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To ask the Secretary of State for Business, Innovation and Skills
(1) how many (a) prosecutions and (b) investigations of postmasters instigated
by Post Office Ltd as a result of apparent financial irregularities on the Horizon
computer system have subsequently been abandoned; [77794]
(2) how many complaints Post Office Ltd has received from subpostmasters
concerning difficulties with the Horizon computer system in each of the last five
years; [77795]
(3) whether any operational faults have been identified with the Horizon
computer system used by Post Office Ltd since its introduction; and what action
has been taken to resolve any such faults; [77796]
(4) what the monetary value is in current prices of the (a) original estimate and
(b) final cost of the Post Office Horizon computer system; and what additional
costs at current prices have been incurred since its completion. [77797]
Your recent questions in Parliament about the Horizon system within Post Office
Ltd have been referred to me for a response. As you cover a range of issues, I
believe it would be helpful if I could provide some context by briefly describing
what is generally considered as ‘Horizon’ and the role it plays within the Post
Office network and the accounting undertaken by subpostmasters.
Let me stress at the outset: we have complete confidence in the accuracy and integrity
of the Horizon system, which has been operating effectively for subpostmasters in
recording transactions for over ten years. The National Federation of Subpostmasters,
which vigorously represents the views and interests of subpostmasters around the
entire country, has also expressed its full confidence in the accuracy and robustness of
the Horizon system.
It is important to recognise the scale of the Horizon system. Over the last ten years
perhaps 20,000 different subpostmasters will have used the system to perform many
millions of successful financial reconciliations between the cash and stock they have in
the branch and the transactions they have handled. The Horizon system provides
detailed records of every transaction, no matter how small or large, in any individual
Post Office branch. If an individual branch has been unable to reconcile their
transactions with the cash in the office, there are systems of checking and auditing by
the subpostmaster or his or her staff that enable issues to be resolved. If they are
unable to resolve the issues themselves using the guidance materials provided to
branches then they are able to seek advice from the Network Business Support Centre
which has operational guidance on hand to respond to such enquiries.
An example of an issue that might lead to a financial reconciliation initially not being
achieved, but which could be subsequently resolved, could be a colleague in a branch
making an error when inputting a number into the system, or they may inadvertently
hand out stamps of the wrong value. The systems of checking and balancing, and the
helplines available, enable our branches to maintain accurate and reliable accounts
and to have a note on record in the interim that they had experienced an issue and
were in the process of resolving it.
As with any large organisation responsible for large amounts of money within a
dispersed branch network, Post Office Ltd also undertakes audits at branches. In an
extremely small number of cases, shortages of cash and/or stock (such as stamps) can
be discovered and, after all necessary checks have been undertaken, there might
remain significant missing sums that can’t be accounted for by the subpostmaster. In
such cases there are processes which are fully outlined in the commercial contract that
Post Office has with subpostmasters (the independent businesses who operate
agencies on behalf of the Post Office) that can involve suspension whilst enquiries are
ongoing and which may lead to a termination of that contract if a substantial breach of
contract is found ( following the appropriate opportunities for appeal which are built in
to those processes). The contract reflects the position that public money is entrusted to
the Post Office and it is vital that everything is fully accounted for. If significant money is
missing — either as a result of lack of sufficient competence by the subpostmaster or
their staff or, in extreme and very rare cases, as a result of dishonesty, it is not
appropriate for that subpostmaster to continue to operate the branch, and the Post
Office will seek to appoint someone new to take over.
In a small fraction of cases, court action has been taken over missing sums of public
money. In some of these cases, the subpostmaster has made allegations about the
Horizon system that records transactions. The Courts have consistently upheld the
Post Office’s position that the Horizon system is accurate and reliable. When former
subpostmasters have been convicted of false accounting and / or theft, itis, of course,
the Courts that have convicted, not the Post Office. In some cases, the subpostmaster
pleaded guilty; in others the Post Office had to provide robust evidence to support the
Crown's case. A criminal court will only convict an individual if it considers that the
evidence has shown, beyond reasonable doubt, that the individual is guilty of the
offences with which they have been charged. .
The Horizon system is therefore used by every subpostmaster, and every Post
Office counter clerk in Crown Branches every day. Each has an individual log in,
so all the transactions they undertake are recorded as being done by them as
individuals. Each is able to run off logs of the transactions they have undertaken
whenever they wish. They will have received training on the system and have full
access to helplines to assist them. The system underpins efficient service to our
customers and provides our subpostmasters and staff with an effective tool to
accurately and efficiently manage their day to day operations.
Having established this background context, I would like to consider the
questions that you have raised.
