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Date: 30 September 2005
Your ref: DEG1/NJM1/348035.134
Our tef: MDT.113969
Please ask for: Mark Turner
Direct dial: "GRO I RECEIVED
Direct fax : H i 3 SEP 2005 Le
E-mail: OO
SONO PEARCE LLP
PLYMOUTH
Bond Pearce
Solicitors
DX 8251
PLYMOUTH
Without Prejudice
Dear Sirs
Our client: Mr L Castleton — Marine Drive Post Office, Bridlington
Your client: Post Office Limited
We refer to our recent without prejudice telephone discussions (Mark Turner/Denise Gammack).
As we mentioned when we spoke, we have instructed an expert accounting witness, Chris Hine of Bentley
Jennison, to review the documentation that your client has made available to date. His brief was to consider
certain of those documents in light of our client’s pleaded defence to the effect that the alleged shortfall is (at
least in part — and we cannot be any more specific than that given the incomplete disclosure which has been
given) attributable to problems with the Horizon system.
In order to assist you and your client in understanding our client’s position, we are prepared to disclose to you
on a without prejudice basis the report which Mr Hine has prepared. Since the report refers to a report
prepared by Andrew Richardson of White & Hoggard, a copy of his report together with supporting
documentation is also enclosed.
By way of explanation, Mr Richardson acts as auditor to the business owned by our client’s father in law. His
report was obtained directly by our client as a “second opinion” on the methodology that our client had used
in reviewing the available documentation. To avoid any question of partiality, we commissioned Bentley
Jennison to consider the same documentation as had been available to Mr Richardson, as well as his report,
and to comment on whether they agreed with its findings.
For the complete avoidance of doubt, both documents are made available to you and your client on an entirely
without prejudice basis. Whilst the substance of the Bentley Jennison report is likely to form the core of any
formal report prepared for use in court, we reserve the right to rely on a report which may differ in form to
that which we have presently disclosed.
As you will see, both Mr Richardson and Mr Hine concur with our client’s position that there, at the very
least, discrepancies in the way in which the Horizon system appears to treat weekly balances. This simply
serves to reinforce what both we and our client have said from the outset, namely that the daily balance
snapshots which have not yet been disclosed will be of fundamental importance is analysing whether there is a
problem caused by the way in which the Horizon system operated during our client’s tenure as sub-postmaster
as Marine Drive Post Office.
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We look forward to hearing from you once you and your client have had an opportunity to review the
enclosures to this letter.
Xours faithfully...
G\MARKTUBBEYICASTLETON\00905 LETTER TO BOND PEARCE
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Ourref; CH/PIB/C1024 Litigation Support
Your refi ©MDT.113969 26 Pall Mall
Manchester
M2 YR
DX 14418 M:
Rowe Cohen
Quay House
Quay Street
Manchester www.bentley-jennison.co.ul
M3 3JE
23 September 2005
Dear Sirs
The Post Office -v- Lee Castleton
Further to your letter of instruction dated 6 September 2005 in the above matter, I set out
below my thoughts on the papers provided for my review.
Ihave reviewed the following documentation:
e Various correspondence between Rowe Cohen and Bond Pearce, between 8 February
and 3 August 2005
¢ Daily ‘snapshots’ for the Marine Drive Post Office, from Thursday 26 February 2004
to Wednesday 3 March 2004, representing week 49 of the accounting year
e Letter dated 18 August 2005 from Andrew Richardson, principal at accountants White
& Hoggard, to Mr Lee Castleton
¢ Copy of final audit, dated 25 March 2004, as carried out by Miss Helen Hollingworth
(and as attached to the letter dated 25 May 2005, from Bond Pearce to Rowe Cohen)
e Horizon Cash Account (Final) for Week 49
e Statement of Claim, dated 9 June 2005
e Defence and Counterclaim, dated 15 August 2005
Offices at: Birmingham Bristol Cardiff Harrogate Leeds London Milton Keynes Nottingham Stoke-on-Trent Swindon Telford
A lise of Partnets’ names is available for inspection at: 26 Pall Moll, Manchester M2 1].
Bentley Jenison is registered to carry on audit work by the Institute of Chartered Accountants in England and Wales and
authorised and regulated by the Financial Services Authority for Investment Business
A member of "at [J] AIG I NTERATIONAL An Association of Independent Professional firms in Europe
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Rowe Cohen 23 September 2005
Page 2 of 5
Daily snapshots for week 49
At Document 1 is a copy of the daily snapshot printed at the end of Thursday 26 February
2004, being Day One of the week. This shows a discrepancy of £3,509.18.
