POL00167883
POL00167883
Raloriby Pe. Q05 001% + ,
Confidential and legally privileged: "7°, : : : .
Post Office Limited - For Internal Use Only - NOT TO BE CIRCULATED
To: Paula Vennells, Chief Executive Officer
Re: Second Sight review into Horizon - Interim Report
Date: 2 July 2013 .
-Background
1, Since June 2012 Second Sight Support: servicés Limited (SS) has been Teviewing
"allegations that the Hotizon system is the source of unresolved accounting shortages in
Post Office branches.”
t Hon James Arbuthnot
tion “established to
2. SS has been undertaking its review in consult
MP (JA), and “Justice for Subpostmasters Al
raise awareness of the issues within the Post Offi
3. SS's review is to:
a. review, consider and advise on whether there are any y system issues and/or
_ concerns with Horizon; :
b. consider both the old Horizon aid ne new HNG: Xx (aka Horizon n Online};
consider training and support processes;
d. be reasoned and eviderice based.
2
Annex 1 provides more detail‘on $S’s review.
- - 4, Post Office Limited, with assistance from 1 Fujitsu, has engaged with SS, including by .
providing branch files and transaction data, and detailed responses on specific ii issues
raised.
Annex 1 also provides more detail on Post Office Limited’s engagement in S's review.
5. 49 cases have been referred. to SS. SS has now completed its review into 4 spécific
complaints, which it wil address in an interim report.
6. SSwill release its interim report to:
a Post Office Limited’on Friday 5 July 2013; and
b. JAon Monday 8 July 2013.
7. Susan Crichton, Lesley Sewell, Alwen‘Lyons, Angela van den Bogerd and Simon Baker
met SS on Monday 1 July 2013 at 3pm and obtained a clearer picture of SS’s interim
findings and timing for delivery.
8. [[We believe JA may feel that any interim findings which disclose any issue with Horizon I
should result in past criminal prosecutions by Post Offices Limited being feopened and
overturned. ]]
4270531131 : . : 2
POL00167883
POL00167883
POL00167883
POL00167883
Confidential and legally privileged
"9, Paula Vennells and Alwen Lyons will be meeting JA on Wednesday 3 July 2013.
10. Alwen Lyons began communicating Post Office Limited’s position to JA via a face to face
meeting with his personal assistant Jane Walker on Monday Luly 2013.
“a. Post Office always has a right to respond to any findings. External communications
. consultaricy Portland has been engaged to assist Post Office Limited.
The Interim Report
12. SS’s Interim Report will focus on:
“a. 4 individual cases; and
b. 2 anomalies in Horizon’s operation identifi
. “The 4 Cases
I Name: Branch Civil or Criminal I ”
. . .I Action
Armstrong Lepton- aaa
during power or
communications
failures
Rudkin Access to live ileal
Horizon data
O'Dell Jonathan ~ Transparency of Fee
Djanogly MP ' I stock adjustrhents
Hall. ~ Hightown © Mike Wood MP I Recording scratch I ****
: : : card stock levels
See Annex 2 for more detalls of these cases.
14, SS has considered some of, the evidence provided by Post Office. Limited, but due to
resource constraints might not have considered it all (e.g. the specific branch
transaction logs).
4A 27053119.1 I
POL00167883
POL00167883
POL00167883
POL00167883
Confidential and legally privileged
15. SS has also asked-subpostmasters to comment on this evidence and its proposed *
findings for the four cases in the Interim Report.
16. We believe ss has NOT found any evidence of systemic problems with the Horizon
computer system:
a. in any of the 4 cases in the Interim Report;
* b, in any of the 6 other cases which SS has referred to Post Office Limited: for I
review; or
c. otherwise during its review.
The. 2 Anomalies
17. We also understand S8’s interim 1 Report will discuss two anomalies in Horizon’: Ss
operation.
18. These were found by Post £ Office Limited and voluntarily communicated to SS, i ie.
neither was identified by SS as part of its revi
o
&
2
2
8
a
a
8
rs
3
s
a
$
D
g
bd
&
oO
fo}
=
b. concerns a Receipts a
moved into the local:
discrepancies lhto a's
c. “first appeared in Mar
e branch losses ranged from £' down to 34p.
f.. identified by Horizon’s built-in chéeRs and balances which are designed to flag
up these types of discrepancies.
