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Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
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Initial Complaint Review and Mediation Scheme
Reply of Post Office Limited to Second Sight's Briefing Report - Part
Two
[Date]
[BELINDA - NEED TO DISCUSS WHETHER WE WANT TO ADD CONFIDENTIALITY
WORDING ON THE COVER PAGE]
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Contents
CONFIDENTIAL AND LEGALLY PRIVILEGED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
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Introduction
This Reply
Overview of Post Office's position
Response to section 4
and Subpostmasters
The Contract between Post Office
Response to section 5
Automated Telling Machines (ATMs)
"Audit Trail"
Response to section 6 - Motor Vehicle Licences
Response to section 7 - National Lottery
Response to section 8 - Training, Support and Supervision
Response to section 9 - The Helpline
Response to section 10 - Limitations in the Transactional
Response to section 11 - Transactions not entered by
Subpostmaster of their
Staff
Response to section 12
- Transaction Reversals
Response to section 13
in and out of the branch
- Cash and Stock Remittances (Rems)
Cheques
Response to section 14
- Missing, damaged or bounced
Response to section 15
- Pensions and Allowances
Response to section 16
- Surpluses
Response to section 17 - Cash withdrawals accidentally
processed as deposits and other counter-errors that
benefit customers at the expense of the Subpostmaster
Response to section 18 - Error and fraud repellency
Response to section 19 - One-sided transactions
Response to section 20 - Hardware issues
Response to section 21 - Post Office Audit Procedures
Response to section 22 - Post Office Investigations
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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, 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). The Report was to describe common issues identified
by Second Sight as being raised by multiple applicants (a thematic
issue) and to express Second Sight's findings on each of them. The
aim being to provide general information that could then be applied in
specific cases.
Regrettably, the Report does not fulfil these objectives. As a result
Post Office has prepared this Reply in order to correct inaccuracies
in the Report and to provide information that the Report omits.
The body of this Reply provides Post Office's detailed comments on
each section of the Report. There are however a number of issues that
reoccur throughout the Report which are summarised below.
Lack of thematic issues
A number of sections in the Report do not identify a thematic issue
which could be of general application to multiple applicants as
opposed to matters that need to be addressed on a case by case basis.
Where this arises, Post Office will of course be looking at those
issues in its case specific Investigation Reports.
Of the 19 Sections in the Report, 9 sections do not identify a
thematic issue namely sections 6, 7, 11, 12, 13, 14, 15, 19 and 20.
Absence of conclusions
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 an Applicant. The Report is largely
silent on this critical issue. As it stands, there are a number of
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topics in the Report where “enquiries are on-going”. A number of
other sections set out the competing views of Applicants and Post
Office but offer no view on whether either parties' position is to be
preferred.
Of the 10 sections that identify a thematic issue, 5 do not reach a
conclusion namely sections 8, 9, 16, 17 and 21. A firm conclusion
would have assisted Post Office and applicants.
Scope
The scope of the Report and the Scheme is to consider matters
“concerning Horizon and any associated issues". This scope was set in
order to reflect the fact that Second Sight are engaged as qualified
and experienced accountants. Matters such as the Subpostmaster
contract and other legal matters are not within the scope of the
Scheme and are outside Second Sight's professional expertise.
Where the Report goes beyond it terms of reference and Second Sight's
expertise, this has resulted in incorrect conclusions being reached.
of the 5 sections of the Report that reach a conclusion on a thematic
issue, 3 relate to matters which are outside the scope of Second
Sight's expertise namely sections 4, 18 and 22. DN need to make clear
how this helps horizon
Missing evidence
The Report lacks in a number of places supporting evidence, source
documents, examples or statistics to substantiate the conclusions it
draws. It does not describe the overarching methodology used 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.
At the time the Report was released, Second Sight had investigated 21
cases submitted to the Scheme and rendered its final Case Review
Report in 10 cases. One should also bear in mind that Second Sight is
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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.
Where findings in the Report are based on very selective or no
evidence, Post Office believes applicants can place little reliance
can be placed on them.
Of the 2 sections of the Report that reach findings on thematic issues
within the scope of Second Sight's expertise ( sections 5 and 10),
these are both unsupported by evidence.
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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.
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Overview of Post Office's position
Nearly all Applications to the Scheme centre of there being a loss of
cash from a branch that the Applicant does not consider that he/she
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.
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.
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
done on that day and may recall the correct transaction details. Many
branch errors (including the two examples above) are most easily
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identified in branch. They would not be evident to Post Office unless
a complaint was made by a customer.
Post Office helps correct branch errors where possible by reconciling
Horizon records against data collected on some transactions by third
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.
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 clientPost 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 actually in a branch, only the
expected stated through Horizon (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;
1 See pi aph XX of ie Part One Briefing regarding "making good" errors.
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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, it is not acceptable to Post Office for
Subpostmasters not 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 dishonestly 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 done - 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.
Subpostmasters are contractually liable for any losses hidden or
caused by their inaccurate record keeping whether due to negligence or
otherwise. 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.
Even where accurate cash declarations have been made, the only persons
who have direct access to the cash in a branch is the Subpostmaster
and his staff. Post Office does not have direct access to this cash
as part of normal operations and therefore if cash has gone missing
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from a branch this can only have been caused by the persons operating
the branch and the Subpostmaster is liable for that loss.
Responsibility for losses
AA 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 by either an Applicant or
Second Sight that presents any 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 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
» Section 12
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Post Office's response to section 4 - The Contract between Post Office
and Subpostmasters
1. Section 4 of the Report concerns the contract between Post
Office and Subpostmasters dated September 1994 (as revised over
the years) (Contract). It considers (1) the potential impact of
some of the terms and conditions and (2) issues relating to
notification to Subpostmasters.
2. An assessment of the Contract is outside the scope of the Scheme
which was to consider "Horizon and associated issues". Second
Sight was not given any mandate by either the Working Group or
Post Office to consider the Contract. Unfortunately, in taking
it upon itself to comment on the Contract, Second Sight has made
a number of statements that are incorrect. These errors arise
from the fact that Second Sight are not lawyers, but forensic
accountants, and any assessment of the Contract can only be
undertaken against legal principles. For this reason, no
weight should be placed on this section of the Report as it
reflects only Second Sight's lay opinion on matters where they
have no expertise or experience.
3. To help alleviate the confusion created by the Report, Post
Office sets out the true position in respect of the Contract
below.
Impact of selected terms and conditions
4. At paragraph 4.5 the Report sets out selected sections of the
Contract. Whilst these provisions do reflect the terms and
conditions as stated within the Contract these are selective and
not reflective of the Contract as a whole. In addition, the Part
Two Report does not appear to have considered the other
documentation that is incorporated into the Contract such as
manuals, booklets and operational instructions issued by Post
Office from time to time.
Fairness of the Contract
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5. Paragraphs 4.4 and 4.6 both make the same conclusion that "from
a business perspective" the contractual provisions referred to
(in particular Section 12 requiring the Subpostmaster to make
good losses) operate to the detriment of a Subpostmaster.
6. Second Sight also comments that under the Contract (presumably
again in reference to clause 12, section 12 though this is not
clear in the Report) there is a transfer of "risk" to the
Subpostmasters. The suggestion being that this is somehow
unfair on Subpostmasters.
7. First, the Contract is a business to business arrangement. Save
in a few very narrowly defined areas (which are not applicable
here), there is no general principle at Common Law of whether a
Contract is "fair" or not. The Contract terms apply as they are
written. The analysis by Second Sight has failed to appreciate
this point.
8. Second, Subpostmasters are agents and Post Office is their
principal. Under the Common Law agents owe duties to their
principals including the duty to act in good faith, to render
accurate accounts and to make good any losses they cause.
Section 12 of the Contract simply reflects these Common Law
principles - it does not transfer any additional risk to
Subpostmasters.
9. Thirdly, when considering this issue no reference is made in the
Report to any other similar agency agreement or benchmarks that
may provide a view on what is common practice. In Post Office's
experience, the terms of the Contract are broadly similar to
those used in franchising arrangements across the UK.
10. Fourthly, the Report does not appear to consider the role
of NFSP. Any variations to the Contract are discussed with NFSP
prior to being implemented. This is in clear contrast to the
position set out in the Report that Post Office arbitrarily
imposes its terms and conditions on Subpostmasters.
11. Whilst the Contract does place responsibilities on
Subpostmasters (as well as Post Office), these are not
commercially or legally unfair. In any event, the Contract
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reflects the basis on which Post Office and thousands of
Subpostmasters have successfully conducted business for decades.
It is not now open to seek to retrospectively change that
foundation. At a number of points the Report, has alluded to
"duties" on Post Office that do not exist in the Contract.
Post Office acts in accordance with the Contract and expects
Subpostmasters to do the same.
Subpostmaster's understanding of the Contract
12.
13.
14.
15.
16.
The Report suggests that Subpostmasters may not have
reviewed or fully understood the terms before entering the
Contract. As a result, the Report states, at paragraph 4.7,
that Subpostmasters are unable to mitigate "risks" that they may
face.
Post Office disagrees with the conclusion reached in the
Report. In addition, this conclusion is not supported by any
evidence.
The Contract that is entered into between Post Office and
Subpostmasters is done so freely and at arm's length.
Ultimately, it is for the Subpostmasters to choose whether they
enter into the Contract or not. The Report does not provide any
examples where Post Office is accused of using undue influence
or other unfair behaviour to acquire the agreement of individual
Subpostmasters to the Contract - and it is strongly denied that
any such improper conduct has occurred.
The Report provides no evidence that Subpostmasters do not
understand the Contract. If the view being taken in the Report
is from a business perspective (whether Post Office or a
Subpostmaster) the provisions are very clear and written in
plain English.
In any event, it is a well-established legal principle that
a person who agrees to a contract is bound by its terms even if
he does not have a copy of those terms, has not read them or
does not understand them. Post Office cannot be responsible for
a Subpostmaster who may not have taken the time to read the
Contract.
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17. The Report also notes that Post Office does not recommend
that Subpostmasters take legal advice. There is no obligation
on Post Office to make this recommendation. It is however open
to any Subpostmaster to take legal advice on the Contract at any
time.
18. The report also appears to discount that the Applicants are
business people and from a business perspective, they would be
used to agreeing contracts and should be aware of the risks of
agreeing to a contract without legal advice.
Notification to Subpostmasters of Contract
19. Paragraphs 4.8 to 4.11 state that Post Office does not
provide a copy of the Contract to Supostmasters. Post Office
does not see what evidence this conclusion is based upon. It
appears to be based on the fact that a Subpostmaster does not
recall receiving the Contract or cannot produce a copy now.
This does not mean that the Contract was not provided. Given
the age of some of the cases in the Scheme, it is not surprising
that recollections are hazy and that some records are now not
available.
20. It is Post Offices' Standard Operating Procedure to ensure
that the Subpostmasters have a copy of the Contract no later
than the day that they commence their position. It is also open
to the Subpostmaster to request a copy of the Contract
throughout negotiations when seeking appointment and from Post
Office's Human Resource Support Centre (HRSC) if they have
misplaced or lost a copy.
