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As part of the Initial Complaint Review and Mediation 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 was sent as a confidential document
to a number of Applicants and their advisors, as well as to Post Office. The purpose of the Report
was to describe and expand on common issues identified by Second Sight as being raised by multiple
Applicants.
Several issues were said by Second Sight, within or subsequent to the publication of the Briefing
Report — Part Two, to require further investigation. One of which was Suspense Accounts.
Questions on Suspense Accounts have come in two tranches.
1) Asanaction from WG meetings. The two examples are included below:
Could any SPMRs have been charged by Post Office Ltd for amounts that become
incorporated in suspense account balances that were subsequently taken into profit
by POL or any of its Counterparty Companies, or that remain as credit balances on
the balance sheet of POL or any of its Counterparty Companies?
To which PO responded with the below embedded paper
«3.
Suspense account
paper Second Sight.p
Relating to concerns that credit entries in Post Office's Suspense Accounts can only
have arisen where amounts that have been received by Post Office, but may not be
due to Post Office (for example the amount may be due to be paid to one of Post
Office's clients or to one of its branches but where it is not, or not yet, clear who
should be paid).
Namely, sight of the Credit entries, derived from Suspense Accounts, which have
eventually been written off to the credit of Post Office's P&L Account
This question remains outstanding. Context is provided via the below email chain
FW FW Errors that
arise between Post O
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2) Within Second Sight’s questions sent, as part of their finalisation of their Briefing Report —
Part Two, to PO on 9 Dec 2014. The questions posed, together with the answers provided
are detailed below.
Post Office has already addressed Second Sight's questions on its Suspense Accounts in its
Suspense Accounts paper. This paper demonstrated that so long as a branch follows Post
Office's standard operating practices, it cannot suffer a loss due to the operation of a
Suspense Account.
2.1 Please provide full details of all Suspense Accounts held by Post Office. Please also
provide a schedule, for each year end between 2008 and 2013, showing the amounts
transferred to Post Office’s Profit and Loss Account (both debits and credits) for each
Suspense Account held.
It appears that this question is targeting whether the operation of the Suspense Account
could ever wrongfully disadvantage a Subpostmaster. As mentioned above, Post Office
has already addressed this question in its Suspense Account paper. Given that the data
sought in this question would only show organisation-wide Suspense Account
movements, and not branch level data, we should be grateful if Second Sight could clarify
precisely what information it is seeking and how this will assist in the resolution of
individual cases? Post Office will then look to see what information is available and can
be provided to address those issues.
Post Office has several suspense accounts. These are for 4 broad reasons and they are
managed as follows:
Rationale How It Gets Resolved
Branch “suspense” /
balancing
discrepancies
Differences identified and declared
by a branch themselves through
their own cash balancing.
Prior to Branch Trading in 2006
these would have formally fed
suspense accounts. Subsequent to
Branch Trading, they are required to
be made good or settled centrally at
Trading Period Ends.
Make good locally in
branch or settle
centrally.
Routinely around £500k
network wide at any
point in time.
Cash suspense
Differences identified in cash
remittances where the contents do
not agree to the documentation.
Predominantly on inward rems from
branches to cash centres. However,
inward and outward rems are both
handled under CCTV in the cash
centres
Transparent agreed
processes and formal
procedures for appeals
whereby subpostmasters
can watch and challenge
CCTV evidence
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Robbery and burglary
suspense
Cash losses arising at physical cash
count following external attack
Reviewed case by case
for culpability and
liability
Debtor suspense
Trading items mapped into accounts
titled as “suspense” but which are
not really suspense. The largest of
which are:
- mutilated notes to be returned
to Bank of England
- Currency returns to FRES (a trade
account)
- Giro AP Unpaid — a holding
account for customers bounced
cheques for Transcash bill
payments where we send the
unpaid cheques to Santander and
they credit POL back for the
value of the original bill payment.
that POL settled to Santander
Client suspense
Differences between POL and client
view of what is payable in respect of
customer transactions. Differences.
typically relate to uncertainty in the
client organisation as to what is
payable (due to complexity of
process or due to branch paperwork
not being sent to the client)
It is identifiable by client.
POL seeks to obtain
additional data from
Horizon and/or from
enquiry with branches in
order to resolve the
difference. As the
examples show at 2.3d it
is not indicative of claims
being made against
branches.
Post Office has been
sensitive about the data
because of potential
interpretation and
challenge as to clients
processes
2.2 Please also provide a schedule, for each year end between 2008 and 2013, showing the
balance held on each Suspense Account (both credits and debits).
This is a disproportionately wide request for general information, without identification
of a specific issue raised by Applicants. If Second Sight is able to identify, with supporting
materials, specific cases where Applicants to the Scheme have been affected by these
issues, Post Office will of course reconsider this request.
