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Complaint Review and Mediation
Scheme
Reply of Post Office Limited to Second Sight's Briefing
Report - Part Two
X XXXXXXX 2015
This Reply is confidential and is not to be disclosed to any
person other than a person involved in the processing of
Applicants' claims through the Scheme
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Contents
Introduction..
This Reply.
Overview of Post Office's position..
Post Office's response to section 4 - The Contract between Post Office and
Subpostmasters ...
Post Office's response to section 5 - Automated Telling Machines (ATMs)...
Post Office's response to section 6 - Motor Vehicle Licences
Post Office's response to section 7 - National Lottery...
Post Office's response to section 8 - Training, Support and Supervi
Post Office's response to section 9 - The Helpline...
Post Office's response to 10 - Limitations in the Transactional
"Audit Trail"
Post Office's response to section 11 - Transactions not entered by
Subpostmaster or their Staff..
Post Office's response to section 12 - Transaction Reversals..
Post Office's response to section 13 - Cash and Stock Remittances (Rems) in
and out of the branch. 36
Post Office's response to section 14 - Cheques . 38
Post Office's response to section 15 - Pensions and Allowances... 243
Post Office's response to section 16 - Surpluses.. .47
Post Office's response to section 17 - Counter-errors that benefit customers
at the expense of the Subpostmaster... .49
Post Office's response to section 18 - Error and fraud repellency.. . 50
Post Office's response to section 19 - One-sided transactions.. .57
Post Office's response to section 20 - Hardware issues... 59
Post Office's response to section 21 - Post Office Audit Procedures... . 60
Post Office's response to section 22 - Post Office Investigations . 61
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Introduction
1. As part of the Complaint Review and Mediation Scheme (the
Scheme), Second Sight is engaged as a firm of forensic
accountants to provide a logical and fully evidenced opinion on
the merits of each Applicant's case.
2. On 21 August 2014, Second Sight's Briefing Report - Part Two (the
Report) was sent as a confidential document to a number of
Applicants and their advisors, as well as to Post Office. The
purpose of the Report was to describe and expand on common issues
identified by Second Sight as being raised by multiple Applicants
(a thematic issue). The aim being to provide general information
that could then be applied in specific cases.
3. Post Office was unable to endorse the Report. It wrote to
recipients of the Report immediately after its release setting
out its reasons for this and committed to set out its detailed
position on the issues raised in the Report. In the interests of
transparency and with the overriding aim of assisting the
resolution of complaints brought under the Scheme, Post Office
prepared a Reply in order to correct inaccuracies in the Report
and to provide information that the Report omits. This was dated
22 September 2014.
4. Within version one of Second Sight’s Briefing Report - Part Two,
a number of issues were said by Second Sight to still be under
investigation. Second Sight subsequently issued to Post Office an
updated [final] version of the Report on XX XX 2015.
5. Though Post Office has engaged directly with Second Sight to help
analyse what it terms ‘thematic’ issues, Second Sight has placed
little weight on the information provided by Post Office and this
has led its analysis of the ‘thematic’ issues to be fundamentally
unsound. As a result, Post Office remains able to endorse their
[final] version of the Report.
6. Although Applicants have raised a number of issues that relate to
similar parts of the Post Office’s business, having investigated
those cases thoroughly, it is evident those issues turned on the
individual circumstances of each case. They cannot, therefore, be
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said to be ‘thematic’ issues. Further, Second Sight’s ‘thematic’
issues are based upon the views expressed by 0.03% of 500,000
people within the Post Office network that have used the Horizon
since its introduction.
7. 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
8. 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 address
those issues in its case specific Investigation Reports.
9. 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
10. 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 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.
ll. 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 Applicants and Post Office.
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Scope
12. The scope of the Scheme is to consider matters “concerning
Horizon and any associated issues”. 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.
13. The Report goes beyond the scope of the Scheme and Second Sight's
expertise in sections 4, 18 and 22.
Missing evidence
14. 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 where the information provided
by Applicants is anecdotal and has yet to be investigated and
tested.
15. At the time the Report was completed, Second Sight had
investigated 21 cases submitted to the Scheme and completed final
Case Review Reports in 10 cases. Second Sight has received
information from the approximately 150 Applicants to the Scheme,
whereas in total there have been more than 450,000 users of
Horizon since its inception in 2001. The Report is therefore
based on the tested views of only 0.03% of all Horizon users and
cannot therefore be said to reflect general user experience.
16. The 2 sections of the Report that do, in fact, reach findings on
thematic issues within the scope of Second Sight's expertise,
(sections 5 and 10), are both unfortunately unsupported by tested
and credible 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 Office's
processes and procedures. This Reply builds on the information
in the Part One Briefing.
1g.Care should be taken when seeking to apply the Report’s findings
and this Reply to individual cases since the extent to which
they may or may not apply will very much depend on their
specific circumstances.
19.In this Reply:
. References to paragraphs and sections are to paragraphs and
sections 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 other capitalised terms are defined in the Part One
Briefing.
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Overview of Post Office's position
20.Nearly all Applications to the Scheme centre on there being a
loss of cash from a branch that the Applicant does not consider
that they caused or are liable for. The purpose of this Reply is
to help identify those issues that can cause such a loss and
those that cannot.
21.In order to identify a loss of physical cash, an investigator
needs two pieces of key information:
a. 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.
b. I How much cash is actually in the branch. This is known by
conducting a physical count of the cash on hand.
22.Any difference between the above two figures generates a
‘discrepancy’ which may either be a shortage or a surplus.
Controlling the branch accounts
23.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 10 of the Part One Briefing) e.g.:
° Transactions incorrectly recorded (such as withdrawals
recorded as deposits);
e Values incorrectly entered (e.g. entering £2000 instead of
£200).
24.This is done to determine if the branch has made errors that
would make the branch accounts inaccurate. 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 identified in branch. They would not be evident to Post
Office unless a complaint was made by a customer.
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25.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.
26.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 a third party client Post Office absorbs
that cost and it is not passed back to branch. This principle
underlies the design of Horizon and all Post Office's back
office and reconciliation processes.
Controlling cash movements
27.Save when it conducts an audit, Post Office does not have any
direct knowledge of what physical cash is actually in a branch —
only Subpostmasters have this information. For this reason,
branches are required to:
e Count the amount of cash in the branch daily and record
this figure on 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’.
28.I1f 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 paragraph 8.8 of the Part One Briefing regarding “making good" errors.
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29.
30.
31.
32.
° 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, go unchecked.
For this reason, it is critical that Subpostmasters make
accurate daily cash declarations as a fundamental requirement of
their contract with Post Office. 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 are provided or available). Post Office does
not accept that there are any circumstances capable of
justifying 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 of these
Applicants have challenged Post Office to identify the cause of
losses in their branches which they had hidden by falsely
accounting. 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 error,
dishonesty or otherwise. It is also a well-established common
law principle that an agent (e.g. a Subpostmaster) is liable to
pay to his principal (e.g. Post Office) any sum declared in his
accounts.
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Responsibility for losses
33.A number of Applicants have accused Horizon of inaccurately
recording the transactions processed at their branch which they
say shows that they were not liable for the losses in their
branches. To date Post Office has been provided with no
evidence by either an Applicant or in the Report of Horizon’s
failure to record transactions accurately.
34.The Report looks to identify thematic points where Second Sight
considers that Horizon may be flawed. However, these points are
either ill-explained, un-evidenced or are proven not to be the
cause of losses in branches.
35.Absent any doubt over the integrity of the branch accounts
produced by Horizon, Post Office considers it fair 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
tenet of the Subpostmaster Contract that Subpostmasters are
liable for any loss caused by their carelessness, negligence,
dishonest conduct or error.?
36.Post Office has investigated every allegation made about Horizon
through the Scheme. It is in its 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, there is no evidence of systemic problems with branch
accounting on Horizon. All existing evidence overwhelmingly
supports this position.
