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Complaint Review and Mediation
Scheme
Reply of Post Office Limited to Second Sight's Briefing
Report - Part Two
March 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
Introduc’
This Reply. ese cece eee eee eee eee e eee eee e ee ee ee beeen eee e enn ee 5
Overview of Post Office's position..
Post Office's response to section 1 - Introduction......eece eee eee eee eee 9
Post Office's response to section 2 - Limitation of Scope in Work Performed 11
Post Office's response to section 3 - Risk Transfers... see. see eee eee eee ee 14
Post Office's response to section 4 - structure and content of the report..19
Post Office's response to section 5 - ProceSS... sees eee cece eee cence eens 20
Post Office's response to section 6 - Scope...
Post Office's response to section 7 - The Contract between Post Office and
Subpostmasters........ese sees
Post Office's response to section 8 - Automated Teller Machines (ATMs) .....26
Post Office's response to section 9 - Motor Vehicle Licences.. . 20 35
Post Office's response to section 10 - Foreign Currency Transactions....... 36
Post Office's response to section 11 - National Lottery.........eseeeeee eee 37
Post Office's response to section 12 - Training, Support and Supervision...
Post Office's response to section 13 - The Helpline....... cee cee e eee eee ee 44
Post Office's response to section 14 - Limitations in the Transactional
MBUdit Trail". cece cece cece cece rece ene eeerenee eee eee eee eee eee
Post Office's response to secti
Subpostmaster or their Staff..
Post Office's response to section 16 - Transaction Reversals......-.eeeeeee 52
Post Office's response to section 17 - Cash and Stock Remittances (Rems) in
and out of the branch. ceeeeeeeees : : : er)
Post Office's response to section 18 - Missing Cheques... : a ++ 55
Post Office's response to section 19 - Pensions and Allowances............4 60
Post Office's response to section 20 - Surpluses..........e eee cess eee eee ee 64
Post Office's response to section 21 ~ Counter-errors that benefit customers
at the expense of the Subpostmaster........e cece cece cence eee eee eee eens 66
Post Office's response to section 22 - Error and fraud repellency and
Horizon’s ‘fitness for purpose’
Post Office's response to section 23 - One-sided transactions.
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Post Office's response to section 24 - Hardware issueS.........seeeeeeeeeee 17
Post Office's response to section 25 - Post Office Audit Procedures........ 78
Post Office's response to section 26 - Post Office Investigations 279
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Introduction
(ea) As part of the Complaint Review and Mediation Scheme (the
Scheme), Second Sight was engaged as a firm of forensic
accountants to provide a logical and fully evidenced opinion on
the merits of each Applicant's case.
(ii) 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 Reported Issue), the aim being to provide general
information that could then be applied in specific cases.
(iii) Post Office was unable to endorse the first version of 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 first version of the Report and to
provide information that that Report did not. That original
Reply was dated 22 September 2014 and sent to Applicants.
(iv) In the first iteration of the Report, a number of Reported
Issues were said by Second Sight to remain under investigation.
Second Sight's investigations have continued since then and
subsequently it issued to Post Office a final version of its
Report on 9 April 2015.
(v) Although Post Office has engaged directly with Second Sight to
help analyse the Reported Issues and provided comprehensive
information and explanations in relation to its processes, the
Report still lacks clear and substantiated conclusions of
general application that would have assisted Applicants. In
particular:
a. A number of the Reported Issues, which on first assessment
appeared to demonstrate some general pattern or similarity,
have in fact been shown to turn on the specific
circumstance of individual cases and do not reflect any
systemic issue. They are therefore not matters that can be
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(vi)
applied to Applicants generally but require a case by case
assessment which has been done in the individual case
reports of both Post Office and Second Sight.
b. The majority of the cases in the Scheme involve a loss of
cash or stock in a branch for which an Applicant was held
liable. Even where a Reported Issue of general application
has been identified by Second Sight, it has not been able
to show that that issue caused a loss of cash or stock.
c. As explained in more detail below, 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 fall outside Second Sight's professional
expertise. Regrettably, Second Sight's consideration of
these topics (against Post Office's advice) has meant that
the conclusions of the Report in these areas are therefore
inherently unreliable and often incorrect.
d. Throughout the Report suffers from a lack of 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
purely anecdotal, unsupported by contemporaneous documents.
As a result, Post Office remains unable to endorse the final
version of the Report and has therefore produced this updated
Reply in order to correct the Report's errors and provide
additional, relevant information that the Report omits.
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(vii)
(viii)
(ix)
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.
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.
In this Reply:
. Report means the final version of the Report unless stated
otherwise.
° Reply means this latest version of the Reply unless stated
otherwise.
° References to paragraphs and sections are to paragraphs and
sections of the Report unless stated otherwise.
e ‘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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(x)
(xi)
(xii)
Overview of Post Office's position
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.
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. How much cash is actually in the branch. This is known by
conducting a physical count of the cash on hand.
Any difference between the above two figures generates a
‘discrepancy’ which may either be a shortage or a surplus.
Controlling the branch accounts
(xiii) If cash is missing, the first stage of the investigation is to
(xiv)
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
being recorded as deposits);
e Values incorrectly entered (e.g. entering £2000 instead of
£200).
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
performed 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, for instance, a complaint was made by a
customer.
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(xv) 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 requiring an adjustment
to the branch accounts.
(xvi) It has been alleged by some Applicants that they have received
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 the branch. This
principle underlies the design of Horizon and all Post Office's
back office and reconciliation processes.
Controlling cash movements
(xvii) 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’.
(xviii) If daily cash declarations are not made by a branch or
declarations are made falsely (by declaring that there is more
cash in the branch than there actually is) then it is impossible
for Post Office, and will be very difficult if not impossible
for a Subpostmaster to:
° Know if cash is missing;
A
2
si
ee paragraph 8.8 of the Part One Briefing regarding "making good" errors.
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. Identify the day or days on which cash has gone missing;
° Identify which member of staff may be the source of errors;
or
. Locate the erroneous transactions that caused a loss.
(xix)
(xx)
(xxi)
(xxii)
Daily accurate cash declarations are the most critical aspect of
branch accounting. Where these are not performed, 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.
Post Office does not accept that there are any circumstances
capable of justifying the commission of 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
account to his principal (e.g. Post Office) any sum declared in
his accounts.
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Responsibility for losses
(xxiii)
(xxiv)
(xxv)
(xxvi)
A
2
¢.
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 not been provided with any
evidence, either by an Applicant or in the Report, of Horizon’s
failure to record transactions accurately.
The Report looks to identify ‘thematic’ points where Second
Sight considers that Horizon may be flawed. However, these
points are either un-evidenced or have been proven not to be the
cause of losses in branches.
Absent any doubt over the integrity of the branch accounts
produced by Horizon, Post Office considers it 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.?
Post Office has investigated every allegation made about Horizon
through the Scheme. It is in its interest, as well as the
interest of the 8,000 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.
‘lause 12, Section 12
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Post Office's response to section 1 - Introduction
1 NEED TO DELETE THESE SUPERFLUOUS NUMBERS WITHOUT MESSING UP T HE
FORMATTING
1.1. Section 1 of the Report provides details around Second Sight’s
initial investigation and the establishment of the Complaint
Review and Mediation Scheme. Although this summary is broadly
correct, it does not explain that Second Sight has performed two
distinct roles in two discrete phases.
1.2 In early 2012, a group of Members of Parliament led by the Rt
Hon James Arbuthnot MP raised a number of concerns with Post
Office over the reliability of Horizon, having been approached
by a small number of mainly former Subpostmasters under the
banner of the Justice for Subpostmasters Alliance (JFSA). These
Subpostmasters considered that apparently unexplained accounting
issues in their Post Office branches might be the product of a
flaw in the Horizon operating system.
1.3 Given the serious nature of the issues raised, Post Office
agreed to appoint an independent firm of forensic accountants
(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 Subpostmasters entitled ‘Raising
Concerns with Horizon’, and included the requirement to:
“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.”
This scope of work expressly did not extend to investigating or
commenting on any individual concerns raised.
1.4 After a year’s investigation, Second Sight issued an ‘Interim
Report’ dated 8 July 2013 which stated that they had found:
“no evidence of system-wide (systemic) problems with the
Horizon software”.
