Good afternoon, sir. Can you see and hear us?
Sir Wyn Williams: Yes, I can, thank you.
Mr Stevens: Fortunately it wasn’t a serious fire alarm so we’re back and I’ll continue.
Mr McCausland, just before the fire alarm, I asked you if the conduct of criminal prosecutions was an unusual type of operation for a company, and you agreed.
I then said, without exploring your actual knowledge of Post Office’s role in prosecuting, would you accept that the Board should have oversight of how those investigations were conducted? Your answer was yes.
Neil McCausland: Yes.
Mr Stevens: Just before that, you, in your evidence, said you weren’t aware of Post Office’s role as a prosecutor in January 2012, that came later. At Post Office, whose responsibility was it for informing Directors like you of its role as a prosecutor?
Neil McCausland: I think the prime responsibility was probably with Susan Crichton as GC who ran that area or, before her, I think Mike Young ran the area, and probably Paula as a second.
Mr Stevens: What about the Chair? Does the Chair have any responsibility for the induction of Non-Executive Directors?
Neil McCausland: Yes, if the Chair knew.
Mr Stevens: In terms of the systems of oversight – what I mean by that is what systems should be in place for overseeing, in this case, prosecutions – who at the Board was responsible for seeing that a system of oversight for prosecution was in place?
Neil McCausland: The – from an Executive point of view, Paula had the prime responsibility for that, in that she ran the company.
Mr Stevens: Would it be a case of Paula Vennells had the responsibility of informing the Board of the operation, namely prosecutions, and then the Board would come to its own view of what was appropriate oversight of the executive in those circumstances?
Neil McCausland: Yes.
Mr Stevens: I was going to ask you a series of questions about why the Board did not oversee prosecutions until the Interim Report, whilst you were there but your answer to that would be you personally weren’t aware of the prosecutions; is that fair?
Neil McCausland: I certainly wasn’t aware that we did our own prosecutions. As I say, it was just – I’d never thought of that happening.
Mr Stevens: Were you aware that Post Office – and again, this is in January 2012 – had its own Investigation Department?
Neil McCausland: Nobody had explicitly said that but I had assumed that was the case and by implicit, yes. So certainly other companies I had worked with would have had their own Investigation Team and I had assumed that there was an Investigation Team in Post Office. I’m not sure that I ever knew who it was or where it was but, yes, I would have assumed it was there.
Mr Stevens: Do you recall whether the Board conducted oversight of the conduct of the Post Office Investigation Team between you joining as a Senior Independent Director and the Interim Report?
Neil McCausland: I cannot remember that we did, no.
Mr Stevens: Why do you think that was?
Neil McCausland: I think probably just because of the weight of other things which were going on and it just – past prosecutions were not that big a feature for us.
Mr Stevens: Pausing there, I’m talking about ongoing prosecutions at this point, so not things that have happened in the past: prosecutions that Post Office are currently pursuing or will pursue in future.
Neil McCausland: So prosecutions, not just past. Prosecutions, were not as big a focus for us as they should have been or as, with hindsight, I would have liked them to be. Our focus was very much on trying to understand the integrity of Horizon, that was the thing that I was hearing from – Lord Arbuthnot was talking to us about that and that’s what the Second Sight Review was about, it was really trying to understand the integrity of Horizon.
The conduct of prosecutions, past or present, was not as big a feature and I don’t think that we were aware that there was as big a problem as clearly there was. So I think it was a lack of awareness, coupled by the weight of other things which were on our plate: separation, costs, people, culture, revenue. It was a very, very busy Board and Horizon absolutely bubbled up as – the integrity of Horizon bubbled up as something that the Board needed to spend time on. The prosecution function didn’t bubble up in the same way.
Mr Stevens: Last question I have on this and it may be this is a very similar answer but the Inquiry has heard evidence, as part of separation, at least one lawyer – lawyers from Royal Mail Group transferred into Post Office Limited, including a criminal lawyer called Jarnail Singh, and so there was effectively a transfer of part of the Criminal Law Team into Post Office Limited as part of separation.
When you were dealing with separation and separation issues, were you at all involved with looking at, overseeing, new parts of the business that had come into the Post Office, such as the Criminal Law Team?
Neil McCausland: No, I did have some involvement in the separation issues but they tended to be where there was conflict between Post Office and Royal Mail Group, and there were many such issues, but the normal transfer of people across I did not have sight of.
Mr Stevens: I want to look now briefly at the future prosecutions policy following the Interim Report. Can we look, please, at POL00038678. So we see it’s a minute of the Audit, Risk and Compliance Subcommittee held on 19 November. You’re present, second on the line there and, further down, we see both Paula Vennells and Chris Aujard in attendance as well. If we turn, please, to page 3., and the bottom of that page.
Chris Aujard updated the Committee on the approach to prosecutions bought by the Post Office and, as we go on to see, it introduces a paper on the prosecutorial role going forward. Was that the first time in your career that you’d been involved in decisions as to a future policy of prosecutions?
Neil McCausland: Yes.
Mr Stevens: Can we turn the page, please, to page 4, paragraph (c):
“Chris Aujard explained that one of the issues was the perception that subpostmasters had of the Post Office bringing prosecutions of false accounting rather than theft, which was easier to establish. The Committee asked whether the business would still be able to recover branch losses through the Civil Courts. Chris Aujard explained that this would still be open to the Business but it would be slower and not recover as much.”
Pausing there, to what extent, at this stage, were the Committee seeing that prosecutions was a method of obtaining or recovering money from subpostmasters?
Neil McCausland: This – so at this meeting, we were not being asked to make a decision at this meeting and it was very much a questioning session. So particularly the three members of the ARC, Alasdair, the Chair, Tim and myself, were trying to understand how we did it, and so there were lots of questions. Certainly one of those questions was about recovery, and one was about – the two main areas were recovery and deterrence: how does it work; what are the sums of money? And there weren’t as many answers as we wanted which is why we asked for a far more detailed piece of work which subsequently came to the February ARC.
