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21A 2014
Initial Complaint Review and Mediation Scheme
Provisional-and-draf
MEDIATION. sricrine
REPORT _- PART TWO
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This «Report and accompanying documents are confidential and are not to
be disclosed to any person other than a person involved in the processing of
Applicant'sApplicants' claims through the Scheme
4-—
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Introduction
1.1. This fReport has been prepared by Second Sight, which is the trading name of Second Sight
Support Services Limited, the company appointed to conduct an independent investigation
into a number of matters raised by Subpostmasters, or former Subpostmasters.
1.2. Part One of our Briefing Report (:Part One’), issued on 25 July 2014, describes some aspects
of Post Office branch operating procedures and related functions of the Horizon system and
makes reference to this Part Two of our Briefing Report.
13. The-purp fthi port—is—t pandThis Report expands on the main common
‘Thematic Issues' that have been raised by many Subpostmasters in their applications to the
Mediation sehemeScheme (the Scheme). This has been done in the interests of efficiency
and in order to avoid duplication ef-facts-and-conclusiens-across many cases.
1.4. The Report structure follows a modular approach; with each Thematic Issue, as broadly
defined by Second Sight, forming a separate section within the report,This-may-be-addedte-
dified. finding geReport. There are some topics on which further enquiries
and investigations by both Post Office and Second Sight are continuing, which when finalised
may be included in future updates to this Report.
1,5. This 'Part Two’ Report is therefore a ‘living document’ that will be periodically updated as
we develop better evidenced views on each of the matters raised.
1.6. __The number of occurrences of each Thematic Issue, from the total population of 150
applications to the Scheme, is indicated throughout this Report using the following
groupings and descriptions:
Few ___Less than 15 instances
Many Between 15 and 70 instances
Most __More than 70 instances
1,7. _In this context, the most commonly reported issue (complaints about Training and
Support) has been raised by over 130 Applicants, while the least-reported issues (concerns
about Pensions and Allowances transactions and Motor Vehicle Licences) were each raised
by only 13 Applicants.
1.8. _In order to put our comments in context, the issues being considered are based on
concerns raised by 150 Scheme Applicants from a total population of approximately
11,500 Branches.
©
_The identification of a Thematic Issue occurs at the time that a Case Questionnaire
Response (CQR) is initially considered by us. As the Scheme process continues the
underlying concerns are further explored and conclusions are set out in the Post Office
Investigation Ri 'POIR) and then in our Review Ri RR). This Ri
describes Thematic Issues in more detail.
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1.10. Comments on a draft of this Report have been provided by Post Office and by the Justice For
Subpostmasters Alliance (JFSA), and we have taken account of those comments when
L.11. In.co! th
Office has in some cases limited
both* Horizon transactional deta.
as* <
Reports*,
1,12. Until* vecently,
*process*
*are*
2.1. __Scheme Application Forms and CORs included a section asking what were the Applicant’s
main issues of concern. As the Scheme progressed it became clear that some issues were
being raised by multiple Applicants. We listed the seventeen most commonly described
Thematic Issues and then referred to these throughout the rest of the process.
3. Scope
3.1. The definition of Horizon for the purposes of our work was considered in our Interim Report
of
July 2013 as follows:
"11, the name Horizon rel the entire lication. This encom; thi ‘ware
both bespoke and software packages, the computer hardware and communications
juipment installed in branch and ntral data centres. It includes thi re u!
referred to.as Horizon”.
Whilst we have adopted this Post Office definition of Horizon, it has been necessary to extend
itso as to properly include the totality of the Applicant’s experience of using Horizon. We
have therefore found it necessary to also consider issues such as the Audit and Investigative
r s and the Contract between Post Office and ostmasters.
4. 2. The Contract between Post Office and Subpostmasters
4.1, 24—This section deals with two separate issues. FirstlyFirst, the_potential impact on
Subpostmasters of some of the terms and conditions set out in the Contract and secondly,
issues relating to the notification to Subpostmasters of the terms of the Contract.
4.2, 2e2-The following extracts are taken from the ‘Standard Contract’ (dated September 1994)
between Post Office and Subpostmasters. This is a 114-page document, that now incorporates
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several post-1994 amendments. A copy of the entire document is available on request.
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in the nature of an agency contract.
2.3-The Standard Contract contains a numberof. provisions, th +-significant-of which
tout-bel jally-the Jated-t: ibility for d-shortages-A It of
7 25p) ¥ P ¥ ‘3
thi provisi the tract-transh ‘ontract allocates several financial and other risks to
Subpostmasters who may not have understood or appreciated those risks, particularly if they
failed to seek independent legal advice before taking up their post. Observations-relating-te-the-
more-significant-of these-clauses-are-set-out- more fully belowOur comments on the clauses
most relevant to our Review are made solely from a business perspective.
4.5. 2-4,-The Standard Contract spells out the rights and responsibilities of both Post Office and
Subpostmasters. The clauses most frequently referred to by Sub-RestmastersApplicants are as
follows:
a) Section 17: (in the November 2002 amendment).whieh lists the Key Products and_
Services
Services-(also referred to as the core products and services).
b) — Section 15: (in the November 2002 amendment) refers to responsibility for the training
of the Subpostmaster and, in turn, of the staff employed in a branch. Under this section
the Post Office undertakes to provide the Subpostmaster with relevant training
materials and processes to carry out the required training of his Assistants on the Post
Office Products and Services... and the Sub-Postmaster accepts the responsibility to
ensure the proper deployment within his Post Office branch of any materials and
processes provided by Post Office Ltd and to ensure that his Assistants receive all the
training which is necessary in order to be able to properly provide the Post Office
Products and Services and to perform any other tasks required in connection with the
operation of the Post Office branch.
Also... Post Office Ltd may request from time to time that where it has obligations as
described above the Subpostmaster should conduct specific training (whether through
written/distance learning that may require confirmation of completion or via
presentations) in relation to certain Post Office Services (such as, but not limited to,
money laundering). Failure by the Subpostmaster to arrange for such training to be
properly applied will be deemed to be a breach of this Contract by him.
c) Section 1, paragraph 10: whieh-requires three months notice of contract termination
from the Subpostmaster to Post Office and allows Post Office to:
#Terminate a Subpostmaster’s contract at any time in case of Breach of Condition by
the Subpostmaster, or non-performance of his obligation or non-provision of Post Office
Services, but otherwise may be determined by Post Office on not less than three months
notice.
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In section 12 of the Standard Contract there are a number of paragraphs, as set out
below, addressing responsibility for losses and shortages. These paragraphs are at the
heart of nearly all of the cases being considered in the Scheme.
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d) Section 12, paragraph 12:
The Subpostmaster is responsible for all losses caused through his own negligence,
carelessness or error, and also for losses of all kinds caused by his Assistants.
Deficiencies due to such losses must be made good without delay.
e) Section 12, paragraph 13:
£The financial responsibility of the Subpostmaster does not cease when he
relinquishes his appointment and he will be required to make good any losses incurred
during his term of office which may subsequently come to light.
f) Section 12, paragraph 14:
sSurpluses may be withdrawn provided that any subsequent charge up to the
amount withdrawn is made good immediately.
g) Section 12, paragraph 17:
Subpostmasters may exceptionally not be required to make good the full amount of
certain losses at his office. If he feels entitled to relief in making good a loss he should
apply to the Retail Network Manager.
h) Section 19, paragraph 12: deals with enquiries by officers of the Post Office
Investigation Division and states that:
The main job of the Investigation Division is to investigate, or help the Police to
investigate, criminal offences against the Post Office, British Telecommunications and
the Department of National Savings. The Investigation Division does NOT enquire into
matters where crime is not suspected.
i) Section 19, paragraph 19: allows persons interviewed by Post Office's Investigators to
have a friend present during the interview but-+het that person may not interrupt in
any way, either by word or signal.
