POL00041076
POL00041076
24 August 204149 April 2015
Initial Complaint Review and Mediation Scheme
BRIEFING REPORT - PART TWO
PREPARED BY
SECOND SIGHT
This Report *and-accompanying- decuments-are*is confidential and areis not
to be disclosed to any person other than a person involved in the processing
of Applicants’ claims through the Scheme,
POL00041076
POL00041076
Introduction
1.1. This Report has been prepared by Second Sight, which is the trading name of Second Sight
Support Services Limited, the company appointed by Post Office to conduct an independent
investigation into a number of matters raised by Subpostmasters, or former Subpostmasters.
1.2. Part-O: f. Briokag Repert-{PartOne),-t ibes*-some-aspacts
oi Posh Oiice* branch operating preced: o-Horizon mand.
*male farencete- this Part-Twve-of Briefing Repert,When Second Sight was first.
appointed by Post Office at the request of Members of Parliament in July 2012, a number of.
undertakings were given by Post Office in.order to. satisfy MPs that Second Sight would be
able to. conduct. a truly independent investigation into the matters of concern.
1.3. ThisRepert di th i ‘Thematic+ ! that have be ised-b:
cy-*and-in-order-te-aveid-duplication-across-many-cases. Those.
undertakings included the following:
° Unrestricted access to documents held by Post Office {including documents.
subject to confidentiality and legal professional privilege); and
: No limitation. in.the scope of work determined necessary. by Second
Sight.
1.4, Those.undertakings.were.reflected in.the.“Raising.Concerns.with Horizon” document signed.
by Post Office on. 17 December 2012 and sent to the Justice for Subpostmasters Alliance
(JFSA’).and to. Mediation Scheme Applicants. A key. paragraph. was:
“In order to carry out the Inquiry, Second Sight will be entitled to request
information related to.a.concern from Post Office Limited, and if Post. Office.
Limited holds that information, Post Office Limited will provide it to Second.
Sight.”
This statement was intended to accurately reflect the undertakings set out in 1.3.
above.
1.5. Many Subpostmasters and Applicants to the Mediation Scheme will have relied on
that.paragraph,.when.reporting matters.to. Second Sight.
1.6. The investigative approach adopted by Second Sight, with the approval.of Post Office, was,
to. identify discrete issues raised by Subpostmasters or former Subpostmasters and conduct
an in- depth investigation into those issues. These narrowly focussed investigations were
referred to as 'Spot Reviews’.
1.7. Second Sight issued an Interim Report on 8 July 2013 incorporating the preliminary results.
of four Spot Reviews. Shortly afterwards Post Office announced the creation ofa Mediation
Page 1
1.8.
1,9,
POL00041076
POL00041076
Scheme (the Scheme) to de: ues rais abe ubpostmasters and,
former Subpostmasters. At that stage the investigative work that led to the Interim Report
being published was incomplete and it was intended that the further work, needed to,
support the Scheme, would enable the original Inquiry to be completed,
One of the principle findings at that stage was the need to look at the totality of the user
experience of Horizon. Horizon is much more than just the software element and many of
the.concerns.reported to.us clearly. demonstrated problems,with.the interface between
Horizon and other systems and the lack of effective investigative support from Post Office.
The Scheme received 150 applications before the deadline for applications expired.on
18
November 2013 and 136 cases are now being processed in the Scheme. Second Sight issued a
Briefing Report - Part One on 25 July 2014, which dealt with:
a) General information about Post Office, its branches and the role of Subpostmasters;
b) ~=Adescription of the training and support functions as well as the Post Office audit
and investigation processes;
c) An.overview* of t nd “associated equipment;
system.
d) An introduction to the application of double entry.accounting in. Horizon;
e) Adescription of significant branch operating and reporting procedures and
the associated processing of transacti
f) An.outline of the treatment of losses and surpluses;
and g) An analysis of typical errors,
1.10. As.aresult of analysing the 150 applications to. the Scheme, we identified 19 commonly.
mentioned issues (often described as ‘Thematic Issues’) that were raised by multiple.
Applicants. In* the inte *we agreed with Post Office that, rather than deal.
with these. commonly, mentioned issues within, individual Case, Review. Reports (‘CRRs’),.we.
would prepare
a Briefing Report - Part Two, that would deal with all of them in a single document that would
be sent.to all Applicants.
1.11. Although the 19 commonly mentioned issues were identified as a result of analysing just
150 applications to the Scheme, the nature of the underlying issues may be applicable to.a
much wider group of Subpostmasters.
1,12.We issued a first version of this Briefing Report - Part Two on 21 August 2014. That
document recognised that a number of issues were still under investigation. Post Office.
issued a response to the first version of that Report.on 22 September 2014.
Page 2
POL00041076
POL00041076
1,13. Investigations have continued since the release of the first version of our Briefing Report -
Part Two and this updated Report presents further information relating to the commonly.
mentioned issues dealt with in the 21 August document and takes account of further.
information, supplied by. Post Office.
1.14.At. the time of finalising this updated Report (9 April 2015) approximately 20 out of 136.
cases are still being investigated by us. It is therefore possible that new information will
come to light that is relevant. to the matters dealt with in this Report, If this happens, we
will discuss with Post Office how. best to communicate such further relevant information -
possibly in the form of a supplemental report.
2. —_Limitation.of Scope.in Work Performed
2.1. We have experienced significant difficulty in obtaining access to.a number of documents,
we believe are necessary for the purposes of our investigation, notwithstanding Post.
Office’s. commitment to. make requested documents available to. e. documents,
requested from Post Office fall into three main categories:
a) the complete legal files relating to investigations or criminal prosecutions.
commenced by, Post Office that relate to Applicants;
b) the complete email records relating to.a. small number of Post. Office.
employees working at the Bracknell office of Fujitsu in 2008; and
c) detailed transactional. records. relating to.items. held in Post Office's Suspense.
Account(s) and to disputed transactions ina number of third party client accounts.
held by Post Office.
2.2. The following paragraphs describe these matters in more detail.
Access.to.the. complete. legal files
2.3. _A. number of Applicants have raised issues concerning the investigative and
prosecution processes they experienced.
2.4. Typical. concerns. mentioned include:
a) An.audit visit that.was in.reality only.a.cash.and stock count;
b) An.investigation process that had difficulty in. considering the possibility that,
Horizon. itself. might have. caused any. losses. and_often. failed to. establish the. root.
cause of the unexplained losses;
c) Criminal charges that were dropped just before trial despite the Applicant having
been suspended without pay. fora long period (two years or more.in some. cases);
Page 3
2.5.
2.6,
2.7.
2.8.
2.9,
POL00041076
POL00041076
d) Acharge of theft being brought when there appears to. have been only limited
evidence to support that. charge and where that evidence was not tested by the.
Court,.as the charge was dropped just before trial; and
e) A.prosecution.process that appeared to be focussed more on debt recovery. than.in.
the interests of justice.
Our review of applications, where criminal charges were brought, provides some limited
support for these concerns. However the issues raised by individual Applicants can only be.
investigated by a review of the complete legal and investigative files held by Post Office.
So far, with the exception of only.a few. cases, Post Office has not provided us with access.
to. the complete legal files that we have requested, It has, however, reported that:
"Having now,.completed its reinvestigation.of each.of the.cases, Post Office
has found no reason to conclude that any original prosecution was unsafe".
mplete, id Icases.is.
the only proper way to identify whether there are instances of possible misconduct by
prosecutors acting on behalf of Post Office and whether or not miscarriages of justice may
have.occurred,
Post Office has informed us that reviewing the individual "investigative and prosecution
processes" that Applicants have experienced does not fall within the terms of our
engagement. We find this position surprising since it is the consequences of those processes.
that have given rise to. many. of the issues that Applicants wish to mediate. Also, the position.
adopted by Post Office is contrary to the position taken by the Working Group which was set,
up to administer the Scheme, of which Post Office was. a member.
In.the light of this ARDALEN. conflict of views between the Post Office. and the independent.
body. set.up,to.; ister. tt me, (‘the Working Grou Hooper,
aretired Court of Appeal Judge, we would normally have asked the Working Group to
provide guidance on this matter. Unfortunately, it has not been possible to do. this, as.on 10
March 2015, Post Office. announced that the. Working Group had been wound up. with.
immediate effect. This was the day before we were due to circulate a draft of this Report to
all members of the Working Group. It was also the day that Post Office notified us that our.
contract to. conduct an independent investigation into the matters raised by Applicants was
being terminated. Consequently, Post Office instructed us to issue a final version of this
Report no later than 10 April, irrespective of whether or not our independent investigation,
was.complete.
Access to. the emails of Post Office employees working at Bracknell
A significant number of Applicants have stated that, they believe that transactions and
balances. on Horizon. were altered without their consent. It has. been reported to_us that.
some. changes.appear.to. have been. made. outside. of normal.working hours.and.that some. of.
those changes suggest that some form of unauthorised remote access to transaction data
Page 4
POL00041076
POL00041076
may, have occur
2.10.We have seen a witness statement from an Applicant who claims to have seen evidence of
this type of activity in August 2008, occurring in the basement of the Fujitsu office in
Bracknell
Post Office has stated that it is not possible for the type of activity described to have
occurred. However, we believe that, despite Post Office's reassurances and statements from
its. employees.and those of Fujitsu,.the. most compelling evidence.on. this point will be in,
contemporaneous emails from the relevant period.
2.11.We first. requested access to. the. relevant emails in. 2013 and we were provided with some.
emails from,.2009..We have very, recently, been provided witha small number of emails,
from August 2008, but this sample was too small to draw any meaningful conclusions
about what.was really going on in the basement of the Fujitsu office in Bracknell.
2.12.We deal with this matter.in more detail.in Section 14 of this Report. Our current, evidence.
based. opinion, is. that Fujitsu. / Post. Office did have, and may still have, the ability.to.
directly alter branch records without the knowledge of the relevant Subpostmaster.
is contrary. to, Post Office’s position. on this matter and it,
is regrettable that _we have not been provided with the further evidence we. have
requested in order to reach. a properly researched conclusion on this important issue.
Transaction data relating to third party client accounts
2.14, Post Office operates a number of client accounts with business partners suchas Royal Mail,
Bank of Ireland, HMRC, DWP, DVLA and many others. Transactions from.branches relating to.
these. business. partners are allocated to, the appropriate client account. before being.
reconciled with information provided directly by. the business partner. Normally these
transactions are matched without difficulty but occasionally errors occur or disputes arise
where. the transaction details shown.on Horizon.and the. transaction. details reported by.the.
third party client differ.
2.15.In these circumstances an adjustment referred to as a Transaction Correction (TC) maybe.
generated in order.to,correct.an error. previously.made.in.a.branch., Post Office has advised,
us.that its policy is to write off unexplained debit balances on. third party. client accounts,.
but. that any, unexplained credit balance will be left. open in.case the matter is subsequently.
resolved, Eventually these long outstanding credit balances will be transferred to Post
Office’s General Suspense Account and may be taken to its Profit & Loss Account (P&L.
Account) if they have remained unresolved for more than. three years,
2.16..A number of Applicants have reported that they have suffered unexplained losses or have.
received TCs relating to transactions with Post Office’s third party clients. We informed Past.
Office,.on.18 June.2014, of our.wish.to.investigate the possibility. that some. of those.
unexplained losses could be represented by transactions subsequently taken.to the credit of
its. P&L Account,
Page 5
POL00041076
POL00041076
2.17.We have been advised that, in each of tr cial vee and 2014, amour
excess of £100,000 have been. taken.to the credit of Post. Office’ 's. P&L Account and we. have.
asked for.a detailed breakdown of those amounts, together with corresponding.
transactions from the individual third party client accounts, This is a complex issue and,
whilst Post Office has agreed to provide us with this information where possible, this,
matter has not been_resolved at the date of this Report,
2.18. In addition.to. the credits being taken. to Post. Office's. General. Suspense Account. we have.
been informed very recently that at each year end substantial unreconciled balances existed
on.many. of the individual suspense accounts. These unreconciled balances for the 2014
financial year were approximately £96 million in respect of Bank of Ireland ATMs and.
approximately £66 million in respect of Santander. These unmatched balances represent
transactions from individual branches that occurred in the preceding six months.
2.19.We have not been able to investigate these items but we remain. concerned that these.
unreconciled balances may include transactions that ultimately should be credited back.
to. individual branch accounts,
3. Our updated Briefing Report - Part Two.
3.1. The limitation in scope reported above has, in our opinion, significantly restricted our ability
to.complete our investigation into. some of the issues commonly. raised by Applicants to. the
Scheme. It is. particularly regrettable that.two.of the issues. raised: access.to.the. complete
legal files and to the Bracknell emails, appear to represent a policy decision, taken at.a senior.
level within, Post Office, which is, contrary, to, the undertakings previously provided to. Second
Sight,.to. Applicants,.to.the JFSA and.to. MPs.
3.2. Weare.also.aware.that, Post. Office’s current view. is.that:
t Offic of the e'
criminal case, whether served during the course of that case or not, is either
within the scope of the mediation scheme or something which is within.
Second Sight’s remit.”
3.3. We disagree with this view and previously we would have asked the Mediation Working.
Group to advise us on this matter. However, for the reasons described in paragraph 2.8. it
has not been possible for us to do this.
3.4. We are also aware that Post Office considers our. comments.on.a. number of other issues
as falling outside the scope of the Working Group and beyond our remit. These issues,
include:
a) the Contract between Post Office and its Subpostmasters;
b) _ the.transfer of risk between Post Office and Subpostmasters;.
Page 6
POL00041076
POL00041076
and.) the error. repellency, of Post ’s. business systems.
3.5. These.three issues are all,.in.our.view,.connected.as described below.
tract between Post, and its Subpostmasters (‘the Contract’)
3.6. Our detailed comments.on.the Contract are set. out in Section.6.0f this Report. The Contract.
makes it clear that Subpostmasters.are.responsible for losses that. occur at their branch.
What is.not.clear, is what support they are entitled to receive from Post Office.
3.7. As set out in paragraph. 6.8. i) there is no automatic entitlement.to investigative support
when problems arise. There is also no automatic entitlement to be provided with data held
by. Post. Office with the exception of the data routinely. made available to. the branch. by.
Horizon.
3.8. The Contract places Subpostmasters in.a difficult position in these circumstances. Post.
Office generally insists on losses being made good, but the Subpostmaster is not necessarily,
entitled to receive all of the information and explanations necessary to establish the cause
of the loss. We regard this as unfair.
The transfer of risk between Post Office and Subpostmasters
3.9.
The.Contract. transfers most of the risk of doing business. to Subpostmasters. Our.
stigations have shown, that this is nota stati ation.and, over. time, Post Office.
has introduced a number of new products, and revised business processes, that may.
have transferred further risk to Subpostmasters.
3.10. Many of these changes seem to have been introduced without adequate consultation.
We regard this as regrettable. Examples of business process changes that have.
transferred additional risk to Subpostmasters include:
a) the ing.out ere ¢ t the Subpostmaster, was,
responsible for servicing and accounting for the ATM;
b) the removal of paper paying-in slips that provided a detailed audit trail
indentifying individual transactions;
c) the introduction. of new. products.and services, such.as Lottery products. and,
Foreign Currency (Bureaux de Change) services, subject to the overriding
consideration of whether it is reasonable to. do.so;
d) the removal of the facility. to. hold shortfalls in Branch Suspense Accounts beyond
the end of a monthly Trading Period (partly compensated for by the introduction of
the ‘Settle Centrally and Dispute’ function); and
e) the change from mandatory weekly to monthly balancing.
The. error repellency of Post Office’s business systems
Page 7
POL00041076
POL00041076
3.11.A consequence of the progressive transfer of risk from Post Office to Subpostmasters is that,
in.our.opinion, there is little incentive for Post Office to. improve the error. repellency of its.
business systems, We are aware that Post Office has implemented some process changes,
suchas 'Ping', in relation to Lottery Scratchcards, that have improved the error repellency,,
but we believe that much more could, and should, have been done in this regard.
3.12.We regard the lack of error repellency.in* some as s.business systems. as.
regrettable. Our investigations have shown that. the majority of branch losses were caused
by “errors made at the counter”. Many. of these errors might have been avoided, or
mitigated, had more robust, error repellent, systems been introduced.
3.13. Examples of inadequacies in Horizon's error repellency include:
a) Hardware and technology that is old and suffers from avoidable rates of failure;
b) —Telecommunication equipment that is prone to failure or to poor signal reception
in.some.rural.locations;
c) Limited usability testing prior to deployment of new facilities. on Horizon;
d) An.icon.based touch. screen.that.does not.auto-calibrate;
e) Software that. does not detect and prevent password sharing or. multiple. logons. by.
the same user ata different branch;
f) The lack of secure, token-based, user ide
the actual user;
tion, that. would uniquely identify,
8) Software that does not prevent or detect suspicious out of hours transactions; and
h) — Software.that. does not require additional process steps such.as.two.person
approval or an additional approval measure for high value or high risk.
transactions,
3.14, These examples should be regarded as illustrative rather than exhaustive.
3.15. One of the difficulties that both Post Office and we have faced, in dealing with the
concerns that have been raised by Applicants, is that some of the alleged problems occurred
more.than.ten years ago..
3.16. A.consequence of this is. that many. contemporaneous documents.no longer. exist
de
such
matters, describes how. the (new) system currently handles things. Its answers have often.
been expressed in terms of what was meant to happen, rather than what actually happened.
Page 8
POL00041076
POL00041076
™ APPENS, OF.
what now. cannot happen.
3.17. While such responses may seem to be helpful in dealing with those many instances where
evidence is.no longer, available, they. have, in.our. view, little or. no evidential value. Knowing.
what Post Office's current policies or procedures dictate, or how the current system deals
with a matter that has been. raised, cannot be expected to inform_our analysis.as. to. how.a
situation really. was. dealt with at.the time that.it happened.
3.18. Notwithstanding these limitations and issues, we continued to investigate the matters
covered in.the previous version of this Report, and have produced this updated version.
4. The structure and content of this
Report
4.1, 4:4.- The Report structure follows a modular approach, with each Thematic-issuecommonly..
raised issue, as broadly defined by Second Sight, forming a separate section within the Report.
There are some topics on which firth quiries-and-investigations-by both Rest-Office and
Second Sight tinuing,-which when finalised-may-be included infut pdates-toour
investigative work is incomplete. Further questions have been posed by Second Sight to Post
Office. in.respect of those topics and, re.our.questions have been adequately answered,.
and where further evidence has been made available to us, the wording used in the
previously issued version of this Report has been updated to reflect that. A number of those.
questions remain unresolved however, and these are clearly identifiable in this Report.
4.2. 4.5.- ThisPart Two! Report-is-theref Hiving-d t!-that-will-be periodically
pdated. develop-bett idk si h-of- thi ete ised.A copy of the
reply. i 9.
December 2014 is attached at Appendix 1.
4.3, 4.6. The number of occurrences of each Thematicissuecommonly raised issue, from the
total population of 150 applications to the Scheme, is indicated throughout this Report using
the following groupings and descriptions:
Few LessFewer than 15 instances
Many Between 15 and 70 instances
Most More than 70 instances
4,4, 42+ In this context, the most commonly reported issue (complaints about Training and
Support) has been raised by over 130 Applicants, while the least- reported issues (concerns
about Pensions and Allowances transactions and Motor Vehicle Licences) were each raised by
enly-43fewer than.15 Applicants.
4.5, 4.8. In order to put our comments in context, the issues being considered are based on
concerns raised by 150 Scheme Applicants from a total population of approximately 44,500-
Branches-8,000 serving Subpostmasters. In its response to the previously issued version of
Page 9
POL00041076
POL00041076
ta
“Post Office is. confident that there are no systemic problems with branch,
accounting on Horizon and all existing evidence overwhelmingly supports this
position
4.6. Later,.in.a letter dated 14 January.2015. that it sent.to. those MPs. who had voiced
concerns during the 17 December 2014 Adjournment Debate, Post Office referred to:
"500,000 people working in the Post Office network"
"78,000 people use Horizon up.and down the country, performing six.
million transactions, and providing vital services in our communities".
It.continued:
“against. that backdrop, the 150. complaints. we are addressing through the.
Scheme, .alleging.that Horizon suffers from.system-wide flaws,.represents.a.tiny.
fraction of the total number of people who have used, or are using, the system
effectively (0.03%.and 0.19% respectively)”.
4.7. Whilst we recognise that the number of complaints about which we have been informed.
indeed. represents.a,tiny.fraction.of the. total user population, we must.point.out that the
impact,.on most of the Applicants, of their problems with Horizon, and of their experience.
Post Office generally, has had significant personal impact.
4.8. 4,3. The identification of a Fhematictssue-eccurscommonly mentioned issue first occurred at
the time that aan Application Form, or its related Case Questionnaire Response (CQR)-is,. was
initially considered by us. As the Scheme process continuesd the underlying concerns arewere
further explored and conclusions arewere set out in the Post Office Investigation Report (POIR)
and then in our Case Review Report (CRR). This Report describes Thematicthese tissues in
more detail.
410,Comments-cn-a-draft-of this Report have been provided by Post Office and by the Justice F.
Subpostmasters Aili (ESA), andawe-havetak t-of-thi ts whi
4.9. 4,44, In considering the CQRs submitted to us, ¢hePost Office's seven year Data Retention
Policy of-Rest-Office-has, in some cases, limited the availability of evidential data. This Policy
applies to both Horizon transactional data (held by Fujitsu) and also to other business records
such as emails, letters, memos, interview recordings, transcripts and Audit and Investigation
Reports.
4,10.4.42,-Until recently, Post Office did not appear to operate a ‘litigation hold’ process
whereby documents that may later be needed to support a complaint or investigation are
preserved — irrespective of the seven year retention period.
Page 10
5. 2,- PrecessDefinition of ‘Horizon’ and its impact.on the Scope of our work
2rdy Sek Application- J-CORS- included. i ki hat the Applicant’:
3 Scope
5.1. 3-4 The definition of Horizon for the purposes of our work was considered in our Interim
Report of
July 2013 as follows:
".... the name Horizon relates to the entire application. This encompasses the
software, both bespoke and software packages, the computer hardware and
communications equipment installed in branch and the central data centres. It
includes the software used to control and monitor the systems. In addition...
testing and training systems are also referred to as Horizon".
Whilst we have adopted this-Pest-Office definition of Horizon, as it had been agreed with
Post Office, it has been necessary, for the purpose. of our investigation, to extend it so as to
properly include the totality of tkeeach Applicant’s experience of using Horizon. We have
therefore found it necessary to also consider issues such as the Audit and Investigative
processes and the Contract between Post Office and its Subpostmasters as well_as the.
behaviour of Post Office towards the Applicants to the Scheme when problems arose.
Page 11
POL00041076
POL00041076
6.
6.1,
6.2.
6.3
6.4.
6.5.
6.6.
6.7.
6.8.
POL00041076
POL00041076
4,- The Contract between Post Office and its Subpostmasters
. 4-4-This-sectionThe Contract between Post Office and its Subpostmasters lies at the heart of.
many of the issues that Subpostmasters wish to resolve by way. of mediation. This Section
deals with two separate issues. First, the potential impact on Subpostmasters of some of the
terms and conditions set out in the Contract and, secondly, issues relating to the notification to
Subpostmasters of the terms of the Contract.
When invited to comment.on.aprevious version of this Report Post Office stated that
“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,
. For.the avoidance of doubt, we.are. commenting on.the commercial aspects of the
Subpostmaster Contract, a matter which we are confident falls within our professional.
expertise. We also believe that this issue legitimately falls within the scope of the
Scheme.
. 42-The following extracts are taken from the ‘Standard Contract' (dated September 1994)
between Post Office and Subpostmasters. This is a 114-page document, that now incorporates
several post-1994 amendments. A copy of the entire document is available on request..The,
Contract should be considered in conjunction with other documents such as manuals,
booklets and operational instructions issued by Post Office from time to time.
4,3-The Standard Contract is described by Post Office as an arms-length, commercial
transaction in the nature of an agency contract..Post Office has also stated that, in its
experience,
"the terms of the Contract are broadly similar to those used in.
franchising arrangements across the UK".
We disagree with this view for the reasons set out below.
4A-The contract allocates several financial and other risks to Subpostmasters who may not
have understood or appreciated those risks, particularly if they failed to seek independent legal
advice before taking up their posts. Our comments on the clauses most referred to. by.
Applicants,.and therefore most.relevant to our Reviewreview,.as. set. out below, are made
solely from a business perspective.
4.5-The Standard Contract spells out the rights and responsibilities of both Post Office and
Subpostmasters. The clauses most frequently referred to by Applicants are as follows:
a) Section 17: (in the November 2002 amendment) lists the Key Products and Services
(also referred to as the core products and services).
Page 12
POL00041076
POL00041076
b) *Section 25: {in the N s
training of the Subpostmaster and, in turn, of the staff employed in a branch. Under
this *Seetion:
ponsibiti
Page 13
c)
qd)
e)
f)
POL00041076
POL00041076
rovide the Subpostmaster with relevant trein
2g.
