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Post Office Ltd
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Private and confidential
04 December 2020
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Important notice
This report is strictly private and confidential and has been prepared
by KPMG LLP (KPMG’) solely for the use and benefit of Post Office
Limited ("POL") in accordance with the terms of our statements of
work agreed by POL with KPMG dated 16 October 2020.
This report has been prepared by KPMG in accordance with specific
terms of reference (“terms of reference’) agreed between POL and
KPMG. KPMG wishes all parties to be aware that KPMG's work for
POL was performed to meet these specific terms of reference.
The report should not therefore be regarded as suitable to be used or
relied upon by any other person for any purpose, including any court
or other investigatory proceedings. The report is issued to all parties
on the basis that it is for information and discussion purposes only.
Should any party choose to rely on this report, they do so at their own
risk. KPMG will accordingly accept no responsibility or liability in
respect of this report to any party other than POL.
Any redistribution of this report requires the prior written approval of
KPMG and in any event is to be a complete and unaltered version of
the report. Such consent, if given, may be on conditions including
without limitation, an indemnity against any claims by third parties
arising from release of any part of our report.
KPMG does not accept or assume responsibility to any readers other
than POL in respect of its work, this report, or any judgements,
conclusions, opinions or findings that KPMG may have formed or
made, to the fullest extent permitted by law. KPMG will accept no
liability in respect of any such matters to readers other than POL.
KPMG has provided consent for this report to be disclosed to the Post
Office Horizon IT Inquiry 2020 led by Sir Wyn Williams.
Should any readers other than POL choose to rely on this report, they
will do so at their own risk.
KPMG does not provide any assurance on the appropriateness or
accuracy of sources of information relied upon and KPMG does not
accept any responsibility for the underlying data used in this report.
Should the information provided be inaccurate or incomplete, or if any
further information becomes available, KPMG may need to revise its
findings.
In preparing this report KPMG have not conducted an audit and
accordingly the scope of work is different from that of an audit and
does not provide the same level of assurance as an audit.
This document does not give rise to a client relationship between
KPMG and any other person (other than POL) for any purpose or in
any context. Any party that obtains access fo this report or a copy
under the Freedom of Information Act 2000, the Freedom of
Information (Scotland) Act 2002, or otherwise and chooses to rely on
this report (or any part of it) does so at its own risk. To the fullest
extent permitted by law, KPMG LLP does not assume any
responsibility and will not accept any liability in respect of this report to
any party other than POL.
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Page
Background and scope 4
Summary of findings 5
CCS potential issues 7
CCS posting categories and risk to Postmasters 8
Appendices:
Appendix 1 - Tier 2 findings 1
x aa x 3
Document Classification: KPMG Confidential
Historical suspense account review
Background and Scope
Background
Post Office Limited ("POL") requested that KPMG LLP (“we’, “us”, or
“our’) perform a review into the historical operation of the suspense
accounts which were identified in our earlier project looking at the
current operation of suspense accounts. The aim of this work was to
understand whether historically Post Office benefited as a result of its
operation of its suspense accounts at the expense of Posimasters.
For the purposes of this piece of work, the following definition of a
suspense account will be used:
“A suspense account is any account into which Post Office places
sums that could relate fo discrepancies at branch level and from which
unmatched sums are taken into the P/. account’.
The two relevant suspense accounts identified as part of our work on
the current operation of suspense accounts to be included in this
review are:
+ Agent Creditor Suspense account ("ACS") and
+ Customer Creditor Suspense account ("CCS").
it should be noted that limited documentation is available to support
the historical operation of these suspense accounts. Our work has
been informed by a review of available documentation and by
discussions with POL staff.
Scope of work
Our work has been performed in accordance with our Statement of
Work (“SoW") dated 16 October 2020.
Our scope of work inciuded the following:
« Conduct research into historical suspense account operating
practices pre-March 2019. This research will include discussions
with key individuals and the review of relevant documentation
(where available) and will look to:
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* Identify any additional suspense accounts which meet the
definition but are no longer in operation;
+ Identify any changes in the suspense account operating
processes during the relevant time period, which would
significantly alter the way the identified accounts operated
and whether these changes could have potentially had an
adverse impact on the Postmasters; and
+ Understand whether the historical resolution processes
adopted by POL for dealing with amounts posted into these
suspense accounts were sufficient to identify potential
instances where amounts should have been reconciled
against branch discrepancies made good by Postmasters.