? Clause 12, Section 12
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Post Office's response to section 1 - Introduction
.Section 1 of the Report provides details around Second Sight’s
initial investigation and the establishment of the Complaint and
Mediation Scheme. These are set out in further detail below.
Horizon and Second Sight’s Initial Investigation
38.In early 2012, a group of Members of Parliament led by Rt Hon
James Arbuthnot MP raised a number of concerns with the Post
Office over the reliability of Horizon, having been approached
by a small number of mainly former Postmasters under the banner
of the Justice for Subpostmasters Alliance (JFSA). These
Postmasters considered that apparently unexplained accounting
issues in their Post Office branches might be the product of a
flaw in the Horizon operating system.
39. Given the serious nature of the issues raised, the Post Office
agreed to appoint an independent firm of forensic accountants,
Second Sight Support Services Ltd (Second Sight), to investigate
these claims as a matter of urgency. The basis of Second Sight’s
initial engagement was reflected in a document for Postmasters
entitled ‘Raising Concerns with Horizon’, and included the
requirement to:
40.“Consider and advise on whether there were any systemic issues
and/or concerns with the Horizon system including training and
support processes, giving evidence and reasons for the
conclusions reached.”
41. The document, produced by the Post Office at the request of the
JFSA, was intended to facilitate Second Sight’s work, not least
by reassuring Postmasters that they should have absolutely no
hesitation in raising any concerns they might have about the
operation of the Horizon system and assisting Second Sight in
their work. The content of the document was agreed jointly
between the Post Office, Second Sight and the JFSA. A copy was
posted on the JFSA’s website to ensure maximum coverage among
those with an interest.
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42. A year-long investigation took place during which the Post
Office provided Second Sight with an enormous amount of
information concerning the operation of the Horizon system in
Postmasters’ branches. To answer Second Sight’s questions about
the specific issues raised by Postmasters, the Post Office also
conducted a significant number of ‘spot reviews’, designed to
explain how a particular transaction or procedure should be
processed (where possible) and apply that to a specific example
raised by a Postmaster.
43, After a year’s work, Second Sight had neither completed their
investigations into the cases brought to their attention, nor
had they been able to reach any definitive conclusions in
respect of any of the concerns raised with them, save that they
had found no evidence of a system-wide flaw with Horizon. As a
result, it was agreed with Second Sight that they would produce
an ‘Interim Report’ of their findings to date which was
published on 13 July 2013.
44, The report set out six preliminary conclusions, chief among
which was that Second Sight had found “no evidence of system-
wide (systemic) problems with the Horizon software”. However,
Second Sight considered that a limited number of other issues
may have contributed to difficulties being experienced by those
Postmasters who had raised concerns, most notably around the
effectiveness of the support offered to them by the Post Office
and suggesting that these merited further examination.
The Establishment of the Complaint Review and Mediation Scheme
45. Since Second Sight had not found any evidence of systemic issues
with Horizon that could affect all Postmasters, the Post Office
decided to establish the Scheme in order to provide an avenue
for any Postmasters to raise their specific concerns directly
with the Post Office on an individual basis.
46. The Scheme, developed jointly by Post Office, Second Sight, and
the JFSA as the way of focusing Second Sight’s investigations on
the issues raised in individual cases, also provided any other
Postmasters with a relevant complaint the opportunity to make an
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47
application to the Scheme. The Scheme was open to both serving
and former Postmasters, as well as to counter clerks employed by
Post Office. Applications were invited through the Post Office’s
internal communications channels as well as through the JFSA
over a 12 week period between 27 August and 18 November 2013.
.The purpose of Second Sight’s engagement by the Post Office
changed fundamentally following the establishment of the Scheme.
Whereas Second Sight had previously been concerned with
reporting to the Post Office about the workings of the Horizon
system, their remit was now to focus their attention on the
individual complaints in the Scheme. In doing so, they were to
investigate the specific issues raised by each Applicant.
Post Office did not make the “undertakings” detailed. For clarity...
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Post Office's response to section 2 - Limitation of Scope in Work
Performed
48.Before and during the Scheme, Post Office has provided Second
Sight with a considerable amount of information including:
a) Spot Reviews;
b
Post Office's investigation findings into specific cases;
c) line-by-line comments on Second Sight's own case reports;
d) technical papers on particular issues raised by Second
Sight;
e
detailed feedback on Second Sight's first thematic report;
and
£) answers to over 100 questions posed by Second Sight on
thematic issues.
49. Section 2 of the Report however, asserts that Post Office has
not made available all of the information it has previously
committed to. Though this assertion is incorrect, it relates to
the three broad areas, covered in the following paragraphs.
Access to the complete legal files
50. For each prosecution conducted by Post Office, it prepares a
file of relevant papers. These files contain factual information
such as interview transcripts, schedules of charges, case
summaries, witness statements and original documents. These are
made available to the defendant and courts and contain all the
information necessary for a defendant to, if they wish, attempt
to refute any charge brought against them. Post Office though
does not make available to the defendant or court, legally
privileged material such as advice from Post Office’s lawyers on
how to conduct an individual prosecution. This is generally
accepted practice for prosecutors including the Crown
Prosecution Service (CPS).
51.In October 2014, the Working Group (of which Second Sight was a
member) discussed the matter of which documents relating to
prosecutions associated with individual cases in the Scheme
should be provided to Second Sight. It was agreed that Post
Office would provide the bundle of documents which would have
been made available to the defence lawyers and the Courts. This
would include documents such as witness statements and exhibits
- in short, anything which Post Office relied on to support the
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charge. In addition, Post Office agreed to provide, where held,
other Court documents such as a memorandum of conviction.
52. Post Office has never refused to provide this information. Post
Office has, and continues to provide what information is held in
relation to individual prosecutions in line with the agreement
made at the Working Group meeting.
53.The Post Office is concerned by statement made at paragraph 2.5
and that there may have been miscarriages of justice.
54.In re-investigating each case through the Scheme, Post Office
has considered whether it raised anything which could question
whether the original conviction was unsafe, including whether
any of the material reviewed could have undermined the
prosecution case or supported the case for the defendant. As a
prosecutor, Post Office has a continuing duty after a
prosecution has concluded to disclose immediately any such
material to the defendant and/or his lawyers, and it has acted
throughout the Scheme with this duty in mind. Having now
completed its reinvestigation of each of the cases, Post Office
has found no reason to conclude that any original prosecution
was unsafe.
Access to the emails of Post Office employees working at Bracknell
55.In 2013, Second Sight asked for the email accounts of a number
of Post Office employees dating from 2008. This was in response
to an issue raised by Second Sight as part of its initial
investigation, prior to the publication of its report in July
2013. The allegation related to whether the Horizon test
environment in the basement of Fujitsu’s office in Bracknell
could have been used to edit live branch data. The Post Office
explained at the time that it may be difficult to provide such
information in view of its age but did, in May 2013, provide the
email data it was able to retrieve.
56. In order to address the allegation more comprehensively, the
Post Office also provided Second Sight with a witness statement
from a key member of staff who worked at a Fujitsu site at
Bracknell. This confirmed that the basement was a secure test
environment, there was no connection to any live transaction
data; live transaction data could not be accessed from the
basement; and the basement was never used to access, change or
manipulate live transaction data in branches. In addition, the
Post Office provided Second Sight with a considerable amount of
policy documentation relating to the Bracknell office covering
systems access, building access and security.
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57.
In light of this, the Post Office has asked Second Sight for
further clarification as to the scope of emails sought. Pending
receipt of this clarification, Post Office will supply a more
limited range of emails which it believes should address the
specific questions which Second Sight says it is seeking to
address
Transaction data relating to third party client accounts
58.
59.
60.