4.6. 2-5.-Having considered the Standard Contract in some detail from a business perspective, we
are of the opinion that the ft. tract appearte-be biased inf. £ Rast-OFfi
adit can, in some circumstances, operate to the detriment of the Subpostmaster-Aiso,-we,
who may not have reviewed nor fully understood the terms before accepting or declining to
enter into the Contract. We have not seen any evidence that Post Office either advises or
requires the-SubpostmasterSubpostmasters to seek independent legal advice before taking up
their post-Ws Iso-un Sf here-Rost Offi prepared+ ythi
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asi ay-net-have-beanimplemented-by the Subpestmaster,Rost Office-has-th
is-that-Rost-Offi Id- implement decisions from-which it reaps-the benefits (such-as-by
Subp sters-who-have-ne-cheice-othertha acce decision.places a number
of financial and other risks with Subpostmasters who may not have properly understood or
appreciated those risks, particularly if they failed to seek independent legal advice.
Consequently, there is a risk that appropriate risk mitigation measures may not be
implemented by the Subpostmaster.
PEAR REES-S
been-establishad*.
a + /P0ID'} does nothave-s-mandatete-
ide-general-investigati: port-to-Subpostmasters,-There-is-theref neral:
Li & ‘S PP tia $
i Habl ROID-onl hy J:
tigat i y seems te-to-act
(though itis net required to-act}.where-criminality is. suspected,
b S Fequires + ¥
Bi Me 7 * Lheintemieweeis-net
anied-by.a-irencd'> *athieh.
could-be-consideradio-be-unfair,
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at-give
asetheinsubes:
+e
f-orlongafter-thay-had-started.workas-a Subposts
aster; otever-aiall* We are
advised that in some cases, a copy of the Standard Contract was not provided to the Applicant_
until Post Office commenced litigation. Post Office has stated that its sStandard eOperating
pProcedures require that Subpostmasters are provided with a copy of the Standard Contract
no later than the day that they start work but this often seems not to have happened.
"
7 as-¥
Litsalt Rath
“that refers to the Contract, but without
necessarily being provided with a copy of it. In so doing the Subpostmaster acknowledees.
receipt an pf i rms ani inditions, with rid ins pf i
specific provi:
4.11, 2,42-It is worth noting thatrinmany- cases, retaining evidence of the provision of the
Standard Contract (e
ratained-by Post Office.to the
Applicant has never been f the Pi fice’: indari rating Pre eS.
5. 3+ Automated Teller Machines (ATMs)
5.1. 3-L-Our Part One Report provides, in sections 5.23 to 5.29, background information
on the installation and operation of Automated Teller Machines (ATMs).
5.2. 3r2-When a Post Office branch is equipped with an ATM it can be located either within or
external to the branch premises. The installation of an ATM at a branch is often desirable as it
can result in greater footfall and, as a consequence, increased sales of both Post Office
products and services and those of the co-located shop. Most of the reported problems*
problems that-we have as-yar-encounteredseen so far relate to external ATMs.
5.3. 3-3-TheProblems with ATMs have been reported preblemsin more than 20% of the cases
have included both small and large shortages that were charged back to
Subpostmasters by Post Office. In other cases, large surpluses occurred, which caused concern
to some Subpostmasters-Applicants*.*
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3,4.—Most-of the reports that* wo-hoveseen-rolniote Be
HANCO,as-wellas-to-other ATMs*.*
d(*!Bol} ATMs-and-s t
3.5.
the*
4.
Branch's ATM; Wincor Nixdorf (the service and maintenance provider); the LiNK platform and
the customer's bank. The ATM cash balancing/reconciliation process involves electronic and
also manual interaction between the Branch's ATM; the Branch's Horizon system; Post Office's
Financial Service Centre (the 'FSC'); and Bol. This is a rRere-complex arrangement, requiring
greater human intervention, at the end of theeach business day, than that typically depleyed-
byn most high street-and-ether banks whose ATMs are seamlessly connected to their
own computer systems.
5.5. 36-One notable problem, reported by severalmany of the Applicants using Betraising
concerns about ATMs, seems to relate to the manual (rather than electronic/automatic)
extraction and use of the 'cash dispensed' figures from the ‘Bank Totals' receipt that
Subpostmasters are required to obtain *eac! ‘
ad-*the* daily input-obcasis
1 7 “thy bie
P
de oHs_into-Haritzon. This *h a
ith the-eii ! between-ATMs-and-the-Hori: tem!
‘gap
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daily in
been referred to by some Applicants as having to deal
and the Horizon system.
an ‘air gap’ between their ATM.
5.6. 3r#-In February 2008, Post Office issued an ‘Operations Manual interim’. Post Office stated
that it was issuing new instructions because "a number of non-conformance issues are still
affecting the processes for ATM reconciliation and settlement and to explain the correct
end-to-end accounting processes relating to Bank of Ireland ATMs" .
5.7, 3r8-The Introduction to the Operations Manual interim stated:
The Bank of Ireland, via the LiNK network, extracts a 16:30 - 16:30 ‘cash dispensed’ figure
automatically from your ATM each day. This figure forms the basis of a settlement to Post
Office. This figure is the value of cash dispensed from your ATM from 16:30 the previous day
until 16:30 on the current working day.
In other words, the amount of cash dispensed to customers, from each branch's ATM during the
previous 24 hours (or during the previous 72 hours between Friday at 16:30 and Monday at
16:30), would be available to Bol and that data would be extracted by Bol from each ATM.
5.8, 3-9-The Operations Manual interim goes on to say:
In order to meet the required business accounting standard, branches are required to obtain
each day the 16:30 - 16:30 ‘cash dispensed’ figure from the ‘Bank Totals’ receipt which is
available from the Bank of Ireland ATM, and to enter this figure on the Horizon system on a
daily basis.
The Manual later describes that as needing to be done each day after 16:30 but before 19:00.00.
5.9. The Manual continues:
In Product and Branch Accounting (P&BA) a comparison is made between the LiNK generated
figure and the figure you enter on Horizon. If the totals differ, they are queried with Bank of
Ireland and may result in a Transaction Correction sent to your branch. If you do not enter the
daily 16:30 - 16:30 ‘cash dispensed’ figure on Horizon, this means that the settlement figure
by Bank of Ireland cannot be confirmed. In this case the two sets of figures are automatically
reported as differing, resulting in reconciliation problems.
5.10. 3r40,-In addition to obtaining the cash dispensed figures from their ATM and entering
#tthem into Horizon at the Hgktcorrect time of day, Subpostmasters were also instructed to
make a daily cash declaration (and do this every day including on days when the branch closed
before 16:30 hrs) through their Horizon terminal. Specifically:
You must make a daily cash declaration on the Horizon system for the separate stock unit
you have set up for ATM transactions (including days when you close before 4.30pm (16:30
hours) and you have logged on to the ATM stock unit). Unlike cash declarations for your
counter stocks, however, you do not need to make a physical count of the cash contained in
the ATM in order to complete the declaration.
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You must make the declaration before 7pm (19:00 hrs) and you must include all funds stored
in your official safe that you have received on a Remittance specifically for your ATM.
on
11, 3rdd,-It would appear that some Subpestmasters-eitherApplicants misunderstood the
instructions-er, and some were told by Helpline staff, when they were investigating differences,
that "the problem will sort itself out" (though it did not)-aad. Any differences would normally
be expected to be resolved by means of Transaction Corrections, however this often meant
her errors were made. Many Applicants have also ri ‘hat they subsequently
found that the Helpline's advice was later countermanded. Fhis-cormment-and othersimiar
enesComments referring to problems with Helpline advice isare found in the CQRs in nearly
every instance where there-werethe Applicant experienced problems with-the-operation-of an
ATM.
in
.12. 3rd2-A consequence of a.user getting things wrong with the ATM cash dispensed figures
was-that-anand inputting incorrect data and hence causing an initial discrepancy was that an
out-of-sync situation could develop where the branch's ATM would be expected (by Bol and by
Post Office) to have an amount of cash in its cassettes that was different from the cash figure
that the Subpostmaster had entered into Horizon.