I note that this an identical amount to that recorded by the Horizon system as having been
deficient in week 48, as identified in the audit undertaken by Helen Hollingworth, the
schedule for which is set out at Document 2.
This schedule also shows that cumulative deficiencies of £8,243.10 were put into a suspense
account relating to weeks 43-46, although I note that no figure appears to be disclosed
specifically for the following week, week 47.
The identical amounts of £3,509.18 point to two possible scenarios, either that (a) there has
been a deficiency suffered on day one of week 49 that exactly matches the sum of the
deficiency for the whole of week 48, or (b) the figure is the brought forward deficiency from
week 48. I consider it reasonable to assume that option (b) is the most likely scenario.
On Day Two of Week 49, being Friday 27 February 2004, an entry for £3,509.68 is shown as
“Loss a 2a in”, per Document 3.
Jam unable to explain the difference of 50 pence between the suspense account figure and the
daily snapshot deficiency, although I note that in White & Hoggard’s report they explain that
Mr Castleton informed them this was a manual entry following instructions from Horizon
technical support.
The £3,509.68 appears to represent the entry on the suspense account (Document 4) for the
same amount, processed on 27 February 2004, which I would expect given the daily snapshot
entry.
Suspense account
A suspense account is generally used by accountants to ‘park’ transactions that have either
been erroneously posted and are pending correction, or which, as is the case here, are
transactions that are either unreconciled or unexplainable.
From my experience, the impact of a suspense posting would allow a line to be drawn under
the cumulative deficiencies on the daily prints, effectively resetting the figure to zero, which
should be reflected as such on the end of day print.
However, it is evident that on the end of day print (Document 5) there is still a deficiency of
£3,509.18, notwithstanding the suspense account entry.
Bentley Jennison
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Rowe Cohen 23 September 2005
Page 3 of 5
This again leads to two possible scenarios, either that (a) following the suspense account
entry an identical shortage of £3,509.18 was again borne by the branch during the course of
the day, or (b) the Horizon system, despite the suspense account entry, has failed to recognise
the entry on the daily snapshot, leaving the figure of £3,509.18 unchanged.
Again, after considered reflection, it is more probable that scenario (b) has occurred.
For Days 3, 4, 5 and 6 (Saturday 28 February 2004 - Tuesday 2 March 2004), identical entries
occur in relation to the figure of £3,509.68, with a cumulative deficiency of £3,509.18 being
shown at the end of each day.
For the final day of week 49, Wednesday 3 March 2004, the entry of £3,509.68 again is
recorded, however the total deficiency now shows £3,512.26 (Document 6), an increase of
£3.08, and supported by the final Horizon Cash Account print (Document 7).
J note that in week 49 the cost of a first class stamp was 28 pence. The increase of £3.08
could, therefore, represent (and in line with Andrew Richardson’s opinion) a scenario
whereby a book of 12 first class stamps was sold, but only money for one single stamp was
taken (ie (12 x 0.28) — 0.28).
Having already concluded that the system should have no longer been recognising the
£3,509.18 (posted to suspense) on a daily basis, the only discrepancy for the week should, in
my opinion, have been the £3.08 deficiency apparently borne on Wednesday 3 March 2004.
The system has, therefore, appeared to overstate the deficiency for the week by the amount of
the deficiency in weck 48, being £3,509.18.
The report of White & Hoggard essentially appears to reach the same conclusion, in that this
sum has been erroneously double counted.
Cumulative deficiencies
I would note that the Horizon system, from the documentation I have reviewed, appears to
record deficiencies on a cumulative basis, hence the running total of £8,243.10 up to the end
of week 46 being rolled into week 47’s suspense account and carried forward to week 49
(Document 4).
Based on this approach, the integrity of the system is heavily dependent upon weekly figures
being both accurate, and carried forward correctly.
In the isolated case of week 49 this appears not to have taken place, with the implication that
errors could, theoretically, have been double counted over a number of weeks.
Bentley Jennison
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Rowe Cohen 23 September 2005
Page 4 of 5
As such, Mr Castleton’s defence, that the root of the problem lies with the inaccurate figures
produced by Horizon, appears to hold potential merit based on the limited documentation I
have so far reviewed.
Clearly, however, I have only had sight of the daily snapshots for week 49, which although
appearing to indicate an error within the Horizon system for that short period, does not
necessarily mean that it has been replicated for other weeks. This can only be checked
through an analysis of the daily snapshots for all relevant periods.
Andrew Richardson’s conclusion that “the balance of probabilities would suggest that it is
quite likely that this has also happened in earlier periods” is, 1 suspect, a little premature and
can only be proven following a more detailed review.