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1.5 However, Second Sight considered that a limited number of other
issues may have contributed to difficulties being experienced by
those Subpostmasters who had raised concerns, most notably
around the effectiveness of the support offered to them by Post
Office in their individual cases. The Interim Report did not,
as incorrectly stated at paragraph 1.8, conclude that Second
Sight needed to look at the "totality of the user experience of
Horizon". Nor did it conclude that "many of the concerns report
to [Second Sight] clearly demonstrated problems with the
interface between Horizon and other systems". These two
statements simply do not exist in the Interim Report.
1.6 Since Second Sight had not found any evidence of systemic issues
with Horizon that could affect all Subpostmasters, Post Office
decided to establish the Scheme in order to provide an avenue
for Subpostmasters to raise their specific concerns regarding
“Horizon and associated issues" directly with Post Office on an
individual, case by case, basis.
1.7. The purpose of Second Sight’s engagement by Post Office changed
fundamentally following the establishment of the Scheme. Whereas
Second Sight had previously been concerned with reporting to
Post Office about the workings of Horizon as a system (and not
individual concerns), its remit was now to focus on the
individual complaints in the Scheme. In doing so, they were to
investigate, as forensic accountants, the specific issues raised
by each Applicant as they related to Horizon or associated
issues, and report on these to Post Office and the Applicant.
The Scheme was not, as alleged in paragraph 1.7, an extension of
the original inquiry that led to the Interim Report.
1.8 The alleged ‘undertakings’ from Post Office - regarding access
to information and scope of work referred to in paragraph 1.3 of
the Report - appear to relate to Second Sight's initial
investigation, which was a general review of Horizon which
concluded when Second Sight issued its Interim Report in July
2013. Accordingly, they would not be applicable to the Scheme,
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1.12
being a review of specific issues about Horizon raised by, and
particular to, individual Applicants.
Those ‘undertakings’ also do not reflect the ‘Raising Concerns
with Horizon’ document nor the Scheme documentation, both of
which have been publicly disclosed, and both of which clearly
define the two different stages and different purposes of Second
Sight's work. Both documents however, expressly state that
Second Sight's work was to be confined to the Horizon system and
the training and support processes / associated issues connected
with it.
In line with the above, Second Sight's work in is now nearly
complete - it having reviewed 116 of the 136 active cases in the
Scheme and having produced is final version of the Report.
Although Post Office has given Second Sight notice to end its
engagement, Second Sight will be first completing its
investigation into the remaining 20 cases. No supplemental
report will therefore be needed from Second Sight (as suggested
in paragraph 1.14) as any residual issues can be addressed in
Second Sight's individual case reviews.
It is recognised that it would have been preferable to allow
Second Sight to complete all 136 case reviews before finalising
the Report. However Second Sight has now been investigating the
Horizon system for over 2 years and has therefore had ample
opportunity to investigate any general issues. Also
investigations into remaining cases are unlikely to be completed
for at least another two months and Post Office did not wish to
delay mediations with Applicants which could not proceed whilst
waiting for the Report.
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Post Office's response to section 2 — Limitation of Scope in Work
Performed
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 comprehensive 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 version of the
Report and feedback on a draft version of the final Report;
and
f. answers to more than 100 questions posed by Second Sight on
"thematic" issues.
Section 2 of the Report, however, suggests that Post Office has
not made available all of the information it has previously
committed to providing. This suggestion is incorrect. It
relates to the three broad areas covered in the following
paragraphs.
Access to the complete legal files
2.3
Second Sight says that it needs access to Post Office legal
files because Applicants have raised concerns about Post
Office’s “investigative and prosecution processes". These
matters do not fall within the terms of Second Sight’s
engagement. The Report incorrectly suggests (at paragraph 2.7)
that the Working Group sanctioned Second Sight to review
prosecutions conducted by Post Office. No such instruction was
ever given by the Working Group and neither could the Working
Group have given such an instruction as its remit was to oversee
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investigations into "Horizon and associated issues" as per the
scope of the Scheme.
Nevertheless, Post Office has provided non-legally privileged
material from its relevant ‘legal’ files. This was done in
accordance with the directions of the Working Group where 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 a criminal charge or which could undermine
the prosecution or support the defendant’s case. In addition,
Post Office agreed to provide, where held, other Court documents
such as a memorandum of conviction.
At paragraph 2.5 the Report questions whether there have been
any miscarriages of justice. Post Office naturally takes any
allegation of this nature extremely seriously. In none of Post
Office’s own investigations, nor through all of Second Sight’s
work, has any evidence emerged to suggest that a conviction is
unsafe. Nevertheless, Post Office will properly engage with the
appropriate independent bodies to review any possible
miscarriage of justice (noting that matters relating to criminal
law and procedure, such as prosecutor conduct and the safety of
convictions, are outside Second Sight's scope of expertise as
forensic accountants).
Access to the emails of Post Office employees working at Bracknell
2.6
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. Post Office
explained at the time that it may be difficult to provide such
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information in view of its age but did, in May 2013, provide the
email data it was then able to retrieve.
In order to address the allegation more comprehensively, 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, Post Office provided
Second Sight with a considerable amount of policy documentation
relating to the Bracknell office covering systems access,
building access and security. Recently, in relation to further
request, Post Office provided Second Sight with emails from key
staff during August 2008 being the month in which key events
took place that were the trigger for this line of enquiry.
The Report links the questions around the test environment in
Bracknell to the possibility of some form of unauthorised remote
access to transaction data because of complaints made by a
number of applicants alleging unexplained changes to transaction
data. Post Office notes that no evidence of unexplained
alterations of transaction data has been provided. As discussed
further below, Second Sight has not found any evidence in any of
the material provided to suggest that the Bracknell basement
facility was used to edit live transaction data.
Transaction data relating to third party client accounts
2.9
In June 2014, Second Sight asked Post Office to explain the
operation of its Suspense Account. 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, Post Office sent a further written paper
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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 held 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 and Post Office has provided
examples to reassure Second Sight that unmatched differences
were not left for long periods in the underlying client
accounts, thereby masking issues.
It is also not the case, as stated in the Report, that, for most
of the past five years, substantial credits have been made to
Post Office’s Profit and Loss Account as a result of
unreconciled balances held by Post Office in its Suspense
Account. Post Office compares its data with that of third
parties in the normal way and the credits are not at all
substantial in that context.
Similarly, the statements at paragraphs 2.18 and 2.19 about Post
Office client accounts are equally inaccurate. Second Sight
appears to have misunderstood the information provided by Post
Office. The balances of £96m and £66m were taken from routine
trading balances yet to be settled with other organisations at a
particular month end. In other words, they represent amounts
due other parties, not amounts that are unreconciled and which
may be due to Subpostmasters. As previously reported to Second
Sight, the fact that gives genuine comfort is that neither
account had any unreconciled balances which were over six months
old. If the client accounts were being operated as an
alternative suspense account, this would not be the case.
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HITLY. AMENDED. FROM AL's ORIGINAL WORDING AND’ SO NEEDS
2.14 Taking this with the work previously shared on the suspense
account, Post Office can see no evidence for any ongoing
concern. Post Office considers that it has provided Second
Sight with adequate data and information to close down this line
of enquiry.
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Post Office's response to section 3 - Risk Transfer
3.1 Section 3 of the Report broadly pulls together a number of
strands elsewhere in the Report into an allegation that Post
Office had improperly transferred ‘risk’ to Subpostmasters over
time. Once the constituent elements of this claim are properly
analysed, it becomes clear that either they are unsupported by
evidence, or the underlying analysis is incorrect.
3.2 Second Sight premises this view on three limbs:
a. The Subpostmaster Contract;
b. Changes in processes that make operating a branch more
difficult for Subpostmasters; and
c. The error-repellency of Horizon.
The Subpostmaster Contract
3.3 Detailed comments on the Subpostmaster Contract are set out in
section 7 of this Reply. However, at paragraph 3.6 of the Report
it is suggested that the Contract does not commit Post Office to
support Subpostmasters in finding the source of losses in their
branches.
3.4 First, 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. As described in the overview above,
Subpostmasters play a critical role in identifying the cause of
losses and often Post Office, which is not in attendance in any
branch, cannot know what has happened.
3.5 Second, and contrary to the suggestion in paragraph 3.7 of the
Report, support is available to Subpostmasters from the Post
Office Helpline in relation to dealing with discrepancies.
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Further support is also available from the Post Office's Finance
Service Centre (FSC), the Branch Support Team and the Field
Based Training Team.
