FUJ00083736
FUJ00083736
Amsphere Confidential and Privileged
On instruction of Coomber Rich Solicitors
Yard House, Basingstoke, RG21 7NX
Re: Seema Misra
Technical expert’s report to the Court prepared by Charles Alastair
McLachlan, a Director of Amsphere Consulting Ltd.
90 Fenchurch Street
London EC3M 4BY
England
This report contains 50 pages
FUJ00083736
FUJ00083736
Amsphere Confidential and Privileged
On instruction of Coomber Rich Solicitors
Yard House, Basingstoke, RG21 7NX
Contents
1 INTRODUCTION..
2 SUMMARY OF FINDINGG..........csccssssssssssesssses sossesnsssesseeesessnsesseeeessaneaeen 3
3 CONCLUSIONG.........ccscesssssssesesesssssesssesnes sessesesnsasseenessensacseeneaseneaeaceneeses 15
4 POINTS OF DIFFERENCE BETWEEN CHARLES MCLACHLAN AND
GARETH JENKINS ..........scssssessssssssessesesesssen snseessacsnsocsessacseacseeneaeaneaeaseaeeeane® 17
5 TERMS OF REFERENCE ...........ccssssssssssssssseses cossesnesssassesssassneasseessaeanees 24
6 APPENDIX A ......ssssssessssssessssesesnssesnsscseen saeessacsnsacseeneacsneaeaneneaesneaeaseneaeanes 35
7 APPENDIX B ........sssssccsssssssssseeessssesseseees snsnssesnsseesssscesecsssserensenenseneeeaeee 36
B APPENDIX C .......sssssessssssesessesesssssssssnsns sesnssesessesssasscessseenssseteneerensseseeaeen 37
Q APPENDIX D........ssssssesssessessssesesessesessesss sesseaesesseessaesesesaeesessrssearenssssessess 38
10 APPENDIX E
11, APPENDIX F uu... essssssessssessesesessesesseseses sessessensasseenessensacseeneaeeneseaeneeses 40
12 — APPENDIX Gu... esesesssssssessssesessssesssssens sessesssnsacseenessensaeseeneaseseseaceneeses 41
13 APPENDIX H.......cssssssessssesssscsessssesesscaee sesseseessacseeneseensacaeeneaeneseaceneesen 42
14 — APPENDIX L.......cssesssessesssssesssssesseseensaee snseeesseseaeseenessensacaeeneaeeneaeaeseases 43
15 — APPENDIX J....esssssssssssessssessssesessssesssace sseeeseessacseeueseensacaeeaeaseneacseesenses 44
16 APPENDIX K........scssssssessssessssssessseessssssee sesssseensasseensacensanscensasneaeaeneesen 45
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Amsphere Confidential and Privileged
On instruction of Coomber Rich Solicitors
Yard House, Basingstoke, RG21 7NX
17 APPENDIX Lo... cseessssessesessessessessesscsneen sesessnssssnessnsenenseasenssasenseneenseasen 46
18 APPENDIX M RINKFIELD REPORT.......cscssssssssssssesssssessessessesseseees 47
Charles McLachlan
Amsphere Confidential and Privileged
On instruction of Coomber Rich Solicitors
Yard House, Basingstoke, RG2] 7NX
1 Introduction
Ll
Background to the Horizon system
Accounting systems are usually designed around a ‘double entry’ booking
keeping principle. The double entry book keeping principle means that for
every entry into the system there is an equal and opposite entry that should
maintain the ‘balance’ between the accounts.
So, for example, if somebody at the till sells a stamp for £1 paid in cash then
the stock account would be reduced by £1 value of stock and the cash on
hand account would be increased by £1 — overall the balance between the
accounts would be unchanged.
As part of the process of financial control, it would be normal for the value of
stamps to be physically counted and recorded (stock value) and the value of
cash on hand physically counted and recorded (cash value) and these two
values compared (‘reconciled’) to what is recordedin the accounting system.
The sub post office uses specialised terminals to conduct business using the
Horizon system. This activity is recorded in messages of two types —
transaction messages and event messages. The messages are transmitted to
and from the Horizon data centre managed by Fujitsu
The Horizon system developed and managed by Fujitsu is integrated to a
number of other systems controlled by Post Office Ltd (POL) and various 3“
parties (for example, the Driver Vehicle Licensing Agency (DVLA),
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On instruction of Coomber Rich Solicitors
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merchants services providers for debit card services and E-Top Up for mobile
phone credit). This full set of systems and the operational processes
supporting them, I will refer to as the Post Office Limited Operating
Environment
1.2 Hypothetical issues with the Horizon system
In order to properly consider the issues that could arise from a computer system such
as the Horizon system in the context of the operation of a sub post office, there are
three hypotheses which I will seek to test in my report.
1.2.1 The User Interface gives rise to incorrect data entry: poor user experience
design and inadequately user experience testing can give rise to poor data
entry quality. In cases that users are working under pressure, insufficiently
trained or are using a system presented in a language different from their first
language the problems of data entry can be exacerbated.
1.2.2 The Horizon system fails to properly process transactions: accounting
systems are usually carefully designed to ensure that accounts balance after
each “double entry” transaction. In particular, a database technology referred
to as ‘two-phase’ commit is used to ensure that either both entries or neither
entry is recorded on the system.
1.2.3. External systems across the wider Post Office Limited Operating
Environment provide incorrect externally entered information to the Horizon
accounts through system or operator error outside Horizon. For example,
incorrect transaction corrections are submitted from the central systems for
acceptance by the sub post master.