5.13. 3,r43,-This-out-Based on comments in many CORs the problems reported by Applicants
relating to this out- of syne situation-and jated. iation-difficulties, became, it
release of the Manual Update.
5.14, 3,44,-Indeed,the Manual-says:The Manual Update confirms that, by following the
new instructions, the process for entering data and balancing ATM cash will change_
and states:
If following the instructions contained in this workaid means that the way you will now enter
data on Horizon and balance your ATM cash will change (for example, if you have previously
entered figures which are not based upon the 16:30 - 16:30 figures or if you have not
completed this task daily, moving to the correct process is likely to result in a cash balancing
difference).
If this is the case, P&BA will issue a Transaction Correction, to address the cash balancing
differences, and will try to provide clear evidence and as much information as possible to
help with correcting transactions. The correction assumes that all previous ATM dispensed
figures have been recorded on Horizon accurately and that branch cash has been correctly
declared.
5.15. 3r45.-Many Applicants have commented on their view of the complexity of the processing
of ATM figures in in Horizon and the general lack of clarity and hence ease of use of the guidance
represent a good example of this. complexity and the-following-extracts-demonstrateshow how
easy it might have been for some Subpostmasters to make mistakes,-even-after-the-new-
instructions-were-released:-From. This is an extract from the paragraph titled Loading cash
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into the ATM:
Always enter in the ATM the number of notes loaded in the machine, not the value
Ensure that you enter the number of notes you are loading, not the amount already in the
ATM
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Please remember: At the weekly balance all figures are cleared. Therefore, you will need to
enter all amounts in total when you reload the machine next.
5.16. 3r46-TheAs an additional example, the following extract is from the paragraphs dealing
with Weekly balancing and recording figures on the Cash Management Sheet:
You must make a physical count of the cash in your ATM at least once a week and record the
figures on the Cash Management Sheet before removing the cassettes for your physical
check of the cash. You must not enter any of the figures on the Horizon system. The weekly
balance can be carried out on any day of the week, even at the end of a Branch Trading
period as long as your premises are closed to the public. It should be completed at any time
after 16:30 hrs when the Disp 16:30 — 16:30 figure has been entered.
Please note: You do not have to reconcile the cash in your ATM with the cash declaration you
make on Horizon. The ATM is balanced using the Cash Management Sheet as described
below. If the Cash Management Sheet balances, your ATM has balanced.
ms
7. _... and the following extract is from the paragraphs dealing with If the Cash Management
Sheet balances, but there is a discrepancy on Horizon:
The Horizon system should not be recording a discrepancy in the ATM stock. If a discrepancy
is not rectified, it will give you a wrong carried forward figure and the problem could be
compounded. If there is a discrepancy on Horizon but the Cash Management Sheet balances,
you could have entered incorrect figures on the Horizon system.
Go back through your receipts and double check that the 16.30-16.30 ‘cash dispensed’
figures for each day have been entered correctly on Horizon.
Check that any ATM cash originally remitted into a counter stock has been transferred into
the ATM stock
Check that the transfer into the ATM stock has been accepted
Double check that the daily cash declaration has been completed accurately
If you cannot resolve the discrepancy, do not phone the Wincor Helpdesk; please phone the
NBSC for advice.
5.18, 317—The-Subpostmasters,in-virtually ¥ that-we-h: jewed,-stateln those
cases in which the Applicant reported concerns about_an_out-of sync situation most_have
stated that they had no idea what was causing the out-ef-sy tat Of-potential
jonifi is -whetherth: bh read d-baf. fter-the-February-2008
io La ia
problem. The 2008 Manual Update did little to resolve those issues. Furthermore, if
the branch's ATM was operating after the 16:30 Bol 'cut-off' time during the week and/or at
weekends (as would clearly be the case with externally located ATMs), then the transaction
volumes and associated accounting entries on the following Monday would include all cash
dispensed in the preceding 72 hours between
72-hours-between-16:31 on the previous Friday afternoon and 16:30 on the following-
Meadaythat afternoon.
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5.19. 3,48,-We have also been told that when ATM-related reconciliation and out-of-sync
problems were reported to the Helpline, SubpostmastersApI s were often told to ignore
the shortfall because it will sort itself out. This-advi the-risk-of allowing alarge-shartfall
te-build-uptseeend-th. bah Jel ded'\in-3,16-above}, whilst awaiting th
Pt P 1p i is
ible-t fa: tien-G 44 therthan-deali ith-the-underyi oh
p a S yinE-P
inadequat d-possibly inapproprate-adviceThe advice from the Helpline, particularly prior
to the 2008 Manual update, appears te have been frequently provided which may-have-
to-understand-and-resol blems-and-h: ing-under-pressure-to-falsely ti
i P is P f
fat lution-t a Ived-probl
porary ¥ Ls
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appears to us (based on comments and reactions from Applicants) to have been inadequate
or po: y. ing. It may. he sing.
Applicants to give up trying to understand and resolve problems. This in turn, could have led
to the temptation to falsely account, while waiting for the problem to “sort itself out”.
3-49,-Many SubpestmastersApplicants have commented on the apparent impact on their
f such fail
specific deficiencies. It is recognised that there are standard processes in place to deal with
power cuts and connectivity interrupts to ensure that data is not lost or corrupted when those
events occur. Nonetheless, the need in such circumstances for an ATM to be re-booted by the
Subpostmaster, or for it to be remotely re-booted by Bol, could in our view, introduce thea_
possible risk of data loss or corruption. Post Office has given assurances that this cannot
happen, and that it never has happened, but some evidence seemingly contradicts those
assurances,-Pest-Office-and Second Sight are- making, so further enquiries on this subjectpoint_
are continuing.
5.21. 3r20-There have been many reported instances where a cash withdrawal eannetcould not
be completed due to a problem occurring during athe transaction. We understand that this
occurs reasonably frequently and can be due to a mistake by the customer. Depending on
when the problem arose it is possible for cash that should have been dispensed to the
customer to be withheld by the ATM but the customer's bank account nevertheless debited.
5.22. 3,24,1n-additien-wheaWhen cash is dispensed by an ATM, butand there is a delay in the
customer physically removing the-cash-fremit, the ATM_will,then after a set period-the- ATM-
wall, retain the cash. This is known as a retract.
5.23. 3.22,-In most instances such retracts occur because customers get distracted and failwalk
away having failed to take the offered notes within the pre-set timeframe (usually 60
seconds). $ Ss
dispensed-cash-atall-In such instances, the customer's account will be debited and, in due
course, his account will be re-credited once (if he remembersnotices his mistake) he contacts
his bank to report what happened. *fhose-notes-shox beanh a :
5 itLwalk fi he ATM with: kine th:
¥ a thout-taking 4
the ATM's-ireteacts-b
*
should have been found, at
t day, in the ATM's ‘re
:.* The more serious aspect of I
id not a cause
retract fraud is dealt with below.
5.24. 323-It is;-however,in-ourview possible that some of the large discrepancies reported by
SubpestmastersApplicants could have included losses brought about by external theft where
sophisticated methodologies had been deployed (such as retract fraud or the more advanced
transaction reversal fraud). The risk and consequences of this sort of theft/fraud, and the need
to thoroughly investigate all reperted-instances-ofevery apparent ATM cash shortfalls-has-been-
dis d-at-length-with-Rost-Office,As-yet pot-satistied-that-adequate-iavestigath
3 ¥ i) Bi
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fat
ters * werehel
6. 4e- Motor Vehicle Licences
6.1, 4-4--Not all branches are authorised to issue Motor Vehicle Licences (‘MVL‘) and only a small
number of SubpestmastersApplicants have reported problems with MVL processing. We have
seen hewever,repeateda small number of instances of a particular problem. This relates to
V11C forms that were misprinted with an incorrect bar code. This seems to have resulted in
Horizon recording the sale of a 12 month tax disc, when in fact a 6 month tax disc was sold.