21. Paragraph 4.10 highlights that it is common practice for
new Subpostmasters to sign an "Acknowledgement of Appointment"
without a copy of the Contract. It is common practice that a
separate document will be signed rather than the full Contract.
As point of law, terms and conditions can be incorporated into a
contract by reference to another document that is not signed.
Secondly, as noted above, Subpostmasters are business people and
will have had opportunity to request and review the Contract
prior to signing. Also they would have had opportunity to take
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legal advice on the Contract prior to entering into it.
Subpostmasters would therefore have had a number of
opportunities to be aware of the specific provisions.
Conclusion
22. The Report states that the Contract was considered "from a
business perspective". It is not clear what this means in light
of the criticism in the Report. Post Office would suggest that
this should mean that Subpostmasters, as business people, enter
into the Contract of their own choice having had opportunity to
seek legal advice should they wish to do so.
23. Post Office does not see how this section provides greater
clarity on the issues in dispute between Applicants and Post
Office.
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Post Office's response to section 5 - Automated Telling Machines
(ATMs)
1. Section 5 of the Report raises various issues concerning the
accounting in branch for ATM transactions.
2. The Report does not clarify which precise part of the ATM
accounting process is under consideration by Second Sight. In
broad terms, the accounting process breaks down into three
elements:
a. Loading - Cash for the ATM is sent to the branch by Post
Office and is loaded by the Subpostmaster into the ATM.
This requires the recording of the ATM Cash as part of the
branch's stock.
b. Cash dispensed - the amount of cash dispensed by an ATM is
recorded daily on Horizon - see further below.
c. Exceptions - jammed cash and retracted cash - see further
below.
3. From the content of the Report, Post Office believes that Second
Sight has focused primarily on the processes for the recording
of cash dispensed from the ATM however other issues are touched
on also.
4, Additionally, it should be noted that some ATMs are not managed
by subpostmasters. . In respect of these ATMs, the Post Office
security (CViT) van drivers load the cassettes of cash into the
ATM and there is no need for action by the Subpostmaster. The
report does not distinguish between this type of ATM and those
where the Subpostmaster is responsible. Neither does the Report
consider whether any Applicants ATMs are CViT load.
5. In short, nothing in this section of the Report gives rise to
any issue that could cause a loss of cash in a branch. The
Report does highlight a few areas where Applicants have claimed
to struggle with accounting for ATM transactions but the design
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of the accounting process and the safeguards put in place by
Post Office mean that even a failure to account for ATM
transactions will, save in a few minor areas (highlighted
below), not cause a loss to a branch.
Out of sync / air gap
6. The Report focuses on the situation where cash is dispensed from
an ATM. The process for accounting for dispensed cash is set
out at paragraph X of the Part One Briefing. In short, ona
daily basis (or on a Monday following a weekend) the
Subpostmaster prints a receipt from the ATM showing the amount
of cash dispensed. This cash dispensed figure is then entered
into Horizon by the Subpostmaster.
7. Simultaneously, the amount of cash dispensed is also
automatically transmitted to BOI by the ATM. This means that
there are two parallel records kept of the cash being dispensed
by the ATM: one by the Subpostmaster on Horizon and one by BOI.
8. The Report notes that there are situations when these two
systems can become out of sync with one another, with one record
showing more or less dispensed cash than the other record. This
could be caused by the Subpostmaster entering the wrong figure
on Horizon.
9. What is not highlighted by the Report is that even if the amount
of money dispensed by an ATM as recorded on Horizon by the
Subpostmaster is different from the amount actually dispensed as
"out
recorded by BOI, therefore resulting in the records being
of sync", this would not result in there being a loss to the
branch. This is a pure accounting error by the branch.
10. There is a subsequent reconciliation of the Horizon figure
against the BOI accounts. This means that any error on the
Horizon account as to the amount of cash dispensed by the ATM
would be picked up within a matter of days and corrected by way
of a Transaction Correction to the branch.
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11. As a result of this process, there is no difference in the
amount of cash held on site. Indeed, the above accounting
processes do not require anything to be done with the physical
cash at all.
12. Simply because the accounts may be "out of sync" does not
mean that there is a loss suffered by the branch. . In
summary, the air gap / out of sync issue cannot be a cause of
loss in branch.
Complexity of accounting for dispensed cash
13. At paragraph 5.4 the Report states that the Post Office
system for operating ATMs is "a complex arrangement, requiring
greater human intervention... that that typically need in most
high street banks". The Report does not specify which part of
the branch accounting process is considered more complex,
however given the focus on the “out of sync" issues it seems
that the Report is levying this allegation at the accounting
process for dispensed cash (see above).
14. The Report’s conclusion is not supported by any evidence
and does not outline the differences between Post Office's and a
bank's processes save to say that banks' ATMs are fully
computerised.
15. At various points, and particularly paragraph 5.18, the
Report suggests that Applicants also found it difficult to
account for cash being dispensed from ATMs. Again, little
evidence is presented to support this view,
16. As described above, the ATM automatically records the
amount of cash dispensed. The only part of the process that is
manual is the need for the Subpostmaster to take the cash
dispensed figure from the ATM and enter into onto Horizon.
Second Sight has adopted the phrase "Air Gap" for this manual
interaction. As far as Post Office is aware, it is not a phrase
used by any of the Applicants.
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17. Within this accounting process, no calculation or counting
is required - it is literally typing a single figure into
Horizon on a daily basis. Given the complete absence in the
Report of any explanation or justification for the view that
this is "complex", Post Office cannot understand how this
process can be called "complex" or how this cannot be understood
by Applicants.
18. The Report appears to rely on a number of extracts from
Post Office's Operations Manual to show that the above
accounting method was too confusing for some Applicants.
Paragraph 5.11 states that Applicants misunderstood the
instructions from the February 2008 Operations Manual update
quoted in the Report. Paragraph 5.13 states that the out-of-
sync problem described above, was common place prior to February
2008. The Report sets out the opinion, at Paragraph 5.15, that
the instructions from the Operations Manual represents an
example of the complex instructions and a cause of confusion.
Paragraphs 5.13 and 5.15 are therefore a contradiction of one
another - the first saying the problem pre-dated 2008, the other
saying the problem resulted from the 2008 update.
19. The Report does not describe any instructions provided
prior to the February 2008 Operations Manual or any subsequent
updates. No assessment is made as to any change in the reporting
of problems in relation to ATMs (and specifically not
understanding the instructions) before or after the February
2008 Manual update and in particular whether there was an
increase or reduction of the potential for errors. The Report
specifically criticises the February 2008 Manual this would
appear to be a fundamental assessment and consideration that has
not been made. Together with the fact that no evidence is
provided to confirm how many Applicants did attribute errors to
these (or any other) instructions, whether before or after
February 2008, this undermines the position taken within the
Report and the conclusions reached are unreliable as a result.
ATM Support
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22.
23.
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The Report notes that Applicants have alleged that the
Helpline repeatedly told them that the "problem would sort
itself out".
At paragraph 5.19 of the Report states that the advice from
the Helpline was inadequate and misleading. There is no
evidence provided to support this allegation. The advice
provided should be assessed on a case by case basis and without
any evidence that there is a wider issue with the advice
provided it has not been shown to be a thematic issue.
Even if the advice provided was that matters would "sort
itself out", in light of the reconciliation between Horizon and
BOI (as described above) if there was an “out-of-sync" problem
it would be corrected by a Transaction Correction. This would
prevent the build-up of any accounting shortfalls. As stressed
above, there is no loss caused to the branch as the overall cash
in branch relating to the ATM remains the same.
Overall, the assertion that the instructions were complex
and support provided was inadequate has not been supported by
any evidence or logical reasoning.
Weekend trading
24,
Paragraph 5.18, which considers trading over weekends,
appears to have no relevance to the cause of losses on the ATM.
Power and telecommunication issues
25.
26.
At Paragraph 5.20 the Report Second Sight states that many
Applicants have commented on the impact of power and
telecommunications failures on the ATM. The Report acknowledges
that, even when they have dates of power or telecommunications
failures, Applicants cannot clearly link them to specific
deficiencies in their branches.
There are standard recovery processes in place to ensure
that no data is lost or corrupted. This recovery processes were
reviewed in detail by Second Sight in their Interim Report and
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found to work. Post Office remains confident that branch
accounts will not be corrupted due to a power or
telecommunications failures.
27. Despite this, the Report speculates that the need to re-
boot the ATM by either the Subpostmaster or BOI could “introduce
a possible risk of data loss or corruption". This comment is
not supported by any evidence either from a specific Applicant's
case or contemporaneous evidence that such a problem may exist.
28. Post Office places little weight on the comment that
Second Sight has evidence that contradicts the assurances
provided by Post Office that data cannot be corrupted. Post
Office is not aware of this "evidence" and again, a conclusion
appears to have been put forward by the Report without any
supporting evidence or reasoned conclusion.
Retracts
29. Paragraphs 5.21 to 5.25 discusses failed cash withdrawals.
As paragraph 5.22 and 5.23 state, if cash dispensed is not
physically removed then after a period of time the cash will be
retained by the ATM. This is known as a retract. It can occur
for a number of reasons but often because the customer gets
distracted. It is also possible that retracts can be subject to
fraud by customers. Second Sight has indicated that
Subpostmasters might be liable for losses caused by this fraud.
This is correct where Subpostmasters have failed to account for
retracts correctly. Provided the accounting is done correctly,
the Subpostmaster will not be liable for retract fraud.
30. The accounting process for retracts is as follows:
a. Each working day, a Subpostmaster must check the ATM Bank
Totals receipt (which is generated by the ATM) to see if
any retracted transactions have taken place.. The receipt
will show the number of retracts.
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b. If any retracts have taken place, the Subpostmaster must
physically remove the retracted notes from the ATM (which
are stored in a separate part of the ATM from other cash).
c. For all retracted cash removed from an ATM, the
Subpostmaster must count and report on Horizon the total
value of retracted cash on the same day (using the ATM
Surplus Cash button on Horizon). If a retract occurs when
the Post Office branch is closed it should be removed and
reported on the next working day.
d. Once reported on Horizon, the retracted cash should be
placed in the branch safe and forms part of the cash
holdings of the branch.
31. Customers' accounts will be debited even though they did
not remove their cash. This is often re-credited but it is an
issue for the customer and their bank, although Post Office will
provide information to the customer to assist them. At this
point, the branch accounts will balance as the amount of cash
physically dispensed (including any cash subsequently retracted)
will match the cash dispensed figure on Horizon and the amount
of cash in the retract cassette will have been counted and added
to Horizon.
32. Retract fraud occurs where a customer conducts a withdrawal
transaction from their own bank account using an ATM. When the
cash is vended, the customer looks to remove the middle notes,
leaving the top and bottom notes behind, thereby hoping to trick
the ATM into believing that the cash has not been taken. The ATM
then retracts the remaining cash back into the machine,
believing that it has retracted the entire sum withdrawn. The
fraudulent customer's intention is that when the bank checks the
retract records for the ATM in question, it sees that there was
a retract recorded against the customer's withdrawal transaction
and would then fully re-credit the customer's account.
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33. Provided the Subpostmaster follows the above procedure in
relation to retracts, he will not be liable for any ATM cash
loss caused by retract fraud.