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Amsphere Confidential and Privileged
On instruction of Coomber Rich Solicitors
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2 Summary of findings
2.1 Introduction
My findings are subject to certain limitations in the manner in which I was able to
pursue my investigations and which may have impacted my ability to provide a
complete picture.
2.1.1 Reliance on Fujitsu
For my understanding of the Horizon system and the manner in which it is integrated
into the full Post Office Limited Operating Environment, I am completely reliant on
the information provided by Gareth Jenkins of Fujitsu. Gareth Jenkins has provided
every possible assistance subject, however, at all times to the instructions of his
employers and Post Office Ltd.
It should be noted that Fujitsu were originally contracted to design, build and operate
the Horizon system and continue to manage and develop the system under contract to
Post Office Ltd. In addition, I understand that Fujitsu have recently been awarded a
contract by the Post Office Ltd to operate, manage and develop other systems in the
Post Office Limited Operating Environment.
2.2 Although Gareth Jenkins was able to explain the various interfaces to Horizon
vis-a-vis the Post Office Limited Operating Environment, he was not able to
comment on the POL domain outside Horizon and indeed his remit was purely
with respect to Horizon. See Appendix A Horizon Arhitecture Diagrams
Provided by Gareth Jenkins of Fujitsu.
2.2.1 Independent investigation
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On instruction of Coomber Rich Solicitors
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The Post Office provided no opportunity for independent investigation of the
operation of the Horizon system under test conditions or using video observation in a
live environment.
The Post Office provided no opportunity to observe and review the training of sub
post masters.
The Post Office provided no opportunity to examine the logs of defects, change
requests and outstanding known issues for the Horizon system.
The Post Office provided no opportunity to understand and review the systems and
processes in the Post Office Limited Operating Environment outside Horizon that
could give rise to transactions in Horizon. In particular:
e It was not possible to examine the process for introducing Transaction
Corrections that can give rise to changes in the cash that Horizon records at
the branch
¢ It was not possible to examine the processes for Remittances (the movement
of cash and stock) into and out of the branch thatchanges the cash and stock
that Horizon records at the branch
e It was not possible to examine the processes for revaluing foreign currency
which could change the value of cash held at the bunch.
e It was not possible to examine the processes of reconciliation conducted by
the Post Office that could give rise to Transaction Corrections.
2.2.2 Opportunities for reconciliation
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On instruction of Coomber Rich Solicitors
Yard House, Basingstoke, RG21 7NX
In the normal process of investigating the consistent operation of a system, I would
expect to examine the end to end trail of paper vouchers, transaction files, log files
and other electronic records across the Post Office Limited Operating Environment.
The Horizon system has been designed to operate as an accounting system and
therefore is designed to ensure that for every set of credits there is a matching set of
debits. In the set of transaction files I have been provided this design constraint is
met. However, the only way to determine whether itis the correct set of credits or
debts is to reconcile the Horizon transaction with externally held records. In a
typical banking environment this would typically bea set of paper vouchers (debit
slips, paying in slips, cheques, etc.) recorded at the counter as the transaction was
conducted. These vouchers may be hand written or may be printed out at the counter
terminal. The cashier can then ensure that their till is balanced at the end of the shift
and, if for example a cheque has been entered for the wrong value, deal with the
matter immediately.
Unfortunately, the Horizon system has not been designed to automatically provide
these vouchers and it does not appear that Post Office counter staffs are trained to
ensure they retain them. It has not been possible, therefore, to reconcile the Horizon
branch records to the actual transaction undertaken over the counter in the branch.
2.3 Problems of data entry at sub post office.
2.3.1 Incorrectly calibrated touch screen
The Horizon system provides a touch screen for data entry. If when you ‘touch’ the
screen the screen does not respond properly it may be because the screen has not
properly calibrated the position of the ‘touch’ to the representation of the button on
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On instruction of Coomber Rich Solicitors
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the screen. The logs provided by Dunks show that Misra asked for guidance on how
to re-calibrate the screen on at least one occasion.
If this gave rise to incorrect entry of cash amounts then this would explain
discrepancies. The Horizon system does not record the recalibration of the touch
screen as a system event so it is not possible to identify how frequently individual
screens were re-calibrated.
The Horizon system does not automatically provide a voucher (i.e. a printed slip) to
be retained at the counter for every transaction so it is not easy for the cashier to
identify such data entry errors either immediately on entry or when seeking to
balance the till at the end of the day.
The Post Office have not provided us with an opportunity to record the use of a
system in a sub post office experiencing problems.
For all of these reasons it has not been possible to assess the impact of poor screen
calibration on data entry.
2.3.2 Poor User Interface Design
Poor user interface design can contribute to poor data entry quality and user errors.
The Post Office have not provided us with an opportunity to conduct a user interface
design audit or record the use of a system in a sub post office experiencing problems.
2.3.3 Use of the FASTCASH button
One of the features of the Horizon branch terminals is that it is possible to complete a
transaction by use of the ‘Fast Cash’ button. When the ‘Fast Cash’ button is pressed,
the value of the basket of items being transacted is added up and then any payment
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On instruction of Coomber Rich Solicitors
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by debit card, cheque or whatever is accounted for. The outstanding balance is
automatically calculated and treated as an over the counter cash payment and then
‘clears the basket’ (i.e. completes the transaction and makes the terminal ready for
the next transaction).
It was anticipated that counter staff would use the ‘Fast Cash’ button as a matter of
habit on every transaction in order to clear the basket. The Horizon system does not
log whether the basket is cleared using the ‘Fast Cash’ button or some other method.