Equally, other issues aside from the discrete problems evident in Week 49 may be uncovered,
upon a more detailed inspection of relevant Horizon documentation.
Disclosure
The documentation I would ideally need sight of (further to that listed in your letter dated 11
April 2005, and presuming such papers were used in the normal course of business at the
branch) to gain a clearer picture of how Horizon worked, and whether it was working as
intended, is as follows:
¢ Daily snapshots for the period preceding, during, and following the alleged
deficiencies borne under the management of Mr Castleton, which as suggested in copy
correspondence might be from weeks 39-52 inclusive, although for completeness (and
if considered cost effective) it may be appropriate to analyse the period from when
Horizon was first used in the branch to gauge the effectiveness of the system from
Day One
e Copy of the full audit report following the inspection made by Helen Hollingworth
and Chris Taylor, on 25 March 2004, to include a breakdown of the week 51 balance
of £11,210.56 (Document 2)
e P&A reports produced for weeks 39-52, summarising sums paid to customers in
allowances through vouchers, and any vouchers supporting the reports
e Cash and stock count at the points in time when Mr Castleton began/left his post as
subpostmaster
¢ Events log produced by the Post Office centrally, summarising which individuals are
working on the Horizon system, and when the various reports were produced within
the branch - for weeks 39-52 inclusive
Bentley Jennison
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Rowe Cohen 23 September 2005
Page 5S of 5
e Transaction log produced by the Post Office, which should summarise all financial
transactions undertaken by the branch - weeks 39-52 inclusive
e Any contemporaneous notes made by Mr Castleton in relation to the Horizon system,
or by any other employees, or by anyone who may have been assisting Mr Castleton in
the initial period following his appointment as subpostmaster
I trust the contents of this letter are self-explanatory, but if you should require clarification on
any of the matters raised herein, please do not hesitate to contact me.
Yours faithfully
tt Chris Hine
National Litigation Support Partner
Enc,
Bentley Jennison
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7 Document 1
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Document 2
[ To: From: ce:
Cath Oglesby Helen Hollingworth
Inspector
Date: 25" Mareh 2004
Audit of Post Office ® Marine Drive branch, FAD 213337
An audit took place at Marine Drive Post Office on the 25" March 2004.
Helen Hollingworth led the audit and in attendance was Chris Taylor. The audit -
commenced at 8.00am and on our arrival the sub postmaster was very pleased to
see us. He explained problems he had been having at the office regarding
. balancing. His problems with balancing started in week 43 with a mis-balance of
GS -4230.97. He was adamant that no members of staff could be committing theft
. and felt that the mis-balances were due to a computer problem. He had been in
contact with the Retail Line Manager Cath Oglesby and the Horizon help line
regularly since the problems began. The following table gives further weeks
balance declarations on the cash account.
48 -3509.18
46 = -8243.10
45 = -6730.01
44 = -6754.09
43 = -4230.97
48 -3509,18 This amount put into suspense week 49
46 8243.10 This amount put into suspense week 47
45 -6730.01 Rolled loss
44 -6754.09
43. 4230.97 .
Cc * In week 47 £8243.10 was put info suspense. Although horizon had been
contacted and the Retail Line was aware of this figure, this was not authorised. In
week,49 £3509.68 was added to’ make the amount carried in the suspense
account total £11752.78. This was also not authoriséd:
week 51 balance ~£11210.56
suspense account * ~£41752.78
expected audit result - £22563.34
difference at audit - £2795.41 (-£1769.00 tottery ~£1026.41 cash)
audit result ~£25758.75
On the completion of the audit the Retail Line Manager Cath Oglesby was
contacted, along with the Investigation team and the Audit Line Manager. The
sub postmaster was suspended pending enquiries and an interim postmaster was
put in charge at the office.
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Document 4
Marine Drive FAD 2139377 Page 2
17:38:00 03/03/2004 CAP 49
Suspense Account - Office Copy
WARNING - Check the C/Ewd column for negative values. If present refer to the ,
Horizon User Guide for instructions on how to proceed
su Date Product Volume Value B/Fwa C/Pud
RD Cheques A
TOTAL
RD Cheques B
TOTAL
RD Cheques C
TOTAL ° 0.00
Vouchers:
TOTAL °
Shortages in Rems ete
TOTAL
Burglary etc losses
TOTAL ° 0.00 0.00 0.00
POL Cheques
TOTAL ° 0.00 0.00 0.00
Migration UP
TOTAL ° 0.00 0.00 9.00
Cash Shortages A
€ AA 27/02/04 Loss A to Table 2a 1 3,509.68
1 3,509.68 8,243.10 11,752.78
TOTAL
Cash Shortages B
TOTAL
Cash Shortages ©
TOTAL )
Cash Shortag:
TOTAL
Prepurchases
TOTAL
Cash Surpluses not yet adjusted A
0.00 0.00 0.00
TOTAL °
Cash Surpluses not yet adjusted B.