+ Undertake historical analysis of balances held within the relevant
suspense accounts for the relevant time period (where data is
available) to establish whether postings to these accounts have
altered, and if so the potential impact.
* Perform a high-level review of the Tier 2 investigation data
arising over the past 12 months to inform our understanding of
how amounts could get posted to the relevant suspense
accounts.
Report
We present our high level summary in this report as follows:
* Summary of findings in respect of relevant suspense accounts;
* CCS potential issues; and
* CCS postings and risk to Postmasters.
Supporting our fieldwork, we have the following appendix:
+ Appendix 1: Tier 2 findings.
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summary of findings
From our work on the operation of the current suspense accounts, we identified that the ACS and the CCS had the potential to contain branch
discrepancies which could be released to the P&L, potentially causing a detriment to the Postmaster.
Our findings in relation to these two accounts are set out below and on slide 7.
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summary of findings (contd)
During the course of this review we have been provided with further information that identified three additional suspense accounts that were P&L.
impacting, namely the ATM Surplus Suspense account, the Paystation Creditor Suspense account and the Client Creditor Suspense account.
We have reviewed the type of transactions that are posted to these accounts and discussed them with relevant teams within POL. Based on the
information provided to us it appears that these accounts do not house transactions that relate to branch discrepancies.
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CCS potential issues
I In November 2015, POL implemented changes to the MoneyGram
I process, introducing a two-part cancellation process, (one part
I Horizon and the second part MoneyGram).
I We were informed by POL staff that these changes resulted in an
I increase in Postmaster errors where only one side of the cancellation
I was processed. This, combined with unrelated connectivity issues in
I late 2015, lead to an increase in unmatched MoneyGram balances.
We have been informed that if the Postmaster makes an error and selects
cash instead of cheque when processing a bill payment on Horizon a
cash discrepancy will arise.
if the branch information becomes separated from the cheque then the
Cheque team will be unable to identify the branch the discrepancy arose
in and the cheque value will be posted to the CCS.
We have been informed that there is a defined process for sending
cheques to POL which, if followed, should identify a Postmaster bulk POL.
cheque processing error.
Factors in 2017 and through 2018, a project was undertaken by POL to
to identify unmatched MoneyGram balances that had impacted
consider branches or customers in order to make repayments. We requested
documentation relating to this investigation. As the documentation
was limited we are unable to conclude on the robustness of the work.
if an error is identified by the branch, the Postmaster can contact the
Cheques team to help rectify the issue.
We understand at its peak, a team of eight people were investigating
the differences between balances on Horizon and information
supplied by MoneyGram. We were informed every MoneyGram
transaction can be traced back to the branch where it was
processed. As part of the investigation where evidence supported a
branch discrepancy rather than a customer issue, a transaction The Cheques team attempt to identify branches where there are high
correction (TC) was processed to repay the Postmaster. value cheques with no supporting branch information and will proactively
contact the Postmaster and correct the transaction.
Both a Postmaster error in processing and the cheque becoming
detached from branch paperwork is required for this issue to arise.
However, we have been informed by the POL Cheque team that such
instances could occur.
Where the reason for the difference could not be determined or did
not appear to be branch related, the amounts were posted to the
CCS. £628,661 was posted to the CCS between 2017 and April
2019 across 1,859 branches. 97% of branches had a balance of less
than £2,000.
The balance posted to the CCS in relation to this issue between
2015 and the end of April 2019 was £628,661
Given the level of investigation undertaken by a separate team, the
ease with which a branch could be identified and the level of
exposure at each branch, the risk that this includes a significant
balance relating to Postmasters, as opposed to customers, appears
to be low. However the lack of available contemporaneous
documentation should be considered when assessing whether a
residual risk remain
We understand from POL staff that cheque transactions posted to the
CCS can also relate to POL matching issues or customers identification
issues, neither of which would impact the Postmaster.