In June 2014, Second Sight asked the Post Office to explain the
operation of its suspense account. The Post Office replied to
that request in a written paper in July 2014. Second Sight then
made a request for further data on the accounting entries being
posted to the suspense account. Given that the purpose of this
request was unclear, Second Sight agreed to provide further
clarity on the nature of the enquiry, which they did in October
2014. Following some residual uncertainty over the focus and
purpose of the request, the Post Office sent a further written
paper to Second Sight explaining the operation of its suspense
account.
Whilst the Post Office acknowledges it originally took longer
to respond to Second Sight’s initial requests than it would have
wished, it was able to answer Second Sight’s questions when a
shared understanding of the nature of the enquiry had been
reached.
Post Office’s Chief Financial Officer has now had two meetings
with Second Sight to discuss these matters and has provided
Second Sight with further ‘contextual data’. At the most recent
meeting, Second Sight agreed that it needed no further
information on the Suspense Account, requesting some further
data on another aspect of client accounts to provide additional
reassurance.
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Post Office's response to section 3 - The updated Briefing Report —
Part Two
61.Section 3 of the report, broadly speaking, focuses on the scope
of Second Sight’s investigation. Section 1 of this Reply
addresses Second Sight’s terms of engagement, both prior to the
publication of their Interim report in July 2013 and in
investigating the individual complaints of Subpostmasters as
part of the Complaint Review and Mediation Scheme. It also
addresses what assurances were actually provided to Second
Sight, the JFSA and MPs in relation to the provision of
information.
62.Clearly therefore, issues such as the Contract between Post
Office and Subpostmasters (The Contract), the alleged transfer
of risk between Post Office and Subpostmasters and what has been
termed “the error repellency of Post Office’s business systems”
are outside of the scope of Second Sight’s engagement.
The Contract between Post Office and Subpostmasters and the “transfer
of risk”
63.Our detailed comments on the Contract are set out in section 6
of this reply. However, in relation to the suggestion made by
Second Sight in Paragraph 3.6, under the terms of the Contract,
Subpostmasters are only responsible for losses caused through
their “own negligence, carelessness or error" or for losses
caused by their assistants. Subpostmasters are therefore only
liable for losses arising from those operations that are under
their control and responsibility.
64.Further, Subpostmasters are not employees of the Post Office.
They are independent business people who make a conscious choice
to enter into a contract with the Post Office. The Contract is
a contract for services, which sets out the basis on which the
parties agree to do business. Its core principles, including
that relating to risk, are consistent with arrangements used
throughout the UK and the well established law of agency. It
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65.
66.
69.
reflects standard agency agreements in use in the United
Kingdom.
The current Subpostmaster Contract dates back to 1994 and has
been subject to a number of amendments since then. Post Office
discusses variations to the contract with the NFSP on behalf of
Subpostmasters. In a network of several thousand Subpostmasters,
it is sensible for the contract to be negotiated collectively on
behalf of Subpostmasters.
Moreover, the Subpostmaster Contract provides that Post Office
may only require Subpostmasters to offer new products and
services where it is ‘reasonable’ to do so. The contention that
the Subpostmaster Contract provides Post Office with a carte
blanche to dictate to Subpostmasters is simply wrong, as is the
proposition that Post Office has been gradually transferring
risk from itself to Subpostmasters over time, which is
ultimately being reflected in the losses they are bearing.
.Contrary to as suggested in paragraph 3.7, support is available
Subpostmasters from the Post Office Helpline in relation to
dealing with discrepancies. Further support is also available
from the Post Office's Finance Service Centre (FSC).
. FSC could become aware of issues owing to:
° a branch calling FSC directly or being referred to FSC via
the Helpline;
. FSC identifying an anomaly in a branch from its accounting
records;
e a customer raising an enquiry to the Post Office about a
transaction in a branch.
FSC works with a branch to try to identify the cause of any
erroneous transaction. This may include speaking to the branch
about how they have conducted the transaction, asking the branch
to provide missing customer details, checking the paper records
held at the branch against the transaction data on Horizon,
liaising with clients (whether customer banks, utility
companies, etc.) to gather different data streams on a
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transaction and contacting customers to get their consent to
remedy errors.
70.It is, however, noted that the Post Office is unable to
determine the precise nature of some errors as, by their very
nature, those errors happen in branch at the counter and are
therefore outside of the Post Office's knowledge or control
(such as mis-keying a transaction into Horizon or taking the
incorect amount of cash from a customer in payment). Only a
Subpostmaster is able to identify these types of error and only
they have the requisite knowledge of what happens in their
branch.
7i.In respect of the assertion made at paragraph 3.8 a number of
Applicants, whilst acknowledging some errors were caused by
their own mistakes, claimed that they were often unable to
determine the root causes of discrepancies (both shortfalls and
surpluses) reported by Horizon because the underlying
transaction data was not available to them. Applicants’ claims
fell into three categories:
° data that is not available even on the day of the
transaction;
° data that was at first available, but after 42 days (later
extended to 60 days following a system change by the Post
Office) is no longer available which may inhibit a
postmaster’s ability to challenge TCs;
e data that isn’t available after suspension, meaning that
some postmasters were unable to defend themselves from any
claim made by the Post Office for the recovery of monies.
72.The position in relation to each of these categories is that:
° all branches have access to line-by-line transaction data
each and every day;
. while it is correct that after 60 (previously 42) days all
Horizon data is no longer accessible via Horizon, this
level of information is not required to challenge TCs. The
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data needed to challenge a TC varies on a product-by-
product basis. Typically, the necessary data is kept in
branch records (e.g. branch daily reports which should be
retained for two years) rather than on Horizon. The Post
Office offered to investigate any product specific
allegation that there is insufficient data or information
available to postmasters to challenge and review TCs but no
such allegation was made;
° branch records are the property of the Post Office. In the
event of a postmaster being suspended, the Post Office may
take away some branch records for investigation. In the
event that a claim was made by Post Office for the recovery
of monies, the relevant branch records would have been
provided to the postmaster as part of the disclosure
process, if not before.
73.1£, at the end of a day or the end of a trading period, a branch
discovers that it has a discrepancy it has access to a range of
reports on different products and transactions which can be used
to investigate the possible causes of the discrepancy, including
a complete line-by-line listing of all transactions that day. A
postmaster can also call the Post Office Helpline for advice on
interpreting that data.
The error repellency of Post Office’s business systems
74.The suggestion made at paragraph 3.11 that “there is little
incentive for Post Office to improve the error repellency of its
business systems” is false. As recognised by Second Sight at
paragraph 3.12 human error has been found to be the primary
cause of cash and stock losses in the cases investigated. Such
errors are not only detrimental to Subpostmasters profit but
also Post Office’s. Post office writes off \f£xm of debt each
year. This is one of the reasons why Post Office continually
strives to improve its training and support.
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Post Office's response to section 4 - structure and content of the
75.
76.
77.
report
Though Section 4 of the report focuses on explaining Second
Sight’s approach to the Report, and correctly puts the 150
applications into the context of a network of over 11,500
branches and almost 500,000 users of the Horizon system since
its introduction, for the reasons set out in the section 1 of
this reply, the concept of a ‘thematic’ issue is flawed.
Further, paragraph 4.9 implies Post Office did not, until
recently and where possible, preserve documents related to cases
in the Scheme which would otherwise be destroyed under Post
Office’s data retention period.
Although some cases are very old and outside the standard
retention periods for keeping information, Post Office has gone
to considerable lengths to search its records and provide as
much evidence as possible. Thousands of pages of information
have been identified, recovered and made available both to
Applicants and Second Sight. For every case there is a checklist
of documents so that it can clearly be seen by Second Sight,
Applicants and their professional advisors exactly which docs
have been searched for and retrieved.
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Post Office's response to section 5 Process
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78,
79.
80.
Post Office's response to section 6 — Scope
As described in section 1 of this reply, the purpose of Second
Sight’s engagement by the Post Office changed fundamentally
following the establishment of the Scheme,
The scope of the Scheme is to consider matters “concerning
Horizon and any associated issues”. 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.
However, to help avoid potential confusion, Post Office sets out
the correct position in respect of such areas in the sections
that follow.