3.6 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; or
* a customer raising an enquiry to the Post Office about a
transaction in a branch.
3.7 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 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 transaction and contacting
customers to obtain their consent to remedy errors.
3.8 The Branch Support Team and the Field Based Training Team assist
branches when NBSC and/or FSC are unable to resolve the query or
issue by way of a telephone discussion and on-site (in branch)
support is required.
Changes in operating practices
3.9 The second limb of Second Sight's argument is that Post Office
has changed its practice in ways that make it more difficult for
Subpostmasters to operate.
3.10 It should be noted that 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 wrong.
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In paragraph 3.10, the Report sets out five examples of changes
to business processes that Post Office allegedly implemented
without proper consultation and which transferred additional
risk to Subpostmasters. In none of these examples has Second
Sight properly explained how they result in a transfer of risk
to Subpostmasters:
a.
Phasing out of Third Party ATMs - Although this led to
Subpostmasters taking on responsibility for operating ATMs,
their remuneration was accordingly increased to reward this
extra responsibility. Also, a Subpostmaster can refuse to
operate an ATM in their branch if they do not want to take
on this responsibility.
Removal of paper paying in slips. As explained in more
detail in Section 14, this change was initiated by the UK
banking industry which, over the last 5-10 years, has
removed paper paying in slips in place of customers making
banking deposits using a chip and pin card. Post Office
had no choice but to implement this change. In any event,
the chip and pin system is more secure and less prone to
error and, if anything, has de-risked this process for
Subpostmasters.
Introduction of new products such as Lottery products and
Foreign Currency services. No explanation is provided in
the Report as to how these changes have transferred risk to
Subpostmasters.
Removal of Suspense Accounts. This function was not
removed but changed into the Settle Centrally and Dispute
function described at paragraph 9.5 of the Part One Report.
This allegation is therefore incorrect.
Change from weekly to monthly balancing. No explanation
has been provided as to how this change transferred risk to
Subpostmasters, particularly given that it is, and always
has been, open to Subpostmasters to balance their accounts
on a weekly basis (or at any other time). The move to
monthly balancing simply meant that the only compulsory
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balance that needed to be undertaken was at the end of the
trading month.
These five examples therefore provide no support for the
Report's conclusion in this section about risk transfer.
The error repellency of Post Office’s business systems
3.13
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 incorrect. 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 but also to
Post Office. For this reason, and the reasons described in more
detail in section 22, Post Office does regularly improve its
systems.
In paragraph 3.13, the Report sets out 7 examples of alleged
inadequacy in Horizon's error repellency:
a. Hardware and technology failure rate. The Report does not
establish that hardware failures cause errors in branch
accounts. Indeed at paragraph 23.4, in the section on
Hardware Issues, the Report states that Second Sight "have
been unable to come to a reliable, evidence based view on
this matter".
b. Telecommunications equipment. The telecommunications line
to a branch is, in large part, provided by the
Subpostmaster. This is not part of the Horizon system.
c. Limited testing of Horizon. Second Sight has undertaken no
analysis of the user experience testing undertaken by Post
Office and therefore has no evidence on which to form the
view that this testing was ‘limited’.
d. No auto-calibration of the touch screen icons on the
Horizon screen. Although the screen does not ‘auto-
calibrate’ there is a screen calibration application which
can be invoked at any time by the Subpostmaster from the
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Engineering menu of Horizon. If the screen is out of
calibration then that would affect the whole screen and not
individual icons so it would be obvious to the user that
the screen had gone out of alignment. If this issue is
noticed and a call made to the Helpdesk then the
Subpostmaster or staff member would be asked by the agent
to re-calibrate their screen to fix the issue.
e. Lack of token-based access to Horizon. Horizon uses unique
user passwords to control access to the system. If a user
shares their user ID and password with another person, this
cannot be prevented by software as there would be nothing
to suggest to the system that anything untoward was
occurring. Using a token-based access system is open to
the same possibility of misuse as users could share tokens.
User ID and password sharing is a serious contravention of
procedure. Only a Subpostmaster is in a position to stop
this happening.
f. No software to detect suspicious out of hours transactions.
Subpostmaster can check for this as they have access to the
dates and times of the transactions conducted in their
branches.
g- Lack of additional controls over high value transactions.
The Report does not explain what these controls may be. It
is noted that this would typically mean some sort of
escalation process to a higher grade member of staff for
authority. However, Post Office has no control over the
management structure offered in branch; this is a
Subpostmaster's responsibility and so is the implementation
of such controls.
Conclusion
3.15 As can be seen from the above paragraphs, none of the three
limbs of the Report's arguments in this Section can be
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substantiated. Second Sight has not therefore demonstrated any
unfair transfer of risk to Subpostmasters. Where errors occur
in branch, a Subpostmaster is responsible for these as they are
within their control.
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Post Office's response to section 4 - structure and content of the
report
4.1 Section 4 of the report focuses on Second Sight’s approach to
the Report and correctly puts the 150 applications to the Scheme
into the context of a network of over 11,500 branches and almost
500,000 users of the Horizon system since its introduction.
4.2 Post Office notes that in paragraph 4.6 the Report comments on
the ‘impact’ on Subpostmasters, although Second Sight has not
made any assessment of that impact by reference to any
methodology, evidence and analysis. In those circumstances, it
is difficult to see how the Report reaches this view. Further,
this paragraph assumes that all Applicants have suffered
problems with Horizon - for the reasons set out generally in
this Reply, this is not correct.
4.3 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 fall 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.
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Post Office's response to section 5 - Scope and Definition of Horizon
The Section of the Report defines the Horizon system. Post
Office agrees that this definition reflects the scope of the
Scheme (as described in section 1 above) which is to consider
matters “concerning Horizon and any associated issues”.
As explained above, 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.
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Post Office's response to section 6 - The Contract between Post Office
and Subpostmasters
6.1 Section 6 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.
6.2 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. Neither the
Second Sight Directors, nor, to the best of Post Office's
knowledge, any of the people engaged by Second Sight to
undertake work in relation to the Scheme, have either
qualifications or expertise to comment on issues such as the
Contract which 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.
6.3 To help avoid potential confusion, Post Office sets out the
correct position in respect of the Contract below.
Fairness of the Contract
6.4 Paragraph 7.7 concludes that "from a business perspective" the
contractual provisions referred to above (in particular Section
12 requiring the Subpostmaster to make good losses) operate to
the detriment of, and are unfair to, a Subpostmaster.
6.5 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.
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6.6 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.
6.7 The Contract reflects the basis on which Post Office and
thousands of Subpostmasters have successfully conducted business
for decades and it is neither commercially nor legally unfair.
The Report alludes to ‘duties’ on Post Office that do not exist
in the Contract. It is not now open to anyone to seek to
retrospectively change the contractual foundation of the
relationship between Post Office and Subpostmaster.
Subpostmasters’ understanding of the Contract
6.8 The Report suggests that Subpostmasters may not have reviewed or
fully understood the terms of the Contract before entering into
it. 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.
6.9 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.
6.10 The Report provides no evidence that Subpostmasters do not
understand the Contract. If the view being taken in the Report
is from a business perspective (whether Post Office or a
Subpostmaster) the provisions are very clear and written in
plain English.
6.11 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
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Subpostmaster who may not have taken the time to read the
Contract.
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. The BFA recommendation is directed to franchisees
(in a similar position to Subpostmasters). The BFA does not
recommend that franchisors (in a similar position to Post
Office) insist that legal advice be taken by franchisees. If
anything, the BFA's advice supports Post Office view that
responsibility lies with the Subpostmaster to understand their
contract terms and Subpostmasters are free to seek and obtain
advice if they so wish.
Notification to Subpostmasters of the Contract terms
6.13
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 now produce a copy. This does not mean
that the Contract was not provided. Given the age of some of
the cases in the Scheme (some going back over 10 years), it is
not surprising that recollections are hazy and that some records
are now not available.
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 full copy of
the Contract no later than the day that they commence their
position.
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
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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.
This method of creating a legal relationship is therefore
perfectly valid and binding on Subpostmasters.
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Post Office's response to section 7 - Automated Teller Machines (ATMs)
7.1 Section 7 of the Report raises various issues concerning the
accounting in branch for ATM transactions.