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Document 6
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Pager——T-Uifice code:2133377 Week No: 49 Week Ending: 03/03/2004 Date: 04/03/2004 Time: 07:46
»
OFFICE NAME.” 2003/2004 Week No [@ I Document 7
ADDRESS: HORIZON
Cash Account (Final)
‘
TELEPHONE:
Week Ended: 03/03/2004
OFFICE CODE: .
4
DATE STAMP -
EXAMINED IN TP:
TABLE 2 UNCLAIMED PAYMENTS TABLE 10(g) NUMBER OF TRANSACTIONS:
50 £p Dete 91
26 Unpaid Cheques A , oe 2 E111 Certificates
G 27 Unpaid Cheques 8 79 08 Chgs
28 ‘Unpeid Cheques C 78 NSISA Cash Cross Wer
29 82 (Citibank M Order
30 Vouchers aL
31 ‘Shortages in REMS et 73 Parceliorca by 9 & 10
32 Burglary etc Losses. 65 Parcelforce 24/48
33 POL Ch person homes 66 hrlemal Delopost
34 V1 Low Cover
35 Mgrton 83 Medum Cover
36 718 High Cover
37 80 ‘Contract Parcels inland
38 67 Contract Parcels intemat
JO teeeee edd ‘Special Delvery ems.
es UKPA Contingency
74 eed Aisure
TABLE 2(a) AUTHORISED CASH SHORTAGES: se 87 “1 Jelemational signed for C
“of 85 Shiller
= z 3
AG seed. Cash Shortages A 90 Parcelforce by noon
a7 ach Shertages B 84
48 Cash Shortages C 7 Dies Whike Packs
49 Cash Sharteges D BL veeeeeeed Postmans Pouches
68 ‘SORN
69 BGas Recon/Discon
92 Comelt Vouchers
e ‘TABLE 3 UNCHARGED RECEIPTS 93 TVLUTS Pre-Application
70
50 63 ‘Pre-order Buy Back
64 ,
60 BJ veeee e122 Home Shop Retums
61 58
62 59 ‘Stenderd Life SHP Apps
63 ‘Pre-purchese: 60 PCL Smartcard Applications
64 . ‘Cash Supls A 61 (MVL Postal Applications:
65 Cash Supls B 62
66 ‘Susphises in Rems etc 86
67 95
68 Migrafen 10
71 15 ‘SWEBAEB
72 20
25
BO veeeeeeed LINK Balance Enguities
BB veces e7 ‘Card Account bslance enquites:
DISCREPANCIES TABLE. AO sseeeeee 3 A8L Bolence Enquiies
45 ‘Special Delvery by 9,00am
07 50
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02 +++ ++3,512,26 Serie 27
28
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White, & Hoggard
Chavieved Cortilied Aecountants
Seepistered to carry on
audit work and regulated for a
range of Snvesiment Business
activities by the Avsociation of
Chartered Certified Accountants
PRIVATE & CONFIDENTIAL
Mr Lee Castleton
_Matine Drive Post Office
Dear Lee
13 Wh le
Mallon
North, Yorkshire
YO? JAF
Our Ref:
Your Rel:
Date:
AWBR/GL/1/F031
18" August 2005
‘You have asked me to produce a report on my findings following my examination of the
documents presented to me for Marine Drive Post Office in respect of the week ended 3" March
2004 and the apparent discrepancy claimed by the Post Office which I understand at 4" March
2004 amounted to £15,265.04,
I have therefore examined the daily balance printouts that you produced covering the period 26"
February 2004 to 4" March 2004 and also the report marked “Horizon Cash Account (Final)”
dated 4" March 2004 in relation to the week ended 3 March 2004.
My conclusions are as follows:-
a) The Horizon Cash Account (Final) Report for week 49 (week ended 3 March 2004)
produced on 4" March 2004 (time 07:46) indicates the following:
Table 2 (a) authorised cash shortages (A) 11,752.78
Discrepancies Table
Total
3,512.26
£ 15,265.04
b) The Suspense Account summary attached to the report — office copy dated 3" March 2004
(time 17:38) produces the following under the heading “Cash Shortages A”
AA 27" February 2004 Loss A to Table 2a 3,509.68
Brought forward 8,243.10
Total £11,752.78
PRINCIPAL: Andrew W, Richardson F.C.C.A.