-g. could have been identified if the subpostmaster had carefully scrutinised his/her
- Final Balance Report.
h. 47 Subpostmasters we
branch. 7
i. subpastmaste ets notified in March 2011 and (where appropriate) reimbursed.
j. subpostmastérs who made a gain through the anomaly.were not asked to
_ Fefund-this.-
k, anomaly pre-dates Separation, and therefore would I have been dealt with by
-Royal Mail Group Legal.
I. reason for delay in notifying subpostmasters:
dversely affected, ie. had a loss attribute to their
i. priority and distinction from other service issues that were happening at
the time of the HNG rollout;
complexity of understanding the root cause; and
i. getting agreement and clarity on how best to communicate this to
branches.
angrossiias sol
POL00167883
POL00167883
POL00167883
POL00167883
. Confidential and legally privileged
20. The “14 Branch Anomal mo
a. financially impacted 14 branches (4 Crowns; 5 Multiples; 5 Subpostmasters)
b.: concerns an error where historic accounting entries in the 2010/11 financial
year were replicated in accounts for 2011/12 and 2012/13.
‘c. first notified to Post Office Limited in January 2012
d: raised by, 2 subpostmasters affected by the anomaly.
e 5 subpostmasters were adversely affected, i.e.-had a loss attribute to their
branch.
_ f. Post Office Limited suspended attempts to recover known losses from affected
subpostmasters.
subpostmasters notified on [[2 July 2013]].
the worst loss to a branch would have bee!
cases notified, so no fecovery action was
_ £113.14 down to a penny.
was one of the first
er losses ranged from
a)
i. “irregular occurrence -.it took over ray
error in Horizon rather than an error by st
. _ Limited; .
“ii. very few branches materi
ly, and will be made to
21. Modifications have been made to rectify the 62 Sranch:
rectify 14 Branch Anomaly. ae
within scope of the SS
gain of £3,186.70 (i.e. there, was
_22. One of the branches affected by the 14 Branch I Anomal
review (Bowness Road I branch). That branch retéivel
no! loss to the branch),
23. The anomaly first manifested itself in thé Bownéss Road branch after the complaining
subpostmaster’s contract for services was terminated for branch mismanagement: and
Password sharing. .
24. One other branch affected bythe 14 Branch Anomaly (Merthyr Dyfan) was review by
Post Office Limited. That branch received a gain of £160.92 (i e. there was no loss to _
the branch). .
2
a
. We currently understand the branch to be operated by Costcutter, and that its I
employee is being prosecuted over in-branch losses of c. £49,000 (£39, 000 of which has
been repaid to Post Office Limited). [[RW TO UPDATE ON 02.07.13]
26. In in ine with our duties to the Courts, we are taking steps to contact the prosecuting
_body so that they are aware of the anomaly and can disclose the information in any
criminal proceedings as they consider appropriate.
27. None of the subpostmasters affected by either anomaly have been prosecuted over it:
! Other Anomalies - “Falkirk”
4A 27058113_1 t : 5
POL00167883
POL00167883
—
POL00167883
POL00167883
Confidentiaandlegallyprivileged
28. We are also aware of afurther anomaly in Horizonwhich was been considered in both
criminal and civil Court proceedings- the "Falkirk Anomaly".
29. The FalkirkAnomaly occurred when cashor stockwastransferred between stock units.
It was resolved in March 2006 istherefore adifferent anomaly to either the 14 Branch
or 62 BranchAnomaly.
30. The Falkirk Anomaly was the subject of expert evidencein the "Misra" criminal
prosecution, where:
a. the defence expert asserted that its existencedemonstrated Horizon had faults
which could causelosses,and therefore that possibility could not be excluded in
Misra's case,
b. the prosecution expert (GarethJenkinsfrom Fujitsu) asserted that it could not
have been responsible for the lossesbecauseits clearly visible events had not
manifested themselves in the branch records, and that it had been fixed more
than ayear earlier.
31. Misra pleaded guilty to false accounting,'and was convicted by jury of theft. To reach
this verdict, the jury had to be satisfiedthat the cha'rgeswere proved beyond all
reasonable doubt. Shewas sentencedtd 15 months imprisdnrnent. There hasbeen no
appeal againstthe conviction, i.