Both Jenkins and myself recognised that there could be circumstances in which a
debit card transaction was not authorised but (either because the printer was not
working or because of force of habit) the counter still cleared the basket using the
‘Fast Cash’ button. The result would be that the Horizon system recorded the receipt
of an amount of cash over the counter covering the whole outstanding balance.
The effect of this would be to create a cash discrepancy (shortfall) in the till.
I have identified a number of transactions for which the ‘Fast Cash’ button could
have given rise to such a discrepancy (see 14.2 Apyendix I ‘Transaction Associated
With Reject Cards’ and items in italics in the highlighted sections).
The total value of these transactions is £7,544.09. I have considered Jenkins report
(see Appendix B) and believe that he may have overboked the transaction of £7,000
on 11-Jan-07 at the bottom of Page 5 of the document ‘Transactions Associated
With Rejected Cards in Appendix I for which I wasunable to find a reversal.
Irrespective of the facts in relation to the transaction of £7,000, in my opinion the
relevance of the ‘Fast Cash’ button in this matter is:
e the ‘Fast Cash’ button is demonstrated to be a source of data entry error (the
reversals support this).
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e the specific circumstances relating to rejected card transactions give rise to a
relatively small value of possible discrepancies during the 13 month period
for which records have been provided compared to the total discrepancy
found in the audit.
e their may be other circumstances in which the use of the ‘Fast Cash’ button
gives rise to discrepancies which have not been identified or investigated
because I was unable to record the live operation of the use of the Horizon
system in a sub post office.
2.3.4 Insufficient training
The activities of a sub post office more properly correspond to those of a retail bank
branch rather than a retailer of stamps and postal services. (A cursory review of
Appendix H shows a transaction throughput of £48m recorded in the Horizon
transaction logs in a 13 month period for example). The Post Office were unable to
provide a definitive set of training materials, learning goals and competence
assessments which would make it possible to understand the extent to which Misra
was adequately trained and properly understood how to conduct the operations of a
sub post office.
However, an examination of the transaction and event logs provided by Fujitsu from
1 Dec 06 — 31 Dec 07 shows that:
e The Declared Branch position had discrepancies vis-a-vis the Horizon totals
at the end of almost every period.
e The Variance Checks conducted to reconcile the branch position vis-a-vis
Horizon showed a discrepancy on the vast majority of occasions ranging from
18 pence to more than £11,000.
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Such a consistent and pervasive failure to ensure that the tills balanced on a daily
basis can be explained by:
a) Theft and/or fraud that the Post Office failed to investigate for at least 13
months
b) Inability of individual branch counter staff to operate properly
c) Inability of the sub post mistress to train/manage staff and/or conduct end of
day processes.
d) Persistent system failure
I have not been able to conduct the kind of investigation which would exclude
persistent system failure.
2.4 Problems with Horizon
2.4.1 The Calendar Square, Falkirk Problem
Jenkins provides a summary of the problem first identified in proceedings relating to
a sub post office in Calendar Square, Falkirk. (see Appendix C). Unfortunately, as
Jenkins acknowledges, we have not been provided the transactions for the period
prior to March 2006 when we may have been able to independently determine
whether this was an issue for West Byfleet between 30/06/2005 and the bug fix to
Horizon provided in March 2006. Jenkins confirms that the implementation of the
Horizon system at West Byfleet, where each counter terminal is managed as a
separate “stock unit” rather than all the terminals being pooled, is precisely the
circumstances which could give rise to the ‘Calendar Square’ problem.
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As far as the Calendar Square problem applies in relation to West Byfleet, in my
opinion:
e It demonstrates that there have been faults with the Horizon system which
give rise to discrepancies that can cause losses. It is not reasonable to
exclude the possibility of system problems when considering a case such as
Misra.
e lam unable to determine whether the Calendar Square problem contributed to
the discrepancies at West Byfleet because the Post Office have not provided
the relevant transactions and event logs.
2.4.2 The travellers cheque stock problem
The Horizon system is used to record the stock of travellers cheques held by the sub
post office and account for the transactions when they are sold or encashed. In one
of my branch visits I was shown a sequence of actions that demonstrated how the
Horizon system reported on the stock of travellers cheques in a manner that was
completely confusing and misleading.
Take the example of 10 travellers cheques of value USD 100 at the beginning of the
day. If you run a stock report it will show 10 x USD TC 100 which corresponds to a
value of USD 1,000.
A customer comes in and purchases one travellers cheque at USD100 and pays for it
using a debit card.
Tf you then run a stock report it will show -90 x USD TC 100 which corresponds to a
value of USD -9,000.
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In other words, the report has treated deducted the USD 100 from the travellers
cheque item count of 10 to get -90. Clearly you can’t hold a negative stock of a
physical item such as a travellers cheque so the report is both meaningless and
completely misleading.
I discussed this with Jenkins and he acknowledges that this is a known feature of
Horizon and that the Post Office have not instructed Fujitsu to change the system to
produce a meaningful stock report. Jenkins assured me that the Horizon system
properly accounted for the travellers cheques in the end of day process but I had no
opportunity to test whether this was true.
In my opinion, this stock report could give rise to counter staff or sub post masters
seeking to correct the perceived problem through manual adjustments leading to real
discrepancies.
2.5 System problems from beyond Horizon
2.5.1 Transaction Corrections
The Post Office Limited Operating Environment encompasses a large number of
systems that use outputs from the Horizon system to conduct other processes to
support Post Office operations. It is from these systems that Transaction Corrections
arise.