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Post Office's response to section 7 - The Contract between Post Office
and Subpostmasters
81.Section 4 of the Report concerns the contract between Post
Office and Subpostmasters dated September 1994 (as revised over
the years) (the Contract). It considers (1) the potential
impact of some of the terms and conditions and (2) issues
relating to notification of the Contract terms to
Subpostmasters.
82.An assessment of the Contract is outside the scope of the Scheme
which was to consider "Horizon and associated issues". Second
Sight has no mandate to consider the Contract and the Report
contains a number of statements that are incorrect. 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.
83.To help avoid potential confusion, Post Office sets out the
correct position in respect of the Contract below.
Impact of selected terms and conditions
84.At paragraph 7.8 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
Report references (in paragraph 7.4) but does not appear to take
account of 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
85. Paragraphs 4.4 and 4.6 both make the same conclusion that "from
a business perspective" the contractual provisions referred to
above (in particular Section 12 requiring the Subpostmaster to
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make good losses) operate to the detriment of, and are unfair
to, a Subpostmaster.
86.The Contract is a business to business arrangement. Save ina
few very narrowly defined areas (which are not applicable here),
there is no general principle at law of whether the Contract is
‘fair’ or not. In Post Office's experience, the terms of the
Contract are broadly similar to those used in franchising
arrangements across the UK.
e7.In any event, Subpostmasters are agents and Post Office is their
principal. At 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 legal principles.
88.The Contract reflects the basis on which Post Office and
thousands of Subpostmasters have successfully conducted business
for decades commercially, and is neither commercially nor
legally unfair. At a number of points the Report has alluded to
‘duties’ on Post Office that do not exist in the Contract. It is
not now open to seek to retrospectively change the contractual
foundation of the relationship between Post Office and
Subpostmaster.
Subpostmasters’ understanding of the Contract
89.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 7,11 that Subpostmasters
are unable to mitigate ‘risks’ that they may face. Post Office
disagrees with this conclusion. In addition, this conclusion is
not supported by any evidence.
90.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.
91.The Report provides no evidence that Subpostmasters do not
understand the Contract. If the view being taken in the Report
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is from a business perspective (whether Post Office or a
Subpostmaster) the provisions are very clear and written in
plain English.
e2.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.
93.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. The reference to the BFA standards at paragraph 7.10 is
not applicable here. The BFA recommendation is directed to
franchisees (in a similar position to Subpostmasters). The BFA
does not make a recommendation franchisors (in a similar
position to Post Office) to require on legal advice being taken
by franchisees.
Notification to Subpostmasters of the Contract terms
94. Paragraphs 7.11 to 7.16 state that Post Office does not provide
a copy of the Contract to Subpostmasters. This 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.
95.It is open to Subpostmasters to request a copy of the Contract
throughout negotiations when seeking appointment and from Post
Office's Human Resource Service Centre if they have misplaced or
lost a copy. It is also Post Office's standard operating
procedure to ensure that the Subpostmasters have a copy of the
Contract no later than the day that they commence their
position.
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96. Paragraph 7.14 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 a point of law, terms and conditions can be incorporated into
a contract by reference to another document that is not signed.
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Post Office's response to section 8 - Automated Teller Machines (ATMs)
.Section 8 of the Report raises various issues concerning the
accounting in branch for ATM transactions.
98.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 - rejected cash and retracted cash - see further
below.
99.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.
100. 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
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 syne / air gap
101. 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 5.27 of the Part One Briefing. In short, on
a daily basis (or on a Monday following a weekend) the
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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.
the amount of cash dispensed is also
This means that
102. Simultaneously,
automatically transmitted to BOI by the ATM.
there are two parallel records kept of the cash being dispensed
by the ATM: one by the Subpostmaster on Horizon and one by BOT.
The Report notes that there are situations when these two
with one
103.
systems can become “out of sync” with one another,
record showing more or less dispensed cash than the other
record. This could be caused by the Subpostmaster entering the
wrong figure on Horizon.
104. 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 recorded by BOI, therefore resulting in the records
being "out of sync", this would not result in there being a loss
to the branch. This is a pure accounting error by the branch.
105. There is a subsequent reconciliation of the Horizon figure
against the BOI accounts.
Horizon account as to the amount of cash dispensed by the ATM
This means that any error on the
would be picked up within a matter of days and corrected by way
of a Transaction Correction to the branch.
106. 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.
Simply because the accounts may be “out of sync" does not
In summary,
107.
mean that there is a loss suffered by the branch.
the air gap / out of sync issue cannot be a cause of loss in
branch.
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Complexity of accounting for dispensed cash
108. At paragraph 8.6 the Report states that the Post Office
system for operating ATMs is "a complex arrangement, requiring
greater human intervention... than that typically needed 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).
109. 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.
110. At various points, the Report suggests that Applicants also
found it difficult to account for cash being dispensed from
ATMs. Little evidence is presented to support this view.
lll. 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 it into 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 Applicant.
112. 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 absence in the Report of
any explanation or justification for the view that this is
"complex", Post Office does not accept that this process is
"complex".
113. 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 8.20 states that the “out of sync” problem described
above, was commonplace prior to February 2008. However, the
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Report sets out the opinion, at Paragraph 8.22, that the
instructions from the Operations Manual represents an example of
the complex instructions and a cause of confusion. Paragraphs
8.20 and 8.22 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.
114. 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 or not there was an
increase or reduction of the potential for errors. This
fundamental assessment and consideration has not been made in
the Report. 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,
means there is no evidence to support the Report's view that the
ATM accounting procedure was too complex.
ATM Support
115. The Report notes that Applicants have alleged that the
Helpline repeatedly told them that in respect of the "out of
sync" error the "problem would sort itself out". It also states
at paragraph 8.26 that the advice from the Helpline was
inadequate and misleading. There is no evidence provided to
support either allegation. The advice provided needs to be
assessed on a case by case basis as there is no evidence that
there is a wider issue with the advice provided. It has not
been shown to be a ‘thematic’ issue.
116. Even if the advice provided was that an error 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 explained
above, there is no loss caused to a branch by an "out of sync"
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issue as the overall cash in branch relating to the ATM remains
the same.
117. Overall, the assertion that the support provided was
inadequate has not been supported by any evidence or logical
reasoning.
Weekend trading
lig. Paragraph 8.25, which considers trading over weekends,
appears to have no relevance to the cause of losses on the ATM.
Post Office is not aware of any specific issue with operating an
ATM at weekends.
Power and telecommunication issues
119. Paragraph 8.29 of the Report 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.
120. There are standard recovery processes in place to ensure
that no data is lost or corrupted. This recovery process was
reviewed in detail by Second Sight in their Interim Report and
found to work. Post Office remains confident that branch
accounts will not be corrupted due to power or
telecommunications failures.
121. 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 general evidence that such a problem may exist.
122. Post Office therefore remains confident that data cannot be
corrupted as suggested by the Report.
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Retracts
123. Paragraphs 8.32 to 8.36 discuss failed cash withdrawals.
As paragraphs 8.33 and 8.34 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. The Report indicates 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, a
Subpostmaster will not be liable for any loss caused by retract
fraud.
124. 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.
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
125.
Subpostmaster must count and report
value of retracted cash on the same
Surplus Cash button on Horizon). If
the Post Office branch is closed it
reported on the next working day.
placed in the branch safe and forms
holdings of the branch.
Customers' accounts will be debited
on Horizon the total
day (using the ATM
a retract occurs when
should be removed and
. Once reported on Horizon, the retracted cash should be
part of the cash
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
do what it can to assist both to resolve this issue. At this
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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 the branch accounts.
126. 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.
127. 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.
128. Post Office provides to BOI details of the amount of each
retracted cash transaction as part of its weekly ATM balances
recorded on 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.
129. 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.
130. 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.
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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.
131. 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.
132. 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
any Transaction Correction for failing to follow proper
accounting procedures.