7.2 The Report does not clarify which precise part of the ATM
accounting process is under consideration by Second Sight. In
broad terms, the accounting process breaks down into three
elements:
a. Loading - cash for the ATM is sent to the branch by Post
Office and is loaded by the Subpostmaster into the ATM. This
requires the recording of the ATM cash as part of the
branch's stock.
b. Cash dispensed - the amount of cash dispensed by an ATM is
recorded daily on Horizon - see further below.
c. Exceptions - rejected cash and retracted cash - see further
below.
7.3 From the content of the Report, Post Office believes that Second
Sight has focused primarily on the processes for the recording
of cash dispensed from the ATM, however other issues are also
touched on. There confusion of these processes (which has been
highlighted to Second Sight by Post Office previously) means
this section of the Report lacks a coherent evidence base for
its claims.
7.4 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.
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Out of sync / air gap
7.5 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
Subpostmaster prints a receipt from the ATM showing the amount
of cash dispensed. This cash dispensed figure is then entered
into Horizon by the Subpostmaster.
7.6 Simultaneously, the amount of cash dispensed is also
automatically transmitted to BOI by the ATM. This means that
there are two parallel records kept of the cash being dispensed
by the ATM: one by the Subpostmaster on Horizon and one by BOI.
7.7 The Report notes that there are situations when these two
systems can become ‘out of sync’ with one another, with one
record showing more or less dispensed cash than the other
record. This could be caused by the Subpostmaster entering the
wrong figure on Horizon.
7.8 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 does not result in there being a loss to the
branch. This is a pure accounting error by the branch.
7.9 There is a subsequent reconciliation of the Horizon figure
against the BOI accounts. This means that any error on the
Horizon account as to the amount of cash dispensed by the ATM
would be picked up within a matter of days and corrected by way
of a Transaction Correction to the branch. The Report
acknowledges this at paragraph 7.8.
7.10 As a result of this process, there is no difference in the
amount of cash held on site. Indeed, these accounting processes
do not require anything to be done with the physical cash at
all. Simply because the accounts may be ‘out of sync’ for a
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short period does not mean that there is a loss suffered by the
branch. In summary, the air gap / out of sync issue cannot be a
cause of loss in branch.
Complexity of the "cash dispensed" accounting process
7.11 At various points, the Report suggests that Applicants found it
difficult to account for cash being dispensed from ATMs (see
paragraph 7.21).
7.12 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.
7.13 Within this accounting process, no calculation or counting is
required - it is literally typing a single figure into Horizon
on a daily basis. Post Office does not accept that this process
is too complicated to follow and that any failure to follow the
process is down to the Subpostmaster or their staff.
7.14 In any event, as described above, any mistake in following this
process will not cause a loss.
ATM Support
7.15 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".
7.16 The advice provided by the Helpline needs to be assessed on a
case by case basis as there is no evidence that there is a
general issue with the advice provided. 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)
any ‘out of sync’ problem 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
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branch by an ‘out of sync’ issue as the overall cash in branch
relating to the ATM remains the same.
In terms of the suggestion made at paragraph 7.22 that
Subpostmasters were “left to work out for themselves” how to
carry out the ATM related accounting on their branch Horizon
system, this is incorrect.
On installation of an ATM, training on operating the ATM is
provided by Wincor. When a Post Office branch which already has
an ATM transfers to a new Subpostmaster, ATM training is
provided by Post Office as part of its standard training
package. Each branch is also provided with a Bank of Ireland ATM
Operator Manual on how to use the ATM which includes
descriptions of how to load cash into an ATM, how to obtain the
ATM totals receipts and how to use the ATM's cash management
menu.
Also, each branch is provided with "Accounting Instructions for
Bank of Ireland ATMs" which explains how activity on an ATM
should subsequently be recorded by the Subpostmaster on Horizon.
If this is not sufficient or issues emerge, additional support
can be accessed via NBSC. If NBSC is unable to resolve the
branch query/issue then further telephone support is provided by
the Branch Support Team who will also assess whether additional
on-site support and or training is required. If so, the Branch
Support Team will arrange such support or training for the
branch.
The suggestion at paragraph 7.23 that some Applicants would not
have been aware of their repeated errors, and therefore would
not have sought help from Post Office, is not supported by the
facts. It would have been obvious to any Subpostmaster
receiving multiple Transaction Corrections related to ATM
accounting that they were making mistakes and that further
support should be sought.
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Again, however, it must be borne in mind that the Report does
not explain how these accounting errors would actually cause a
loss of physical cash from an ATM. In Post Office's view, and
for the reasons stated above, they cannot.
Accuracy of ATM figures
7.23
At paragraph 7.7, the Report suggests that the data produced by
an ATM is vulnerable to "error and fraud". Post Office notes
that no case in the Scheme has presented any evidence to support
Second Sight's view. In any event, there are further safeguards
in place to detect either of the above:
a. First, a Subpostmaster should check whether the cash-
dispensed figure input by them on Horizon matches the cash-
dispensed figure on the ATM receipt that they will have
retained in branch. This will eliminate any human error or
fraud through the incorrect entry of figures into Horizon
by branch staff.
b. Secondly, each bank in the LINK ATM network would be
checking the cash dispensed values for each ATM against the
amounts drawn from an individual customer account. This
ensures that every withdrawal from an ATM can be traced
back to withdrawal from a customer's account. The
aggregate of these individual withdrawals will match the
total cash dispensed figure generated by the ATM. The
Report acknowledges that this is a "reliable control" (see
paragraph 7.33).
c. If the above two safeguards show the cash dispensed figure
to be correct but there still is a loss of physical cash
from an ATM, then a Subpostmaster can call on Post Office
to send in its investigators. The Report claims that Post
Office does not investigate ATM-related discrepancies.
Second Sight's misunderstanding in this regard may have
arisen because no case in the Scheme gave rise to a need
for such a investigation. In the majority of cases, the
alleged ATM losses were shown to be accounting issues
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arising from, typically, the cash dispensed figure not
being correctly inputted into Horizon.
7.24 In paragraph 7.11, the Report says that Second Sight has seen
‘examples’ where the printed ATM-generated figures are false. As
noted by the Report this was not however the cash dispensed
figure mentioned above and was attributable to the Subpostmaster
making repeated mistakes in operating the ATM. Ultimately,
however, this erroneous figure was immaterial and did not affect
the branch's accounts. No evidence has been presented that the
cash-dispensed figure can be corrupted and the Report's views at
paragraph 7.12 that this could happen are nothing more than
speculation.
Power and telecommunication issues
7.25 Paragraph 7.24 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
identified dates of power or telecommunications failures,
Applicants cannot show that they caused specific deficiencies in
their branches.
7.26 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.
7.27 Although the Report states that Second Sight have "not been
able" to conduct tests on Post Office's ATMs to establish this
point, it is noted that Second Sight has never asked Post Office
if it could conduct such tests. Given that Second Sight was
appointed nearly 3 years ago, it has had adequate time to
conduct tests on Post Office's ATMs if it thought that prudent.
7.28 Post Office therefore remains confident that data cannot be
corrupted by power or telecommunications failure as suggested in
the Report.
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Fraud on ATMs
7.29 Post Office accepts that ATMs are at risk of being subject to
third party fraud. However, it is not aware of any form of
fraud that creates a loss to Subpostmasters, provided they
follow the correct accounting procedures. Losses caused by
these frauds fall on Post Office, BOI or customers - which is
regrettable but does protect Subpostmasters.
7.30 Other than speculation about frauds, and particular malware,
that may have affected other ATMs, the Report presents no
evidence that a branch has suffered a loss due to fraud where
all the accounting processes had been followed correctly. The
absence of a single example to support the Report's theory
reinforces Post Office's view that this is not an issue that
causes loss to Subpostmasters.
Conclusion
7.31 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 are
inadequate. No evidence is provided to support this position nor
do 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 8 - Motor Vehicle Licences
8.1 Section 8 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
MVLs. It is not therefore clear that this can be considered a
system-wide issue of general application.
8.2 Paragraph 8.1 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.
8.3 If there is an error with a barcode, the issue raised will
relate to the tax banding. This issue could benefit or
disadvantage a 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.
8.4 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,
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Post Office's response to section 9 - Foreign Currency Transactions
9.1 Section 9 of the Report discusses, and makes a number of
assertions about Post Office’s “system for transacting foreign
currency transactions” and reaches the that the accounting
processes for foreign exchange transactions were “fundamentally
flawed”.
