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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
Introduction
As part of the Initial Complaint Review and Mediation Scheme (the
Scheme), Second Sight has been engaged as a firm of expert forensic
accountants to provide, where possible, a logical and fully evidenced
opinion on the merits of each Applicant's case.
On 21 August 2014, Second Sight released its Briefing Report - Part
Two (the Report). Second Sight thought that this Report wwould be of
use to the Scheme as they believed that there were certain "thematic
issues" being raised by multiple Applicants. The idea was that the
Report would describe these thematic issues and set out Second
Sight's findings on each of them. The aim was to provide generic
information that could then be applied in specific cases.
Regrettably, the Report does not fulfil these objectives. Therefore
the Post Office has prepared this Reply in order to correct
inaccuracies in the Report and to provide information that the Report
omits.
The Report
Post Office considers that the Report does not meet these objectives
as it does not provide any useful information to Applicants. Instead
it puts forward un-evidenced speculation or views on topics that are
outside the scope of the Scheme and Second Sight's remit.
Of the 19 sections in the Report, not one identifies a thematic issue
on which an evidenced and expert opinion is offered:
° 2 sections reach views that are unsupported by evidence (section
5 and 10)
. 3 sections comment on issues that are beyond Second Sight's
expertise as forensic accountants (sections 4, 18 and 22)
. 5 sections raise no thematic issue at all (sections 8, 9, 16, 17
and 21)
. 9 sections reach no conclusion at all (sections 6, 7, 11, 12,
13, 14, 15, 19 and 20)
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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
Absence of conclusions
As it stands, the Report references a number of themes where
“enquiries are on-going”. It is hard to see how this can assist an
Applicant and who would expect to find information in the Report which
would be of use in resolving their application.
A number of other sections simply set out the competing views of
Applicants and Post Office. No view is offered by Second Sight on
whether either parties' position is to be preferred.
Finally, many of the topics do not explain how they could have caused
a loss to an Applicant. 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 a Applicant.
The Report is largely silent on this critical issue.
Lack of thematic issues
It was reasonable to expect Second Sight to clearly articulate the
“thematic issues” discussed in the Report; describe the method by
which Second Sight investigated that issue; cite the number of
instances when it has been referred to by Applicants and the number of
cases where Second Sight has performed a detailed investigation; and
provide an analysis of the evidence Second Sight has been provided
with and considered. That would give Applicants and Post Office a
clearer understanding of the “issue” as it might apply to them, which
is essential if the Report is to assist in resolving applications.
Unfortunately, this type of structured analysis is absent from the
Report. It is therefore impossible in a number of sections to even
identify a thematic issue which could be relevant to one or more
applicants.
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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
Missing evidence
The Report appears to present and accept as “facts” allegations from
Applicants but often lacks supporting evidence, source documents,
examples or statistics - material one would expect from an
investigation by forensic accountants - to substantiate the few
speculative conclusions it drawsThe Report does not describe the
overarching methodology used by Second Sight to examine the weight of
evidence from different sources - this is most important when much of
the information provided by Applicants is anecdotal and needs to be
carefully assessed for credibility and accuracy. Post Office
considers that these are fundamental requirements for a report
purporting to provide sound investigative analysis and conclusions.
This is a reasonable expectation of a report produced by forensic
accountants.
At the time the Report was released, Second Sight had only
investigated 21 cases submitted to the Scheme and only rendered its
final Case Review Report in 10 cases. One should also bear in mind
that Second Sight is only receiving information from the approximately
150 Applicants to the Scheme, whereas the number of Subpostmasters who
have used Horizon is over XX and in total there have been more than
450,000 users of Horizon since its inception in 2001. Second Sight
has not canvassed the views of Horizon users who have not applied to
the Scheme. The Report is therefore based on the tested views of only
0.00005% of all Horizon users and cannot therefore be said to reflect
general user experience.
In preparation of its Report, Second Sight had only sought information
from Post Office in connection with 4 of the 19 topics raised in the
Report (being sections 5, 10, 15 and 19). Before its release, Post
Office offered to meet with Second Sight to discuss the Report in
detail but Second Sight declined this opportunity.
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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
Second Sight's approach is regrettable, as it has resulted in the few
findings offered in the Report being based on very selective or no
evidence and therefore little reliance can be placed on them.