133. 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 followed the
proper accounting procedures.
134, The Report does not suggest there is any failure in the
above procedure that may cause an unwarranted loss to a
Subpostmaster. Post Office therefore remains confident that
provided the above process is followed by a branch, a
Subpostmaster will not be liable for loss caused by 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. 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.
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Other frauds
135. Post Office accepts that there are other forms of fraud
that may be occurring. However, it is not aware of any form of
fraud (including retract fraud) that creates a loss to
Subpostmasters, provided they follow the correct accounting
procedures.
Conclusion
136. Overall, provided a Subpostmaster follows the appropriate
procedures they will not be liable for any ATM loss 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 position
nor have the large number of ATMs across the Post Office network
that are operated without concern appear to have been
considered. This would support the position that the operating
practices for ATMs are clear, understood and work in practice.
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Post Office's response to section 9 - Motor Vehicle Licences
137. Section 9 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 therefore clear that this can be
considered a system wide issue of general application.
138. Paragraph 9.1 describes a problem encountered (by what Post
Office believes to be a single Applicant) when form V11C (the
form used by customers to renew their MVL tax discs) was
misprinted with the incorrect barcode. Form V11C is not produced
by Post Office but by the DVLA and therefore this was an
external error.
139. If there is an error with a barcode, it would be an issue
with the tax banding. This issue could benefit or disadvantage
the customer. However, Horizon would invite payment at the
level requested by the barcode. 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 from the
branch's and Post Office's perspective. 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 V11C form), this issue does not impact on branch
accounting.
140. This appears to be a one off incident, created by a barcode
that was created by a third party, the DVLA. As this issue is
so specific to a particular Applicant'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 10 - Foreign Currency Transactions
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Post Office's response to section 11 - National Lottery
141. Section 11 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) scratchcards and
the activation of them and (2) sales continuing outside of Post
Office hours of Lottery products in a connected retail shop
resulting on the Horizon and Camelot terminals being “out of
sync".
Activation of Scratchcards
142. Paragraph 11.2 states, correctly, that before February 2012
any Lottery scratchcards 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.
143. Paragraph 11.3 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.
144. Any errors that occurred through the failure to activate or
rem in scratchcards were errors that occurred in branch due to a
failure to follow the correct procedure and therefore were a
Subpostmaster's responsibility.
145. 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
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Lottery terminal. The Transaction Correction only increases the
amount of scratchcards shown in the branch accounts to reflect
the amount actually on hand.
146. 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.
147. The opposite effect will happen if scratchcards have not
been activated on the Lottery terminal but remmed into Horizon.
148. In summary, it is clear that this issue is caused by errors
in branch for which Subpostmasters are responsible but that in
any event this issue cannot be a source of actual losses.
Support
149. At paragraph 11.8 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 which was not able to offer
assistance. Post Office is not aware of the specific calls or
incidents that the Report is referring to which are alleged to
demonstrate a thematic failure to provide adequate advice.
150. This is an issue that will need to be considered on a 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 any error would be corrected
in due course.
Out of hours sales
151. Paragraph 11.2 of the Report describes an alleged problem
relating to the syncing of sales that take place outside the
hours when the Horizon system is operating at the Post Office
counter. Sales of Lottery products (as described at paragraph
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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.
152. 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.
153. Paragraph 11.9 of the Report highlights an alleged
"complication" occurring on the final Wednesday evening of the
monthly trading period for those branches operating Lottery
terminals. This is reference to the trading period
reconciliation completed on a monthly basis. Rather than
process the reconciliation on a Wednesday evening as they would
normally do, Subpostmasters with Lottery terminals have to first
accept the Transaction Acknowledgement sent overnight 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.
154. Post Office has not seen any evidence to support this
assertion and has provided Second Sight call logs relating to
individual Applicants' cases. However, no specific calls are
referenced to support this statement.
155. In fact, branches operating a Lottery Terminal needed to
make daily cash declarations (see paragraph 8.2 of the Part One
Briefing) like all other branches. As Lottery sales data is
sent overnight, Lottery branches are instructed to conduct their
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cash declarations and end of trading period balances (see
paragraph 7.45 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.
156. 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
provided for next day accounting.
157. 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 a Subpostmaster is liable.
Conclusion
158. Procedures have evolved to assist Subpostmasters and reduce
the number of Transaction Corrections that are necessary in
relation to scratchcards, especially in relation to the
activation of them. However, the "out of sync" effect created by
either incorrect activation or non-activation of scratchcards 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 12 - Training, Support and
Supervision
159. 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 a 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.
160. Paragraph 12.2 of 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.
lel. These views appear to be based entirely on the anecdotal
information provided by Applicants in their CORs. As noted in
the introduction to this Reply, that information remains largely
untested. Post Office has not been asked to provide any training
materials for review nor has the Report established any industry
standard or contractual benchmark against which to judge Post
Office's performance. The limited analysis used to support the
Report's conclusion is considered below and shown to be
incorrect.
162. Given that the 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
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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163. 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 supported 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
164, At paragraphs 12.3 and 12.4, the Report 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.
165. 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 the Report has accepted Applicants’
anecdotal recollection of events without any corroborating
evidence. Paragraphs 14 and 15 in the introduction to this
Reply highlights the deficiencies in this approach.
ATMs, Lottery transactions, MVL foreign currency or other specialist
products
166. At paragraph 12.6 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.
167. There is a lack of evidence to support these alleged
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
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trainers or line managers 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 assistance through
NBSC.
Training Needs Analysis
168. Training support is provided through various means
including the NBSC and managerial support. In addition,
training materials are provided on a regular basis and further
training can be requested by Subpostmasters.
169. The report, at paragraphs 12.7 and 12.8 suggests that it is
ineffective to rely on Subpostmasters to identify on-going
training needs in their branches and that further training was
delivered in accordance with user demand rather than being
determined by a Training Needs Analysis. There are a number of
factors that can affect a branch's performance and the need for
training e.g. changes in an Applicant's assistants, changes in
the way a Subpostmaster may operate his/her business, seasonal
pressures, changes to the connected retail business, lifestyle
issues affecting a Subpostmaster etc. None of these factors will
be known to the Post Office but will all be known to the
Subpostmaster. The Post Office therefore considers that it is
most effective for each Subpostmaster to be tasked with seeking
further training rather than it being proposed by Post Office.
Nonetheless, 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. Subpostmasters are operating a commercial
business and can request additional assistance and training when
required. This is not correct. When Subpostmasters complete
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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. Subpostmasters are
operating a commercial business and can request additional
assistance and training when required.
Training assistants
170. 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 12.7 for not operating a “quality control function"
to ensure that branch staff are properly trained by
Subpostmasters.
171. The Report seeks to impose on Post Office a responsibility
which is not stated in the Contract (see paragraph 88 of this
Reply).
172. 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).
173. In any event, Post Office could not operate the quality
control function proposed by the Report. Each Subpostmaster, as
an independent business person, 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.
174. Furthermore, Post Office cannot monitor the performance of
individual assistants it does not engage or employ; only
Subpostmasters can do this.
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175. Post Office agrees that a ‘quality control function’ should
be applied to assistants however this should be undertaken by
Subpostmasters and not Post Office. Indeed, in a number of
cases, losses appear to have stemmed from Applicants’ failure to
exercise any ‘quality controls’ over the actions of their staff.
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Post Office's response to section 13 - The Helpline
176. Section 13 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 the Report is referring to the NBSC. More
detail on the Helpline can be found at paragraph 4.2 of the Part
One Briefing.
177. 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.
178. This section of the Report repeats allegations of
Applicants. Those allegations appear untested (see paragraph
1.7 of the introduction to this Reply) and the Report reaches no
conclusion at all save that that “many of the shortfalls were,
on the balance of probabilities, attributable to errors made at
the counter...”
and whilst it may not be what Applicants
expected, “..Post Office’s Chesterfield-based Helpline staff
cannot be expected to determine from afar how every discrepancy
has arisen in every branch..”. 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
179. Post Office has previously acknowledged that as changes
were made to standard operating practices over the years there
have been periods where the Helpline could be difficult to
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contact. Changes were made, especially at the end of trading
periods, and the hours that the Helpline was available for was
extended.