4.2-If this error is not immediately noticed at the Horizon terminal, a discrepancy, being the
price difference between the 6 and 12 month MVL Tax Discs, will occur and the Subpostmaster
will later be held accountable for the resultant cash shortfall. In branches issuing large
numbers of MVLs this mayco
become a significant amount.
§,- National Lottery
7.1, 54-Not all branches sell Lottery tickets or Lottery Scratch Cards. Where these items are sold,
they are usually sold from the co-located shop's retail counter, rather than from the Post
Office counter, even though they have to be accounted for using the Horizon terminal at the
Post Office counter.
IN
iN
5e2-There is often a significant difference in the opening hours of the counter in the retail shop
and the shop's Post Office counter. The retail counter will therefore be selling Lottery
tickets/Scratch Cards outside the hours wheren the Horizon system is operating at the Post
Office counter. Since branches are not allowed to sell National Lottery products other than
through the Post Office, each day's ticket sales have to be recorded, the following morning, in
Horizon. Also, before any Lottery Scratch Cards can be sold, they must first be ‘Activated’ on the
Camelot terminal and then 'Remmed in'to Horizon.
7.3. 5v3-We have received many reports where SubpestmastersApplicants have stated that their
branch's Horizon system would get out-of-sync with the quite separate Camelot system,
thereby generating material surpluses or deficiencies that were eventually corrected by Post
Office issuing Transaction Corrections (TCs) through the Horizon system. The average
Lottery-related TC was approximately £ £650 and many of these TCs were for amounts that were
exactly d divisible by"
fue of a k of Scratch Cards.*
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7.4. Prior to 2012 most discrepancies on Scratch Card activations were caused by
7.5. 5-4-These problems appear to have been most serious and frequent between 2005 and
February
2010, when Post O1
ffice made a significant change to its
the-possibility.of synchronisation-crrers- between-the- Hosen and Gamelot-systems* Standard.
Operating Procedures. This reduced the possibility of having packs of inactive Scratch Cards.
recorded in Horizon or having activated packs that were not recorded in Horizon.
IN
ad
5-5--We have also been told by Applicants that, before these important systemprocedural
improvements were introduced, inconsistent and sometimes conflicting advice was provided
by the Helpline, which further exacerbated their problems.
IN
~
5-6.-FheOccurrences of the out-of-sync problem wasappear to have been particularly
prevalent in branches where thean associated retail shop sold Lottery tickets late into the
evening, after the Post Office counter had closed. A further complication often occurred on the
final Wednesday evening of the monthly Trading Periods v
n Subpostmasters were required
to reconcile the Horizonf.and Camelot figures as a priority task on the Thursday morning,
rather than at 17:30 on the Wednesday, but this requirement was not always advised by the
Helpline. It is not clear whether the training and support that SubpestmastersApplicants
received covered this important point.
SPA fi ple-of- the-Camelot/Hori: hronisation4 is-deseribed-in-Appendix-4
si ? ¥ PP
Fs Jaterim-Report-dated-th_tuly-2013-and-thi idesfurther-important-informath
P ¥ P P
aboutthis.mattar,
8. &- Training, Support and Supervision
6rd-The nature and extent of training provided by Post Office has developed over the years and
isas described in our Part One Briefing Report. Faein our opinion, the training iswas probably
adequate for people who haved reasonable levels of IT skills, numeracy and accuracy, though
further product-specific training, rather than the use of Operating Manuals, is-prebably-
neededwas perhaps required for some Subpostmasters, especially those whose branches
delivered a wide range of products and services.
6r2~We have been repeatedly-told by most Applicants that thewhilst their basic training
presentedte-Subpestmasters-was probably adequate in regard to general ‘Business as Usual’
Transaction Processing, B¥tit was predominately sales-f: 4 focused and teglas-belng
poerweak in regard to eEnd of day,-and-particularly-endDay, End of Week and in particular,
End of Trading Period, balancing. FhereWe have been advi: here
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was little or no coverage of how to deal with discrepancies (both surpluses and shortfalls);, how
to identify the root causes of recurring problems; or how to deal with Transaction Corrections.
8.3. 63-We-b Iso-heard. yexamples-of Subpostmast ho-f yMany_
Applicants have commented that, in the years prior to the installation of the Horizon
computer system, they typically had monthly surpluses of just a few pounds (less than £30
seemed to be the norm) and that they first experienced large discrepancies shortly after the
Horizon system was installed.
8.4. Many Applicants have reported that* ¢
*mistakes after th
~ This could indicate a lack of understanding of
w syster
how the system y was meant to operate and be used, which could itself indicate* {/)3
either beer
that the *new s¢
they*, nor anyon
G4ett Id. that-since* they-cr
ed*, that they had been unable to properly train their staff, or
d counter pr
e in Po:
neither*
the-systemitsalf® nor anyonein
8.5. 6+5+-We note that the duration of Basic Training has varied widely over the years and is now
far more extensive than it was in 1990 - 2010 (the pertinent period for many of the
Applicants). Post Office refers to the current routine provision of two weel’sweeks’ training
for Subpostmasters. We-have-found many-examples-where SubpestmastersMany Applicants
have reported in their CQRs that they received fewer than two day'sdays’ training and were
simply handed Operating Manuals for self-study and to train their counter staff.
. §6--Post Office's Trainers, and in some cases Applicants’ Line Managers, do not seem to
behave been well regarded by many SubpestmastersApplicants and appear to have been
considered particularly weak when dealing with ATMs; Lottery processing; Motor Vehicle
Licences; Foreign Currency; and other specialist products.
8.7. 6-8-Subpostmasters are responsible for training and supervising their own staffs.and Post
Office ha: dar-it: tractawith Subpest tars; no responsibility to train staff, other than
in Crown Offices. Post Office does provide Subpostmasters with relevant training materials for
themselves and their staff, but it does not exercise-anyoperate a quality control function in
order to ensure that this further training is properly delivered. We found that further training
for Subpostmasters was predominantly delivered in response to user demand, rather than
being determined by Training Needs Analysis.
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8.8. 6-9.-We recognise the complexity of the current product range and question whether a
counter process involving over 170 products, operated by more than 68,000 staff, of vastly
differing levels of intellect, experience, numeracy and attention to detail, can ever be
hi ight-and it Once-ag
del-that-transte
ith. ited. + Offi i
expected to work well
tthat-this4
by Ry
SY
of -offacth duet
leche i
effective and comprehensive training and support regime.
2. 2+ The Helpline
9.1, Fr4-WeMany Applicants’ CQRs have heard-manyincluded examples where the Post Office's
Helpline has failed to provide any-worthwhile support when called. Specific criticism has-
r log (w ilable) often does not provi it detail about.
ly whi advi rovided in order for form eviden: inclusions.
Specific criticisms include:
b) a}unhelpful, script- based, responses;
¢) —-b} many calls, including those seeking help on balancing problems and
discrepancies, were afforded ‘Low Priority’ by the Helpline staff; and
d) — ¢}instructions received during one call that are said to have later been
countermanded, sometimes months later, by another;-and
d} —* aiificulty in-contacting the helpline duc-toiistinited availabill
9.2. F&A frequently recurring response by the Helpline, relating to shortfalls, is said to
have been: "don't worry about it-the-shertfat}, it will sort itself out".
9.3, Many Applicants have reported that problems did not sort themselves out, nor was any
indication-ever given by the Helpline as to how long they should wait before realizing that a
problem that had not sorted itself out would probably not now do so, nor how they were
supposed to balance the books during the intervening period.