The balance posted to the CCS in relation to bulk POL cheques is
£134,584
The above balance could relate to a customer loss, a Postmaster loss or
@ matching error in the POL settlement accounts. Matching errors occur
where POL bank a bulk cheque and the customer’s payment is processed
correctly via Horizon; however, the two transactions cannot be matched
due to missing supporting information. However, for this to lead to a
Postmaster detriment there would need to be a Postmaster processing
error as_a result of which the unallocated cheque cannot be traced back
to their branch
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Historical suspense account review
Posting
category
Santander
Personal
banking
MoneyGram
UUs pasting Categories and risk to Postmasters
ic ee ae
These items relate to deposits or bill payments made by customers
through Santander.
We understand supporting paperwork for these payments was sent
directly to Santander by branches, and if not received, an error
notice was sent by Santander to POL to correct the transaction or
retum the funds to the customer.
if the investigation cannot identify a customer, the funds were
posted to CCS.
Prior to 2019, the Santander process was paper-based.
Postings relate to personal banking cash deposits, where the funds
have not arrived in the customer’s account due to lost, incomplete
or incorrect paperwork submitted by the branch.
No postings have been made to this account since 2017.
1. Between 2017 and April 2019, there was a significant increase
in postings to the CCS account following investigation of issues
which started in November 2015, when POL made changes to
the MoneyGram cancellation process and which resulted in an
increase in errors made by Postmasters. The cancellation
process was simplified in April 2019. In addition, an unrelated
connectivity issue during this period increased the level of
unmatched items. POL undertook a large scale investigation
with MoneyGram to try to identify customers and Postmasters
who were due money back as a result of these issues. In
instances where POL was unable to identify who to return the
funds to they were posted to the CCS account
2. Since May 2019, an additional £71,265 has been posted to the
CCS for MoneyGram related transactions. We understand from
POL that these relate to issues with debit card transactions or
incorrect recipient information and do not impact Postmasters.
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These payments do not result in
a branch discrepancy and
therefore could not cause
detriment to the Postmaster.
Transactions are now barcoded,
removing the risk of lost or
incorrect paperwork.
These payments do not result in
a branch discrepancy and
therefore could not cause
detriment to the Postmaster.
Transactions became barcoded
in November 2017.
A significant investigation was
conducted during 2018 in
conjunction with MoneyGram.
Supporting documentation in
relation to this investigation is
limited and as a result we have
been unable to assess the
tobustness or effectiveness of _
the work undertaken.
Following the identification of
the issue the two part
cancellation process was
amended and the level of errors.
significantly reduced.
Document Classification: KPMG Confidential
No, unless a Postmaster
decided, against POL
policy, to repay a
customer from the
branch till which could
cause the Postmaster to
suffer a loss.
No, unless a Postmaster
decided, against POL
policy, to repay a
customer from the
branch till which could
cause the Postmaster to
suffer a loss.
4 Peselot: if the
investigation did not
identify where a
repayment was due to a
Postmaster or where the
Postmaster did not
identify the error and
request a repayment.
2. No — these
transactions relate to
non branch affecting
issues.
Historical suspense account review
LOS posting categories and risk to Postmasters
These postings relate to failed debit card transactions, where funds
have been taken from customer accounts, and a request for a
refund has not been received.
Debit card
Bulk cheques
—non POL
Bulk cheques
-POL
_ The majority of postings relate to self-service kiosk postage
transactions, which are generally low value and are rarely clairned.
Other postings relate to online transactions for Drop & Go, top-ups
and any other product that can be purchased by debit card (with the
exception of MoneyGram).
lf a cheque is banked where the payee is an individual rather than
POL and the supporting information is separated from the cheque
or contains inaccurate information, the funds are taken from the
customer account but do not arrive with the payee. The processing
bank then retums the customer funds to POL.
There are three reasons that a payment by cheque could result in a
posting to the CCS:
a
Customer affecting If the payee is POL but the transaction is
not processed through Horizon then the bill will not be paid but
the cheque will be banked.
Postmaster affecting: If the Postmaster selects cash instead
of cheque in error (which will create a cash discrepancy) and
the BCV (branch information) becomes separated from the
cheque then the customer's bill will be paid automatically but
the cheque value could be posted to the CCS and the cash
discrepancy settled by the Postmaster.
