Confidential
Initial Complaint Review and Mediation Scheme
Reply of Post Office Limited to Second Sight's Briefing Report - Part
‘Two
This Reply is confidential and is not to be disclosed to any person
ether than a person involved in the processing of Applicants’ claims
through the Scheme
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Contents
Introduction
This Reply
Overview of Post Office's position..
Post Office's response to section 4 ~ The Contract between Post Office and
Subpostmasters ..
Post Office's response to section 5 - Automated Telling Machines (ATMs) 14
Post Office's response to section 6 ~ Motor Vehicle Licences.
Post Office's response to section 7 - National Lottery.
Post Office's response to section @ - Training, Support and Supervision... 26
Post Office's response to section 9 ~ The Helpline.
Post Office's response to section 10 - Limitations in the Transactional
“Audit Trail’
Post Office's response to section 11 - Transactions not entered by
Subpostmaster of their Staff
Post Office's response to section 12 - Transaction Reversals.
Post Office's response to section 13 - Cash and Stock Remittances (Rems) in
and out of the branch..
Post Office's response to section 14 - Cheques.
Post Office's response to section 15 - Pensions and Allowances
Post Office's response to section 16 - Surpluses.
Post Office's response to section 17 - Counter-errors that benefit customers
at the expense of the Subpostmaster..
Post Office's response to section 18 - Error and fraud repellency..
Post Office's response to section 19 - One-sided transactions.
Post Office's response to section 20 - Hardware issues.,
Post Office's response to section 21 - Post Office Audit Procedures
Reese
Post Office's response to section 22 - Post Office Investigations...
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Introduction
As part of the Initial Complaint Review and Mediation Scheme (the
Scheme), Second Sight is engaged as a firm of forensic
accountants to provide a logical and fully evidenced opinion on
the merits of each Applicant's case.
On 21 August 2014, Second Sight's Briefing Report ~ Part Two (the
Report) was seleased-sent_as a confidential document to a number
of applicants and their advisors. The purpose of the Report was
to describe and expand on common issues identified by Second
Sight as being raised by multiple Applicants (a thematic issue).
The aim being to provide general information that could then be
applied in specific cases in the interests of efficiency.
Post Office has been unable to endorse the Report. It wrote to
recipients of the Report immediately after its release setting
out its reasons for this and committed to set out its detailed
position on the issues raised in the Report. In the interests of
transparency and with the overriding aim of assisting the
resolution of complaints brought under the Scheme, Post Office
has prepared this Reply in order to correct inaccuracies in the
Report and to provide information that the Report omits.
The body of this Reply provides Post Office's detailed comments
on each section of the Report. There are however a number of
issues that reoccur throughout the Report which are summarised
below.
Lack of thematic issues
A number of sections in the Report do not identify a thematic
issue which could be of general Application to multiple
applicants as opposed to matters that need to be addressed on a
case by case basis. Where this arises, Post Office will address
those issues in its case specific Investigation Reports.
Of the 19 sections in the Report, 9 sections do not identify a
thematic issue namely sections 6, 7, 11, 12, 13, 14, 15, 19 and
20.
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Absence of conclusions
The majority of the cases in the Scheme turn on there having been
a loss in a branch for which an Applicant was held liable. For a
thematic issue to be of utility, it must help explain why a loss
may have arisen or been attributed to an Applicant. The Report
is largely silent on this critical issue. As it stands, there
are a number of topics in the Report where “enquiries are on-
going”. A number of other sections set out the competing views
of Applicants and Post Office but offer no view on whether either
parties’ position is to be preferred.
Of the 10 sections that identify a thematic issue, 5 do not reach
a conclusion namely sections 8, 9, 16, 17 and 21. A firm
conclusion would have assisted Pestoffiee_and-Applicants_and
~Post Office.
The scope of the Repert-andthe-Scheme is to consider matters
“concerning Horizon and any associated issues”. Matters such as
the Subpostmaster contract and other legal matters are not within
the scope of the Scheme and are outside Second Sight's
professional expertise.
The Report goes beyond the scope of the Scheme and Second Sight's
expertise in sections 4, 18 and 22.
Missing evidence
1.11
The Report lacks in a number of places supporting evidence,
source documents, examples or statistics to substantiate the
conclusions it draws. It does not describe the overarching
methodology used to examine the weight of evidence from different
sources - this is most important where p-mucks£ the information
provided by Applicants is anecdotal and has yet to be
investigated and tested. need = -
credibility and accuracy.
At the time the Report was completed, Second Sight had
investigated 21 cases submitted to the Scheme and completed
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tendered _its-final Case Review Reports in 10 cases. Second Sight
has received information from the approximately 150 Applicants to
the Scheme, whereas in total there have been more than 450,000
users of Horizon since its inception in 2001. The Report is
therefore based on the tested views of only 0.00038 of all
Horizon users and cannot therefore be said to reflect general
user experience.
1.13 The 2 sections of the Report that reach findings on thematic
issues within the scope of Second Sight's expertise, (sections 5
and 10), are both unsupported by tested and credible evidence.
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This Reply
It is recommended that the reader familiarises themselves with
Second Sight's Briefing Report ~ Part One (the Part One Briefing)
which provides background information on Post Office's processes
and procedures. This Reply builds on the information in the Part
One Briefing.
Care should be taken when applying the Report and this Reply to
individual cases. Not all of the information will be applicable
in every case, Several of the topics are themselves multifaceted
so even where an Applicant has raised a topic, not all aspects of
that topic may exist in that case. Also, the specific
circumstances of a case may show that a topic did not in fact
have any effect on an Applicant.
In this Reply:
. References to paragraphs and sections are to paragraphs and
sections of the Report unless stated otherwise.
. "Applicant" means an applicant to the Scheme whereas
"Subpostmaster" means Ssubpostmasters in general, whether
or not they have applied to the Scheme.
. For ease of reference, where reference is made below to
"Subpostmasters" or "Applicants" taking action in a branch,
this action could, in most circumstances, also be taken by
a Subpostmaster's assistant.
. All other capitalised terms are defined in the Part One
Briefing.
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Overview of Post Office's position
3.1 Nearly all Applications to the Scheme centre on there being a
loss of cash from a branch that the Applicant does not consider
that hefshethey caused or are liable for. The focus of the
Report and this Reply is to help identify those issues that can
cause such a loss and those that cannot.
3.2 In order to identify a loss of physical cash, an investigator
needs two pieces of key information:
a. They need te krewlhow much cash should be in the branch as
a result of the transactions processed in the branch. This
information is provided by the branch accounts stored on
Horizon.
b, Shey need te_knewiitow much cash is actually in the branch.
This is known by conducting a physical count of the cash on
hand.
3.3 Any difference between the above two figures generates a
discrepancy" which may either be a shortage or a surplus.
Controlling the branch accounts
3.4 If cash is missing, the first stage of the investigation is to
identify the day on which the cash went missing. The
transactions for that day can then be reviewed for anomalies (see
section 10 of the Part One Briefing) eg:
. Transactions incorrectly recorded (such as withdrawals
recorded as deposits);
. Values incorrectly entered (entering £2000 instead of
£200).
3.5 This is done to determine if the branch has made errors that
would make the branch accounts inaccurate.—titemtta}abovele
This review must be done by the branch staff as only they will
know the transactions done on that day and may recall the correct
transaction details. Many branch errors (including the two
examples above) are most easily identified in branch. They would
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not be evident to Post Office unless a complaint was made by a
customer.
Post Office helps correct branch errors where possible by
reconciling Horizon records against data collected on some
transactions by third parties such as banks and government
departments. Where Post Office detects an error through this
reconciliation process, it issues a Transaction Correction to a
branch notifying them of the error and correcting the branch
accounts.
It has been alleged by some Applicants that they have been issued
Transaction Corrections even when they were not at fault.
Transaction Corrections are only issued where there is clear
evidence of an error in branch. where the cause of loss rests
with Post Office or third party client Post Office absorbs that
cost and it is not passed back to branch. This principle
underlies the design of Horizon and all Post Office's back office
and reconciliation processes.
Controlling cash movements
3.8
Save when it conducts an audit, Post Office does not have any
direct knowledge of what physical cash is actually in a branch -
only Subpostmasters have this information. For this reason,
branches are required to:
. Count the amount of cash in the branch daily and record
this figure on Horizon as a cash declaration.
. Count all cash and stock at the end of each trading period
and record these figures on Horizon before making good any
discrepancies’.
If daily cash declarations are not made by a branch or
declarations are made falsely (by declaring that there is more
cash in the branch than there actually is) then it is impossible
for Post Office, and will be very difficult if not impossible for
a Subpostmaster, tot
. Know if cash is missing;
See paragraph 8.8 of the Part One Briefing regarding "making good" errors.
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. Identify the days on which cash has gone missing;
. Identify which member of staff may be the source of errors;
or
. Locate the erroneous transactions that were the cause of a
loss.
3.10 Daily accurate cash declarations are the most critical aspect of
branch accounting, without which losses of cash, being—taxpayer
ReRey7—Go unchecked.
For this reason, it is not acceptable to Post Office for
Subpostmasters not to make accurate daily cash declarations.
Subpostmasters habitually failing to make cash declarations may
find their contracts terminated. Post Office also prosecutes
those Subpostmasters who dishonestly make false cash
declarations. It is not an excuse to say that a Subpostmaster
was poorly trained or received inadequate support in this regard.
The need for daily cash declarations is known by all
Subpostmasters and is easily done - there is no specialist
training or support required (albeit that both do exist). Post
Office does not accept that there is any excuse that could
justify committing the criminal offence of rendering a false
account.
In the context of the Scheme, there are a number of cases where
accurate cash declarations have not been made. Many of these
Applicants have challenged Post Office to identify the cause of
losses in their branches which they had hidden by falsely
account ing+h oes yhid-cheeugh FA. As explained above,
identifying the specific source of the losses is not possible
where an Applicant has failed to follow the simple but critical
task of making accurate daily cash declarations. They are, in
this situation the architect of their own problem.
Subpostmasters are contractually liable for any losses hidden or
caused by their inaccurate record keeping whether due to error,
dishonesty or otherwise. It is also a well-established common
law principle that an agent (+ike-ae.g. a Subpostmaster) is
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liable to pay to his principal (e.g. being-Post Office) any sum
declared in his accounts.
Responsibility for losses
3.14
A number of Applicants have accused Horizon of inaccurately
recording the transactions processed at their branch {item {a}
abeve}which they say shows that they were not liable for the
losses in their branches. To datey Post Office has been provided
with no evidence by either an Applicant or in the Report of +hat
presents_anydeubt thattiorizon’s has failureed to record
transactions accurately.
The Report looks to identify thematic points where Second Sight
considers that Horizon may be flawed. As-expiained inthis
RepiyHowever, these points are either ill-explained, un-evidenced
or are proven not to be the cause of losses in branches.
Absent any doubt over the integrity of the branch accounts
produced by Horizon, Post Office considers it a-fair starting
positiento assume that if a loss has occurred then it has been
caused in the branch and is something for which, in most
circumstances, a Subpostmaster is liable to make good. This
reflects the core tenet of the Subpostmaster Contract that
Subpostmasters are liable for any loss caused by their
carelessness, negligence, dishonest conduct or error.?
Post Office remains committed to fully and open-mindedly
investigating every allegation tevied-made aboutat Horizon
through the Scheme, It is in its ee interest as well as the
interest of the 6,000 serving Subpostmasters who have not applied
to the Scheme to identify an issue if one exists. However, Post
Office is confident that there are no systemic problems with
branch accounting on Horizon and all existing evidence
overwhelmingly supports this position.
2 Clause 12, Section 12
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Post Office's response to section 4 - The Contract between Post Office
and Subpostmasters
4.1 Section 4 of the Report concerns the contract between Post
Office and Subpostmasters dated September 1994 (as revised over
the years) (Contract). It considers (1) the potential impact of
some of the terms and conditions and (2) issues relating to
notification of the Contract terms to Subpostmasters.