34. Post Office provides to BOI details of the amount of each
retracted cash transaction as part of its weekly ATM balances
recorded in Horizon. BOI uses that information to look for a
match between the actual amount of retracted cash removed from
the ATM and the amount of the original cash withdrawal
transaction. If there is a match, then this will indicate that
there has been no retract fraud and the full amount will
typically be re-credited to the customer. If there is a
discrepancy, then BOI may undertake further investigations into
the customer's activity.
35. As long as Post Office can provide the daily retract
declarations from Horizon then any loss caused by any retract
fraud does not fall on the Subpostmaster.
36. If a Subpostmaster does not declare a weekly ATM balance
through Horizon, which includes the amount of any retracted
cash, then Post Office cannot provide that information to BOI.
As BOI has not been provided with balancing information it is
unable to determine whether a retract was fraudulent. The full
amount of the cash withdrawal re-credited to the customer is
therefore charged on by BOI to Post Office.
37. Where Post Office is charged by BOI, it passes on this
charge to the Subpostmaster by way of a transaction correction
where the weekly ATM balance, including any retracted cash
records, are not available because of the Subpostmaster's
failure to follow proper accounting processes.
38. It should be noted that where the retract was not
fraudulent, the correct amount of cash will have been retracted
into the ATM. Even if the Subpostmaster has not properly
accounted for this cash on Horizon, the retracted cash will
still be in the branch (either in the branch's cash holdings or
still in the ATM) as surplus cash. This surplus cash will offset
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any Transaction Correction for failing to follow proper
accounting procedures.
39. Where retract fraud has occurred, then the amount of
surplus cash recovered from the ATM will be less than the amount
of the original cash withdrawal transaction. This discrepancy
will fall on the Subpostmaster if they have not following proper
accounting procedures.
40. The Report does not suggest there is any failure in the
above procedure that may cause a unwarranted loss to a
Subpostmaster (. Post Office therefore remains confident
provided the above process is followed by a branch the
Subpostmaster will not be liable for retract fraud. However,
should they not follow the above process, then they may be
liable for some or all of the cash lost to the fraud (which will
be passed to the branch by way of a Transaction Correction).
Post Office considers that this allocation of responsibility for
preventing retract fraud is fair and Subpostmasters can avoid
all risk altogether by following the above simple accounting
process.
Other frauds
41. Post Office accepts that there are other forms of fraud
that may be occurring. However, we are not aware of any form of
fraud (including retract fraud) that has created a loss to an
Applicant, provided they follow the correct procedures.
Conclusion
42. Overall, provided the Subpostmaster follows the appropriate
procedures there will be no loss to the Subpostmaster whether
the issues arising is due to an "out-of-sync" problem or retract
fraud. Post Office does not agree that the instructions and
support in relation to ATMs is inadequate. No evidence is
provided to support this positon and XX number of ATMs are
operated without concern across the Post Office network. This
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would support the position that the instructions are clear,
understood and work in practice.
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Post Office's response to section 6 - Motor Vehicle Licences
1. Section 6 of the Report considers the issuing of Motor Vehicle
Licences (MVL). The Report itself notes that only a small
number of Applicants reported problems concerning processing
MVL. It is not clear that this can properly therefore be
considered a system wide issue of general application.
2. Paragraph 6.1 describes a problem encountered (by what Post
Office believes to be a single Applicant) when for V11C (the
form used by customers to renew their MVL tax discs) was
misprinted with the incorrect bar code. Form Vil is not produced
by Post Office and therefore this was an external error. The
Report states that the effect was that a sale was recorded as a
12 month tax renewal rather than the 6 month tax disc as was
sold. The Report states that whilst the customer would have
paid for and received a 6 month MVL tax disc, the accounts would
have recorded a sale of a twelve month disc and, as a result,
there was a potential liability to the Subpostmaster for the
additional 6 months.
3. This is fundamentally incorrect. The barcode on the V11C form
does not define the duration of the tax disc but the overall
cost whether taxing the vehicle for 6 or 12 months. A V11C is
printed with tick boxes for the customer to confirm whether they
would like to tax a vehicle for 6 or 12 months. Upon scanning
the V11C, which identifies the registered vehicle, Horizon will
prompt the user to enter whether the customer wants a 6 or 12
month tax disc. If the barcode printed was incorrect this could
lead to a charge based on a different vehicle, which could be
potentially more or less than the appropriate charge if the
vehicle identified by the barcode is in a different tax band to
the customer's actual vehicle.
4. If there is an error with a barcode, it would be an issue with
the tax banding not whether a vehicle is taxed for 6 or 12
months. This issue could benefit or disadvantage the customer.
However, Horizon would invite payment at the level requested by
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the bar code. Provided that payment was taken for the amount
requested by Horizon the branch would not suffer a loss as there
is no loss or gain from the transaction. Whilst this issue is
clearly not desirable (and Post Office would offer all possible
assistance to the customer to correct any error on the DVLA
issued V1l1C form), it is an issue outside of the scope of Second
Sight's review as it does not impact on branch accounting.
5. Paragraph 6.2 speculates that if this type of discrepancy
occurred, resulting in a loss for the branch which the
Subpostmaster would be liable for, the amounts could be
significant. There appears to be no evidence to support this
assertion. This appears to be a one off incident, created by a
bar code that was created by a third party. As this issue is so
specific to a particular customer's circumstances, Post Office
cannot see how this can be classed as a thematic issue affecting
Applicants generally.
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Post Office's response to section 7 - National Lottery
1. Section 7 concerns National Lottery transactions which are
described in more detail at paragraph 5.35 of the Part One
Briefing. In particular the Report highlights alleged problems
that Subpostmasters may have in relation to (1) Scratch cards
and the activation of them and (2) sales continuing outside of
Post Office hours of Lottery products in a connected retail shop
resulting in Horizon and Camelot terminals being "out of sync".
Activation of Scratch Cards
2. Paragraph 7.2 states, correctly, that before February 2012 any
Lottery Scratch Cards received by a branch had to be manually
“activated "on Camelot terminal and then remmed in to Horizon.
This process is described in more detail at paragraph 5.42 of
the Part One Briefing.
3. Paragraph 7.3 of the Report describes how a branch could become
"out of sync". This means that the activation of scratchcards
on the Camelot terminal did not reflect those remmed in on
Horizon. This would result in either a surplus or a deficiency
of Scratchcard stock in the branch accounts. To remedy this
error, Post Office and Camelot conducted daily reconciliations
of the data on the Camelot terminal and on Horizon. Where there
was a discrepancy, a Transaction Correction would be issued to
the branch.
4. Any errors that occurred through the failure to activate or rem
in scratchcards were errors that occurred in branch and
therefore were the Subpostmaster's responsibility.
5. However, the effect of not remitting in scratchcards into
Horizon will not in itself create a loss. The physical
scratchcard stock will still be in the branch as it must have
been delivered to the branch for it to be activated on the
Lottery terminal. The Transaction Correction only increases the
amount of scratchcards shown in the branch accounts to reflect
the amount actually on hand.
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6. If the scratchcards have been sold but not remmed into Horizon,
the branch would show a negative stock value for scratchcards
(as each sale reduces the stock line in the accounts even if
this goes below zero). The subsequent Transaction Correction
will therefore increase the scratchcard holdings, cancelling out
the negative figure and bringing the accounts back into balance.
7. The opposite effect will happen if scratchcards have not been
activated on the Lottery terminal but remmed into Horizon.
8. In summary, it is clear that (1) this issue is caused by errors
in branch for which Subpostmasters are responsible but that in
any event (2) this issue cannot be a source of actual losses.
Support
9. At paragraph 7.6 the Report states that the problems encountered
by the Applicants (prior to procedural improvements described at
paragraph 5.43 of the Part One Briefing) were exacerbated by the
Helpline who were not able to offer assistance. Post Office is
not aware of the specific calls or incidents that the Report is
referring to which demonstrate a thematic failure to provide
adequate advice.
10. This is very much an issue that will need to be considered
on case by case basis depending on the advice provided to an
individual Applicant. However, as noted above, the
reconciliation process conducted by Post Office means that
regardless of advice given by the Helpline, any error would be
corrected in due course.
Out of hours sales
11. Paragraph 7.2 of the Report describes an alleged problem
relating to the syncing of sales that take place "Out of Hours".
Sales of Lottery products (as described at paragraph 5.39 of the
Part One Briefing) may continue while a connected retail shop is
open but the Post Office counter is closed however the branch
needs to ensure that any cash taken for any “out of hours" sales
is transferred from the retail shop to the branch cash holdings
the following day.
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12. The value of the "out of hours" sales (and any other sales)
will be automatically sent to Horizon each day by way of a
Transaction Acknowledgement which will increase the cash
position in the branch's accounts. The amount of cash to be
transferred from the retail side to the Post Office side is
easily identified as the figure is displayed on the Transaction
Acknowledgement. If a Subpostmaster does not transfer the
physical cash from the retail side into the branch for these
sales, this will produce a cash shortage. The Subpostmaster will
be liable for this cash shortage at the end of the trading
period.
13. Paragraph 7.7 of the Report highlights the "complication"
occurring on the final Wednesday evening of the monthly trading
period. This is reference to the period reconciliation completed
on a monthly basis. Rather than process the reconciliation on a
Wednesday evening as they would normally do, Subpostmasters have
to first enter the Lottery sales from the previous evening and
complete the reconciliation as a matter of priority the following
morning. The Report states that this process was not always
provided by the Helpline. As above, Post Office has not seen any
evidence to support this assertion and would highlight that
Second Sight have been provided with call logs relating to the
Applicants cases. However, no specific calls are referenced in
support of this statement.
14. In any event, the Report appears to suggest that this was a
problem at the end of trading periods. In fact, branches
operating a Lottery Terminal needed to make daily cash
declarations (see paragraph XX of the Part One Briefing) like all
other branches. As Lottery sales data is sent overnight, Lottery
branches are instructed to conduct their cash declarations and
end of trading period balances (see paragraph XX of the Part One
Briefing) first thing in the morning after the Lottery data was
received. This was not therefore a complication but an adjusted
daily process for branches with Lottery terminals.
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15. In practice, some branches chose not to follow “next day”
guidance and may have conducted balances several days later.
Post Office operational instructions have however always focussed
on next day accounting.
16. In summary, any loss arising from "out of hours" issues
highlighted in the Report will arise as a result of an error in
the branch for which the Subpostmaster is liable.
Conclusion
17. Procedures have evolved to assist Subpostmasters and reduce
the number of Transaction Corrections that are necessary in
relation to Scratch Cards, especially in relation to the
activation of them. However, the “out of sync" affect created by
either incorrect activation or non-activation of scratch cards
or not correctly recording the out of hours' sales are errors
that arise within branch. The errors were not due to either
Post Office or Horizon and therefore any liability appropriately
remains with the Subpostmaster if it arises.
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Post Office's response to section 8 - Training, Support and
Supervision
1. Section 8 principally considers the training on Horizon and
branch accounting provided to Subpostmasters by Post Office.