Mr Stevens: You mentioned deterrence and, as we see in the last line, it says:
“The Committee supported this but was nervous about changing the approach to prosecutions as in their view this acted as a deterrent.”
Why was it thought necessary to have a deterrent in the form of Post Office pursuing its own prosecutions?
Neil McCausland: It wasn’t. So it was felt necessary to have a deterrent but not necessarily for Post Office to bring its own, ie perfectly happy for the CPS to bring prosecution or for the Post Office to bring the prosecution, but to have no prosecutions, that was what was making the ARC nervous.
Mr Stevens: Do you have any recollection – I should say at (d) it says:
“The CEO thanked the Committee for the helpful challenge. She stressed that the Business was not saying that it would never bring prosecutions, but that it would be more circumspect in the cases it chose to take.”
You’ve mentioned before that minutes are obviously not the full record. Do you have any other recollection of what Paula Vennells said in respect of Post Office’s prosecutorial role at this meeting?
Neil McCausland: I don’t, at this meeting. She subsequently sent around some emails between this meeting and the next meeting with some of her views. I guess that her views were the same but I cannot remember her views at this meeting.
Mr Stevens: I’m not going to take you to the emails, they’re a matter of record. I do want to come to one matter which was a potential conflict of evidence. Can we look, please, at POL00030900. I think we’ve been to this document and we’ll see at page 2 it’s the report by Chris Aujard. Could we turn, please, to page 3 and, if we could just go down to “Options Considered”, please.
So the options put forward are (a):
“Preserving the status quo – ie retaining prosecutorial capability and continuing with a prosecutions policy …
“(b) Pursuing a prosecutions policy more focusing on more egregious misconduct …”
“(c) Ceasing all prosecutorial activities …”
In your witness statement, at paragraph 157, which is page 59 – we don’t need to bring that up – you say:
“My recollection is that myself, Alice Perkins and Susannah Storey were largely in support of Option 3, whereas the Executive largely favour option 2.”
That still accords with your recollection?
Neil McCausland: It is.
Mr Stevens: Why did you favour Option 3?
Neil McCausland: So, in this meeting, I was trying to understand two things: first of all, the recovery; and, secondly, the deterrent. And if we look at the recovery – so there was a chain of emails before this where I was questioning Chris on the amounts and, if I could ask you just to scroll up a little bit to 3, just there is fine. This document I then emailed Chris to say, “Help me understand these figures a bit more”, and it became apparent from this that, in criminal prosecutions – forgive me if I get those numbers slightly wrong – in criminal prosecutions we had losses of 1.6 million and we recovered 740, however, it had cost us 500,000 to do so, because we employed a small army of lawyers, and each recovery cost about £7,500. So net, net, net, we were recovering 200,000 from 1.6; whereas civil, we were 1.9 and it was costing us about 100,000.
So, from a recovery point of view, we were actually much better using civil, rather than criminal, which wasn’t clear and that wasn’t evident from either of the papers, which was why I was trying to unpack that and understand it, and I was wise encouraging Chris to actually unpack civil, because all of his paper and all of the ARC policy was about criminal and civil was dealt with very separately. So I’m saying should we not be looking at civil as well because, actually, from a recovery point of view, civil seems to be working much better than criminal.
Separately, we were looking at a deterrent, and I think that everybody in the ARC felt that there should be some deterrent, ie there should – we shouldn’t just stop all prosecutions. But I don’t remember any of the NEDs saying that we should be doing it ourselves. All of the NEDs, from memory – this is a long time ago, but all of the NEDs, from memory, thought it was weird that POL was bringing its own prosecutions and, therefore, we were coming to this from an instinctive point of view to say, yes, we should continue to do prosecutions, ideally those are probably done by the CPS, and civil is actually better than criminal from a recovery point of view – understand that the two things are separate.
However, there was strong arguments put by Paula that said we’re in transition here, we’ve got the Business Support Programme happening, we’ve got Mediation Scheme happening, the CPS is overloaded and our advice is that the CPS actually may not be able to do anything, and therefore we should, whilst moving towards Option (c), let’s do it gradually, let’s take a step towards Option (b) and then maybe we’ll review it and go to Option (c).
And because all prosecutions were paused – because we had paused all prosecutions – I thought that was okay. So my instinct, and I think the NEDs’ instinct was Option (c) is better, because, you know, why do we need to have an army of criminal lawyers ourselves do the investigation and then hand it over to the CPS as long as CPS would prosecute some, the worst but, as a stepping stone, happy with Option (b) because, frankly, it wasn’t going to make much difference because we weren’t doing any prosecutions anyway.
Mr Stevens: That document can come down. Thank you.
Alice Perkins said in her evidence that she recalled you being in favour of option 2. I assume, I take it, that your position on that is that she’s mistaken?
Neil McCausland: I ended up supporting the Option 2. So she may – I’m not sure when in the debate she was talking about. So my instinct – and I think I started off going Option (c) is better, but I was okay with Paula’s arguments and therefore I did support Option 2 as an interim step. I mean, and the paperwork is quite clear that it’s a, you know, pro tem interim step.
Mr Stevens: As part of this conversation, this debate, did Chris Aujard say anything about the future costs of bringing prosecutions, namely the cost of a new expert?
Neil McCausland: So in the previous ARC, I think there was that reference that you took me to earlier that said that, if we were to do a –
Mr Stevens: This is in this paper. The paper is the February –
Neil McCausland: I don’t recall that coming up in the February paper but, certainly from the November paper and therefore in my mind, will have been that we need to have a new independent expert and there will be a cost to get that person up to date.