180. Currently the opening times for the Helpline are from 06:00
to 23:00 on Monday to Saturday and 07:00 to 17:00 on Sunday and
Bank Holidays. Post Office monitors the number of calls made to
the Helpline.
igi. Statistics available for the period from April 2011 to
March 2014 show that:
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%)
182. 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 solely 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
183. The Helpline does 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 Post Office Knowledge Base is accessed where there
are articles relating to that category of call. The operator
then selects the relevant article according to the issue raised
by the caller and relays the information to them. If the
Knowledge Base does not provide the relevant information there
is a second tier of advisors that the enquiry can be escalated
to.
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Many calls were afforded "Low Priority"
184. 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.
185. 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.
Alleged contradictory advice
186. No evidence is presented in the Report to support the view
that contradictory advice has been given by the Helpline.
General
187. All calls to the Helpline are recorded by the Helpline
operators in the NBSC call logs. The logs describe 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 addressed 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. The absence of this or other evidence to
the contrary suggests that the calls had generally been resolved
satisfactorily whilst accepting that there may have been
individual calls where an Applicant was not content with the
advice provided.
ies. At paragraph 13.2 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
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Transaction Correction being generated following a surplus or
deficiency and that would resolve the issue.
189. 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 advice
from 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 Advisors 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 14 - Limitations in the
Transactional "Audit Trail"
190. Section 14 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
necessary transaction data.
191. The Report considers three situations:
a. Data that is not available on the day of the 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.
192. In general, Post Office considers this section is premised
on a misunderstanding of the nature of the information needed by
branches to investigate losses.
193. 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 in branch for a minimum of 42 days.
194. 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
195. Paragraphs 14.4 to 14.8 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 in the
Report is where an aggregate amount or volume is provided for
Debit or Credit Card transactions. An aggregate amount for the
number of transactions was 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. The Report considers that this would prevent a
Subpostmaster from mitigating their loss or remedying the error
by contacting the customer. This position was allegedly
different prior to the introduction of Horizon when paper
records were kept and could be reviewed.
196. Post Office does not understand this line of enquiry.
Debit and credit card information has never been retained on
Horizon in branch - indeed doing so would be a breach of Payment
Card Industry standards (and Horizon is PCI accredited).
However, as mentioned above, branches have always had access to
line by line transaction data each day and this data records the
method of payment (e.g. cash, cheque or card).
Data that is available but after 42 days is no longer available (this
was extended to 60 days)
197. 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.
198. 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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199, 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.
200. For example, if a branch wishes to contest a Transaction
Correction relating to ATM transactions (see section 5 above),
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”.
201. 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
202. Paragraph 14.15 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.
203. 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 an Applicant in any way.
204. As to other branch records, these are the property of Post
Office. In the event of a Subpostmaster being suspended, Post
Office may take away some branch records for investigation.
Giro Transactions
205. A connected issue that is considered at paragraph 21.4 of
the Report is the process relating to Giro Transactions (under
the heading “other counter-errors that benefit customers at the
expense of the Subpostmaster”). Giro Transactions are, in
essence, deposits of cash into a customer's bank account.
Previously, this involved a 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 processing 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.
206. The Report states that due to the change in this 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
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used by all high street banks which have also moved away from
paying in slips to card based deposits.
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Post Office's response to section 15 - Transactions not entered by
Subpostmaster or their Staff
207. Section 15 of the Report considers, at paragraphs 15.1-15.3
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 16 - see that section for Post Office's reply.
208. In respect of the assertions made at paragraphs 15.4 and
15.5 in relation to the provision of emails and that
‘..Applicants believe that branch terminals have been, or can be,
accessed remotely or that their branch can be amended without
their knowledge or approval”, please refer to Section 2 of this
Reply.
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Post Office's response to section 16 - Transaction Reversals
209.
Section 15 of the Report considers the issue of Transaction
Reversals.
210.
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).
2ll.
The Report states that when a Transaction Reversal happens,
Horizon records the reversal against a user ID of the
Subpostmaster or a member of staff. The Report states that this
is misleading because the reversal is ‘automatic’. This
interpretation is incorrect.
212.
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.
213.
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.
214.
The extracts taken from the report by Helen Rose (as quoted
at paragraph 16.2 and 16.3) are taken out of context. The
report was addressing concerns that reversals were not being
clearly shown on the particular data being reviewed (i.e. the
ARQ and credence data being the main transaction data used by
Post
that
this
that
Office). However, this data is available on other records
can be extracted from Horizon. The report makes clear that
is not an issue with Horizon itself or its data but the way
the data it produced was presented within one particular
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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.
215. 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 17 - Cash and Stock Remittances
(Rems) in and out of the branch
216. Section 17 of the Report focuses on the remittance of cash
and stock to and from branches. Paragraphs 7.16 and 7.29 of the
Part One Briefing describe the remittance process.
217. 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.
218. 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 bear 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 by keying in the barcode number.
219. 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.
220. 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
Post Office 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.
221. Where the cash centre does not accept that it is their
error the Subpostmaster is invited to review the security
cameras that monitor the loading of cash into the pouch at the
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cash centre. 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 is challenged. If
less cash is held on Horizon a Transaction Correction would be
issued. The loss can be placed in the suspense account whilst
the matter is investigated and resolved.
222. 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 more or 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 / surplus or place the loss / gain into the suspense
account and investigate the matter further.
223. Paragraph 17.4 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 delivery that was never received.
224. 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.
225. 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 currency held at that branch.
Transaction Corrections 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.
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Post Office's response to section 18 - Missing Cheques
226. Section 18 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 cheques
go missing and do not reach the cheque processor, or cannot be
processed by the customer's bank.
227. To assist Applicants, Post Office has set out below the
cheque remittance process and the process followed when cheques
go missing or bounce.
228. In summary, it is inevitable that cheques will occasionally
go missing at some stage in their processing. However, as
stated in paragraph 18.9, 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 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 carelessness, negligence or error.
Process in branch
229. Most Post Office branches are entitled to accept cheques
from customers as the method of payment for a range of
designated 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
error. There may be no customer details recorded on Horizon
against the cheque transaction hence the need to endorse the
cheque with those details.
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230. The method of payment (MOP) by way of cheque should be
recorded on Horizon. When recording a MOP as by cheque, the
customer's cheque is automatically recorded on Horizon as a part
of the branch stock.
231. 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:
d. Subpostmaster produces a cheque listing report from Horizon
(which shows the value of each cheque accepted that day).
e. Subpostmaster verifies that the cheques held in the till
match (volume and value) against the cheque listing report.
f. The total cheque value is then marked on Horizon as being
remitted to POL (known as "remmed out").
g. 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.
h. The cheque listing report is "cut off". The branch cheque
stock will now also be zero.
i. 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.
3- Horizon cheque listings and remittance slips are retained
in branch.
FSC process
232. 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 day after the transactions and will see the
outward remittances recorded.
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233. 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.
234. 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
235. 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, Post Office will absorb
this loss and not pass it on to the Subpostmaster.
236. 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.
237. The process for investigating missing cheques is as
follows:
a. The transaction to which a missing cheque relates is (if
possible) identified from the information input into
Horizon by the Subpostmaster.
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b. 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.
c. If the branch cannot find the lost cheque, a variety of
techniques (depending on product/information available) are
employed to identify the customer and their address from
the transaction data.
ad. The customer is then contacted to request a replacement
cheque. If a replacement cheque is provided then the loss
to Post Office is avoided.
e. 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.
f. 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.
ge 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
branch and review of transactional data does not reveal a
breach of the operational processes.