Currently training for Subpostmasters consists of a mixture of
classroom training and in-branch training. Further training is
available upon request and there is well developed support
network including the NBSC, managerial support and Field Support
Advisors. This training and support is described in more detail
at section 4 of the Part One Briefing.
2. The Report comments that the training was adequate in relation
to "Business as usual" transaction processing but was weak in
relation to the end of day, end of week and end of trading
period balancing. In addition, the Report states that there was
no consideration given to dealing with discrepancies, how to
identify the root causes of problems and how to deal with
Transaction Corrections.
3. These views appear to be based entirely on the anecdotal
information provided by Applicants in their CQRs. As noted in
the introduction to this Reply, the credibility of that
information remains largely untested. Post Office has not been
asked to provide any training materials for their review nor
established any industry standard or contractual benchmark
against which to judge Post Office's performance. The pieces of
analysis used to support the Report's conclusion are considered
below and shown to be incorrect.
cS
Given that teh Report has presented no evidence or analysis that
shows that Post Office's standard training is defective, Post
Office stands by its training practices as being effective.
Post Office considers that the training and support that is
provided is fit for purpose and adequate to meet the needs of
the large majority of Subpostmasters. This is proven by the
thousands of Subpostmasters who are successfully operating
Horizon having received the training from Post Office.
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5. There may of course be specific cases where training and support
has not been provided to Post Office's usual standards (which is
not impossible given the thousands of Subpostmasters trained and
support by Post Office over the years) but these situations will
be considered on a case by case basis and are not reflective of
any general thematic issue.
Move to Horizon
6. In support of the Report's views, at paragraphs 8.3 and 8.4, it
finds that many Applicants found that discrepancies began to
occur when they moved to Horizon. The conclusion reached in the
Report is that this was due to a lack of understanding of how
the system was due to operate and be used, meaning they were
insufficiently trained, had not been able to train their staff
properly or there were issues with the new screen-based
processes.
7. Post Office does not agree with this conclusion and it appears
to be unsupported by any evidence that fewer mistakes were made
prior to the introduction of Horizon. Transaction records are
not available for the pre-Horizon period and it is not possible
to test the conclusion which is put forward. It therefore
appears that teh Report has accepted Applicant's anecdotal
recollection of events without any corroborating evidence.
Paragraph XX in the introduction to this Reply highlights the
deficiencies in this approach.
ATMs, Lottery transactions, MVL foreign currency or other specialist
products
1. At paragraph 8.6 the Report highlights that Applicants
considered that the Post Office trainers and Line Managers were
weak in relation to dealing with ATMs, Lottery transactions;
Motor Vehicle Licences; Foreign Currency and other products.
2. There is a lack of evidence to support these comments from
Applicants. Due to document retention policies training records
for a number of Applicants are no longer available. There also
appears to be no contemporaneous evidence that Applicants were
not provided with adequate support by trainers or line managers
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whether in relation to ATMs, Lottery transactions, MVL foreign
currency or other specialist products. If there was a lack of
understanding in relation to these aspects Post Office would
expect the Subpostmasters to request further training or
otherwise seek assisting through NBSC.
Training Needs Analysis
3. Post Office is not under an obligation to train all
Subpostmasters until they are fully competent on Horizon. This
would be an almost impossible task. Support is however provided
through other means including through the NBSC and managerial
support. In addition, training materials are provided on a
regular basis and further training can be requested by
Subpostmasters.
4. Second Sight note at paragraph 8.7 that further training was
delivered in accordance with user demand rather than being
determined by a Training Needs Analysis. This is not correct.
When Subpostmasters complete their training there are follow up
reviews at one, three and six monthly intervals. In addition to
confirming that the business is operating as it should be there
is an analysis on the Subpostmasters' understanding. If there
are any gaps, these are highlighted and further training can be
provided. After this stage there is a reasonable assumption
that the Subpostmaster will be reasonably competent, with the
support network highlighted above, to operate Horizon. There
should not be the need to periodically check the knowledge of
Subpostmasters. Subpostmasters are operating a commercial
business and if required they can request additional assistance
and training when required.
Training assistants
5. As is made clear within the Contract (at section 15, paragraph
7) it is a Subpostmaster's responsibility to train his/her
staff. Nevertheless, the Report criticises Post Office at
paragraph 8.7 for not operating a “quality control function" to
ensure that branch staff are properly trained by Subpostmasters.
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6. The Report seeks to impose on Post Office a responsibility which
is not stated in the Contract (see paragraph XX of the
introduction to this Reply).
x
Secondly, any failure by a Subpostmaster to train their staff
adequately could be the reason for the losses or increase in
discrepancies however any resulting losses would be due to the
Subpostmaster's error and he would be liable for them (under
section 12, clause 12 of the Contract).
8. Third, and in any event, Post Office could not operate the
quality control function proposed by the Report. Each
Subpostmaster is free to employ whoever they wish subject to
registering them with Post Office as Assistants and to give
their employees whatever tasks they wish. It may be that some
employees are tasked to manage all aspects of branch accounting,
whereas others may only have much more limited roles. There is
therefore no universal training regime that could be applied to
assistants and which could be centrally monitored by Post Office
given the range of roles assistant fill.
9. Furthermore, Post Office cannot monitor the performance of
individual assistants (as Post Office employees are not located
in agency branches), only a Subpostmasters can do this, and so
there is no way for Post Office to respond to the training needs
of assistants as it does not know what they are.
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Post Office's response to section 9 - The Helpline
1. Section 9 concerns the assistance provided by the Helpline to
the Applicants. Post Office operates a number of helplines
including the Horizon Help Desk and Finance Services Centre. It
is presumed that teh Report is referring to the NBSC. More
detail on the Helpline can be found at paragraph 4.2 of the Part
One Briefing.
2. The following criticisms of the Helpline are listed in the
Report:
a) Difficulty contacting the Helpline due to limited
availability;
b
Unhelpful, script based responses;
c) Many calls were afforded "Low Priority", including those
relating to balancing problems and discrepancies;
d
Contradictory advice that revokes previous advice.
3. This section of the Report repeats allegations of Applicants.
Those allegations appear untested (see paragraph XX of the
introduction to this Reply) and the Report reaches no conclusion
at all. On this basis, Post Office cannot understand how this
topic is considered a thematic issue. Nevertheless, the
allegations presented in the Report are addressed below.
Difficulty contacting the Helpline due to limited availability
4. Post Office has previously acknowledged that during busy periods
the Helpline could be difficult to contact. Changes were made,
especially at the end of trading periods, and the hours that the
Helpline was available for was extended.
G
Currently the opening times for the Helpline are from 06:00 -
23:00 on Monday to Saturday and 07:00 to 17:00 on Sunday and
Bank Holidays. Post Office monitor the number of calls made to
the Helpline.
6. Statistics available for the period from April 2011 to March
2014 show that:
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Calls made: 1,825,059
Calls Answered: 1,687,537 (92.46%
Average waiting time until answer: 45 seconds
Calls abandoned: 137,522 (7.54%)
7. As can be seen from the above calls the average waiting time was
just 45 seconds. Over 92% of all calls made to the Helpline
were answered. Of the abandoned calls, this will include all
abandoned calls and therefore will not soley be callers who have
decided to abandon their call because they cannot get through to
the Helpline (for example they may have resolved the issue
themselves) .
Unhelpful, script based responses
8. The Helpline do not use scripts. The operators, many of whom are
very experienced with Horizon, listen to the query and then
using ‘categorisations’ in Remedy (the contact management
system) the Knowledge Base is accessed where there are articles
relating to that category of call. The adviser then selects the
relevant article according to the issue raised by the caller and
relays the information to them. The system records which
category was selected and therefore which articles in the
Knowledge Base that could be accessed on this subject (but the
not the exact Knowledge Base article that the advisor
selects). If the Knowledge Base does not provide the relevant
information there is a second tier of advisors that the enquiry
can be escalated to.
Many calls were afforded "Low Priority"
9. There is no priority system in place for calls to the Helpline
with the exception of matters relating to robbery or burglary.
Whilst those calls are dealt with as a priority other calls are
answered and dealt with in the order they are received.
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. In addition, if the Subpostmaster was not satisfied by
the advice provided they could seek a higher level of support as
described at paragraph 4.6 of the Part One Briefing.
Contradictory advice
11. No evidence is presented in the Report to support the view
that contradictory advice has been given by the Helpline.
General
12. All calls to the Helpline are recorded by the Helpline
13.
14.
operators in the NBSC call logs. The logs described briefly the
nature of question and the answer given if appropriate. The
Report states that there is insufficient evidence within the
call logs that have been provided to them to conclude what
advice was provided. However, Post Office considers that if
calls were not being answered or address appropriately then
either the matters would be escalated (which would be noted) or
there would be repeated calls about the issue that the
Subpostmaster was facing. There would be evidence that the
advice had not resolved the problem or the applicant was not
happy with the advice. In the absence of this or other
circumstantial evidence then Post Office would suggest that the
calls had generally been resolved satisfactorily.
At paragraphs 9.2 the Report states that a frequent comment
by the Helpline was that matters would resolve themselves. It
is likely that this was reference by the Helpline to a
Transaction Correction being generated following a surplus or
deficiency and that would resolve the issue.
Through its own investigation Post Office has found no
evidence to support the allegations that Helpline would often
merely comment that matters would resolve themselves or be
dismissive of any enquiry. In addition to the initial contact
on the Helpline, if matters could not be resolved they could be
escalated to a higher level of support. Support could have been
provided by Field Support Offices or other managerial support if
it had been requested. Post Office is not aware of any wider
systemic problems where this support was not being provided.
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Post Office's response to section 10 - Limitations in the
Transactional "Audit Trail"
1. Section 10 of the Report considers what it generically refers to
as "limitations in audit trails". The Report is concerned that
Subpostmasters are not able to investigate the root cause of
errors (even where they admit it is caused by their own or an
in-branch error) due to a lack of access to the data.
2. The Report considers three situations:
a. Data that is not available even on the day of transaction
under investigation;
b. Data that is available but after 42 / 60 days is no longer
available; and
c. Data that is not available after suspension.
3. In general, Post Office considers this section is premised on a
misunderstanding of the nature of the information needed by
branches to investigate losses.
4. If at the end of a day, a branch produces a cash declaration
that shows a discrepancy, then the branch will have access to a
range of reports on different products and transactions to
investigate the possible causes for the discrepancy (including a
complete line by line listing of all transactions that day).
This also applies at the end of the trading period as a trading
period is either 4 or 5 weeks (28 or 35 days) and the above
reports and data have always been available for a minimum of 42
days.
5. If a Transaction Correction is sent to the branch, the
information needed to verify the Correction will not be the
Horizon data (Post Office has this data and takes this into
account when generating the Transaction Correction) The
information is likely to be in the paper records held at the
branch.
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Data that is not available even from the day of transaction
6. Paragraphs 10.4 to 10.8 of the Report raise the issue that some
information is not available to Subpostmasters even on the day
that a transaction takes place. The example provided by Second
Sight is where an aggregate amount or volume is provided for
Debit or Credit Card transactions. An aggregate amount for the
number of transactions or provided at the end of each day rather
than a breakdown of the individual transactions. As a result,
the Report states, that Subpostmasters are not able to identify
the individual transaction that may have caused a balancing
error.