Mr Stevens: Sorry, we can bring it back up so you can see it.
Neil McCausland: Is that in that paper as well?
Mr Stevens: It is.
Neil McCausland: Okay, sorry.
Mr Stevens: It is. Well, if you’re happy to take it from me –
Neil McCausland: Yes, sure, yeah.
Mr Stevens: – it’s mentioning £200,000 as a likely cost.
Neil McCausland: Apologies. I thought that was the November paper.
Mr Stevens: No need to apologise. But just with that clarified in your mind, in February 2014, do you recall discussing that issue on the cost of an expert witness with Chris Aujard?
Neil McCausland: No. I don’t believe that was a factor in the conversation at all.
Mr Stevens: I want to look very briefly at the Mediation Scheme, please. Can we turn to POL00145891.
So we went to this email earlier. It’s between Susan Crichton and you, you emailed each other in August. But if we can go down please to Alice Perkins’ email on 31 July, one of the points she makes is:
“First, while it is clear that we are committed using [Second Sight] for the 47 cases which are already in the frame for their review, it is extremely important that we cap their involvement at that. The moment they are involved in additional cases beyond these, we will have lost the ability to end the relationship with them – an outcome which I do not want to have to contemplate.”
Did you discuss that issue with Alice Perkins in July or August 2013?
Neil McCausland: I cannot remember specifically discussing that aspect with her.
Mr Stevens: Well, were the Board or the NEDs at this point looking for ways, as a strategy, to have Second Sight removed or their involvement limited in the cases going forward?
Neil McCausland: I think the NEDs had – and the Board, had different views on the involvement of Second Sight. Personally, I didn’t believe that we could get rid of Second Sight. Actually, I didn’t want to, either. I think there was a shared concern about the resource of Second Sight. So Second Sight at this stage were going to – work with the Working Party to do a detailed case review for each of the cases going into mediation, we didn’t know how many there were going to be and, at the same time, they were going to continue their own report on the thematics that they’d started from the interim.
So for two people, that was an unbelievable amount of work. They’d already taken a year, which was a lot longer than had been expected and, therefore, trying to limit the amount of work that Second Sight did absolutely was probably a shared objective.
I think Alice probably felt more strongly that she would like the ability to end the relationship, as she says. I don’t think that was a shared Board view and, in fact, if you come to some of the later conversations in the summer of next year, again, it was – it’s clear that it wasn’t. The Board did not have one view on that. There were differences of opinion.
Mr Stevens: So with Alice Perkins who is taking a stronger view to you on the use of Second Sight going forward, do you recall any other Board members who shared her view?
Neil McCausland: I don’t. She was working more closely with Second Sight than any of the others at that stage. So when the Sparrow Subcommittee came into existence, Richard and Alasdair shared that work with her, and I think actually they probably came over more to her point of view, but I don’t remember any of the others sharing her view.
Mr Stevens: Do you have any concern as to Alice Perkins losing her independence in respect of Second Sight by being involved more in the – being more involved with them?
Neil McCausland: I didn’t. Alice was – yeah, she had bags of integrity. So I never doubted her integrity or her honesty or her straightforwardness or her desire to do the right thing.
Mr Stevens: Can we look, please, at POL00101325, and if we could look to the bottom of that page, please, we see an email from Mark Davies to a number of people on the Board. You’re in the distribution list, I think it’s third line down. It’s 5 September 2014 and it refers to a BBC North reporter who has clearly seen a copy of the reports being the Part Two report.
If we go to the next email up, another email from Mark Davies on 9 September, and it says:
“… a report on the leak has been broadcast within the last few minutes within BBC Radio 4.”
Then your reply is shortly afterwards on the same day.
“As you run through this through, I wonder if you could also see if there is any way that we could use this leak (seriously damaging our reputation etc) to stop/alter the process that we are involved in.”
Pausing there, why was the leak seriously damaging to the Post Office reputation?
Neil McCausland: Because it was incorrect.
Mr Stevens: So are you saying the content of the Second Sight Report was incorrect –
Neil McCausland: No, sorry, so the leak. So what was reported was absolutely incorrect.
Mr Stevens: Right. So it’s the – you’re referring there to what’s reported on Radio 4 –
Neil McCausland: Yeah.
Mr Stevens: – rather than to the report itself?
Neil McCausland: Yeah, this isn’t about the report; this is about the leak. So the leak was reported on the radio on Radio 4, and the report is inaccurate. It was just wrong. We took it up with the journalist but it was damaging. So the fact that we had an incorrect leak, I was, yeah via annoyed by it. I didn’t like that.
Mr Stevens: At that point, can you recall what you thought was incorrect about the report?
Neil McCausland: I cannot recall. I’m sure it’s in the documents and it says it just at the bottom of the screen there.
Mr Stevens: Why did you want to stop/alter the process at that point?
Neil McCausland: I think if you read the whole of it, it says it would be great to find a faster, better way out of Sparrow. So where are we now? September ‘14. At this stage, my thinking had moved on and, if you go back a few months to June, I think it was, the Sparrow Subcommittee had come to the Board with a recommendation that, actually, we bring the Mediation Scheme in-house and the Board – and let’s face it, there are only three of us, me, Virginia and Tim, who are not on the subcommittee – have rejected that and said no, actually, we should continue with it.
So we did continue with it but, by the time we get to the autumn, the Mediation Scheme was still incredibly slow, we’d had very, very few cases go through to mediation, very few cases mediated and very, very, very few cases successfully mediated.
So clearly it wasn’t working and I think everyone was saying that. It wasn’t just us. So Sir Alan Bates was saying that, the MPs were saying that, JFSA was saying that and Sir Anthony Hooper was saying that. So I’m trying to find a better, faster way out of Sparrow. So I’d already talked about a number of things. I had suggested and was trying to get Second Sight put on piece rate, rather than a day rate, we were incentivising them to go slowly the way we were paying them, incentivising them to get more people. They had more than two people at this stage but two people against 20 is daft. Maybe paying more. I mean, let’s look again at paying people more and looking to settle because, clearly, the amount we your paying in mediation wasn’t working.