MANAGERS:
Keith A. Rhodes F.C.C.A.
Mrs Lesley R. Richardson
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d)
8)
‘The difference between the above two reports is £3,512.26 (I will refer to this figure later in
my observations).
‘The Horizon Cash Account (Final) Report for week no.49 (week ended 3 March 2004) dated
4" March 2004 (time 07:46) indicates the following:
Balance Due to Post Office 97,014.07
Less Stock (Table A) (9,036.41)
Less Cash (Table 5) (72,712.62)
Shortfall £ 15,265.04
‘The above entry at (d) above appears to me to comprise the following:
1. Discrepancies Table 3,512.26
2. AA 21" February 2004 Loss A to Table 2a 3,509.68
3. Brought forward from earlier periods 8,243.10
Total £ 15,265.04
It follows, therefore, that we need to ascertain how each of the above apparent discrepancies
at paragraph (e) have arisen.
In order to attempt to explain the apparent discrepancies I have prepared a detailed analysis of
the daily balance printouts covering the period 26" February 2004 (time 17:30) to 4" March
2004 (time 07:46). I have used the Horizon Cash Account (Final) Report for the analysis of
the movements on 4" March 2004. My conclusions are as follows:
L. Discrepancies Table - £3,512.26
This figure is not on the Suspense Account Summary dated 3 March 2004 but appears to
comprise part of the overall shortfall (see a and c above). This figure appears to include the
“discrepancies in this account” summary on the “final balance” sheet dated 26" February
2004 but is recorded as £3,509.18 increasing by £3.08 (which I believe is a book of stamps) to
£3,512.26 on 3" March 2004. It is understood that the sum of £3,509.18 is a discrepancy
from an earlier period. I have seen no evidence to reveal how this discrepancy from the
earlier period has been arrived at.
2. AA 27" February 2004 Loss A to Table 2 a - £3,509.68
On the “final balance” sheet dated 26" February 2004 (time 17:30) there is an entry for “net
discrepancies” of £3,509.18 which equates to the “discrepancies in this account” entry — sce g
l above.
On the “balance snapshot — office copy” sheet dated 27" February 2004 (time 17:31) there is
an entry “OTHER PAYMENTS” loss a — 2a amounting to £3,509.68. This entry is then
repeated daily.
{ understand from my telephone conversation with you that this amount was input manually
under instructions from Horizon technical support which probably explains the difference of
50p from the previously mentioned sum of £3,509.18.
Tf the sum of £3,509.68 is indeed the same entry as the sum of £3,509.18 recorded in g 1
above, and it seems highly likely that this is the case, there is a duplication in the apparent
shortfall,
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It follows that a rational explanation is needed for this apparent double counting in the
Post Office records,
3. Brought forward from Earlier Period - £8,243.10
In addition to having no documentary evidence to support the discrepancy of £3,509.18,
which appears to be duplicated by the further entry of £3,509.68, there is no documentation to
support the discrepancies from earlier periods amounting to £8,243.10. It is therefore
absolutely essential to obtain documentary evidence supporting the discrepancies that
are Claimed to have arisen in the earlier periods of £3,509.18 and £8,243.10.
h) Conclusion
From the limited available evidence of one weeks transactions referred to above my
conclusion is that it is highly likely that the sum of £3,509.18 has been recorded twice
increasing the apparent discrepancy during the week ended 3% March 2004. On the
assumption that I am correct in this conclusion, and there seems to be no rational explanation
for this amount appearing twice other than my conclusion, then there has to be doubt as to
whether or not the discrepancies brought forward from earlier periods of £3,509.18 and
£8,243.10 can be substantiated. It is therefore absolutely imperative that the Post Office
produce documentation to justify their claim for the earlier periods in order to produce
evidence that the system is operating correctly. At the present time it would appear to me that
during the week ended 4" March 2004 an incomplete instruction to input a manual entry of
£3,509.18 (incorrectly entered as £3,509.68) has created a double counting of this amount in
the calculations produced by the Post Office of shortfall. If this has happened for the one
week where we have documentary evidence then the balance of probabilities would suggest
that it is quite likely that this has also happened in earlier periods and has to cast doubt on the
credibility of the claim made by the Post office which therefore needs to be examined in some
further detail with the benefit of supporting documentation.
T hope that the above report is of some assistance.
Kind regards
Yours sincerely
Andrew W Richatdson
LC0585.0017