Consider this hypothetical example by way of illustration:
At the Post Office counter a cheque was encashed for £50 and a cash payment to a
customer of £50 was recorded on the system. However, as a result of the clearing
process and various reconciliation processes, the face value for the cheque is
identified as £5. This gives rise to a cash discrepancy of £45 which the branch would
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be expected to make up. A Transaction Correction would be issued to the branch for
them to acknowledge and the branch accounts would te updated.
Both Jenkins and I considered whether Transaction Corrections could be a source of
the branch discrepancies. Jenkins examined Transaction Corrections relating to
credit/debit card and banking transactions and identified relevant Transaction
Corrections to the value of £1,840 (Appendix G). I have take a slightly wider scope
of transactions of interest which have a total absolute value of £ -19,257.21 and
absolute value of £ 82,918.35 (Appendix J).
Jenkins acknowledges in his e-mail that he is unable to comment on the integrity of
the processes used by Post Office Limited to create Transaction Corrections or the
operating processes used to generate them.
Unfortunately, the Post Office failed to make anybody available to discuss the
operation of the Post Office Limited Operating Environment and the reconciliations,
error rates, controls and internal audit processes used to ensure integrity.
In my opinion, the value of the Transaction Corrections identified by Jenkins or the
transactions of interest identified by myself is not the issue. What is clear is that
Transaction Corrections are generated from outside Horizon. We have no evidence
as to whether or not:
a) The Transaction Corrections are of the correct value
b) Some Transaction Corrections should be applied at all
c) Some Transaction Corrections are omitted
In fact the sub post master is required to explicitly ‘accept’ the Transaction
Correction in order for it to be applied to the branch accounts. The Post Office seek
to address concerns (a) and (b) by providing the sub post master with an opportunity
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to ‘request evidence’ (i.e. challenge) a Transaction Correction. In my analysis I was
unable to find evidence that Misra did ‘request evidence’ in the transactions provided
between I Dec 06 and 31 Dec 07 although I understand from Jenkins that there are
some such requests during her tenure at West Byfleet.
However, as discussed above, the Horizon system does not automatically provide the
paper vouchers that would support a dispute over atransaction at the branch.
Further, this process does not address the possibility (c) that some necessary
Transaction Corrections are omitted.
Jenkins appears to assume that the limited value of the Transaction Corrections he
has identified means that they cannot explain the discrepancy in the Misra case. He
overlooks the possibilities that:
¢ The values are incorrect
e There are missing Transaction Corrections which would reduce the cash
balance expected by the Horizon system (i.e. be infavour of Misra).
In my opinion, we have insufficient evidence to exclude in correct or mi:
sing
Transaction Corrections as an contributing factor to the discrepancies in the Misra
case.
2.5.2 Remittances
The systems supporting the movement of cash and stock to and from the sub post
office are integrated into Horizon through Remittance transactions (colloquially
referred to as Rems). There is no suggestion in this case that there were problems
with the operation of the Remittance system. However, it should be noted that I am
currently instructed in other cases in which the defendant suggests that the system
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gives rise to incorrect cash balances being recorded on the branch system. The Post
Office has not, at this stage, provided me with an opportunity to investigate these
claims.
Again the Post Office requires the sub post master to ‘accept’ remittances through
scanning pouch labels and acknowledging the affirming the count of the contents of
the pouches.
It is worth noting that Jenkins has analysed the transactions and identified a pattern
or remittance transactions which is consistent with Misra’s statement that she
declared cash held in remittance pouches in the safé which was not actually present.
2.5.3 Reproducing the problems
If the potential source of the incorrect transaction processing can be identified then it
would be helpful to be able to reproduce the problems under controlled test
conditions in a consistent and reproducible manner. This would require the
assistance of Fujitsu in providing access to the test environments maintained in
support of the Horizon system.
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3 Conclusions
3.1
3.2
3.4
It is evident that trial balances (Variance Checks) and period balances (Branch
declarations) showed a continuous pattern of discrepancies through out the
period for which transactions were provided. It appears that no action was
taken by the Post Office to investigate these discrepancies or to ensure that
Misra was competent to prevent them from arising. Instead, Misra removed an
employee under suspicion of theft and implemented independent stock units
for each counter. Neither action appears to have resolved the issue.
The possibility that problems with screen calibration and the use of the ‘fast
cash’ button contributed to the discrepancies at West Byfleet has not been
excluded by the investigations of Jenkins and me. However, it is difficult to
demonstrate that they are of a magnitude to explain the full amount of the
discrepancy.
The Horizon system has had problems in the past as acknowledged by Jenkins
in relation to Calendar Square. Unfortunately, the Post Office has not provided
us with the opportunity to independently assess the possible impact on West
Byfleet nor have they provided a list of known defects in Horizon. The
‘travellers cheque’ problem is an illustration of the known defects we
independently identified but Jenkins confirmed that Fujitsu maintain a full list
which has not been released.
The Horizon system is a component of the full Post Office Operating
Environment. Other elements of this environment can result in changes to the
cash balances recorded at the branch. Both Transaction Corrections and
Remittances will act in this way. Jenkins was unable to provide any opinion as
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to the integrity of these systems and I was provided with no opportunity to
investigate them. The Post Office has provided no evidence as the integrity of
these systems and the processes used to manage them.