So we needed to find a faster, better way of Sparrow. So the leak was, if we could use the leak, which did annoy me. So the fact that there is a leak says that the process isn’t working. If the process is working you wouldn’t get a leak so can we use the leak to find a faster, better way out of Sparrow? That’s what I was asking.
Mr Stevens: So, at this point, you refer to June 2014, where you say there was a proposal brought forward to – questioning whether ending the scheme. Obviously June 2014 is when the Board Briefing for Deloitte is presented as well. At this point, was there any discussion for the potential faster or better way out to be to commission Deloitte to do Part 2 of the work or is that still on the backburner?
Neil McCausland: There wasn’t any discussion about that. There was – the discussion here was about the Mediation Scheme, really. So this conversation here and getting out of Sparrow, it’s about Mediation Scheme. So we had a working party, lots of people working, individual case reports. We had a mediation scheme, CEDR, but it just didn’t appear to me, in September ‘14, that the Mediation Scheme was effective and, therefore, I was looking for a better or faster way to get out of that current – the current way that we were doing things. Open to any ideas, kicking ideas around, but just keeping doing what we were doing didn’t seem like a sensible thing.
Mr Stevens: Can we look, please, at POL00102370. So the email at the top there is from Alwen Lyons on 10 March to you and others on the Board and it’s effectively setting out what had happened that day from Jane MacLeod and Mark Davies, and that was the day on which the Working Group was terminated. You have emailed in response:
“That feels very well handled.
I’m sure it will ignite some more, but so far so good.”
If we look down at the email itself, the update, we see the explanation of what happened and then “There has been a very low-key response”. Over the page, setting out some response back to it including from journalists and on Twitter.
So we can go back to page 1, please. Further up please. Thank you.
When you say “I’m sure it will ignite some more but so far so good”, are you there referring to – “ignite some more” – you’re referring to press reaction?
Neil McCausland: Yes.
Mr Stevens: In your witness statement – we don’t need to bring it up but it’s page 67, paragraph 178 – you respond to a question on the use of the words “very well handled”, and you say:
“The closure of the Working Group was a very sensitive issue and needed to be handled carefully and effectively so that the subpostmasters did not disengage from the Mediation Scheme. It was common for me to give praise to members of the Post Office who had executed a task well, to say thank you and well done.”
Were you, in fact, here congratulating Jane MacLeod and Mark because you thought they had done a good job of keeping pressure off Post Office to reverse the decision?
Neil McCausland: To reverse the decision that we had made to terminate –
Mr Stevens: To terminate the Working Party?
Neil McCausland: – the Working Party? Not at all. So most of the people involved in this, Sir Alan Bates – maybe not Sir Alan Bates. Certainly JFSA, MPs, Lord Arbuthnot, were basically saying “All cases should go to mediation”. So, for some months, we had been told, the Post Office had been told, all cases should go to mediation.
Mr Stevens: Pausing there, they weren’t saying all cases should go to mediation and the Working Group as the independent oversight should be discharged, were they?
Neil McCausland: So the Working Group had – if all cases went to mediation, there is no purpose for the Working Group. So we still funded Second Sight to do the independent report which would go along with the case review but the Working Group had ended up being a weird thing where Post Office were saying yes or no, JFSA were saying yes or no, Sir Anthony Hooper was sometimes making a casting vote, and people were arguing about should something go into the Mediation Scheme or not, which was just a waste of time and energy.
So you’re much better off just binning the Working Party and putting all cases into mediation. So I don’t think – I mean, I don’t know why anybody would want to reverse that decision because actually we the Post Office had been asked to do that for some months beforehand by pretty much all the people involved.
Mr Stevens: It’s right, isn’t it, that the Post Office had also been asked to mediate cases in which there was a criminal conviction –
Neil McCausland: Yes.
Mr Stevens: – and Post Office’s decision was not to do so –
Neil McCausland: Yes.
Mr Stevens: Do you not think the Working Group had a role in overseeing those cases where there was a conviction that had entered into the Mediation Scheme?
Neil McCausland: I’m not sure that I see the link. So we, the Post Office, was under the impression that – and we were advised – that the mediation process is not appropriate for a criminal conviction and only the Court of Appeal can actually overturn that. So, whilst we would go through the collecting of evidence and the case review, putting it into a mediation scheme wasn’t advised to be a sensible thing because it needed to go back to the Court of Appeal in order to overturn a criminal conviction and the mediation process, even under CEDR, has got absolutely no authority to change a criminal conviction.
Mr Stevens: I want to briefly look at two very discrete topics in respect of Shareholder Executive. The first is the role of the Shareholder Executive Non-Executive Director. Can we bring up, please, POL00021507. This is a meeting of 23 May 2012, which we’ve been to already today but could we look at page 4 this time.
It’s Susannah Storey outlining the reasons for representation of the Shareholder Executive on the Board, and the last part, she says:
“She clarified that she would not be sharing the Board papers with her colleagues in Shareholder Executive.”
Are you aware as to if anyone from Post Office had asked her not to share her papers with her Shareholder Executive colleagues?
Neil McCausland: Am not aware if anyone had asked her not to. I do recall that there was a difference between Susannah Storey and Richard Callard’s time, in that – and I might have this slightly wrong, but Richard did share and had a fully integrated function as being – running that department in ShEx and also being a Non-Executive Director. Susannah – and I can’t remember the reason for it – there was a view that there may be a conflict of interest and there Susannah was NED on the Board but I’m not sure that she ran the team in ShEx, and there was like a Chinese wall between them.