9.2 The allegations are made in relation to the Forde Money Changer
(FMC) Machine which was used in branches before 2005 to conduct
foreign currency transactions. As far as Post Office is aware,
of the Applicants that have referred to issues encountered with
Foreign Currency transactions, only one relates to a time period
when the transactions would have taken place on the FMC machine.
This section of the Report does not therefore apply anyone other
than that single Applicant.
9.3 For the avoidance of doubt however Post Office rejects the
notion that the FMC was flawed. First, the Report does not
explain what the "flaw" actually is, nor does it explain how it
would have impacted on Subpostmasters.
9.4 It appears that the Report is alleging that because (before
2005) Horizon did not record individual foreign currency
transactions, but only bulk weekly totals, this meant that Post
Office is at fault for any losses. Alternatively, it appears to
say that because Post Office "devalued" currency on its books
there was not a real loss.
9.5 In both cases, this is incorrect. Any loss of foreign currency
was not an accounting loss. No matter how the currency is
valued or recorded, if physical notes of currency are missing
from a branch this is a real loss to Post Office.
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Post Office's response to section 10 - National Lottery
10
10.1 Section 10 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
their activation 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
10.2 Paragraph 11.4 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.
10.3 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.
10.4 Any errors that occurred through the failure to activate or rem
in scratchcards were errors that occurred in branch due to a
failure by a Subpostmaster to follow the correct procedure.
10.5 However, the effect of not remitting in scratchcards into
Horizon will not in itself create a loss. The physical
scratchcard stock will still be in the branch as it must have
been delivered to the branch for it to be activated on the
Lottery terminal. The Transaction Correction only increases the
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amount of scratchcards shown in the branch accounts to reflect
the amount actually on hand.
10.6 If the scratchcards have been sold but not remmed into Horizon,
the branch would show a negative stock value for scratchcards
(as each sale reduces the stock line in the accounts even if
this goes below zero). The subsequent Transaction Correction
will therefore increase the scratchcard holdings, cancelling out
the negative figure and bringing the accounts back into balance.
10.7 The opposite effect will happen if scratchcards have not been
activated on the Lottery terminal but remmed into Horizon.
10.8 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
10.9 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 general failure to provide adequate advice.
10.10 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 in a specific instance. 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
10.11 Paragraph 11.2 of the Report describes an alleged problem
relating to the synchronising 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 5.39 of the Part One Briefing) may continue while a
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10.12
10.13
10.14
10.15
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.
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 in the branch’s
accounts. The Subpostmaster will be liable for this cash
shortage at the end of the trading period.
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 a 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 first to
accept the Transaction Acknowledgement sent overnight and
complete the reconciliation as a matter of priority the
following morning. The Report states that advice on this
process was not always provided by the Helpline.
Post Office has not seen any evidence to support this assertion
and has provided Second Sight with call logs relating to
individual Applicants' cases. However, no specific calls are
referenced to support this statement.
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
cash declarations and end of trading period balances (see
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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.
10.16 In practice, some branches chose not to follow ‘next day’
guidance and may have conducted balances several days later.
However, Post Office operational instructions have always
provided for next day accounting.
10.17 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
10.18 Procedures have evolved to assist Subpostmasters and reduce the
number of Transaction Corrections that are necessary in relation
to scratchcards, especially in relation to their activation.
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
a branch. It is recognised that this error by branch staff can,
in extreme cases, lead to a high number of Transaction
Corrections being issued to a branch which, in turn, can cause
confusion. However, this is easily resolved by running a
separate Lottery stock unit so that Lottery issues do not affect
general branch accounting. In any event, 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 11 - Training, Support and
Supervision
11
11.1 Section 11 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.
11.2 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.
11.3 These views appear to be based entirely on the anecdotal
information provided by Applicants in their CQRs. As noted in
the introduction to this Reply, these assertions remain 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.
11.4 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 appropriate and
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
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Subpostmasters who are successfully operating Horizon daily,
having received the training from Post Office.
11.5 There may of course be specific cases where training and support
has not been provided to Post Office's usual standards (which is
not impossible given the thousands of Subpostmasters trained and
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
11.6 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.
11.7 Post Office does not agree with this conclusion and it appears
to be unsupported by any evidence that fewer mistakes were made
prior to the introduction of Horizon. Transaction records are
not available for the pre-Horizon period and it is not possible
to test the conclusion which is put forward. It therefore
appears that the Report has accepted Applicants’ anecdotal
recollections of events without testing these for any
corroborating evidence..
ATMs, Lottery transactions, MVL foreign currency or other specialist
products
11.8 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.
11.9 There is a lack of evidence to support these alleged comments
from Applicants. Due to document retention policies, training
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records for a number of Applicants are no longer available.
There also appears to be no contemporaneous evidence that
Applicants were not provided with adequate support by trainers
or line managers 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
11.10
11.11
11.12
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.
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 etc. None of
these factors will be known to Post Office but they will all be
known to the Subpostmaster. 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 of the Subpostmasters'
understanding. If there are any gaps, these are highlighted and
further training can be provided. After this stage, there is a
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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
11.13 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.
11.14 The Report seeks to impose on Post Office a responsibility which
it does not have under the Contract or generally.
11.15 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).
11.16 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.
11.17 Furthermore, Post Office cannot monitor the performance of
individual assistants it does not engage or employ; only
Subpostmasters can do this.
11.18 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’ failures
to exercise any ‘quality controls’ over the actions of their
staff.
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Post Office's response to section 12 - The Helpline
12
12.1 Section 12 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.
12.2 The following criticisms of the Helpline are made in the Report:
a. Difficulty contacting the Helpline due to limited
availability;
b. Unhelpful, script based responses;
c. Contradictory advice that revokes previous advice.
12.3 This section of the Report repeats the assertions made by
Applicants. Those allegations appear untested and the Report
reaches no conclusion save to say 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..”.
Difficulty contacting the Helpline due to limited availability
12.4 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 contact.
Changes were made, especially at the end of trading periods, and
the hours for which the Helpline was available were extended.
12.5 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
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Bank Holidays. Post Office monitors the number of calls made to
the Helpline.
12.6 Statistics available for the period from April 2014 to February
2015 show that:
Calls made: 546,127
Calls Answered: 485,841 (89%)
Average waiting time until answer: 87 seconds
Calls abandoned: 11%
12.7 As can be seen from the above calls the average waiting time was
just 87 seconds and 89% 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
12.8 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 to which the enquiry can be
escalated.
Alleged contradictory advice
12.9 No evidence is presented in the Report to support the view that
contradictory advice has been given by the Helpline.
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General
12.10 All calls to the Helpline are recorded by the Helpline operators
in the NBSC call logs. The logs describe briefly the nature of
the 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 such evidence 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.
12.11 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 Transaction
Correction potentially being generated following a surplus or
deficiency and that would resolve the issue.
12.12 Through its own investigations, Post Office has found no
evidence to support the allegations that the 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 13 - Limitations in the
Transactional "Audit Trail"
13
13.1 Section 13 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.
13.2 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.
13.3 In general, Post Office considers this section is premised on a
misunderstanding of the nature of the information needed by
branches to investigate losses.
13.4 If, at the end of a day, a branch produces a cash declaration
that shows a discrepancy, then the branch will have access to a
range of reports on different products and transactions to
investigate the possible causes for the discrepancy (including a
complete line by line listing of all transactions that day).
This also applies at the end of the trading period as a trading
period is either 4 or 5 weeks (28 or 35 days) and the above
reports and data have always been available in branch for a
minimum of 42 days.
13.5 If a Transaction Correction is sent to the branch, the
information needed to verify the Correction will not be the
Horizon data (Post Office has this data and takes this into
account when generating the Transaction Correction). The
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information is likely to be in the paper records held at the
branch.
Data that is not available even from the day of transaction
13.6 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.
13.7 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)
13.8 On the original Horizon system, line by line transaction data
was available in branch for 42 days after a transaction
occurred. On Horizon Online (since 2010), this data is
available for 60 days.
13.9 The Report considers that with data only being available for a
limited period of time, it may not be available to support a
challenge by a Subpostmaster to a Transaction Correction that
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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.
13.10 What the Report does not take into consideration is that
Subpostmasters may challenge a Transaction Correction without
transaction data. Transaction Corrections are also 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 hardcopy 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.
13.11 For example, if a branch wishes to contest a Transaction
Correction relating to ATM transactions (see section 8 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".
13.12 Post Office is confident that it will be able to show that
sufficient information is available to Subpostmasters in
relation to any specific product, transaction or process.
