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ecember 2011
Mike Weir MP
House of Commons
LONOON
SW1A OAA
Oear Mr Weir
Mr Edward Davey, Parliamentary Under-Secretary of State. Department for Business,
innavation and Skills, has asked me to respond to you on the parliamentary questions
that you recently asked on the Post Office Horizon computer system.
As your recent questions cover a range of issues, I believe it would be helpful if I could
urovide 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 that Post Office Ltd is fully confident that the Horizon
computer systern in its branches, and all the accounting processes around it, enable
subpostmasters to account accurately for the transactions they undertake in their
branch.
The system has been operating for over ten years. In that time around twenty thousand
subpostrasters have used it in performing many millions of successful weekly and
monthly financial reconciliations between the cash they have in the office and the
transactions they have handled, The Horizon system has been rigorously tested. The
National Federation of Subpastmasters. which represents subpastmasters throughout
the country, has expressed its full confidence in the accuracy and robustness of the
system.
Tried and Tested Processes
For the tiny fraction who have not been able to reconcile their cash and transactions,
there are tried and tested systems of checking, auditing and following up to determine
what has happened. Examples inciude:
® transactions might have been miskeyed (entering 100 instead of 10),
e aclerk might have handed out too much change,
* acierk may have forgotten to take the money for the transaction.
The checking and auditing systems in place resolve virtually all discrepancies
satisfactorily. These discrepancies are caused by the same kind of small day-to-day
mistakes and human errors that any large bank or retailer would experience.
ww. posteffice.ce.uk
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in an extremely small number of cases, after all these checks have been undertaken.
there remain missing sums that can’t be accounted for. Where such sums are
significant, Post Office Ltd may take action to end the subpostmaster’s contract.
Taxpayers’ money is entrusted to Post Office Ltd 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, a$ a
result of dishonesty (where we clearly have no tolerance) - it is not appropriate for that
subpostmaster to continue to operate the branch. Post Office Ltd will then seek to
appoint someone new to take aver.
Court Action
There have been a limited number of cases where Court action has been taken over
missing sums of public money. In some of these cases, the subpostmaster has made
allegations against the Horizon system that records their transactions. The Courts have
consistently upheid Post Office Ltd’s position that the Horizon system is accurate and
reliable. When former subpostmasters have been convicted of false accounting and/or
theft, it is, of course, the Courts that have convicted, not Post Office Ltd. In some cases,
the subpostmnaster pleaded guilty: in others Post Office Ltd had to provide robust
evidence. A criminai! 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 systern is used by every counter clerk in subpostoffices and in Crown
branches every day. It is used effectively and successfully. Each person using the system
has an individual log in, 1D and password, so all the transactions they undertake are
recorded as being done by them as individuais. Each is able to run off lags of the
transactions they have undertaken whenever they wish. They receive training on the
system and have full access to helplines to assist them. The system underpins efficient
service to our customers. !t 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 Past
Office Ltd as a result of “financial irregularities on the Horizon computer system” which
have subsequently been abandoned.
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Discrepancies
“Financial irregularities” reflect situations where the cash or stock that should be in the
branch, according to the data entered into the Horizon system, is not there. A
discrepancy 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 and recorded by the subpostmaster or Post Office clerk. As has been
previously explained, this may happen for a range of reasons. 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 “fmancial irregularity’ where there is a significant toss and
there js no clear initial explanation. This is most likely discovered when Post Office Ltd
undertakes an audit af the office and discovers a 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 Post Office Ltd
which ultimately belong to the taxpayer, are being kept secure. Such a shortage
represents a toss to Post Office Ltd (as the cash and stock held in branch is the property
of Post Office Limited) and it is, of course, vital for a publicly owned organisation to
ensure that its cash and assets are managed with integrity and care, Therefore these
shortages give rise to investigations and, in appropriate cases. criminal or civil action.
There is no evidence at ail that the Horizon system has in sore way been at fault with
respect to any financial irregularities discovered in a subpostmaster’s account and no
cases have been abandoned for reason of any doubt about that system.
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 systern.
Assistance for Subpostmasters
4 subpostmaster has rnany channels by which he or she 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 therm in operating in accordance with their contract.
Each case is handied individually and central records are not held of the nature that you
are specifically requesting. For example our Network Business Support Centre (NBSC}
is a helpdesk service te support subpostmasters and their staff with any operational
issues, The NBSC works from the same operational materials e.g. guides and manuals,
that all Post Office branches have. Ail calis are logged and the vast majority are
answered in line with the published operational manuals.
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As the NBSC is the main operational point of contact for most branches,
subpostmasters do from time to time register “complaints” / their dissatisfaction with
the NBSC. These complaints can be about any number of operational matters. all of
which are dealt with and responded to within agreed processes and timescates. 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 had already made - these are part of the
normal day to day trading issues that will occur in any large retail or financial
organisation.
Legal Action
To consider your enquiry further, there are a tiny nurnber of ex-subpostmasters who
appear to be making distinct allegations with respect to the operation of the Horizon
system, These ex-subpostmasters no longer have contracts with Post Office Ltd, after
significant shartages of funds were found at their office, for which they couldn't account.
4 legal firrn, Shoosmiths, has been claiming for around a year that they are
representing a number of these ex-subpostmasters. To date Shoosmiths have sent four
‘letters before action’, making allegations about Horizon (among other issues) and
seeking information. In two of the cases the individuals have in the past pleaded guilty
to faise accounting. These particular cases stretch back over a periad of five years.
Post Office Ltd does not accept any of
robustly defend its position if any ci
the allegations that are being made and will
ction is mounted against it
if we assume that these 4 letters before of constitute ‘complaints against Harizon’
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. Post Office Ltd is vigorously defending itseif 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.
Separately, there have been a few occasions where an adverse comment about Horizon
has been made by a subpostmaster in legal proceedings where a subpostmaster is
being prosecuted for theft or false accounting, or pursued for a debt. In such cases, the
Courts have consistently upheld Post Office Ltd's position that the Horizon system is
accurate and reliable.
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 system that
is required to support changing business requirements, operational issues can occur.
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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. Rectification actions
range from straight forward hardware replacement te software patching designed te
combat evolving cyber threats.
External Scrutiny
Horizon and Post Office Ltd systems environment have always been subject to external
scrutiny for both assurance and accreditation purposes. Ernst & Young carry out an
annual financial systems audit; an independent auditor also carries out a yearly audit to
maintain the system's Payment Card Industry (PC)} accreditation. The system and its
Data Centre are [SO 27001 accredited which requires an annual aucit frorn an
independent agency. Horizon is also accredited by HSBC Payment Services and
WorldPay (Post Office’s Merchant Acquirers) and must comply with the VocaLink
tandard for card payment transact in addition to these regular audits, ad hoc
independent audits of the system are initiated by Royal Mail Group and supperted by
Post Office Ltd.
At this stage. it is worth pointing out that the Horizon system keeps full audit recerds of
all transactions undertaken by all log ins ~ so that it is always possible te track back
that has occurred within the system - or at an individual sub post office. The
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.
Cost of Horizon
Finally, you have asked about casts 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 systerns. 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 quote 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 E87 1m ip 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 te amount to some
£1ba."
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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 cormmercially sensitive (as disclosure could have a material impact on any
future procurement exercises with respect to the system).
This has 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 Past Office Ltd's business.
We have full confidence in 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 investrnent and growth that
seeks to ensure the future viability of the network and retain the social value that it
offers to custerners 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 record:
millions of custerner transactions every day.
I hope this information is helpful to you,
Yours sincerels
GRO
Paula Vennells
Managing Director
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