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4 Points of difference between Charles McLachlan and
Gareth Jenkins
4.1 Introduction
I submitted my draft report to Gareth Jenkins, the expert from Fujitsu instructed by
the Post Office for his review on 1“ October 2010. We then had an opportunity to
discuss points of fact and opinion over the phone. Jenkins was able to advise me of
some errors of fact based on his extensive understanding of the Horizon system
which I have not sought to dispute and I have incorporated corrections arising from
these errors into this final report. Jenkins also indicated some areas where he held a
different opinion and this section seeks to set out explicitly where our opinions differ
side by side. I am relying on his annotations to my draft report to faithfully represent
his position for the convenience of the court. I apologise if, any of the individuals
items I have inadvertently misrepresented him or omitted comments of importance.
4.2 Inrelation to 2.2.1 Transaction Corrections, Jenkins is of the view that because
the Sub Post Master accepts the Transaction Corrections and has an
opportunity to raise issues for correction this is not relevant to the case. In my
view, if Transaction Corrections are incorrect or omitted then it is necessary for
the Sub Post Master to be able to have the evidence and training to contest
them. The fact that there is a process for Transaction Corrections means that
data entry errors are recognised as occurring. The Horizon system does not
automatically provide the evidence (in the form of vouchers) to enable the Sub
Post Master to easily raise or contest Transaction Corrections. Nor have the
Post Office provided evidence that demonstrates that the training of Misra
equipped her to deal with Transaction Corrections effectively.
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In relation to 2.2.1 Remittances, Jenkins is of the view that because the Sub
Post Master accepts the Remittances and has an opportunity to raise issues for
correction this is not relevant to the case. In my view, there is testimony from
other Sub Post Masters that the end to end Remittance process introduces
incorrect data into Horizon, and, because I have had no opportunity to
investigate this, I am unable to exclude this as a source of problems at West
Byfleet..
In relation to 2.2.1 ‘revaluing foreign currency’, Jenkins advises that this will
not affect the cash position in the Horizon and therefore this is not relevant to
the case. His explanation is compelling and I am happy to accept that this is
not an issue at West Byfleet despite being unable to make an independent
examination.
In relation to 2.2.1 ‘processes of reconciliation’, the difference of opinion at
4.2 applies.
In relation to 2.2.2 ‘vouchers’ Jenkins notes that the automatic production of
vouchers was never a requirement for Horizon and in fact the requirement for
transaction times specifically precluded printing such records. He also points
out that in a retail environment (e.g. supermarket) such vouchers are not
generated either. In my opinion, the volume and type of transactions at the sub
post office counter, is more closely comparable to a retail bank counter where
such vouchers are part of the controls operating ateach till.
In relation to 2.3.1 incorrectly calibration of touch screens, Jenkins states: “I
accept that buttons activated may not be those actually selected but I’m not
sure under what circumstances this would result in a financial discrepancy”. In
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my opinion, there is a possibility that the wrong numeric value was recorded or
the wrong product type. Clearly recording an incorect numeric value could
immediately give rise to a financial discrepancy if the cash taken over the
counter was different from the amount recorded on the system.
In relation to 2.3.2 ‘poor user interface design’, Jenkins states “I don’t believe
there is any reason to say that the UI for Horizon is poor. All this is saying is
that Post Office Ltd has not allowed a review of the UI’. In discussion,
Jenkins also referred to his understanding that the UI was tested as part of the
original development process and that usability is a matter of opinion. In my
opinion, the fact that there is a Transaction Correction process suggests that
there are problems with data entry and in my experience these arise from poor
training or poor user interface design. The usability of User Interfaces can be
stringently assessed against a number of well established, research based
criteria and also tesing in user trials. Usability is not just ‘a matter of opinion’,
but rather a matter of expert opinion derived fromsuch assessment and trials.
In relation to 2.3.3 ‘FASTCASH button’, Jenkins accepts that the ‘Fast Cash’
button could give rise to the error that I have identified. However, he states
that his analysis of all Debit Card transactions over £1,000 fails to identify any
scenario in which the ‘Fast Cash’ button could have given rise to a
discrepancy. Jenkins has now reviewed the transaction for £7,000 that I
suggested he may have overlooked and he has identified that it was paid for by
Cheque and asserts that the user must have been aware that the Debit Card
transaction failed in order to ask for a cheque. He suggests that even supposing
the Cheque button was pressed in error for Fast cash, then there would have
been a discrepancy in the value of cheques and there is no evidence of such
discrepancies. I have not had an opportunity to full explore the implications of
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Jenkins statement about the pressing of the Cheque button in error. I have not
been able to examine the user interface and identify how easy it would be to
make this data entry error. However, I would assume that discrepancies in the
value of cheques would need to be picked up by the Transaction Correction
process, which, as I have already explained, neither Jenkins nor myself can
offer any assurance on.
In relation to 2.3.4 ‘insufficient training’, Jenkins suggests that small
discrepancies are to be expected in such an environment due to mistakes in
giving change etc. He states his understanding that Post Office investigators
expect such small discrepancies in normal operation. I accept Jenkins view in
relation to ‘small discrepancies’. It appears to me that the frequency and
magnitude of the discrepancies far exceeds a layman’s view of ‘small
discrepancies’. I have asked Jeffrey Davidson, Forensic Accountant at
Horwarth Clark Whitehill, to specifically comment on this matter.