4.2 An assessment of the Contract is outside the scope of the Scheme
which was to consider "Horizon and associated issues". Second
Sight has no mandate to consider the Contract and the Report
contains a number of statements that are incorrect. These
errors arise from the fact that Second Sight are not lawyers,
but forensic accountants, and any assessment of the Contract can
only be undertaken against legal principles. I For this reason,
no weight should be placed on this section of the Report as it
reflects only Second Sight's lay opinion on matters where they
have no expertise or experience.
4.3 To help avoid potential confusion elleviete the confusion
ercated bythe Report, Post Office sets out the correct position
in respect of the Contract below.
Impact of selected terms and conditions
4.4 At paragraph 4.5 the Report sets out selected sections of the
Contract. Whilst these provisions do reflect the terms and
conditions as stated within the Contract these are selective and
not reflective of the Contract as a whole. In addition, the Bare
Swe-Report does not appear to take account ofhave-censidered the
other documentation that is incorporated into the Contract such
as manuals, booklets and operational instructions issued by Post
Office from time to time.
Fairness of the Contract
4.5 Paragraphs 4.4 and 4.6 both make the same conclusion that “from
cred to
a business perspective" the contractual provisions re:
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above (in particular Section 12 requiring the Subpostmaster to
make good losses) operate to the detriment of a Subpostmaster.
The Report comments that under the Contract (presumably again in
reference to clause 12, section 12 though this is not clear in
the Report) there is a transfer of "risk" to the Subpostmasters.
The suggestion being that this is somehow unfair on
Subpostmasters.
First, the Contract is a business to business arrangement. Save
in a few very narrowly defined areas (which are not applicable
here), there is no general principle at law of whether the
Contract is "fair" or not. The Contract terms apply as they are
written and Post Office consider them to be balanced and fair.
The analysis in the Report has—faiiedtedoes not appreciate this
point.
Second, Subpostmasters are agents and Post Office is their
principal. At law, agents owe duties to their principals
including the duty to act in good faith, to render accurate
accounts and to make good any losses they cause. Section 12 of
the Contract simply reflects these legal principles - it does
not transfer any additional risk to Subpostmasters.
Third, when considering this issue no reference is made in the
Report to any other similar agency agreement or benchmarks that
may provide a view on what is common practice. In Post Office's
experience, the terms of the Contract are broadly similar to
those used in franchising arrangements across the UK.
Fourth, the Report does not appear to consider the role of NFSP.
Any variations to the Contract are discussed with NFSP prior to
being implemented. This is in clear contrast to the position set
out in the Report that Post Office arbitrarily imposes its terms
and conditions on Subpostmasters.
Whilst the Contract does place responsibilities on
Subpostmasters (as well as Post Office), these are not
commercially or legally unfair. In any event, the Contract
reflects the basis on which Post Office and thousands of
Subpostmasters have successfully conducted business for decades.
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It is not now open to seek to retrospectively change that
foundation. At a number of points the Report has alluded to
"duties" on Post Office that do not exist in the Contract.
Post Office acts in accordance with the Contract and expects
Subpostmasters to do the same.
Subpostmaster's understanding of the Contract
4.12
The Report suggests that Subpostmasters may not have reviewed or
fully understood the terms before entering the Contract. As a
result, the Report states, at paragraph 4.7, that Subpostmasters
are unable to mitigate "risks" that they may face.
Post Office disagrees with the conclusion reached in the Report.
In addition, this conclusion is not supported by any evidence.
The Contract that is entered into between Post Office and
Subpostmasters is done so freely and at arm's length.
Ultimately, it is for the Subpostmasters to choose whether they
enter into the Contract or not. The Report does not provide any
examples where Post Office is accused of using undue influence
or other unfair behaviour to acquire the agreement of individual
Subpostmasters to the Contract - and it is strongly denied that
any such improper conduct has occurred.
The Report provides no evidence that Subpostmasters do not
understand the Contract. If the view being taken in the Report
is from a business perspective (whether Post Office or a
Subpostmaster) the provisions are very clear and written in
plain English.
In any event, it is a well-established legal principle that a
person who agrees to a contract is bound by its terms even if he
does not have a copy of those terms, has not read them or does
not understand them. Post Office cannot be responsible for an
Applicant Subpostmaster who may not have taken the time to read
the Contract.
The Report also notes that Post Office does not recommend that
Subpostmasters take legal advice. There is no obligation on
Post Office to make this recommendation. It is however open to
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any Subpostmaster to take legal advice on the Contract at any
time.
The report also appears to discount that the Applicants are
business people and from a business perspective, they would be
used to agreeing contracts and should be aware of the risks of
agreeing to a contract without legal advice.
Notification to Subpostmasters of the Contract terms
4.19
Paragraphs 4.8 to 4,11 state that Post Office does not provide a
copy of the Contract to Subostmasters. Post Office does not see
what evidence this conclusion is based upon. It appears to be
based on the fact that a Subpostmaster does not recall receiving
the Contract or cannot produce a copy now. This does not mean
that the Contract was not provided. Given the age of some of
the cases in the Scheme, it is not surprising that recollections
are hazy and that some records are now not available.
It is open to Subpostmasters to request a copy of the Contract
throughout negotiations when seeking appointment and from Post
Office's Human Resource Service Centre if they have misplaced or
lost a copy.
It is also Post Office's standard operating procedure to ensure
that the Subpostmasters have a copy of the Contract no later
than the day that they commence their position.
Paragraph 4.10 highlights that it is common practice for new
Subpostmasters to sign an “Acknowledgement of Appointment"
without a copy of the Contract. It is common practice that a
separate document will be signed rather than the full Contract.
As a point of law, terms and conditions can be incorporated into
a contract by reference to another document that is not signed.
Also, as noted above, Subpostmasters are business people and
will have had opportunity to request and review the Contract
prior to signing. Also they would have had opportunity to take
legal advice on the Contract prior to entering into it.
Subpostmasters would therefore have had a number of
opportunities to be aware of the specific contractual provisions
they were agreeing to.
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Conclusion
4.23 The Report states that the Contract was considered "from a
business perspective"
It is not clear what this means in light
of the criticism in the Report. Post Office would suggest that
this should mean that Subpostmasters, as business people, enter
into the Contract of their own choice having had opportunity to
seek legal advice should they wish to do so.
4.24 Post Office does not see how this section provides greater
clarity on the issues in dispute between Applicants and Post
Office.
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Post Office's response to section 5 - Automated Teller Machines (ATMs)
5.
o
Section 5 of the Report raises various issues concerning the
accounting in branch for ATM transactions.
The Report does not clarify which precise part of the ATM
accounting process is under consideration by Second Sight. In
broad terms, the accounting process breaks down into three
elements:
a. Loading - Cash for the ATM is sent to the branch by Post
Office and is loaded by the Subpostmaster into the ATM. This
requires the recording of the ATM Cash as part of the
branch's stock.
b. Cash dispensed - the amount of cash dispensed by an ATM is
recorded daily on Horizon ~ see further below.
c. Exceptions ~ rejected cash and retracted cash - see further
below.
From the content of the Report, Post Office believes that Second
Sight has focused primarily on the processes for the recording
of cash dispensed from the ATM however other issues are touched
on also.
In short, nothing in this section of the Report gives rise to
any issue that could cause a loss of cash in a branch. The
Report does highlight a few areas where Applicants have claimed
to struggle with accounting for ATM transactions but the design
of the accounting process and the safeguards put in place by
Post Office mean that even a failure to account for ATM
transactions will, save in a few minor areas (highlighted
below), not cause a loss to a branch.
Out of syne / air gap
5
5
The Report focuses on the situation where cash is dispensed from
an ATM. The process for accounting for dispensed cash is set
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out at paragraph 5.27 of the Part One Briefing. In short, on a
daily basis (or on a Monday following a weekend) the
Subpostmaster prints a receipt from the ATM showing the amount
of cash dispensed. This cash dispensed figure is then entered
into Horizon by the Subpostmaster.
Simultaneously, the amount of cash dispensed is also
automatically transmitted to BOI by the ATM. This means that
there are two parallel records kept of the cash being dispensed
by the ATM: one by the Subpostmaster on Horizon and one by BOI.
The Report notes that there are situations when these two
systems can become out of sync with one another, with one record
showing more or less dispensed cash than the other record. This
could be caused by the Subpostmaster entering the wrong figure
on Horizon.
What is not highlighted by the Report is that even if the amount
of money dispensed by an ATM as recorded on Horizon by the
Subpostmaster is different from the amount actually dispensed as
recorded by BOI, therefore resulting in the records being "out
of sync", this would not result in there being a loss to the
branch. This is a pure accounting error by the branch.
There is a subsequent reconciliation of the Horizon figure
against the BOI accounts. This means that any error on the
Horizon account as to the amount of cash dispensed by the ATM
would be picked up within a matter of days and corrected by way
of a Transaction Correction to the branch.
As a result of this process, there is no difference in the
amount of cash held on site. Indeed, the above accounting
processes do not require anything to be done with the physical
cash at all.
Simply because the accounts may be “out of sync" does not mean
that there is a loss suffered by the branch. In summary, the
air gap / out of sync issue cannot be a cause of loss in branch.
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Complexity of accounting for dispensed cash
5.12
At paragraph 5.4 the Report states that the Post Office system
for operating ATMs is "a complex arrangement, requiring greater
human intervention.. than that typically needed in most high
street banks". The Report does not specify which part of the
branch accounting process is considered more complex, however
given the focus on the “out of sync" issues it seems that the
Report is levying this allegation at the accounting process for
dispensed cash (see above).
The Report’s conclusion is not supported by any evidence and
does not outline the differences between Post Office's and a
bank's processes save to say that banks’ ATMs are fully
computerised.
At various points, and particularly paragraph 5.18, the Report
suggests that Applicants also found it difficult to account for
cash being dispensed from ATMs. Little evidence is presented to
support this view.
As described above, the ATM automatically records the amount of
cash dispensed. The only part of the process that is manual is
the need for the Subpostmaster to take the cash dispensed figure
from the ATM and enter into onto Horizon. Second Sight has
adopted the phrase "Air Gap" for this manual interaction. As
far as Post Office is aware, it is not a phrase used by any
Applicant.
Within this accounting process, no calculation or counting is
required - it is literally typing a single figure into Horizon
on a daily basis. Given the absence in the Report of any
explanation or justification for the view that this is
"complex", Post Office does not accept eannetunderstand hewthat
this process - Lis “complex'
understeed by Applicants,
The Report appears to rely on a number of extracts from Post
Office's Operations Manual to show that the above accounting
method was too confusing for some Applicants. Paragraph 5.13
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states that the out of sync problem described above, was common
place prior to February 2008. However, the Report sets out the
opinion, at Paragraph 5.15, that the instructions from the
Operations Manual represents an example of the complex
instructions and a cause of confusion. Paragraphs 5.13 and 5.15
are therefore a contradiction of one another - the first saying
the problem pre-dated 2008, the other saying the problem
resulted from the 2008 update.
The Report does not describe any instructions provided prior to
the February 2008 Operations Manual or any subsequent updates.
No assessment is made as to any change in the reporting of
problems in relation to ATMs (and specifically not understanding
the instructions) before or after the February 2008 Manual
update and in particular whether or not there was an increase or
reduction of the potential for errors. This would appear—tobe
a-fundamental assessment and consideration #kat-has not been
made in the Report. Together with the fact that no evidence is
provided to confirm how many Applicants did attribute errors to
these (or any other) instructions, whether before or after
February 2008, means there is no evidence to support the
Report's view that the ATM accounting procedure was too complex.