I’ve got to say I think that Richard – the situation with Richard is far better than the situation with Susannah.
Mr Stevens: Better for who?
Neil McCausland: Just better all round. Better for the shareholder, better for POL.
Mr Stevens: So where it says she clarified that she would not be sharing the Board papers, you can’t assist us with the origin of that came from, why she felt she didn’t need to share her Board papers with colleagues at ShEx.
Neil McCausland: I’m guessing it’s something with Alice and – I mean, I’m guessing it’s coming from Alice.
Mr Stevens: Was there any resistance on the Board to a Shareholder Executive Non-Executive Director being appointed?
Neil McCausland: I do recall an early conversation with Alice where she had some nervousness about it.
Mr Stevens: Do you remember what she said about her nervousness?
Neil McCausland: I honestly cannot remember. So, in my life, I have always got a shareholder on the Board and I always find it useful to have a shareholder on – so every other Board I’ve sat on, I’ve got a shareholder there, and I find it really useful for the shareholder to be there.
Every now and again, there’s a conflict of interest, and somebody recuses themselves but that’s very, very rare. 99 times out of 100, it’s helpful to have the shareholder represented on the board, and I do remember having that conversation with Alice, where I think Alice was okay with it.
Mr Stevens: Just going to your experience of sitting on Boards with other shareholder representatives, the way in which Susannah Storey and Richard Callard fulfilled that role, was that consistent with how you’d seen the shareholder role fulfilled in other Boards you’d sat on?
Neil McCausland: Yes, yes. I think, inevitably, they have quite a difficult tightrope to walk because the aims are sometimes different. So, at the end of the day, they are there looking after the shareholder interests but they’re also there as a director of the Board and sometimes those two will diverge, but I think they both perform that role reasonably well.
Mr Stevens: I want to look at another matter, again relating to a Shareholder Executive issue. In Richard Callard’s witness statement to the Inquiry, he referred to an away day in June 2014, which he said that many members of the Board felt at that away day that Paula Vennells was acting more like a Non-Executive Director than a case. Did you share that view and do you recall that away day?
Neil McCausland: I did share that view. I do vaguely recall the away day. There is a fairly long history to Paula, which is not desperately satisfactory, and Paula’s performance, which I touched on this morning – her performance changed over time and our view of her performance changed over time. But, certainly, in 2014, her performance was not great. In fact, probably towards the end of ‘13 and ‘14 her performance was not great and, as you will be aware, we did conduct an exercise with a firm of headhunters to market, map and understand alternatives.
Mr Stevens: Your concerns, to what extent – sorry, I’ll repeat that.
Your concerns with Paula Vennells, to what extent did they relate to her handling of matters such as the Second Sight Review and complaints as to Horizon’s integrity?
Neil McCausland: They were not the main area of concern.
Mr Stevens: Was it an area of concern?
Neil McCausland: Not that I can recall. I don’t recall her handling of Horizon being an issue. She was very heavily involved in Horizon. She and Alice spent a lot of time, a lot of energy involved in Horizon. Arguably, you know, Paula didn’t spend enough time on other things. Now, clearly with hindsight, that’s wrong, and she didn’t spent even enough time with Horizon or do the right things. But the criticism of her wasn’t specifically about Horizon; it was really about the leadership of her team, the management of the business, the lack of commerciality, the strategy aspects.
Mr Stevens: I want to briefly deal with one matter which is way, way ahead in the chronology. In fact, it’s after the Horizon Issues trial, and it’s communications you had with Paula Vennells in 2020. Please can we bring up PVEN00000362. If we could go to the second page, please. You see these are text messages provided by Paula Vennells, they’re marked as being an exchange with you on 3 March. Do you recognise these as being texts that you sent to her and received from her.
Neil McCausland: Yes.
Mr Stevens: You say – did you say something, sorry? No.
You say:
“Good morning Paula.
“Just to let you know I am a tad early and in Paddington …”
So you’re referring to a meeting you’re about to have with her. Do you remember the purpose of meeting with her on 3 March 2020?
Neil McCausland: Yes, so this is an extract from a slightly longer chain of text messages, which I’m not sure if you have or not. The earlier ones I looked at on my phone, whilst I’d got these, I’d forgotten these. Basically Paula texted me to say she’d just had a coffee with Alice, she’s trying to remember and catch up on things regarding Post Office. Would I have a cup of coffee with her, please. So I said “Yeah, I left Post Office a long time ago. My memory of Post Office is poor, I haven’t got paperwork. So I’m really not going to be much use to you, but I’m happy to have a coffee”. So we had a coffee.
Mr Stevens: We see the text there around 11.13/11.15, later on in the evening, it says from Paula:
“Lovely to see you – thanks for your wisdom, memory, time and coffee! Will keep you posted.”
Do you remember what topics you discussed with Paula Vennells at that meeting?
Neil McCausland: So Paula was asking me for my recollections of Post Office and, honestly, I had very few recollections of Post Office and I don’t think that I told her anything that she didn’t already know way more than I did, and that lasted maybe ten minutes, and then it morphed into a conversation about her because she was not in good form.
Mr Stevens: Just pausing there, I’m only going to explore with you matters that are relevant to the evidence of the Inquiry. I don’t want to pry into anything further. In that ten-minute conversation can you recall any specific topics that she asked you about in particular, regarding Post Office?
Neil McCausland: The Second Sight investigation, the Mediation Scheme, Business Improvement Programme, Working Party. I think the only thing I can remember is Second Sight and the spin-offs from that. I don’t think there was a conversation about prosecutions. So I think it was Second Sight, mediation, Working Party.
Mr Stevens: Can we look, please, at PVEN00000015. So if we go to the bottom of that page, please, we’ve got an email about a week later on 15 March. It says:
“Hi Paula,
“Forgive me for being paranoid with the email address!