Scope
The scope of Second Sight's investigation, and the matters which are
within the scope of the Scheme, are matters “concerning Horizon and
any associated issues”. This is made clear on the Application Form
and in Second Sight’s letter of engagement.
Second Sight were specifically engaged as qualified and experienced
accountants. Matters such as the Subpostmaster contract and criminal,
or indeed any other legal, matters are not related to issues
concerning Horizon and any associated issues, and it is inappropriate
for Second Sight to comment on matters outside their expertise and
outside the scope of the Scheme.
In the context of the Scheme, and the scope of Second Sight’s
investigation, the Subpostmaster’s contract is relevant only to the
extent that it is the benchmark against, and the legal framework
within, which the actions of Post Office and Applicants must be
assessed. It is not a legitimate, or indeed useful, part of Second
Sight’s investigations for it to seek to test that benchmark, or alter
that framework, so as to retrospectively impose obligations on Post
Office (or indeed an Applicant) which it did not and does not have.
Where the Report goes beyond it terms of reference, this have
inevitably resulted in unsafe conclusions outside of Second Sight's
expertise. Importantly, this is likely to impede rather than assist
the resolution of Applicants’ concerns, given the reliance Applicants
are likely to place on Second Sight’s incorrect views.
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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
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 Offices 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 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
section of the Report unless stated otherwise.
. "Applicant" means an applicant to the Scheme whereas
"Subpostmaster" means subpostmasters 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 capitalised terms are defined in the Part One Briefing.
Contents
Insert Contents Page
Overview of Post Office's position
Nearly all Applications to the Scheme centre on there being a loss of
cash from a branch that the Applicant does not consider that he/she
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Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
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, with the aim of establishing responsibility in each case.
In order identify a loss of physical cash, an investigator needs two
pieces of key information:
1 They need to know how 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.
2 They need to know how much cash is actually in the branch. This
is known by conducting a physical count of the cash on hand.
Any difference between the above two figures generates a "discrepancy"
which may either be a shortage or a surplus.
Controlling the branch accounts
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 XX of the
Part One Briefing) eg.
° Transactions incorrectly recorded (such as withdrawals recorded
as deposits)
. Values incorrectly entered (entering £2000 instead of £200)
This is done to determine if the branch has made errors that would
make the branch accounts inaccurate (item 1 above). This review must
be done by the branch staff as only they will know the transactions
made on that day and may recall the correct transaction details. Many
branch errors (including the two examples above) can only be
identified in branch.
Post Office helps correct branch errors where possible by reconciling
Horizon records against data collected on some transactions by third
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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
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. Post Office
does not use Transaction Corrections to pass risk to Subpostmasters.
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, or the cause is just unknown, 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
Save when it conducts an audit, Post Office does not have any direct
knowledge of what physical cash is in a branch (item 2 above) - 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 in 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, to:
. Know if cash is missing;
° Identify the days on which cash has gone missing;
‘see paragraph XX of the Part One Briefing regarding "making good" errors.
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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
. Identify which member of staff may be the source of errors; or
. Locate the erroneous transactions that were the cause of a loss.
Daily accurate cash declarations are the most critical aspect of
branch accounting, without which losses of cash, being taxpayer money,
go unchecked.
For this reason, Post Office requires Subpostmasters 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 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 performed - 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 Applicants have
challenged Post Office to say where the losses in their branches have
occurred. 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.
This failure on the part of Subpostmasters is why Post Office holds
them liable for any losses hidden or caused by their inaccurate record
keeping. It is also a well-established common law principle that an
agent (like a Subpostmaster) is liable to pay to his principal (being
Post Office) any sum declared in his accounts.
Responsibility for losses
An even greater number of Applicants have accused Horizon of
inaccurately recording the transactions processed at their branch
(item 1 above) which they say shows that they were not liable for the
losses in their branches. To date, no evidence has been put forward
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CONFIDENTIAL AND LEGALLY PRIVILEDED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Introduction
by either an Applicant or Second Sight that presents even a slight
doubt that Horizon has failed to record transactions accurately.
The Report looks to identify thematic points where Second Sight
considers that Horizon may be flawed. As explained in this Reply,
these points are either un-evidenced speculation 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 position to 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 tenant of the
Subpostmaster Contract that Subpostmasters are liable for any loss
caused by their carelessness, negligence or error.’
Post Office remains committed to fully and open-mindedly investigating
every allegation levied at Horizon through the Scheme. It is in our
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.
2 Clause 12, Section 12
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