ATM Support
5.19
The Report notes that Applicants have alleged that the Helpline
repeatedly told them that in respect of the “out of sync" error
the “problem would sort itself out". It also states at
paragraph 5.19 that the advice from the Helpline was inadequate
and misleading. There is no evidence provided to support either
allegation. The advice provided needs to be assessed on a case
by case basis as there is no evidence that there is a wider
issue with the advice provided; it has not been shown to be a
thematic issue.
Even if the advice provided was that an error would "sort itself
ou
", in light of the reconciliation between Horizon and BOI (as
described above) if there was an "out of sync" problem it would
be corrected by a Transaction Correction. This would prevent the
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build-up of any accounting shortfalls. As explained above,
there is no loss caused to a branch by an "out of sync" issue as
the overall cash in branch relating to the ATM remains the same.
Overall, the assertion that the support provided was inadequate
has not been supported by any evidence or logical reasoning.
Weekend trading
5.22
Paragraph 5.18, which considers trading over weekends, appears
to have no relevance to the cause of losses on the ATM. Post
Office is not aware of any specific issue with operating an ATM
efat weekends
and telecommunication issues
Paragraph 5.20 of the Report states that many Applicants have
commented on the impact of power and telecommunications failures
on the ATM. The Report acknowledges that, even when they have
dates of power or telecommunications failures, Applicants cannot
clearly link them to specific deficiencies in their branches.
There are standard recovery processes in place to ensure that no
data is lost or corrupted. This recovery process was reviewed
in detail by Second Sight in their Interim Report and found to
work. Post Office remains confident that branch accounts will
not be corrupted due to a power or telecommunications failures.
Despite this, the Report speculates that the need to re-boot the
ATM by either the Subpostmaster or BOI could “introduce a
possible risk of data loss or corruption". ‘This comment is not
supported by any evidence either from a specific Applicant's
case or general evidence that such a problem may exist.
Post Office has not been provided with evidence that contradicts
the assurances provided by Post Office that data cannot be
corrupted. Post Office is not aware of this "evidence" _and it
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be-set out in the Report.
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Retracts
5.27 Paragraphs 5.21 to 5.25 discuss failed cash withdrawals. As
paragraph 5.22 and 5.23 state, if cash dispensed is not
physically removed then after a period of time the cash will be
retained by the ATM. This is known as a retract. It can occur
for a number of reasons but often because the customer gets
distracted. It is also possible that retracts can be subject to
fraud by customers. ‘The Report indicates that Subpostmasters
might be liable for losses caused by this fraud. This is
correct where Subpostmasters have failed to account for retracts
correctly. Provided the accounting is done correctly, a
Subpostmaster will not be liable for any loss caused by retract
fraud.
5.28 The accounting process for retracts is as follows:
a. Bach working day, a Subpostmaster must check the ATM Bank
Totals receipt (which is generated by the ATM) to see if
any retracted transactions have taken place. The receipt
will show the number of retracts.
b. If any retracts have taken place, the Subpostmaster must
physically remove the retracted notes from the ATM (which
are stored in a separate part of the ATM from other cash).
c. For all retracted cash removed from an ATM, the
Subpostmaster must count and report on Horizon the total
value of retracted cash on the same day (using the ATM
Surplus Cash button on Horizon). If a retract occurs when
the Post Office branch is closed it should be removed and
reported on the next working day.
d. Once reported on Horizon, the retracted cash should be
placed in the branch safe and forms part of the cash
holdings of the branch.
5.29 Customers’ accounts will be debited even though they did not
remove their cash. This is often re-credited but it is an issue
for the customer and their bank, although Post Office will do
what it can to assist both to resolve this issue. At this
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point, the branch accounts will balance as the amount of cash
physically dispensed (including any cash subsequently retracted)
will match the cash dispensed figure on Horizon and the amount
of cash in the retract cassette will have been counted and added
to the branch accounts.
Retract fraud occurs where a customer conducts a withdrawal
transaction from their own bank account using an ATM. When the
cash is vended, the customer looks to remove the middle notes,
leaving the top and bottom notes behind, thereby hoping to trick
the ATM into believing that the cash has not been taken. The ATM
then retracts the remaining cash back into the machine,
believing that it has retracted the entire sum withdrawn. The
fraudulent customer's intention is that when the bank checks the
retract records for the ATM in question, it sees that there was
a retract recorded against the customer's withdrawal transaction
and would then fully re-credit the customer's account.
Provided the Subpostmaster follows the above procedure in
relation to retracts, he will not be liable for any ATM cash
loss caused by retract fraud.
Post Office provides to BOI details of the amount of each
retracted cash transaction as part of its weekly ATM balances
recorded on Horizon. BOI uses that information to look for a
match between the actual amount of retracted cash removed from
the ATM and the amount of the original cash withdrawal
transaction. If there is a match, then this will indicate that
there has been no retract fraud and the full amount will
typically be re-credited to the customer. If there is a
discrepancy, then BOI may undertake further investigations into
the customer's activity.
As long as Post Office can provide the daily retract
declarations from Horizon then any loss caused by any retract
fraud does not fall on the Subpostmaster.
If a Subpostmaster does not declare a weekly ATM balance through
Horizon, which includes the amount of any retracted cash, then
Post Office cannot provide that information to BOI. As BOI has
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not been provided with balancing information it is unable to
determine whether a retract was fraudulent. The full amount of
the cash withdrawal re-credited to the customer is therefore
charged on by BOI to Post Office.
Where Post Office is charged by BOI, it passes on this charge to
the Subpostmaster by way of a Transaction Correction where the
weekly ATM balance, including any retracted cash records, are
not available because of the Subpostmaster's failure to follow
proper accounting processes.
It should be noted that where the retract was not fraudulent,
the correct amount of cash will have been retracted into the
ATM. Even if the Subpostmaster has not properly accounted for
this cash on Horizon, the retracted cash will still be in the
branch (either in the branch's cash holdings or still in the
ATM) as surplus cash. This surplus cash will offset any
Transaction Correction for failing to follow proper accounting
procedures.
Where retract fraud has occurred, then the amount of surplus
cash recovered from the ATM will be less than the amount of the
original cash withdrawal transaction. This discrepancy will fall
on the Subpostmaster if they have not followed the proper
accounting procedures.
The Report does not suggest there is any failure in the above
procedure that may cause an unwarranted loss to a Subpostmaster.
Post Office therefore remains confident that provided the above
process is followed by a branch, a Subpostmaster will not be
liable for loss caused by retract fraud. However, should they
not follow the above process, then they may be liable for some
or all of the cash lost to the fraud. Post Office considers
that this allocation of responsibility for preventing retract
fraud is fair and Subpostmasters can avoid all risk altogether
by following the above simple accounting process.
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Other frauds
5.39 Post Office accepts that there are other forms of fraud that may
be occurring. However, itwe aee-is not aware of any form of
fraud (including retract fraud) that creates a loss to
Subpostmasters, provided they follow the correct accounting
procedures.
Conclusion
5.40 Overall, provided a Subpostmaster follows the appropriate
procedures they will not be liable for any ATM loss due to an
"out of sync" problem or retract fraud. Post Office does not
agree that the instructions and support in relation to ATMs is
inadequate. No evidence
provided to support this positon nor
have the large number of ATMs across the Post Office network
that are operated without concern appear to have been
considered. This would support the position that the operating
practices for ATMs are clear, understood and work in practice.
Post Office's response to section 6 - Motor Vehicle Licences
6.1 Section 6 of the Report considers the issuing of Motor Vehicle
Licences (MVL). The Report itself notes that only a small
number of Applicants reported problems concerning processing
clear that this can properly therefore
be considered a system wide issue of general application.
MVL. It is not therefor
6.2 Paragraph 6.1 describes a problem encountered (by what Post
Office believes to be a single Applicant) when form V11C (the
form used by customers to renew their MVL tax discs) was
misprinted with the incorrect barcode. Form V11 is not produced
by Post Office but by the DVLA and therefore this was an
external error. The Report states that the effect was that a
sale was recorded as a 12 month tax renewal rather than the 6
month tax disc as was sold. The Report states that whilst the
customer would have paid for and received a 6 month tax disc,
the accounts would have recorded a sale of a twelve month disc
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and, as a result, there was a potential liability to the
Subpostmaster for the additional 6 months.
This is incorrect. The barcode on the V11C form does not define
the duration of the tax disc but the overall cost whether taxing
a vehicle for 6 or 12 months. A V11C is printed with tick boxes
for the customer to confirm whether they would like to tax a
vehicle for 6 or 12 months. Upon scanning the V11C, which
identifies the registered vehicle, Horizon will prompt the user
to enter whether the customer wants a 6 or 12 month tax disc. If
the barcode printed was incorrect this could lead to a charge
based on a different vehicle, which could be potentially more or
less than the appropriate charge if the vehicle identified by
the barcode is in a different tax band to the customer's actual
vehicle.
If there is an error with a barcode, it would be an issue with
the tax banding not whether a vehicle is taxed for 6 or 12
months. ‘This issue could benefit or disadvantage the customer.
However, Horizon would invite payment at the level requested by
the barcode. Provided that payment was taken for the amount
requested by Horizon the branch would not suffer a loss as there
is no loss or gain from the transaction from the branch's and
Post Office's perspective. Whilst this issue is clearly not
desirable (and Post Office would offer all possible assistance
to the customer to correct any error on the DVLA issued V11C
form), this issue does not impact on branch accounting.
Paragraph 6.2 speculates that if this type of discrepancy
occurred, resulting in a loss for the branch which the
Subpostmaster would be liable for, the amounts could be
significant. There appears to be no evidence to support this
assertion. This appears to be a one off incident, created by a
barcode that was created by a third party, the DVLA. As this
issue is so specific to a particular ewstemerts Applicant's
circumstances, Post Office cannot see how this can be classed as
a thematic issue affecting Applicants generally.
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Post Office's response to section 7 - National Lottery
Section 7 concerns National Lottery transactions which are
described in more detail at paragraph 5.35 of the Part One
Briefing. In particular the Report highlights alleged problems
that Subpostmasters may have in relation to (1) scratchcards and
the activation of them and (2) sales continuing outside of Post
Office hours of Lottery products in a connected retail shop
resulting on the Horizon and Camelot terminals being “out of
syne".
Activation of Scratchcards
Te
Paragraph 7.2 states, correctly, that before February 2012 any
Lottery scratchcards received by a branch had to be manually
"activated" on Camelot terminal and then remmed in to Horizon.
This process is described in more detail at paragraph 5.42 of
the Part One Briefing.
Paragraph 7.3 of the Report describes how a branch could become
"out of syn This means that the activation of scratchcards
on the Camelot terminal did not reflect those remmed in on
Horizon. This would result in either a surplus or a deficiency
of scratchcard stock in the branch accounts. To remedy this
error, Post Office and Camelot conducted daily reconciliations
of the data on the Camelot terminal and on Horizon. Where there
was a discrepancy, a Transaction Correction would be issued to
the branch.
Any errors that occurred through the failure to activate or rem
in scratchcards were errors that occurred in branch due to a
failure to follow the correct procedure and therefore were a
Subpostmaster’s responsibility.
However, the effect of not remitting in scratchcards into
Horizon will not in itself create a loss. The physical
scratchcard stock will still be in the branch as it must have
been delivered to the branch for it to be activated on the
Lottery terminal. The Transaction Correction only increases the
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amount of scratchcards shown in the branch accounts to reflect
the amount actually on hand.
7.6 If the scratchcards have been sold but not remmed into Horizon,
the branch would show a negative stock value for scratchcards
(as each sale reduces the stock line in the accounts even if
this goes below zero). The subsequent Transaction Correction
will therefore increase the scratchcard holdings, cancelling out
the negative figure and bringing the accounts back into balance.
7.7 The opposite effect will happen if scratchcards have not been
activated on the Lottery terminal but remmed into Horizon.