238. There are two typical scenarios where Subpostmasters have
failed to follow operational processes and will be held liable
for missing cheques:
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a. 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.
b. The method of payment has not been correctly recorded on
Horizon with the 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.
239. 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.
Bounced cheques
240. Paragraph 18.4 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
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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.
241. 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.
Transaction Corrections for missing or bounced cheques
242. Paragraph 18.8 makes reference to Applicants not being able
to mitigate their losses as the transaction correction for a
missing or bounced cheque has been sent to them too long after
they accepted the cheque. Transaction corrections may be
delayed on occasions but this is not the fault of Post Office.
In some instances Post Office is dependent 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.
243. Typically, however if there is an issue with a cheque this
issue will be raised through other 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 19 - Pensions and Allowances
244. Section 19 of the Report concerns the risk of fraud taking
place in relation to Pensions and Allowances (P&A) transactions.
In particular the Report states that Subpostmasters could be
innocent victims of this type of fraud but still liable for the
resulting losses in their branches.
245. 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
246. There are various methods by which benefits can be received
by customers:
P&A books
247. 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 Reply as vouchers) stating the 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.
248. P&A books ceased to be used in circa 2005 and were replaced
with Post Office Card Account.
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Post Office Card Account (POCA)
249. 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
250. Customers who lose their POCA cards or customers who are on
temporary benefits may be sent Green Giros by the DWP.
251. 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 date stamped 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). Green Giros
should not be confused with Giro Payments which are an entirely
different product.
P&A fraud
252. 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
253. 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.
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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) .
254. 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.
255. 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
256. Reintroduction fraud is a more sophisticated version of
overclaim fraud whereby the false benefit pay-outs are disguised
by the submission of duplicate paperwork.
257. 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 date-stamped 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.
258. 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 date-
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stamped). 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, each voucher /
cheque has a unique reference number which allows duplicate
paperwork to be identified.
259. Each of these frauds has taken place both before the
introduction of Horizon and when 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
260. 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.
261. 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 on
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.
262. For this reason, Post Office does not consider that a
Subpostmaster could be the innocent victim of P&A fraud. 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 20 - Surpluses
264. Section 20 of the Report considers Post Office's approach
towards the surpluses that may be generated within branch.
265. As stated at paragraph 20.1, 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.
266. 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.
267. 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.
268. The system processes six million transactions every working
day. 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:
a. First, most discrepancies are fairly small and so do not
warrant a full investigation unless the Subpostmaster
raises an issue.
b. Secondly, the sheer volume of discrepancies would make
investigating them all unworkable.
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c. 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.
269. 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 or Horizon is responsible for
losses caused in branches.
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Post Office's response to section 21 - Counter-errors that benefit
customers at the expense of the Subpostmaster
270. Section 21 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.
a7. Paragraph 21.1 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).
272. 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.
273. Paragraphs 21.2 and 21.3 are a repetition of the issue
raised in section 23 - to which see Post Office's comments on
that section.
274. Paragraphs 11.4 - 21.7 are a repetition of the issue raised
at paragraph 14.1 - to which see Post Office's comments on that
section.
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Post Office's response to section 22 - Error and fraud repellency and
Horizon’s ‘fitness for purpose’
275. Section 22 of the Report considers whether Horizon is
sufficiently error and fraud repellent. It raises 4 issues:
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. I Should Horizon work for every single user no matter their
competence?
Developing Horizon
276. 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, in our view, 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.
277. This conclusion is unsupported by any evidence and is
incorrect.
278. The Report contains 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.
279. 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
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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 of
upgraded software.
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 or
associated processes. Other systems are also discussed as
and when relevant eg ATMs.
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
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improvements directly driven by the NFSP and funded by
Fujitsu.
280. Ultimately, the Report appears to agree with Post Office's
position in that it states at paragraph 22.21 that "a number of
enhancements have been made to Horizon following experience and
feedback". Whilst specific examples are not provided as
evidence, this shows that Post Office is engaged in evolving its
systems to improve user experience.
Accuracy of capturing transactions
281. At paragraph 18.9 the Report states 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 to 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.
282. 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
accurately capture transaction data.
283. 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.
284. 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:
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285.
Encryption. Transmission of transaction data between
Horizon terminals and the Post Office data centre is
encrypted.
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.
No partial baskets. Baskets of transactions are either
recorded in full or discarded in full - no partial baskets
can be recorded.
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.
In summary, Post Office remains confident that Horizon
accurately records transaction data and the Report presents no
evidence to change this conclusion.
2 See paragraph 7.15 of the Part One Briefing for an explanation of "baskets".
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Power and telecommunications failures
286. Despite the assertions made in this section, Post Office
maintains that Horizon is capable of handling power and
telecommunications problems. There is no evidence to suggest
that either of these events would cause losses in branches where
the recovery process has been correctly followed by branch
staff. There is also no evidence to suggest that the recovery
system has, as suggested in paragraph 22.8, “that the system
might not always have performed as it was meant to after a
reboot” or to support the conclusion made in paragraph 22.15
There is however evidence of branch staff failing to follow the
recovery process properly. This would cause discrepancies in a
branch accounts and could be a cause of losses. It is however
the result of human error by Applicants or their staff, and not
a failing of the Post Office or Horizon.
287. In Post Office branches, Subpostmasters are responsible for
power supplies and the cabled telecommunications line (see
paragraph 5.6 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:
3. Following a failure to contact the Data Centre and complete
a transaction, the system would automatically carry out a
retry and attempt to save the basket to the Data Centre
again.
k. 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.
1. When the User selects "Cancel" this results in a Forced Log
Out. This means:
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i. Horizon would cancel those transactions that could be
cancelled.
ii. Horizon would then print out 3 copies of a
Disconnected Session Receipt (one for the 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
recovered or cancelled. Those products considered
recoverable must be settled with the customer in
accordance with the Disconnection Receipt.
iv. If a transaction is cancellable then stock should be
retained by the branch.
ve Horizon would then log out the active user.
m. 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.
n. The system would then display the Log On screen. The User
may then attempt to Log On again.
oO. 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.
p. A Recovery receipt would have been printed reflecting these
transactions.
q- A message is displayed to the user confirming that the
recovery is complete. They then return to the Home screen.
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Depending on the transactions being conducted at the time,
the user may be asked a series of questions to complete the
recovery process.
288. It is noted that in Second Sight's Interim Report in2013,
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.
289. The Part Two Report states that there are cases where
errors are more likely to occur when unusual sets of
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
290. At paragraph 22.24, 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.
291. 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.
292. For this assessment to be carried out the Report would need
to identify some form of industry benchmark against which to
judge Horizon. Also, the phrase "fitness for purpose" has a
specific legal meaning and is therefore a subject on which
Second Sight has no expertise to offer an opinion. The Report
does not establish or seek to articulate any legal or industry
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benchmark and so its findings are unsupported by evidence or any
robust analysis.
293. Post Office maintains that the fact that almost 500,000
users have used Horizon since its inception and only 150 have
raised a complaint to the Scheme shows that it is fit for
purpose.
294, Post rejects the assertion made at 22.29 that it does not
improve its processes. The Business Support Programme was
established to consider what more could be provided to improve
the effectiveness of the support the Post Office provides to
postmasters and operators in the running of their Post Office
branches from an operational and engagement perspective. This
work is continuing and involves:
¢ reviewing the life cycle of the postmaster and all touch points with the business;
* taking input from owners, users and recipients of Post Office policies and
processes;
e designing policies and processes that deliver improved ways of working with the
postmaster network in a cost effective and engaging way;
¢ developing an implementation plan to move to new arrangements.
295. The focus of the Programme is predominately how the
business supports the agency network and the policies and
processes that impact on the postmaster. However, where the
issues are the same for the Crown network then these are also
included within the scope of this Programme.
Improvements to training
The content of the classroom training provided to new postmasters has been refreshed with
more focus on:
. balancing and how to look for discrepancies when they occur within branch;
. contractual obligation regarding discrepancies that do occur and how to process
discrepancies correctly;
. a detailed explanation of false accounting and the seriousness of the offence.