In relation to 2.4.1 ‘the Calendar Square, Falkirk Problem’, Jenkins specifically
disputes my statement “It demonstrates that there have been faults with the
Horizon system which give rise to discrepancies tha can cause losses. It is not
reasonable to exclude the possibility of system problems when considering a
case such as Misra” as follows “I dispute that. It was clear from the Events
generated at the time in Calendar Square that there was a problem. No such
events have been seen in West Byfleet in the period in question and so cannot
be responsible for the losses in that period.” In my opinion, it is vitally
important to have established that the Horizon system can give rise to faults
that cause discrepancies in the Branch Accounts. The position of the Post
Office investigator that I interviewed at West Byfleet was that they did not, as
a matter of policy, consider system problems as a possible explanation for
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discrepancies. With the very limited opportunity for independent investigation
and the reliance on Fujitsu for all disclosure, I would re-iterate my opinion that
“it is not reasonable to exclude the possibility of system problems when
considering a case such as Misra”.
In relation to 2.4.2 ‘the travellers cheque stock problem’ Jenkins states: “I am
not aware of having discussed this issue at all with Charles. A scenario similar
to this appears in the report that Charles produced associated with a separate
case (Rinkfield) and as a result of that I did some experiments on Horizon and
refuted the scenario described. I have passed a report on that to POL, but not
discussed it with Charles. I’m not aware of any issue with Travellers Cheques,
but do accept that in some cases the info may be slightly misleading but it is
not as blatantly incorrect as described above.” Jenkins has kindly provided me
with this report and the relevant section is at 3.1 (1) in the document which I
have attached at Appendix M Rinkfield report. This describes fully Jenkins
understanding of how Travellers Cheques are handled by Horizon.
In relation to 2.5.1 Transaction Corrections, Jenkins has agreed to look at the
wider scope of transactions that I examined and also to check for “Requests for
Evidence” in the records to provide a complete list.
In relation to 2.5.3 ‘reproducing the problems’, Jenkins states: “the Horizon
system has now been replaced by the HNG-X system and Horizon is in the
process of being decommissioned and so there are no longer any Horizon test
systems”. My understanding is that this was not the case when I submitted my
first preliminary report establishing the requirements for disclosure from the
Post Office.
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4.15 In relation to 3.1 ‘variance check’, Jenkins states “I don’t believe that all the
detailed information upon which this observation is based is visible to Post
Office Limited and so they are unable to monitor such things. My
understanding is that it is the sub-postmaster’s responsibility to do such
monitoring.” My understanding from Jenkins is that all Horizon data is passed
to the Post Office central systems and to their data warehouse. In principle,
therefore, this information would be available to the Post Office should they
choose to report on it. Certainly the information is collected by the Horizon
system as per the specification of Post Office Limited. As I have stated before,
I do not believe that the Horizon system adequately provides the vouchers that
support an effective reconciliation on a daily basis that will enable the sub post
master to monitor such things Misra has admitted that she was well aware of
the discrepancies.
4.16 In relation to 3.2 Screen Calibration I believe that we concur: Jenkins states “I
don’t believe that these are relevant, but can’t 100% rule them out. As stated
they certainly don’t account for the full extent of los
4.17 In relation to 3.3 ‘the travellers cheque problem’ Jenkins re-iterates: “I dispute
the Travellers Cheque “issue” as indicated previously.”
4.18 In relation to 3.4 ‘the full Post Office Operating Environment’ Jenkins states:
“T would say that any faults in these systems are irrelevant to the Branch
accounts and hence the losses.” In my opinion, this position is only sustainable
if:
a) Every necessary, externally introduced transaction (i.e. Transaction
Corrections and Remittances) is correctly entered. OR
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b) The sub post master has the training and capability to challenge and resolve
missing or incorrectly introduced transactions.
The fact that Horizon provides the opportunity forthe sub post master to ‘request
evidence’ in relation to transaction corrections and that I have interviewed other
sub post masters that have identified and have had withdrawn transaction
corrections suggests that a) is the case. In my opinion, the lack of consistent
printing of vouchers from Horizon also means that b) is not the case. The
evidence relating to Misra’s training is complete.
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5 Terms of Reference
5.1 Instructions
5.1.1 I am Charles Alastair McLachlan, a Director of Amsphere Consulting
Limited. London, England specialising in information technology consulting.
I have been instructed in this matter by Coomber Rich Solicitors, on behalf of
their client, Seema Misra, (“the Defendant”) to assist the court in this matter
of alleged fraudulent accounting in providing expert evidence on the matters
posed at 1.1.3 hereunder.
5.1.2 The allegations arose from the discrepancy between the transactions as
recorded in the Horizon system provided by Post Office Counters Ltd through
a service agreement with Fujitsu and the cash on hand at the defendant’s Post
Office branch.
5.1.3. I was instructed to consider:
a. The defendant’s claim that the discrepancy was due to defects in the
Horizon system?
5.2 Qualifications
5.2.1 Ihave been working in the software industry since my first job at the age of
17 writing software analysing the results from a particle accelerator for the
UK Atomic Energy Authority
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5.2.3
5.2.4
5.2.5
5.2.6
5.2.7
5.2.8
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I obtained an M.A in Computer Science from Cambridge University
matriculating in 1979.
I developed software for environmental control systems for a company on the
Cambridge Science Park while at university.
I was retained by Cambridge University to do undergraduate teaching for
three years.
After University, I worked for the company of the Emeritus Professor of
Computer Science at Imperial College (and founder of IBM UK Hursley
Laboratories), developing PC multi-tasking office automation software. As
the company transitioned to IT consulting, I advised HP on their Unix
Strategy and looked at the potential for hosting Inmos parallel processors in
PC environments. I also built an extensive financial performance analysis
system for the Building Society industry.
In 1987, I become the founding partner of CMJP Associates which delivered
software development services to a wide range of clients using PC and
Client-Server technologies.