I 7.8 In summary, it is clear that 44}this issue is caused by errors
in branch for which Subpostmasters are responsible but that in
any event 42}this issue cannot be a source of actual losses.
Support
7.9 At paragraph 7.6 the Report states that the problems encountered
by the Applicants (prior to procedural improvements described at
paragraph 5.43 of the Part One Briefing) were exacerbated by the
Helpline which wase-were not able to offer assistance. Post
Office is not aware of the specific calls or incidents that the
Report is referring to which are alleged to demonstrate a
thematic failure to provide adequate advice.
7.10 This is ¥veryuek-an issue that will need to be considered on
case by case basis depending on the advice provided to an
individual Applicant. However, as noted above, the
reconciliation process conducted by Post Office means that
regardless of advice given by the Helpline, any error would be
corrected in due course.
Out of hours sales
7.11 Paragraph 7.2 of the Report describes an alleged problem
relating to the syncing of sales that take place “Out of Hours".
Sales of Lottery products (as described at paragraph 5.39 of the
Part One Briefing) may continue while a connected retail shop is
open but the Post Office counter is closed however the branch
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needs to ensure that any cash taken for any “out of hours" sales
is transferred from the retail shop to the branch cash holdings
the following day.
The value of the “out of hours" sales (and any other sales) will
be automatically sent to Horizon each day by way of a
‘Transaction Acknowledgement which will increase the cash
position in the branch's accounts. The amount of cash to be
transferred from the retail side to the Post Office side is
easily identified as the figure is displayed on the Transaction
Acknowledgement. If a Subpostmaster does not transfer the
physical cash from the retail side into the branch for these
sales, this will produce a cash shortage. The Subpostmaster will
be liable for this cash shortage at the end of the trading
period.
Paragraph 7.7 of the Report highlights an alleged "complication"
occurring on the final Wednesday evening of the monthly trading
period for those branches operating Lottery terminals. This is
reference to the trading period reconciliation completed on a
monthly basis. Rather than process the reconciliation on a
Wednesday evening as they would normally do, Subpostmasters with
Lottery terminals have to first accept the Transaction
Acknowledgement sent over night and complete the reconciliation
as a matter of priority the following morning. The Report states
that this process was not always provided by the Helpline.
Post Office has not seen any evidence to support this assertion
and would highlight that Second sighthas been provided with-call
logs relating to individual #he Applicants’ cases. However, no
specific calls are referenced tois support e£+this statement.
In fact, branches operating a Lottery Terminal needed to make
daily cash declarations (see paragraph 8.2 of the Part One
Briefing) like all other branches. As Lottery sales data is sent
overnight, Lottery branches are instructed to conduct their cash
declarations and end of trading period balances (see paragraph
7.45 of the Part One Briefing) first thing in the morning after
the Lottery data was received. This was not therefore a
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complication but an adjusted daily process for branches with
Lottery terminals.
7.16 In practice, some branches chose not to follow “next day”
guidance and may have conducted balances several days later.
Post Office operational instructions have however always provided
for next day accounting.
7.17 In summary, any loss arising from “out of hours" issues
highlighted in the Report will arise as a result of an error in
the branch for which a Subpostmaster is liable.
Conclusion
7.18 Procedures have evolved to assist Subpostmasters and reduce the
number of Transaction Corrections that are necessary in relation
to scratchcards, especially in relation to the activation of
them. However, the “out of sync" affect created by either
incorrect activation or non-activation of scratchcards or not
correctly recording the out of hours' sales are errors that
arise within branch. ‘The errors were not due to either Post
Office or Horizon and therefore any liability appropriately
remains with the Subpostmaster if it arises.
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Post Office's response to section 8 - Training, Support and
Supervision
Section 8 principally considers the training on Horizon and
branch accounting provided to Subpostmasters by Post Office.
Currently, training for Subpostmasters consists of a mixture of
classroom training and in-branch training. Further training is
available upon request and there is a well-developed support
network including the NBSC, managerial support and Field Support
Advisors. This training and support is described in more detail
at section 4 of the Part One Briefing.
The Report comments that the training was adequate in relation
to "Business as usual" transaction processing but was weak in
relation to the end of day, end of week and end of trading
period balancing. In addi
ion, the Report states that there was
no consideration given to dealing with discrepancies, how to
identify the root causes of problems and how to deal with
Transaction Corrections.
These views appear to be based entirely on the anecdotal
information provided by Applicants in their CQRs. As noted in
the introduction to this Reply, the -eredibitity e€ that
information remains largely untested. Post Office has not been
asked to provide any training materials for review nor has the
Report established any industry standard or contractual
benchmark against which to judge Post Office's performance. The
limited analysis used to support the Report's conclusion is
considered below and shown to be incorrect.
Given that the Report has presented no evidence or analysis that
shows that Post Office's standard training is defective, Post
Office stands by its training practices as being effective.
Post Office considers that the training and support that is
provided is fit for purpose and adequate to meet the needs of
the large majority of Subpostmasters. This is proven by the
thousands of Subpostmasters who are successfully operating
Horizon having received the training from Post Office.
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There may of course be specific cases where training and support
has not been provided to Post Office's usual standards (which is
not impossible given the thousands of Subpostmasters trained and
supported by Post Office over the years) but these situations
will be considered on a case by case basis and are not
reflective of any general thematic issue.
Move to Horizon
8.6
At paragraphs 8.3 and 8.4, the Report finds that many Applicants
found that discrepancies began to occur when they moved to
Horizon. The conclusion reached in the Report is that this was
due to a lack of understanding of how the system was due to
operate and be used, meaning they were insufficiently trained,
had not been able to train their staff properly or there were
issues with the new screen-based processes.
Post Office does not agree with this conclusion and it appears
to be unsupported by any evidence that fewer mistakes were made
prior to the introduction of Horizon. Transaction records are
not available for the pre-Horizon period and it is not possible
to test the conclusion whi
h is put forward. It therefore
appears that the Report has accepted Applicant's anecdotal
recollection of events without any corroborating evidence.
Paragraphs 1.11 - 1.13 in the introduction to this Reply
highlights the deficie
ies in this approach.
ATMs, Lottery transactions, MVL foreign currency or other specialist
products
8.8
At paragraph 8.6 the Report highlights that Applicants
considered that the Post Office trainers and Line Managers were
weak in relation to dealing with ATMs; Lottery transactions;
Motor Vehicle Licences; Foreign Currency and other products.
There is a lack of evidence to support these alleged comments
from Applicants. Due to document retention policies training
records for a number of Applicants are no longer available.
There also appears to be no contemporaneous evidence that
Applicants were not provided with adequate support by trainers
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or line managers whether in relation to ATMs, Lottery
transactions, MVL foreign currency or other specialist products.
If there was a lack of understanding in relation to these
aspects Post Office would expect the Subpostmasters to request
further training or otherwise seek assistance through NBSC.
Training Needs Analysis
8.10 Training support is provided through various means including the
NBSC and managerial support. In addition, training materials
are provided on a regular basis and further training can be
requested by Subpostmasters.
8.11 The Report notes at paragraph 8.7 that further training was
delivered in accordance
th user demand rather than being
determined by a Training Needs Analysis. This is not correct.
When Subpostmasters complete their training there are follow up
reviews at one, three and six monthly intervals. In addition to
confirming that the business is operating as it should be there
is an analysis on the Subpostmasters' understanding. If there
are any gaps, these are highlighted and further training can be
provided. After this stage there is a reasonable assumption
that the Subpostmaster will be reasonably competent, with the
support network highlighted above, to operate Horizon. There
Subpestmasters.— Subpostmasters are operating a commercial
business and can request additional assistance and training when
required.
Training assistants
8.12 As is made clear within the Contract (at section 15, paragraph
7) it is a Subpostmaster's responsibility to train his/her
staff. Nevertheless, the Report criticises Post Office at
paragraph 8.7 for not operating a "quality control function" to
ensure that branch staff are properly trained by Subpostmasters.
8.13 The Report seeks to impose on Post Office a responsibility which
is not stated in the Contract (see paragraph 4.11 of this
Reply).
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dn-faectyA-any failure by a Subpostmaster to train their staff
adequately could be the reason for the losses or increase in
discrepancies however any resulting losses would be due to the
Subpostmaster'’s error and he would be liable for them (under
section 12, clause 12 of the Contract).
In any event, Post Office could not operate the quality control
function proposed by the Report. Each Subpostmaster, as an
independent business person, is free to employ whoever they wish
(subject to registering them with Post Office) as Assistants and
to give their employees whatever tasks they wish. t#maybe
Furthermore, Post Office cannot monitor the performance of
individual assistants_it does not engage or employes est
- a4 Sedaehesk, only
Subpostmasters can do this. ,—-and-so—there—is—no—way—for Post
ee ee
Post Office agrees that a "quality control function" should be
applied to assistants however this should be undertaken operated
by Subpostmasters and not Post Office. Indeed, in a number of
cases, losses appear to have stemmed from Applicants’ failure to
exercise any "quality controls" over the actions of their staff.
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Post Office's response to section 9 - The Helpline
9.1 Section 9 concerns the assistance provided by the Helpline to
the Applicants. Post Office operates a number of helplines
including the Horizon Kelp Desk and Finance Services Centre. It
is presumed that the Report is referring to the NBSC. More
detail on the Helpline can be found at paragraph 4.2 of the Part
One Briefing.
9.2 The following criticisms of the Helpline are listed in the
Report:
a. Difficulty contacting the Helpline due to limited
availability?
b. Unhelpful, script based responses;
c. Many calls were afforded "Low Priority", including those
relating to balancing problems and discrepancies;
a. Contradictory advice that revokes previous advice.
9.3 This section of the Report repeats allegations of Applicants.
Those allegations appear untested (see paragraph 1.7 of the
introduction to this Reply) and the Report reaches no conclusion
at all. On this basis, Post Office cannot understand how this
topic is considered a thematic issue. Nevertheless, the
allegations presented in the Report are addressed below.
Difficulty contacting the Helpline due to limited availability
9.4 Post Office has previously acknowledged that as changes were
made to standard operating practices over the years there have
been periods where the Helpline could be difficult to contact.
Changes were made, especially at the end of trading periods, and
the hours that the Helpline was available for was extended.
9.5 Currently the opening times for the Helpline are from 06:00 to
23:00 on Monday to Saturday and 07:00 to 17:00 on Sunday and
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Bank Holidays. Post Office monitors the number of calls made to
the Helpline.
Statistics available for the period from April 2011 to March
2014 show that:
Calls made: 1,825,059
Calls Answered: 1,687,537 (92.46%)
Average waiting time until answer: 45 seconds
Calls abandoned: 137,522 (7.54%)
As can be seen from the above calls the average waiting time was
just 45 seconds. Over 92% of all calls made to the Helpline
were answered. Of the abandoned calls, this will include all
abandoned calls and therefore will not solely be callers who
have decided to abandon their call because they cannot get
through to the Helpline (for example they may have resolved the
issue themselves) .
Unhelpful, script based responses
9.8
The Helpline does not use scripts. The operators, many of whom
are very experienced with Horizon, listen to the query and then
using ‘categorisations’ in Remedy (the contact management
system) the Post Office Knowledge Base is accessed where there
are articles relating to that category of call. The
operatoradviser then selects the relevant article according to
the issue raised by the caller and relays the information to
them. If the Knowledge Base does not provide the relevant
information there is a second tier of advisors that the enquiry
can be escalated to.
Many calls were afforded "Low Priority"
9.9
There is no priority system in place for calls to the Helpline
with the exception of matters relating to robbery or burglary.
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Whilst those calls are dealt with as a priority other calls are
answered and dealt with in the order they are received.
In addition, if the Subpostmaster was not satisfied by the
advice provided they could seek a higher level of support as
described at paragraph 4.6 of the Part One Briefing.