10. 8+ Limitations in the Transactional ‘Audit Trail’
10.1. $-4.-Many Applicants have claimed that, whil: knowle
their own mistakes, they were often unable to determine the root causes of discrepancies
(both shortfalls and surpluses) reported by Horizon, because the underlying transaction data
was not made-available to them.
me errors were cal
inderlying root cat
Page
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understood.
10.3. $r2-The concerns fall broadly into three areas:
a) data that isn't available even on the day of the transaction;
b) data that was at first available, but after 42 days (later extended to 60 days following a
system change by Post Office) is no longer available; and
c) data that isn’t available after suspension.
Data that isn't available even on the day of the transaction
10.4. 8-3--Applicants' concerns principally relate to transaction types where Horizon produces, at
the end of day, only an aggregate amount and volume for that day's transactions-4eg-+
ions: a }. These transaction types are those* wher:
paiclor.coods-orsemiees-by.Bebit
10.5. 85-In the event of an end-of-day discrepancy for one of these transaction types, and
without the benefit of a disaggregation of a total amount into its constituent transactional
components, SubpestmastersApplicants found it difficult, if not impossible, to identify the
individual transaction(s) that brought about the discrepancy.
10.6. 8-6,-Typically, a Subpostmaster would need to find items:
a) _ that should have been, but were not, included in the aggregate total; or
b) amounts that had been incorrectly entered, such as £50.00 entered as £500.00, £39.00
entered as £93,0093.00, a withdrawal processed as a deposit; or
c) amounts that formed part of the aggregate total, but should not have been included in
that total at all.
$+7,-Only by finding those errors and omissions could the-SubpostmasterSubpostmasters
begin the process of correction and loss mitigation. Thatis may sometimes have involved
contactingattempting to contact the relevant customer, but in order to do that hethey
needed not only to identify the incorrect or missing transaction, but also to know the name,
and perhaps also the address, of the relevant customer.
&-8,-Many Applicants have told us that, prior to the introduction of Horizon, it was easy to
do this since the paper dockets retained to evidence each transaction provided this information.
It is regrettable that the Horizon system does not provide the same functionality as the previous
manual system.
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Data that was at first available, but after 42 days (later extended to 60 days) is no longer
available
10.9. $9.-The main concern expressed about data availability, is the need to go back to a
previous period in the event that a Transaction Cerrectiens-areCorrection (TC) was issued
by Post Office a long time after the transaction (to which the TC relates) was erroneously
input into, or omitted from, Horizon. TCs are issued for different reasons and different
products may be treated in different ways. If the delay in issuing the TC exceeds 42 days
{now 60 days), the Subpostmaster has-tittle-cheice-otherthan-te-accept the TC, Requests
ting-evid that id-enable the subst: f the TC-+o-be validated
a
routinely-rejected-by-Pest-Office,-usuallymay no longer have data readily available with
which to respond to the TC and may have no practical alternative other than to accept it.
We have been told that if further data was requested from Post Office, such requests
were often rejected on cost grounds. Alse,We are also aware that the difficulty in both
printing-et and examining Horizon's 8cm wide 'till rolls' was a significant issue in locating
the transaction(s) that had created discrepancies.
Data that isn’t available after suspension
10.10. 8-40,- Applicants have reported that their ability to investigate transactional discrepancies, or
to defend themselves against allegations made by Post Office, were often thwarted because,
following their suspension (usually on the day of an Audit); they were-thereafter, as a matter of
d that.
Post Offi licy, denied access to the Branch. In many instances we have bi dvi:
Post Office Investigators also removed Branch's-records, often including personal documents
such as diaries in which theyApplicants had noted problems that had occurred; to whom they
had reported those problems; what advice and instructions they had received; and what had
resulted from following that advice or instructions. Applicants have also reported that, despite
their requests, they never regained access to any of the records they needed to prove their
innocence.
11. 9. Transactions not entered by the Subpostmaster or their staff
11.1, I 9.4-Many Applicants have reported that Horizon transactions appeared to have been
entered,
or cash or stock balances changed, when the branch was closed and no one had access to any of
the Horizon terminals.
11.2, 9¥2.-Post Office has confirmed-its-understanding that it is not, and never has been, possible
for anyone to access Branch data and amend live transactional, cash or stock data without the
knowledge of the-SubpestmasterSubpostmasters or their staff. However, we are aware that
certain error recovery and correction processes can result in transaction reversals that carry the
System Identitiesy-{#Ds (ID) of the branch employee who entered the originating transaction
that the system itself is astematicallyreversing, or the ID of the employee testarting the
system (see ‘Automatic Transaction Reversals’). We note that this fails to easily* <iifferentiate
Page 21
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Data that was at first available, but after 42 days (later extended to 60 days) is no longer
made by a user and those that are system generated. Enquiries on these
matters are continuing.
12. 10,Automatic-Transaction Reversals
12.
10,4,-As mentioned above, a number of Applicants have reported transactions that
appear to have been input when the branch was shut and no one had access to the Horizon
terminals.
40.2, Ali i jast ‘ghost!-t eat +0-h. tributed-+to-shortfalis-te
br 7-8 PP
hich the relevant Subpostmast jater-held- table-'Ghost_t: ti
rf hatte aH ey itinletimesinthe-Horizen ds,We-briefiy deal: ith
transactions! pp tiple ¢ y a
this i interim Repert-see Spot Review-04}.4a-that la, the Hori tem-had
pore e ui P ¥
tomaticall d-a-transaction,-which-had-been-oaly-partiall leted,Although-th:
¥ +P ¥ P 8
Subpestmaster-had-entered-the-original-t tion,-he-had-net-eatered-th: Lof-that-
2 e As: 6) es of
transaction Rather, the Horizon system-had-automaticall ated-a-transactional. aft
Hering-o-tel ications int i
5 ie
Page 22
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12.2. A few Applicants have reported that they had entered an original transaction, but had not
entered the reversal of that transaction. Rather, the Horizon system appeared to
have generated a transaction reversal, without their knowledge or their
intervention.
te-that- reversal. was-that-of thi
ted 1D.We-note-that-thi to-failto*
bia
de-byal. d-those-that " nerated,
¥ ¥ 8
10.4-—This-mi: £-UseriDs-£ a ted-+: " 1 to-b
¥ $ PP
tent-and not yet fully understood -V d-evid: have-
been ided-by- Rest-Offi -further-enguir tinui
P ¥ + iS
46-5,-12.3. This matter was also highlighted in a report by Helen Rose, Post Office Security - Fraud
Analyst - dated 12 June, 2013:
"\.. itis just that I don't think that some of the system based correction and adjustment
transactions are clear to us on either credence or ARQ logs." s+
“However, my concerns are that we cannot clearly see what has happened on the data
available to us and this in itself may be misinterpreted when giving evidence and using the
same data for prosecutions:”
N.B. 'Credence' is a Post Office Management Information Reporting System and 'ARQ logs' is
a reference to a request for Horizon information archived through the ‘Audit Retrieval Query’
process. Enquiries on this issue are continuing.
13. 44-Cash and Stock Remittances (‘Rems:) in and out of the branch
13.1. 441-A number of Applicants have raised issues concerning 'Rems'.
44.2-'Rems' are inward and outward remittances of stock or cash (including foreign
currency).
Large amounts of cash and stock are routinely sent to and from branches using this process.
Robust procedures are in place to ensure that the process normally operates reliably and that
errors, or theft, are rapidly detected.