POL00167883
POL00167883
POL00167883
POL00167883
Contdential and legally privileged : : : 4
37. Plan A: Meet JA and try to persuade him to postpone his meeting with Second Sight on
Monday 8 July 2013. This is unlikely to be successful.
38. If not successful, Plan B: We are preparing 4 full communications strategy and will
considér rebuttal and tactics in line with an approach aimed to minimise reputational
impact to Post Office Limited.
. 39. Do we attend the meeting. with Second Sight and JA on Monday 8 July 2013?
a. as an observer? (attending may open us up to a cross examination); OR
b, not attend and pursue.the communications strategy (Plan B above)?
40. Consider replacing: or introducing anew indepe
Consulting / Accountancy firms)?
a. 6 million transactions processed.
b. over the past ten years, many millions of
“c, Horizon used out by 25,000 subpest
-branches with transactions and bala
43. With respect to the 62 Branch and 14 Branch Anomalies: .
a.’ We found the anomalies and, so as to be completely Open, told ss (i e.SSdidn't -
find them). ©
_ b, the anoinalies were detected, resolved, and we communicated the problem to
- sub postmasters ~~
c. confirm the anomlaies: did not affect the integrity of the transaction data
[[FUsITSU / GARETH JENKINS TO CONFIRM]
d. no Post Office prosecutions relate to these bugs .
€. say we have addressed the problem (but acknowledge it has taken time)
“aA 27053119.
POL00167883
POL00167883
POL00167883
POL00167883
Confidential and legally privileged coe
ANNEX ae An overview of the Second Sight Inquiry process and how Post Office has *
” interacted wit! .
Overview of the inquiry process . ~
As part of thé Inquiry process, Second Sight has.submitted 10 scenarios relating to Horizon to
Post Office for its comments (the Spot Reviews). In light of its review to date and Post Office's I
responses to these Spot Reviews, 5 Second Sight.is now preparing an Interim Report.
In accordance with the Inquiry process set out ‘under the "Raising Concerns with Horizon"
agreement:
Post Office's a ivity .
Post Office has provided continuous shipper ‘to Second Sight and has responded to. al 10Spot .
Reviews.
“Second Sight will consult with JFSA, Post Office anifor any”
. fiecessary before producing any report: ~
Second Sight will prepare its report bearing in
the report is reasoned and evidence based.
Post Office may provide Second Sight-with its own comments on any or all concerns,
and on Horizon generally.
Second Sight will consider-and take into account any comments received from JFSA,
Post Office and/or any other consulted party.
in s supporting Second Sight, Post’ Office has:
AA 27050118.1
Worked with Second Sight to ensure that it is addressing all issues raised,
Thoroughly reviewed each Spot Review through the leadership of senior
management. - 7: .
. Consulted senior Personnel inside Post Office on the issues raised in ‘each Spot.
Review.
Liaised. closely with Fujitsu so that its expertise on Horizon suports every response.
Collated and’ interrogated Horizon transaction records where Second Sight has
referenced particular identifiable transactions.
party as it'considers °
POL00167883
POL00167883
POL00167883
POL00167883
Confidential and legally privileged ~ :
- * Addressed any follow-up questions raised by Second Sight or Subpostmasters. .
- “Promptly submitted all responses to Second Sight i in accordance with agreed
‘timeframes,
Overview of Post Office's responses
Post Office remains confident that Horizon is a.robust system that accurately records the
activities of Subpostmasters, and maintains the integrity of transaction data.
All 10 Spot Reviews fave been fully addressed by Post Office and, none of them’ have identified
“any error in Horizon. ~ . :
In fact, the Spot Reviews have demonstrated that Post O;
the Horizon system are designed to:
Withstand problems out ide, Post Offic:
sn zrsovi8.4 Lo. o, :
POL00167883
POL00167883
POL00167883
POL00167883
Confidential and legally privileged
ANNEX 2- DETAIL ON THE 4 CASESSECONDSIGHTARE PROVIDING AN INTERIM REPORTON
CASE1 - Spot Review 1- Risks associated with power or communications failures
This Spot Review principally asks whether Horizon robustly manages the risks created when it
is unable to connect to Post Office's central servers due to a power or communications failure
which is beyond a Subpostmasters' or Post Office's control.
Post Office's response to this Spot Review shows that the in-branch Horizon terminal has a
robust back-up and recovery system that prevents there being any discrepancies or errors in
the event of acommunications or power failure.