Alleged contradictory advice
9.11
No evidence is presented in the Report to support the view that
contradictory advice has been given by the Helpline.
General
9.12
All calls to the Helpline are recorded by the Helpline operators
in the NBSC call logs. The logs describe briefly the nature of
question and the answer given if appropriate. The Report states
that there is insufficient evidence within the call logs that
have been provided to them to conclude what advice was provided.
However, Post Office considers that if calls were not being
answered or addressed appropriately then either the matters
would be escalated (which would be noted) or there would be
repeated calls about the issue that the Subpostmaster was
facing. There would be evidence that the advice had not
resolved the problem or the Applicant was not happy with the
advice. In the absence of this or other circumstantial evidence
then Post Office would suggest that the calls had generally been
resolved satisfactorily whilst accepting that there may have
been individual calls where an Applicant was not content with
the advice provided.
At paragraph 9.2 the Report states that a frequent comment by
the Helpline was that matters would resolve themselves. It is
likely that this was reference by the Helpline to a Transaction
Correction being generated following a surplus or deficiency and
that would resolve the issue.
Through its own investigation Post Office has found no evidence
to support the allegations that Helpline would often merely
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comment that matters would resolve themselves or be dismissive
of any enquiry. In addition to the initial advice from the
Helpline, if matters could not be resolved they could be
escalated to a higher level of support. Support could have been
provided by Field Support Advisors or other managerial support
if it had been requested. Post Office is not aware of any wider
systemic problems where this support was not being provided.
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10.1
10.2
10.3
10.4
10.5
Post Office's response to section 10 - Limitations in the
Transactional "Audit Trail"
Section 10 of the Report considers what it generically refers to
as "limitations in audit trails". The Report is concerned that
Subpostmasters are not able to investigate the root cause of
errors (even where they admit it is caused by their own or an
in-branch error) due to a lack of access to necessary
transaction data.
The Report considers three situations:
a. Data that is not available on the day of the transaction
under investigation;
b. Data that is available but after 42 / 60 days is no longer
available; and
c. Data that is not available after suspension.
In general, Post Office considers this section is premised on a
misunderstanding of the nature of the information needed by
branches to investigate losses.
If at the end of a day, a branch produces a cash declaration
that shows a discrepancy, then the branch will have access to a
range of reports on different products and transactions to
investigate the possible causes for the discrepancy (including a
complete line by line listing of all transactions that day).
This also applies at the end of the trading period as a trading
period is either 4 or 5 weeks (28 or 35 days) and the above
reports and data have always been available in branch for a
minimum of 42 days.
If a Transaction Correction is sent to the branch, the
information needed to verify the Correction will not be the
Horizon data (Post Office has this data and takes this into
account when generating the Transaction Correction). ‘The
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information is likely to be in the paper records held at the
branch.
Data that is not available even from the day of transaction
10.6
10.7
Paragraphs 10.4 to 10.8 of the Report raise the issue that some
information is not available to Subpostmasters even on the day
that a transaction takes place. The example provided in the
Report is where an aggregate amount or volume is provided for
Debit or Credit Card transactions. An aggregate amount for the
number of transactions was provided at the end of each day
rather than a breakdown of the individual transactions. As a
result, the Report states, that Subpostmasters are not able to
identify the individual transaction that may have caused a
balancing error. The Report considers that this would prevent a
Subpostmaster from mitigating their loss or remedying the error
by contacting the customer. This position was allegedly
different prior to the introduction of Horizon when paper
records were kept and could be reviewed.
Post Office does not understand this line of enquiry. Debit and
credit card information has never been retained on Horizon in
branch - indeed doing so would be a breach of Payment Card
Industry standards (and Horizon is PCI accredited). However, as
mentioned above, branches have always had access to line by line
transaction data each day and this data records the method of
payment (eg. cash, cheque or card).
Data that is available but after 42 days is no longer available (this
was extended to 60 days)
10.8
10.9
On the original Horizon system, line by line transaction data
was available in branch for 42 days after a transaction
occurred. On Horizon Online (since 2010), this data is
available for 60 days.
The Report considers that with data only being available for a
limited period of time, it may not be available to support a
challenge by a Subpostmaster to a Transaction Correction that
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10.10
10.11
10.12
may be issued after the date that data can be retrieved (ie.
beyond 42 or 60 days). The Report states that this restricts
Subpostmasters’ ability to challenge Transaction Corrections.
What the Report does not take into consideration is that
Subpostmasters may challenge a Transaction Correction without
transaction data. Also Transaction Corrections are often
preceded by an enquiry and so even if the Transaction Correction
is beyond 42/60 days then an enquiry may well have been received
within the period enabling the matter to be investigated within
the 42/60 day period. There is a wide range of evidence that
can be provided to review or challenge a Transaction Correction.
Often it is very product specific and not a general view across
all data entries. Typically, the necessary data is kept in
branch records rather than on Horizon. These documents should
be retained beyond the period that data is available through
Horizon and is used by Subpostmasters to challenge or review a
Transaction Correction.
For example, if a branch wishes to contest a Transaction
Correction relating to ATM transactions (see section 5 above),
the information needed is on the paper "Totals Receipt" printed
daily by the ATM which shows how much cash has been dispensed by
the ATM and other important information. This receipt must be
retained in branch. No access to Horizon data is needed as all
the necessary information is on the "Totals Receipt".
The general proposition in the Report that Horizon data needs to
be available for more than 42 or 60 days is incorrect. Any
challenge to a Transaction Correction, and the data needed to
make that challenge, must be considered on a product by product
basis. Post Office is prepared to investigate any product
specific allegation that there is insufficient data or
information available to Subpostmasters to challenge and review
Transaction Corrections. It is confident that it will be able
to show that sufficient information is available to
Subpostmasters.
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Data
10.13
10.14
10.15
that is not available after suspension
Paragraph 10.10 of the Report highlights that some Applicants
were refused access to data following their suspension and
access to their own records that may have been seized upon
audit. As a result they say that they were unable to defend
themselves from any claim made by Post Office for the recovery
of monies.
Whilst Post Office are aware that some Applicants have raised
the issue that their own records were removed and not returned
to them there is no evidence produced or referenced by the
Report to support the position that data being withheld has
prejudiced an Applicant in any way.
As to other branch records, these are the property of Post
Office. In the event of a Subpostmaster being suspended, Post
Office may take away some branch records for investigation.
Giro Transactions
10.16
10.17
A connected issue that is considered at paragraph 17.4 of the
Report is the process relating to Giro Transactions (under the
heading counter errors that benefit customers). Giro
Transactions are, in essence, deposits of cash into a customer's
bank account. Previously, this involved a two-part paying in
slip with one copy retained by the customer and the other
retained by the branch. At the end of the day, the branch copy
could be cross-referenced to the entry made on Horizon to check
for any errors by the branch in keying in the wrong figure into
Horizon. This process changed to a chip and pin system using a
swipe card at the request of the processing bank (Santander)
that ran the Giro banking service. Following the change, no
deposit slip would be presented by the customer and no paper
documentation was retained by the branch.
The Report states that due to the change in this process there
is nothing to allow the Subpostmaster to check whether or not.
the cash deposit entries on the system reflected the amount of
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cash deposited. This is incorrect as the amount recorded on
Horizon to be deposited is now confirmed by the customer through
the chip and pin machine in branch. This is the same process
used by all high street banks which have also moved away from
paying in slips to card based deposits.
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ql.
Post Office's response to section 11 - Transactions not entered by
1
Subpostmaster of their Staff
Section 11 of the Report considers transactions that have not
been entered by the Subpostmaster or their staff such as where
there is an "automated transactional reversal". ‘This appears to
be the same underlying issue as raised in section 12 - see that
section for Post Office's reply.
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12.3
12.4
12.5
12.6
Post Office's response to section 12 - Transaction Reversals
Section 12 of the Report considers the issue of Transaction
Reversals.
Transaction Reversals are where part of a basket of transactions
is reversed because the basket is interrupted before completion
(typically due to a power or communication failure).
The Report states that when a Transaction Reversal happens,
Horizon records the reversal against a user ID of the
Subpostmaster or a member of staff. ‘The Report states that this
is misleading because the reversal is “automatic”. This
interpretation is incorrect.
As far as Post Office is aware, this issue has only been raised
as part of a Spot Review conducted by Second Sight whilst
preparing its Interim Report. ‘The Subpostmaster who put forward
the Spot Review has decided not to make an Application to the
Scheme and no other Applicant has raised this issue.
As detailed in Post Office's response to the Spot Review (full
details of which are confidential in order to protect the
privacy of the Subpostmaster whom it concerned), the reversals
were caused by the Subpostmaster cancelling a number of
transactions that they were conducting for a customer. The
user's System ID is shown as the person making the reversal
because they initiated the reversal process.
The extracts taken from the report by Helen Rose (as quoted at
paragraph 12.3 and 12.4) are taken out of context. The report
was addressing concerns that reversals were not being clearly
shown on the particular data being reviewed (ie. the ARQ and
credence data being the main transaction data used by Post
Office). However, this data is available on other records that
can be extracted from Horizon. The report makes clear that this
is not an issue with Horizon itself or its data but the way that
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the data it produced was presented within one particular data
log. It does not suggest that there was any entry being made
that was not initiated within the branch by the Subpostmaster or
their staff.
12.7 This section raises no issue that could be the cause of losses
in a branch.
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13.
13.
13.
13.
13.
13.
Post Office's response to section 13 - Cash and Stock Remittances
(Rems) in and out of the branch
Section 13 of the Report focuses on the remittance of cash and
stock to and from branches. Paragraphs 7.16 and 7.29 of the
Part One Briefing describe the remittance process.
On occasions issues can arise such as cash pouches not being
received or there being less or more cash within the pouch than
stated. This will result in a Transaction Correction being
raised.
If the cash centre remits a cash pouch to a branch and it is not
received this will not result in a loss to the branch. The cash
centre will investigate why the pouch has not arrived and
ultimately bear the loss. The cash pouch is scanned upon
receipt by the branch and therefore it is only at this stage
that the cash is registered on Horizon as being held in branch.
From this point any loss of cash is the responsibility of the
branch and Subpostmaster. There may be some occasions when the
pouch barcode will not scan. In such circumstances the pouch is
entered as received manually by keying in the barcode number.
If there is more cash within the pouch than stated the branch
should report this within 24 hours of receipt. This will result
in a surplus to the branch and a Transaction Correction is
issued to correct the balance on Horizon.
In circumstances where the pouch contains less cash than
expected the matter should be reported by the Subpostmaster
within 24 hours of receipt. ‘The issue is investigated by the
Post Office cash centre. If the cash centre accepts that the
pouch contains less cash due to their error they will bear the
loss (if any). A Transaction Correction is issued to the branch
to correct the balance on Horizon.
Where the cash centre does not accept that it is their error the
Subpostmaster is invited to review the security cameras that
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13.7
13.8
13.9
monitor the loading of cash into the pouch at the cash centre.
If the Subpostmaster wishes to continue to challenge the amount
received they can do so through the FSC in the same way that a
Transaction Correction is challenged. If less cash is held on
Horizon a Transaction Correction would be issued. The loss can
be placed in the suspense account whilst the matter is
investigated and resolved.
A similar process is applied when cash is remitted to the cash
centre from the branch. ‘The amount of cash sent within the
pouch is recorded. If this sum is more or less than anticipated
when received by the cash centre the issue is investigated. The
Subpostmaster has the opportunity to view security cameras that
monitor the movement of the pouch and can choose to accept the
shortfall / surplus or place the loss / gain into the suspense
account and investigate the matter further.
Paragraph 13.4 deals specifically with the instances where
foreign currency has been accidentally sent to the wrong branch.
The Report speculates that this could result in a Subpostmaster
being responsible for a delivery that was never received.