¥ out the req of his Assistants on
Mffice Products a tmaster
amendment) refars-to-responsibil
oyedin-a-branch.-L
responsibility* to ensure the proper deployment within his Post Office branch of any
materials and processes provided by Post Office Ltd and to ensure that his Assistants
receive all the training which is necessary in order to be able to properly provide the
Post Office Products and Services and to perform any other tasks required in
connection with the operation of the Post Office branch.”
Alsore-
“Post Office Ltd may request from time to time that where it has obligations as
described above the Subpostmaster should conduct specific training (whether
through written/distance learning that may require confirmation of completion or
via presentations) in relation to certain Post Office Services (such as, but not
limited to, money laundering). Failure by the Subpostmaster to arrange for such
training to be properly applied will be deemed to be a breach of this Contract by
him.”
Section 1, paragraph 10: requires three months notice of contract termination from
the Subpostmaster to Post Office and allows Post Office to:
“Terminate a Subpostmaster’s contract at any time in case of Breach of Condition
by the Subpostmaster, or non-performance of his obligation or non-provision of
Post Office Services, but otherwise may be determined by Post Office on not less
than three months notice.”
t tion-12-0f the Standard-Centract-th: Section.12: has a number of
paragraphs, as set out below, addressing responsibility for losses and shortages. These
paragraphs are at the heart of nearly all of the cases being considered in the Scheme.
é}Section 12, paragraph 12:
“The Subpostmaster is responsible for all losses caused through his own
negligence, carelessness or error, and also for losses of all kinds caused by his
Assistants. Deficiencies due to such losses must be made good without delay.”
e}Section 12, paragraph 13:
Page 14
POL00041076
POL00041076
“The financial responsibility of the Subpostmaster does not cease when he
relinquishes his appointment and he will be required to make good any
losses incurred during his term of office which may subsequently come to
light.”
g) Section 12, paragraph 14:
“Surpluses may be withdrawn provided that any subsequent charge up to
the amount withdrawn is made good immediately.”
Page 15
POL00041076
POL00041076
h) — g}Section 12, paragraph 17:
“Subpostmasters may exceptionally not be required to make good the full amount
of certain losses at his office. If he feels entitled to relief in making good a loss he
should apply to the Retail Network Manager.”
i) &}Section 19, paragraph 12: deals with enquiries by officers of the Post Office
Investigation Division and states that:
“The main job of the Investigation Division is to investigate, or help the Police
to investigate, criminal offences against the Post Office, British
Telecommunications and the Department of National Savings. The
Investigation Division does NOT enquire into matters where crime is not
suspected.”
j) —- *Section 49, paragraph 4:
i} *Section-18,-paragraph1sy
Investigators to have a friend present during the interview but that person may
only attend and listen to questions and answers. He must not interrupt in any
way, either by word or signal.”
.ws* “persons interviewed by Post Office's
6.9. 4,6-Having considered the Standard Contract in some detail from a business perspective, we
are of the opinion that it can, in some circumstances, operate to the detriment of the
Subpostmaster, who may not have reviewed aeror fully understood the terms before
accepting ordecliningdeciding to enter into the Contract. We have not seen any evidence that
Post Office either advises or requires Subpostmasters to seek independent legal advice before
taking up their posts.
6.10. Although Post Office. has likened the Standard. Contract.to.a franchise agreement, we note
that the British Franchise Association. recommends that.a franchisee should always seek
independent legal advice before entering into.a franchise agreement and we are surprised
that Post. Office. does not make.a similar.recommendation.
6.11. 4-4-The Standard Contract places a number of financial and other risks with
Subpostmasters who may not have properly understood or appreciated those risks,
particularly if they failed to seek independent legal advice. Consequently, there is a risk that
appropriate risk mitigation measures may not Behave been implemented by the
Subpostmaster.
6.12. 4,8-We have been told by many Applicants that they were not given a copy of the 114
page Standard Contract until long after they had committed to purchase their sub-pest-
efficebranch, or long after they had started work as a Subpostmaster, or even at all.
AD We dvised-thati {the Standard-Contract *-provided-te-th
Ta EOpy #
Applicant-until Rast-Office. d-litigation,-Rost-Office-has-stated-that-its- Standard.
ig
Operating Preced. ice-that Subpostmast ided-with the Standard.
Pp i + is P Py
Page 16
POL00041076
POL00041076
Contract-no- later than-the-day-that they start work-but-this often seems-not-te-ha
happened.
6.13. Post Office denies this, stating:
"itis. also Post Office's standard operating procedure to ensure that the
Subpostmasters.have.a.copy.of the Contract no.later.than.the.day.that..
they commence their position".
6.14, 4,10-We understand-thatitishave found that this."standard operating procedure" was.
not always followed. Instead, it appears to have been common practice for a new
Subpostmaster to sign ana_of
Page 17
POL00041076
POL00041076
with a copy of the Contract itself.
<* Letter’ without necessarily having been provided
6.15. *Acknowl: oovon letter that-raterste the Ceatract, butasithout
ly-bei ided-with £it-In-se-doing the Sub; knowl
y being pI # pyoFit oH postmast ages.
sementolAp:
ipt-and. ptance-ofitstermsand ditions without ssarily being aware-ofits
specific-provisions-In signing that one-page letter, the Subpostmaster acknowledged receipt.
and acceptance of the terms and conditions of that Standard Contract, without necessarily,
having ever received a copy of it, and without having had the opportunity to understand and
respond to those terms.and conditions.
6.16, 4-44-It is, in.our.view, worth noting that retaining evidence of the provision of the
Standard Contract to theApplicant-has Subpostmaster seems never to have been part of-
the Post Office’s Standard Operating Procedures.
7 5- Automated Teller Machines (ATMs)
7.1, S4-Our Briefing Report,-.Part One Repert-provides, in sectionsparagraphs 5.23 to 5.29,
background information on the installation and operation of Automated Teller Machines
(ATMs).
5.2; When-a Post Office branch i inpedawith_an- ATM it-can-be located either within
t Hed ter footfall-and,-as-a-cons: i d-sales-of both Rest-Offi
J. to HANCO_ATMs.-AlLof thi
ternalATMs.
7.2. S-3-Problems with ATMs, largely. comprising unexplained shortages that were charged,
back to Subpostmasters. by Post Office, have been reported in more than 20% of the-cases-
back-to-Subpestmasters-by-Rost-Offi her-cas:
large surpluses-cccured which
eased.
externally-located*
ome-Appl
*applications to the Scheme and all of them.relate to.
nk of Ireland (Bol) ATMs*,
7.3. Thirteen of those ATM-related, shortages axceel ed £20,000, six. exceed £80,000 and.
one.exceeded £80,000,* in othe
7.4. 54-The normal cash dispensing process on Bol ATMs involves electronic interaction between
the Branch's ATM; Wincor Nixdorf (the service and maintenance provider); the LiNK platform
and the customer's bank. The ATM cash balancing/reconciliation process involves electronic
and also manual interaction between the Branch's ATM; the Branch's Horizon system; Post
Office's Financial Service Centre (the 'FSC') and Bol. Fhis-i at Agement,req -
Page 18
7.5.
7.6.
7.7.
7.8.
7.9.
7.10.
POL00041076
POL00041076
st-high- street-banks-whose ATMs-are-seamlessly-connected.to theirown-comput
systemsBranches need to account for the cash that they load into the ATM; for the cash that.
is. dispensed.to. customers; and for.exceptions such.as banknotes that the ATM.cannot deal
with and notes that are ‘retracted’ (when customers fail to take the offered notes).
Whilst the loading of notes is a relatively straightforward task, the accounting on Horizon
for branch ATMs seems not always to have been properly understood or correctly carried
out.and we address the most likely. reasons for. this. below,
The principal problem, reported by many of the Applicants who have raised concerns about.
their. branch’ 'SATM*, »: ** extrac
ub
ATM 2
This. is. a procedure that seems to us to be fundamentally flawed because what the.
Subpostmaster is doing here is inputting data into his branch's Horizon system that the
ATM itself has generated and already communicated, through the LINK system, to Bank of
Ireland and that Bank of Ireland will the following day. onward communicate.to Post.
Office.
Those. figures, that are, input by, the branch staff into Horizon, are then subsequently
‘reconciled’ by Post Office with the numbers that came from the ATM itself. Whilst this
process will detect errors made by branch staff in transcribing the ATM's cash dispensed.
figures into Horizon, it is driven by the figures that the ATM itself has generated. It follows.
that, if those ATM-generated cash. Ailsnensed numbers have, for some reason, been
uw ited, orts, then the.
Subpostmaster will be held accountable for the resultant shortfall. In our view, although Post
Office strongly disagrees with us, this introduces a vulnerability to error and fraud that simply.
did not. exist before. We. return.to. this. matter in paragraphs, 7,28 to.7.38 of this Report.
Any. differences arising between those ATM-derived figures and the branch's declaration of.
the cash that remains in its ATM results in Post Office issuing a Transaction Correction (TC)
which will impact the cash total that the branch needs to have in its ATM and its safe. In
other words, any. shortfall has to be made good by the Subpostmaster.
By.comparison,. banks. and ATM. operators. other. than, Post. Office, faced with any. material
ATM-related discrepancy, immediately send out their own investigators to establish the
cause of the difference or problem, and this is sometimes found to have been caused by.
an,independent investigation seems not.to,.take place.
Post Office. Instead, Post Office simply issues TCs to "resolve" (i.e. to correct) any.
discrepancies, and any Subpostmaster wishing to challenge such a TC has.nothing with.
which.to. support his.claim, other than. the. 'Bank Totals Receipt’ that.he has.retained in.his.
branch, but that was produced by the ATM itself.
Page 19
POL00041076
POL00041076
case: -generated
figures had been corrupted by the ATM itself. Whilst acknowledging that erroneous data was
produced, Post Office states that it was not the vitally-important ‘cash dispensed’ figures
that had been corrupted, in those two examples, but less important figures showing the,
number of rejected notes. Post Office also suggests that the data, in those two examples,
became corrupted because branch staff. had repeated!
cassettes such that the ATM became hopelessly ‘muddled’.
7.12. Post Office denies that such corrupt data could ever cause losses in any branch. We are
unable to. endorse that reassurance, not least because it is self-evident that, were the more
important.'cash dispensed’ figures to be incorrectly reported by the ATM, then that would
have far more serious consequences. We must also put this matter in perspective by stating
that, in.our view, the risk described in paragraphs 7.28 to 7.38 of this Report remains.a far.
more serious. concern.
7.13. When Post Office replaced some branches’ fully serviced ATMs (where Subpostmasters
did not have to fill them with cash, or account for the cash going through them) with ATMs
where Subpostmasters. were responsible for those tasks, that introduced, in our view, new.
Procedural complexities with which some Subpostmasters were unable to cope.
5.5e 0} tab bl ted-b: £.the-Applicants-caisi bout-ATMs*
i Lid ¥ ¥ PPI 7
orand-use-ofthe-
7.14. In that context, we note that, in* februe t ed “a Manual Update,
which it referred to as * that it we
Rost-Gitice-stated-thatit-was-issuing-newins
ons-because* "a number of
non-conformance issues are still affecting the processes for ATM reconciliation
and settlement and to explain the correct end-to-end accounting processes
relating to Bank of Ireland ATMs".
7.15. $+#-The Introduction to the Operations Manual interim stated:
"The Bank of Ireland, via the LiNK network, extracts a 16:30 - 16:30 ‘cash dispensed’
figure automatically from your ATM each day. This figure forms the basis of a
settlement to Post Office. This figure is the value of cash dispensed from your ATM
from 16:30 the previous day until 16:30 on the current working day".
In-oth ds,-th +-of-cash-di: dt " fi h-branch's- ATM-d:
th ious 24-4 for-during-th: ious-22-h: bet Friday-at-16:30-and- Monday.
Lia + gthe-p ¥
Page 20
POL00041076
POL00041076
tod fi d-the-fi " Horizon-if-the-totels-differ, th ied.
$ FE Figure y if iF YEH
ith Bank-of reland-and-may-+esult-in-atransaction-C tion-sent-t branch-tf
if sa ¥ F¥
do-not-enter-the-daily 16: 30-cash-di fi Horizon,-this that-th.
4 'y-lE:30—16; e-
{16:30-heurs} end-you- have logged.on-te-the ATM stock wit}, Unlike cash declarations
fe nter-stocks-Hi do-notneadtomek hysicat tofthe-cash
7.16, 5,d4-It would appear that some Applicants misunderstood parts of the instructions, and-
some.wereManual Update, or failed to carry out every process they were meant to. Some.
Applicants say. that they were repeatedly told by Helpline staff, when they were investigating
differences, that that arose.as.a result of those misunderstandings and failures, that; "the
problem will sort itself out" (though ##-did-netthe problems persisted). Any differences would
normally be expected to be ‘resolved! by means of Transaction Corrections, however-this-often-
t-that-furth: J.
coferring-s i i ice* ret nthe CORsin-nearly-everyinstance-
‘*but these sometimes led. to. further.
errors being made when the specifica actions that then needed to be carried out, in dealing
with. those incoming TCs, were also. misunderstood, or wrongly. executed, by branch staff,
where
7.47, *Many Applica
*(which.had sometimes allegedly increased their. branch's apparent shortfall_or. surplus was
Page 21
ave also reported that th
POL00041076
POL00041076
7.18, 5r42,-A consequence of a user getting things wrong with the ATM's cash dispensed figures
and inputting incorrect data, and hence causing an initial discrepancy, was that an ‘out-of-sync’
situation esutdwould develop where the branch's ATM would be expected (by Bol and by Post
Office) to have an amount of cash in its cassettes that was mat ly different from the cash
7.19. 5rk3--Based on comments in many CQRs, the problems reported by Applicants, relating
to this out- of-sync situation, became, it seems, what can be described as commonplace in
some branches prior to the February 2008 release of the Manual Update.
7.20, Sd4-The Manual Update confirms that, by following the new instructions, the
process for entering data and balancing ATM cash will change and states that."“moving
to. result ing cash balancing difference™",
if following-the-instructions-contained-ia-thi -kaid-means-thet-th ibn
ff ig ny
ter-date-on-Hori bal ATM-cash-will-ch be leit you-h
¥ ge-tf +H
ifthis-is th P&BA.willissue-o- Transaction Correction, te-address the cash-balancing
diffe d-willtry-to-pi ide-ch evidence-and. uch-infecmation. ible-te
iff $tO-p i P
help-with correcting -transactions-Th - that-allprovious ATMA
p #
eis eh fis Ai by ded. Hori: tals dthet-bi A. bhi
pensed fig y
been-correctly declared.
7.21, Srd5.-Many Applicants have commented on theit-view-ef-the complexity of the-
processing ef ATMaccounting, in. Horizon, for their ATM's figures in-Herizen-and_on the
general lack of clarity and-hense-ease-of-use-of the-guidance-and instructions issued by Post
Office. i hat-the-Feb ry-2008-in ctions-representacocod-exampleofth
lexityand-show-h: t-might-have-been-f Subpostmasters-t keThis,
plexity yit-mig! P his...
many have said, led to them making mistakes when trying to comply with those
instructions.this-+ tract fromthe paragraph titled Loading-cash-inte-the ATM:
Rh momber:Atth ky belance-cll fi Jeared,Tharate: iL-need.
7 FG F
te-enter-all-amounts-in-total.when-y Joad-the Ab ws
Sri, As-an-additional-example, the following -extractis from-the paragraphs-dealing.with-
Weekly-batancing-and. ding fig the-Cash-Mi +t Sheet:
Page 22
POL00041076
POL00041076
Rl te: You-do-net-have-t ite-thi hil ATM-with-thi A-decloratic
¥
make-on-Hoti: The ATM-is-bak <-using-the-Cash Management Sheet
t-bek ATM-has-bel ,
¥
deseribed-below.-lf-the-Cash- Manag tS
ipts-ond-double-check that the-16.30-16.30-cash disp. a
‘-hos-been-accepted
Check that-the-transferinte the ATM-st
it P
Double checkthatthe dail h-declaration-hes-b Jeted. tel
HF 1p yf
if. t. Jve-the dis do-net-phone-theM4 Helpdest:-pk hone-th
FY AREY, P iP PB #
SAB. inthe in-which-theaA db " £ i
¢ as the-App! t-report " 1. ¥ tuati
+ hy tated that-they had-ne-id: hat. ing the-prebl. The-2008-M: 1
¥ cy #
Update-did-tittle-t Iyethi s: Furth: if-the-branch's-ATM. tin,
tia e i
fi d-16;30-on-that-att
16:31-n-the-previous-Friday
7.22. Many Applicants have stated that the only training that they received, when their.
branch's ATM.was first installed, was. provided by.a Wincor. Nixdorf engineer. who.was.only,
able (and it seems only authorised) to teach them how. to load cash into. the cassettes and
how to deal with the mechanical aspects of the ATM. They say that they were left to work
out for, themselves, primarily.using User Manuals, how, to,carry,out the ATM-related
accounting on their branch's Horizon system. They.also bore responsibility, under the.
Page 23
POL00041076
POL00041076
Sti
thereafter carry out that accounting on their behalf.
519, Wehave-also-beentold that when ATM-related iliati nd-out-of-syne_problems-
sted-to-the-Helpline,Apalicant ften-told-to-i the-shortfell-b it
p. pline,-App! ig if
iii sort-itselfout-Th i: Ef the-Helpli ticular iorte-the-2008-M: 4
if pline;-p +P
ib! isleading It Iso-have-had-th tended. f-caush
Pp yee: ee ¥ a a quence B
Applicants-to-ai trying to-understand-and-resol: bl This-in-t Id-haveted.
Pp give-up-trying. P
to-the-temptation-to-falseh £_while-walting forth blem-to-“sortdtself-out!.
iP iy iB ? if
7.23. This. seems to have. resulted in, some Subpostmasters and their, staff systematically.
repeating errors, not.only.in.collecting the.'cash dispensed’ and other figures from.their ATMs.
and entering those figures into Horizon, but also in responding to the resultant stream of.
high-value Debit and Credit TCs that Post Office issued to correct the branch's accounts..
Vitally,. we believe that. many.of those systematically repeated errors were made because the.
instructions had been misunderstood, rather than because of carelessness or as.a.result of.
attempts.to deliberately. conceal. branch shortfalls. It follows that, not realising that they
were doing anything wrong, and consequently not realising that they needed to seek further.
training, they, carried on making the same. ‘akes and got their branch's accounts into. a.
complete mess,
7.24, 5-2G--Many Applicants have also. commented on the apparent impact on their branch's ATM
of power or telecommunication failures. Other than recording, in some cases, the dates and
times of such failures, it was difficult for them to relate those failures to specific deficiencies. It
is recognised that there are standard processes in place to deal with power cuts and
connectivity interrupts and to ensure that no data is Aetlost or corrupted when those events
ATM te
ed-by-Bol,-couls
occur.-Nonetheless,the need in-such-circumst * £05
Or GRiELG-Be rermataly.rendDe
ba Ls
5.24, There-have-b: y-reported inst here boawithd: i could-net-be
mpleted-due-to-e-problem ng-during the transaction, We understand thatth
bh i ible -f 4h that should have been-di: d-to-th: a te-b
PB Ls ta
ithheld-by the ATM but the custemer's- banka t-nevertheless- debited,
5.22, Wh h-is-dispensed-b: ATM,and-thereis-a-delayinth ” hysicall
ta ¥ 7 ¥ pry ¥
it the ATMawill,-aft +t-peried,-retain-the-cash.-This-isk tract,
Bt; F bs +
7.25. Nonetheless, the need, in such circumstances,* for an ATM to be re-boated b
emotely re-boot
Page 24
POL00041076
POL00041076
such interrupts.
5.23, Inmostinst A-reteacts. be st +-distracted-and-walk- ¥
having failed to take the offered not thin-the-p: t-time: { Hy-60 ds).
in-such instances,th: tomer! twill be debited and, in-due-course,hi: ares
ib dited. {if-he-notices-his-mistake}-s tacts-his- bank-to-report-what
f-retract- fraud is- dealt with bel.
7.26, Had weseena practice of routinely, thoroughly and independently investigating ATM-
related discrepancies, we would have been less concerned that power and.
telecommunications interrupts might have generated cash losses for Applicants,
Page 25
POL00041076
POL00041076
7.27. Weare aware of ‘retract fraud’, where externally introduced mechanical devices ‘trap’
cash that customers are trying to withdraw, but our position on this is that, for the purposes
of our investigation, we remain relatively unconcerned about that type of fraud since it.
impacts principally.on. customers and their banks, rather than on Subpostmasters. We have
consequently, concluded that retract, fraud. has not.caused losses to Applicants.
7.28, Weare far more concerned about other, more sophisticated, types of ATM fraud and theft.
524, It is- pessibleseems plausible to us, although this is not evidenced, that some of the
large discrepancies reported by Applicants could have included losses brought about by
ternal-theftwh phisticated-methedelogias-had-been-deployed {such tract-fraud-
oerthe-more-advanced-those more sophisticated attacks. We are referring here to newer risks
like, 'transaction reversal fraud}' and 'malware attacks’ that. circumvent an ATM's software
controls. The risk and consequences of thigse-sert types of theft/fraud, and the need to
thoroughly investigate every apparent ATM cash shortfall, seems to us to have been under
appreciated.
7.29. In.referring above to."malware attacks", we mean attacks that are carried out by means.
of software.that, when deployed, allows large.amounts.of cash.to.be dispensed by the ATM.
without leaving any.record of it having been, taken. In its.response to.our references to
malware in.the previously issued version of this Report, Post Office said that it:
"is not aware of any form of fraud (including retract fraud) that creates a loss to
Subpostmasters provided they follow the correct accounting procedures".
7.30. In search.of greater clarity.on. this matter, we asked Post Office. to provide full details of.
any instances, in the last three years, where Post Office, Bank of Ireland or Wincor Nixdorf
has detected an attack against a branch ATM using either malware or hardware devices.
7.31. Post. Office has stated:
"Post Office is not. aware.of any.malware.attack on.jts BO! ATM fleet that.has.
resulted in loss to.a branch. Hypothetically, if a loss of cash froma branch as a
result of a malware attack was detected, that loss would be passed to BOL.and
not be absorbed by the branch”
and
"Neither Post Office nor BOL are aware of any form of ATM fraud that will create
a shortage in a branch if a branch is following the correct ATM accounting.
procedure"
7.32. We take little comfort from Post Office's reassurance that it is unaware of any malware
attacks or of any form of ATM fraud that can create a branch shortage. Post Office has also.
not.confirmed whether it has received similar reassurances from Wincor. Nixdorf, Its.
response has consequently not materially diminished our concerns that some of the
Applicants may have suffered as a result of such attacks where the resul ‘ash shortfalls,
have been wrongly attributed by Post Office to errors made in the Applicants’ branches, or to.
Page 26
POL00041076
POL00041076
tl by.t
work of external fraudsters.
Page 27
POL00041076
POL00041076
7.33. Post Office has pointed out that a reconciliation is carried out each day by the LINK
platform.to ensure that the sum of all cash withdrawals charged to. customers’ accounts
equals the total cash dispensed by each ATM. We accept that this reconciliation process.
delivers a reliable control unless the outgoing cash dispensed figures, that are transmitted to
LINK and later. printed_out, by branch staff and input.into Horizon, have been fraudulently.
manipulated, as would be the case if the ATM's software has been successfully over-ridden
(e.g. by malware) to ensure that its cash dispensed figures were reduced and that the stolen
money was not charged to any customers’ accounts..
7.34. We.also observe, in. response to Post Office's denial that this sort of attack poses.a risk to
Subpostmasters, that Banking Industry experts have. confirmed to. us that external ATM cash,
thefts have been relatively commonly encountered across all banks’ ATM networks since.
2008, and. that the most sophisticated of those thefts leave no traces, other. than large
{that.as. far as we know did not t involve any Post Office. branch ATMs),. where £1,3 million.
was stolen from.51
ATMs ina seven day period (i.e. averaging more than £25,000 per ATM). We are also aware
that it was only the fact that many of those ATMs were completely emptied during the
attack that led to the banks realising that their ATMs had been attacked.
7.35. In.this. context, Post Office:
“accepts that there are other forms of fraud that may be occurring, however it is.
not aware of any form of fraud (including retract fraud) that creates a loss to.
Subpostmasters, provided they follow the correct accounting procedures".
7.36. Post Office.responded to. our. question,.as.to. what sort. of routine investigations.are..
carried out (by POL/Bol/Wincor) when ATM cash shortages are reported by its.
Subpostmasters,. by. saying:
“Any unresolved cash discrepancies can be escalated by the branch for.
further investigation by BOI, POL or Wincor. as appropriate”.
7.37, We.have seen.no instances of any investigations that actually were carried out in,
response to any Applicant's complaint about an ATM shortage for which he or she was later.
7.38. _In_any.event, we find it implausible that no such external theft-related cash.
disappearances have occurred across all of Post Office's.‘fleet’ of ATMs. We therefore remain.
concerned that Post Office accepts as. correct whatever Bol reports.as having been dispensed
by each branch's ATM, without immediately and thoroughly investigating every material
shortfall reported by its Subpostmasters.
525. Wi Sf. ject, jed-out-by Rost Office-in-2042,+ tod i tract
BES} ¥ 7 fe
fraud-butwe-have-beanteld that t duced-and-we-h: +b bh
ics 2 vas-y
be ttributableto-ext LATM fraud/theft.