7. Subsequently, the Report considers that this would prevent the
Subpostmaster from mitigating their loss or remedying the error
by contacting the customer. This position was different prior
to the introduction of Horizon when paper records were kept and
could be reviewed.
[POL - can we set out how this may be investigated and resolved?
Is there any way for Subpostmasters to be able to resolve these
errors?)
Data that is available but after 42 days is no longer available
(this was extended to 60 days)
8. On the original Horizon system, line by line transaction data
was available in branch for 42 days after a transaction
occurred. On Horizon Online (since 2010), this data is
available for 60 days.
9. The Report considers that with data only being available for a
limited period of time, it may not be available to support a
challenge by a Subpostmaster to a Transaction Correction that
may be issued after the date that data can be retrieved (ie.
beyond 42 or 60 days). The Report states that this restricts
Subpostmasters' ability to challenge Transaction Corrections.
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10. What the Report does not take into consideration is that
Subpostmasters may challenge a Transaction Correction without
transaction data. Also Transaction Corrections are often
preceded by an enquiry and so even if the Transaction Correction
is beyond 42/60 days then an enquiry may well have been received
within the period enabling the matter to be investigated within
the 42/60 day period. There is a wide range of evidence that
can be provided to review or challenge a Transaction Correction.
Often it is very product specific and not a general view across
all data entries. Typically, the necessary data is kept in
branch records rather than on Horizon. These documents should
be retained beyond the period that data is available through
Horizon and is used by Subpostmasters to challenge or review a
Transaction Correction.
11. For example, if a branch wishes to contest a Transaction
Correction relating to ATM transactions, the information needed
is on the paper "Totals Receipt" printed daily by the ATM which
shows how much cash has been dispensed by the ATM and other
important information. This receipt must be retained in branch.
No access to Horizon data is needed as all the necessary
information is on the "Totals Receipt".
12. The general proposition in the Report that Horizon data
needs to be available for more than 42 or 60 days is incorrect.
Any challenge to a Transaction Correction, and the data needed
to make that challenge, must be considered on a product by
product basis. Post Office is prepared to investigate any
product specific allegation that there is insufficient data or
information available to Subpostmasters to challenge and review
Transaction Corrections. It is confident that it will be able
to show that sufficient information is available to
Subpostmasters.
Data that is not available after suspension
13. Paragraph 10.10 of the Report highlights that some
Applicants were refused access to data following their
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suspension and access to their own records that may have been
seized upon audit. As a result they say that they were unable
to defend themselves from any claim made by Post Office for the
recovery of monies.
Whilst Post Office are aware that some Applicants have
raised the issue that their own records were removed and not
returned to them there is no evidence produced or referenced by
the Report to support the position that data being withheld has
prejudiced the Applicant in any way.
[POL - is it correct that data is not provided by way of policy?]Giro
Transactions
15.
16.
A connected issue that is considered at paragraph 17.4 of
the Report is the process relating to Giro Transactions (under
the heading counter errors that benefit customers). Giro
Transactions are, in essence, deposits of cash into a customer's
bank account. Previously, this involved two-part paying in slip
with one copy retained by the customer and the other retained by
the branch. At the end of the day, the branch copy could be
cross-referenced to the entry made on Horizon to check for any
errors by the branch in keying in the wrong figure into Horizon.
This process changed to a chip and pin system using a swipe card
at the request of the bank (Santander) that ran the Giro banking
service. Following the change, no deposit slip would be
presented by the customer and no paper documentation was
retained by the branch.
The Report states that due to the change in process there
is nothing to allow the Subpostmaster to check whether or not
the cash deposit entries on the system reflected the amount of
cash deposited. This is incorrect as the amount recorded on
Horizon to be deposited is now confirmed by the customer through
the chip and pin machine in branch. This is the same process
used by all high street banks which have also moved away from
paying in slips to card based deposits.
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17. In any event, this appears the example given at paragraph
17.4 has been taken from one specific Application. Post Office
does not consider this issue to be one that has affected the
Applicants generally.
Conclusion
18. Post Office considers that the specific issues raised
within the Report in relation to the audit trail available to
Subpostmasters are not of assistance to the Applicants of the
Scheme as a whole.
19. In any event, there is sufficient information available,
whether through the data on Horizon or branch data required to
allow Subpostmasters to operate, and challenge Transaction
Corrections.
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Post Office's response to section 11 - Transactions not entered by
Subpostmaster of their Staff
1. Section 11 of the Report considers transactions that have not
been entered by the Subpostmaster or their staff such as where
there is an "automated transactional reversal". This appears to
be the same underlying issue as raised in section 12 - see that
section for Post Office's reply.
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Post Office's response to section 12 - Transaction Reversals
1. Section 12 of the Report considers the issue of Transaction
Reversals.
2. Transaction Reversals are where part of a basket of transactions
is reversed because the basket is interrupted before completion
(typically due to a power or communication failure).
3. Second Sight says that when a Transaction Reversal happens,
Horizon records the reversal against a user ID of the
Subpostmaster or a member of staff. the Report statesthat this
". This
is misleading because the reversal is “automati
interpretation is incorrect.
4. As far as Post Office is aware, this issue has only been raised
as part of a Spot Review conducted by Second Sight whilst
preparing its Interim Report. The Subpostmaster who put forward
the Spot Review has decided not to make an Application to the
Scheme and no other Applicant has raised this issue.
5. As detailed in Post Office's response to the Spot Review (full
details of which are confidential in order to protect the
privacy of the Subpostmaster whom it concerned), the reversals
were caused by the Subpostmaster cancelling a number of
transactions that they were conducting for a customer. The
user's System ID is shown as the person making the reversal
because they initiated the reversal process.
[do we want to comment of the HR report at this stage? There is some
suggested wording below]
6. The extracts taken from the report by Helen Rose (as quoted at
paragraph 12.3 and 12.4) are taken out of context. The report
was addressing concerns that reversals were not being clearly
shown on the particular data being reviewed (ie. the ARQ and
credence data being the main transaction data used by Post
Office). However, this data is available on other records that
can be extracted from Horizon. The report makes clear that this
is not an issue with Horizon itself or its data but the way that
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the data it produced was presented within one particular data
log. It does not suggest that there was any entry being made
that was not initiated within the branch by the Subpostmaster or
their staff.
7. This section raises no issue that could be the cause of losses
in a branch.
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Post Office's response to section 13 - Cash and Stock Remittances
(Rems) in and out of the branch
1. Section 13 of the Report focuses on the remittance of cash and
stock to and from branches. Paragraphs XX and XX of the Part
One Briefing described the remittance process.
2. On occasions issues can arise such as cash pouches not being
received or there being less or more cash within the pouch than
stated. This will result in a Transaction Correction being
raised.
3. If the cash centre remits a cash pouch to a branch and it is not
received this will not result in a loss to the branch. The cash
centre will investigate why the pouch has not arrived and
ultimately bare the loss. The cash pouch is scanned upon
receipt by the branch and therefore it is only at this stage
that the cash is registered on Horizon as being held in branch.
From this point any loss of cash is the responsibility of the
branch and Subpostmaster. There may be some occasions when the
pouch barcode will not scan. In such circumstances the pouch is
entered as received manually.
4, If there is more cash within the pouch than stated the branch
should report this within 24 hours of receipt. This will result
in a surplus to the branch and a Transaction Correction is
issued to correct the balance on Horizon.
5. In circumstances where the pouch contains less cash than
expected the matter should be reported by the Subpostmaster
within 24 hours of receipt. The issue is investigated by the
cash centre. If the cash centre accepts that the pouch contains
less cash due to their error they will bear the loss (if any).
A Transaction Correction is issued to the branch to correct the
balance on Horizon. Where the cash centre does not accept that
it is their error the Subpostmaster is invited to review the
security cameras monitoring the pouch. If the Subpostmaster
wishes to continue to challenge the amount received they can do
so through the FSC in the same way that a Transaction Correction
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is challenged. If less cash is held in Horizon a Transaction
Correction would be issued. The loss can be placed in the
suspense account whilst the matter is investigated and resolved.
6. A similar process is applied when cash is remitted to the cash
centre from the branch. The amount of cash sent within the
pouch is recorded. If this sum is less than anticipated when
received by the cash centre the issue is investigated. The
Subpostmaster has the opportunity to view security cameras that
monitor the movement of the pouch and can choose to accept the
shortfall or place the loss into the suspense account and
investigate the matter further.
7. Paragraph 13.4 deals specifically with the instances where
foreign currency has been accidentally sent to the wrong branch.
The Report speculates that this could result in a Subpostmaster
being responsible for a shipment that was never received.
8. The same process outlined above applies to foreign currency. If
a pouch is not received by a branch it will not be scanned into
Horizon and there will be no increase in cash holdings. If the
pouch is not received there is no loss to the branch.
9. Where the pouch is taken to a different branch in error it can
be rejected and will be returned to the cash centre. If an
alternative branch accepts the pouch it will be scanned into
Horizon and increase the foreign current held at that branch.
Transactions Correction will be issued to correct any
discrepancies that may have been created but overall there would
be no loss to either the branch that received the foreign
currency or the branch that accepted it.
10. Irrespective of what the remittance relates to cash or
foreign currency, a branch is not liable for cash that they have
not taken delivery of.
[Wording above has been sent to Rod Ismay for approval.]
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Post Office's response to section 14 - Missing, damaged or bounced
Cheques
1. Section 14 of the Report discusses the process of remitting
cheques from Post Office branches to Post Office's cheque
processing provider. It considers the situations where (1)
cheques go missing and do not reach the cheque processor, (2) are
damaged so that they cannot be processed by the cheque processor
or (3) are rejected by the customer's bank.
2. To assist Applicants, Post Office has set out below the cheque
remittance process and the process followed when cheques go
missing, get damaged or bounce.
3. In summary, it is inevitable that cheques will occasionally go
missing or are damaged at some stage in their processing.
However, as stated in paragraph 14.6, provided that the
Subpostmaster follows the correct procedure for processing the
cheques in branch this will not result in a loss. The cost of a
lost, damaged or bounced cheque is only passed to a Subpostmaster
where there is clear evidence that the Subpostmaster has failed
to follow proper acceptance or remittance processes and Post
Office has exhausted all other possibilities of recovering the
missing cheque. This is done in accordance with clause 12,
section 12 of the Contract under which the Subpostmaster is
liable for any losses caused by his carelessness, negligence or
error.
Process in branch
1. Most Post Office branches are entitled to accept cheques from
customers as the method of payment for range of designated
counter transactions. The cheque should be scrutinised by
branch staff to make sure it is not a forgery and the reverse of
the cheque needs to be date stamped, initialled and the relevant
transaction details recorded. This will enable identification
of the specific product and/or customer in the event of an
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error. There may be no customer details recorded on Horizon
against the cheque transaction hence the need to endorse the
cheque with those details.
2. The method of payment (MOP) by way of cheque should be recorded
as a part of the Horizon transaction. When recording a MOP as by
cheque, the customer's cheque is automatically recorded on
Horizon as a part of the branch stock.