The same process outlined above applies to foreign currency. If
a pouch is not received by a branch it will not be scanned into
Horizon and there will be no increase in cash holdings. If the
pouch is not received there is no loss to the branch.
13.10 Where the pouch is taken to a different branch in error it can
be rejected and will be returned to the cash centre. If an
alternative branch accepts the pouch it will be scanned into
Horizon and increase the foreign current held at that branch.
Transactions Correction will be issued to correct any
discrepancies that may have been created but overall there would
be no loss to either the branch that received the foreign
currency or the branch that accepted it.
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ee + (Formatted: Indent: Left: 0.5", No bullets or numbering)
Post Office's response to section 14 - Cheques
14.1 Section 14 of the Report discusses the process of remitting
cheques from Post Office branches to Post Office’s cheque
processing provider. It considers the situations where cheques
go missing and do not reach the cheque processor, or cannot be
processed by the customer's bank.
14.2 To assist Applicants, Post Office has set out below the cheque
remittance process and the process followed when cheques go
missing or bounce.
14.3 In summary, it is inevitable that cheques will occasionally go
missing at some stage in their processing. However, as stated in
paragraph 14.6, provided that the Subpostmaster follows the
correct procedure for processing the cheques in branch this will
not result in a loss. The cost of a lost or bounced cheque is
only passed to a Subpostmaster where there is clear evidence that
the Subpostmaster has failed to follow proper acceptance or
remittance processes and Post Office has exhausted all other
possibilities of recovering the missing cheque. This is done in
accordance with clause 12, section 12 of the Contract under which
the Subpostmaster is liable for any losses caused by
carelessness, negligence or error.
Process in branch
14.4 Most Post Office branches are entitled to accept cheques from
customers as the method of payment for range of designated
transactions. The cheque should be scrutinised by branch staff
to make sure it is not a forgery and the reverse of the cheque
needs to be date stamped, initialled and the relevant
transaction details recorded. This will enable identification
of the specific product and/or customer in the event of an
error. There may be no customer details recorded on Horizon
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14.5
14.
6
against the cheque transaction hence the need to endorse the
cheque with those details.
The method of payment (MOP) by way of cheque should be recorded
on Horizon. When recording a MOP as by cheque, the customer's
cheque is automatically recorded on Horizon as a part of the
branch stock.
All cheques taken should be despatched from the branch via the
final Royal Mail collection of the day (except Fridays). The
branch process for remitting cheques is as follows:
a. Subpostmaster produces a cheque listing report from Horizon
(which shows the value of each cheque accepted that day).
b. Subpostmaster verifies that the cheques held in the till
match (volume and value) against the cheque listing report.
c. The total cheque value is then marked on Horizon as being
remitted to POL (known as "remmed out").
d. A further cheque listing report is then produced. This will
show the cheques being remmed out as a negative value and
the report will now total zero.
e. The cheque listing report is "cut off". The branch cheque
stock will now also be zero.
f. A Batch Control Voucher (BCV) is manually completed to show
number of cheques, value and despatching branch. The
cheques are attached to the BCV. The cheques are then
despatched for processing in the relevant envelope via
Royal Mail to the cheque processor.
g. Horizon cheque listings and ret
tance slips are retained
in branch.
FSC process
14.7 The POLSAP finance system at the FSC is automatically updated
each night from Horizon (for the values of cheques remmed out
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14,
14.
from branches). The cheque team in FSC are able to view this
data the day after the transactions and will see the outward
remittances recorded.
Similarly an electronic file will be received overnight by FSC
from the cheque processor via an automatic upload into POLSAP
which shows the actual cheques received from each branch. FSC
can then compare the values recorded by the branch as despatched
against the values recorded by the cheque processor as received.
Approximately 1,000 entries will remain unmatched each day (ie.
there is a discrepancy between the cheques received by the
cheque processor and the information sent via Horizon by
Subpostmasters about cheque remittances) and could be an
indication of missing cheques. Many cases are resolved quickly
(ie. late delivery by Royal Mail or the Subpostmaster missed the
collection or forgot to put a cheque in a pouch). There will be
around 100 cases per month where it becomes apparent that a
cheque has actually gone "missing".
Investigating lost cheques
14.10 It is acknowledged that a cheque loss could occur at the branch,
in the Royal Mail pipeline or at the cheque processor. Post
Office's policy is that a branch will only bear the cost of a
lost cheque if the branch has not followed proper procedures.
If the root cause of a lost cheque is unknown or attributed to
some other cause outside the branch, Post Office@ will absorb
this loss and not pass it on to the Subpostmaster.
14,11 In the vast majority of cases, Post Office either mitigates the
loss caused by a lost cheque or absorbs the loss itself. Only a
very small number of missing cheque cases result in Transaction
Corrections being issued to a branch.
14,12'The process for investigating missing cheques is as follows:
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The transaction to which a missing cheque relates is (if
possible) identified from the information input in to
Horizon by the Subpostmaster.
Branches will be contacted when the missing cheque case is
set up to see if the cheque can be found in branch or if
they are aware of which customer has presented the cheque
which has subsequently gone missing.
If the branch cannot find the lost cheque, a variety of
techniques (depending on product/information available) are
employed to identify the customer and their address from
the transaction data.
The customer is then contacted to request a replacement
cheque. If a replacement cheque is provided then the loss
to Post Office is avoided,
If a replacement cheque is not forthcoming, the relevant
client organisation (ie. the product supplier, say Bank of
Ireland, Environment Agency, etc.) is informed that the
payment for that particular transaction has not been
received and the transaction is reversed where possible. By
reversing the transaction the loss to Post Office is
avoided.
Alternatively, if Post Office is unable to identify the
customer details, the relevant client organisation may be
asked to try to contact the customer directly for payment.
By payment being made direct from the customer to the
client the loss to Post Office is avoided.
If the transaction related to the missing cheque cannot be
identified or if the transaction is identifiable but
payment cannot be recovered from the customer or the client
and the transaction cannot be reversed, Post Office will
absorb the loss of the cheque provided discussions with the
branch and review of transactional data does not reveal a
breach of the operational processes.
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14.13 There are two typical scenarios where Subpostmaster has failed
to follow operational processes and will be held liable for
missing cheques:
a. Cheques have been accepted by the Subpostmaster for a non-
cheque acceptable product (e.g. foreign exchange sales).
By accepting payment by cheque for a non-cheque acceptable
product, it may not be possible to link a missing cheque to
a transaction record. If the transaction record cannot be
identified then it may not be possible to identify the
customer and/or client. This then frustrates Post Office's
usual loss mitigation steps described above.
b. The method of payment has not been correctly recorded on
Horizon with the cheque as the MOP and it subsequently
proves impossible to associate any transactions with the
missing cheque. Such an instance will typically be
illustrated by branches recording multiple/all transactions
through “Fast Cash” and then introducing a bulk cheque
value to Horizon via a “Cash/Cheque Adjustment” at the end
of the day prior to remitting out. Again, this may
frustrate Post Office's usual loss mitigation steps
described above.
14.14Where a Subpostmaster is held liable for a missing cheque, a
Transaction Correction will be sent to the branch reversing the
remittance of the cheque by the branch. This will return the
value of the "missing" cheque to the branch's cheque stock. If
the branch cannot obtain a replacement cheque from the customer,
there will be a cheque shortage at the end of the trading period
that the Subpostmaster will need to make good.
Bounced cheques
14,15 Paragraph 14.4 makes reference to specific complaints by
Applicants (rather than it being a common theme amongst
Applicants) that they were liable for cheques that bounced. As
described above, the branch accounts treat cheques like a stock
item. So long as the branch accurately records the receipt of
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cheques from customers and the remittance of cheques to Post
Office, then the branch is not concerned with the banking of any
cheques. The banking of cheques and recovery of payment from
customer's bank is conducted by FSC. Post Office absorbs the
credit risk posed by accepting payment by cheque and should a
cheque bounce, Post Office will absorb the resulting loss.
14.16 The only exception to this rule is where the branch has failed
to follow operational procedures. This may have included not
completing the details in accordance with a cheque guarantee
card (until these ceased i
2011) or taking payment for a
product where payment by cheque is not permitted.
Transaction Corrections for missing or bounced cheques
14.17 Paragraph 14.5 makes reference to Applicants not being able to
mitigate their losses as the transaction correction for a
missing or bounced cheque has been sent to them too long after
they accepted the cheque. ‘Transaction corrections may be
delayed on occasions but this is not the fault of Post Office.
In some instances Post Office is dependent on a response from a
third party (such as the customer's bank) before the Transaction
Correction can be issued. This may have resulted in some delay
but, as stated above, if the correct process is followed then
Subpostmasters will not be liable for any lost or bounced
cheques.
14,18 Typically, however if there is an issue with a cheque this issue
will be raised through other channels with the branch, In most
cases, the branch will be aware of the issue long before the
Transaction Correction is submitted.
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Post Office's response to section 15 - Pensions and Allowances
15.1 Section 15 of the Report concerns the risk of fraud taking place
in relation to Pensions and Allowances (PB&A) transactions. In
particular the Report states that Subpostmasters could be
innocent victims of this type of fraud but still liable for the
resulting losses in their branches.
15.2 For the reasons set out below, P&A fraud by branch staff can be
easily detected by a Subpostmaster before any loss occurs so
long as he/she is carrying out proper end of day checks on PéA
transactions. Subpostmasters are therefore liable for any
losses in their branch caused by P&A fraud as this loss arises
due to their failure to conduct adequate checks.
Benefit payment methods
15.3 There are various methods by which benefits can be received by
customers:
P&A books
15.4 P&A books were provided by the Department of Work and Pensions
(DWP) to customers entitled to benefits. A nominated Post
Office branch was set out on the cover of each P&A book,
together with the customer's name and address. Within each book
were (usually) 20 dockets, vouchers or foils (referred to in
this Reply as vouchers) stating the FAD code of the nominated
Post Office branch, voucher number and amount to be paid. The
vouchers were presented to the branch staff, processed through
Horizon and then cash paid to the customer. The vouchers were
despatched each week by each branch to the Paid Order Unit
(which in effect is the DWP) in Lisahally, Northern Ireland.
15.5 P&A books ceased to be used in circa 2005 and were replaced with
Post Office Card Account.
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Post Office Card Account (POCA)
15.6 POCA is a limited service bank account that only allows benefits
to be deposited into the account by DWP and cash to be
withdrawn. Withdrawals are conducted by the customer taking his
POCA card into a Post Office and withdrawing in cash either some
or all of the benefits within his account.
Green Giros
15.7 Customers who lose their POCA cards or customers who are on
temporary benefits may be sent Green Giros by the DWP.
15.8 These are cheques (also known as DWP cheques) which set out the
payment amount and can be cashed in the usual way. These
cheques are date stamped and retained by the Post Office after
paying the customer. They have historically been accounted for
and despatched by each branch weekly to Alliance & Leicester.
They are now sent to Santander (both banks are referred to in
this note as Santander for ease of reference). Green Giros
should not be confused with Giro Payments which are an entirely
different product.
PéA fraud
15.9 P&A fraud encompasses a number of different types of fraud, some
of which are historical due to the change in payment methods
over time.
Overel fraud
15.10 For each benefit payment to a customer recorded on Horizon, the
branch should take from the customer the associated P&A voucher
or cheque and remit each week all vouchers to the DWP and all
Green Giro cheques to Santander. An overclaim occurs when the
branch records a benefit payment on Horizon but does not remit
the associated voucher or cheque. Without the voucher / cheque
POL cannot recover the payment from DWP / Santander. This
places a loss on POL which is then passed to the branch by way
of a Transaction Correction (formerly known as an error notice,
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15.11
15.12
but referred to in this note as a Transaction Correction for
ease of reference).