44,.3--Occasionally however, branches will report that a Rem 'pouch' was not received or that
it contained fewer items, or lower value, than the sender claimed. Similarly, Post Office will
sometimes find that a Rem pouch sent by a branch is missing or its content has been overstated
by the branch. Post Office deals with these discrepancies by issuing Transaction Corrections
*the
Row-th
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12.2. A few Applicants have reported that they had entered an original transaction, but had not
* horses saryic-relyonwitness-stateme mantary-avi as-ts
sther-cec
13.4. 44.4,Some Applicants have described instances of foreign currency shipments being
accidentally sent to the wrong branch. We are aware that some of these errors have occurred
due to Post Office's Business Partner for Foreign Currency (‘First Rate!) using an incorrect
delivery address. Clearly, this introduces the possibility that a-Subpestmaster-weuld-bean
Applicant might have been held accountable for a shipment that was never received by his
branch.
13.5. Post Office is now carrying out further investigations into this matter.
Page 24
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14. 42--Missing Cheques
m=
4.1, 2rd-As with other outward Remittances (see Cash and Stock Remittances (‘Rems:) in and
out of the branch above)-sub-pesteffices, branches 'Rem' to Post Office's main processing
centre (in Chesterfield) all cheques that the branch has taken in each day. These are put
together into 'Stripey' envelopes and collected by the Royal Mail after each day's cut-off time.
14.2. 42,2.-For almost all of the-raany cheques that Post Office handles each day, everything
normally goes smoothly, but some cheques do get lost or_are accidentally spoiled either within
the branch or at Chesterfield, while some envelopes get lost in transit.
14.3. I 42.3-We have also been informed that is possible for cheques to get damaged in Post
Office's cheque processing equipment and therefore not be processed. In such cases, if the
cheque is so badly mutilated as to be unreadable, the possibility arises that a branch might be
charged, through the TC process, for a missing payment even though the cheque had been
sent to Chesterfield. Also, where a customer's cheque ‘bounces’, it will be charged back to the
branch if the branch staff failed to follow sStandard eOperating pProcedures. Post Office has_
stated that it will attempt, where possible, to obtain a replacement cheque from the
customer.
14.4. 42,4+-Assertions have been made by some Applicants that customers' cheques (received in
exchange for goods or services rendered at the counter) never cleared and they were held
accountable for the value of those missing cheques. Post Office has told us that there have
been no examples of this occurring and, in due course, Post Office will have an opportunity to
respond to several specific examples cited by Applicants. Enquiries on this matter are
continuing.
14.5. 412,5.Some Applicants have complained that the TC process was sometimes so slow (in
regard to cheques) that, by the time they had been advised that a cheque had been lost,
mutilated or returned by the paying bank, all chances of mitigating their loss were gone.
14.6. _ Post Office has confirmed that Subpostmasters will not be held liable for cheques lost in
transit and that, if all required procedures have been correctly followed, they will not be
held liable for cheque-related losses.
15. 43-Pensions and Allowances
15.1. 13-1-A small numbereffew Applicants have reported problems with Pensions and
Allowances,Seme-efthese-cases-inciude where Post Office's Investigators made allegations
that the Subpostmasterthey, or their branch employees, had stolen money by fraudulently
manipulateding pPension and/or aAllowance payments, for-example-by-showing, The
(foverclaims’}-or-by-allowing-a-green-GIRO-cheque-to-b: <-{:) or where Green GIRO
cheques or Pension & Allowance dockets had been re-used (reintroductions*).
Page 25
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15.2. Post Office has responded to our request for background information to help us better
understand and put into context the fraud that Post Office had alleged was happening in
13.2,—S, of these Applicant: d-by-Post- Office-of fraudulent!
PP ¥ +P) g-
Jai d/or-reintroducti d-we-h. ked-Past-Office-to-hel. inad
PUSS P
derstanding-ofth: that investigated,-and-the-subset-ofthese-that
e- set e- 1
prosecuted der-tefind out why-sofewefth s to-h: red i
We-will only-be-ableto-davel. ty evidenced this sublectavh:
p-a-preperty s
h mained. ithe relevant Enq thi tt sinuing.
15.3. __ Our purpose, in seeking this background information was to clarify how these types of
fraud may have been perpetrated and how Post Office identified those responsible. We
needed to explore the possibility that Applicants, who had been accused by Post Office of
fraud but not ultimately convicted of it, but who had in some instances been required to
repay the allegedly stolen funds, might have themselves been the innocent victims of a far
larger ‘pattern’ of fraud.
14.-Past-Office's Data Retention Poli
st Office pointed « rit prosecutic
al n legal advit jority of the cases it tak
involving reintroduction fraud, result in successful prosecutions.
ind ne
14.4,—We-h: bi teld-that-Post- Office has-a* seven-year Date Retention Policy *-Fhis-
Policy applies notte only* orcontve. oraldeteheldio tuite* betalsetoalL
otherbusinessreacerdsincludiag* «comls. ion 2 ptkervie ordings* and
transcripts, * Auditand investigation Reports *and-Legal files asesthat-haveb
eoanchided,
15.5, Post Office's response described the way that overclaim and reintroduction fraud can be
perpetrated and how the relatively easy to manipulate dockets have since been replaced by
the more secure 'Post Office Card Account’ (POCA) which uses ' ology.
However, Green GIRO cheques are still in use by customers who have lost their POCA cards.
ni hi n_ tempor: nefits.
arto-operates-Htigati
omplaint-orinvestig spective-ofthecevern-
etention-pesiod, * Ma S Seep. Ho caodpalcuidue
15.6. _It is clear that, while overclaims can arise as a result of errors innocently made in a branch
a benefit pay-out even though the genuine transaction with the customer has already
occurred. Post Office concedes that reintroductions can happen by accident, but the
Su
Page 26
e.g. by forgetting to remit a voucher), reintroductions involve a positive decision to re-process
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would still be liable for such errors and it regards multiple reintroductions as being indicative
15.7. Post Office has concluded that no ‘pattern’ of fraud exists, and we will now examine each
of these cases on its merits. Further enquiries on this matter are therefore continuing.
me
6. 25-Surpluses
16.1. 15+4-As stated in the section above dealing with The Standard-Contract between Post Office
and its
Subpostmasters:
“surpluses may be withdrawn provided that any subsequent charge up to the amount
withdrawn is made good immediately".
15.2,—Thei: here-is- that although Post Office-dafines-both-short: " I
i B i
discrepancies, it-dees-not-seem-t -d-surpl s-worth-the-s: J
P 28 Li 3)
shortages and ignores the passibility that they may *96.couied dae itas
16.2, 15.3,-We-believe-that- surpluses, just like-daficits (shortfalls) are. discrep dal
thatall- discrepancies, if material, Post Office defines discrepancies as including both
. We believe that the cause of all material discrepancies should be
investigated and corrected. itis-only- by-doing-this-that-the underlying reat-cause-ofthe-
discrepancy-can-be-established,This should include consideration that discrepancies could*
ide of the branch
that:Feedback from Applicants has demonstrated to us that the preliminary Investigative.
assumption adopted by Post Office appears to be that *disc: e
*errors or problems at the counter and or by theft. Post Office's confidence in the Horizon
system remains very high and as such, the system itself will normally be discounted as a
source of error.
cause:
a} * discrapancies-are-usually.caus ‘problems atthe-counter;
This is- despite the-fact-that Jus-of- 5 likely-to-h: tom fault-asit
45.5; esp 2 £1,000 ¥ y
th hortfall. The-logic-here-is-thatwhi theftand Jtof
£14,000. et e-
" bei der-charged, i £ material short ihis-farless-likel
Ag: ages, bid GO; ¥
that-material TF +h: it-of- staff raat au inte-the-till if. tom
‘P putting ¥
Page 27
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paying-overtoo-much-cash,
surplus, unbeknown to the customer or third party. Another cause of a surplus could be
the underpayment at the counter to a customer, although this is more likely to be
detected.