3. All cheques taken should be despatched from the branch via the
final Royal Mail collection of the day (except Fridays). The
branch process for remitting cheques is as follows:
i. Subpostmaster produces a cheque listing report from Horizon
(which shows the value of each cheque accepted that day).
ii. Subpostmaster verifies that the cheques held in the till
match (volume and value) against the cheque listing report.
iii. The total cheque value is then marked on Horizon as being
remitted to POL (known as "remmed out").
iv. A further cheque listing report is then produced. This will
show the cheques being remmed out as a negative value and
the report will now total zero.
v. The cheque listing report is "cut off". The branch cheque
stock will now also be zero.
vi. A Batch Control Voucher (BCV) is manually completed to show
number of cheques, value and despatching branch. The
cheques are attached to the BCV. The cheques are then
despatched for processing in the relevant envelope via
Royal Mail to the cheque processor.
vii. Horizon cheque listings and remittance slips are retained
in branch.
FSC process
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4. The POLSAP finance system at the FSC is automatically updated
each night from Horizon (for the values of cheques remmed out
from branches). The cheque team in FSC are able to view this
data the next day after the transactions and will see the
outward remittances recorded.
5. Similarly an electronic file will be received overnight by FSC
from the cheque processor via an automatic upload into POLSAP
which shows the actual cheques received from each branch. FSC
can then compare the values recorded by the branch as despatched
against the values recorded by the cheque processor as received.
6. Approximately 1,000 entries will remain unmatched each day (ie.
there is a discrepancy between the cheques received by the
cheque processor and the information sent via Horizon by
Subpostmasters about cheque remittances) and could be an
indication of missing cheques. Many cases are resolved quickly
(ie. late delivery by Royal Mail or the Subpostmaster missed the
collection or forgot to put a cheque in a pouch). There will be
around 100 cases per month where it becomes apparent that a
cheque has actually gone missing.
Investigating lost cheques
7. It is acknowledged that a cheque loss could occur at the branch,
in the Royal Mail pipeline or at the cheque processor. Post
Office's policy is that a branch will only bear the cost of a
lost cheque if the branch has not followed proper procedures.
If the root cause of a lost cheque is unknown or attributed to
some other cause outside the branch, POL will absorb this loss
and not pass it on to the Subpostmaster.
8. In the vast majority of cases, Post Office either mitigates the
loss caused by a lost cheque or absorbs the loss itself. Only a
very small number of missing cheque cases result in Transaction
Corrections being issued to a branch.
9. The process for investigating missing cheques is as follows:
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The transaction to which a missing cheque relates is (if
possible) identified from the information input into
Horizon by the Subpostmaster.
Branches will be contacted when the missing cheque case is
set up to see if the cheque can be found in branch or if
they are aware of which customer has presented the cheque
which has subsequently gone missing.
If the branch cannot find the lost cheque, a variety of
techniques (depending on product/information available) is
employed to identify the customer and their address from
the transaction data.
The customer is then contacted to request a replacement
cheque. If a replacement cheque is provided then the loss
to Post Office is avoided.
If a replacement cheque is not forthcoming, the relevant
client organisation (ie. the product supplier, say Bank of
Ireland, Environment Agency, etc.) is informed that the
payment for that particular transaction has not been
received and the transaction is reversed where possible. By
reversing the transaction, the loss to Post Office is
avoided.
Alternatively, if Post Office is unable to identify the
customer details, the relevant client organisation may be
asked to try to contact the customer directly for payment.
By payment being made direct from the customer to the
client, the loss to Post Office is avoided.
If the transaction related to the missing cheque cannot be
identified or if the transaction is identifiable but
payment cannot be recovered from the customer or the client
and the transaction cannot be reversed, Post Office will
absorb the loss of the cheque provided discussions with the
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branch and review of transactional data does not reveal a
breach of the operational processes.
10. There are two typical scenarios where Subpostmaster has
failed to follow operational processes and will be held liable
for missing cheques:
e Cheques have been accepted by the Subpostmaster for a non-
cheque acceptable product (e.g. foreign exchange sales).
By accepting payment by cheque for a non-cheque acceptable
product, it may not be possible to link a missing cheque to
a transaction record. If the transaction record cannot be
identified then it may not be possible to identify the
customer and/or client. This then frustrates Post Office's
usual loss mitigation steps described above.
e The method of payment has not been correctly recorded on
Horizon with cheque as the MOP and it subsequently proves
impossible to associate any transactions with the missing
cheque. Such an instance will typically be illustrated by
branches recording multiple/all transactions through “Fast
Cash” and then introducing a bulk cheque value to Horizon
via a “Cash/Cheque Adjustment” at the end of the day prior
to remitting out. Again, this may frustrate Post Office's
usual loss mitigation steps described above.
li. Where a Subpostmaster is held liable for a missing cheque,
a transaction correction will be sent to the branch reversing the
remittance of the cheque by the branch. This will return the
value of the "missing" cheque to the branch's cheque stock. If
the branch cannot obtain a replacement cheque from the customer,
there will be a cheque shortage at the end of the trading period
that the subpostmaster will need to make good.
Damaged cheques
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12. At paragraph 14.3, the Report states that a branch may be
liable where a cheque has been mutilated whilst being processed
at the cheque processor. In such a scenario:
. Post Office will try to recover the payment using the means
described above in relation to missing cheques.
° If this is not possible, then Post Office bears the loss
caused by the damage to the cheque.
e No transaction correction is ever issued to a branch due a
customer cheque being damaged at FSC.
13. Damaged cheques will therefore never be the cause of a loss
to a branch unless there has been a breach of operational
procedures, such as when payment by cheque is taken despite it
not being a permitted method of payment for some products (eg the
purchase of foreign currency) .
Bounced cheques
14. Paragraph 14.4 makes reference to specific complaints by
Applicants (rather than it being a common theme amongst
Applicants) that they were liable for cheques that bounced. As
described above, the branch accounts treat cheques like a stock
item. So long as the branch accurately records the receipt of
cheques from customers and the remittance of cheques to Post
Office, then the branch is not concerned with the banking of any
cheques. The banking of cheques and recovery of payment from
customer's bank is conducted by FSC. Post Office absorbs the
credit risk posed by accepting payment by cheque and should a
cheque bounce, Post Office will absorb the resulting loss.
15. The only exception to this rule is where the branch has
failed to follow operational procedures. This may have included
not completing the details in accordance with a cheque guarantee
card (until these ceased in 2011) or taking payment for a
product where payment by cheque is not permitted.
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Transaction corrections for missing or bounced cheques
16. Paragraph 14.5 makes reference to Applicants not being able
to mitigate their losses as the transaction correction for a
missing or bounced has been sent to them too long after they
accepted the cheque. Transaction corrections may be delayed on
occasions but this is not necessarily the fault of Post Office.
In some instances Post Office is dependant on a response from a
third party (such as the customer's bank) before the transaction
correction can be issued. This may have resulted in some delay
but, as stated above, if the correct process is followed then
Subpostmasters will not be liable for any lost or bounced
cheques.
17. Typically, however if there is an issue with a cheque this
issue will be raised through over channels with the branch. In
most cases, the branch will be aware of the issue long before
the transaction correction is submitted.
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Post Office's response to section 15 - Pensions and Allowances
18. Section 15 of the Report concerns the risk of fraud taking
place in relation to Pensions and Allowances (P&A) transactions.
In particularthe Report states that subpostmasters could be
innocent victims of this type of fraud but still liable for the
resulting losses in their branches.
19. For the reasons set out below, P&A fraud by branch staff
can be easily detected by a subpostmaster before any loss occurs
so long as he/she is carrying out proper end of day checks on
P&A transactions. Subpostmasters are therefore liable for any
losses in their branch caused by P&A fraud as this loss arises
due to their failure to conduct adequate checks.
Benefit payment methods
20. There are various methods by which benefits can be received
by customers:
P&A books
21. P&A books were provided by the Department of Work and
Pensions (DWP) to customers entitled to benefits. A nominated
Post Office branch was set out on the cover of each P&A book,
together with the customer's name and address. Within each book
were (usually) 20 dockets, vouchers or foils (referred to in
this note as vouchers) stating FAD code of the nominated Post
Office branch, voucher number and amount to be paid. The
vouchers were presented to the branch staff, processed through
Horizon and then cash paid to the customer. The vouchers were
despatched each week by each branch to the Paid Order Unit
(which in effect is the DWP) in Lisahally, Northern Ireland.
22. P&A books ceased to be used in circa 2005 and were replaced
with Post Office Card Account.
Post Office Card Account (POCA)
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23. POCA is a limited service bank account that only allows
benefits to be deposited into the account by DWP and cash to be
withdrawn. Withdrawals are conducted by the customer taking his
POCA card into a Post Office and withdrawing in cash either some
or all of the benefits within his account.
Green Giros
24. Customers who lose their POCA cards or customers who are on
temporary benefits may be sent Green Giros by the DWP.
25. These are cheques (also known as DWP cheques) which set out
the payment amount and can be cashed in the usual way. These
cheques are datestamped and retained by the Post Office after
paying the customer. They have historically been accounted for
and despatched by each branch weekly to Alliance & Leicester.
They are now sent to Santander (both banks are referred to in
this note as Santander for ease of reference).
P&A fraud
26. P&A fraud encompasses a number of different types of fraud,
some of which are historical due to the change in payment
methods over time.
Overclaim fraud
27. For each benefit payment to a customer recorded on Horizon,
the branch should take from the customer the associated P&A
voucher or cheque and remit each week all vouchers to the DWP
and all Green Giro cheques to Santander. An overclaim occurs
when the branch records a benefit payment on Horizon but does
not remit the associated voucher or cheque. Without the voucher
/ cheque POL cannot recover the payment from DWP / Santander.
This places a loss on POL which is then passed to the branch by
way of a Transaction Correction (formerly known as an error
notice, but referred to in this note as a Transaction Correction
for ease of reference).
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28. Overclaims are relatively easy to identify as the branch
must record the remittance of vouchers or cheques out of the
branch on Horizon and therefore it is possible to identify any
missing weekly remittance.
29. A fraud can be committed by recording fake benefit pay-outs
on Horizon, which lowers the amount of cash recorded to be in
the branch (as Horizon assumes the cash has been passed to the
customer). This causes a short term surplus (until the missing
voucher / cheque is discovered and a Transaction Correction sent
through) which can be used to cover other losses or removed from
the branch at the end of trading period (assuming that there are
no other offsetting losses).
Reintroduction fraud
30. Reintroduction fraud is a more sophisticated version of
overclaim fraud whereby the false benefit pay-outs are disguised
by the submission of duplicate paperwork.
31. In reintroduction fraud, a legitimate benefit pay-out is
recorded on Horizon with cash being paid to a customer but with
the corresponding voucher / cheque not being datestamped or
remitted out to DWP / Santander. At a later date (typically the
following week), the same benefit pay-out is recorded again on
Horizon. This time however no cash is paid to a customer (as
the customer is not present) but the previous voucher / cheque
is date-stamped at the later date and remitted to DWP /
Santander.