Overclaims are relatively easy to identify as the branch must
record the remittance of vouchers or cheques out of the branch
on Horizon and therefore i
is possible to identify any missing
weekly remittance.
A fraud can be committed by recording fake benefit pay-outs on
Horizon, which lowers the amount of cash recorded to be in the
branch (as Horizon assumes the cash has been passed to the
customer). ‘This causes a short term surplus (until the missing
voucher / cheque is discovered and a Transaction Correction sent
through) which can be used to cover other losses or removed from
the branch at the end of trading period (assuming that there are
no other offsetting losses).
Reintroduction fraud
15.13
15.14
15.15
Reintroduction fraud is a more sophisticated version of
overclaim fraud whereby the false benefit pay-outs are disguised
by the submission of duplicate paperwork.
In reintroduction fraud, a legitimate benefit pay-out is
recorded on Horizon with cash being paid to a customer but with
the corresponding voucher / cheque not being date stamped or
remitted out to DWP / Santander. At a later date (typically the
following week), the same benefit pay-out is recorded again on
Horizon. This time however no cash is paid to a customer (as
the customer is not present) but the previous voucher / cheque
is date-stamped at the later date and remitted to DWP /
Santander.
For example, in week 1 there would appear to be an overclaim
(amount claimed but no corresponding voucher or cheque). The
amount would be claimed again in week 2 by submitting the cheque
or voucher from week 1 (by this time date stamped). The fraud is
premised on DWP / Santander not spotting the missing voucher or
cheque in week 1 or the reintroduced voucher / cheque in week 2.
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15.16
Fraud
15.17
15.18
15.19
However, in practice, each voucher / cheque has a unique
reference number which allows duplicate paperwork to be
identified.
Each of these frauds has taken place both before the
introduction of Horizon and when Horizon was in operation in
Post Office branches. This is not a Horizon related issue. It
is also largely an historic issue as most benefit payments are
now through POCAs (which are not susceptible to the above
frauds) although some Green Giro Cheques are still processed in
branches.
prevention in branch
It should be noted that "overclaims" and “reintroductions" will
not cause a loss to a branch. They generate a cash surplus,
which as long as the cash had not been removed from the branch,
will off-set any later Transaction Correction.
It was historically and remains open to a Subpostmaster to carry
out immediate checks for P&A fraud as a Subpostmaster will have
access to (i) each week's batch of cheques/vouchers and (ii)
that week's records of P&A transactions as recorded on Horizon.
It is therefore possible for a Subpostmaster to easily confirm
that the value of the cheques and vouchers being remitted each
week match the value of benefit pay-outs recorded on Horizon.
This would reveal any overclaims or reintroductions.
For this reason, Post Office does not consider that a
Subpostmaster could be the innocent victim of P&A fraud.
Although they may not have committed the fraud, they are easily
able to prevent it. If a Subpostmaster does not follow the
proper process for remitting out P&A documents, and thereby
fails to stop any overclaims or reintroductions at source, they
are liable for any resulting losses.
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16.1
16.2
16.3
16.4
16.5
Post Office's response to section 16 - Surpluses
Section 16 of the Report considers Post Office's approach
towards the surpluses that may be generated within branch.
As stated at paragraph 16.1, the contract between Post Office
and Subpostmasters allows surpluses to be withdrawn provided
that any subsequent charge is made good immediately. This means
that Subpostmasters may retain surpluses that may be generated.
The report confirms, correctly, that Post Office views both
surpluses and deficits as discrepancies. However, the Report.
makes the incorrect conclusion that Post Office are not as
concerned with discrepancies as they are with deficits.
Whenever Post Office discovers a discrepancy that can be
attributed to an error in branch, whether it is a surplus or a
deficit, it will generate a Transaction Correction to correct
the branch's accounts.
Where discrepancies occur in branch (say at the end of a trading
period where there is a shortage or a surplus of stock or cash),
it is for the Subpostmaster to dispute the discrepancy. This is
done by contacting the NBSC. As there are more challenges to
deficit discrepancies (and debit Transaction Corrections) Post
Office spends more time investigating deficits than surpluses.
The system processes six million transactions every working day.
Post Office only investigates a discrepancy in branch if the
Subpostmaster requests assistance - it does not investigate
every discrepancy identified in a branch's accounts:
a. First, most discrepancies are fairly small and so do not
warrant a full investigation unless the Subpostmaster
raises an issue.
b. Secondly, the sheer volume of discrepancies would make
investigating them all unworkable.
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c. Thirdly, where a discrepancy arises in branch (ie. the cash
on hand does not match the cash figure on Horizon) an
investigation will require close involvement of the
Subpostmaster and their staff as only they will know how
the branch has transacted its business.
16.6 The Report's conclusion that Post Office is not concerned with
surpluses is therefore not correct. In any event, it is noted
that this topic does not give rise to any thematic issue that
indicates the Post Office or Horizon is responsible for losses
caused in branches.
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1.
17
1.
17.
1.
Post Office's response to section 17 - Counter-errors that benefit
customers at the expense of the Subpostmaster
1 Section 17 of the Report considers occasions when customers may
benefit from certain errors in branch to the detriment of
Subpostmasters. This section does not give rise to any thematic
issue but rather appears to raise a series of discrete points.
2 Paragraph 17.1 of the Report highlights that mistakes can occur
when a counter clerk presses the "Deposit" icon rather than the
adjacent "withdrawal" icon. This error by a Subpostmaster or
their staff would have the effect of doubling the size of the
error (as the branch will record the receipt of money into the
branch in the accounts which increases the recorded cash position
but will have also handed over cash to the customer thereby
lowering the amount of cash in the branch).
3 Post Office agrees that this error may occur but that this would
be an error within the branch, not a systematic problem with
Horizon. In these c
‘cumstances the Subpostmaster would be
liable for the error and any loss that has been created in
accordance with section 12, clause 12 of the Subpostmaster
contract.
4 Paragraphs 17.2 and 17.3 are a repetition of the issue raised in
section 19 - to which see Post Office's comments on that section.
5 Paragraphs 17.4 - 17.8 are a repetition of the issue raised at
paragraph 10.1 - to which see Post Office's comments on that
section.
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18.
Post Office's response to section 18 - Error and fraud repellency
1 Section 18 of the Report considers whether Horizon is
sufficiently error and fraud repellent. It raises 4 issues:
a. Has Post Office sufficiently upgraded and developed Horizon
over time?
b. Does Horizon accurately record transactions processed in
branches?
c. Is Horizon resistant to power and telecommunications
failures?
a. Should Horizon work for every single user no matter their
competence?
Developing Horizon
18
18.
18.
18.
-2 The Report states that Post Office has not sufficiently upgraded
and developed Horizon over the years so that there is a
situation where “errors and fraud that could possibly have been
designed out of the system" did not happen. As a result, the
Report alleges that Subpostmasters have been liable for losses
that could have been avoided.
3 This conclusion is unsupported by any evidence and is incorrect.
4 The Report contains has-undertaker no analysis of the
development of Horizon over the years. It is unclear on what
basis the Report considers Horizon to be under-developed when
there has been no consideration of Post Office’s processes for
reviewing and improving Horizon or of the upgrades that have
been implemented.
5 The Report references a single example to support its opinion:
"18.4, A good example is an issue that has been raised by
Applicants in regard to Giro transactions. This relates to
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18.5.
Horizon operating in Recovery Mode, for example following
power or telecommunications failures that resulted in the
branch terminals freezing. In these situations the system
goes through a complete reboot, then, when it has finally
rebooted, a message appears on screen asking "do you need
to recover any Giro transactions?"
A few Applicants have reported, when faced with that
question, they usually did not have sufficient information
to know whether or not the system needed to recover any
Giro transactions. If they responded in the affirmative,
the system asked for the details of the Giro transactions
that needed to be recovered. As the user did not have the
relevant details to hand (and could not access the data as
Horizon was still completing its reboot process), they were
forced into responding in the negative and hoping that was
the correct response. This often resulted in the ‘wrong’
answer being entered and transaction errors being
generated."
18.6 It is noted that this example does not include any suggestion as
18.
to the improvement or upgrade that could have been implemented
by Post Office to alleviate the above alleged issue. This
example does not therefore support the conclusion reached in the
Report.
Post Office in fact has a number of processes in place for
regularly reviewing and improving Horizon. These includ
Incident and Problem Management processes. Both of these
processes ensure that where a branch reports an issue it is
investigated and resolved. Where several instances of the
same issue occur, then a problem record is created and the
root cause of the issue is identified and fixed (ie to
avoid further instances). The resolution of problems can
sometimes be minor amendments to processes or can result in
a change to the software code via the next release of
upgraded software.
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Operational reviews with Fujitsu. These take place on a
monthly basis across a number of different specialist teams
in both Post Office and Fujitsu. The purpose is to monitor
and review past performance, addressing any issues as
required, and to prepare for known changes or upcoming
events.
Operational reviews with the NFSP. These have been in place
for over 10 years and have operated on either a monthly or
quarterly basis across this period. It has involved the
NESP Executives meeting with senior representatives from
Post Office's IT Service, Network and FSC teams. A number
of operational issues are raised via these meetings and
actions taken to resolve and improve either Horizon or
associated processes. Other systems are also discussed as
and when relevant eg ATM's.
Continuous Service Improvement. This is a standard process
that Post Office’s IT Services operates with all of its
suppliers. Post Office considers that Fujitsu are
particularly good in this area and have over a number of
years developed and introduced a number of improvements.
This has included Fujitsu, by their own initiative,
providing additional funds to be used by the Post Office
for improvements to Horizon. Fujitsu were not
contractually obliged to do this. The approach agreed with
Fujitsu was to use NFSP's input to drive the improvement,
initiatives. Through this process and the tri
arty
working, including NFSP members active involvement in
conducting demonstrations and tests, resulted in
improvements directly driven by the NESP and funded by
Fujitsu.
18.8 Ultimately, the Report appears to agree with Post Office's
position in that it states at paragraph 18.8 that "a number of
enhancements have been made to Horizon following experience and
feedback". whilst speci
ic examples are not provided as
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evidence, this shows that Post Office is engaged in evolving its
systems to improve user experience.
Accuracy of capturing transactions
18.9 At paragraph 18.9 the Report states that, in their opinion, for
Horizon to be "fit for purpose" for all users it needs to record
and process a wide range of products and services offered by
Post Office and to enable Subpostmasters to investigate any
cause of issues that may arise. The Report concludes that from
the cases reviewed, although no specific examples are provided,
that although the core software of the system works it may not
provide an ideal user experience for less IT literate users.
18.10 Horizon is capable of capturing all information and processing
all transactions if used properly. No system errors have been
highlighted in the Report. Further, no examples or explanations
are provided to suggest that Horizon, if operated in accordance
with standard operating procedure, would not accurately capture
transaction data.
18.11 In fact, of the cases that have been fully reviewed so far, not
one has presented any evidence whatsoever that Horizon did not
accurately record the transactions processed by Applicants or
their staff.
18.12 Horizon is designed to ensure the accuracy of transaction data
submitted from branches. Safeguards are in place to ensure that
no transactions are lost, altered or improperly added to a
branch's accounts:
a. _Eneryption. Transmission of transaction data between
Horizon terminals and the Post Office data centre is
encrypted.
b. Net to Nil. Baskets’ must net to nil before transmission.