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A revised balancing guide has been introduced to help new postmasters balance their accounts
correctly. A further best practice guide to identify discrepancies in branch has also been
introduced. This is a hand-out at on-site training for new postmasters and follow-up visits
where branches are experiencing balancing difficulties.
A revised training offer that replaces approximately two thirds of the classroom training for
new operators with online training to be completed prior to attending classroom training has
been designed. The online training for postmasters, and their assistants went live on 5
February 2015.
° The learning material wraps in messaging around customer service and sales
conversations, and has been developed with a cross-Post Office team including
Crown, Network and Commercial teams. The first classroom training for the
blended training offer took place w/c 23 February 2015.
. Compliance testing is a precursor to new postmaster training and is an annual
regulatory requirement for all branch staff. This is now being provided online to the
branch network, replacing the traditional paper workbooks.
Balancing/accounting support improvements
Arefreshed approach to supporting branches with discrepancy issues was introduced in 2013.
Where the Network Business Support Centre (NBSC) is unable to resolve a caller’s query/issue,
this caller is referred to the Branch Support Team who can provide more in-depth telephone
support to the branch. This team also assesses whether on-site additional support or further
training is required and will organise if appropriate. The learning from the Mediation Scheme
investigations is that the recording of the support given needs to be consistently documented.
A revised approach will be introduced in the first quarter of 2015/2016.
NBSC Improvements
The volume of calls from branches is now assessed by the Network Business Support Centre
(NBSC) with the branches that have a higher than average call volume being proactively
contacted by the Branch Support team to understand the reason for the high level of calls;
establish what extra support can be offered and whether any changes need to be made to
training.
Using a new information tool NBSC is able to review branch data when assisting a branch with
an accounting problem and establish exactly what the branch has done rather than relying on
what they say they have done. This assists in providing the branch with the correct advice.
Anew approach has been developed to analyse the calls received by NBSC to identify the root
cause of the issue; to identify the solution for the branch in the first instance and implement
wider business changes if appropriate e.g. content of and method of delivering new product
training.
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Managing postmaster material contract breaches
The suspended termination approach was launched in April 2014 to deal with postmasters
where mitigating circumstances are such that it may be inappropriate or necessary to
terminate the contract. The postmaster remains in post on the condition that if a further
material breach of contract occurs in an agreed period (set by the nature of the first breach
and typically a year) then the contract termination may be triggered. A condition of remaining
in post is that the postmaster makes good the audit deficient.
Horizon system transaction improvements
The transaction for customers paying by debit or credit card for bureau transactions was
changed in September 2014. The transaction now includes an automatic re-print of the receipt
which includes the card and identification details of the customer, which needs to be
presented in case of fraudulent use of the card. Previously, the branch would have to
remember to request a reprint and would be liable for the loss if they failed to provide it to
Finance Service Centre.
Business User Forum
Within the Branch Support Programme sits the Branch User Forum. The Branch User Forum
meets around six times a year and enables postmasters and Crown colleagues to raise issues
and insights about business processes. The forum is made up of postmasters, Crown colleagues
and senior leaders and looks to address the day to day issues and frustrations faced by branch
teams. It provides a link between the decision makers in the business and the teams serving
Post Office customers each day.
296. The Branch User Forum is already making an impact on how things are done in
branches by instigating a number of changes to transactions, including travel money
and the Health Lottery. Further, the information shared and the ideas generated at the
Business User Forum inform the Business Support Programme.
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Post Office's response to section 23 - One-sided transactions
298. Section 23 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.
299. The Report speculates that these situations could, somehow,
give rise to a loss to a Subpostmaster. Thus far Post Office
has not been presented with any evidence that there is a general
issue with Horizon or Post Office's processes that could give
rise to the above scenario.
Safeguards
300. The Report suggests at paragraph 23.2 that one cause for a
“one sided transaction" is due to a telecommunications failure.
Post Office accepts that telecommunications issues can give rise
to "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 “one sided
transaction" errors. These safeguards are specific to
particular products so it is not possible to explain them all in
one document.
301. 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 18.16 of
this Reply.
302. 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
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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
303. 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.
304. 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.
305. If Horizon records the transaction as failed, then the
transaction will not complete on Horizon and no payment, to or
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.
306. 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
307. At paragraphs 19.3 - 19.6 the Report states that the only
way a one-sided transaction would be discovered is if the
customer was to notify the branch. The Report goes on to
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suggest that where the customer has benefited from the
transaction (i.e. 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.
308. 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
309. In summary, whilst the Report fails 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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Post Office's response to section 24 - Hardware issues
310. Section 24 of the Report makes some general comments and
observations about Horizon terminals 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.
all. Post Office accepts that hardware problems can arise and
that equipment is replaced from time to time. However, this is
very dependent on the circumstances of an individual case and
does not give rise to a thematic issue.
312. Further, the Report does not attempt to undertaken any form
of statistical analysis or industry benchmarking. In this area,
it would be common to see an assessment of "mean time between
failures" as a way of judging performance.
313. In any event, as described at paragraph 18.6 of this Reply,
there is a recovery process in place to manage hardware
failures.
314. Paragraph 24.1 of the Report highlights that some Horizon
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.
315. At paragraph 24.2 the Report states that there is little
routine hardware maintenance. This is correct but equipment is
replaced as and when needed and this is industry standard
practice.
316. Paragraph 24.4 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 the view that hardware issues have caused losses in
branches.
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Post Office's response to section 25 - Post Office Audit Procedures
317. The Report says at paragraph 25.1 that Applicants were not
provided with copies of audit reports, although it does
acknowledge, at paragraph 25.2, that Post Office's current
practice is to provide each Subpostmaster with a copy of any
audit report. The practice of providing a copy of the audit
report has always been in place.
318. 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 their contractual responsibility
to make good losses caused in their branch that were revealed by
an audit.
319. Audit activity takes place because Post Office has
stakeholder requirements to ensure it protects, maintains and
accounts for all of its assets, including those Post Office own
and those it looks after on behalf of stakeholders.
320. Post Office are also responsible for ensuring all its staff
and agents, operate their Post Office branches in accordance
with legislative regulations as well as conforming to Post
Office’s operating licence, branch standards and to customer
charter standards.
321. Post Office attend all types of branches throughout the
year to verify financial assets on hand and to test regulatory
compliance and business conformance against standards set out in
HOL help and the operations manuals. There are three types of
audit:
e@ = The Financial Assurance Audit (FAA) which involves the verification of cash, selected
stock items and vouchers on hand. Items not verified are deemed to be assured.
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322.
The Financial Assurance Audit (Tier 2). This is a comprehensive check to assess the
current trading position of the branch. This will be carried out if requested by
stakeholders or as the result of escalation by the Audit Leader, visiting to complete a
lesser request, resulting in unsatisfactory findings.
The Compliance Audit which checks mandatory business conformance and regulatory
compliance controls are operating as intended.
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Post Office's response to section 26 - Post Office Investigations
323. This section of the Report provides Second Sight's opinion
on the process that is undertaken by Post Office when it
investigates criminal activity in branches.
324, 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.
325. This is highlighted by the statement in the Report 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. This is incorrect - Post Office investigators first job
is to establish what has happened in the branch.
326. As explained at paragraph 3.9 of this Reply, by falsifying
the accounts (whether through the inflation of cash on 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 days 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.
327. The false accounting therefore hides any genuine errors
from Post Office and a 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 in its
evaluation of how Post Office approaches prosecutions. It is the
Subpostmaster's (or their assistant's) false accounting that
prevents Post Office from investigating the underlying losses
not the attitude of Post Office investigators.
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328. Given that this is a topic on which Second Sight can offer
no expert opinion, this Reply does not comment on this section
of the Report other than to confirm that it rejects all the
Report's findings in it.
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