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POST OFFICE AUDIT, RISK AND COMPLIANCE COMMITTEE
Prosecutions Policy
1. Purpose
The purpose of this paper is to:
11 update the ExCo/ARC with respect to certain aspects of Project Sparrow; and
1.2 request approval to adopt an approach to prosecutions different to that which has
previously been adopted.
2. Background
2.1 In the last (October) CEO report to the Board, an update was given on Project Sparrow
in which it was noted that “... a paper [will be submitted] to the November ARC
reviewing our overall policy for investigating and prosecuting future cases.” For
convenience, a copy of the relevant section of that report is set out in Appendix 1.
2.2 Since that update, Brian Altman QC has prepared two separate reports, one
commenting on “[POL’s] strategy and process for reviewing past and current criminal
prosecutions in light of Second Sight's Interim Report” (the “backward looking report”)
and the other making recommendations as to the future approach to the conduct of
prosecutions (the “forward looking report”). This second report did not seek to
comment on whether continuing with prosecutions was itself a sensible course of
action, either from a business or reputational perspective, simply whether it was an
effective use of resources from a criminal law perspective, and if so, whether there was
scope for improvement.
2.3 The headline conclusion of the backward looking report is that the “...review [of the
cases that had been prosecuted over the last few years] is fundamentally sound” and
that no “systemic or fundamental flaws in the review process” were detected. In
addition, a number of relatively small procedural recommendations were made
regarding matters such as document retention etc.
24 The forward looking report is similarly positive in tone, with Brian Altman commenting
that he had “..... seen no evidence to suggest that Post Office Ltd exercises its
investigations and prosecution function in anything other than a well-organised,
structured and efficient manner, through an expert and dedicated team of in-house
investigators and lawyers, supported by Cartwright King solicitors and their in-house
counsel...” That said, it was noted that “Post Office Ltd’s prosecution role is perhaps
anachronistic...”, and that “POL is the only commercial organisation (albeit Government
owned) I can think of (apart from RMG who retains a residual prosecuting function) that
has a prosecution role, and it is, to that extent, exceptional if not unique.”
2.5 An important fact to emerge from the 2 reports is that Post Office does not have any
special statutory power to bring prosecutions, rather it brings prosecutions in a purely
“private” capacity further to section 6(1) of the Prosecution of Offences Act 1985, which
gives all individuals and companies the right to bring a private prosecution, should they
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see fit. To that extent, therefore, the decision to undertake prosecutions is
discretionary: no legislation or regulation requires Post Office to undertake
prosecutions, nor is there any legislative policy that mandates that prosecutions should
be brought. That is not to say that the standards of evidence are in any way reduced, or
that the process is less rigorous than would be the case with a public prosecution, it
simply that the Post Office steps in to assume a function that typically would be
undertaken by the CPS, after the referral to it of a case by the police.
2.6 The reasons why Post Office developed a private prosecutorial capability are historical;
reasons given for its retention include:
. It serves as a “deterrent” i.e. it provides a clear signal to the whole network that
offences of dishonesty will be taken seriously;
° It assists Post Office with its relationship with insurers; and
. It re-assures employees that “securing the company’s assets will be taken
seriously”.
No empirical evidence has been given in support of the above, though from first
principles it would seem doubtful that the cost of, or the terms on which, insurance can
be obtained would be materially impacted by the existence, or non-existence, of a
prosecutorial capability.
2.7 In addition, it has been said that it is quicker and more efficient to recover debts due to
Post Office using the criminal process (in particular the Proceeds of Crime Act). This is
clearly true, though the criminal recovery process, albeit very efficient, is a fairly blunt
and sometimes brutal process that involves the forcible sale of assets against the
backdrop of a criminal conviction and possible prison sentence. In the case of sub-
postmasters that are in financial distress, this may well involve the sale of their main
residence.
2.8 A similar outcome could be achieved using the civil recovery process, though making
claims through the civil courts is a more cumbersome process, and the ability to obtain
orders “freezing” assets ahead of trials is much more restricted than it is in criminal
cases (in criminal cases, a “prosecuting authority” has the right to request a judge to
make an order freezing the defendant’s assets once the investigation has commenced,
but before that it has gone to court).
3. Activities/Current Situation
3.1 Typically, some 250 investigations are conducted each year into cases of suspected
fraud or unexplained loss. In turn, this leads to around 50 prosecutions being brought
against sub-postmasters, all of which result in a conviction. The most common charge is
“false accounting”, itself a very serious offence carrying a maximum tariff (7 years) not
dissimilar to theft (10 years); this offence of false accounting is technically committed
every time the end-of-day return is made on the Horizon system declaring that the sub-
postmaster’s books balance when the sub postmaster knows they do not. Indeed, more
often than not, criminal investigations are started when the books have not balanced.