This means that the total value of the basket is nil and
therefore the correct amount of payments, goods and
2 See paragraph 7.15 of the Part One Briefing for an explanation of "baskets".
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services has been transacted - as the value of goods and
service should always balance with the payment (whether to
or from the customer). Baskets that do not net to nil will
be rejected by the Horizon terminal before transmission to
the Post Office data centre.
c. No partial baskets. Baskets of transactions are either
recorded in full or discarded in full - no partial baskets
can be recorded.
d. No missing baskets. All baskets are given sequential
numbers (called "Journal Sequence Numbers" or JSNs) when
sent from a Horizon terminal. This allows Horizon to run a
check for missing baskets by looking for missing JSNs
(which triggers a recovery process) or additional baskets
that would cause duplicate numbers (which would trigger an
exception error report to Post Office / Fujitsu).
e. Secure data store. ‘Transaction data is stored on a secure
audit server. All transaction data is digitally sealed -
these seals would show evidence of tampering if anyone,
either inadvertently, intentionally or maliciously, tried
to change the data within a sealed record.
18.13 In summary, Post Office remains confident that Horizon
accurately records transaction data and the Report presents no
evidence to change this conclusion.
Power and telecommunications failures
18.14 Paragraph 18.10 says that for Horizon to be effective, the
system must be able to operate in areas where power and
telecommunications reliability is a problem. It is noted that
the Report does not offer a view on whether Horizon achieves
this standard.
18.15 For clarity, Post Office maintains that Horizon is capable of
handling power and telecommunications problems.
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18.16 In Post Office branches, Subpostmasters are responsible for
power supplies and the cabled telecommunications line (see
paragraph 5.6 in the Part One Briefing Report). Interruptions in
power supplies and telecommunication lines are a risk faced by
all IT systems. There are however recovery systems built into
Horizon to prevent losses occurring where there is a power or
telecommunication failure. The following is a description of
the recovery process:
Following a failure to contact the Data Centre and complete
a transaction, the system would automatically carry out a
retry and attempt to save the basket to the Data Centre
again.
Following the failure of the second attempt, a message
displays to the User informing them that there was a
failure to contact the Data Centre and asking them if they
wish to Retry or Cancel. It is recommended that Users only
"Retry" a maximum of twice.
When the User selects "Cancel" this results in a Forced Log
Out. This means:
Horizon would cancel those transactions that could be
cancelled.
ii. Horizon would then print out 3 copies of a
Disconnected Session Receipt (one for the customer,
one for branch records and one to attach to the till
to aid with recovery).
iii. The receipt would show transactions that are either
recovered or cancelled. ‘Those products considered
recoverable must be settled with the customer in
accordance with the Disconnection Receipt.
iv. If a transaction is cancellable then stock should be
retained by the branch.
v. Horizon would then log out the active user.
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18.17
18.18
a. The Subpostmaster should then make sure that, in accordance
with the Disconnect Receipt, the Customer is provided with
any funds due to be returned to them in accordance with
the Disconnect Receipt.
e. The system would then display the Log On screen. The User
may then attempt to Log On again.
f. As part of the Log On process, the system checks the
identity of the last basket successfully saved at the Data
Centre and compares it with the identity of the last Basket
successfully processed by the counter. If the last basket
saved in the Data Centre has a higher number than that
considered to be the last successful basket processed by
the counter, the recovery process at the Counter would then
repeat the process that the counter had carried out at the
point of failure.
g. A Recovery receipt would have been printed reflecting these
transactions.
h. A message is displayed to the user confirming that the
recovery is complete. ‘They then return to the Home screen.
Depending on the transactions being conducted at the time,
the user may be asked a series of questions to complete the
recovery process.
It is noted that in Second Sight's Interim Report last year, it
specifically looked into this recovery process following a
telecommunications failure. Second Sight found that the
recovery process worked but questioned the speed of the response
from Horizon. As far as Post Office is aware, this conclusion
is still valid and has not been revoked by Second Sight.
The Part Two Report states that there are cases where errors are
more likely to occur when unusual sets of circumstances and
behaviour are present. It is not clear what these circumstances
or, in particular, the behaviour is and so Post Office cannot
comment on this line of enquiry.
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Fitness for all users
18.19At paragraph 18.11, the Report notes that there are some people
who are unsuited from the outset to using a computerised branch.
It is not understood how this relates to the question of whether
Horizon is fit for purpose. However, in general, there is an
effective recovery process to manage power and telecommunication
failures.
18.20Horizon is operated by thousands of Subpostmasters, the majority
18.21
18.22
of whom have not had any issue with the system or the
effectiveness of it. Whilst a small number may find the
operation of the system difficult, this does not make Horizon
not fit for purpose. The subjective experience of a few people
is not evidence that an IT system is objectively not fit for
purpose.
For this assessment to be carried out the Report would need to
identify some form of industry benchmark against which to judge
Horizon. Also, the phrase "fitness for purpose" has a specific
legal meaning and is therefore a subject on which Second sight
has no expertise to offer an opinion. The Report does not
establish or seek to articulate any +s-exereise of establishing
@ legal or industry benchmark has-netbeen-undertaker_and so the
Repertisits findings are entirely unsupported by evidence or any
robust analysis.
Post Office maintains that the fact that over 450,000 users have
used Horizon since its inception and only 150 have raised a
complaint to the Scheme shows that it is fit for purpose.
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Post Office's response to section 19 - One-sided transactions
19,1 Section 19 of the Report comments on what it calls "one-sided
transactions". These are transactions that the Report states
have not fully completed all the constituent parts of the
transaction. This is either because there has been a charge to
the customer for goods or services but they do not receive the
goods/service. Alternatively, a transaction is processed but
the customer's bank account is not charged for the purchase.
49;2-The Report speculates that these situations could, somehow, give
1 Hespise phe task of
rise to a loss to a Subpostmaster,
3 so-has—ae 2detaits salle (Formatted: Simple Number Ust Spaced )
scenario; Thus far Post Office has not been presented with any
evidence that there is a general issue with Horizon or Post
Office's processes that could give rise to the above scenario.
Safeguards
49:419.3 The Report suggests at paragraph 19.2 that one cause for a
“one sided transaction" is due to a telecommunications failure.
Post Office accepts that telecommunications issues can give rise
to “one-sided transactions
This is an inevitable risk of
transacting business across the internet and affects all
retailers and banks. Also like all retailers and banks, Horizon
has recovery processes in place to rectify any "one sided
transaction" errors. These safeguards are specific to
particular products so it is not possible to explain them all in
one document.
49+519.4 Communication failures can have two broad impacts. The
main impact would be the type of interruption that is addressed
by recovery prompts that are referred to at paragraph 18.16 of
this Reply.
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49+619.5 The other impact (which would affect the customer, not the
Subpostmaster) would be where a debit card payment was
interrupted after the bank had ring-fenced the customer funds
for the payment but before the counter confirmed that the
transaction was complete. ‘This can lead to a situation where
although there is no issue for the branch accounts, the customer
is no longer able to draw down on funds in their bank account
because they remain ring-fenced for the original attempted
transaction. Banks have routine processes to clear down ring-
fences within a couple of days or on an accelerated basis by
specific enquiry. This would not affect branch accounts but
could of course lead to customer complaints to their banks.
No risk to branches
49+419.6 From a branch's perspective no discrepancy will arise from
a one-sided transaction as the branch accounts are based on the
information received by Horizon and not on the information held
by a third party client.
49,819.7 If a transaction is recorded as completed on Horizon, then
the accounts will also have recorded a corresponding payment
from the customer or the handing over of cash or stock to the
customer.
A991
transaction will not complete on Horizon and no payment, to or
If Horizon records the transaction as failed, then the
from the customer, will be recorded. Likewise, as Horizon
records the transaction as failed, the branch staff should not
hand over any cash or stock to a customer.
49;4919.9 Regardless of whether the client's IT systems record a
completed transaction or not, the effect of the above is that
the branch accounts will be in balance. The fact that there may
be a discrepancy between Horizon and the third party client's
records does not, as described above, change the branch's
accounting position.
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Branch awareness of this
45,1119.10 At paragraphs 19.3 - 19.6 the Report states that the only
way a one-sided transaction would be discovered is if the
customer was to notify the branch. The Report goes on to
suggest that where the customer has benefited from the
transaction (ie they have received goods which they did not pay
for) they would not be aware or would not say anything.
Therefore the Subpostmaster would only be aware of the error if
the customer disclosed it.
19,1219.11 For the reasons stated above, this view is incorrect and,
in any event, irrelevant as a branch will never be liable
error caused by a "one sided transaction".
Conclusion
49;1319.12 In summary, whilst the Report has yet to prove that this is
a thematic issue of general application, Post Office has
demonstrated that a "one-sided transaction" cannot give rise to
a loss to Subpostmasters.
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20.1
20.2
20.3
20.4
20.5
20.6
20.7
Post Office's response to section 20 - Hardware issues
Section 20 of the Report makes some general comments and
observations about Horizon terminals and other associated branch
hardware. However, the Report does not present any evidence to
support its speculations nor does it clearly identify any issues
that may be common to many Applicants within the Scheme.
Post Office accepts that hardware problems can arise and that
equipment is replaced from time to time. However, this is very
dependent on the circumstances of an individual case and does
issue.
not give rise to a thema
Further, the Report does not attempt to undertaken any form of
statistical analysis or industry benchmarking. In this area, it
would be common to see an assessment of "mean time between
failures" as a way of judging performance.
In any event, as described at paragraph 18.6 of this Reply,
there is a recovery process in place to manage hardware
failures.
Paragraph 20.1 of the Report highlights that some Horizon
equipment is more than 10 years old. Whilst this may be
correct, there is nothing to show that the age of the equipment
is a cause of any losses.
At paragraph 20.2 the Report states that there is little routine
hardware maintenance. This is correct but equipment is replaced
as and when needed and thi
is industry standard practice.
Paragraph 20.3 states that many Applicants believe that faulty
equipment could be responsible for the losses suffered. This is
not correct and no evidence has been put forward to support the
view that hardware issues have caused losses in branches.
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Post Office's response to section 21 - Post Office Audit Procedures
@ivi—The Report says at paragraph 2
1 that Applicants were not
provided with copies of audit reports, although it does
acknowledge, at paragraph 21.2, that Post Office's current
practice is to provide each Subpostmaster with a copy of any
audit repo!
However,
o . the practice of providing
a copy of the audit report has always been in place.
24+321.2 Post Office is not aware of Applicants not being provided
with copies of audit reports when requested however Post Office
cannot categorically say that this has never happened in an
individual case. Nevertheless, the lack of access to an audit
report is not a cause of losses in a branch and would not
exonerate a Subpostmaster from their contractual responsibility
to make good losses caused in their branch that were revealed by
an audit.
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Post Office's response to section 22 - Post Office Investigations
22.1 Paragraphs 22.1 to 22.8 of the Report provide Second Sight's
22
22.
22.
22.
opinion on the process that is undertaken by Post Office when it
investigates criminal activity in branches.
2 This topic is outside the scope of the Scheme (which is to
consider "Horizon and associated issues") and is also outside
the scope of Second Sight's expertise. Second Sight, as
forensic accountants and not criminal lawyers, are not qualified
to comment on Post Office's prosecution processes.
3 This is highlighted by the statement in the Report that the
focus of Post Office investigators is to secure an admission of
false accounting and not to consider the root cause of any
losses. As explained at paragraph 3.9 of this Reply, by
falsifying the accounts (whether through the inflation of cash
on hand or otherwise) Subpostmasters or their assistants prevent
Post Office from being able to identify the transactions that
may have caused discrepancies and losses. The first step in
identifying a genuine error is to determine the day's on which
the cash position in the accounts is different from the cash on
hand. Where the cash on hand figure has been falsely stated,
this is not possible.
4 The false accounting therefore hides any genuine errors from
Post Office and a Subpostmaster. It hides it at the time the
losses occur and it remains the case now that Post Office is not
able to identify which transactions may have caused the losses.
The Report is therefore entirely incorrect in its evaluation of
how Post Office prosecutes dishonest false accounts.
5 Given that this is topic on which Second Sight can offer no
expert opinion, this Reply does not comment on this section of
the Report other than 4 Sag
further-save to confirm that it rejects all the Report's
findings in shisseetienit.
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