Data that is not available after suspension
13.13 Paragraph 14.15 of the Report highlights that some Applicants
were, following their suspension, refused access to data and
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.
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13.14
13.15
Whilst Post Office is 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 this has prejudiced an Applicant in
any way.
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
13.16
13.17
13.18
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 accepted by the
branch and then despatched to the processing bank (Santander)
with the last Royal Mail collection of the day. 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.
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 Horizon reflected the amount of cash
deposited and this increases the risk to Subpostmasters. This
is incorrect.
In terms of the accuracy of the accounting entries for the
deposit, historically, with paying-in slips, there was a risk
that the deposit value on Horizon (as manually keyed in) and the
actual amount deposited to the customer's account (as per the
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13.19
13.20
paying in slip) could differ and generate a discrepancy. Hence
the need for the end of day cross-check. Under the chip and pin
system, there is less likely be an accounting error as the
amount entered into Horizon by the Subpostmaster is confirmed on
the chip and pin pad by the customer. Therefore the amount
deposited to the customer's account is always the same as the
amount on Horizon. The move to chip and pin has therefore
eliminated the risk of an accounting discrepancy.
However, if a branch takes more or less cash than the recorded
value of the deposit, then that is a cash handling error for
which the branch is responsible. Even with a paying-in slip,
there was no guarantee that the amount of physical cash handed
over by a customer was accurate. The paying-in slip only
evidences what the customer intends to deposit (assuming it is
completed correctly); it does not evidence the amount of
physical cash handed over (which could still have been
mistakenly counted). The only check that can be conducted to
ensure the correct amount of physical cash is taken from a
customer is a manual cash count at the point of the transaction.
This manual cash count is needed whether the deposit is by
paying in slip or chip and pin card. Any discrepancy arising
from a cash counting error therefore lies solely on the branch.
This is the same process used by all high street banks which
have also moved away from paying in slips to card based
deposits.
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Post Office's response to section 14 - Transactions not entered by
14
14.1
14.2
14.3
14.4
Subpostmaster or their Staff
Section 14 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.
Paragraphs 15.4 and 15.5 allege that there may be a facility in
Bracknell where Post Office can edit transactions without the
knowledge of Subpostmasters. This is denied in the strongest
possible terms. The Subpostmaster who apparently witnessed this
was a member of the NFSP and was on an escorted visit of a
Fujitsu site. He saw a room with Horizon terminals but these
were test terminals, not connected to the main Horizon network.
What he saw was the manipulation of test data in a test
environment. This then appears to have been confused with what
can or, in fact, cannot happen. Post Office has provided Second
Sight with a witness statement from the senior member of staff
who escorted the Subpostmaster on the visit, who has confirmed
the above.
Forclarity, neither Post Office nor Fujitsu can edit the
transactions as recorded by branches. Robust safeguards are in
place to ensure the integrity of the data sent by branch
terminals to the Post Office data centre - these are set out in
detail at section 22 below. Although some Applicants have
suggested that they have seen mysterious transactions that they
cannot explain, multiple explanations have been found to show
how these transactions can, in fact, straightforwardly be
explained (e.g. a miskeying error, attached to the wrong stock
unit, logged in using someone else's ID, etc.).
At paragraph 14.10, the Report refers to two Post Office /
Fujitsu documents that relate to a "Receipts / Payments" issue
that affected a small number of branches that were the pilot
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14.5
14.6
14.7
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branches for Horizon Online in 2010. This information was
disclosed to Second Sight back in 2013 and was considered in
Second Sight's Interim Report. These documents inaccurately
refer to Post Office "altering" transaction data in order to
correct an error in branches. It is notable that despite having
had these documents from over 2 years, Second Sight has never
referred to them until it submitted its Report on 9 April 2015.
It has always been possible for Post Office to correct errors in
and/or update a branch's accounts. This is most commonly done
by way of a transaction correction however it could also be by
way of a balancing transaction or transaction acknowledgement.
In the case of the "Receipts / Payments" issue, the error in one
branch was corrected by use of a balancing transaction, whilst
Post Office absorbed the losses affecting the other branches.
All of these processes for correcting / updating a branch's
accounts have similar features. All of them involve inputting a
new transaction into the branch's records (not editing or
removing any previous transactions) and all are shown
transparently in the branch transaction records available to
Subpostmasters (as well as in the master ARQ data).
The language used in the documents quoted in the Report is
unfortunate colloquial shorthand used by Post Office and Fujitsu
employees working on the Horizon system. It is recognised that
these documents could be read to suggest that Post Office was
"altering" branch data when in fact that was not the case.
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Post Office's response to section 15 - Transaction Reversals
15
15.1 Section 15 of the Report considers the issue of Transaction
Reversals.
15.2 Transaction Reversals are where part of a basket of transactions
is reversed because the basket is interrupted before completion
(typically due to a power or communication failure).
15.3 The Report states that when a Transaction Reversal happens,
Horizon records the reversal against the 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.
15.4 As far as Post Office is aware, this issue has only been raised
as part of a Spot Review conducted by Second Sight whilst
preparing its Interim Report. The Subpostmaster who raised the
issue which was subject of the Spot Review has decided not to
make an Application to the Scheme and no other Applicant has
raised this issue.
15.5 As detailed in Post Office's response to the Spot Review (full
details of which are confidential in order to protect the
privacy of the Subpostmaster whom it concerned), the reversals
were caused by the Subpostmaster cancelling a number of
transactions that they were conducting for a customer. The
user's System ID is shown as the person making the reversal
because they initiated the reversal process.
15.6 The extracts taken from the report by Helen Rose (as quoted at
paragraph 16.3) is 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 Office).
However, this data is available on other records that can be
extracted from Horizon. The report makes clear that this is not
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15.
an issue with Horizon itself or its data but the way that the
data it produced was presented within one particular data log.
It does not suggest that there was any entry being made that was
not initiated within the branch by the Subpostmaster or their
staff.
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 16 - Cash and Stock Remittances
(Rems) in and out of the branch
16
16.1 Section 16 of the Report focuses on the remittance of cash and
stock to and from branches. Paragraphs 7.16 to 7.29 of the Part
One Briefing describe the remittance process.
16.2 On occasion, 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.
16.3 If the cash centre remits a cash pouch to a branch and it is not
received this will not result in a loss to the branch. The cash
centre will investigate why the pouch has not arrived and
ultimately 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 the 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.
16.4 If there is more cash within the pouch than stated, the branch
should report this within 24 hours of receipt. This will result
in a surplus to the branch and a Transaction Correction is
issued to correct the balance on Horizon.
16.5 In circumstances where the pouch contains less cash than
expected, the matter should be reported by the Subpostmaster
within 24 hours of receipt. The issue is investigated by the
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.
16.6 Where the cash centre does not accept that it is their error,
the Subpostmaster is invited to review the security cameras that
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16.7
16.8
16.9
16.10
monitor the loading of cash into the pouch at the 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.
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.
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.
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.
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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17
17.
17.2
17.3
Post Office's response to section 17 - Missing Cheques
Section 17 of the Report discusses the process of remitting
cheques from 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.
To assist Applicants, Post Office has set out below the cheque
remittance process and the process followed when cheques go
missing or bounce.
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 to them. 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
17.
4
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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17.5
17.6
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.
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:
a. Subpostmaster produces a cheque listing report from Horizon
(which shows the value of each cheque accepted that day -
or more accurately since the cheque listing was last cut
off which should happen every day - see step e. below).
b. Subpostmaster verifies that the cheques held in the till
match (volume and value) against the cheque listing report.
c. The total cheque value is then marked on Horizon as being
remitted to POL (known as "remmed out").
d. 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.
e. The cheque listing report is "cut off". This effectively
draws a line under the day's cheque payments and any
further cheques taken after the cut off point will be
logged against the next day's trading. The branch cheque
stock will now show as zero.
f. 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.
g- Horizon cheque listings and remittance slips are retained
in branch.
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FSC process
17.7
17.8
17.9
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.
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.
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
(eg. 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
17.10
17.11
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.
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.
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17.12 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 inputted into
Horizon by the Subpostmaster.
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 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.
d. 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.
g- If the transaction related to the missing cheque cannot be
identified or if the transaction is identifiable but
payment cannot be recovered from the customer or the client
and the transaction cannot be reversed, Post Office will
absorb the loss of the cheque provided discussions with the
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branch and a review of transactional data does not reveal a
breach of the operational processes.