Page 28
8.
8.1.
8.2.
9.1,
9.2.
9.3.
9.4,
9.5.
9.6.
POL00041076
POL00041076
6 Motor Vehicle Licences
&-4-Not all branches are authorised to issue Motor Vehicle Licences (MVL) and only a small
number of Applicants have reported problems with MVL processing. We have, however, seen a
small number of instances of a particular problem. This relates to V11C forms that were
misprinted by DVLA with an incorrect bar code. This seems to have resulted in Horizon
recording the sale of a 42-menth-tax disc, wheninfact-a-6monthtaxdise-was-seldat the
wrong price.
Post Office has stated that whilst this situation is undesirable, it would not give rise to.aloss
at.the branch.
Foreign Currency Transactions
Whilst only 24 Applicants have referred to problems encountered in. processing foreign.
currency transactions, our investigations of those cases, and particularly those ten cases.
where. deficiencies, arose. prior.to.2004, have identified some, matters of serious.concern.
Indeed, one of those cases generated the largest loss of any.of the.150 cases that we have
examined, In that_particular case, the loss that Post Office discovered during an. audit, and
that it.then.claimed back from.the Applicant, was over £645,000,
Our investigative work led.to.us.focussing.on.the interaction, in.each.of the branches, that.had.
used the Forde Moneychanger (‘FM’) machine, between that machine and the branch's.
Horizon system. The.FM. machine was.a.multi-currency,'electronic till’ that. was.used in. over.
1,000 branches until its use was discontinued early in.2004.
That investigative work resulted in.us forming the preliminary conclusion that the.
accounting for foreign exchange transactions was, prior to.2004, fundamentally flawed.
Post Office has rejected our « @ prob! we have observed, in relation to,
the interaction between the FM system and Horizon, have only been referred to by a small
number of Applicants.
The.FM.machine,. which. Post Office. has. described as. "a. component part of Horizon. was.a.
stand-alone device that converted sterling into currencies that were sold to customers, and
also, less frequently, converted back into sterling those foreign. currency notes that were.
bought. back from.customers..In.effect, it was used to transact,.and.to support.the.
accounting for, each branch's foreign currency transactions,
Each day's foreign currency transactions were entered individually onto the FM machine,
which provided customers with receipts, and branch staff with a paper record of every.
transaction. None of those individual.transactional details. could be recorded on Horizon.
Horizon was,.and still is, a single-currency system and is only therefore able to account for.
transactions.in pounds sterling. It cannot hold records of individual foreign. currency holdings..
Each. week's figures, for each branch, were consequently. entered into Horizon by the branch as
Page 29
9.7.
9.8,
the
9.9,
9.10,
9.11,
Gay
9.12.
POL00041076
POL00041076
The in-branch accounting process involved staff recording in Horizon, once a week, the
net sterling impact of all of that week's foreign currency transactions and,
as one
‘revaluation’ figure representing the branch's profit or loss on its foreign currency dealings.
This
meant.that Post Office was unable to.'see' any of the individual transactions. Because of.
this, all anti money laundering compliance responsibility necessarily devolved onto the branch.
tantly, in our. view, jt meant that Post Office was unable to detect.
errors made in its branches.
but, more i
transactio
anch.tr
acted at rates tha
ifferent fi
‘approved’ rates, Post. Office had no visibility of those transactions. We are aware of highly
material losses, that were booked to Post Office's Profit. & Loss Account.in.2003, about.
which Post Office had no knowledge, until alerted by an external party.
Post Office seemingly remained unaware of the significant losses that it was taking to its
P&L Account because, as far as we can tell, those losses were all being subsumed in a mass.
of revaluation figures from the 1,000 branches that were then offering foreign exchange
services, B.Pol ne: boc ofthe,
cost of all the currency it purchased in the Money Markets. It then transferred the currency.
to.its branches at a. 'revalued’ cost figure that was 5% lower than it had really paid.
] APO: eek, the
reality was that, unless the profit achieved by that branch exceeded the 5% figure (which, at.
the approved sales. rates, it would do) that. ‘profit! would not be enough to. offset the large
(5%) loss. that. Post. Office had already debited to its. P&L Account... However, individual
branches were able to over-ride the authorised exchange rates and report a ‘local’ profit of far
less, than. 5%, without any. response from Post Office, even, though that meant that,it had then.
suffered an overall loss.
Hada. sound multi-currency accounting system been deployed (as it is in any bank.
that conducts foreign currency, transactions), the huge losses that were being made by.
that
particular. branch would have. been immediately visible and doubtless quickly traced back to
the transactions being carried out by one customer.
iéthi: tat diatel ticed at the HH. Ey inal dis bai th
¥ pancy, being.
ica-liffi bet the6and42 th-MVL-Tax-Di i i-th
a
Si bp: £3 St ilLlater beheld tableforth: ant-cash-shertfall_in-branches-
ing-large-numbers-of MVLs-this-could-b: significant a
slang ei
We. have been unable, as.yet,.to determine whether the systemic inadequacies, that
allowed the above-described losses to accumulate in, that one.case, might also, have given rise,
to.unexplained shortages in other branches and/or.to.more losses in Post Office's own books.
Page 30
POL00041076
POL00041076
10. 4 National Lottery
10.1, #4,-Not all branches sell Lottery tickets or Lottery Serateh-CardsScratchcards. Where
these items are sold, they are usually sold from the co-located shop's retail counter, rather
than-fromthe Post-Office- counter, even-thoughbut they have to be accounted for using the
Horizon terminal at the Post Office counter.
10.2. #2,-There is often a significant difference in the opening hours of the counter in the retail
shop and the shop's Post Office counter. The retail counter will therefore be selling Lottery
tickets/Serateh-CardsScratchcards outside the hours when the Horizon system is operating at
the Post Office counter. Since branches are not allowed to sell National Lottery products other
than through the Post Office, each day's ticket sales have to be recorded, the following
morning, in Horizon. *4\
oy before-any-Lottery. *Serateh Cards* can-be-sold, they must-first-be-
Aetivete +the-Camelotterminalandthen-Remmediate-Harg
Page 31
POL00041076
POL00041076
Lottery *Seratcheards* can be sold, they mus
10.3. #:3--We have received many reports where Applicants have stated that their branch's
Horizon system would get ‘out-of-sync' with the quite separate Camelot system, thereby
generating material surpluses or deficiencies that were eventually corrected by Post Office
issuing Transaction Corrections (TCs) through the Horizon system. The average Lottery-related
TC was approximately £650 and many of these TCs were for amounts that were exactly
divisible by
£160, that being the value of a full pack of Serateh-CardsScratchcards.
10.4. #4+-Prior to 2012 most discrepancies on Scratch Card activations were caused by
Subpostmasters failing to 'rem in’ activated-packs-of Scratch_Cards-to-Horizento the branch's.
Horizon system packs of Scratchcards (that they had activated on their Camelot terminal).
In February 2012 Post Office introduced a system change (referred to.as."Ping") that finally
eliminated the possibility of synchronisation errors between the Horizon and Camelot
systems.
10.5. Under the new process, activating packs of Scratchcards initiates a process whereby
‘Transaction Acknowledgements’ (TAs) are generated and sent electronically every morning.
to.each branch's Horizon system. Now, before any routine transaction processing can be.
carried out, those TAs have to be ‘accepted’ by the Subpostmaster or by one of the branch's.
staff.and, once that has been done, all the necessary entries on the branch's Horizon system,.
including updating the branch's stock of activated cards, are processed automatically.
10.6. This.represents.a considerable improvement on the prior process which, in our view,
has materially. reduced the opportunity for error. It has also reduced the opportunity, for.
undetected theft of activated Scratchcards.
ont" bety 2005-and-
Rebruary
10.7. 20}G-whealt follows that these Lottery-related* problems
serious ar *prior to February 2010, at. which point Post Office made athat
significant change to its Standard Operating Procedures. This-reducedAlthough some.
problems still occurred during the next two years, the February 2012 system. change
eliminated the possibility of havingthat.a branch could have packs of inactive Serateh-
€ardsScratchcards recorded in Horizon or havinge activated packs that were not recorded in
Horizon.
to have be
10.8. %6-We have also been told by Applicants that, before thegse important procedural
improvements, and that system. change, were intreducedimplemented, inconsistent
and sometimes conflicting advice was provided by visiting Post Office trainers and by
the Helpline, which further exacerbated their problems.
10.9, ##-Occurrences of the out-of-sync problem appear to have been particularly prevalent
Page 32
POL00041076
POL00041076
late into
in branches where an associated retail shop sold Lottery tickets
the evening, well after the Post Office counter had closed. A further complication often
occurred on the final Wednesday evening of the monthly Trading Period when
Subpostmasters were required to reconcile the Horizon and Camelot figures as a priority task
on the Thursday *#:
Page 33
POL00041076
POL00041076
: nts received “always
=* and, where it was not covered, or where it was not.
adequately covered, then it seems Applicants and their staff sometimes made errors, and
then systematically repeated them. To make matters worse, not realising that they were.
making those errors, they failed to seek from Post Office the further training that they.
needed,
10.11. When that happened, relatively high-value Debit and Credit TCs, that when
viewed. over. an. extended. period would. almost. completely. offset each. other, would
routinely. be.issued to the branch.
10.12. The receipt of such. a repetitive stream of TCs generated two serious problems in.
affected branches: first, the branch's books would routinely be out-of-balance and those
Subpostmasters who became conditioned to this state of affairs had to decide how to deal
with
sometimes, substantial, transient surpluses.and shortfalls, Secondly, the. routinely. out-of.
balance situation would hide real discrepancies from.view, such. that they remained un-
investigated and uncorrected, thereby turning potentially recoverable errors into real.
losses.
10.13. Post. Office’s position.on this.is that:
“if the correct procedures are followed, no, loss will be suffered by.the branch’.
10.14, In.our.view. this is.a simplistic and dismissive response that fails to.
acknowledge the real. difficulties, being faced by. branches. prior.to. those February.2010.
process changes and the February 2012 introduction of TAs.
10.15. Post Office's response seems to ignore the fact that, as with the streams of.
high-value TCs issued to. some. branches .in.respect.of ATM discrepancies (see paragraph.7.23
above),.the frequent. receipt of substantial, frequently offsetting, Debit and Credit
Lottery-related TCs created a. pendulum effect’ where, mistakes that had been. previously
made in the branch were. hidden. because of its. almost permanently. out-of-balance situation,
such.that,.as. mentioned in paragraph.10.12, above, potentially.correctable mistakes became.
real losses that had to be made good by the Subpostmaster.
11. 8-Training, Support and Supervision
11.1, 8d-The nature and extent of training provided by Post Office has developed over the years
as described in our-Part-One Briefing Report - Part,One. In our opinion, the training was
probably adequate for people who had reasonable levels of IT skills, numeracy and accuracy,
though further product-specific training, rather than the use of Operating Manuals, was
perhaps required for some Subpostmasters, especially those whose branches delivered a wide
Page 34
POL00041076
POL00041076
range of products and services.
Page 35
POL00041076
POL00041076
11.2, 82-We have been told by most Applicants that whilst their basic training was probably
adequate in regard to general ‘Business as Usual' transaction Rprocessing, it was
predominately sales- focused and weak in regard to End of Day, End of Week and in particular,
End of Trading Period, balancing. We have been advised by most Applicants that there was little
or no coverage of
how to deal with discrepancies (both surpluses and shortfalls),; how to identify the root
causes of recurring problems; or how to deal with Transaction Corrections.
11.3. 83.Many Applicants have commented that, in the years prior to the installation of the
Horizon computer system; in 1999, they typically had only minor monthly surpluses of just-a-
faw-pounds-(less than £30 seemed to be the norm) and that they first experienced large
discrepancies shortly after the-Horizon-system was installed. Some have asserted that their.
problems became worse after Horizon Online ('HOL’) was introduced (for most branches
this was in 2010).
11.4, 8-4-ManyThe fact. that many Applicants have reported that they or their staff only started
making serious mistakes after the-new-systemHorizon was launched--Fhis, or after the branch
migrated to HOL, could indicate a lack of understanding of how the system was then.meant to
operate and be used, That, whichin turn, could-itself indicate that they had either been
insufficiently trained,; that they had been unable to properly train their staff,; or that the new
screen-based counter processes had introduced new ways of making mistakes that neither
they, nor anyeneiaperhaps Post Office, was aware of.
11.5, &5-We note that the duration of 8basic Ftraining has varied widely over the years and is
now far more extensive than it was in 49801998 - 2010 (the pertinent period for many of the
Applicants). Post Office refers to the current routine provision of two weeks’ training for
Subpostmasters. Many Applicants have reported in their CQRs that they received fewer than
two days’ training and were simply handed Operating Manuals for self-study and to train
their counter staff.
11.6. %-6-Post Office's $trainers, and in some cases Applicants’ Lline Mmanagers, do not seem
to have been well regarded by many Applicants and appear to have been considered
particularly weak when dealing with ATMs; Lottery processing; Motor Vehicle Licences;
Foreign Currency and other specialist products.
11.7. $4-Subpostmasters are responsible for training and supervising their own staff andsince
Post Office has no contractual responsibility to train branch staff, other than in its Crown
Offices. Post Office dees-pravideprovides Subpostmasters with what it has judged to be
relevant training materials for themselves and their staff, but it does not operate aan effective
quality control function in order to ensure that this further training is properly delivered. We.
have also found that further training for Subpostmasters was predominantly delivered in
response to user demand, rather than being determined by Training Needs Analysis.
11.8. The problem with demand-driven training is that it only works when the users recognise.
that. they need further training. It seems to us that, where mistakes are being systematically.
Page 36
POL00041076
POL00041076
repeated, thi ing ke t be aware of that (or
they would stop making them), so they are unlikely to realise that they need further training.
Absent the necessary further training, mistakes become habitual and, where the
Subpostmaster is the
Page 37
POL00041076
POL00041076
one making those mistakes, then it follows that his staff will never be taught how to do.
things properly.
11.9. 88-We recognise the complexity of the current product range and question whether a
counter process involving over 170 products, operated by more than 68,000-staff78,000
people, of vastly differing levels of intellect, experience, numeracy and attention to detail, can
ever be expected to work well without a fully effective and comprehensive training and
support regime that covers everyone.
12. 9.-The Helpline
12.1, 9+4-Many Applicants’ CQRs have included examples where the Post Office's Helpline has, in.
their view, failed to provide worthwhile support when eatedcontacted. The relevant call log
(when available) often does not provide sufficient detail, about exactly what advice was
provided, in order for us to form an,evidence based conclusions. Specific criticisms include:
a) difficulty in contacting the helpline due to its limited availability;
b) unhelpful, script-based, responses;.and
BN
¢) d}instructions received during one call that are said to have later-been-
countermanded, sometimes months later, been countermanded by another.
12.2. Qr2d-AAs previously stated,.a frequently recurring response by the Helpline, relating to
shortfalls, is said to have been: *"«
nts-have-repe problemi
12.3.
ny Applicants
reported that preb!
indication given by the Helpline as to how long they should wait before realizing that a problem
that had not sorted itself out would probably then.not Rew-do so, nor how they were supposed
to balance the books during the intervening period.
12.4. Many of the shortfalls suffered by Applicants to the Scheme have, on the balance of.
probabilities, been attributed to. "errors made at the counter” but that does not, in our.
view, always mean that more extensive initial training would have eliminated all of those.
errors, although it would obviously have helped.
12.5. What.we have observed is that, in many instances, the biggest shortages seem to. have
arisen._as a result of ‘errors made while trying to correct earlier errors’. We attribute this less
to. inadequate initial training than to inadequate subsequent support when branch staff,
when .they.were attempting to correct errors that they had previously made, just made.
matters worse.
Page 38
POL00041076
POL00041076
12.6. Specifically, it has become clear to us that some Applicants and their staff became
hopelessly muddled when they tried to follow the verbally-communicated advice of
Helpline staff. There have been numerous references to shortages doubling, trebling or
even.quadrupling as branch staff tried to. correct, under instruction. from. the Helpline.
errors that they had previously made.
12.7. Post Office's reliance on telephonically-conveyed advice was, in our view, misplaced. We
hold the. view. that, had written instructions been issued to branches after. their. contact with
the. Helpline, fewer.mistakes would subsequently, have been.made.and fewer.errors. would
have been made when attempting to correct those initial mistakes. Such written instructions.
should, in.our view, have informed the branch staff exactly what sort. of mistake they had.
made; exactly what instructions needed to be re-read in order to. avoid making such a.mistake
agai ¢ at had. to, be dol correct preci at th ot how. the.
Helpline function is structured but we believe that it would have improved error repellency.
and the overall user experience.
12.8. That sort.of (generally emailed) feedback has been standard practice among other.
companies for. many. years, yet, Post. Office has. continued to rely only.on.those telephoned
conversations. Even the records of those telephone calls, that Post Office has referred to.
as."transcripts” are not transcripts at all: they. comprise only those notes that the Helpline
operator typed out during the call. As such, they have, in most instances, provided us with
only,
a limited understanding of the advice that was actually given. Also, copies of those notes are
not sent.to.the person. who called the Helpline..In.that. context, it has proved impossible. for.
any.of the Applicants, or for.us, to challenge Post Office's assertion, made in its response to
the previously issued version of this Report, that, it has;
“found no evidence to support the allegations that Helpline would often merely.
comment that matters would resolve themselves or be dismissive of any.
enquiry".
12.9. Itis.clear.to.us that. some Applicants expected the Helpline, visiting Post Office managers,
or Post Office auditors to be able to tell them. exactly how. their branch's discrepancies had
arisen. Itis, however, equally clear to us that Post Office's Chesterfield-based Helpline staff.
cannot. be expected to, determine. from. afar how. every. discrepancy. has.arisen.in.every.
branch, so. we. regard those expectations as unreasonable.
13. I 40--Limitations in the Transactional ‘Audit Trail’
13.1, 40-4-Many Applicants have claimed that, whilst acknowledging that. some errors were
probably caused by their own mistakes, they were often unable to determine the root causes
of discrepancies (both shortfalls and surpluses) reported by Horizon, because the underlying
transaction data was not available to them.
13.2. 40r2-Post Office controls the Horizon infrastructure including back-office accounting and
Page 39
POL00041076
POL00041076
reporting functions. A consequence of this is that Post Office may hold Subpostmasters
accountable for shortages that they are unable to fully investigate due to a lack of access to
data. A Subpostmaster has very limited options in these circumstances and often has to make
good losses even where the underlying root cause has not been established or properly.
understood.
13.3, 40.3,-The concerns fall broadly into three areas:
a) — data that isn't available even on the day of the transaction;
b) data that was at first available, but after 42 days (later extended to 60 days following-2-
system-change-by lace Office I ageravaitable:-and*when,HOL
was introduced™) 's
c) data that isn’t available after suspension.
Data that isn't available even on the day of the transaction
13.4. 404--Applicants' concerns principally relate to transaction types where Horizon produces,
at the end of day, only an aggregate amount and volume for that day's transactions. These
transaction types are those where customers have paid for goods or services by Bdebit or
&credit Ecard.
13.5. 40-5,-In the event of an end-of-day discrepancy for one of these transaction types, and
without the benefit of a disaggregation of a total amount into its constituent transactional
components, Applicants found it difficult, if not impossible, to identify the individual
transaction(s) that. had brought about the discrepancy.
13.6. 10.6.-Typically, a Subpostmaster would need to find items:
a) that should have been, but were not, included in the aggregate total; or
b) amounts that had been incorrectly entered, such as £50.00 entered as £500.00,
£39.00 entered as £93.00, a withdrawal processed as a deposit; or
c) amounts that formed part of the aggregate total, but should not have been included in
that total at all.
13.7. 40-4,-Only by finding those errors and omissions could Subpostmasters begin the process
of correction and loss mitigation. This may sometimes have involved attempting to contact
the relevant customer, but in order to do that they needed not only to identify the incorrect
or missing transaction, but also to know the name, and perhaps also the address and.
telephone number, of the relevant customer.
13.8. 40-8-Many Applicants have told us that, prior to the introduction of Horizon, it was easy to
do this since the paper dockets, retained to evidence each transaction, provided this
information. It is regrettable that the Horizon system does not appear to provide the same
Page 40
13.9.
POL00041076
POL00041076
functionality as the previous manual system.
Data that.was at first. available, but.after.42 days (later. extended to. 60 days).is.no.longer..
available
48.3-The main concern expressed about data availability, is the need to ge-backrefer to a
previous period in the event that a Transaction Correction (TC) was issued by Post Office atong-
¢imesome while after the transaction (to which the TC relates) was erroneously input into, or
omitted from, Horizon. TCs are issued for different reasons and different products may be
treated in different ways. If the delay in issuing the TC exceeds 42 days (now 60 days), the
Subpostmaster may no longer have data readily available with which to respond to the TC and
may have no practical alternative other than to accept it. We have been told by Applicants.
that, if further data was requested from Post Office, such requests were often rejected on cost
grounds. * Wwe. save-thatthe.
g S e * Post.
Office asserts that branch staff are responsible for keeping records, typically. for. two. years,
and.that.those. records, supplemented by. information supplied. with.TCs, ought.to. be.
sufficient.
13.11. Late-delivered, high-value, TCs can pose serious difficulties for some, branches. If the.
incoming TC is.a. Debit (i.e..a.TC Invoice), that. means that. the branch ought.to.have.been
maintaining a surplus from. the time that the error occurred until the time that the TC is.
accepted. In that Subpostmasters are contractually entitled to withdraw. and retain
surpluses, this.can mean that they might do that, only to later find that they should not.
have.done.so,
13.12. More seriously, ifthe. branch.has.not shown.an.overall surplus,.that js likely,to.be because.
an offsetting shortfall was in existence as a result of an unseen, and consequently undetected
and un-corrected, error,
13.13. Conversely, if the incoming TC is.a.Credit, that. means that the branch ought to have
been carrying a shortfall from the time that the error (that the TC is intended to correct)
occurred until the time that the incoming TC is accepted.
13.14. This means that the Subpostmaster may have had to. ‘fund’ that shortfall with his own.
money during the intervening period (even though that shortfall was in due course going to.
be corrected by the incoming TC Credit). In instances where Subpostmasters have been
una ke. good sus hough. s.very. large), shor Possible.
that there will have been a temptation to falsify the branch's accounts while awaiting for the
situation to. "sort itself out".
Data that isn’t available after suspension
Page 41
POL00041076
POL00041076
13.15. 40,10, Applicants have reported that their ability to investigate transactional discrepancies,
or to defend themselves against allegations made by Post Office, were often thwarted
because, following their suspension (usually on the day of an Audit) they were, as a matter of
Post Office policy, denied access to their Branch. In many instances we have been advised that
Post Office Investigators also removed records, often including personal documents such as
diaries in which Applicants had noted problems that had occurred; to whom they had reported
those
problems; what advice and instructions they had received; and what had resulted from
following that advice or instructions.
13.16. Applicants have also reported that, despite their requests, they never regained access to any
of the records they needed to preve-theirestablish the cause of shortfalls; to gather evidence.
of theft by branch staff; or, indeed, to prove their. own innocence.
14, 44.-Transactions not entered by the Subpostmaster or their staff
14,1, 44.4--Many Applicants have reported that Horizon transactions appeared to have been
entered,
or cash or stock balances changed, when the branch was closed and no one had access to any
of the Horizon terminals.
14,2, 44,2-Post Office has cenfirmedstated that it is not, and never has been, possible for
anyone to access Branch data and amend live transactional, cash or stock data without the
knowledge of Subpostmasters or their staff. However, we are aware that certain error recovery
and correction processes can result in transaction reversals that carry the System Identity (ID)
of the branch-employeeuser who entered the originating transaction that the system itself is
reversing, or the ID of the empleyeeuser restarting the system (see Section.15.' Transaction
14.4. Qne Applicant.to, the Scheme has given evidence. relating to.a facility,in. the Bracknell office
of Fujitsu where he alleged that it was demonstrated to him.that it was possible to alter.
Horizon.transaction details without. the. knowledge of individual Subpostmasters. We have.
requested that the relevant email files from the period in question be provided to us in order.
to
investigate this matter, but so far Post Office has only provided us with a small number of the
files requested.
14.5. Our review of those files has been inconclusive, possibly due to just one month of data
being provided, rather than the 12 months requested. We believe that it is essential to
examine contemporaneous documents from the relevant time, in order to form.a.reliable,
evidence based, conclusion on this important issue.
Page 42
POL00041076
POL00041076
14.6. Several Applicants have stated that they believe (or suspect) that their branch.
terminals. have. been,..or..can.be,..accessed. remotely..or. that.their. branch. data.can..be.
amended without their knowledge. or approval. Post Office has denied that. itis possible.
to;
"amend branch data
remotely".
14,7. It.says.that it does have access to branch data, but in.a ‘read only’ format. It has also.
stated that, if errors are spotted in.the transaction data, the only way.to.amend the data is
to issue a TC or a TA to the branch and that only when the branch ‘accepts’ that TC or TA is.
the branch's data amended.
14.8. We note, however, that Post Office has disclosed an October 2008 internal.
m
"Fujitsu have the ability. to impact branch records via the message store but have.
extremely rigorous procedures in place to prevent adjustments being made.
without prior authorisation - within POL and Fujitsu".