32. For example, in week 1 there would appear to be an
overclaim (amount claimed but no corresponding voucher or
cheque). The amount would be claimed again in week 2 by
submitting the cheque or voucher from week 1 (by this time
datestamped). The fraud is premised on DWP / Santander not
spotting the missing voucher or cheque in week 1 or the
reintroduced voucher / cheque in week 2. However, in practice,
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each voucher / cheque has a unique reference number which allows
duplicate paperwork to be identified.
33. Each of these frauds has taken place both before the
introduction of Horizon and once Horizon was in operation in
Post Office branches. This is not a Horizon related issue. It
is also largely an historic issue as most benefit payments are
now through POCAs (which are not susceptible to the above
frauds) although some Green Giro Cheques are still processed in
branches.
Fraud prevention in branch
34. It should be noted that "“overclaims" and "reintroductions"
will not cause a loss to a branch. They generate a cash
surplus, which as long as the cash had not been removed from the
branch, will off-set any later transaction correction.
35. It was historically and remains open to a subpostmaster to
carry out immediate checks for P&A fraud as a subpostmaster will
have access to (i) each week's batch of cheques/vouchers and
(ii) that week's records of P&A transactions as recorded in
Horizon. It is therefore possible for a Subpostmaster to easily
confirm that the value of the cheques and vouchers being
remitted each week match the value of benefit pay-outs recorded
on Horizon. This would reveal any overclaims or
reintroductions.
36. For this reason, Post Office does not consider that a
Subpostmaster could be the innocent victim of P&A fraud.
Although they may not have committed the fraud, they are easily
able to prevent it. If a subpostmaster does not follow the
proper process for remitting out P&A documents, and thereby
fails to stop any overclaims or reintroductions at source, they
are liable for any resulting losses.
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Post Office's response to section 16 - Surpluses
1. Section 16 of the Report considers Post Office's approach
towards the surpluses that may be generated within branch.
2. As stated at paragraph 16.1, the contract between Post Office
and Subpostmasters allows surpluses to be withdrawn provided
that any subsequent charge is made good immediately. This means
that Subpostmasters may retain surpluses that may be generated.
The report confirms, correctly, that Post Office views both
surpluses and deficits as discrepancies. However, the Report
makes the incorrect conclusion that Post Office are not as
concerned with discrepancies as they are with deficits.
3. Whenever Post Office discovers a discrepancy that can be
attributed to an error in branch, whether it is a surplus or a
deficit, it will generate a Transaction Correction to correct
the branch's accounts.
4, Where discrepancies occur in branch (say at the end of a trading
period where there is a shortage or a surplus of stock or cash),
it is for the Subpostmaster to dispute the discrepancy. This is
done by contacting the NBSC. As there are more challenges to
deficit discrepancies (and debit transaction corrections) Post
Office spends more time investigating deficits than surpluses.
5. Post Office only investigates a discrepancy in branch if the
Subpostmaster requests assistance - it does not investigate
every discrepancy identified in a branch's accounts:
o First, most discrepancies are fairly small and so do
not warrant a full investigation unless the
Subpostmaster raises an issue.
© Secondly, the sheer volume of discrepancies would make
investigating them all unworkable.
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o Thirdly, where a discrepancy arises in branch (ie. the
cash on hand does not match the cash figure on
Horizon) an investigation will require close
involvement of the subpostmaster and their staff as
only they will know how the branch has transacted its
business.
6. The Report's conclusion that Post Office is not concerned with
surpluses is therefore not correct. In any event, it is noted
that this topic does not give rise to any thematic issue that
indicates the Post Office is liable for losses caused in
branches.
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Post Office's response to section 17 - Cash withdrawals accidentally
processed as deposits and other counter-errors that benefit customers
at the expense of the Subpostmaster
1. Section 17 of the Report considers occasions when customers may
benefit from certain errors in branch to the detriment of
Subpostmasters. This section does not give rise to any thematic
issue but rather appears to raise a series of discrete points.
2. Paragraph 17.1 of the Report highlights that mistakes can occur
when a counter clerk presses the "Deposit" icon rather than the
adjacent "withdrawal" icon. This error by a subpostmaster or
their staff would have the effect of doubling the size of the
error (as the branch will record the receipt of money into the
branch in the accounts which increases the recorded cash position
but will have also handed over cash to the customer thereby
lowering the amount of cash in the branch).
3. Post Office agrees that this error may occur but that this would
be an error within the branch, not a systematic problem with
Horizon. In these circumstances the Subpostmaster would be
liable for the error and any loss that has been created in
accordance with section 12, clause 12 of the subpostmaster
contract.
4, Paragraphs 17.2 and 17.3 are a repetition of the issue raised in
section 19 - to which see Post Office's comments on that section.
5. Paragraphs 17.4 - 17.8 are a repetition of the issue raised at
paragraph 10.1 - to which see Post Office's comments on that
section.
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Post Office's response to section 18 - Error and fraud repellency
1.
Section 18 of the Report considers whether Horizon is
sufficiently error and fraud repellent. It raises 4 issues
under this heading:
a) Has Post Office sufficiently upgraded and developed Horizon
over time?
b) Does Horizon accurately record transactions processed in
branches?
c) Is Horizon resistant to power and telecommunications
failures?
d) Should Horizon work for every single user no matter their
competence?
Developing Horizon
2.
5.
The Report states that Post Office has not sufficiently upgraded
and developed Horizon over the years so that there is a
situation where "errors and fraud that could possibly have been
designed out of the system" did not happen. As a result, the
Report alleges that Subpostmasters have been liable for losses
that could have been avoided.
This conclusion is unsupported by any evidence and is incorrect.
The Report has undertaken no analysis of the development of
Horizon over the years It is unclear on what basis the Report
considers Horizon to be under-developed when there has been no
consideration of Post Office's processes for reviewing and
improving Horizon or of the upgrades that have been implemented.
The Report references a single example to support its opinion:
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"18.4, A good example is an issue that has been raised by
Applicants in regard to Giro transactions. This relates to
Horizon operating in Recovery Mode, for example following
power or telecommunications failures that resulted in the
branch terminals freezing. In these situations the system
goes through a complete reboot, then, when it has finally
rebooted, a message appears on screen asking "do you need
to recover any Giro transactions?".
18.5. A few Applicants have reported, when faced with that
question, they usually did not have sufficient information
to know whether or not the system needed to recover any
Giro transactions. If they responded in the affirmative,
the system asked for the details of the Giro transactions
that needed to be recovered. As the user did not have the
relevant details to hand (and could not access the data as
Horizon was still completing its reboot process), they were
forced into responding in the negative and hoping that was
the correct response. This often resulted in the ‘wrong’
answer being entered and transaction errors being
generated."
6. It is noted that this example does not include any suggestion as
to the improvement or upgrade that could have been implemented
by Post Office to alleviate the above alleged issue. This
example does not therefore support the conclusion.
7. Post Office in fact has a number of processes in place for
regularly reviewing and improving Horizon. These include:
a. Incident and Problem Management processes. Both of these
processes ensure that where a branch reports an issue it is
investigated and resolved. Where several instances of the
same issue occur, then a problem record is created and the
root cause of the issue is identified and fixed (ie to
avoid further instances). The resolution of problems can
sometimes be minor amendments to processes or can result in
a change to the software code via the next release.
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b. Operational reviews with Fujitsu. These take place on a
monthly basis across a number of different specialist teams
in both Post Office and Fujitsu. The purpose is to monitor
and review past performance, addressing any issues as
required, and to prepare for known changes or upcoming
events.
c. Operational reviews with the NFSP. These have been in place
for over 10 years and have operated on either a monthly or
quarterly basis across this period. It has involved the
NFSP Executives meeting with senior representatives from
Post Office's IT Service, Network and FSC teams. A number
of operational issues are raised via these meetings and
actions taken to resolve and improve either Horizon (the
system) or associated processes. Other systems are also
discussed as and when relevant eg ATM's.
d. Continuous Service Improvement. This is a standard process
that Post Office's IT Services operates with all of its
suppliers. Post Office considers that Fujitsu are
particularly good in this area and have over a number of
years developed and introduced a number of improvements.
This has included Fujitsu, by their own initiative,
providing additional funds to be used by the Post Office
for improvements to Horizon. Fujitsu were not
contractually obliged to do this. The approach agreed with
Fujitsu was to use NFSP's input to drive the improvement
initiatives. Through this process and the tri-party
working, including NFSP members active involvement in
conducting demonstrations and tests, resulted in
improvements directly driven by the NFSP and funded by
Fujitsu.
8. Ultimately, the Report appears to agree with Post Office's
position in that it states at paragraph 18.8 that “a number of
enhancements have been made to Horizon following experience and
feedback". Whilst specific examples are not provided as
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evidence, this shows that Post Office is engaged in evolving its
systems to improve user experience.
Accuracy of capturing transactions
9.
10.
li.
12.
13.
At paragraph 18.9 the Report state that, in their opinion, for
Horizon to be “fit for purpose" for all users it needs to record
and process a wide range of products and services offered by
Post Office and enable Subpostmasters to investigate any cause
of issues that may arise. The Report concludes that from the
cases reviewed, although no specific examples are provided, that
although the core software of the system works it may not
provide an ideal user experience for less IT literate users.
This conclusion is incorrect and unsupported by evidence.
Horizon is capable of capturing all information and
processing all transactions if used properly. No system errors
have been highlighted in the Report. Further, no examples or
explanations are provided to suggest that Horizon, if operated
in accordance with standard operating procedure, would not
achieve this purpose
In fact, of the cases that have been fully reviewed so far,
not one has presented any evidence whatsoever that Horizon did
not accurately record the transactions processed by Applicants
or their staff.
Horizon is designed to ensure the accuracy of transaction
data submitted from branches. Safeguards are in place to ensure
that no transactions are lost, altered or improperly added to a
branch's accounts:
. Encryption. Transmission of transaction data between
Horizon terminals and the Post Office data centre is
encrypted.
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. Net to Nil. Baskets’ must net to nil before transmission.
This means that the total value of the basket is nil and
therefore the correct amount of payments, goods and
services has been transacted - as the value of goods and
service should always balance with the payment (whether to
or from the customer). Baskets that do not net to nil will
be rejected by the Horizon terminal before transmission to
the Post Office data centre.
e No partial baskets. Baskets of transactions are either
recorded in full or discarded in full - no partial baskets
can be recorded
e No missing baskets. All baskets are given sequential
numbers (called "Journal Sequence Numbers" or JSNs) when
sent from a Horizon terminal. This allows Horizon to run a
check for missing baskets by looking for missing JSNs
(which triggers a recovery process) or additional baskets
that would cause duplicate numbers (which would trigger an
exception error report to Post Office / Fujitsu).
. Secure data store. Transaction data is stored on a secure
audit server. All transaction data is digitally sealed —
these seals would show evidence of tampering if anyone,
either inadvertently, intentionally or maliciously, tried
to change the data within a sealed record
14. In summary, Post Office remains confident that Horizon
accurately records transaction data and the Report presents no
evidence to change this conclusion.
Power and telecommunications failures
15. Paragraph 18.10 says that for Horizon to be effective, the
system must be able to operate in areas where power and
telecommunications reliability is a problem. It is noted that
3 See paragraph XX of the Part One Briefing for an explanation of "baskets".
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the Report does not offer a view on whether Horizon achieves
this standard.