16.5. 45-6-We prised-that Post Office -hasimplemented.a-policy wherebyunderstand that
although surpluses are expected to be retained {by the Subpostmaster}, rather-than-being-
recorded by Pest-Office-centrally and-held it is possible to hold them in suspense by ‘settling
15 F-—W ¢-aware of any other Financial institutions that-all te-keap their-til
¥
it to-us-that-this is afuadamentall: anddan i tleast
Bs ywreng BeroUs P
b i ing Subpos: move-any-surpluses-th: itavoid
, ging Subpestmastors y surpluses that-eccur it
focussing-on-the-event-thath d-the-surplus-in-the-firstpl
S * I
FAs ber oui erent i abot a tee ig Bae ed et - eo.
e-SuEp!
legitimately .d- money-from-the business could later find thamselves financially
b d-when-aTransaction tion-areh ad-they- new- haven. dily.available-
fundstocovanit.
16.6. 15,9,-This-appreachtoThe* failure to in ect *material discrepancies is
perhaps unique to Post Office's Business Model-and-we-nete-that-few, Unlike commercial
entities could survive this-sortof* fail Foorrect *diserepancies, Rut
imply,-unlike-ordinary 4 titiesthat do not operate on an agency basis, Post
Office has had little commercial incentive to seek the root causes of discrepancies because tt
has-to-bear-th. tapth nstead,as the burden of cost (and risk) is being carried in
most instances either by its Subpostmasters, in the case of shortfalls, or by its customers or
Post Office Clients, in the case of surpluses.
45.40, \Aie-have-alse-been-told-that- many-Applicants.were-unableto-determine-th .
" transaction data-was-not-made-available to-th:
17. 46.-Cash withdrawals accidentally processed as deposits and other counter-errors that
benefit customers at the expense of the Subpostmaster
Cash withdrawals accidentally processed as deposits
17.1, 16+4-Mistakes can occur if the counter clerk accidentally touches the 'DEPOSIT' icon on the
screen instead of the adjacent 'WITHDRAWAL' one, thus generating a deficit of twice the size of
the customer's withdrawal. Such errors by branch staff can be difficult to isolate from the
system- produced totals of card transactions (see Limitations in the Transactional ‘Audit Trail’
above) unless the customer notices his windfall and then tells the branch about it. Absent such
customer honesty and diligence, shortages brought about by such mistakes are very difficult to
isolate and recover.
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Other counter errors that benefit customers at the expense of the Subpostmaster
17.2. 46.2,-We arehave been made aware of cases where SubpestmastersApplicants have
been held accountable for shortages that have arisen through what Post Office refers to as
“errors made at the counter" and where customers have profited at the expense of the
Subpostmaster.
16.3,-Where a customer has received cash or goods and later discovered that their bank
account has not been debited or their card account has not been charged, it is quite possible
that they may keep quiet about it, leaving the Subpostmaster to be held accountable for the
resultant shortfall.
A,—The-difficultyi: ti rm is-d trated-bythe-following-d i
46. ¥ ed-by Ag: P
the-ch in-th
46-5,-In mid-2008 the method of processing receipts into Giro Bank accounts was changed.
Previously, customers completed a two-part paying-in slip. One copy of the paying-in slip was
retained by the customer, another was retained in the branch and cross-referenced to the entry
made on Horizon.-#-£ ple, th ter-clerk-accidentally-keyed in-£2,000-instead-of
withthe paying.
d-andthe-branch's-b:
Page 29
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paying-in slip. Hence, a correction could have been actioned and the branch's books brought
back into balance. In such a case, the apparent cash shortage would have been eliminated
because the audit trail enabled the specific cause of the shortage to be identified and corrected.
167,-However, after the processing change, paying monies into Giro Bank accounts was
actioned via swipe cards and one-part paying in books with no supporting documentation being
retained in branch.
17.7. 16-8-After that processing change, the counter clerk would swipe the customer's card to
access the account details and then key in the cash deposit. After inputting the deposit, the
system printed out just one copy of a receipt (which specifically states on it "VOT TO BE
RETAINED") and this was then passed back to the customer along with their swipe card.
469 —* follows thatthe counties
Horizen-and-* did-notiasmedis
difference-between-the
RIGS
example}* oweves
ke 1 i £20004 £62003
spot-*ehi the-bal fd-shi £1,800*
2 B.S £0 ne. supporting
available either to the Subpostmaster, or to Post Office centrally. Therefore
neither the Subpostmaster nor the Post Office's central processing unit would be able to check
whether or not the cash deposit entries on the system reflected the actual amount of cash
that had been deposited.
16-40, Thetackof. dit-trailis-a-fund. tal-flaw-i i y J.
¥ BS
th ised ss-made-it-almostimpossible-to- identify in s-and-acti
P ip +P e
corrections,
18. 44-€rror and fraud repellency
18.1. 4%4-Normally, when a business detects errors or fraud occurring repeatedly, investigative
and analytical work will be carried out to determine whether changes to its sStandard
eQperating pProcedures, to its hardware or software, or to its employee training, should be
made so as to reduce the likelihood and/or seriousness of future recurrence. This process of
investigation and analysis generates, over time, a ‘Virtuous Circle' of detection, loss mitigation
and process correction/improvement which builds the entire system's robustness and efficiency.
17.2.—Businesses-are-motivated-+t +-suchimy ments-when-th ted- Reti
¥ iP PFO}
javestrent-shows-that-th: ings-{i ductions}that-will from-implementing th:
# tia Ss
iL. Hi { theirinitialand. i Hi hat-thi
ey " 4 going-cost-Hitseems-thatt ¢
fraducingtheset ith d-the-likely-return-b fred: them,th
e yway iS 7 pany
a it: tely,take-arisk " di -to-continue-te-absorb-the- losses
¥r PPFOP ¥7 P
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paying-in slip. Hence, a correction could have been actioned and the branch's books brought
rnent,is-in-establishing wherelesses-can-be-minimised-at-the-lowest
s
17.3-Withth pe fLottary and Seratch Card p. have-found ite.
id that Rost Office -has-utilised the ab tioned i Jad inp "
p 4 t-taking responsibility forin not fully investigating "errors made at the counter",
even where it is obvious that some of those errors have been systematically repeated ina
branch, or even across the Network, Post Office seems not to taken ‘ownership’ of finding ways
to reduce (or manage) those errors.-This-is-uasurprising in-that-the-cost-of th: 5.
fraud.is,in Rest Office's Business Model, generally borne-by its franchisees, th:
Subpostmast ther-than-by Rest Office itself ‘so-The-Contract-bet Pest-Offi
and Subpestmasters-above}
18.3. 24.4-This has led to a situation where Subpostmasters have been bearing the cost of losses
caused by errors and fraud that could possibly have been designed out of the system, white-
PRost- Office has- benefitted § the-savings ith: de-by-notimph tingth
by-developi d-fraud. Hent theabs tioned
tion,thatis-presenti +-businesses,-has-been-absentor where improved
operational procedures and training could have reduced the incidence and severity of errors
made at the counter.
18.4. _A good example is an issue that has been raised by Applicants in regard to Giro transactions.
*
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18.5. A few Applicants have reported, when faced with that question, they usually did not have
f 2 hett i + *needed* to G
g hand (end *could not access the data as Horizon was still completing its reboot
process), they were* for t < *was the correct
response. This often resulted in the ‘wrong’ answer being entered and transaction errors
being generated.
47.5--18.6. The following key question, that arises from the above
observations, is: "/s Horizon fit for purpose?"
17.6. answariag 18.7. In trying to answer this difficult question, we recognise that, in the
vast majority of cases, Pest Office's
Post Office's Subpostmasters operate their branches year after year with minimal reported
problems. For them, the Horizon system appears to be "fit for purpose".
44,7-18.8. References here to 'the Horizon system' are mainly focussed on ‘Horizon On Line’, which
evolved from the original Horizon application. Our comments encompass not only the system
itself but also supporting processes and procedures. However, anumber-ofsome comments
received relate to earlier versions of the system, a number of enhancements having been made
following user experience and feedback.