14.9. At.the time of our writing this Report, Post Office has not explained whether or not
that quoted statement was true at the time or whether, if it was true at the time, no such.
facility.currently exists, as.it seems to be asserting,
14.10. In.our Interim Report we referred to.a software bug in Horizon that had impacted
a.small. number of branches, We.have.recently. discovered two, further documents that.
describe in more detail how Post Office handled this issue. In both of these documents a
process is described that involves directly altering branch data. The fix for the error.
reported in the document named “Correcting Accounts for “lost” Discrepancies”, created
by.a senior engineer at Fujitsu in September 2010, stated:
“7..Eixing, the, Data for each Affected Branch
The.data.can.be corrected by. adjusting the appropriate Opening. Figures and.
BI: elates to the. nt. result in. the Discrepancy.
needing to be processed when rolling over into the next TP.
I propose that if we are to.do this then we take a copy of the data for one branch
and.check out.the proposed changes.on.a.test system.and then.rollover.the branch.
on the test system to ensure that the discrepancy is handled correctly before we
attempt to.correct Live data,
Having.done.one.example.in.this.way,
Post Offic
communicated with.the Branches to ensure that everyone involved is happy..Note
that if itis decided not to correct the data in the branches (i.e. POL would prefer
to.write off the."lost" discrepancy),.then adjustments will be required to the.
Discrepancy account in POLSAP to align this with the actual level of discrepancy.
seen.at.the. Branches.”
Page 43
POL00041076
POL00041076
14.11, This document refers to correcting live data - a procedure that Post Office denied.
was.possible. Of potential significance is the fact. that. this was not just.an.internal document.
made available toa. small number of Fujitsu employees, as the copy we were provided with
was printed out by the head of Post Office’s Legal Prosecution team.in October 2010,
14.12. A further document titled “Receipts / Payments Mismatch issue notes” appears.
to.be.a Minute. of.a joint Post Office / Fujitsu meeting probably held in. August. 2010..The.,
document refers to the impact of the bug in Horizon as being:
Page 44
POL00041076
POL00041076
“Impact
* The branch.has appeared to have balanced, whereas in fact they could have. a.
loss.or.a.gain.e Qur.accounting systems will be out of sync with what is recorded at.
the. branch
¢ If widely known. could cause a loss of confidence in the Horizon System by
branches
* Potential impact upon ongoing legal cases where branches are disputing the
integrity of Horizon Data,s,It.could provide branches ammunition.to.blame Horizon
for future discrepancies".
14.13, The. Minute, reported three, possible solutions.
“Proposal for affected Branches
There are three potential solutions to apply to the impacted branches, the.
groups.recommendation is that solution two, should be progressed.
SOLUTION ONE- Alter the Horizon Branch figure at the counter to show the
discrepancy..Fujitsu. would have to. manually write an. entry value to. the local.
branch account.
IMPACT - When the branch comes to complete next Trading Period they would
have a discrepancy, which they would have to bring to account.
RISK- This has significant. data integrity concerns and could lead to questions. of.
"tampering" with the branch system and could generate questions around how.
the discrepancy was caused. This solution could have moral implications of Post
Office’ changing branch data without informing the branch.
SOLUTION TWO - P&BA will journal values from the discrepancy account into the.
Customer Account and recover/refund via normal processes. This will need to be
supported by an. approved POL communication. Unlike the branch."POLSAP"
remains in balance albeit with an account (discrepancies) that should be cleared.
IMPACT.- Post. Office will be required to. explain.the reason for.a.debt recovery/.
refund even though there is no. discrepancy.at the branch.
RISK - Could potentially highlight to. branches that Horizon.can Jose data.
SOLUTION. THREE - It.is.decided not to.correct.the.data.in.the branches (i.e..Past
Office would prefer to write off the."lost” IMPACT - Post office must absorb circa.
£20K loss RISK - Huge moral implications to the integrity of the business, as there.
are agents that were potentially due a cash gain on their system”
14,14, Although it, would appear that, “SOLUTION TWO” was the adopted solution, it is
clear from
“SOLUTION ONE” that Fujitsu have the ability to:
“manually write an.entry value to the local branch account”.
The.risk.of adopting this possible solution. was described as:
“RISK-.This.has. significant. data integrity.concerns.and could lead to questions of.
"tampering" with the branch system and could generate questions around how.
the discrepancy was. caused. This solution could have moral implications of Post.
Office’ changing branch data without informing. the branch."
Page 45
POL00041076
POL00041076
14.15. This ability, to. directly. amend branch records is something that Post Office has
consistently denied was possible. This recently discovered evidence appears to confirm,.
that in 2010 at least, it was possible for Fujitsu / Post Office to directly amend branch data
without the knowledge of the relevant Subpostmaster.
14.16. In.commenting.on.a.draft.of this. report Post.of Office told us that the references to
“amend” and “correct” in the documents mentioned above, are not strictly correct as neither.
Post. Office nor Fujitsu have the ability to directly change or delete existing records, All that.
can.be.done js,that additional.records.can.be added, by Post Office /. Fujitsu. without.the
consent (and possibly the knowledge) of the relevant Subpostmaster. This will, however,
have the effect of altering balances at the.branch,.as both debit and. credit entries. can.be.
made..
14,17. Post Office also told us:
“All of the above processes for correcting / updating. 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 asin
the.master ARQ data).
The language used in. the documents produced by Post Office / Fujitsu.and to.
which.you refer is.unfortunate. colloquial shorthand used. by.those.working.on.
the Horizon system..I can see how it could be read to suggest that Post Office.
was."altering” branch. data but the above explains. why.this.is not. the. case.”
14.18. This is not something that we have been able to test or validate.
14.19, Clearly, the fact that such an. ability exists, is not necessarily evidence that such
‘amendments’ were actually. made. This is not something that we have. been able to investigate,
15. 42-Transaction Reversals
15.1, 42-4.-As mentioned above, a number of Applicants have reported transactions that
appear to have been input when the branch was shut and no one had access to the Horizon
terminals.
A few Applicants have reported that they had entered an original transaction, but
hi t.entered the reversal of that transaction- Rather,
system appeared to have generated a transaction reversal, without their knowledge or
t the Horizon
their intervention.
15.2. 42.3, This matter was also highlighted in a report by Helen Rose, Post Office Security - Fraud
Analyst - dated 12 June, 2013:
Page 46
POL00041076
POL00041076
"... itis just that I don't think that some of the system based correction and
adjustment transactions are clear to us on either credence or ARQ logs."
“However, my concerns are that we cannot clearly see what has happened on the
data available to us and this in itself may be misinterpreted when giving evidence
and using the same data for prosecutions”
15.3, 424, N.B. 'Credence' is a Post Office Management Information Reporting System and 'ARQ.
logs' is a reference to a request for Horizon information archived through the ‘Audit Retrieval
Query’ process.-Eng thi C3
15.4. Post Office has stated that:
"when..this. situation..occurs.it.will. not. generate. losses at. the.
branch".
15.5. We believe that, where the system itself has initiated the reversal of a transaction (such as
it. does when.a terminal has. not. been properly logged off at. the end of a day.even. though.a
transaction, or.a.transaction.'basket', sometimes referred to.as.a.'stack’,.that.had earlier been
entered on that terminal, has not been completed), Horizon should assign to that reversal.
some indication. of that fact,.rather than leaving the. records showing that the user. who input,
the now. reversed transaction.was the one who. reversed it.
15.6. We.also believe that Horizon should ensure that the person who originally input.that.
(now. reversed) transaction. is. properly. notified of the reversal_in order to give him an.
opportunity. to. mitigate. any. loss. that. might_ensue were he to remain unaware. of. the.
reversal.
16. 43-Cash and Stock Remittances (Rems) in and out of the branch
16.1, 43-4-A number of Applicants have raised issues concerning 'Rems'.
16.2, 43-2+-'Rems' are inward and outward remittances of stock or cash (including foreign
currency).
Large amounts of cash and stock are routinely sent to and from branches using this process.
Robust procedures are in place to ensure that the process normally operates reliably and that
errors, or theft, are rapidly detected.
16.3. 43+3-Occasionally however, branches will report that a Rem ‘pouch’ was not received or
that it contained fewer items, or lower value, than the sender claimed. Similarly, Post Office will
sometimes find that a Rem pouch sent by a branch is missing or its content has been overstated
by the branch. Post Office deals with these discrepancies by issuing Transaction-CorrectionsTCs.
that show the details of the shortfall or overage. Because such discrepancies relate to physical
items, it is necessary to rely on witness statements and other documentary evidence as to the
exact content of Rem pouches.
16.4, 43-4-Some Applicants have described instances of foreign currency shipments being
accidentally sent to the wrong branch. We are aware that some of these errors have occurred
Page 47
POL00041076
POL00041076
)
due to Post Office's Business Partner for Foreign Currency, {First Rate
using an incorrect delivery address. Clearly, this introduces the possibility that an Applicant
might have been held accountable for a shipment that was never received by his branch.
16.5. 43-5,-Post Office is newcarrying out further investigations inte-this matter-has told us that:
"if this situation occurs it will be corrected using TCs once that Rem is scanned into
Horizon" and that."if the Rem.is not received there will be no.loss to. the branch".
16.6. It.remains.unclear.to.us whether. those. reassurances totally eliminate the possibility.of.
losses to Subpostmasters. Where, for example, an incoming Rem is never received by the
branch that ought to have received it then the shipment may well have found its way into the
wrong hands.and a loss will sometimes ensue. We.take it, from. Post Office's. reassurance, that,
such losses are borne. by Post. Office and/or by FRTS,.rather.than by any. Subpostmaster.
17, 44-Missing Cheques
17.1. 44+4-As with other outward Remittances (see Cash and Stock Remittances (Rems) in and
out of the branch above), branches 'Rem' to Post Office's main processing centre (in
Chesterfield) all cheques that the branch has taken in each day. These are put together into
'Stripey' envelopes and collected by the Royal Mail after each day's cut-off time.
17.2. 44:2.For almost all of the cheques that Post Office handles each day, everything normally
goes smoothly, but some cheques do get lost or are accidentally spoiled either within the
branch or at Chesterfield, while some envelopes do get lost in transit.
17.3. 44:3-We have also been informed that is possible for cheques to get damaged in Post
Office's cheque processing equipment and therefore not be processed. In such cases, if the
cheque is so badly mutilated as to be unreadable, the possibility arises that a branch might be
charged, through the TC process, for a missing payment even though the cheque had-beeawas
sent to Chesterfield. Also, where a customer's cheque 'bounces', it will be charged back to the
branch if the branch staff failed to follow Standard Operating Procedures. Post Office has
stated that it will attempt, where possible, to obtain a replacement cheque from the
customer.
17.4, 44.4-Assertions have been made by some Applicants that customers' cheques
(received in exchange for goods or services rendered at the counter) never cleared and
they were held accountable for the value of those missing cheques. Post Office has told us
that-there-have-b: ples-of-thi ing-and,ind: Rast Office-will
Enquiri : inuings:
"providing the correct procedures are followed there will be no loss to the branch".
17.5. The problem, as we see it, with this reassurance is that certain practices seem to have
evolved,.as Subpostmasters have tried to provide the services that their customers.need,.
Page 48
POL00041076
POL00041076
17.6. Examples of this include repeated acceptance of cheques as. the Method of Payment
(‘MOP’) when selling Foreign Currency notes (this practice seemingly having remained.
un-noticed by Post Office for extended periods) and also cheques accepted as the MOP for.
bulk postage. The latter occurs where, for example, home-based internet traders routinely.
leave large quantities of outgoing parcels to be processed as time permits, these being settled
to.cash (even though
no cash has been received) and where the customer returns to the branch, usually later in the
week, to pay by cheque, at which point those earlier settlements to cash are reversed,
17.7. The point here is that,.in our view, if branch practices have evolved, in.respect.of certain.
products, such. that, branches are routinely. accepting cheques. where the. "correct.
procedures" say that they should not be accepted, then it becomes questionable whether.
those perhaps outdated procedures. can justifiably be enforced such that Subpostmasters.
carry. all of the risk,
17.8. 44,5-Some Applicants have also complained that the TC process was sometimes so slow (in
regard to cheques) that, by the time they had been advised that a cheque had been lost,
mutilated or returned by the paying bank, all chances of mitigating their loss were gone.
17.9. 44.6-Post Office has confirmed that Subpostmasters will not be held liable for cheques
lost in transit and that, "/f all required procedures have been correctly followed", they will not
be held liable for cheque-related losses.
18, 45,-Pensions and Allowances
18.1, 45-4,-A few Applicants have reported problems with Pensions and Allowances where Post
Office's Investigators made allegations that they, or their branch employees, had stolen money
by fraudulently manipulating Pension and/or Allowance payments. The allegations were that
amounts had been recorded as having been paid out when they were not (‘overclaims’) or
where Green GIRO cheques or Pension & Allowance dockets had been ¢e-used {more than
once {‘reintroductions').
sed-by- Rost Office of
S-heen-requisedte-rapay.
SEBO
Page 49
POL00041076
POL00041076
ways entegal-advice'_and noted that-the-vast majority-ofth s-it-takes-t a
invelvi: introduction-fraud,-result-i ful i
rein i result. i
18.2. 15-5+-Post Office's response described the way that overclaim and reintroduction fraud can
be perpetrated and how the relatively easy to manipulate dockets have since been replaced by
the more secure ‘Post Office Card Account’ (POCA) which uses ‘Chip and PIN' technology.
However, Green GIRO cheques are still in use by customers who have (or. assert. that they.
have) lost their POCA cards and by those on temporary benefits.
18.3. 45+6-It is clear that, while overclaims can arise as a result of errors innocently made in a
branch
(e.g. by forgetting to remit a voucher), reintroductions involve a positive decision to re-process
a benefit pay-out even though the genuine transaction with the customer has already occurred.
Post Office concedes that reintroductions can happen by accident, but the Subpostmaster
would still be liable for such errors and it regards multiple reintroductions as being indicative of
fraud.
18.4. Post Office has stated that:
“providing. the correct procedures.are followed no loss will be borne by. the.
branch.and any fraud will be readily detected”.
18.6. 45+#,-Post Office has luded-that-no-patternof fraud-exists,-and. it s
hof-thi e ite. -Rurthe irk thi tt theraf
<
continuing.informed us that no ‘pattern’ of fraud has been detected.
19. i6,Surpluses
19.1. 16+4.-As stated in the-sectionSection 6 above dealing with The Contract between Post Office
and its
Subpostmasters:
“surpluses may be withdrawn provided that any subsequent charge up to the
amount withdrawn is made good immediately".
19.2. 46-2.Post Office defines discrepancies as including both surpluses and deficits {i,¢,.
shortfalls). We believe that the cause of all material discrepancies should be investigated and
corrected. This should include consideration that discrepancies could-bemight have been
caused by the system itself, or by errors occurring outside of the branch. It is only by doing this
that the underlying root cause of the discrepancy can be established.
19,3, 16.3.-Feedback from Applicants has demonstrated to us that the preliminary investigative
assumption adopted by Post Office appears to be that discrepancies are-usuallywill have
Page 50
POL00041076
POL00041076
caused by "errors or problems at the counter andor by theft". Post Office's confidence in
the Horizon system remains very high and as such, the system itself will normally be
discounted as a source of error.
19.4, 46.4-In inputting data into Horizon it is possible that errors are made that generate a
surplus, unbeknown to the customer or to.a third party. Anether-cause-ofFor example, a
surplus could-betheunderpaymentcan result where a customer is underpaid at the counter-
¢e-a-custemer, although this is mere-likely to be detected straight away by that customer.,.
Errors that are less likely to be detected by customers include deposits that are
under-credited or not credited at.all.
19.5. 46-5-We understand that, although surpluses are expected to be retained by the
Subpostmaster, it is possible to hold them in suspense by ‘settling centrally’ so that future
shortages and Transaction Corrections couldcan be offset against them. Many Applicants
appear not to have been aware of this facility.
19.6. 46-6-The failure to.always investigate and correct material discrepancies is perhaps
unique to Post Office's Business Model. Unlike commercial entities that do not operate on an
agency basis, Post Office has-had, in our opinion, little commercial incentive to seekestablish
the root causes of discrepancies ashecause the burden of cost (and risk) is being carried in
most instances either by its Subpostmasters, in the case of shortfalls, or by its customers or
Pest-Office-CHentsits clients, in the case of surpluses.
20. 4%--Cash withdrawals accidentally processed as deposits and other counter-errors that
benefit customers at the expense of the Subpostmaster
Cash withdrawals accidentally processed as deposits
20,1, 1%4,-Mistakes can occur if the counter clerk accidentally touches the 'DEPOSIT' icon on the
screen instead of the adjacent 'WITHDRAWAL' one, thus generating a deficit of twice the size of
the customer's withdrawal. Such errors by branch staff can be difficult to isolate from the
system- produced totals of 'swipe-card! transactions (see Section 13, Limitations in the
Transactional ‘Audit Trail'-abeve) unless the customer notices his windfall and then tells the
branch about it. Absent such customer honesty and diligence, shortages brought about by such
mistakes are very difficult to iselatedetect and recevermitigate.
Other counter errors that benefit customers at the expense of the Subpostmaster
20.2. 442-We have been made aware of cases where Applicants have been held accountable
for shortages that have arisen through what Post Office refers to as "errors made at the
counter"-and, where customers have profited at the expense of the Subpostmaster.
20.3. 4#-3-Where a customer has received cash or goods and later discovered that theithis bank
account has not been debited, or theithis,credit card or POCA account has not been charged, it
is quite possible that they-mayhe will keep quiet about it, leaving the Subpostmaster to be held
accountable for the resultant shortfall.
Page 51
POL00041076
POL00041076
20.4. 47%4-In mid-2008 the method of processing receipts into Gire-BankGirobank accounts was
changed.
Previously, customers completed a two-part paying-in slip. One copy of the paying-in slip was
retained by the customer, another was retained in the branch and cross-referenced to the entry
made on Horizon. Note: Alliance & Leicester acquired Girobank in. 1990 and Santander took
ove e st ctober 2008 but, fore
referred to as 'Girobank’ in this Report.
fr
44.5.-Prior to thethat mid-2008 processing change, the Subpostmaster would have been able
to identify the amount of cash that had been recorded in the system by cross-checking with the.
paying-in slip. Hence, a correction could have been actioned and the branch's books brought.
back into balance. In such a case, the apparent cash shortage would have been eliminated
because the audit trail enabled the specific cause of the shortage to be identified and corrected.
20.5. 44.6-However, after theat processing change, paying monies into Gire-BankGirobank
accounts was normally, actioned via swipe cards and-ene-part-paying-in-beoks(Chip, and. PIN.
cards) with no supporting documentation being retained in branch.
Page 52
POL00041076
POL00041076
20.6. 4%.#-After that processing change, the counter clerk would swipe the customer's card to
access the account details and then key in the cash deposit. After inputting the deposit, the
system printed out just one copy of a receipt (which specifically states on it "VOT TO BE
RETAINED") and this was then passed back to the customer along with theirhis swipe card. No
documentation is retained in branch and nothing is sent to Girobank.
20.7. 47,8-It follows that, if the counter clerk did not immediately spot an error, any later
branch balance would show a difference between the cash holdings on Horizon and the actual
cash holdings. However, after the processing change, there would be no supporting
documentation available either to the Subpostmaster, or to Post Office centrally. Therefore
neither the Subpostmaster nor the-Post Office's central processing unit would be able to check
whether or not the cash deposit entries on the system reflected the actual amount of cash that
had been deposited.
20.8. Post Office. has stated that, although. this type of error may. occur, it would be an example
of.an.“error. made at the counter’ for. which.the Subpostmaster. would be liable in.the normal.
way.if.aloss.occurs,.It.also states. that, under. the new. process,."the audit. trail is. retained’ and.
that:
“Horizon. has.a.number of tools. to. assist Subpostmasters in.identifying.or.
tracing transactions, including. transaction logs, event Jogs.and balance.
snapshots".
20.9. We.cannot agree with those reassurances..Under.the old (paper).process, the paying-in.
slips would be sent to the Finance Service Centre (FSC) which compared them with the
Horizon transactional records and issued TCs if. necessary. Under. the new. process, this.
after-the-event.control.no.longer.takes place.
20.10. Instead,.a control process is now. carried out by the customer who confirms, using.
the
PiNpad, that the amount shown. on the screen is correct.
20.11. Qur.observation on this. is that this new. process introduces.a.risk, to
Subpostmasters,.that.a.customer,.whose account. will be. credited with.an.amount greater.
than he has deposited, or whose account will be debited with an amount less than he has.
withdrawn, may either fail to. notice the error or,.if he does notice it, may. intentionally.
disregard it.and.choose.to.keep.the.windfall,
20.12. It.is.clear.to.us.that.the process .lost. some.important functionality. when. the
change. was.made.to. phase.out two-part, paying-in slips. We. find that the.reliance.on. branch,
staff.to. accurately. input data, and.on.customers.to verify that. the correct amount has.been.
input into. the system, is far from fool-proof, given that not all customers will appreciate that,
they. have.such.an,important role to play.in, checking that.the transaction has, been. properly.
recorded and also that the customer may be the beneficiary of any.error..
20.13. Further,.once an.error has. been. made, it.can.be very difficult to. match any.
Page 53
POL00041076
POL00041076
e us, transactio ustol reby.re ing. te
Relying on the branch staff being able to remember, and being able to contact, a customer.
who. carried out.a transaction, could, in.our view, result in. unrecoverable losses. As.
Subpostmasters are
Page 54
POL00041076
POL00041076
contractually responsible to make good any losses arising from those "errors made at the
counter", it is, in. our view, vital that they are able to easily locate and correct such errors and
to.recover missing funds.
20.14. Post Office asserts that:
"paying. in slips were phased out by Girobank so this change was outside of.
our control" and that:
“the automation of the process” was necessary. to. reduce the rate of errors. made.
at the counter".
20.15. While the new. process has reduced the risk that. errors made at the counter would
remain undetected at the counter, it will not have reduced the overall undetected error rate.
The only procedural difference being that the customer now communicates the intended
transaction verbally and then. checks that it has been correctly keyed in, but the
Subpostmaster no longer has the safety net of staff at the FSC later checking that all
customer deposits have been correctly processed.
20.16. Post Office. does not seem to have considered the possibility that its perceived
reduction. in.the number.o made. (since the phasing out of tw
paying-in slips) could be due to the possibility that some of those errors, that were
previously detected by the FSC, are no.longer.being found.
20.17. In.regard to our perception that the new process increases the risk of collusive
fraud, Post
Office has.responded by asserting that:
"the process changes did not introduce a greater degree of fraud risk to
Subpostmasters".
and
"the potential for collusive fraud was just as likely with the old process as it is now
withthe new.one".
20.18. In. stating that, Post Office has, in our view, failed to recognise that, following the.
process change, the control designed to detect mis-keying at the counter is now carried out.
only by the customer, whereas before, in the event that a surplus or shortfall was noticed.
later.on.in.the day, that check-back could be carried out.in.the branch, (by. reference to. the
paper.paying-in slips that would still be in the branch) and, if. no discrepancy was noticed
before those slips were sent off, then the mistake would later be detected by the FSC.
20.19. Also, under the old process, collusion between a customer and a counter clerk
would involve the customer leaving a falsified paying-in.slip.in.the branch, whereas, under.
the.new. process,.the.customer, would not.need.to incriminate. himself.in.that. manner.
Page 55
POL00041076
POL00041076
21. 48-Error and fraud repellency and Horizon's ‘fitness for purpose’
21.1, 48-4.-Normally, when a business detects errors or fraud occurring repeatedly,
investigative and analytical work will be carried out to determine whether changes to its
Standard Operating Procedures, to its hardware or software, or to its employee training and
support procedures, should be made so as to reduce the likelihood and/or seriousness of
future recurrence.
21.2. This process of investigation and analysis generates, over time, a ‘Virtuous Circle' of
detection, loss mitigation and process correction/improvement-which-builds, which.
contributes to the entire system's robustness and efficiency.
21.3. 48-2,-In not fully investigating "errors made at the counter", even where it is obvious that
some of those errors have been systematically repeated in a branch, or even across the
Nnetwork, Post Office seems not to taken ‘ownership’ of finding ways to reduce (or manage)
those errors.
21.4, 48.3.-This has led to a situation where Subpostmasters have been bearing the cost of
losses caused by errors and fraud that could-pessibly, in our view, have been designed out
of the system, or where improved operational procedures and training could have reduced
the incidence and severity of errors made , both."at the counter" and also in branch back
offices.
21.5. In.this. context, Post Office states that transactions cannot.be lost.as.a result of being.
interrupted by power.cuts."as long.as the correct.recovery procedures are followed”. After.
a_power cut has occurred, the system must be rebooted. Once the reboot has taken place,
Horizon should provide on-screen instructions on how. to recover any transactions that.
could have been interrupted by the loss of power.
21.6. Post Office's po: hat. shortfalls. cannot occur if the recovery. procedures are
correctly followed, It also states, in its response to the previously issued version of this
Report, that it:
“remains confident that branch accounts will not be corrupted due to power.