17.13 There are two typical scenarios where Subpostmasters have failed
to follow operational processes and will be held liable for
missing cheques:
a.
Cheques have been accepted by the Subpostmaster for a non-
cheque acceptable product. Post Office’s client determines
the method of payment they will accept for the product or
service they are selling through the Post Office and this
is detailed in the operational instructions to branches.
Typically, where the service/product is cash or
instantaneous, then cheques are not acceptable (e.g.
foreign exchange sales) because if these cheques are then
not honoured, the service/cash has already been
provided/taken place and cannot be stopped or recovered.
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.
17.14 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.
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Bounced cheques
17.15
17.16
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
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.
The only exception to this rule is where the branch has failed
to follow operational procedures. This may have included not
completing the transactions 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
17.17
17.18
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.
Typically, however, if there is an issue with a cheque, that
issue will be raised with the branch through other channels. In
most cases, the branch will be aware of the issue long before
the Transaction Correction is submitted.
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Evolving practices
17.19 At paragraph 18.5, the Report suggests that as practices have
‘evolved’, Post Office has not expanded the range of products
for which cheques should be acceptable. This causes
Subpostmasters to break Post Office procedures and makes them
liable for missing or bounced cheques. This idea is based on
the flawed assumption that practices have ‘evolved’ - in fact,
these practices have not changed. It is simply that some
Subpostmasters decide not to follow the correct procedures in
certain circumstances. Where they take that risk, they are
responsible for any resulting losses.
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Post Office's response to section 18 —- Pensions and Allowances
18
18.1 Section 18 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.
18.2 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
18.3 There are various methods by which benefits can be received by
customers:
P&A books
18.4 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.
18.5 P&A books ceased to be used in circa 2005 and were replaced by
the Post Office Card Account.
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18.6
18.7
18.8
18.9
18.10
Post Office Card Account (POCA)
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
Customers who lose their POCA cards or customers who are on
temporary benefits may be sent Green Giros by the DWP.
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 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
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
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,
Post Office cannot recover the payment from DWP/Santander. This
places a loss on Post Office which is then passed to the branch
by way of a Transaction Correction.
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18.11
18.12
‘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.
A fraud can be committed by recording fake benefit pay-outs on
Horizon, which lowers the amount of cash recorded as being 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 is
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
18.13
18.14
18.15
Reintroduction fraud is a more sophisticated version of
‘overclaim’ fraud whereby the false benefit pay-outs are
disguised by the submission of duplicate paperwork.
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.
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-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.
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18.16 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
18.17
18.18
18.19
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 has not been removed from the branch,
will off-set any later Transaction Correction.
It was possible historically - and remains open to a
Subpostmaster now - 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'.
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 (if in fact any occur).
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Post Office's response to section 19 - Surpluses
19
19.1 Section 19 of the Report considers Post Office's approach
towards the surpluses that may be generated within branches.
19.2 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
arrives at the incorrect conclusion that Post Office is not as
concerned with surpluses as they are with deficits.
19.3 Whenever Post Office discovers a discrepancy that can be
attributed to an error in branch, whether it is a surplus or a
deficit, it will generate a Transaction Correction to correct
the branch's accounts.
19.4 Where discrepancies occur in branch (say at the end of a trading
period where there is a shortage or a surplus of stock or cash),
it is for the Subpostmaster to dispute the discrepancy. This is
done by contacting the NBSC. As there are more challenges to
deficit discrepancies (and debit Transaction Corrections), Post
Office spends more time investigating deficits than surpluses.
19.5 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. I Secondly, the sheer volume of discrepancies would make
investigating them all unworkable.
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19.6
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. It would be
inappropriate for Post Office to impose an investigation on
a branch where the Subpostmaster is not raising any
complaint and is prepared to bear the loss / surplus.
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 general issue that
indicates Post Office or Horizon is responsible for losses
caused in branches.
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Post Office's response to section 20 - Counter-errors that benefit
20
20.1
20.2
20.3
20.4
20.5
customers at the expense of the Subpostmaster
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 general
issue but rather appears to be the amalgamation of a series of
discrete points.
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).
Post Office agrees that this error may occur but this would
clearly be an error within the branch, not a systemic 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.
Paragraphs 21.2 and 21.3 are a repetition of the issue raised in
section 23 - on which point, see Post Office's comments on that
section.
Paragraphs 21.4 - 21.7 are a repetition of the issue raised at
paragraph 14.1 - on which point, see Post Office's comments on
that section.
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Post Office's response to section 21 - Error and fraud repellency and
21
21.1
Horizon’s ‘fitness for purpose’
Section 21 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. Should Horizon work for every single user no matter their
competence?
Developing Horizon
21.2
21.3
21.4
21.5
The Report states that Post Office has not sufficiently upgraded
and developed Horizon over the years so that there is a
situation where “errors and fraud that could, 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.
This conclusion is unsupported by any evidence and is incorrect.
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.
Post Office in fact has a number of processes in place for
regularly reviewing and improving Horizon. These include:
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Incident and Problem Management processes. Both of these
processes ensure that where a branch reports an issue it is
investigated and resolved. Where several instances of the
same issue occur, then a problem record is created and the
root cause of the issue is identified and fixed (ie to
avoid further instances). The resolution of problems can
sometimes be minor amendments to processes or can result in
a change to the software code via the next release of
upgraded software.
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.
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 that 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 are taken to resolve and improve
either Horizon or associated processes. Other systems are
also discussed as and when relevant eg ATMs.
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 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.
This process and the tri-party working, including NFSP
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21.6
members’ active involvement in conducting demonstrations
and tests, resulted in improvements directly driven by the
NFSP and funded by Fujitsu.
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 in the
Report as evidence, this shows that Post Office is engaged in
evolving its systems to improve user experience.
Accuracy of capturing transactions
21.7
21.8
21.9
21.10
At paragraph 22.23 the Report states that, in Second Sight’s
opinion, for Horizon to be ‘fit for purpose’ for all users it
needs to record and process the wide range of products and
services offered by Post Office and enable Subpostmasters to
investigate any cause of issues that may arise. The Report
concludes that from the cases reviewed, although no specific
examples are provided, that although the core software of the
system works, it may not provide an ideal user experience for
less IT literate users.
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.
In fact, of the cases that have been fully reviewed so far, not
one has presented any evidence whatsoever that Horizon did not
accurately record the transactions processed by Applicants or
their staff.
Horizon is designed to ensure the accuracy of transaction data
submitted from branches. Safeguards are in place to ensure that
no transactions are lost, altered or improperly added to a
branch's accounts:
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. 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.
21.11 In summary, Post Office remains confident that Horizon
accurately records transaction data and the Report presents no
evidence to change this conclusion.
A
2
si
ee paragraph 7.15 of the Part One Briefing for an explanation of "baskets".
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Power
21.12
21.13
and telecommunications failures
Despite the assertions made in this section of the Report, 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 that the recovery system may,
as suggested in paragraph 22.8, “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’s accounts and could be a cause
of losses. It is, however, the result of human error by
Applicants or their staff.
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:
a. 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.
b. Following the failure of the second attempt, a message
displays to the User informing them that there was a
failure to contact the Data Centre and asking them if they
wish to Retry or Cancel. It is recommended that Users only
"Retry" a maximum of twice.
c. When the User selects "Cancel" this results in a Forced Log
Out. This means:
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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.
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.
The system would then display the Log On screen. The User
may then attempt to Log On again.
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.
A Recovery receipt would have been printed reflecting these
transactions.
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.
21.14 At paragraph 22.5 onwards, Second Sight has raised a single
challenge to the recovery process. It says that it believes
that sometimes key messages are not displayed on the Horizon
screen during the recovery process. Unfortunately, Second Sight
has presented no evidence to support this allegation. This
situation has also not been raised in any case seen by Post
Office. Until such time as Second Sight is able to substantiate
this speculation, Post Office maintains that the recovery
process is robust.
21.15 Oddly, paragraph 21.8 states that Second Sight's Interim Report
also reached this same conclusion in respect of the recovery
process. This is incorrect as the Interim Report, when consider
the recovery process, stated (at paragraph 1.13 of Appendix 1)
that "the Horizon system did operate in accordance with its
design". It is noted that Second Sight did question the speed of
the recovery process in its Interim Report but it is only in its
latest Report that it now questions the reliability of the
recovery process. As mentioned above, the lack of any evidence
being presented by Second Sight makes it impossible to determine
why Second Sight has changed its position.