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2.3 Please provide an electronic report in CSV format or similar showing for the last 3
years the followi information for every item posted to any Suspense Account:
a) Full transaction details;
This is a disproportionately wide request for general information, without identification
of a specific issue raised by Applicants. If Second Sight is able to identify, with
supporting materials, specific cases where Applicants to the Scheme have been affected
by these issues, Post Office will of course reconsider this request.
b) — Originator’s reference;
This is a disproportionately wide request for general information, without identification
of a specific issue raised by Applicants. If Second Sight is able to identify, with
supporting materials, specific cases where Applicants to the Scheme have been affected
by these issues, Post Office will of course reconsider this request.
¢) Any comments or notes associated with the transaction; and
This is a disproportionately wide request for general information, without identification
of a specific issue raised by Applicants. If Second Sight is able to identify, with
supporting materials, specific cases where Applicants to the Scheme have been affected
by these issues, Post Office will of course reconsider this request.
d) Full account details of the account the transaction relates to or is being transferred
to.
This is a disproportionately wide request for general information, without identification
of a specific issue raised by Applicants. If Second Sight is able to identify, with
materials, specific cases where Applicants to the Scheme have been affected by these
issues, Post Office will of course reconsider this request.
Given the impracticality of identifying and narrating every transaction in these
accounts, we set out below two examples of specific clients where Post Office has
released credits to Profit & Loss. In both cases we do not consider that a branch would
have been disadvantaged and we explain why.
Personal Banking Clients
Branches take cash deposits on behalf of customers of a wide range of banks. Some
banks have a VocaLINK relationship with Post Office and the deposits can be
processed by way of the customer inserting their debit card in the pinpad. Some
others (typically banks that Post Office has worked with a long time) have not
migrated the Post Office relationship to LINK and so the branch has to take a paying
in slip from the customer.
Such paying in slips are then sent to IPSL for processing. This then initiates the
settlement proposal from which Post Office makes payments to the relevant banks.
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If the paying in slips are not despatched by the branch to IPSL or if branches take
card based deposits for non VocaLINK enabled banks, then there will not be
payment request initiated for Post Office to pay the relevant bank.
It means Post Office has a credit in its accounts, which needs paying to the bank but
where the relevant customer information is missing and so it would end up in
suspense at the bank if it were paid over.
On the basis of the IPSL view of the data, Post Office makes a lower settlement to
the relevant bank than the Horizon data would suggest. Post Office then, however,
seeks to identify who the impacted customer is in order that the difference can be
paid as soon as possible to the bank with the relevant details for the bank to update
the correct customers account.
The branch is not impacted by this. So long as the branch keyed the value of the
deposit correctly (consistently between the paying in details and the cash taken)
then there is no scenario that the branch would become disadvantaged. It is the
customer who is at risk of being disadvantaged.
Post Office FSC match the data from IPSL against the deposit data fed through from
Horizon to try to identify the originating branch in order that the paperwork may be
located or that the branch may recall the customer in question.
In the event that these enquiries do not identify the customer then Post Office can
do no more. There would be no case of a TC being sent to a branch. The
understanding would be that the branch had properly accounted for the deposit. It
is a downstream issue that has failed to ensure the bank updates the customer’s
account.
The narrative for this response should also be validated with Greg Lewis in
Financial Services in respect of bank relationships.
Aon Commission Creditor
The largest amount taken to profit by far in the 4 years reported on is in respect of
Aon. This had nothing to do with branch accounting, it was wholly independent of
whether branches may have taken wrong payments from customers and it did not
lead to any TC’s.
The client contract with Aon had complex pricing arrangements within it. This led to
a difference of opinion between Post Office and Aon as regards the commission
which was due from Post Office to Aon for policies sold.
Post Office initially paid a lower amount based on the initial Excel based pricing
model that was developed for the new contract. However, further analysis revealed
that additional payments may need to be made. A separate paper is available on
this.
Post Office then posted an accrual for potential extra payments, but after wider
commercial negotiations with Aon, a lower amount was agreed. The residual value
of the accrual was therefore moved to Client Suspense and subsequently released to
profit.
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Given that Post Office had previously taken a cautiously higher cost to P&L in
anticipation of a higher payment to Aon, the release (3 years later) effectively offset
an earlier loss borne by the company.
There was no impact on Subpostmasters.
2.4 Please describe the controls used to detect errors in Post Office client reports that if
not corrected could give rise to an incorrect TA or TC being issued.
Where Post Office receives client reports, these are part of matching accounts, where
Horizon data is matched to the client data. Therefore, if the client report was wrong, it
should lead to a difference compared to the Branch data. Post Office would then
investigate that difference. If a wrong approach were made to a branch, the branch
themselves could, in turn, challenge it.