21.7. Itincorrectly states, however, in.that same.document:
"This recovery process was reviewed in detail by Second Sight in.their Interim.
Report.and found to work".
21.8, The reality is, as we stated in our Interim Report, that we have established, from our.
investigative work, that the system may not have always performed as it was meant to after.
a.reboot, particularly if a power failure occurred at the same time. We have been told that,
in some cases after.a power failure, the main processor will automatically restart and
commence the recovery process, but that the branch's screens will not automatically turn,
Page 40
POL00041076
POL00041076
9 is. mean: messages that
course.not be visible to the user.
isplayed as part of the recovery process,
21.9. Post.Office seems.to. make. the assumption. that. all of the important. messages that.
Horizon sends to the branch screens during the recovery process are visible on those
screens.and also that they are visible in time.to be effective in ensuring that transactions,
are neither lost nor duplicated. This would appear to be an assumption that may not be.
correct in some circumstances, such as when a power failure has been the cause of the
reboot.
21.10. Whereas the detailed instructions contained in the.'Horizon Transaction Recovery
Guidelines’ show Subpostmasters what they.are meant to do if, when they are processing.
transactions, the system loses power or connectivity, it is clear to us that mistakes are likely
to. be made at this sometimes challenging time, particularly when the Horizon-produced
‘Disconnected Session Receipts’ may. have been.misunderstood by. branch. staff.or when,the.
recovery process fails.
21,11. This process can therefore, in our view, be prone to generating losses, particularly.
in.those instances where the customer. has left the branch, sometimes without paying, after it,
may. have appeared, both to him and to the counter clerk, that his intended transaction had
been rejected.
21.12. Such.a situation, could result in the customer not paying for,.or not receiving
payment in respect of, his intended transaction. This will either result ina loss to the.
Subpostmaster.or.to.the customer,.The stress involved in. such situations can,.in.our. view, be
materially heightened when irritated customers add to the situational pressure or where
further power or telecommunications interrupts occur during the recovery process.
21.13. For the avoidance of doubt, we regard examples of this having happened as.
evidencing
Horizon’s failure to record transactions accurately,
21.14, We have formed the view that, as messages sent by Horizon to the branch
terminals might not always. be visible.on the branch's screens, it. can. sometimes be. difficult,.
or.even impossible, for a Subpostmaster to correctly follow those recovery procedures.
Another consequence of this is that transactions that appear not to have been processed
(but have been) may then be re-entered and if, for example, such an accidentally duplicated
transaction results in an extraneous credit to.a, customer's bank account, then it is possible
for that customer to benefit at the expense of the Subpostmaster and to be the only person.
who can detect and report that error.
21,15. We have consequently concluded that it is possible for losses to occur in.a branch
as.a.result of power and telecommunication interrupts where it has not. been possible for the
Subpostmaster to."correctly follow the recovery procedures”.
21.16. 18.4-A-g00d. pleis-ani that-has-b. ised-by-Applicantsin-regard-t
Page 41
POL00041076
POL00041076
Giro transactions. Applic vere espect of
were being processed when power or telecommunications interrupts occurred and the
branch's. terminals and screens. ‘froze’ or powered off completely.. When this happens,.
Horizon invokes its
This-relates-to- Hori ting in R Mode, Je follows *
Ps iS ¥ P sP
oranunications fallucos* that resulted in-the branch terminals freezing n-th:
situations'Recovery Mode’ and the system goes through a complete reboot, then, when it has
finally
te
Page 42
POL00041076
POL00041076
rebooted, a message appears (or is meant to appear) on screen (as long as the screen has
been turned on again) asking "do you need to recover any Giro transactions ?".
sufficient-information-te A few Applicants have reported that, when faced with that question,
they. usually did not know whether or not the system needed to recover any Giro transactions.
They. say. that,.if they responded in the affirmative, the system.then asked for the details of
the Giro transactions that needed to be recovered. As the user did not have the relevant details
to hand (and could not access the data as Horizon was still completing its reboot process), they
say. they were forced into responding in the negative and hoping that this was the correct
*transaction-errers-
response. *- otten-resultedin-the aw swerbeng entered
21.17. anc *transactional.errors.
being generated where transactions that should have been re-entered were not, or.
transactions that the system.had already accepted were erroneously re-processed,
Obviously, if such erroneously duplicated transactions included any where a customer had.
paid in.a cash deposit, it was likely that the customer's account would be credited twice even
though.only.one inward payment had been.received from,that customer.
21.18. This would result.in.a shortfall that. the Subpostmaster would, under the contract,
be obliged to make good unless that customer noticed the error from which he had
benefitted, and then chose to. repay. the duplicated amount to the branch.
21.19, 48.6, The following key question, that arises from the above
observations, is: "/s Horizon fit for purpose?"
21.20. 48-7, In trying to answer this-diffiewlt question, we recognise that, in the vast
majority of cases, Post
Pest-Office's Subpostmasters operate their branches year after year with minimal reported
problems. For them, the Horizon system appears (subject to.our observation in paragraph.
4,6.above).to be "fit for purpose".
21.21. 48,8. References here to 'the Horizon system’ are mainly focused on ‘Horizon On
Line' (HOL), which evolved from the original Horizon application:and was deployed in 2010.
Our comments encompass not only the system itself but also supporting processes and
procedures. However, some comments received relate to earlier versions of the system, a
number of enhancements having been made following user experience and feedback.
21.22. 48.9 For the Horizon system to be considered fully ‘fit for purpose' for all users, it
would, in our opinion, need to accurately record and process, with a high degree of error
repellency, the full range of products and services offered by Post Office, whilst providing a
clear transactional audit trail allowing easy investigation of any problems and errors that arise.
The cases that we have reviewed demonstrate that this design objective has not always been
achieved-altheugh. imo! e5- tinue-te-bi de.
Page 43
POL00041076
POL00041076
21.23. 18-10. A fully effective system would also need to be able to cope with a diverse
collection of end users and operate in areas where power and telecommunications reliability
could not be taken for granted. The cases that we have reviewed show us that errors are more
likely to occur when unusual sets of circumstances and behaviour are present. We have little
doubt that *!: tal jeati ap *
:*,,or poor telecommunications and power services
eof problems.*
supplies, appear to I iffered a disproportionate in
21.24. 48,44, We have also come to the conclusion that some of the people appointed by
Post Office as Subpostmasters may have been unsuited, from the outset, to the ever-increasing
complexity of running a computerised branch. These include those who:
a) were relatively (or even in some cases totally) new to using a computer;
b) _ had insufficient time and knowledge to be able to investigate and resolve shortages
without qvatitysubstantial support and assistance;-and
c) relied upon staff whom they may have ‘inherited! from the prior Subpostmaster and
who were either careless, inadequately trained or even dishonest-; and
qd)
bustness to be able.
ery. shortf
21.25. In.any.event, Post. Office's recruitment.and selection. process, .which.on.paper.
appears to be thorough and effective, seems to have sometimes failed to reject candidates
who, when interviewed, showed signs. of inadequacy.and later. proved themselves. to.be
wholly.unsuitable.to. hold the.post of Subpostmaster.
48.12, Where such a person, who was either unsuitable, inexperienced or inadequately trained, was
faced with problems, perhaps associated with hardware or telecommunications failures and the
system's resultant restart and recovery procedures, it was at that moment that an otherwise
repairable situation often turned into a catastrophe. For them, and in those specific.and Jimited.
circumstances, Horizon could not be described as "fit for purpose".
21.26. In.this. context Post Office doesnot accept that it bears any. responsi
errors made at the counter’ even though it has frequently asserted, in.its.POIRs, that these
were probably the root cause ofa branch's losses. A simple example of this issue involves the
common. mistake of settling a transaction to cash instead of selecting ‘Debit Card’ or. ‘Credit,
Card!.as. the MOP..
21.27. When that mistake is made, the customer will, in effect, receive goods or.
services free of charge and the Subpostmaster will later have to make good the resultant.
loss. Post.
21,28. Whilst we recognise that no system.can achieve a zero error rate, we hold the view.
Page 44
POL00041076
POL00041076
t dee
acknowledging those system or procedural flaws that have allowed errors to repeatedly occur.
and also for then designing and implementing improvements to reduce the frequency and.
seriousness of such errors.
Page 45
POL00041076
POL00041076
21.29, We have seen little evidence that convinces us that Post Office has done
everything that it could have to discover the root cause. of branch losses and to improve its
processes and software so as to.'design errors out of the system’.
21.30. In.that.the.contractual arrangement that.underpins the Post Office.to.
Subpostmaster relation laces. responsi sauarel) he.
shoulders. of the latter, it is to.us.unsurprising that driving down.branch error.rates has
seemingly not received the attention that we would normally expect to see devoted to such.
a.vital mission..
22, 49,-One-sided transactions
22.1, 49+d-Many Applicants have raised concerns regarding transactions involving debit or credit
cards where Horizon has processed a transaction but the corresponding charge to the
customer's bank account appears not to have been processed. In other cases the opposite
situation occurred, where Horizon rejected (or appeared to have rejected) a transaction, but
the corresponding charge to the customer's bank account apparently was processed.
22.2. 49+2+-One possible cause for this might be that telecommunications failures have
occasionally prevented one side of a transaction being processed whereas the other side of
it has been processed properly.
22.3, 49-3,-These transaction processing failures would be less troublesome if they were
always detected, at the counter ideally, or later by additional control and reconciliation
processes carried out by the Subpostmaster or by Post Office itself.
22.4, 49.4--It is however not yet clear whether Post Office's in-house (after-the-event)
reconciliation processes can be relied upon to always detect any one-sided transaction that
the Subpostmaster fails to detect.
nand fora bill
22.6, 19:5-*Wwher
bil-that-heb *eemptain-On the other hand, where the opposite
has happened, and a customer has received cash, or goods, and his bank account has not been
debited or his card account has not been charged, it is perfectly likely that he will be unaware
of his windfall or will simply keep quiet about it, leaving the Subpostmaster to be held
accountable for the resultant shortfall.
22.7. 49-6-It is important to understand that, where that sort of error occurs, no evidence of it is
visible to the Subpostmaster unless the customer discloses it.
Page 46
POL00041076
POL00041076
22.8.
previously issued version of this Report;
Page 47
POL00041076
POL00041076
"this is an inevitable risk of transacting business across the internet and affects
all. retailers. and banks".
22.9. Post Office acknowledges that, in certain circumstances, one-sided transactions can.
occur,. but. asserts. that. it has, robust, procedures. in, place. to. detect. and. correct. any. such.
errors..Once again, it says.that:
"if these procedures operate correctly, no loss to the branch will occur".
22.10. Our observation,.in.regard,to. those assurances, is to.point.out.that.the.risk.of such,
transactional aberrations is,.in.our view, markedly higher where two electronic systems have
to. operate in.a synchronised way, (as is the case with Horizon and the LINK system), rather.
than where a single system is used, as is the case with other retailers and banks. We must.
also point out that few retailers, and no banks, hold their staff accountable for the losses that.
arise from.such.risks.
22.11, We note that Post Office's control and reconciliation procedures rely on.correct
information. being supplied, by. third party. clients,.It follows that, if incorrect. information is.
provided by any.client company, this can give rise toa loss being charged to.a branch. We
also.note 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.
22.12. itis, in.our view, probable that some of those entries should have been.
re-credited to branches to offset losses previously charged.
19:7, We-have-provided-Rest-Offi ith. ples-of ided-t th ¢. a
this-important point tinving
23. 20,-Hardware issues
23.1, 2@-4-An examination of the hardware in use in a typical branch reveals that much of the
equipment appears to be quite old. In some cases it was first putia-placeinstalled more than
ten years previouslyago.
23.2. 2Q,2.-There also seems to be little routine hardware maintenance. Instead, faulty
equipment is replaced as and when needed. This process-is, referred to as "kit swap outs"-and,
principally involves the replacement of broken units with reconditioned ones. Reports of
several reconditioned components or units being tried, and failing, before a working one iswas
found, are not unusual. This is because much of the bespoke equipment used by Horizon is no
longer manufactured. *¥!« ae
A oriahers, MiNpads,deuch.
*
FARR CaHOnS-
raised issues *invelved counter and back office* printers, PIN:
juipment and base units.*
23.4, 20-3.-Many Applicants believe that faulty equipment could be responsible for otherwise
Page 48
POL00041076
POL00041076
unidentified shortages. Wi beer o.come to.a reli idence
on this matter, but recognise this as a possibility. Post Office’s position on this is that it
cannot happen.-Eaquiries-on-this-peinta atinuing.
24, 24,-Post Office Audit Procedures
24,1, 24+L-In many cases Applicants have told us that they were not given copies of the Audit
Reports relating to their branches and that their enquiries to Post Office, in respect of those
Audits, were never answered.
24.2. 24-2-It is clear that Post Office's current practice is that each Subpostmaster is provided
with a copy of the Audit Report for his branch. We do not know when this current practice
was adopted or whether a similar policy was consistently applied in prior years.
24.3. A few Applicants have. referred to. having misunderstood Post Office's use of the term.
‘audit’, saying that most of the ‘audits’ that they experienced were merely cash.and stock.
counts.that offered them.no.comfort in regard to.how their branch (and sometimes the
existing branch staff. that they had been required to. employ when. they were appointed as.
Subpostmaster).was really operating.
24.4, Some Applicants have also questioned the competence of the auditors sent out to their.
branches, saying that some of them did not. appear to have any professional qualifications.
in. auditing or accounting. and that. many. of them seemed to. have scant. knowledge. of how.
the Horizon system.was meant to. operate.
24.5. For.those Subpostmasters, particularly those who had prior experience of working in,
large.companies, they felt. themselves to have. been denied the reassurance. that.a.""proper
audit" would normally have given them. We note that, once again, the Standard Contract.
places.no, obligation.on. Post Office to. provide such.a service to its Subpostmasters.
25. 22,Post Office Investigations
25.1, 22eh-As a result of our investigations we have established that Post Office's investigation-
team-hasinvestigators have, in many cases, failed to identify the underlying root cause of
shortfalls prior to imitiatiagthe initiation of civil recovery action or criminal proceedings. This
includes cases where Applicants brought to the Auditors’ or Investigators' attention their own
suspicions as to the underlying root causes of their branch's losses.
25.2. 222.-Many Applicants, and almost all the Professional Advisors, assert that there was
inadequate investigation prior to suspension (in_all cases without pay); termination; erand
civil/criminal action.
25,3. 22.3,-Based on the cases examined so far, Post Office's investigators seem,
opinion,
to have defaulted to seeking evidence that would support a charge of Ffalse Aaccounting,
rather than carrying out an investigation into the root cause of any suspected problems.
Evidence to support a charge of false Aaccounting is often easily obtained since, when
Page 49
POL00041076
POL00041076
confronted during interview with evidence of obviously over-stated cash figures, the accused
person will often readily admit to falsifying the end of Trading Period Accounts.
25.4, 22-4,-With the exception of arany interview conducted in accordance with the Police and
Criminal Evidence Act (1984) we note that the interviewee is not allowed to be legally
represented, although Post Office says that they may be accompanied by a ‘friend’,-albeit-
cetghanys tae egies I
25.5. Post Office's true position in respect of such ‘friends’ and what they are allowed to say
and do during, for example, interviews where contract termination is under discussion is,
far from.clear,.
25.6. In.that.context, Post Office reassured Ministers, in.its 17. December. 2014 ‘Response. to. the
Westminster Hall Adjournment Debate’, that:
"another person.can attend with the Subpostmaster. This can.be.a friend, or.
another Subpostmaster or assistant or a representative of the National Federation.
of Subpostmasters. They can make a statement in support and working practice is
that they can speak on behalf of the postmaster, if the postmaster agrees to this".
25.7. Two months later however, in a letter dated 15 February 2015 to a Subpostmaster, in
which, he refused that Subpostmaster's request, to have his solicitor attend a,'Branch Incident.
Appeal’.a Post Office Agents Contract Manager said:
"We allow Subpostmasters to be accompanied at interviews or at appeal by a
‘friend’; however it does not allow. the friend the opportunity.to represent the
Subpostmaster”.
and
"A friend may only attend and listen to questions and answers. He must not
interrupt
in.any way, either by word or signal: if he does interrupt he will be required to
leave at once and the interview will progress without him".
25.8. Wecannot accept, in the light of that 15 February letter, that the assurance that Post.
Office has given.to.MPs really is its."working practice”.
25.9. 225-Interviews willare usually be-recorded and, whenif an admission of false accounting
has been made, this will virtually always trigger a 'Guilty' plea by the defendant and often an
associated repayment proposal. As a result, Post Office's investigators seem to have found that
racerdingobtaining admissions of Ffalse Aaccounting was the key to achieving relatively rapid,
and (to Post Office) inexpensive, asset recovery.
25.10. 22.6. As a consequence of this, Post Office's investigators seem to have
de-emphasized the importance of unearthing the true root causes of the "mysterious
shortfalls" that some Applicants claimed to have suffered. Even-wherWhen faced with
Page 50
POL00041076
POL00041076
requests from Subpostmasters for investigative help, this has often been refused.-
Regrattably,this-refusal-t ide-investiaati tis indi ith-the Standard.
8 ¥r +P is bai
Contract.
25.11. tis clear, from.comments made. by Applicants, that those, refusals, were contrary.
to their expectations and it seems to have come as a surprise to many of them. when they,
learned that Post Office's Investigation Division has no* j
: asters.* The following quote,, from one. Applicant,.was.
echoed by others who said that. se they really believed that they were entitled to receive
investigative support from Post Office:
n ipport t
"Lbelieve that POL never embarked upon.a.genuine.and meaningful investigation
of what was the root. cause of the discrepancies"
and, referring to section 12 of the Standard Contract, he says:
"In light of this. believe that there was simply.a culture at POL to hide behind.
this clause without having to. discharge their duty. to properly investigate".
25.12. It seems that few Applicants were aware that Post Office's refusals to provide
gn-site investigative support were in line with* s i fe
‘, “which states that:
"The Investigation Division does NOT enquire into matters where crime is
not suspecte
25.13. We note that this 'double-negative’ wording (and Post Office's established practice)
does not mean that the Investigation Division.can be expected to carry out investigative work.
where crime is suspected. This has led to situations where some Applicants have found that,
even. where.one.or.more. of their. employees. was suspected.-. both. by. themselves and, by. Post.
Office.- of having stolen branch funds, no investigative work was carried out.
25.14, This then left them with a contractual responsibility to repay the resultant losses,
but.with.no.help from.Post Office in.recovering any.of.the stolen.money.from.those. who had
taken. it..In. some instances. Applicants.faced.with. this. situation.received.no. meaningful help.
from the police either, the police having adopted the position that the investigation ought to
be.carried.out by Post, Office's investigators.
25.15. We asked Post Office to provide details of its Policy and Standard Operating.
Procedures in regard to helping Subpostmasters recover shortfalls that they have made.
good asa result of proven theft by branch employees. and it has answered as follows:
22.7, ihis-clearé 3 deb:
tations-and-that-they nae
L.Conteact,*the Rest Officet
"Recovery flo losses. caused by. theft by. branch assistants is a. matter for.
Page 51
POL00041076
POL00041076
Subpostmasters e.assistants are theit loyees. Post Office may help, as,
a.matter of goodwill, but there is no policy in this regard".
25.16. 22,8, It has been pointed out to us that Post Office's instructions to (and its training
of) its investigators seems to have disregarded the possibility that the Horizon system could
ever.be in any way relevant to their investigations. A consequence of this flawed approach to
investigations is that many opportunities ferto develop process improvements have been
missed.
25,17. This issue becomes even more important when criminal charges are brought,
against.a Subpostmaster. Post Office‘s policy is to bring a private criminal prosecution.
against the Subpostmaster rather than.to.report the matter.to the Police and then,
allow the Crown Prosecution Service to prosecute.
25,18. By. bringing private prosecutions (which itis entitled to.do) Post Office itself
becomes responsible for ensuring that its lawyers adhere to the Code for Crown,
Prosecutors which includes ensuring that any cases that it brings to the Courts pass the
tests that the CPS itself would apply.
25.19. These. include determining whether it has sufficient evidence to, provide.a.realistic.
prospect_of conviction against each suspect on each charge and whether.a prosecution is
required in. the public interest.
25.20. By carrying out those tests itself, Post Office runs the risk of being accused of.
circumventing. those checks and balances that.a separate and independent. body. would.
otherwise have.carried out.
25.21, Weare aware of cases where criminal charges have been brought which appear to
have been motivated primarily by Post Office’s desire to recover losses. In some cases, those
criminal charges do not seem to have been supported by the necessary degree of evidence
and have been dropped prior.to trial, often as part of an agreement.to accept.a guilty plea to,
a charge of false accounting, so long as the defendant agreed to repay all of the missing.
funds.
25,22. We have.also.been.told of agreements whereby.no. mention was to be made in.
Court, by the defendant, of any criticism of the Horizon system.
25.23. We.remain.concerned that. some. of these decisions.to. prosecute may. have. been.
contrary. to, the Code. for Crown. Prosecutors with which, Post. Office,.as.a.private prosecutor,
is. required to. comply..In order to investigate this matter we had requested access to the.
complete legal files held by Post Office in.a number of cases.
25.24. Post Office. has stated that. this subject is outside, the scope. of our investigation, We.
strongly disagree with this view.
26. Conclusions
Page 52
POL00041076
POL00041076
26.1. When.we started our work on these important matters in July. 2012, we believed there.
was a shared commitment with Post Office to. “seek the truth” irrespective of the.
consequences. This was reflected in us being provided with unrestricted access to highly
confidential and sensitive documents, including legal advice. relating to individual cases. This
position was recognised and well received by other stakeholders, including the Rt. Hon. James
Arbuthnot MP. and the JFSA.
26.2. However,.as.time progressed, and particularly in.the last 18 months, it has been.
increasingly difficult to progress our investigations due to various legal challenges by Post.
Office, There have been, considerable delays.in.receiving responses.to,requests for.
information.and legal issues have been raised, such as Data Protection and Legal Privilege, as.
being the.reason.various documents, could no, longer be provided.to.us.
Page 53
POL00041076
POL00041076
26.3. We found that types of document previously provided to us without restriction, were no.
longer being provided. Some of these documents were also. not being provided to Post
Office’s in-house team of investigators.
26.4. We.can.only conclude that this represented a policy decision by Post Office at.a senior.
level, possibly. based. on. legal advice. We. consider this, regrettable, particularly. in.the light of.
assurances previously provided to ourselves, MPs and the JFSA.
26.5. In.expressing our disappointment. in finding ourselves unable to complete our.
independent investigation in.the way,that.we considered necessary, we. wish.to.place.on.
record our appreciation for the hard work and professionalism of Post Office’s in-house
team of investigators, working for Angela Van Den Bogerd, Post Office’s Head of.
Partnerships.
26.6. Our.work.would have. been.much harder.and.taken.much.longer.without.the. high. quality.
work carried out by this team. We have also received excellent support from the
administrative team setup by. Post Office to. support.the. Working Group.,
26.7. We also valued the guidance provided by.the Mediation Wi
Anthony. Hooper, until its abrupt dissolution on.10 March 2015.
8, Group,, chaired by Sir
26.8. We.have described in this report the results of our investigations (some of which are
incomplete) into, the issues and concerns raised by multiple Applicants..As we have.
previously stated, when looking at the totality of the ‘Horizon experience’ we remain
concerned that in some circumstances Horizon can be systemically flawed from.a_user’s.
persp. ind appropriate. le ipport,
26.9. We.believe that Post. Office should be much.more.alert.to. possible problems. with.
Horizon and encourage its staff to develop a much greater degree of ‘professional
scepticism’.in.this.regard,
26.10. We hope that this report, although incomplete ina. number of important respects, will.
shed some light.on the important issues raised by the 136 Applicants accepted into the
Mediation Scheme.
lan R Henderson CCE, CISA, FCA 9 April 2015
Ron Warmington CFE, FCA
Second Sight Support Services. Ltd.
Page 50
POL00041076
POL00041076
Confidentia Appendix.
Complaint Review and Mediation Scheme
Apaper.prepared by Post Office to assist Second Sight with the finalisation of their Briefing Report — Part.
Two.
Version. three
This paper.* and & * confidential and are not to be disclosed to.any.person.other.
than.a_person involved in the processing of Applicants’ claims through the Scheme
Confidential
anving do
Introduction.
1. Transaction.anomalies associated with. CASH. or STOCK Remittances. sasssssesssseeenunernmnnsssnrennnneentananttt:
1
2. Transaction.anomalies.associated.with Pensions.and Allowances.
4
3.
» Transaction anomalies following telecommunication.or power. failures. .....
POL00041076
POL00041076
z
4. Transaction anomalies associated. with ATMs.
E}
5. Transaction. anomalies associated with Lottery Terminal.or Scratchcards....
6. Transaction anomalies associated with Foreign Currency...
16
7. Transaction anomalies associated with Bank / GIRO./ Cheques......
8. Transaction anomalies associated with Stamps, Postage Labels, Phone Cards or Premium Bonds s-+s.23
I. Hardware.issues.e.g. printer. problems, PIN pads,.touch. screens and, PayStation. cruanessaesssannansaneennannnnss 24,
10.