Fitness for all users
21.16 At paragraph 22.25, the Report notes that there are some people
who are unsuited from the outset to using a computerised branch.
How this relates to the question of whether Horizon is fit for
purpose is unclear.
21.17 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 mean that the
Horizon system is at fault. The subjective experience of a few
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21.18
21.19
21.20
21.21
people is not evidence that an IT system is objectively not fit
for purpose.
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 benchmark
and so its findings are unsupported by evidence or any robust
analysis.
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.
Post Office rejects the assertion made at 22.31 that it does not
improve its processes. The Branch Support Programme was
established to consider what more could be provided to improve
the effectiveness of the support that Post Office provides to
Subpostmasters 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 Subpostmaster and all touch
points with the business;
¢ taking input from owners, users and recipients of Post
Office policies and processes;
. designing policies and processes that deliver improved ways
of working with the Subpostmaster network in a cost
effective and engaging way; and
. implementing improvements as soon as possible.
The focus of the programme is predominately how the business
supports the agency network and the policies and processes that
impact on the Subpostmaster. However, where the issues are the
same for the Crown network then these are also included within
the scope of this Programme.
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21.22 Post Office therefore does look to improve its processes as any
prudent business does.
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Post Office's response to section 22 — One-sided transactions
22
22.1 Section 22 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: (i) there has been a
charge to the customer for goods or services but they do not
receive the goods/service; or alternatively (ii) a transaction
is processed but the customer's bank account is not charged for
the purchase.
22.2 The Report speculates that these situations could, somehow, give
rise to a loss to a Subpostmaster. However, no evidence has
been presented by Second Sight that there is a general issue
with Horizon or Post Office's processes that could give rise to
the above scenario.
Safeguards
22.3 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.
22.4 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 in section 22 of this
Reply.
22.5 The other impact (which would affect the customer, not the
Subpostmaster) would be where a debit card payment was
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interrupted after the bank had ring-fenced the customer funds
for the payment but before the counter confirmed that the
transaction was complete. This can lead to a situation where
although there is no issue for the branch accounts, the customer
is no longer able to draw down on funds in their bank account
because they remain ring-fenced for the original attempted
transaction. Banks have routine processes to clear down ring-
fences within a couple of days or on an accelerated basis by
specific enquiry. This would not affect branch accounts but
could, of course, lead to customer complaints to their banks.
No risk to branches
22.6 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.
22.7 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.
22.8 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.
22.9 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.
22.10 For this reason, the statement at paragraph 23.11 about Post
Office's Suspense Account is inaccurate. The safeguards
described above ensure that any sums held in the Post Office
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central Suspense Account are investigated as fully as possible.
In any event, the releases to profit should be considered within
the overall context of Post Office performing around 2.5 bn
transactions per annum, with a combined value in the order of
£60bn. The amount of unresolved credits that end up in Post
Office’s P&L is therefore less than 0.001% of all transactions
(by value) undertaken by branches.
Branch awareness of this issue
22.11
22.12
At paragraphs 23.3-23.7 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 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.
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
22.13
In summary, whilst the Report fails to prove that this is an
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 23 - Hardware issues
23
23.1 Section 23 of the Report makes some general comments and
observations about Horizon terminals and other associated branch
hardware.
23.2 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.
23.3 Further, the Report does not attempt to undertake 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.
23.4 In any event, as described at in section 22 of this Reply, there
is a recovery process in place to manage hardware failures.
23.5 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.
23.6 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.
23.7 Paragraph 24.4 states that many Applicants believe that faulty
equipment could be responsible for the losses suffered. This
allegation is not correct and no evidence has been put forward
to support the view that hardware issues have caused losses in
branches.
23.8 Overall, the Report acknowledges that Second Sight "have been
able to come to a reliable, evidenced based view on this
matter".
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Post Office's response to section 24 - Post Office Audit Procedures
24
24.1 Section 24 of the Report comments on Post Office's procedures
for auditing branches.
24.2 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.
24.3 Post Office is not aware of Applicants not being provided with
copies of audit reports when requested however Post Office
cannot categorically say that this has never happened in an
individual case. Nevertheless, the lack of access to an audit
report is not a cause of losses in a branch and would not
exonerate a Subpostmaster from their contractual responsibility
to make good losses caused in their branch that were revealed by
an audit.
24.4 At paragraph 25.3 onwards, the Report repeats the concerns of
Applicants about the scope and conduct of Post Office audits.
However, it does not offer any opinion or analysis of those
concerns. For its part, Post Office has found no evidence in
any of the cases reviewed to substantiate allegations that its
auditors acted improperly
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Post Office's response to section 25 - Post Office Investigations
25
25.1 Section 25 of the Report provides Second Sight's opinion on the
process that is undertaken by Post Office when it investigates
branch activity, including potentially criminal conduct.
25.2 This topic is outside the scope of the Scheme (which is to
consider "Horizon and associated issues") and is also outside
the scope of Second Sight's expertise as forensic accountants.
In addition, much of this section of the Report is based on
generalised and anecdotal assertion which is
unsubstantiated. Post Office therefore disputes the findings
Second Sight makes in this section of the Report on both counts.
25.3 Nevertheless, Post Office needs to address some specific
inaccuracies which Second Sight advance in this section of the
Report concerning the criminal offence of false
accounting. Post Office denies Second Sight’s assertion 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
task is to establish what has happened in the branch and its
approach to each investigation will, by necessity, be influenced
by the particular circumstances of the individual case.
25.4 That task will be frustrated when the branch accounts have been
deliberately falsified, which is an act which precedes any Post
Office investigation. 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.
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25.5 The false accounting therefore hides any genuine errors from
Post Office. It hides it at the time the losses occur and it
25.6
25.7
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.
It is important to understand that Subpostmasters are not
prosecuted by Post Office for incurring losses in branch. Post
Office may however bring a prosecution where it suspects a
criminal offence (such as deliberate false accounting) has been
committed.
Where the Post Office discovers evidence of criminal wrongdoing,
it may exercise the right to bring a private criminal
prosecution which is available to all companies and individuals
in England and Wales. In deciding whether a case is suitable
for prosecution, Post Office considers (among other factors)
whether it meets the tests set out in the Code for Crown
Prosecutors. That Code requires Post Office to be satisfied
that there is sufficient evidence for a realistic prospect of
conviction and that the prosecution is in the public interest.
The Code is issued by the Director of Public Prosecutions and
followed by Crown Prosecutors. Like the CPS, Post Office keeps
cases under continuous review all the way up to and during any
trial, and when Post Office does decide to prosecute, its
conduct of the prosecution is scrutinised by defence lawyers and
ultimately by the Courts themselves.
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Conclusion
26
26.1 Having investigated each Reported Issue, and responded to the
26.2
26.3
26.4
26.5
26.6
challenges put to Post Office by Second Sight, this has
reinforced Post Office's confidence that there are no systemic
failures in Horizon. This was the position adopted by Second
Sight in its Interim Report and it is the reason that Post
Office was determined to address each Applicants concerns on a
one-to-one basis rather than through an open-ended, general
investigation.
Where the facts of a specific case indicate genuine grievances,
for example that the support provided in a particular instance
fell short of the desired standards, those issues are being
discussed with Applicants and a number of complaints have been
resolved.
However, many cases are based on allegations which, following
investigation, are not supported by the evidence.
Having completed all its investigations, the Post Office has now
decided to put forward for mediation all cases remaining in the
Scheme except those that have been subject to a previous court
ruling. This will accelerate the conclusion of the Scheme in the
interests of Applicants and ensure that commitments made to
Applicants at the outset are met. The mediation process will
continue to be overseen by the Centre for Effective Dispute
Resolution (CEDR).
For those Applicants who have been the subject of court rulings,
two important points need to be drawn out. Firstly, we will
continue to consider each of these cases carefully, on a case by
case basis, even though mediation cannot overturn a court’s
ruling.
Secondly, as a prosecutor, Post Office has a continuing duty
after a prosecution has concluded to disclose immediately any
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information that subsequently comes to light which might
undermine its prosecution case or support the case of the
defendant.
26.7 It has been a long and difficult process to reach this position.
However, while it has been challenging, it has also been
productive. Post Office is a better business for the steps that
have been and will continue to be taken.
Tie ENDTOR ScHEME REDON
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