The internal “Network Support/Audit and Training” team (a team of around 200, some
of whom are charged with responsibility for undertaking stock-takes in the network)
identifies the fact that there is an unexplained cash or stock shortfall, and that the
books don’t balance. In turn that team then notifies the security team which mounts an
investigation and decides whether or not prosecute.
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3.2 Prosecutions, however, are only brought to the extent that they fit within the internal
prosecution policy. This policy focuses on 2 factors: sufficiency of evidence and
likelihood of conviction — latterly a third factor has been added, which is the quantum of
the loss (amounts below £5k are now not pursued). The highest “risk” group of
offenders appears to be those sub-postmasters who have been in post for less than 5
years but more than 18 months. Amounts involved are generally less than £20,000,
though there are a handful of high value cases involving outright theft of cash or very
large stock deficiencies.
3.3 Immediately following the Second Sight report, work was done to rationalise and
consolidate the pre-existing prosecution policy. That said, the consolidated policy is in
substance no different to that which has been applied previously; in any event, it has in
essence been held in abeyance and no further prosecutions have been initiated.
4. Options Considered
4.1 Ata practical level, there are a number of alternatives to mounting our own criminal
investigations and undertaking private prosecutions. In particular, most companies
when faced with theft from employees, or agents, would simply contact the police, and
if fraud were a persistent problem, develop processes for engaging with them.
4.2 Alternatively, it is open to companies (effectively) to bypass the police and go directly to
the local prosecuting authority (e.g. the CPS in England and the Procurator Fiscal in
Scotland); indeed for technical reasons, this is the approach that is adopted by Post
Office in Northern Ireland and Scotland. The experience in those 2 jurisdictions,
however, is that there is reluctance to prosecute all but the most serious, or the most
clear-cut, cases, as it is seen as a debt recovery (i.e. civil) matter. We have been
advised by Brian Altman that should Post Office go down the route of referring matters
to the police or the CPS, there would be a limited appetite to prosecute, even if all the
preparatory work (witness statements, fact finding etc.) had been done by Post Office in
house.
43 In light of the above, four broad options were considered:
a) Preserving the status quo — i.e. retaining prosecutorial capability and continuing
with a prosecutions policy that is not dissimilar to that which has been used in
the past;
b) Pursuing a prosecutions policy focussed only on high value cases/cases
involving vulnerable members of society, and engaging with the police in
relation to other matters;
c) Ceasing all prosecutorial activities but instead actively involving the police/CPS
etc where it is felt that they are likely to take matters forward; and
d) Ceasing all prosecutorial activities as per option c) BUT coupled with work (as
yet not formally defined but some of which has already started as part of
project Sparrow and NT):
° to gather better MI from the network;
. to improve the overall control framework around the branch network;
and
. to provide more support to sub-postmasters.
This option is perhaps closest to that adopted by banks and others organisations
facing serious losses through fraud and criminal activity.
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44 As part of the evaluation process, however, consideration was given to broader policy
factors, including:
e Post Office’s brand image;
¢ Whether undertaking prosecutions is consistent with a commercial franchisor-
franchisee relationship; and
© The overall drive to develop better stake-holder engagement and a more mature
working relationship with sub-postmasters.
In light of these considerations:
* Option a) above was felt to be, at best, sub-optimal and was not explored to any
great extent, other than to ask the question of Brian Altman whether it was
“efficient” in terms of the criminal process (which it is);
¢ — Option b) carried with it the risk that any residual prosecutions undertaken by Post
Office would be conducted so infrequently (probably only a handful each year) as to
mean that it was not efficient to maintain an internal team to handle them.
Accordingly, it too was discounted; and
¢ Option c) was rejected as carrying an unacceptable risk of fraud and loss given the
scale of the “losses” currently suffered through theft and false accounting.
5. Proposal
5.1 It is proposed that Option d) be adopted and that, at an appropriate point in time, Post
Office no longer exercise prosecutorial rights against sub- post masters. It is further
proposed that:
a) Work now commence to ascertain the scope, and estimate the cost, of any
additional work that would need to be undertaken to gather better MI from the
network, improve the overall control framework, and provide better support to sub-
postmasters whilst protecting public funds. Part of this work could also be focussed
on exploring additional (non-criminal) sanctions that could be used against sub-
postmasters who have committed fraud; and
b) An analysis be undertaken of the ways in which civil proceedings can be used more
effectively to reduce the financial impact once Post Office becomes unable to
continue to use the Proceeds of Crime Act to recover money that has been mis-
appropriated.