A number of these projects included the development of accounting modules
and work for the financial services industry including SG Warburg, GNI (of
the London International Financial Futures Exchange LIFFE).
In 1991 I established a partnership for CMJP Associates to provide expert
advice to the Client Server Centre of Excellence.
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5.2.10
5.2.11
5.2.12
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In July 1993 I became the founding Technical Director of Infonet Stystems.
Infonet Systems focused on building leading edge object oriented Client-
Server solutions. Its first success was the delivery of a complete front office
trading platform of financial derivates (repos and bonds) in four weeks. This
was the first NT based client server trading desk in the City of London.
While at Infonet, I developed the Object Oriented Just In Time software
development methodology.
In December 1996, I was recruited by the European headquarters of emerging
internet service provider UUNet (shortly to become part of MCI Worldcom),
to advise on IP billing and customer provisioning systems. A key element of
the assignment was to undertake a critical review of the implementation and
customisation of the GEAC Smartstream ERP solution by Arthur Andersen
Business Consulting.
In August 1997 I was recruited by Arthur Andersen Business Consulting to
provide technology leadership for the new Advanced Technology division.
Over the next five years, I became the international thought leader in the
building of software related services that underpinned the development of
Andersen’s New Media and eBusiness practice. This was recognised by
election to partnership in 2000.
Early identification of the crucial role for Java technologies and ‘just in
time’ business and technology development methods, positioned the
emerging Business Consulting (BC) division for rapid growth on the Internet
wave to become 9th globally by Q3 2001. Achievements during this period
cover:
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5.2.14
5.2.15
5.2.16
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Major systems delivery projects The software development related service
revenues were the fastest growing area of the fastest growing global
consulting organization between 1997 and 2002. My team delivered marquee
projects for key clients including: launch of Sky.com, TimeOut.com,
myTravel.com, Cendant’s Move.co.uk, pan-European systems for Budget-
Rent-a-Car. I was also engaged as a technical delivery expert for major new
systems types including on-line trading exchanges, high throughput customer
services systems, on-line transaction processing systems and content
management systems.
Solution Development: I provided technology leadership for the development
of key global solutions for BC including: eStrategy, eBusiness, Content
Management, Experience Design, Component Based Development, Business
Architecture, Enterprise Integration, © Datawarehouse, Technical
Architecture, Active Intelligence™, Anti-Money Laundering, Telco Fraud
Protection.
I was the recognized methodology and risk management expert for software
related technology solutions across Andersen.
I worked closely with the Computer Risk Management practice in the
Andersen Audit practice to perform technical due diligence, project risk
reviews and advise on project recovery.
Capability Development One of my key strengths was the recruitment,
training, development and motivation of deeply technical teams to perform
successfully in a ‘Big 4’ consulting environment.
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5.2.19
5.2.20
5.2.22
Charles
On instruction of Coomber Rich Solicitors
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Operating first as the founding director of Andersm’s Global Software
Engineering Centre of Excellence and then as a member of the Global
Advanced Technology Advisory Team, I became one of a small number of
newly appointed partners building the technology integration skills at the
heart of BC’s growth strategy.
I provided technical leadership for the development of the core component
based rapid implementation methodology and acted as the expert for
methodologies built on this foundation including eBusiness, eMarketplace,
Content Management, Datawarehouse, Business Architecture, Enterprise
Integration and Customer Management.
Other achievements include implementation of the first successful
Knowledge Management Capability Maturity Model for the UK practice;
establishing a global virtual community of 2,000 software developers;
developing alliance relationships with BEA, Microsoft, Sun and a variety of
specialist technology providers; sponsorship of Computing for Business MSc
at Imperial College, development of four technology training courses for
global roll-out; delivery of a technology competency model for all
practitioners globally.
Iam currently working as an IT and Technology Risk consultant as a Director
of Amsphere Consulting Limited.
Recent assignments include:
e Advisor to board of advisor to board of satellite Broadband Interactive
start-up
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¢ Recovery of failing project at Big ‘4’ consulting firm
e Associate editor Butler Group, the IT strategy consulting information
service company.
e Design and implementation of delivery risk management system for an
off-shore software development company
e Project delivery for an applications management business
e Report on XML related integration and data quality risk for JP Morgan-
Chase
e Expert witness including cross examination in an ICC Arbitration between
3 national banks and an international provider of banking accounting
software
e Expert witness in a High Court action relating to the quality of software
testing between an international mobile telephone operator and an
established mobile telephony systems integrator.
e Expert advisor in action between Geographical Infomation Systems
provider and off-shore software development services provider.
e Expert advisor in action between an SAP systems integrator and a provider
of insurance policies for household goods
e Instructed in relation to 5 other cases relating to Post Office sub
postmasters or mistresses.
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5.2.23 I am a former Director of UCL Consultants (founded by University College
London) which is responsible for providing professional consulting services
from members of UCL.
5.2.24 Iam a Partner of the Transformation Development Patnership LLP.
5.2.25 I was appointed Visiting Professor of Software Enterprise at University
College London in 2005.
5.2.26 I have worked with IT organisations of all scales from small businesses to
international global organisations.
5.2.27 I mentor small businesses owners through the Academy for Chief Executives
and lecture on the MBA programme at the University of Kent.
5.3. Confidentiality
5.3.1 This report is strictly private and confidential and has been prepared at the
request of Coomber Rich Solicitors on behalf of thar client, for the Court.
5.4 Legal and factual issues
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5.4.1 This report should not be read as expressing any opinion on factual matters
which depend on disputed testimony of the witnesses of fact, or legal issues.