2
Failure.to follow. correct procedures or mis-advice by POL's Helpline. cosnssscssossssnssesssnsssanscensnnnssancrnassnnnss
11. Training and Support issues. including Helpline and Audit....
26
12. The contract between the Post Office and Subpostmasters cssusnsssssnnserseeesnunnsnnnnneeesesn
31
13. Post Office Investigations FUMCTION.rrrsssmunnsssnnnneeenmuansneeennte
37
14,
44
SUMPIUSESssnsannnnsnnnnssnnnnssnnonsnnnonsannansannngnanannsnsnnnnnsnnnnnnnnnnnnennnntennnnnnnnnnnnnnnnnnnnnnnannnnennnnnnnnnnnennnnnenennnsnnnnnenennsenent
15. Suspense ACCOUNTS ssssnnsseseenresnnmnunnnnnennnesennnnannnnsaneeeesannenannnnnenneeennnnnannnssonencgannnnannnnnnnenenannnannnnsennnannans
42,
Confidential
Introduction,
As part of the Initial Complaint Review and Mediation Scheme (the Scheme), Second Sight is engaged as.a.
firm.of forensic accountants.to. provide. a.logical and fully. evidenced opinion.on.the, merits,of each.
Applicant's.case.
QOn.21 August 2014, Second Sight's Briefing Report — Part Two.(the Report) was sent.as.a confidential.
document.to.a numberof Applicants. and their advisors,.as well as.to. Post Office. The purpose of the.
Report was to describe and expand on common issues identified by Second Sight as being raised by.
multiple Applicants.{a, thematic issue)..The.aim. being to, provide general.information.that.could.then.be.,
applied in.specific. cases.
Post. Office has. been.unable to endorse. the Report. It wrote to recipients.of the Report immediately after.
its release setting out its reasons for this, and prepared a Reply which was released on 22 September 2014,
detailing its position.on.the issues raised within.the Report,
Further, within Second Sights Briefing Report — Part Two, several issues were said to. require. further,
investigation. With .a view to moving the Briefing Report — Part Two to finalisation, the Secretariat offered.
to.assist Second Sight in.resolving these. matters.
The. following paper. is.written.to. aid this. process, detailing the. additional questions posed by.Second Sight.
and the answers provided by Post Office.
Post Office was provided with.the.questions.on.9 December.2014 and. committed to provide answers.to the.
questions. posed before.a meeting with Second Sight.on,9.January,2015..1n.line.with.the short.timetable, Post,
Office's approach was to identify.a subject matter expert within its organisation to, where possible and.
POL00041076
POL00041076
proportionate, answer each question. Post Office was not therefore able to. comprehensively search for.
information.nor.canvass views.on.each question. from.all parts of its. business. The answers. provided in.version.
one.represented the best information possible given the limited time available. but should not. have been.
considered exhaustive.
Note.on.version.three,
Version.one.of these.answers, was. provided to Second Sight.on.7.January.2015.and. subsequently. discussed at.
ameeting between Post Office and Second Sight.on.9 January.2015.
At.this meeting and the face to face Working Group meeting on.14 January 2015, Second Sight clarified its.
position.on.a.number of the questions. This. has.enabled Post. Office to. provide. furhter. information. (to..
those included in version.one) through the provision of version two (provided to Second Sight.on 27.
January.2015) and version. three (provided to Second Sight on.19 February 2015).
POL00041076
POL00041076
1, Transaction. anomalies associated with.CASH or STOCK Remittances (including counterfeit
notes)
Post. Office. is aware. that there is an issue of counterfeit notes. being circulated within the UK.
economy. in.general..This.is.an.issue that affects. all businesses and Post. Office has in place various.
policies and procedures in order to detect counterfeit notes and prevent them. being circulated.
within.the Post, Office's network of branches,
© The.large.majority.of costs / losses associated with counterfeit notes are.claimed from.
other. parties, (e.g..clients,.cash, suppliers,.etc.), with, Post, Office, branches, being. held liable,
for.a.very.small number:
¢ Where.responsibility. for allowing counterfeit notes.to.enter. the, Post Office network.
cannot be established, Post Office absorbs the loss itself,
The. process.used in, Post Office. can be summarised as. follows:
° Once.a counterfeit note is identified by Post Office, it is verified by a second person.
© Post. Office then determines. responsibility for allowing the counterfeit note into the.
network based on the information included on the Plastic Bank Note Envelope (PBNE), an.
envelope.used to seal the.cash.as it.is moved around the. network;
* Ifa. branch.is found to have.not followed correct procedures, it. may.be held liable for.the.
loss. created by taking a.counterfeit note.
1.1, Please. provide. full details. of the following;
a) —_All.procedures.and.controls.in.place.to. detect and. prevent damaged or.
counterfeit notes being issued to branches as REMs;
The Post. Office’s Cash Centre is. responsible for issuing remittances of.cash.
to.branches,
There.are.four. key. elements within, the Cash Centre that ensure. the. integrity. of.
Notes it sends out to branches:
e Use.of High speed note.counting machines..Each note is checked for all
possible characteristics and any. notes. that fail. to.meet the.required.
Standard are. rejected, either because they fail to meet. the Bank.of.
England’s note. quality standard or because. they.are.counterfeit.
© Daily.calibration. Each note counter {there are.7.in.use.nationwide) are
calibrated daily using a standard pack (a test bundle of mixed quality notes)
by specialist onsite engineers. This check ensures that. the counters will
identify,counterfeits.and non-standard Bank of England notes.and that they.
are.removed from.circulation,. The calibration check exceeds the standard,
set.out by the Bank of England and is subject to. regular audit by the Bank.
. The Note. Circulation Scheme (NCS). Under the NCS, the Bank of England.
does,
not distribute banknotes and instead, wholesale.cash. operators, including.
Post Office, sort and distribute notes. Under the NCS, all notes Post Office put.
1
b)
¢)
dq)
e)
f)
into. circulation, must.be.integrity.checked..
All.procedures and. controls. in, place,to detect damaged or.counterfeit notes,
in.outward.REMs.sent.from.a branch.to.a.cash.centre;
There.are.comprehensive. guidelines. included within. the Methods, of Payments,
section.on Horizon. Online Help. Please refer to Annex.1 for further. information.
All procedures and controls in place that prevent notes included in an outward REM.
from.a. branch being sent to another branch.as.an. inward REM without being.
counted or. checked for damaged or.counterfeit notes;
AlLinward remittances from.Post Office branches. are opened in.the Cash Centre.
before being sent.out through. the.cash.cycle again i.e. the notes are checked before.
being remitted out to branches as per above. There is.no process for cash to be sent.
from.branch.to. branch,
All procedures and controls used to ensure that notes issued as REMS for use in.
ATMs.meet.the. relevant. quality standards;
Allcash that leaves the Cash Centre for ATM.use is checked to ensure it is.
counterfeit free. and is fit. for ATM. dispense in.line with.the Bank of England’s.note.
standards. Please refer to the answer provided in.1.1a for further information.
All procedures and controls used in branch to detect counterfeit notes;
There.are.comprehensive guidelines included within. the Methods of Payments,
section.on.Horizon. Online. Help. Please. refer.to Annex.1. for further.information.
The. procedures. tobe followed in branch when.a Subpostmaster detects.
counterfeit notes; and
There.are.comprehensive guidelines included within the Methods of Payments,
section.on. Horizon Online Help, with seven. different scenarios covered, Please refer.
to Annex 1 for further information.
The.seven.scenarios.covered.are.as follows:
*¢ — Identifying.counterfeit banknotes;
2 Treatment. of. counterfeit banknotes;
* — Remitting counterfeit banknotes;
* Counterfeit. notes found loose. in.official.cash;
2 Counterfeit notes, returned. by.a,customer;,
* Counterfeit. notes impounded when. presented by.customers fora.
transaction;
© Counterfeit notes found in.a deposit prepared by.an Alliance & Leicester.
(now.
POL00041076
POL00041076
2.
Santander). business. depositor.
g) Who bears the loss.associated with accepting counterfeit notes?
There.are.detailed procedures. documented.on.Horizon.Help.to. assist.the branch.
in dealing appropriately with counterfeit notes. If the branch follows the correct.
procedures. as detailed on Horizon Help.then.the branch is. not held liable for any.
associated loss..Please.refer.to. Annex.1 for. further. information,
Transaction anomalies associated with Pensions and Allowances
One_.of the issues raised bya small number of Applicants to. the Mediation Scheme relates.
to.alleged transaction anomalies which, it has been claimed, are connected to Pensions.
and Allowances (P&A).
Typically,.this.bas.revolved around allegations. of.re-introduction fraud. This.fraud.involves.P&A.
vouchers being entered into Horizon twice (known as a “reintroduction”). The fraud occurs
where.a customer visits.a. branch to. receive.a pension,payment. First, the, customer. provides the.
staff, member.at.the, branch,with.a,P&A voucher.and receives. their. pension.as.cash.in,return...
The. staff.member.then.enters.the voucher into. Horizon.in.order to account. for.the.cash.that. has,
heen. paid out to the customer. The P&A vouchers. are.sent.on.a.weekly basis. to the Department.
of. Work and Pensions. (DWP). The.act of entering the same P&A vouchers. into. Horizon twice is.
called reintroduction. Where. this is. done.in. error, it.creates.a surplus of cash.in.the branch...
Where reintroductions are frequent and there is no surplus, these are strong indicators that.
reintroduction. fraud is. taking place at.the branch.
Post Office has previously provided Second Sight with a paper.on.P&As. Annex 2 supplements.
the responses provided in this section.
2.1, Please provide full details.of the following:
a) Data.mining.or.similar.techniques.used to. identify. branches.which.have.processed.
unusual volumes.of P&A vouchers.or have. processed. previously.used P&A vouchers.i.e,
‘Reintroduction’ fraud;
P&A vouchers are. no longer used by Post Office — DWP. replaced them with the Post.
Office Card Account..The.information.below. is therefore.a.historic process about.
which only limited information is available.
Typically. the process. may have involved some or all of the following:
© DWP. staff.in.Lisahally. used to. conduct. rota, checks. of all P&A submissions,
e Ifthey identified a discrepancy. ina pouch they would check the previous.
month to see if this identified a pattern. The Date Stamp indicator would,
often be used as.a. method of identifying potential suspects and the.
method,.e.g..over-stamping.a voucher,with,a,second date,
© if further discrepancies were found they would then. go back as far.as.
possible which.was.normally.no, more, than.12. months,
° At.each.stage.their.check.would.be.corroborated. and.recorded stating,
who. had.carried out the checks and what had been found.
¢ As.this.was. happening, Post Office (FSC). was advised by. the DWP of the.
discrepancy.and, if it was.deemed necessary,.an.investigation.may.be.
POL00041076
POL00041076
b)
¢)
begun. by. Post Office,
° — Post. Office Security would arrange for the branch P&A submissions to.
be intercepted by Royal Mail.
° These would be manually. checked, recorded and retained by. the allocated
Security Manager.
¢ — Any.discrepancies would be scheduled and recorded along with any, DWP
findings in preparation for attending the branch.
e Anaudit may. be arranged at the branch and the P&A foils on hand would
be checked and recorded as live evidence,
© Fujitsu logs may be requested if required to confirm who had made the
Horizon entry for the fraudulent transaction.
All. procedures and. controls. used to, detect, ‘Reintroduction’
fraud; See. answer.2.1a.and Annex.2..
Any.cases inthe last 3 years where outgoing P&A vouchers have been stolen or lost
in.transit;.
As detailed within. Annex.2,.P&A vouchers are no. longer used. They. were. replaced by.
the
Post Office Card Account in circa 2005,
d) Who bears the loss associated with lost or stolen P&A vouchers?
e)
8)
Any.cases.in.the last 3 years where P&A vouchers have been.re-presented at.a.
branch by a person unconnected with that branch;
As detailed within Annex 2, P&A vouchers are no longer used. They were replaced by
the
Post. Office. Card Account in.circa 2005,
Any.cases.in. the last 3 years where forged P&A vouchers have been presented ata
branch; As detailed within Annex 2, P&A vouchers are no longer used. They were.
Post Office Card Account in circa 2005,
All procedures and controls used to detect forged P&A.
vouchers;, Please refer to answer 2,1a.
POL00041076
POL00041076
h) Who bears the loss associated with accepting forged P&A vouchers?
A Post. Office, branch, would. only, be, held liable. fora. loss associated, with, P&A vouchers. if,
they. had been. negligent, had not followed correct acceptance. and processing procedures.
oracted fraudulently,
2.2. Are branches required to ensure that the value of the cheques and vouchers being.
remitted each week matches the value of benefit pay-outs recorded on Horizon? At the
time of P&A vouchers being used for transactions within Post Office branches, those
branches would have been required to validate that the amount they were claiming as.
being paid out to customers (as shown on Horizon) matched the value of the P&A
vouchers.on.hand.
3. Transaction anomalies following telecommunication or power failures
Another i aised_by.a. number of Appli ¢.was, that of alleged.
transaction. anomalies flowing from.telecommunication.or power failures. Power.and
telecommunications failures are.a.risk to any. business.as branches. and Post Office are reliant.on.
third party suppliers for these services. Recognising this risk, Horizon was designed with, "recovery"
processes in place. to. correct any. issues caused by a power or telecommunications failure. Post
Office notes. that.as yet.no. evidence has been. adduced to show that either of these events will
cause losses in branches where the recovery process has been correctly followed by branch staff,
3.1. Please provide full details of the following:
a) Any-tests carried out that ensure. that Horizons screen-based recovery instructions
are visible to the person looking at the branch terminal when.a power failure. or.
telecommunications failure (or both at the same time) has occurred or is occurring;
The.recovery,process.is shown.on.the.Horizon.terminal screen and_will.
therefore, always be visible to branch staff,
b) The.information.that.needs.to, be entered by.the user. to. complete the.
screen-based recovery. process;
When .the recovery process is carried out, .a.recovery receipt will always be printed
as part of the next log on after the failure and a recovery event will be recorded in.
the Horizon Event Logs,
Depending upon the stage an individual transaction had reached at the time of the
failure, Horizon may ask questions of the Subpostmaster to help decide whether or
not that transaction. was complete. Annex 3.- ‘Transaction Recovery — Horizon Online.
Reference Guide’ — details the questions asked for the different scenarios.
¢) — Any.tests carried out that ensure.that the backup mobile telecommunications
facility works effectively in all locations and in all circumstances including busy,
multi-position branches;
POL00041076
POL00041076
Branch, back up avail tested once. a week on.a.rolling basis (one seventh of.
the estate is.tested every night).
d) ied out wi bran
ignal is available for the,
Please refer to the answer 3,1¢,
4. Transaction anomalies associated with ATMs
A.number.of Applicants.to,. the Scheme. have. raised complaints.in,relation.to alleged.
transaction anomalies connected with ATMs.
Post Office has previously provided Second Sight with papers in.response to their questions involving
ATMs. Annexes 4 and 5, supplement the responses provided in this section.
4.1, Please provide full details. of any.instances in.the last 3. years where Post Office, Bank of
Ireland or Wincor Nixdorf detected an attack against a branch ATM using either malware
or hardware devices. Please describe the technical measures in place to prevent or detect,
this type of attack.
Post Office is not aware of any, malware attack on its BO! ATM fleet that has resulted in
loss. to.a branch. Hypothetically, if.a loss of cash from.a branch.as.a.result of a malware.
attack was detected, that loss would be passed to BOI and not be absorbed by the branch
been provided to Second Sight in Post Office's note on ATMs —see Annex 4.
It is not, clear. which types of,."hardware, devices” are being considered, by, Second Sight. If
this. relates, to. cash. trapping. devices, Post. Office. has, already, explained. that, this, type. of
attack will not cause loss toa branch — see paragraph. 7.4 of Annex 4.
4.2, Given the evidence that the Rejected Notes totals, in several ‘Print Totals’ output reports
by. ATMs, have on.occasions become corrupted, on what grounds does Post Office assert.
that.the Dispensed Notes totals could not also be corrupted, thereby showing that the,
ATM_had dispensed fewer or more notes than it really had?
The Print Totals receipt is only used for managing the ATM.cash levels and to allow. the.
Subpostmaster to identify when the ATM. needs to be reloaded with cash. As per all.
transactions/inputs.that.take.place.on.an.ATM, Print Total details are recorded on.the.
ATM’s Electronic Journal. However, the information.on these receipts is for the local,
management of the ATM only, is not used as part of daily/weekly ATM accounting and the
data is not used outside of the local management of the ATM. This is demonstrated by the
fact. that the Subpostmaster must zero the totals on the Print Totals receipt when they.
reload cash into the ATM, which.can_be done as often as.required,.
Where some. corruption of the rejected notes total occurred there is evidence of erratic
and,unusual behaviour by. the postr inthe. management of ha ¢.{cassettes) and.
software (Print Totals; balancing activities). For example, many. activities were repeated
multiple times in.a very, short space of time, Cassett! reloaded, unloaded, reloaded,
Print Total instructions were performed multiple times, sometimes with different cassettes
in.or.out.of the ATM, in. the space. of minutes, and then repeated, In. these. circumstances it i,
s.not surprising that the ATM’s logical functions may have been affected. However.
following. the stated operating procedure would allow. these totals to be reset without,
POL00041076
POL00041076
4.3.
44.
45.
ing. of the ATM;
there. any, impact on. the. cash, dispense/balar Bank Totals,
and the ATM.
Totals. receipts. that are required to. complete the daily. and weekly ATM.
accounting procedures.
Itis.the Bank Totals receipt that specifically, details the value, of cash dispensed by the ATM,
through H
through ATMs for each particular day. In. summary, all ATM. transactions are confirmed
between Bank of Ireland and the Card Schemes, the vast majority of which are processed
via. LINK, as having successfully. taken, place. Any. discrepancies between LINK and Bank of
Ireland’s data would be investigated before Post Office would be involved. The total value
of ATM. cash dispensed is then settled on, the next working day, between, Bank of Ireland,
and Post Office, This total value is checked by Post Office and matched against the
individual ATM dispense records, Therefore any. discrepancy in.the cash dispense figures.
would therefore be identified as part of the settlement process.
It should be noted that in 2011 a full investigation of ATM.cash dispensed figures in
relation. to. M040 was undertaken, by. Bank of Ireland and Post Office Security,.For.the.
month of April 2009 the daily cash dispense figures were compared back to the actual
settlement to ensure these were aligned. No discrepancies were found,
In.2012 POL Security also. undertook an investigation in relation. to. M042 that looked into
the. number of Rejected notes that were reported on the ATM during April 2011, Bank of,
Ireland provided electronic journal. data for the dates in.question.. While no discrepancies
were. identified with the daily cash. dispense. figures reported by. the ATM the exceptional,
high rejected notes figure appears to have resulted from the sequence of actions that took
place at the ATM, It was determined that resetting the Print Totals resolved the local issue
without any. impact.on.the. cash dispense records forthe ATM.
Js. it.a Post Office. requirement that when.an.ATM is.installed that. the branch.
immediately. creates. a separate stock unit for the ATM? How is. this policy monitored.
and enforced?
Yes,.lt is. stated in.the Post Office Accounting Instructions for Bank of Ireland. ATMs.that.
a.separate ATM stock unit. must be created when the ATM. js first installed, The ATM.
accounting instructions then refer to this separate stock unit throughout, as required,
The.use of an, ATM. stock unit is not monitored separately as it is just one of the mandatory,
steps to be followed to properly account for the ATM. Post Office monitors the completion
of daily.cash declarations and weekly balances. Where. these processes are not being.
conducted, this is followed up with the individual branches.
In.circumstances where the Bank of Ireland generates incorrect ATM cash dispensed,
figures for both the branch's ATM and in the figures supplied directly to Post Office, please.
describe the controls and procedures in, place to detect and investigate this type of error.
This question has already been addressed through correspondence with Second Sight
atound Suspense Accounts, Please see Annex.6..
Please. explain why. it is necessary, for Subpostmasters to, manually print.and enter onto,
Horizon, the contents of the daily ‘16:30 - 16:30 ATM Reports’ when the same information
is sent electronically to. the Bank of Ireland and then to Post Office,
Itis. necessary. for Subpostmasters.to. key. the. data in.because the ATM.is.not.connected to.
Horizon and branches need to know the amount of cash dispensed from the ATM in order
to. prepare. the daily cash.declaration,
POL00041076
POL00041076
46.
a)
b)
c)
qd)
POL00041076
POL00041076
Please provide full details of the following:
Any investigation in the last 3 years in which a technical fault was discovered with.
the ATM which produced a shortage when balancing the ATM or a loss on the
Horizon ATM stock unit. How was the associated loss dealt with by Horizon?
Post Office. does not collate. statistics on.the numbers. of."technical faults’ in.the,
ATM related enquiries can be raised by branches through.a number of routes
depending.on.the.circumstances (Contract Managers, Field Support teams, NBSC,.
FSC, BOL /. Wincor, etc). Only. fraction of those enquiries would relate to."technical
faults" — although it is not entirely, clear, what.is, meant by this phrase,.It should be.
noted that even where there is a "technical fault" this does not mean that cash has
been lost or.a branch's accounts have been. impacted. For example, there could bea
mechanical failure that causes the ATM to not vend cash,
If.an issue raised by one branch may. have.an.impact in. other branches, this will
be. escalated through the appropriate channels. The. escalation. route depends on.
the nature of the issue but this could be through. FSC, Post Office's network.
support teams, Post Office IT or Bank of Ireland.
As.a general proposition, a."technical error" in.an ATM cannot directly cause an.error.
in.the Horizon ATM stock unit. as the ATM is not directly connected to Horizon. Should
however.a."technical fault" occur in.an.ATM that were to cause a loss to.a branch, the.
branch.would not be held Jiable. for that loss unless. the branch. had failed to follow.
the correct ATM accounting procedures,
Any, escalated investigation. in the last 3, years,relating to unresolved cash,
discrepancies involving a branch ATM;
See.answer.to.question.4.6a above.
Any. instance in.the last 3 years in which Post Office, Bank of Ireland or Wincor.
discovered that any.of their authorised engineers or representatives had stolen,
cash.from.any. branch. ATM;.
There.is no. record of an authorised engineer or representative (excluding,
Subpostmast f Post Office, Bank of Ireland or Wi teali hf
The only incident that Post Office is aware of relates to.a Wincor employee in.
2013, though at this juncture it.remains.only an allegation. No branch in the
Scheme. was affected by. these alleged incidents,
Any. instance. in.the last 3. years in. which, Post Office initially. determined that a cash.
Joss.was.attributed to.a Subpostmaster, but where. it. was subsequently found that the.
Subpostmaster.was,not responsible. for. the loss;
As explained to Second Sight previously, Subpostmasters can challenge any cash.
loss or Transaction Correction in their branch in relation to ATMs, In many.
circumstances the information needed to determine the cause of a discrepancy is.
only. held by.a Subpostmaster,
e)
f)
8)
POL00041076
POL00041076
It is therefore ly. that there have been occ: 3 when.a Trar
Correction against a Subpostmaster has been challenged and reverse
accordance with standard operating practice.
The guidance issued to Subpostmasters relating to the.'16:30.- 16:30 Print Totals,
Reports! in.circumstances where the. rear door of the ATM is located in.a.retail shop.
or other non-secure area. Js the Subpostmaster required to. close the retail shop.
when obtaining the.'16:30.- 16:30 Print Totals Reports’ in. these. circumstances?. How.
does Post Office monitor and enforce this policy? The Print Totals Report is. not.
required for. balancing the ATM and does not have.to.be printed out on.a daily basis
as it is only required when additional cash needs to be loaded into the ATM.
ensure cash is correctly, loaded into. the ATM (i.e. to ensure the correct number of
banknotes is placed into the ATM).
As the ATM safe/cassettes would need to be accessed at this point, and in
accordance with the guidance. included in.the ATM_Operator, Accounting.
Instructions and Post Office Security Manuals, the premises must be closed to the
public at this time.
It should be noted that the Bank Totals receipt (24 hour cash dispensed figures for
16,30 to 16.30) needs to be printed on a daily basis to allow the cash dispensed figures
tobe entered into Horizon. As only the rear. cabinet door to the ATM has.to. be.
opened, and not the ATM safe, this receipt can be printed while the branch is. open
to.the. public.
Security procedures at branches are part of the compliance audits undertaken at.
branches, Subpostmasters are asked about the branches security procedures at.
the.compliance. audit so Post Office can verify. that. the. correct. processes are being.
followed,
Any. instance in the last 3 years in. which Post Office, Bank of Ireland or Wincor.
became. aware of a customer receiving more cash than they were entitled to from.an.
ATM. Please also provide full details of how the resultant cash shortfall was dealt.
with in the branch's ATM/Horizon balancing process and whether any.
Subpostmaster was held accountable for losses that were later found to be.
attributable mechanical problems with an. ATM;
5 paper, ight.
‘on ATMs which explains the processes used to detect, and protect branches from
In relation to the statistical informa
4,6a, above.
n sought, see the answer to question.
How Post Office detects and deals with incorrect items reported in the ATM.'16:30
16:30 Print Totals Reports’ in circumstances when the incorrect figures have also been.
reported electronically to Bank of Ireland. Please also describe the accounting
treatment of any loss that occurs in these circumstances;
Post Office does not consider that. ATM reports are unreliable, However, if there.
were.an.issue with. the. A630. report. it would be the same.data feeding. through.to.