You have asked about the numbers of prosecutions and investigations instigated
by Post Office Ltd as a result of financial irregularities on the Horizon computer
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system which have subsequently been abandoned. The first point I need to
make here is that the issue that we can consider is that of ‘financial irregularities’
—all the Horizon system is doing is keeping a record of the transactions that are
input by the subpostmaster or clerk. A financial irregularity might arise when the
cash and stock that is held in the office is short against the amount that should
be in the office in accordance with the transactions undertaken. As has been
previously explained, this may happen for a range of reasons — and it may well
be that the issue can be quickly resolved by tracking back and identifying the
issue that has caused the shortage. We move into the area of financial
irregularity where there is a significant loss and there is no clear initial
explanation. This is most likely discovered when Post Office Ltd undertakes an
audit of the office and discovers the significant shortage. Like all financial
institutions and retailers, Post Office Ltd will undertake audits of branches to
ensure that proper accounting practices are being followed and the assets of the
Post Office are being kept secure. The cash that is held in Post Offices is
typically the property of Post Office Ltd and is supplied to the subpostmaster. If
there is a shortage at a branch, this represents a loss to Post Office Ltd and it is,
of course, vital for a publicly owned organisation to ensure that its cash and
assets are managed with integrity and care and are not put at uneccessary risk.
In circumstances of potential financial irregularities, the Post Office may suspend
the subpostmaster on a precautionary basis whilst further investigations take
place. Subpostmasters are not employees of Post Office Ltd — they are agents,
independent businesses who have a commercial contract with Post Office Ltd.
That contract includes provision for suspenson in certain circumstances. In the
period . ... there were ... Suspensions across the Post Office
network whilst investigations were being made.
During a suspension, detailed enquires will take place as to whether the
apparent financial irregularity can be explained and whether any breaches of the
commercial contract with the agenthave occurred. It may be the case that a
reason for the shortage is identified and, as appropriate, the subpostmaster may
be reinstated to continue with their contract for services. In the period...........
there were ........... occasions where the subpostmaster was reinstated. It is
important to note here that reinstatement would occur if Post Office Ltd were
satisfied there had been no gross breach of contract. This will have nothing to do
with the Horizon system — all that Horizon will have done is record transactions
undertaken at the branch.
There will however also be cases where a subpostmaster who is suspended will
themselves resign their contract before any action is undertaken by the Post
Office. In the period ......... ofthe branches that were not reinstated ..........
Resigned their contract. The balance represent cases where Post Office Ltd has
found a significant financial irregularity, constituting a gross breach of the
contract with the subpostmaster. There are processes by which the relevant
charge is put to the subpostamster, where he/she has every opportunity to
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answer it (with representation from the NFSP if required) and if a decision is
subsequently made by Post Office Ltd to terminate the contract, there are
appeals processes that can be invoked. All these processes are laid down in the
subpostmasters contract and have been agreed with the NFSP. It is only after all
these processes have been applied that Post Office Ltd would terminate the
commercial contract of the agent to provide services on behalf of the Post Office.
In the period.......... this occurred on.....occasions.
In a small fraction of cases court action has been taken over missing sums of
public money. In the period.................... Post Office Ltd has been involved in
ceseeeeeeeees Prosecution cases which have led to................... In some of these
cases, the subpostmaster has sought to make allegations against the Horizon
system that records their transactions. The Courts have consistently upheld the
Post Office’s position that the Horizon system is accurate and reliable.
The above figures also need to be put into context — Post Office Ltd has 11800
Post Offices. The numbers involved in suspensions, contract terminations or
prosecutions are a tiny proportion of such cases. The vast majority trade
completely normally, using the Horizon system in full accordance with their
commercial contract.
You have also enquired about the number of complaints that Post Office Ltd has
received in each of the last five years with respect to the Horizon system. A
subpostmaster has many channels by which they can make enquiries or
complaints about matters relating to their operation — via the management
structure, with visiting training, support or audit staff, via the NFSP,or via the
various helplines that are available to assist them in operating in accordance
with their contract. Each case is handled individually and central records are not
held of the nature that you are specifically requesting. In these areas where we
do hold information — for example in our National Business Support Centre
(NBSC) for subpostmasters — the information is held with respect to the nature
of the enquiry made( it is not necessariy a complaint). The role of the NBSC is to
assist subpostmasters in resolving operational enquiries that they may have in
the course of their ongoing trading. There is not a specific category of
‘complaints about the Horizon system’. A subpostmaster may have queries about
their accounting processes for a wide range of reasons and as part of this
he/she may need some support on some aspect that involves operation of the
computer system, For example he/she may need assistance on remedying an
inputting error that he/she’d already made — these are part of the normal day to
day trading issues that will occur in any large retail or financial organisation.To
illustrate the kinds of enquiries that subpostmasters make with respect to the
national helpline — the top ten issues over the period ............... were
To consider your enquiry further, if we look outside the realm of normal day to
day trading by trading Post Offices, we can seek to look at cases of those who
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are making distinct allegations with respect to the operation of the Horizon
system. We find that there appears to be a very small group of ex-
subpostmasters who no longer have contracts with Post Office Ltd after a
significant shortage of funds has been found at their office, for which they
couldn’t account. The legal firm, Shoosmith’s has been claiming for around a
year that they have number of cases where such individuals are making claims
against the system. Although, they have not told us directly, we believe that they
have intimated to other sources — such as the media — that they have a number
of such cases ( which they first mentioned around a year ago). These cases
appear to stretch back over a period of at least five years. We have not seen
details of all these cases despite Shoosmiths stating that they are on the
threshold of instigating civil action against the Post Office for over a year. All we
have received from Shoosmiths are 5 cases where there have issued ‘letters
before claim’ seeking information prior to determining whether they might pursue
a civil claim under commercial law.’. These cases refer to individuals who ended
their contractual relationship with Post Office Ltd between x and y years ago.