“All very well here thank you …”
“I had looked before and found nothing. I stumbled across these two bits that I just seem to have neglected to throw out. They may be of some small use – if only to jog your memory of the players involved.”
What request were you responding to here?
Neil McCausland: Paula had asked if I had any paperwork regarding, say, the things that she had been asking about: Second Sight, Mediation Scheme, Working Party.
Mr Stevens: Thank you. That can come down.
I have two final broad questions on reflections. We’ve gone in detail about the Board oversight of IT and prosecutions from 2012 onwards, really. To what extent do you think the Board would have been assisted if it had a Non-Executive Director with a specialist expertise in IT?
Neil McCausland: I think that it would have been very useful to have somebody with IT expertise on the Board and I also think it would have been very useful for us to have – arguably more useful for us to have somebody with legal experience on the Board.
I have heard a lot of my peers, colleagues, ex-colleagues, say that they thought the Board – or agree that the Board wasn’t curious enough and, actually, I personally don’t agree with that. So if I think about the Board, the Board was very curious. It was quite combative, it was quite challenging.
Horizon issues aside, we were a very, very busy Board dealing with some very difficult problems and we made very good headway on many of those things and we did that in quite a challenging environment. So the whole environment was quite challenging.
With Horizon issues, I think partly because nobody on the Board had good IT or good legal skills – and I’ll perfectly happily admit I don’t have good IT or good legal skills, that wasn’t why I was recruited – I think the level of challenge probably wasn’t good enough. But, to me, the much bigger issue is that the flow of information which came to the Board was flawed, and there was some very important pieces of information which were just missing and totally airbrushed, and there were other pieces of information which were massaged in a way that we didn’t pick up on.
Mr Stevens: The absence of IT and legal expertise on the Board – I say that in particular for non-execs – was that something you considered at the time as being something that was absent?
Neil McCausland: We did, when we were thinking about the Nominations Committee, we did – and I think it’s there in one of the Nominations Committee reports – we did say that when the Board was refreshed, we should try to refresh it with somebody with IT skills. So I don’t think we thought of it a screaming need but we did think of it as it would be helpful to have somebody with good IT skills. Again, the benefit of hindsight is probably – that would have been much more helpful at the time.
I think at the time we thought that we had found what needed to be found and needed to be fixed, and we were not as aware of the prosecutorial misfunction as maybe we should have been.
Mr Stevens: Sir, those are the questions I have. Unless you have any questions, I know there are some from Core Participants.
I think is it ten minutes? 15?
Sorry, sir, I’m just taking time – oh.
You’re on mute, sir, sorry. We’ll take a break –
Sir Wyn Williams: I’ve been unmuted but, for the last 30 seconds to a minute I’ve heard everything but I’ve lost the video, if you see what I mean.
Mr Stevens: I see, sir.
Sir Wyn Williams: So yes, if we take ten minutes and then that can be put right.
Mr Stevens: Of course, yes.
We can hear you now, sir, sorry if I was speaking over to you and noticing.
Sir Wyn Williams: No, it’s fine, I wasn’t able to unmute myself but I had some remote assistance for that so I’d now like some remote assistance to resume looking at you all.
Mr Stevens: Thank you, sir. We’ll arrange that, sir. So if we come back at, shall we say, 3.55, sir.
Sir Wyn Williams: Mm-hm.
Mr Stevens: Thank you.
(3.43 pm)
(A short break)
(3.55 pm)
Mr Stevens: Sir, this usually a formality but hopefully you can hear and see us this time?
Sir Wyn Williams: Yes, I can, thank you.
Mr Stevens: Only one set of questions from Mr Jacobs who has ten to 15 minutes, I think.
Sir Wyn Williams: Right, fine.
Questioned by Mr Jacobs
Mr Jacobs: Mr McCausland, good afternoon, I represent a large number of subpostmasters and subpostmistresses who are affected by this scandal and are Core Participants in this Inquiry and I’m instructed by Howe+Co.
I want to ask you about two things, hopefully quite briefly: the first topic is bugs in the Horizon system and the second topic is the Post Office Advisory Council.
In relation to bugs in the system you gave evidence this morning and you referred to a discussion with Susan Crichton that you were present at, and you said – and I’m just reading from the [draft] transcript, so correct me if I’m wrong – Susan Crichton informed you that in all previous prosecutions where Horizon data had been used we – that’s the Post Office – had been successful. You said:
“I was talking to an experienced RMG director”, who I think its Les Owen, is that right?
Neil McCausland: Yes.
Mr Jacobs: He was talking to your General Counsel and there was a very clear and a very robust answer from Susan Crichton that the system was sound. That was your understanding, yes?
Neil McCausland: Yes.
Mr Jacobs: Had you been told, at that stage, that there were no bugs in the Horizon system?
Neil McCausland: I had not been explicitly told anything about bugs at that stage, so this was very early in 2012, the January Board meeting, I think, in 2012 and nowhere in my induction or in the Royal Mail Group handover had there been a conversation about bugs.
Mr Jacobs: Right. Would it be fair to say that, as a result of your conversation or the conversation that you were involved in with Ms Crichton and Mr Owen, that it was your understanding or it was the general understanding of you and others on the Board that the Horizon system was working perfectly and that there were no bugs in the system?
Neil McCausland: Yes. I took comfort from the fact that the General Counsel was being very clear and very unequivocal with an experienced Royal Mail Group, as Les was Royal Mail Group and had been on the RMG Board for some time, and I took comfort from that.
I wasn’t really involved in the discussion at that stage, if I’m honest, I was listening but I definitely took comfort from that exchange, where Susan was very clear we had won on previous prosecutions, the audit report was very positive, it had been reviewed by Deloitte, and the legal claims which I had not seen, from Access Legal, were weak. So, yes, I took strong comfort from that.