Ba
{accurately from the report which, it is being. claimed, could be wrong) then the. data
9
entify any issue as the two figures agree with each
event, Post Office FSC would no
other,
It.would be the Subpostmaster that would be.in.the position. to detect the anomaly...
This is because the Subpostmaster is required to. do.a weekly physical balance of
Is,.dur
nthe phy:
data indicates should be init.
The. Subpostmaster. would then. be able. to. make.a.call.to.the helpline.as with any.
other balancing issue.
Th st
Office finance systems would include the 1630 data and any enquiries/disputes
about that data would be handled in the same way as any other balancing que!
h) Any. instance in.the last 3 years.in which Post. Office, Bank of Ireland or. Wincor has
become aware of any. theft relating to an. ATM, .that.was carried out (or suspected
of having been.carried out) by any.person. other than.a Subpostmaster ora branch
employee. Please also describe the accounting treatment of any associated loss,
Please.refer.to, the answer. provided to.4.6.c,
5. Transaction.anomalies associated. with, Lottery. Terminal or Scratchcards
Axnumber of Applicants to the Mediation Scheme have complained of alleged transaction.
anomalies relating to the lottery terminal in their branch or the accounting process for.
Scratchcards. Post Office has addressed these issues in.detail in its.investigation reports and in.
its response to Second Sight's Part 2 Report.
the. last 3.ve
5.1. Please provide full details of any. instance ji hich any, Post Office.
or Camelot employee or representative has been found to have stolen Scratchcards or.
Post Office procedures for the return of activated and Unactivated Scratchcards is.
detailed.on Horizon. Online Help..The.relevant.extract is appended at Annex 7.
Further, there are regular Branch Focus, updates reminding branches not to give packs to.
Camelot Representatives, An example of which is appended at Annex 8.
5.3. 1s it possible for a Camelot representative to activate packs of un-activated cards without.
the knowledge or approval of the Subpostmaster? How would this unauthorised activation
be dealt with.on Horizon?
Anyone.with access, to. and knowledge of the Lottery. Terminal in.a.branch (which is.often
located in the retail side of the premises) would be able to activate cards. Unactivated
packs, should, however, beheld securely. by.the Subpostmaster.and the Lottery. Terminal,
would be expected to be subject to a form.of security in branch.as it is sited with cash and
toc ately, unauthorisi ss.to, the Lottery, inal isa,
Subpostmaster's responsibility,
Ifan_ unauthorised activation were made, it would currently lead to a Transaction
10
POL00041076
POL00041076
, the, branch.to, “rem” the pack i the.
deployment of TA’s, it would have led to a Transaction Correction (TC) being sent to
the. branch, with the same effect of remming the pack in.
Both. of these. events (TA or.TC). would. lead to.a. message. being presented on Horizon.to,
branch staff requiring formal acceptance by the branch., They.could in.turn be challenged
and more, evidence asked for by, the Branch, The TA or. TC could be validated against.
records from the Lottery Terminal.
5.4, Js it true that whenever a claim for a prize is made, in,respect of at that point an,
un-activated Scratchcard; the entire pack from.which.that card was taken is automatically
activated? Please describe the accounting treatment of any Scratchcards that are activated
inthis. manner.
Yes,.The. subsequent accounting would be. the same.as.noted above.in the. response. to, 5,3,
5.5. Prior. to. the changes made to Standard operating Procedures in, February 2010, and the.
s 2, .
branches were making similar mistakes in regard to processing Scratchcards? Please
(Ps
provide a schedule showing for.each. month, how.many. TCs were issued and.of what
aggregate value (separating TC Invoices from TC Credits) during the years 2005 - 2011 in.
respect of Lottery. matters?
There.are. number of reasons that a TC can be generated in.relation to Scratchcards and.
each is handled on an individual basis. However, in Post Office's experience some of the
more likely reasons for TCs are:
¢ — Branch.rems.in.stock.on.Horizon, but does. not activate. it.on.the Lottery. terminal —
This would mean that stock in Horizon is."inflated", A comparison would be made
between the. records of stock activated on the day and the volume of stock,
entered into the Horizon system. This scenario would require a debit TC to remove
the stock from.the Horizon system..The.TC would not affect the. cash balance in,
branch.
¢ Branch activates stock on. the Lottery terminal but do not.rem it.in.on Horizon —
This would mean that stock in Horizon would be lower than physical stock in
branch. Any. sales. made would potentially push the. branch. into. negative stock. A.
comparison would be made between the records of stock activated on the day and
the volume. of stock entered into the Horizon system. This scenario would require.
a.credit TC to introduce the stock into the Horizon system. The TC would not affect
the cash balance in branch.
* Stock adjustments — Branches have been known to use the stock adjustment
function.to introduce stock into the branch. Lottery Scratchcards are. “value.
stock” meaning that they feature on the balance sheet and form part of the.
branch's overall stock value. By adjusting stock into the branch.rather. than.
introducing stock via.a remittance the volume of the stock adjusted into Horizon.
reduces the cash holdings in. Horizon by.the equivalent value. When the branch
next declares their cash, there will be a cash gain. This scenario would require a
debit TC to introduce the stock into the Horizon system. The TC would not affect
the cash balance in. branch.
Itis noted that all of the above causes of TCs are.a result of errors by branch staff however.
none.of them cause an actual loss to a branch. The TCs simply correct errors in. the.
accounts.
POL00041076
POL00041076
rsactions,,
and debit TCs,
lowing, page.is data, me. issued fe
does not have readily available data to separate this into cre
month or.on their value.
2014
Post. Office. considers that these figures are influenced by multipled business as.usual.
changes in process, and procedure (both in.the accounting for Lottery. products and
the issuing of TCs). These. can.cause. the. number of TCs.to fluctuate,
6. Transaction anomalies associated with Foreign Currency.
Post Office. is not. aware that alleged anomalies connected to foreign.currency transactions,
have. been raised by.a material number of Applicants to the Mediation Scheme. Second Sight’s.
questions on this subject are answered below however this issue may.be better addressed on
a.case by case basis.
6.1. provide full details of how. the Forde Moneychanger (‘FM’) system operates. Please.
explain i ; ;
to. Subpostmasters.
‘The Forde Moneychanger.was.used to. manage foreign.currency. transactions and stock in.
branches before these functions were carried out on Horizon. Each morning, the branch.
would receive a fax with the daily. exchange rates on it and a. member of staff would enter.
each rate into the machine. manually..The machines also sent.rates to the rate board
{which displayed the rates to customers) and, once this was. done,.a member of staff.
checked the rate board to verify that the rates were displayed correctly.
provide. the. customer. with. a receipt and branches, with, a copy. of all transactions and,
balances.
Each.night a stock report.could be run.to.check the daily totals, Each Wednesday the.
machine was balanced and the totals were then transferred by.a member of staff onto.
Horizon where the foreign exchange stock would be ‘balanced’ again. The figures were.
entered onto Horizon as bulk totals; individual transactions were not entered onto.
Horizon.
POL00041076
POL00041076
POL00041076
POL00041076
transaction carried out at a Special FX rate and the expected Normal FX rate? As an
example, if a. customer.was given €150,000 in.exchange for £100,000, whereas the Normal,
FX rate would have only given him.€145,000, how did the FM and Horizon systems account.
for.the.€5,000 difference?. What flexibility. was.or.is available to. Subpostmasters. when.
agreeing to
non-standard FX rates?,
The. Forde Moneychanger machine. was.a stand-alone piece of equipment.used to. convert,
sterling into currencies bought and sold to customers. Print-outs from the machine
detailed the.value of currencies on hand that.the. user would validate. by. way.of a, physical,
check. The sterling equivalent of these currencies was then entered into the Horizon.
system,.A revaluati e.
Horizon system. Providing the amount of foreign currency on hand matched what the
system stated should be there, the branch accounts (specifically the foreign. currency stock.
unit) would balance as the revaluation figure accounted for the difference in exchange
rates from.one accounting period to the next, The actual exchange rate. at which currency.
was sold was irrelevant as this was accommodated in the revaluation figure. So, by the
Applicant selling, currency at a. more favourable rate to the customer.and processing this
through the Forde Moneychanger machine (i... manually altering the rate on the
machine) .the stock unit accounts would still balance.
A special rate. for. foreign. currency. transactions. over. £2,000.00 could be obtained
by.contacting First Rate Travel Services by telephone .at the time. of the transaction.
The.transaction. would then.be. processed via the FM.machine.at the special rate.
6.3. Allegations have been made. about unauthorised access to transaction data by staff
located at the Fujitsu office in Bracknell, As previously requested and agreed, please
provide the email archives. in.PST.or. NSF format for Post Office. staff working in Bracknell.
during 2008,
In light of the discussions had with Second Sight and clarifications given, Post Office is
working with Second Sight to provide an. appropriate. response. to this. request, Further. to your.
conversations with Belinda Crowe on.20 January, you agreed to provide the specific questions.
to.which you were seeking answers and the key words you would use to. undertake a word search,
on any further data that it may be possible to provide. We are still waiting to hear from you on that
and will pick up with you separately.
7. Transaction anomalies associated with Bank / GIRO / Cheques
7.1, We.are.aware.that.every night,.a data file is sent to every. bank into. which its customers’
have deposited funds, and from which its customers have withdrawn funds, It is then,
those banks. that. bear. the.responsibility. to. reconcile. Post. Office's record of what. has.
taken. place.with, own. records of the entries that have been processed each day into.
their customers’ accounts.
7.2. It follows that each of those banks is expected by Post Office to take action where (for
example. due.to. telecommunications. interrupts between. a.customer's bank.and.a.branch's,
Horizon system) a customer's account has not been debited or credited by the bank when,
Post Office's records show. that it should have been, or where.a.customer's. account has,
been debited or credited by the bank when Post Office's records show that it should not
have. been..The bank would then usually use this. data to. correct its errors and remove. the.
additional deposits from.the customer's bank.
This.is a statement with no question to answer
7.3. provide us with a schedule listing all TC’s issued to branches in the last 12 months.
7.4,
7.5,
the uh, ae
into line with the actual transaction that occurred in branch (as recorded on Horizon). In
the.usual course. of events, this would not typically generate any. return. of monies. back to.
POL — rather this is a process for correcting an accounting error in the bank's internal
records,
Post Office believes it may. be useful for Second Sight to. meet with individuals from.Post
Office to discuss this matter in more detail.
Please provide us with a schedule listing all amounts received back from any.bank,
in.response to that reconciliation process in the last 12 months, clearly describing,
the accounting treatment of those amounts.
Post Office believes it may. be useful for Second Sight to meet with individuals from Post
Office to discuss this. matter in.more detail,
We.are. aware that in. some. circumstances a.customer.may.benefit from.a duplicated.
transaction. Please provide full details for any. such instances that have been occurred in.
the last 3. years and state whether any Subpostmaster was held accountable (during any.
period beyond the end of a Trading Period) and required to make good the resultant
shortfall.
As.described in Post Office's more detailed paper at Annex.11,.this scenario does not.
give. rise to any.loss.to.a branch,
POL00041076
POL00041076
POL00041076
POL00041076
7.6. We are aware that the November 2008 phasing out of two-part paying-in slips increased.
the possibility of error or fraud impacting Subpostmasters. Please state what compensating.
controls were implemented as a result of this process change and describe the consultative
process that was used prior to implementation. Please provide details of the anticipated.
cost savings associated with this process change together with the estimates of increased
financial risk i.¢..the.cost benefit analysis carried out by Post Office.
Issues regarding Girobank deposits that are in scope have already been addressed in the
paper at Annex 9, as previously supplied to Second Sight. As described in that paper, the
change from paying.in slips.to. "chip.and.pin" was driven. by. the client bank and was,
beyond Post Office's control. Any.cost-benefit analysis would therefore have been,
undertaken by. the. client bank and not Post. Office.
7.7. Please provide us with.a schedule showing. the monthly. volumes. {and the aggregate.
ices compared to Cre ued to branches, in regard to_
Giro. payments.and Girobank Deposits and. Withdrawals, i inthe years 1999 — 2013.
Post. Office does not have.ready access. to. data for. the whole. of the period specified nor.
data broken down, by. month. Howe does, have the data below. from September 2007.
to. March 2014, Please note that in this data "deposits" includes "payments".
Post Office does not know. which particular. issue raised by Applicants this data is seeking to
address. If Second Sight requires data toa more granular level of detail, we should be.
srateful fora discussion.of the. purposes. behind this. enquiry.so. we. may. determine. what.
data.may,be available.
7.8. We note that cheques not covered by a Cheque Guarantee Card were not an acceptable
Method of Payment for certain transactions e.g. the sale of Foreign Currency, Please
confirm whether or not Horizon is programmed to reject unacceptable Methods of
Payment in.these circumstances, Also, if.a branch has. systematically been accepting
cheques in amounts that exceed approved limits, is there a process whereby those
repeated errors are detected and corrected?,
Horizon can.advise.on.the method of payment, but a clerk can.in practice choose to. take
a.cheque instead of cash, for example, but still record the transaction as cash.on.
Horizon. Horizon is programmed to indicate the appropriate methods of payment for
products, If. card payment is not acceptable then it would not be offered and the card
would not be
recognised. If cheque is not acceptable then the cheque payment icon would not appear but
Post Office cannot control whether a branch chooses to ignore that fact and still take
a.cheque and process at the point of settling the transaction as. a cash payment
Whether or not.a cheque was covered by a Cheque Guarantee Card was not the reason.
behind whether a method of payment was acceptable regardless of whether a guarantee.
card was presented. Acceptable payment methods were dictated by what range of,
payment. methods Post Office’s corporate clients wanted Post Office to offer.
As regards the Cheque Guarantee Card, these no longer exist as they were phased out.
by.banks.
7.9. Weare. aware that in. some.circumstances Horizon does not record transactions.
accurately.
Specific examples include:
Post Office is not aware. of the. “circumstances” alleged by Second Sight in.this question.
a) Where, during Horizon’s.recovery.mode. processing, some. transactions, that were.
not. processed, or were. only partially processed, may. not. be. properly.corrected.
when the system invites the counter clerk to correct the errors or omissions and, if.
the screen instructions to the counter assistant are. interrupted (as would be likely.
to.happen.where there are telecommunications.or power interrupts).then.
discrepancies. may.ensue;,
The. transaction. may.not be recorded accurately, but that is. due to how. the clerk,
applies and follows the. “recovery. instructions” which have been issued to branches.
(please refer to Annex 10). Whilst it may have been the system that hada
connectivity issue, the error in accounting would be due to the user’s failure to follow the
recovery instructions, nota failure by Horizon to record it accurately. Accounting
i yt i 10. The quick refer
b) Where misalignment of screen icons results in the inadvertent execution of the
wrong. type. or value of transaction;
There is a screen calibration appli which can be. invoked at any, time by.
the Subpostmaster from the 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
POL00041076
POL00041076
POL00041076
POL00041076
the issu
¢) Where. Foreign.Currency. transactions have been incorrectly. accounted for through
interaction between the Forde Moneychanger System and Horizon (Note: we
regard the FM system.as.a.component part.
i
“Horizon'); and
As
d) Where system-to-system interface problems result in. incomplete transaction.
processing e.g.,.where. ad, PayStation or other. piece. of equipment fails..
to.complete its. part.of.a transaction.
Ifthe above scenarios took place, the transaction would simply, decline. or the
customer would be asked for an.alternative method of payment, As the transaction,
would be declined and the branch's accounts thereby left in balance, there is no
need for any follow-up accounting process.
7.10. Please provide full details of the controls and procedures that will detect these
types of error and describe the accounting procedures that apply in.these circumstances.
The accounting procedures for these are conducted in branch and, wherever. a
particular. process is. necessary,.it has been described above.
7.11, Weare aware that 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, Please provide monthly totals showing the aggregate of all such losses.
in the years 1999 - 2013, describing how much of that loss was absorbed by Post Office and
how.much.was. passed on to Subpostmasters,
Post Office has previously. explained (via Spot Review.12) to Second Sight that lost.
cheques cannot be the cause of loss to a branch unless it.can be shown.that the branch is
at fault.
Further enquiries have been made into possible contextual data on this topic, Post
Office does not have data readily available regarding what, if any..""missing cheque”
losses would have been. passed to Subpostmasters. As noted previously, compiling the.
data sought by Second Sight would be. a disproportionate exercise given. that Second
Sight accepts that.in.principle. this issue could not create a.loss to a branch.
nevertheless, Post Office has conducted further analysis to specifically review the last
A.months of cheques submitted by branches. In. that period, branches have taken
1,850,204. 452 cases arose of missing cheques (0.02% of the total processed). Further
investigations and action by FSC resulted in 35. Transaction. Corrections being issued
to.branches (0,0002%).
7.12. We are aware that some Subpostmasters routinely accept high-value cheques.
from.customers that are in excess of the monetary. limits set by Post Office. Please
describe the procedures that were followed prior to determining these limits and state.
the accounting treatment of losses that occur in. these circumstances,
Products may have limits (e.g. savings. may. only be up to certain values); itis not.the
cheque that is limited. There is no high value cheque limit set by Post Office.
7.13. We are aware that processing or technical failures can occasionally give rise to.‘one
:Sided! transactions. We are also. aware that Post Office has stated that ‘in any.event.a
branch.will never be liable for an.error. caused by.a,'one-sided’ transaction’.
POL00041076
POL00041076
be liable for what Secon
7.14, Please describe the. controls and processes that detect one-sided transactions.
in.circumstances such as when.a customer withdraws funds from an account at the.
branch.counter.but, although he.has.received the. cash, the account. never. gets
debi
This question has already been addressed by a paper appended at Annex 11 which.
has. already been supplied to Second Sight.
Nevertheless,.“One sided transaction” implies.incomplete double entry. We. would
be grateful if Second Sight, would cease the inappropriate use of the phrase.“One.
sided transactions”,
What the. question actually asks about is. completeness of record keeping.
Ifthe transaction interruption occurs, uring the. Horizen, accounting. process, it would be.
Sight.
If the interruption is beyond the branch, the branch accounts are not affected. How banks
would then, detect their.own failure.to debit their. customer's accounts.isa,matter.of their.
internal process. From_a Post Office point of view, the withdrawals recorded in branch
N's . central vendor, account which Post Office would in.turn,clear,
down by payments received from the bank, If the bank had not debited their customer's
account then, that would likely manifest itself in them. not paying Post Office centrally and.
Post Office would challenge them with evidence of the original transactional record. Thi
not.a situation, that would. lead to.a. discrepancy. for.a Subpostmaster.,
8. Transaction anomalies associated with Stamps, Postage Labels, Phone Cards. or Premium Bonds
8.1. We are aware that occasionally postage labels are purchased by customers, but the
printer fails to print correctly, Please describe the procedure whereby the Subpostmaster,
can.recover the. cost of the missing label in. circumstances. where the. missing label has not.
been processed as. a 'reject’.
Ifthe label has. not printed correctly. then.the. clerk. confirms.“no” and another Jabel
is printed,
ein, PI
to! “spoil them.so. that the branch. is not disadvantaged. There is.a clear process in Horizon,
and. the branch is required to retain, the spoilt label, This. is appended at Annex 12,
Tobe able to claim a label as spoilt, the branch is required to produce to Post Office.
the spoilt label as evidence,
9. Hardware issues. e.g..printer problems, PIN. pads, touch screens. and PayStation
9.1. We are aware that occasionally branch Touchscreens get, "out of alignme:
these circumstances touching one icon generates a system response. associated with another
icon. Please provide full details of the controls and procedures in place that detector.
prevent this.type.of problem.
Please refer to. the answer. provided. to.
7,9b
10.
10.1. A f appli
problem.will sort itself out".
This is a statement with no question to answer.
10.2. Please provide full details of the actions taken to investigate these allegations.
and_ confirm, whether, or not Helpline staff have, been. instructed to never, say "don't,
worry, the problem will sort itself out", or similar words.
Where such allegations have been made by Applicants to.the Complaint and
Mediation. Scheme, Post Office, has fully. investigated the NBSC.calls.logs.as.part.of its,
thorough investigation and reported its findings in,the Post, Office Investigation
Report,
In_relation to certain transactions, Post Office has in place processes and controls to.
detect particular errors by branch staff. Where an error is detected, a transaction,
correction. may be sent.to.a branch to correct a. mistake. In these circumstances, it may.
well be correct for NBSC to advise a branch to await receipt of a transaction. correction.
amongst.other steps. Post Office understands that it is this scenario that is being referred
to. by. Second Sight and considers that this advice may. be appropriate. in.the. right.
circumstances.
10.3. Please. provide details of Post Office's Policy and Standard Operating Procedures in.
regard to those situations where customers leave parcels and come back some days later to settle,
their accounts, Specifically, what is Post Office's position in regard to the credit risk that,
Subpostmasters take, and the potentially. ‘false accounting’ issues that those Subpostmasters risk,
when they routinely allow customers (such as eBay Sellers) to drop offlarge quantities of parcels
that are then dispatched by settling the labels to 'Fast Cash’ (even though no cash has at.
that point been.received from. the customer) and then reversing all those Fast Cash,
payments to. cheque when the customer later pays by cheque?
Post... Office... does...not... have...a....policy....of.. providing... credit... to... customers... Where,
Subpostmasters have done so, they have contravened Post Office operating instructions
which, state that at the point the transaction is completed the appropriate method of.
payment should be taken from the customer,
Therefore,.the.risk would be the Subpostmaster’s.in.respect of an.unsettled payment
from.the.customer,
11. Training and Support issues. including Helpline and Audit
Another issue running through the applications to the Mediation Scheme was the alleged
poor quality of training and support provided by Post Office to Subpostmasters.
Second Sight’s questions on this topic are dealt with below however Post Office considers that.
issue relating to training and support are. likely.to be. case specific.and does not see how this.
a.thematic issue suitable for Second Sight's Part 2 Report.
111. Please. provide us with full details as to how the following issues are dealt with,
during the handover toa. new. Subpostmaster:
a) Ensuring that the new. Subpostmaster has. manager/supervisor-level access rights
tothe branch's Horizon system;
POL00041076
POL00041076
POL00041076
POL00041076
¢ Delete any.obsolete. users. from.the system and.ensure.that.the incoming.
Pe dt
correct format,
e¢ i ’s agal
e Any staff working in. the branch that are not registered with HR should be
reported via the Anomalies Report that the FSA completes to notify HR.
so.that they can follow up with the Postmaster.
¢ — Inform.the Postmaster of the correct process for registering assistants with
HR,
© Set.new.alarm.codes once the transfer is completed under FSA supervision.
* Add.new.user(s) to. Horizon ensuring that all staff are also listed.on.
the reporting form to HR,
b) That every.employee has a unique User ID.and
password; Please refer to. answer provided to. 11.1a.
[2]
Some. branches operate. with just one.“shared” stock unit.as. they don’t feel the need
to have individual units (this depends on the branch’s preference).
ATM's are.required to havea dedicated stock unit. This is checked on. branch audit..If
the branch does not have a separate ATM stock, one is. created (instructions on.how.
to do this can be found in the Additional Horizon Procedures on EASE) which stands.
for ‘Engaging and Supporting Effectively’ and is the library of tools, official forms and
processes from which the Field Team take all of their instructions in the deployment
i rt Activity.
da)
Office; Please refer to answer provided to 11.1a,
11.2. Weare aware that, when attempting to correct errors. made. at.the counter, and to,
deal with incoming TCs, some Subpostmasters make matters worse by making further,
mistakes at that point. Please describe the controls. and procedures in.place to detect and.
prevent or correct these types of commonly. made. error.
“Correcting errors” and.“dealing with incoming TCs” are different things, A branch. may be
seeking to, correct an.error it, has spotted itself well before.a TC becomes necessary,
When correcting errors, some Subpostmasters.do indeed sometimes. make further.
errors. The controls and process are:
° Through their own vigilance in.concluding a transaction they should
spot.issues;
e Through daily cash declarations and other routine supervision of their branch.
20
11.3.
a)
b)
¢)
qd)
POL00041076
POL00041076
they, should spot errors;
Having spotted an issue they.can.use local transaction logs to. review and reflect,
on transactions; and
If they cannot determine the root cause themselves then they.can.call the
Helpline who in turn may involve FSC. However, for many. errors made at the
counter by branch staff, there may be limits on what investigative support Post.
Office is able.t ide because it is. not aware of what is physically happening.in,
Please provide. full details of the following:
satisfaction with regard to the NBSC and HSD Helplines;
NBSC performance is measured on.the time advisors take to answer the phone,.
referred to as.a.“Grade of Service”. The target is to answer. 70% of calls within 30,
seconds and to have.no.more.than.5%. of abandoned calls (i.e. where the.caller.
hangs.up before reaching an advisor). For complaints, NBSC’s target isto. resolve
95%. of complaints within 10 working days.
Further, the Subpostmaster engagement survey also measures satisfaction levels.
of f the NBSC - th t. it of,
felt.that.the support from, NBSC was effective.
The.extent.to. which that advice provided by. the NBSC and HSD Helplines is.
monitored and quality. checked;
Alladvisors are coached through.a robust quality process called ‘rewarding skills’.
This involves the team leader listening into.a selection of calls and providing
feedback on.call handling, customer service and quality of the response.