POL affecting: If a bill payment by cheque is correctly
processed through Horizon, but the cheque becomes
separated from the supporting paperwork, it will be unclear
which third party settlement account POL should allocate the
funds to.
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Without a customer complaint No, these transactions
that the transaction has not mainly relate to non
completed but payment has branch transactions
been taken, there is no way for _
POL to identify the customer.
The Cheques team try to No, there are no
identify the correct recipient or postings on Horizon for
payee from the information these cheques and so
available no detriment to the
Postmaster.
The Cheques team try to 4. No. The money is
identify the correct recipient or owed to the customer
payee from the information not the Postmaster.
avalanie 2. Poss bly However
if a branch identify an error, there needs to be a
then can request the Cheques Postmaster error before
team investigate. amounts are owed to
the Postmaster in order
Since 2017, additional work Ie erec a ceeh ce in
has been undertaken to
identify payees where the paren
cheque value is greater than 3. No. POL have
£500. banked the correct
funds (so are not
disadvantaged overall)
and the customer bill
has been paid, but this
may cause allocation
difficulties within POL.
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Historical suspense account review
GCS posting categories anc risk to Postmasters
Other - Travel
insurance
Other -
Camelot
Other -
remaining
balance
The postings do not impact either customers or Postmasters.
"This balance relates to an obsolete product. No ee have ofthis Not applicable as no -
_ type have been made in over 6 years. _ detriment to customers or
Postmasters.
These postings relate to lottery tickets which are validated but not Not applicable as no
paid out. Winning lottery tickets are validated in branch, which detriment to customers or
automatically triggers a payment from Camelot to POL. Postmasters.
However, the prize money may not be paid out if the customer does
not present valid identification, in which case they need to apply to
Camelot for the prize money who will request a refund from POL.
_ These postings relate to other balance categories, being ATM _ During the period under
_ Surplus, Automated Payments, Client Settlement, Drop & Go, DVLA - _ review, there were 10
_ fleet, Link, Pre-order & Unpaid enedues _ teams who looked into
_ balances that could
potentially be due back to
customers or Postmasters.
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_ Postmasters. :
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_ No, as balances do not _
-_felate fo customers
No, as balances do not
relate to Postmasters.
No, unless a
Postmasterdecided __
against POL policy to.
repay a customer which
could cause the
_ Postmaster to sullet a a
loss.
10
Historical suspense account review
Appendix 1: Ter 2 Findings
Introduction
We performed a high-level review of the Tier 2 investigation data from
the 12 months to April 2020, using key word searches to establish
whether it was possible to identify discrepancies which may have
resulted in a loss to the Postmaster.
We identified key words based on products with spikes in posting
balances in the CCS.
Key words
- MoneyGram
- Santander; and
- Payment.
The narrative was then reviewed to try to ascertain whether the
investigation related to a Postmaster discrepancy which could have
resulted in a posting being made to the Customer Creditor Suspense
account.
We reviewed a sample of nine investigations, four relating to
‘MoneyGram’, two relating to ‘Santander and three relating to
‘Payment’. We spoke fo Tier 2 investigators in order fo understand
how the discrepancy arose, the investigations undertaken and the
outcome.
Findings
Of the nine investigations reviewed none related to postings that had
been made to the Customer Creditor Suspense.
The issues were either resolved by the Tier 2 investigator, the
Customer Care Team or the branch themselves with no loss to the
Postmaster, or were found to have been caused by an issue requiring
repayment by the Postmaster.
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Specific examples
One of the issues reported to the Tier 2 team related to a Santander mis-
key, where the branch had entered two deposits incorrectly. Tier 2
advised the branch to follow this item up with the bank directly; if this
issue cannot be resolved by the bank by recovering the funds from the
customer, then the Postmaster may suffer a loss. This would not cause
a posting to the Customer Creditor Suspense account.
Another investigation related to a discrepancy which the branch believed
was caused by a MoneyGram transfer. The Tier 2 team reviewed all
available data but were unable to determine the cause of the
discrepancy, so passed the case to the escalations team to resolve. At
the time of our review, the escalations team were still in the process of
resolving the case for the branch. No amounts were identified in the
CCS account as relating to this investigation.
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