It, however, inevitably reflects my understanding df the position.
5.5 Sources of information
5.5.1 In preparing my report, I have read and considered the following documents:
a. Summary of facts prepared in accordance with Ruk 21.3(1)(b) of the
Criminal Procedure Rules 2005;
b. The Indictment — The Queen v Seema Misra;
c. Witness statement of Keith Noverre 8” January 2009;
d. Witness statement of Elaine Ridge 9" January 2009;
e. Witness statement of Lisa Jane Allen 12" January 2009;
f. Witness statement of Adrian Morris 6” January 2009;
g. Witness statement of Jon Longman 29" May 2009;
h. Witness statement of Javed Salim Bidiwala 13” April 2006
i. The statement under Section 9 of the Criminal Justice Act 1967 of John
Kidd
je The Audit of Post Office ® West Byfleet branch, FAD 126023 — Action
Plan Appendix A
k. The Witness statement of Andrew Paul Dunks 24" June 2009
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1. The exhibits provided running from pages 1-35 insofar as the copies
provided are legible.
m. Various witness statements by Gareth Jenkins of Fujitsu
n. Various e-mails and documents provided by Gareth Jenkins of Fujitsu
0. Visits to three separate sub post offices with an opportunity to interview
the staff
p. The Horizon transactions and Events for West Byfleet from 1 December
2006 — 31“ December 2007 provided by Fujitsu.
5.6 The scope of my work
5.6.1 I report as an expert witness, not as a witness of fact. I have reviewed the
documentation provided to me. I have not undertaken an operational review
of the software solution Horizon system nor have [had access to any system
documentation or test data relating to the Horizon system and the associated
Post Office Ltd systems.
5.7 Independence
5.7.1 [have prepared an independent and objective report addressed to the Court. I
have had no previous involvement with the Defendant I have no previous
involvement with Coomber Rich Solicitors.
5.7.2. Amsphere’s fees in this case are not dependent on the result of the
proceedings in this matter.
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5.8 My duties to the Court
5.8.1 Tunderstand that my overriding duty is to the Couit, both in preparing reports
and in giving oral evidence. I have complied and will continue to comply
with that duty.
5.8.2 [have set out in my report what I understand from those instructing me to be
the questions in respect of which my opinions as anexpert are required.
5.8.3 I have done my best, in preparing this report, to be accurate and complete. I
have mentioned all matters that I regard as relevant to the opinions I have
expressed. All of the matters on which I have expressed an opinion lie within
my field of expertise.
5.8.4 [have drawn to the attention of the Court to all matters, of which I am aware,
which might adversely affect my opinion.
5.8.5 Wherever I have no personal knowledge, I have indicated the source of
factual information.
5.8.6 Ihave not included anything in this report that has been suggested to me by
anyone, including the lawyers instructing me, without forming my own
independent view of the matter.
5.8.7 Where in my view, there is a range of reasonable opinion, I have indicated
the extent of that range in the report
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5.8.8
5.8.9
5.8.10
5.8.11
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At the time of signing the report I consider it to be complete and accurate. I
will notify those instructing me if, for any reason, I subsequently consider
that the report requires any correction or qualification.
I understand that this report will be the evidence that I will give under oath,
subject to any correction or qualification I may make before swearing to its
veracity.
I have included in this report a statement setting out the substance of all facts
and instructions given to me, which are material to the opinions expressed in
this report or upon which those opinions are based.
I confirm that insofar as the facts stated in my report are within my own
knowledge I have made clear which they are, and I believe them to be true,
and the opinions that I have expressed represent my true and complete
professional opinion.
Professor Charles McLachlan
Amsphere Consulting Ltd
90 Fenchurch Street
London, EC3M 4BY
England
Monday, 04 October 2010
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6 Appendix A
6.1 Horizon Architecture Diagrams Provided by Gareth Jankins of Fujitsu
=
Horizon Architecture
Diagrams provided by
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7 Appendix B
7.1 Jenkins review of failed transactions for FASTCASH errors
Por
Jenkins review of
failed transactions for
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8 Appendix C
8.1 Summary of Calendar Square Falkirk Problem.
peor
=
Summary of
Calendar Square Falk
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9 Appendix D
9.1 Gareth Jenkins Comments on Transaction Corrections
A
Gareth Jenkins
Commets on Transact
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10 Appendix E
10.1 Gareth Jenkins information to assist in interpreting Horizon Transactions and
Events
casi,
Gareth Jenkins
information to assist i)
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11 Appendix F
11.1 Sample Horizon Transaction logs provided by Fujitsu 1 to 31 Dec 06
Picr
Sample Horizon
Transaction logs prov
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12 Appendix G
12.1 Sample Horizon Event logs provided by Fujitsu 1 to31 Dec 07
pror
hy
Events 1 to 31 Dec
07
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13 Appendix H
13.1 Absolute Totals of Activity By Product Number
Ts
Absolute Totals of
Activity By Product Ni
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14 Appendix I
14.1 Card Product Ids
Dior
Card Product Ids
14.2 Transaction Associated With Reject Cards
Transactions
Associated With Reje:
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15 Appendix J
15.1 Summary of Transactions of Interest
ed
Summary of
Transactions of Inter«
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16 Appendix K
16.1 Horizon Events without Report Printed
a
Ee)
Horizon Events
without Report Printe
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17 Appendix L
17.1 Declared Discrepancies.
ys]
Declared
Discrepancies
17.2 Variance Check Analysis
us
Variance Check
Analysis
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18 Appendix M Rinkfield Report
)
Rinkfield Report
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