Mr Jacobs: That was the message you were getting from Post Office, wasn’t it?
Neil McCausland: Yes.
Mr Jacobs: So if we can move forward in time a little bit to 8 July 2013, which was the release of the Second Sight Interim Report.
Neil McCausland: Yes.
Mr Jacobs: Again, taking you back to your evidence this morning, you said that you were unhappy that you were not kept properly informed about the progress of the Interim Report.
Neil McCausland: Yes.
Mr Jacobs: You said:
“We had asked the Board several times over the year how are Second Sight getting on. So to have it dropped on us, not in a written communication, not at a proper Board meeting, with proper papers, but just to have it thrown in as an AOB to say [and I’m quoting you] actually, Second Sight Report is coming out next week and we’re not happy with it because it’s inaccurate and, by the way, there are bugs and flaws.”
That’s how it landed on you, effectively?
Neil McCausland: Yes.
Mr Jacobs: So we’ve gone, haven’t we, from you having an understanding that there are no bugs in the system, everything is working perfectly, to a report from forensic experts which said that there are defects in Horizon Online, that it impacted 76 branches. The receipts and payments mismatch problem affected 62 branches and the local suspense account problem affected 14 branches. So we’ve gone from one quite extreme position to another quite worrying position, haven’t we?
Neil McCausland: We’ve gone from a very confident position to a less confident position but, at that stage, it wasn’t a particularly worrying –
Mr Jacobs: Yes, and I remember you said that it should have been a red flag but it was probably an amber flag, is I think what you said this morning?
Neil McCausland: That probably is right.
Mr Jacobs: Yes. So do you think that the Board, when presented with a serious change of information about the Horizon system, should have requested more information from IT managers in POL, or even from Fujitsu, at that point when you got that report?
Neil McCausland: So when – if I try to remember back to that time, when I got the report and read the report from Second Sight, and coupled with that had Paula’s briefings verbally and in writing, the two were – the two issues were somewhat separated in my mind. So neither Second Sight nor Paula were saying that the bugs and the issues that we were trying to find through Second Sight, ie the subpostmaster losses, how have they arisen, what is happening to them, follow the money.
Those two issues were separate and they were separate when Paula was describing them. She was very clearly articulating it verbally and in writing that these bugs were not linked to the Second Sight cases. And, in the Second Sight report, they were also separate. Second Sight were clearly saying there are no systemic problems with Horizon and there are two bugs that have been found but they weren’t saying these bugs have caused this problem.
So, with hindsight, wrongly, but at the time, both Second Sight and Paula led me to believe that the bugs were actually not the issue that we were grappling with here.
Mr Jacobs: I think the essence of the question that I ask you on behalf of our clients is: was this not is an opportunity for the Board to get more information about why Post Office had been saying one thing and Second Sight were saying something slightly different? Wasn’t there a case to consider whether the Board were being misled by Post Office at this time?
Neil McCausland: I don’t think Second Sight were saying something different to the Post Office. So Second Sight and the Post Office were both saying the same thing, which was that they had found these bugs but they weren’t – they weren’t the same bugs or they weren’t the problem which we were looking for in the Second Sight Report. So the Second Sight Report I read as saying there are definite problems here, you need to fix these things – I’ve been through them again – before, I won’t repeat them – and that is what they were saying.
They weren’t saying, “You’ve got two bugs here, that’s what you need to be looking for, boys”. The Second Sight Report – I wish with hindsight that the Second Sight Report had said, “First of all you’ve got big prosecutorial problems”, which I watched the evidence from Ian and Ron and they say they said that to Susan, nothing about that in the report, and I wish that they’d said, “You’ve got bugs here”, and also, you know, “I have been speaking to Gareth Jenkins and he tells me this”.
So all of that stuff, I wish that had been in Second Sight’s Report or Second Sight had come to the Board and said that but that – I read Second Sight’s report and I didn’t – and even if I read it now, I still – it doesn’t come out at me as saying these bugs are the problem –
Mr Jacobs: All right.
Neil McCausland: – which is I think why we didn’t take the action that I wish we had taken.
Mr Jacobs: So just – and I’ll move on after this, I think I have your answer but I think that your answer is the fact that Post Office were originally telling you there are no bugs, and that Second Sight, in an Interim Report, said there are bugs that affected 76 branches, you didn’t think at that point that someone in Post Office was misleading the Board, which, of course, now we know to be the case?
Neil McCausland: Correct.
Mr Jacobs: I’ll move on, and I’m going to ask you about paragraph 34 of your statement, and if we could just maybe call that up, it’s WITN10290100. It’s page 14 of 83. We’ll just wait for that to load on the screen. So paragraph 34, please. Thank you.
We can’t see a paragraph 33, but the headline is “Post Office Advisory Counsel (‘POAC’)”. What you say at the bottom, so we can see about eight lines down, “I was a member of this committee”, five lines from the bottom:
“I was a member of this committee alongside Tim Franklin, who acted as Chairman.”
Then you say:
“POAC was established in 2014 …”
Well:
“The idea behind POAC was to enable the Company to better hear the views of SPMs and customers and to try and improve engagement and workplace culture. I was a member of this alongside Tim Franklin who acted as chairman. POAC was established in 2014 and was set up to help create a pathway to mutualisation, where all the stakeholders – [Post Office] employees, [subpostmasters], customers and wider stakeholders – worked collaboratively to improve the company for the good of all.”
Yes?
You’ve relied in your statement on the POAC terms of reference. If we could maybe move to that document, which is POL00228475.
We’ll just wait for that to come up on the screen. So we can see the purpose of the committee was to:
“… provide a forum for Post Office stakeholders and other experts [this is reading from the top] to discuss issues of interest and importance that impact on customers, stakeholders and their communities.”