47,8,-18.9. For the Horizon system to be considered fully ‘fit for purpose’; for all users it would need
to accurately record and process, with a high degree of error repellency, the full range of
products and services offered by Post Office, whilst providing a clear transaction audit trail that-
would-ellowallowing easy investigation of any problems and errors that aresearise. *
The cases
nwouldalso-needte-beablete-c with-a-diversecolection-otend
wherepowerandtelecony could note.
errors are more likely to occur when unusual sets of circumstances and behaviour are present.
We have little doubt that branches with unreliable hardware; or poor telecommunication and
peer-power supplies, appear to have suffered a disproportionate incidence of problems,;seme-
fwhich-be. in-effect,-life-changing.
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18.5. A few Applicants have reported, when faced with that question, they usually did not have
4442,--18.11. We have also come to the conclusion that some peeple-were-probablyof the people
appointed by Post Office as Subpostmasters may have been unsuited, from the outset, to the
ever-increasing complexity of running a computerised branch. These include those who:
a) were relatively (or even in some cases totally) new to using a computer;
b) _ had insufficient time and knowledge to be able to investigate and resolve shortages;
without quality support and assistance; and
c) relied upon staff whom they may have ‘inherited’ from the prior Subpostmaster and
who were either careless, inadequately trained or even dishonest;-and.
4
PR +P iP t >
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18.12. Where a person, who was either unsuitable-o, inexperienced_or inadequately trained, was
faced with problems, perhaps associated with hardware or telecommunications failures and the
system's resultant restart and recovery procedures, it was at that moment that an otherwise
repairable situation often turned into a catastrophe. For them, and in those-ver¥ specific
circumstances, Horizon could not be described as "fit for purpose".
Giro-transactions.-*This-relates-to.
BB
19. I One-sided transactions
19.1. Many Applicants have raised concerns regarding transactions involving debit or credit cards
where Horizon has processed a transaction but the corresponding charge to the customer's
bank account wasappears not.to have been processed. In other cases the opposite situation
occurred, where Horizon rejected (or appeared to have rejected) a transaction, but the
corresponding charge to the customer's bank account apparently was processed.
19.2. One possible cause for this might be that telecommunications failures, sueh-as-these-
that-di tthe Pidipadt ported -by 4-Applicants} have occasionally prevented
one side of a transaction being processed whereas the other side of it has been processed
properly.Fh ofp ing interrupts-might-resultd somers-being-charged-4
ds-that-th t-raceived-{f Jed its-that-don't-get d-or-bill:
8 ¥ P i get-pi
that-den't-get-paid}. 7 iv ds-Lor-cash} for-whichthey-h. tb
get-paid) 8 4 La ¥
charged.
19.3. These transaction processing failures would be less troublesome if they were always
detected, at the counter ideally, or later by additional control and reconciliation processes
carried out by the Subpostmaster or by Post Office itself.
19.4. It is however not yet clear whether Post Office's in-house (after-the-event) reconciliation
processes can be relied upon to always detect any one-sided transaction that the
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Subpostmaster fails to detect.
19.5. Where a customer has been charged for something that he has not received, there is a very
high likelihood that he will detect this (for example if he receives a Final Demand for a bill that_
he believes he has paid) and will complain. On the other hand, where the opposite has
happened, and a customer has received cash, or goods, and his bank account has not been
debited or his card account has not been charged, it is perfectly likely that he will be unaware of
his windfall or will simply keep quiet about it, leaving the Subpostmaster to be held accountable
for the resultant shortfall.
19.6. It is important to understand that, where that sort of Herizen-generated error occurs, no
evidence of it is visible to the Subpostmaster unless the customer discloses it.
19.7. We have provided Post Office with examples of-these one-sided transactions and our
enquiries on this important point are continuing.
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20. Hardware issues
20.1. An examination of the hardware in use in a typical branch reveals that_much of the
equipment appears to be quite old,-eften-ten-y i being first-putinu
wch-of the-b
his is becatis: Spoke-equipes ssedlby Horace : pmanufactured*
In some cases it was first put in place more than ten years previously.
20.2. There also seems to be little routine hardware maintenance. Instead, faulty equipment is
replaced as and when needed. This process is referred to as "kit swap outs" and principally
involves the replacement of broken units with reconditioned ones. Reports of several
reconditioned components or units being tried, and failing, before a working one is found, are
not unusual. *7
The most commonly raised issues concern printers, PINpads, touch screens,
telecommunications equipment and base units.
20.3. Many Applicants believe that faulty equipment could be responsible for otherwise
unidentified shortages. Post Office’s position on this is that it cannot happen. Enquiries on this
point are continuing.
20.4,—-We have also bean told-of. hi iat hi t-mes: to-th
bs ¥ eB
djacenticon-or-th: jdental-mis-kaying-of values-that-are-ten-tiny tarorlass-
uy Ys. 8
than-theiatended. nt-{see-Cash.withd: Is-accidantall sed-as-depesits-and.
+9
Oth: a that-benefit-cust th {the Subpostmasterabovel,
i P i
21. Post Office Audit Procedures
21.1. We: cat sin many cases where-SubpostmastersApplicants have told us that
they were not given copies of the Audit Reports relating to their branches and that their
enquiries to Post Office, in respect of that-Auditthose Audits, were never answered.
21.2. It is clear that Post Office's current practice is that each Subpostmaster is provided with a
copy of the Audit Report for his branch. We do not know when this current practice was
adopted or whether a similar policy applied in prior te-2043,years.
22. Post Office Investigations
22.1. As aresult of our investigations we have established that Post Office's investigation team
has, in many cases, failed to identify the underlying root cause of shortfalls prior to initiating
civil recovery action or criminal proceedings. This includes cases where
Page 22
SubpestmastersApplicants brought to the Auditors’ or Investigators’ attention their own
suspicions as to the underlying root causes.
inadequate investigation prior to suspension (without pay); termination; or civil/criminal
action.
22.3. Wh duet 4 tigatienBased on the cases examined so far, Post Office's
S
investigators seem to defauithave defaulted to seeking evidence that witwould support a
charge of False Accounting, rather than carrying out an-opea-miaded investigation into the
root cause of any suspected problems. This-evidenceEvidence to support a charge of False
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Accounting is often easily obtained since, when confronted, during interview; with evidence of
obviously over-stated cash figures, the accused person will often readily admit to several
eounts-offalsifying the end of Trading Period Accounts.
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22.4. With the exception of an interview conducted in accordance with the Police and
Criminal Evidence Act SEALs we note that* the
*albeit with very limited
22.5. 22.4.Theseinterviewsinterviews will usually be recorded and, when an admission has been
made, this will virtually always trigger a 'Guilty' plea by the defendant_and often an associated
repayment proposal. As a result, Post Office investigators seem to have found that,-by
recording these-admissions of False Accounting,-this was the key to achieving relatively rapid,
and (to Post Office) inexpensive, asset recovery.
22.6. 22.5;-As a consequence of this, Post Office's investigators seem to have de-emphasized
the importance of unearthing the true root causes of the "mysterious shortfalls" that
Applicants claimed to have suffered. Even when faced with requests from Subpostmasters
for investigative help, this has often been refused. Regrettably, this refusal to provide
investigative support is in line with the Standard Contract{see The Standard Contract
bet: Rost-Offi <-its Subpostmast: bove)-butis-cl o t
22.7. _Itis clear from comments made by Applicants, that this was clearly contrary to their
expectations and that Shey were* u 4
* (POID) does not have a mandate to
provide general investigative support to Subpostmasters.
22.8, 22.6:-Post Office's instructions to (and training of) its Investigators seems to have
disregarded the possibility that the Horizon system could be in any way relevant to their
investigations. A consequence of this flawed approach to investigations is that many
opportunities for process improvements have been missed.
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