16. For clarity, Post Office maintains that Horizon is capable
of handling power and telecommunications problems.
17. In Post Office branches, Subpostmasters are responsible for
power supplies and the cabled telecommunications line (see
paragraph XX in the Part One Briefing Report). Interruptions in
power supplies and telecommunication lines are a risk faced by
all IT systems. There are however recovery systems built into
Horizon to prevent losses occurring where there is a power or
telecommunication failure. The following is a description of
the recovery process:
a. Following a failure to contact the Data Centre and complete
the transaction, the system would automatically carry out a
retry and attempt to save the basket to the Data Centre
again.
b. Following the failure of the second attempt, a message
displays to the User informing them that there was a
failure to contact the Data Centre and asking them if they
wish to Retry or Cancel. It is recommended that Users only
"Retry" a maximum of twice.
c. When the User selects "Cancel" this results in a Forced Log
Out. This means:
i. Horizon would cancel those transactions that could be
cancelled.
ii. Horizon would then have printed out 3 copies of the
Disconnected Session Receipt (one for Customer, one
for Branch records and one to attach to the till to
aid with recovery).
iii. The receipt would show transactions that are either
recoverable or cancellable. Those products considered
recoverable must be settled with the customer in
accordance with the Disconnection Receipt.
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iv. If a transaction is cancellable then stock should be
retained by the branch.
v. Horizon would then have logged out and disconnected.
d. The Subpostmaster should then make sure that, in accordance
with the Disconnect Receipt, the Customer is provided with
any funds due to be returned to them in accordance with
the Disconnect Receipt.
e. The system would then display the Log On screen. The User
may then attempt to Log On again.
f. As part of the Log On process, the system checks the
identity of the last basket successfully saved at the Data
Centre and compares it with the identity of the last Basket
successfully processed by the counter. If the last basket
saved in the Data Centre has a higher number than that
considered to be the last successful basket processed by
the counter, the recovery process at the Counter would then
repeat the process that the counter had carried out at the
point of failure.
g. A Recovery receipt would have been printed reflecting these
transactions. This should be stored with the failed
terminal.
h. A message is displayed to the user confirming that the
recovery is complete. They the return to the Home screen.
Depending on the transactions being conducted at the time,
the user may be asked a series of questions to complete the
recovery process.
18. It is noted that in Second Sight's Interim Report last
year, it specifically looked into this recovery process
following a telecommunications failure. Second Sight found that
the recovery process worked but questioned the speed of the
response from Horizon. As far as Post Office is aware, this
conclusion is still valid and has not been revoked by Second
Sight.
19. the Part Two Report states that there are cases where
errors are more likely to occur when unusual sets of
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circumstances and behaviour are present. It is not clear what
these circumstances or, in particular, the behaviour is and so
Post Office cannot comment on this line of enquiry.
Fitness for all users
20. At paragraph 18.11, the Report notes that there are some
people who are unsuited from the outset to using a computerised
branch. It is not understood how this relates to the question
of whether Horizon is fit for purpose.
21. Horizon is operated by thousands of Subpostmasters, the
majority of whom have not had any issue with the system or the
effectiveness of it. Whilst a small number may find the
operation of the system difficult, this does not make Horizon
not fit for purpose. The subjective experience of a few people
is not evidence that an IT system is objectively not fit for
purpose.
22. For this assessment to be carried out the Report would need
to identify some form of industry benchmark against which to
judge Horizon. This exercise has not been undertaken and so the
Report's findings are entirely unsupported by evidence or any
expert analysis.
23. Post Office maintains that the fact that the over XX
Subpostmasters have used Horizon since its inception and only
150 have raised a complaint to the Scheme shows that it is fit
for purpose.
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Post Office's response to section 19 — One-sided transactions
1. Section 19 of the Report comments on what it calls "one-sided
transactions". These are transactions that the Report states
have not fully completed all the constituent parts of the
transaction. This is either because there has been a charge to
the customer for goods or services but they do not receive the
goods/service. Alternatively, a transaction is processed but
the customer's bank account is not charged for the purchase.
2. The Report speculates that these situations could, somehow, give
rise to a loss to a Subpostmaster despite the lack of evidence.
w
Post Office has asked for more details on this alleged scenario.
Thus far Post Office has not been provided with any general
issue with Horizon or Post Office's processes that could rise to
the above scenario in a manner that would affect a wide number
of Subpostmasters generally.
4. Instead, Second Sight has provided Post Office with two examples
from two Applicant's CQRs that show the above pattern of events.
Post Office has thoroughly investigated both cases and proven
definitively that Horizon's standard processes, which comply
with standard banking practices, meant there was no loss to
either branch. More detailed explanations have been provided
direct to Second Sight which are not repeated here in order to
protect the Applicant’s privacy.
[Note: only one note has been sent to SS so far. The other note is
still being finalised.]
Safeguards
“one
5. The Report suggests at paragraph 19.2 that one cause for a
sided transaction" is due to a telecommunications failure. Post
Office accepts that telecommunications issues can give rise to
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“one-sided transactions". This is an inevitable risk of
transacting business across the internet and affects all
retailers and banks. Also like all retailers and banks, Horizon
has recovery processes in place to rectify any errors. These
safeguards are specific to particular products so it is not
possible to explain them all in one document.
Communication failures can have two broad impacts. The main
impact would be the type of interruption that is addressed by
recovery prompts that are referred to at paragraph XX above.
The other impact (which would affect the customer, not the
Subpostmaster) would be where a debit card payment was
interrupted after the bank had ring-fenced the customer funds
for the payment but before the counter confirmed that the
transaction was complete. This can lead to a situation where
although there is no issue for the branch accounts, the
customer is no longer able to draw down on funds in their bank
account because they remain ring-fenced for the original
attempted transaction. Banks have routine processes to clear
down ring-fences within a couple of days or on an accelerated
basis by specific enquiry. This would not affect branch
accounts but could of course lead to customer complaints to
their banks.
No risk to branches
8.
10.
From a branch's perspective no discrepancy will arise from a
one-sided transaction as the branch accounts are based on the
information received by Horizon and not on the information held
by a third party client.
If a transaction is recorded as completed on Horizon, then the
accounts will also have recorded a corresponding payment from
the customer or the handing over of cash or stock to the
customer.
If Horizon records the transaction as failed, then the
transaction will not complete on Horizon and no payment, to or
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CONFIDENTIAL AND LEGALLY PRIVILEGED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Final Draft
from the customer, will be recorded. Likewise, as Horizon
records the transaction as failed, the branch staff should not
hand over any cash or stock to a customer.
11. Regardless of whether the client's IT systems record a
completed transaction or not, the effect of the above is that
the branch accounts will be in balance. The fact that there may
be a discrepancy between Horizon and the third party client's
records does not, as described above, change the branch's
accounting position.
Branch awareness of this issue
12. At paragraphs 19.3 - 19.6 the Report states that the only
way Second Sight believes a one-sided transaction would be
discovered is if the customer was to notify the branch. The
Report goes on to suggest that where the customer has benefited
from the transaction (ie they have received goods which they did
not pay for) they would not be aware or would not say anything.
Therefore the Subpostmaster would only be aware of the error if
the customer disclosed it.
13. For the reasons stated above, this view is incorrect and,
in any event, irrelevant as a branch will never be liable for an
error caused by a "one sided transaction".
Conclusion
14. In summary, whilst the Report has yet to prove that this is
a thematic issue of general application, Post Office has
demonstrated that a “one-sided transaction" cannot give rise to
a loss to Subpostmasters.
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POL00040256
POL00040256
CONFIDENTIAL AND LEGALLY PRIVILEGED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Final Draft
Post Office's response to section 20 - Hardware issues
1. Section 20 of the Report makes some general comments and
observations about Horizon and other associated branch hardware.
However, the Report does not present any evidence to support its
speculations nor does it clearly identify any issues that may be
common to many Applicants within the Scheme.
2. Post Office accepts that hardware problems can arise and that
equipment is replaced from time to time. However, this is a
very dependent on the circumstances of an individual case and
does not give rise to a thematic issue.
3. Paragraph 20.1 of the Report highlights that some equipment is
more than 10 years old. Whilst this may be correct, there is
nothing to show that the age of the equipment is a cause of any
losses.
4. At paragraph 20.2 the Report states that there is little routine
hardware maintenance. This is correct but equipment is replaced
as and when needed.
5. Paragraph 20.3 states that many Applicants believe that faulty
equipment could be responsible for the losses suffered. This is
not correct and no evidence has been put forward to support this
view.
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POL00040256
POL00040256
CONFIDENTIAL AND LEGALLY PRIVILEGED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Final Draft
Post Office's response to section 21 - Post Office Audit Procedures
1. The Report says at paragraph 21.1 that Applicants were not
provided with copies of audit reports, although it does
acknowledge, at paragraph 21.2, that Post Office's current
practice is to provide each Subpostmaster with a copy of any
audit report.
2. In response Post Office says that the practice of providing a
copy of the audit report has always been in place. CAN WE SAY
THAT THIS POLICY HAS ALWAYS BEEN IN PLACE??
3. Post Office is not aware of Applicants not being provided with
copies of audit reports when requested however Post Office cannot
categorically say that this has never happened in an individual
case. Nevertheless, the lack of access to an audit report is not
a cause of losses in a branch and would not exonerate a
Subpostmaster from his contractual responsibility to make good
loses caused in his/her branch that were revealed by an audit.
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POL00040256
CONFIDENTIAL AND LEGALLY PRIVILEGED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Final Draft
Post Office's response to section 22 - Post Office Investigations
1. Paragraphs 22.1 to 22.8 of the Report provide Second Sight's
opinion on the process that is undertaken by Post Office when it
investigates criminal activity in branches.
2. This topic is outside the scope of the Scheme (which is to
consider "Horizon and associated issues") and is also outside
the scope of Second Sight's expertise. Second Sight, as
forensic accountants and not criminal lawyers, are not qualified
to comment on Post Office's prosecution processes.
3. This is highlighted by the statement that the focus of Post
Office investigators is to secure an admission of false
accounting and not to consider the root cause of any losses. It
should be noted that by falsifying the accounts (whether through
the inflation of cash in hand or otherwise) subpostmasters or
their assistants prevent Post Office from being able to identify
the transactions that may have caused discrepancies and losses.
The first step in identifying a genuine error is to determine
the day's on which the cash position in the accounts is
different from the cash on hand. Where the cash on hand figure
has been falsely stated, this is not possible.
4. The false accounting therefore hides any genuine errors from
Post Office and the subpostmaster. It hides it at the time the
losses occur and it remains the case now that Post Office is not
able to identify which transactions may have caused the losses.
The Report is therefore entirely incorrect.
5. Given that this is topic on which Second Sight can offer no
expert opinion, Post Office is refraining from commenting
further save to confirm that it rejects all the Report's
findings in this section.
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POL00040256
POL00040256
CONFIDENTIAL AND LEGALLY PRIVILEGED DRAFT
Draft response to Second Sight's Initial Complaint Review and Mediation Scheme Briefing Report
- Part 2 ("Report")
Final Draft
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