The extent to which the written, reports (call logs). of the NBSC and HSD Helplines,
are.routinely compared to the actual calls and quality checked;
As part of ality, m ing as outli 1,3b,.t ILlog is checked to
ensure. that it has been categorised correctly and relevant details of the.call are
logged. There are.no written reports as all calls are logged onto a robust call logging
system,
Any.surveys.or quality. control techniques used to assess the adequacy of
training provided to Subpostmasters;.and
Following these support activities which are supplied by the Field Support
Advisors. (FSA).,.across.all branch segments in. the Network, the. FSA will ask the.
5
21
e)
11.4.
A form is handed out at every activity as described below:
At all Audits including Branch Closure Audits;
Classroom and on-site training. (BAU. & NT);
Post Transfer Visits;
Interventions. visits - including Non-Conformance Visits (NCV’s) e.g.
Mail Segregation / Dangerous Goods / other Non—Compliance/.
standards activities.
ee ee
Exceptions include:
© Anaudit resulting in Suspension;
e — Special Request audits — where fraud is
suspected. Performance Management
All feedback is submitted directly to Kendata, then summarised and sent to the
line. managers.of the Field Team and the individual FSA. The reports are tailored
to.the different levels of line management on terms of detail ranging from full
detail including comments at the FSA and FTL level, up to an overview of
performance by teams and activity at Senior Manager level.
Each Field Team Leader (FTL), the first.line managers of the FSA’s, will discuss the
performance of the FSA’s at their appraisals unless there are any.concerns raised,
in_which case this is dealt with as soon as the reports are received, If further
information is needed to hold an effective discussion, the FTL will call and speak to
the person. providing the feedback, wherever possible, to further understand the.
issues.
The. FSA performance, and the FTL’s team performance is discussed monthly.as part of.
their appraisal with the Regional Manager.
The feedback received on the activity itself is. used alongside other information.
gathered by the Lead Team to drive and inform. change and improvements to the Field
Team. support offer.
Examples of the forms used are appended at Annexes 13,14 and 15,
training provided to branch staff other than Subpostmasters,
This.is.a duplicate of question 113d.
Process issues at the end of each Trading Period
This question is not understood,
11.5.
Please. provide full details.as.to. how.and.when.Post. Office notifies Subpostmasters,
that they may.extend a Trading Period. into what should be the next Trading Period.
Branch trading dates are communicated to branches annually through Branch Focus (the
branch newsletter) and are also updated on Horizon online. help. Ifa revision. was.
needed during the year the same process would be followed.
Ifa branch wished to, request permission to extend their trading period they should, contact
22
POL00041076
POL00041076
POL00041076
POL00041076
contact the FSC Relationship Manager who. may consult with the Network Contract
Manager..The formal response could come. from any. of the three parties, depending on the.
circumstances.
11.6. Please provide full details as to the options available to any Subpostmaster who,
at the. end of a Trading Period, discovered a shortfall that was:
a) Larger. than.they.could ‘centrally settle’; or
The.upperlimit.on being able to ‘centrally settle’ is £999,999.99, Should such.
an. incident occur, Post Office would manage by exception.
b) — Only.discovered after. the Helpline had closed for the.evening.
They. could delay closing the Trading Period until the next morning — they could then,
contact NBSC before opening the following day. However, well run branches would
be unlikely to have last minute surprises like that, because it would have become
evident during other daily cash declaration processes and checks during the
i a Subpostmaster,
11.7. Bearing in.mind that some TCs would be issued many.months after the original,
shortfall, what options are available to Subpostmasters to ‘fund’ shortfalls that exceed.
their'central settlement’ limit?,
Please. refer.to, the answer. provided to.Q.11,6a,
11.8. Please provide full details.as.to. the. consequences of introducing.'Montbly. Trading.
periods.
For example, did Post Office notice an increase in.the number of branches
suffering discrepancies that led to contract termination?
Having made. further enquiries on this question, Post Office confirms that it does not.
hold this. data.
11.9, We understand that when Post Office moved to Monthly Trading, Branch Suspense
Accounts thereafter had to be closed out to zero at the end of each Trading Period, Please
provide full details of options available to.a Subpostmaster dealing with the investigation.
ofa loss just before the end of a Trading Period,
This is answered in Section 9 of Second Sight's Part 1 Briefing.
ct between the Post Office and Subpostmasters
the.col
a) — Any.insurance. coverage. Post. Office, has ever. offered to arrange.fo
Subpostmasters; Though. this.question is.out.of scope, it.is.a function performed by.
23
b)
°)
whether or not they opt in.
The measures Post Office takes in order to reduce the risk that incoming.
Subpostmasters, who take over an existing branch and its staff, may be inheriting
mployees who, have been found to be,.or are suspected of having been,,
competent or dishonest. In this context, was. there, or is there now, any.
competency and integrity verification, performance appraisal,.or formal.
disciplinary/warning process whereby outgoing Subpostmasters and Post Office's
own Line Managers could warn incoming Subpostmasters where questions had been.
raised?
Staff. members/Subpostmasters’ assistants are employees of the Subpostmaster.
and not Post Office Ltd. It is the Subpostmaster who performance manages the
staff. members including any disciplinary action as appropriate. itis also.a
Subpostmaster who needs to assure themselves that any assistants are suitable for
the role by conducting interviews, seeking references, etc,
When a Subpostmaster recruits a new member of staff there are a number of checks.
that have to be undertaken (e.g. right to work in the UK, proof of identity and proof
of address along with their five year work history).
In.addition, the individual must be. registered with Post, Office, Ltd so. the security,
checks can be undertaken (e.g. criminal record check). There is. an annual check of all
assistants, to. ensure they have been cleared through the pre-employment checking.
system. A recruitment file has to be established and maintained holding the basic
Under their contract for services with Post Office, every Subpostmaster must
establish. maintain.and adhers.t
ed in.the contract,
Subpostmaster contract for services paragraph 9 for further information).
The measures Post Office takes in order to satisfy itself that potential
Subpostmasters have the necessary skills to meet the challenging requirement of
being.a Subpostmaster?
This is undertaken through:
a) The provision of a business plan to support an individual's application;
and
b) Acompetency. based interview. of the. individual which is, undertaken,
by.trained assessors,
At interview, applicants, are assessed. on, their ability, to. explain their business,
proposition, answer any, questions. raised and provide examples to. demonstrate their.
understanding of what is required across a number. of competency. areas. The
business plan is also assessed financially by the Finance team.
24
POL00041076
POL00041076
POL00041076
POL00041076
d) Ho i es that Subpost sop}
later. than, the day, that. they.commence their.position.
The.contract document is issued with the offer of appointment when.an individual
is advised they have. been successful at interview. This. has been. the process since.
2001,
ave. Page.
Letter and not necessarily been provided with a copy. of,
a ibe the basis upon which Post Office considers the Contract.
enforceable. in these.circumstances?
Post Office has stated on.a. number of occasions that matters relating to the.
Subpostmaster contract are out of scope and that, as this is a legal question, it is outside
of Second Sights area of expertise.
Howeve:
in.the. interests. of providing Second Sight with.as.much. information.as.
enforceability of contracts, the response to which will be informed by the particular,
si indivi ir applicati legal,
principles, Though it is not therefore. capable of giving rise to.a general response itis
worth noting that the “Acknowledgment of Appointment” document, whilst not the
ostmaster.has.been.given.and has.accepted,
12.3.We understand that Post Office considers the terms.of the Contract to be broadly similar.
to those_used_in franchising arrangements across the UK. Please provide full details.
evidencing this. proposition?
A franchise agreement is.a private. contract. between. two (or. more).parties recording
the basis on which they agree to.do business in their particular circumstances. The
SPMR.Contract is similar. in. that rds the basis on which Post Office and,
Subpostmasters do business.
Enclosed at Annex 17 is. an extract from the Encyclopaedia of Forms and Precedents. This is.
aleading legal text providing precedent agreements for various situations. The extract is
Form.18 from Vol 16(4) and isa precedent for a,"Non-Exclusive franchise agreement fora
retail business”.
As.can.be seen. from.the Precedent, the terms.of a standardised franchising arrangment are.
broadly similar to the terms of the standard Subpostmaster Contract. There are obviously
some.differences between. the two as. the Subpostmaster Contract is tailored to Post.
Office's business whereas, the Precedent is generic however the core principles are largely
the same.- for example (number references are to clauses in the Precedent):
© Premises (4.and 9): Both Franchisee and SPMR are. both. responsible for leasing
the premises and.ensuring that itis appropriate to operate the business.
© Setup costs (10.1.2):
ided
some, but more limite
he Franchisee must pay for the initial fit out and equipment
ichisor.,
i, circumstances.
© Training: Franchisor. / Post. Office to. provide initial training to. the franchisee /,
SPMR (5.1.1) and the Franchisee/ SPMR is required to train their. own staff (9.2.11)
¢ Employees.(9.3.5); The Franchisee / Subpostmaster.is.responsible for.
25
POL00041076
POL00041076
employing suitable staff,
© Equipment / Software:.The Franchisee,/ Subpostmaster. is. required to.record all.
sales and other financial information using the equipment and software provided
by.the. Franchisor (9.2.23, and.10.9),
¢ Telephone lines (9.2.22): The Franchisee / Subpostmaster.must provide the.
communications line for the EPOS systems and credit card machines,
© Advice (6.2): At the Franchisor's discretion, it may. provide advice to.a Franchisee.
on.how to operate the Franchisee's business — this reflects Post Office's approach.
to providing advice through its helplines,
¢ — Problem.support.(6,3): Any.support provided by. the Franchisor to, the Franchisee,
to help resolve problems will be at the Franchisee's cost. There is a slight
difference here in that although Post Office's additional support is voluntary, itis.
provided at nil cost to Subpostmasters.
© Changes in, business (9.2.2): Both Franchisor and Post Office. can change its business
model.and products for sale,
¢ Information / Accounts (9.3.8 and 10.9) ~ the Franchisee is responsible for,
the accuracy of all. reports, information.and accounts,,
© Audit (9.2.13 / 13): Both Franchisor and Post Office have a right, but not a
requirement, to audit the Franchisee / Subpostmaster. Audit is described in the.
Precedent (13.1) as.an inspection of the business. and books — not.a full
accountancy audit. This is inline with Post Office's use of the word "audit".
© Responsibility for accounting errors (13.2) — Franchisee must." promptly rectify".
any.accounting error — again this is very similar to the wording the SPMR Contract.
© Liability: The Franchisee is required to indemnify the Franchisor for any loss
resulting (i) a failure.to follow. the business operating practices (9.3.7.3) or (ii).
“any deliberate or negligent act, error or omissions by you or your employees"
{9,3.7.4).;.this.is. almost identical.to the SPMR Contract wording.
In.any.event, the terms of the Subpostmaster Contract are the terms on which Applicants.
agreed to do business with Post Office. It is the relationship described in those terms that
must. be. applied when. assessing Post. Office's. anda Subpostmaster's. actions, It is not,
open to anyone to look to retrospectively impose new duties on Post Office that did not
previously...exist,..For. this. reason, Post. Officemaintains..that..challenges_to.the
Subpostmaster.Contract_are outside the scope. of the Scheme, which, was to. focus on.
Horizon and associated issues. Such an evaluation is also beyond Second Sight's expertise.
as they are accountants and not lawyers.
12.4. We understand that Post Office does not recommend that its would-be Subpostmasters
take legal advice (in. regard to the Standard Contract) prior to entering into that contract.
This appears to be contrary to best practice procedures. For example, the British Franchise
Association. recommends that independent legal advice should always be taken. prior to.
signing.a franchise agreement. Please provide full details as to why Post Office does not
comply with this best practice recommendation?
itis. open.to all Subpostmasters to seek legal advice at any. time and Post Office does.
not block this in any way.
The reference to the BFA standards is not applicable here. The BFA recommendati
26
POL00041076
POL00041076
directed, isees.(i ilar, pos 9, SubpostmasI
a recommendation franchisors (in a similar position to Post O
advice, being taken by franchisees,
12.5. Several Applicants have reported their concerns that Post Office employees acted
inappropriately.in.connection.with the closure of transfer of their branches..The inference.
of the majority of the remarks made is that certain Post Office employees acted
unprofessionally, either by leaking confidential information (that was damaging to the
Applicants) to potential buyers and/or by thwarting their efforts to sell a viable branch until
it.was no. longer viable (and consequently of lower value).
These.are.very.serious, but wholly unsubstantiated allegations that Post Office denies and
has not seen. evidence or been provided with evidence to support these allegations.
Further, it was as agreed at the Working Group meeting on 15 January that this request for.
information is too wide.
12.6. The further inference is that certain Post Office employees seemed to be in some way.
motivated or incentivised to find reasons to close branches, that were already destined.
to.close under the various closure and re-invention programmes, without cost to Post.
Office,
See answer provided to 12.5,
12.7. Please provide full details. of the work performed to, refute. these. ‘bad faith’,
allegations.
See.answer. provided to.12.5.,
12.8.
provide full details, of Post,
amounts due from Subpostmaste
Crown Offices. Please also describe the write. off authorisation limits applicable to different
grades
Subpostmaster write off levels are documented. Please see a copy.of the write-off
process for agency branches appended at Annex 16.
Losses from. Crown Offices form part of the individual Crown. Office’s P&L and ultimately Post.
Office’s P&L.
Though reports have been issued to. Crown. RSMs.on levels of losses, it is not.a.case. of
authority levels. Tolerance is set at individual level. As a general rule an.‘escalation’.
investigation is initiated after three losses of in.excess of £30, although there are
variations to. this depending on local and individual. circumstances. Branch Managers also.
implement.a series of surprise checks on stock units and separately carry out supervisory.
misbalance. checks when.a stock unit is showing £30 or more. loss.on. two. consecutive daily.
cash declarations,
Discrepancies can also be identified at the end of each trading period where the Branch
Manager.undertakes.a full. cash.and stock reconciliation, An. ‘escalation’ investigation.can,
be. initiated as.a result of errors found as part of that process.
Crown Offices discrepancies are rectified using the same Transaction, Correction (TC),
process as is used in Subpostoffices. TCs are sent to the Branch Manager who is
responsible for accepting or querying the TCs based on the evidence in branch. This.
process could also identify. discrepancies which could result in initiation. of an ‘escalation’
investigation.
27
POL00041076
POL00041076
of persistent negligence or wrongdoing can include
prosecution.
12.9. Please. provide. details of Post. Office's Policy.and Standard. Operating Procedures. in.regard,
to.helping Subpostmasters recover shortfalls that they have made good as a result of
proven. theft by branch employees,
Recovery. of losses. caused by. theft. by. branch. assistants. isa matter. for Subpostmasters. as.
the assistants are their employees. Post Office may help, as a matter of goodwill, but there
is.no.policy.in.this.regard.
13. Post Office. Investigations, Function
13.1. Please provide full details of any criticism, of Post Office’s (or Royal Mail's),
investigative
actions. or of its. employees in. any, Court judgement or.ruling.
This question is very broad in scope - it could be interpreted to apply to the whole of Post
Office's iness.and not just. those issues under. .in.the Scheme,.Through. further,
cussions with Second Sight, Post Office now understands that Second Sight is, looking for
Post Office's business nor its legal / prosecutions practices.
Although this greater clarity is welcomed, the question still remains premised onan,
that.there.is.an issue with. Post Office's investigation function that would give.
ism. To. date, no such issue has been identified by Second Sight. This enquiry
also,needs to, be placed in context, Post Office, like all large organisations, is regularly,
involved in legal processes, It also only separated from the Royal Mail Group in April
2012, prior. to. which investigation functions were shared across both businesses. There is
therefore no single source for the information that Second Sight is seeking.
Against. this background, those individuals currently responsible for the security team and
legal proceedings. at Post. Office have.confirmed that they are. not personally aware. of any.
criticism. in.a.written Court judgment or. ruling of the nature described above, For the sake,
of clarity, no review of historic judgments involving Post Office has been undertaken in.
reaching these views — such judgments are in any event a matter of public record and could
therefore be reviewed by Second Sight,
13.2. 8.
for assistance in investigating discrepancies their branch's, accounts for each of the years
4
2013. Please. also show for each year, the number of requests when assistance, was, provided.
Post Office does not hold this information. To undertake this exercise would require POL.
to review.14 years of calls to NBSC and HSD from a network of almost 12,000 branches.
This request is clearly disproportionate.
13.3. Please provide.a schedule showing the number. of investigation.s.into, branch
surpluses. or shortfalls for each of the years, 1999 — 2013 clearly setting out the number. of.
investigations in each category.
Post Office does not hold this information, To undertake this exercise would require POL
to review 14 years of data from a network of almost 12,000 branches. This request is
clearly. disproportionate,
13.4, In.relation to requests for assistance, we understand that, where several
instances of the same problem occurs, a ‘problem record’ is created and the root cause
28
POL00041076
POL00041076
of the issue ed and fix d furt! fances), Please p .
schedule of all significant ‘problem records’ and all process and software modifications
(excluding.""minor. amendments.to processes'') that have been implemented, in the years.
1999 - 2013, that were designed to reduce the frequency and impact of “errors made at
the.counter’’,
This.is.a. disproportionately. wide request for general information, without identification. of.
aspecific issue raised by Applicants. If Second Sight is able to identify, with supporting,
materials, specific cases where Applicants to the Scheme have heen affected by these
issues, Post Office will of course reconsider this request,
13.5. Please provide full details and results of any.user satisfaction surveys Post
Office has.conducted into the Horizon.system,
29
POL00041076
POL00041076
Post Office constantly. receives feedback on Horizon. from. its. tens of thousands of.
users through a variety of sources,
The primary sources are the NBSC, Horizon Service Desk, Branch User Forum.and.NESP..
Feedback is also delivered through a variety of BAU processes, for example, from contact
with.the Finance Service Centre, and through discussion in. the. field with Contract,
Advisors.and.Field Support Agents,
That feedback is then. implemented through regular system reviews and upgrades
implemented by, both POL and Fujitsu, and in product development (e,g..to. streamline,
the processes for transacting a new product).
13.6. We understand that many of the unexplained branch losses are attributed to "errors
made. at. the.counter:., Please, provide.a schedule showing. the number.and value of,
unexplained branch losses or. "errors made at the,counter” for each. month for the period
2008 to 2013. Please also provide similar information relating to Crown Branches including.
the amounts written off each month.
Post Office does not hold this information
13.7. Please provide a schedule showing the number and value of ENs and TCs issued to,
branches. for.each.of the years.1999 to. 2013 (we need to see separate volumes.and values.
for Credits and Invoices).
Post Office has readily available data for 2012/13 and 2013/14 — see below.
Compiling information for previous years would require. considerable data analysis.
Post Office does not know which particular issue raised by Applicants this data is seeking
to.address. If Second Sight requires more data.to, consider individual applicant's.cases,.we.
should be grateful fe i f the purposes behi enquiry so. we. may,
determine what data may.
13.8. Please provide. full details of changes.to the Horizon. system.and/or to its Standard,
Operating Procedures that were designed to reduce the risk, incidence and severity. of,
errors and fraud, as a direct result of investigations carried out into. unexplained branch,
$ in.resp: 'o.problems, v iliti id,
for.the years.1999
-2013,
Second Sight has clarified that it is not seeking an exhaustive list of all the changes.
described above; rather it is seeking a summary. of the key.changes.over this period and.
brief description. of each change.. This information is provided below.
-. Quotes.and financials are now provided.
30
© MoneyGram. Automation.
POL00041076
POL00041076
directly
31
POL00041076
POL00041076
into Horizon rather. than. the. clerk telephoning and transcribing the rate. /.
amounts,
Broadband Sign Up — Addressing the issue of “slamming” (an illegal,
telecommunications practice, in. which.a subscriber's telephone service is.
changed without their knowledge or consent). accusations by onscreen
“Read.to. customer... messages, and key.terms.being printed.on.the.
signed receipt.
Bureau Pre-Order — Order lifecycle is now. managed through,
ensure payment is taken at the point of order, and issuanc
correct. customer.
Care Quality Commission / Disclosure and Barring Service (DBS) Identity.
Checking — There is now. automated customer identity verification to,
ensure key data attribute checks are performed and the correct fee taken,
Motor Vehicle Licenses,(MVL),~ Stock lifecycle is now. automated to.track all
MVL stock from the point it leaves the warehouse to issuance or
destruction,
Post. Office Card Account. (POCA) Card Issuance — Automation is.now. in.
place in terms of the issuance of new.and replacement card stock to
customers,
Regulatory. Compliance. Training — The model has been simplified to. allow.
tests to be rolled out at reduced cost with full auditability based on.
Horizon user log on.
for. both short.term.and annual licences; removing the. paper licence.
from.branch.
Camelot Cheques — The cheque issuance process is now automated
for large prizes,
Stock Ordering - The creation of an online ordering process through
Horizon has removed the need to fax / post order cards; product codes.
and allowable order volumes are. now.automated to ensure branches
received the correct stock.
Travel Insurance.- Price look up for policies is now automated, these
w iously keyed lly. from the brochure, look up tables,
Horizon Recovery — Online transactions with 3rd parties (e.g. MoneyGram).
are recovered in the event of, for example, a temporary loss of power or
telecommunications to ensure synchronisation of branch, PO datacentre,
and 3rd party systems. The situation before the change.was that the
branch.had to. remember what transaction.they. were. in.when.the
power/comms went down, and then. contact the service provider directly,
to find out if the transaction had completed.
Bureau 2nd receipt —The production of a duplicate session receipt.
Lottery TA (PING) — Lottery sales figures are now. incorporated into the
Transaction. Acknowledgement (PING) process, The. branch.confirms.the..
system reported figure for the previous days sales when. logging in.the next
39
POL00041076
POL00041076
morning.
© Spoilt Postage Labels — There is a revised process for spoilt postage labels.
to ensure labels are correctly accounted for and VAT automatically
reversed correctly, where. applicable.
© — Display.of long addresses in postcode lookup — Screen displayhas been.
revised to allow.long postal addresses. to be displayed on.two. lines. This.
has.resolved an. issue of postcodes not appearing.
(pending). Cheque Rem.out — There are plans in place to.implementa
revised process to bring all elements of the cheque Rem.out and despatch,
onto a single screen, with automation of cheque totals entry, and printing of
despatch slip. (expected May.2015)
14, surpluses
14.1. Please, provide. full details. asto. how. Post Office. tracks, surpluses. and shortfalls at.the,
end of Trading Periods at both, branch level.and in, aggregate.
This data is not.collated by Post Office but at an individual branch level it can usually be.
reconstructed from the branch's Horizon logs so long as the branch has accurately.
conducted its end of branch trading processes,
14.2. Is it possible that an error which has generated a surplus in one branch can
result in.a shortfall in. another. branch? Please provide full details as. to how. this. may.
occur.
cash between the branches are not correctly recorded by branch staff).
15. Suspense Accounts
Post Office has already addressed Second Sight's questions on its Suspense Accounts in its
Suspense Accounts paper. This paper demonstrated that so long .as.a branch follows Post Office's.
standard operating practices, it cannot suffer a loss due to the operation of a Suspense Account.
15.1. Please provide full details of all Suspense Accounts held by Post Office. Please also.
provide.a schedule, for each yearend between.2008.and,2013, showing the.amounts,
transferred to Post Office’s Profit and Loss Account (both debits. and credits) for each
Suspense Account held,
15.2. Please. also provide.a schedule, for each yearend between. 2008 and 2013,
showing the balance held on each Suspense Account (both credits and debits).
15.3. Please provide an electronic report in CSV format or similar showing for the last 3
years.the following information for every item posted to any Suspense Account:
a) Full transaction details;
b) — Originator’s reference;
40
POL00041076
POL00041076
c)
d) — Full account details of the account the. transaction relates to or.is being transferred to,
Post. Office provided a paper (included at Annex.18) prior toa. meeting between.
Second Sight. and Post Office’s. CFO. The CFO. has subsequently. written again.
with more information anda further. meeting is due to be arranged in the.
near future.
15.4. Please describe the controls used to detect errors in, Post Office client reports.
that if not corrected could give rise to an incorrect TA or TC being issued.
Where Post Office receives client reports, these are part of matching accounts, where
Horizon data is matched to the client data. Therefore, if the client report was wrong, it
should lead to a difference compared to the Branch data. Post Office would then investigate
that difference..Ifa. wrong approach were made to.a branch, the branch themselves.
could, in turn, challenge it.
41
Document comparison by Workshare Compare on 22 April 2015 18:24:50
[Document 1 ID
(1).PDF
Users\hir1\Desktop\Briefing_Report_Part_Two
[Description
Briefing_Report_Part_Two (1)
[Document 2 ID
ifile://C:\Users\hIr1\Desktop\Final Briefing Report Part Two
SIGNED (2).PDF
[Description
Final Briefing Report Part Two SIGNED (2)
Rendering set
BP2 - Basic - colour
Insertion.
Deletion-
Me
from*
*Moved to *
Style change
[Format change
bas
Inserted cell
Deleted cell
Moved cell
Split/Merged cell
Padding cell
(Count
Insertions 1839
Deletions 419
Moved from 44
Moved to 44
Style change 0
Format changed 0
‘Total changes 2346
POL00041076
POL00041076