Now, a stakeholder is an SPM, that’s right, isn’t it?
Neil McCausland: Yes, amongst others.
Mr Jacobs: The role of the Council, and you can see the bullet points under “Role”, was to:
“… provide a two-way channel of communications between Post Office and its stakeholders [so subpostmasters in the post office would be included in that]
“provide a mechanism for stakeholders and experts to offer views and advice to Post Office Board and the Group Executive on subjects brought to it
“increase understanding and strengthen relationships between Post Office, its stakeholders and wider interest groups
“provide a community for advocacy and communication of Post Office issues.”
Do you think that this is a potential vehicle that could have dealt with subpostmaster issues with the Horizon system? It certainly sounds that way.
Neil McCausland: I’m not sure that it could, to be honest. So the culture of the Post Office was not good, particularly at the beginning. It was very “Head Office is God and everyone else is not good”. It didn’t talk about a customer at all. It was arrogant. There was a blame and defensive culture. So, throughout my time there, we tried hard to shift the culture into something frankly more normal. There was, again, throughout my time, a plan – I wouldn’t call it any more than that but a plan – to prepare the company to one day become a mutual.
It was totally impossible at the beginning because there were conditions – yeah, you would need to be financially sustainable to become a mutual and that was nowhere near. But the Government quite liked the idea of a mutual. Tim and I very much liked the idea of it being a mutual and, therefore, we took number of steps to try to change the culture, to try to engage more with the subpostmasters, so we forced part of Paula’s bonus to be on subpostmaster engagement. We developed a lot of engagement mechanisms, just communication. So lots more communication with the subpostmasters, and huge amounts more listening from them.
So the POAC was designed, really, just as one of the strands in that, where we would get together a group of people, subpostmasters, but a lot of customers as well, industry people – so people like Google were on it – just as a way of opening up the culture, listening, debating, having different views.
I think to grapple with the Horizon issues, Horizon issues inevitably are very technical, and I think you really needed a group of specialists with a lot of time to do that. And the people on the POAC were giving their time but they were giving limited amounts of time because they all have jobs elsewhere. So to expect them to really, you know, dive into something which wasn’t their specialist subject, I’m not sure that the POAC would have been a great vehicle to tackle the Horizon issues.
Mr Jacobs: In light of what you say in your statement, though, where you say that it was to help stakeholders, which include subpostmasters, to work collaboratively to improve the company for the good of all, you’ve said that there were subpostmasters who were members of the POAC; is that right?
Neil McCausland: I believe so.
Mr Jacobs: Were they subpostmasters who had knowledge of the Horizon issue, do you recall?
Neil McCausland: So I don’t recall – knowledge of Horizon, absolutely, users of Horizon. Of the Horizon issue, I don’t remember any conversation at a POAC regarding the issues that are being talked about in this Inquiry.
Mr Jacobs: There was a provision to invite people to the meetings?
Neil McCausland: Yes.
Mr Jacobs: And also the Committee fed back to the Board and the Board fed back to the Committee; that’s right, isn’t it?
Neil McCausland: Yes.
Mr Jacobs: Because Post Office knew what the issues were with the subpostmasters and Horizon issues, did anyone ever suggest inviting people like Lord Arbuthnot or individual subpostmasters who had grievances to talk to the Committee to try to resolve the issues at that level? If someone had said, for example – doesn’t have to be a technical point – but “I can see the cursor is moving on the screen, someone is in my system. I think there have been miscarriages of justice, all my uncles and aunts have been prosecuted, they’ve done nothing wrong”, that sort of thing might have been able to cut through the culture of the Post Office; do you agree?
Neil McCausland: I understand what you’re saying but I’m not sure that I agree. So the agenda for the POAC was formed by the members. So the members of the POAC would say what they wanted to talk about and Tim, as Chair, would basically agree. So, I mean, Tim is the nicest, most collaborative man in the world and Tim would broadly shape the agenda based on what the members wanted to talk about. And those things tended to be more the strategy for the Post Office, where we were going with Financial Services, why don’t we do more for an energy and telecom offer? How can we get better at listening? Network Transformation was an issue.
So the agenda came from the members, which is what we were trying to do. I wish that we had had more direct contact as a Board so, again, I’m not sure the Post Office Advisory Committee is the right place for that but, as a Board, I absolutely wish that Lord Arbuthnot and Second Sight and subpostmasters had come to the Board and, you know, we had had more direct contact in that way because, I mean, I have said it several times but I’ll stress it again: the NEDs on the Board were not trying to cover up, were not trying to shy away from problems. We were actively tying to find problems and we thought we had found some of the problems, and we thought we tried to fix some of those problem.
We clearly didn’t and, actually, the one thing that I think might have helped to unlock that and to change what we were doing, was direct contact with JFSA, Sir Alan Bates, Lord Arbuthnot, subpostmasters, and I regret that that didn’t happen.
Mr Jacobs: I think I have probably asked all my questions. I’m just going to see if there is anything else that Howe+Co and Mr Stein would like me to ask you?
No, that’s all. That’s been helpful. I’m grateful, thank you.
Sir Wyn Williams: So that’s it, is it, Mr Stevens?
Mr Stevens: Yes, sir.
Sir Wyn Williams: Well, thank you very much, Mr McCausland, for making your witness statement, answering very many questions during the course of the day, being interrupted by a fire alarm and momentarily going off my screen. But, nonetheless, we got through the day, and I’m very grateful for your evidence.
The Witness: Thank you, sir.
Sir Wyn Williams: Right. Tomorrow morning, can we make it 10.00, Mr Stevens, so that my train doesn’t maroon me and make you all late?
Mr Stevens: Yes, of course, sir.
Sir Wyn Williams: Fine.
Mr Stevens: Thank you, sir.
(4.15 pm)
(The hearing adjourned until 10.00 am the following day)