The claims are not solely related to allegations with respect to Horizon, they also
encompass other issues where the ex-agents have issues about their contract
such as training. In two of the cases the individuals have in the past pleaded
guilty to false accounting.
The Post Office does not accept any of the allegations that are being made and
will robustly defend its position if any civil action is mounted against it. With
respect to the rest of the cases that Shoosmiths say they have, they have not
seen fit to share details with Post Office Ltd — even after a year of stating that
they have such potential claims - so we cannot comment upon them.
If we assume that these claims constitute ‘complaints against Horizon’ the
number can be seen to be absolutely tiny in the context of a system that many
thousands of subpostmasters have been using for over ten years to help
produce many millions of financial reconciliations. It is also important to note that
none of these complaints has been upheld. Rather Post Office Ltd is vigorously
defending itself against such allegations and will do so in the civil courts if
necessary. It regards the claims in the cases it has received as being absolutely
without merit. Of course, at the end of the day, Post Office Ltd is in a commercial
contract with the agents operating post offices, and if the businesses involved in
those contracts believe they have an appropriate issue with respect to the
contract, they are fully able to pursue the matter through the normal processes of
commercial law.
Separately, on the very few occasions where an adverse comment about
Horizon has sought to be made in legal proceedings where a subpostmaster is
being prosecuted for theft or false accounting, the Courts have consistently
upheld the Post Office’s position that the Horizon system is accurate and
reliable.
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You also ask for information about operational faults with the Horizon system
since its introduction and the actions taken to remedy those faults. As with any
large, complex system that is required to support changing business
requirements, operational issues can occur. Industry standard tools are used to
alert support teams to any such issues so that the potential impact can rapidly be
assessed and, if required, rectified. The system is independently audited to
ensure compliance to a variety of standards, for example PCI and ISO27001.
Rectification actions range from straight forward hardware replacement to
software patching designed to combat evolving cyber threats.
At this stage, it is worth pointing out that the Horizon system keeps full audit
records of all key strokes undertaken by all log ins — so that it is always possible
to track back anything that has occurred within the system — or at an individual
sub post office. The system is designed such that all data is sequentially
numbered at the point of its creation and is separately stored in a secure tamper
proof facility for 7 years — so that recreation of situations and track back is
always feasible.
Finally, you have asked about costs of the Horizon system. You are probably
aware that the system originally developed out of Government processes to
automate benefits payments alongside a major automation of previous Post
Office point of sale and accounting systems. It was therefore designed to meet
the rigorous security standards necessary to undertake the payment of benefits.
The original costs and development were the subject of substantial
Parliamentary scrutiny back in the 1999/2000 period. To respond to your specific
question, it may help if I qupte an extract from the 2001/02 Royal Mail Group
Report and Accounts;
‘Responsibility for the liabilities of the Horizon ICL/Pathway project was
transferred from the Government to The Post Office in 1999. This resulted in a
one-off payment by the Group for costs incurred by ICL of £550m, a write off of
£571m in the 1999-2000 accounts and the incurrence of substantial ongoing
maintenance costs.By the time the contract terminates in 2005, aggregate
contract costs are expected to amount to some £1bn.’
Current contracts for the operation, maintenance and ongoing development of
the Horizon system are held with Fujitsu and the payments within these contracts
are regarded as commercially confidential (as disclosure could have a material
impact on any future procurement exercises with respect to the system).
This has necessarily been a long letter as the issues upon which you enquire
are complex and detailed. They also involve recognising a wider context of the
operating and accounting systems of the Business. We have full confidence in
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the Horizon system and it is regarded as an important part of the successful
operation of our business and the modern infrastructure that is necessary to
support our nationwide network of Post Offices. As you are aware, our policy
approach is to sustain that network — we have no programme of closures —
rather we have an approach of investment and growth that seeks to ensure the
future viability of the network and retain the social value that it offers to
customers and communities throughout the land. A modern and effective
computer infrastructure is a necessary part of achieving that goal (as will be the
case with any nationwide bank, retailer or Government Department). Horizon
provides that infrastructure in full accordance with modern industry standards. It
accurately records millions of customer transactions every day.
Given your interest in these matters as reflected in your questions, and given the
importance of recognising the background context of how Horizon fits in with a
modern Post Office’s approach to handling transactions and accounting, it may
be helpful if I invite you to meet us and for us to demonstrate to you how Horizon
operates. We could either do this at a specific Post Office — or by demonstrating
the facilities here in London. Please let me know if you would wish to do this. It
is very important to us that there is no misunderstanding as to the nature,
effectiveness and integrity of this computer system.
Thank you for your interest in these matters. I do hope that this letter has helped
clarify the issues upon which you had questions and please let me know if you
would wish to meet and see a demonstration of how our computer and
accounting systems operate for Post Offices.