5.2 This last piece is important. Under the terms of the sub-postmasters contract, sub-
postmasters are liable to Post Office for all “losses” of stock/cash etc. Accordingly, a
“fraud” involving the loss of stock or cash gives rise to receivable in the hands of Post
Office, which if not recovered leads to a bad debt. Anecdotal evidence suggests that up
to 75% of all bad debts are recovered via the criminal debt recovery process, and that
around £1.5m is recovered annually. It is likely that a civil recovery process would lead
to a slower, and slightly lower, recovery rate, possibly of the order of £1 to £1.2m.
6. Commercial Impact/Costs
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6.1 See 5.2 above. There may well be an offsetting impact on the headcount in certain
areas, in particular the security team and the legal team, though this has yet to be
quantified. However, there will be additional costs associated with enhancing the MI
and control framework, but these too have yet to be quantified and may to some extent
fall within BAU budgets (for example to the extent that they form part of the audit
function, they may be part of that budget).
7. Key Risks/Mitigation
7.1 These pertain mainly to the potential increased risk of fraud, and being seen to be “soft”
with public money, but should be capable of being addressed by enhanced MI and
improvements to the control framework etc.
8. Long term considerations — horizon scan
8.1 Not taking action now in relation to the prosecutions policy could lead to, or exacerbate,
the impact of further adverse publicity regarding Post Office’s treatment of sub-
postmasters.
8.2 Taking this action may assist in developing better stakeholder engagement.
9. Communications Impact
91 The communications team are already heavily involved in Project Sparrow, and it is
proposed to manage the communications of the above through that channel. A key
issue will be to ensure that any change of policy is properly positioned with MPs, the
JFSA and the wider Network.
10. Recommendations
The ExCo/ARC is asked to:
10.1 note the update set out above; and
10.2 approve proposals set out in paragraph 5.1 above.
Chris Aujard
8 November 2013
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Appendix 1
8. Project Sparrow
e The Mediation Scheme has received 64 applications from sub-postmasters since it was opened at
the end of August, with more expected before the deadline of 18 November. The Working Group
overseeing the running of the scheme is now reviewing these applications to decide which should
be accepted onto the scheme, which should be excluded and which require further information
before a decision can be made. The aim is to get a few cases started on the mediation process
before the end of 2013 with the majority happening between January and March next year. Sir
Anthony Hooper has now been appointed as the Chair of the Working Group, and will lead his
first meeting on 25 October.
© Weare in the process of developing our internal settlement policy for the scheme, the purpose of
which is to ensure that a consistent approach is taken to each case based on a clear
understanding of the potential range of costs and outcomes from the process. A first draft will be
discussed by the ExCo in November, although it will be subject to further refinement in light of
the additional information that emerges about the caseload and our initial experiences of the full
mediation process.
e ~~ Our external firm of criminal solicitors, Cartwright King (CK), has now completed a review of 301
cases subject to past prosecution to identify whether we have a duty to disclose the findings of
the Second Sight report and associated issues. CK has concluded that disclosure is appropriate in
10 of these cases, and a short letter has therefore been sent to each of the defence teams to
bring their attention to the report. It is now a matter for the defence in each case to determine
what action, if any, they might take in light of this additional information. We are also awaiting an
unknown number of further historical prosecution files from Royal Mail, although at this stage we
have no reason to believe these will substantially increase the number of actual disclosures. In
view of the potential interest from the Criminal Cases Review Commission, we have also asked
our criminal barrister, Brian Altman QC, to conduct an independent review of the overall process
we have taken to review past cases, reaching the conclusion that our approach is “fundamentally
sound”.
e We will submit a paper to the November ARC reviewing our overall policy for investigating and
prosecuting future cases. This will be informed by a separate report that Brain Altman is
preparing on the effectiveness of our current prosecutions approach from a criminal law
perspective, but will also take into account wider business considerations such as value for money
and reputational impacts.
e = The first stage of the workstream looking at improvements to our sub-postmaster training and
support processes will be completed in November, identifying the key gaps and shortcomings in
our current approach, a detailed plan for delivering ‘quick wins’ and an overarching plan for
taking forward the more fundamental reforms to our organisational structure and culture over
the next 6-12 months. The process will be informed by the new Branch User Forum, the inaugural
meeting of which will be convened in November once the recruitment process for sub-
postmasters has been completed.
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