Inthe particular case raised in the Spot Review, the root cause of the difficulties suffered by
the Subpostmaster was his failure to follow the on-screen and printed instructions given by
Horizon.
Acomprehensive, line-by-line review of all the Horizon transactions for the period covered by
this Spot Review was undertaken by Horizon experts at Fujitsu. In light of this analysis. Post
Office Limited is confident that the SPMR knew that the back-up and recovery process had
actively managed the communications failure at the branch in question because:
When the transactions in question first failed to be processed. Horizon asked the
SPMR whether he wished to cancel or retry the transactions. The SPMR opted to
retry the transactions.
When the transactions failed again, the SPMR opted to cancel the transactions.
Horizon then automatically disconnected and printed a "disconnect" receipt that
showed the transactions that had been automatically reversed.
Astandard customer receipt was not produced - this would tell the SPMR that the
full transaction had not proceeded.
POL00167883
POL00167883
POL00167883
POL00167883
Confidential and legally privileged
the basement of the building who demonstrated the ability to access ‘live’ branch data and
directly adjust transactions on the Horizon system.
Given the amount of time that has passed, ‘neither POL nor Fujitsu have any record of Mr
Rudkin attending th the Bracknell site.
Post Office and Fujitsu have attempted to establish the Bracknell visitor logs for the day in
question to verify Mr Rudkin’s attendance and his contact on I the.day, however these records
are not retained for as far back as: 2008.
Fujitsu have additionally made ‘the effort to go through all email, documents and archived
information to hand but do not have any information for Jyosee).t9 19th August 2008. that would .
suggest they had visitors to the site.
environment. This. environment was not physica
Horizon environment. It was therefore impossi
~ any live transaction records, though Mr Rudkin-me
to the test environment.
This separation of test and live environments is desig rantee the integrity of Horizon”
- data. : .
CASE 3 - Spot Review 21 ~ transparency of stock adjustnients*
This Spot Review. principally asks whetitel Horizon automatically makes stock adjustments and,
if 0, whether this could cause a subpostmaster to suffer a loss.
ct geidiate automatic stock adjustments. ‘This function does not
In'summary, 1, Horizon’ doé:
exist within Horizon.
- . Each member of staff at Post Office branches should have and use their own unique ID. Each
subpostmaster, as a result, has a unique user ID. This requirement is detailed i in the Standard
. Subpostmaster's Contract for Services. Section 1, clauses 5, 14 and 15 of this Contract for”*
Services and the Horizon Online Help operational manual provide that passwords and login
details for Horizon are personal and are not to be shared between branch staff. This is
important to enable traceability of transactions for audit and review purposes.
On review of the Horizon transaction logs, every stock adjustment transaction inputted on 4
November’ 2009 at the Great Staughton branch (being thie date and branch under
4a g7089113.1 _ mo : . 4
POL00167883
POL00167883
POL00167883
POL00167883
Confidentia&nd legallyprivileged
consideration in this Spot Review) was a manualtransaction logged against the subpostmaster
user ID (JODOO)).
Evenif there were erroneous stock adjustments, these adjustments could not causea
subpostmaster to suffer a loss due to the “double entry" balancing process inherent in Horizon.
Eachmanual instruction inputted by a subpostmaster creates a double entry (i.e. if the
subpostmaster adjusts the stock level down, the cashlevel on Horizon will be increased by the
same value asthe stock). This hasa balancing effect on the overall cash and stock,position
even if an error is made by the subpostmaster. Forexample, if the branch position begins in
balance, an inaccurate increaseto the stock levelof stampswill create a shortage of stamps
but it will also causea reciprocal decrease in the cash position thereby creating a balancing
surplus of cash. This shortage of stamps and surplus of cash balance out meaning the
subpostmaster will not have an overall shortfall.
This double entry system is designedto mitigate the risk of user errors by automatically
POL00167883
POL00167883
POL00167883
POL00167883
'
.
+" Confidential and legally privileged
‘Thé-transaction history in Horizon reflects the figures advanced by Post Office. [[This
transaction history has been provided-to Second Sight. CHECK]
” In any event, the manual REMMING-in of scratch cards by Subpostmasters has now been
teplaced with an automated process so the risk of a discrepancy occurring (such as the one ih
the Hightown branch on 17 February 2010) has been largely mitigated.
4A 270531181
POL00167883
POL00167883