Filed on behalf of the: Defendant
Witness: Angela Margaret Van Den Bogerd
Statement No.: First
Date Made: 23 July 2018
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ROYAL COURTS OF JUSTICE
BETWEEN:
ALAN BATES AND OTHERS
Claimant
AND
POST OFFICE LIMITED
Defendant
WITNESS STATEMENT OF
ANGELA MARGARET VAN DEN BOGERD
[Comments for AVDB in yellow]
1, ANGELA MARGARET VAN DEN BOGERD WILL SAY as follows:
1. I am Angela Margaret Van Den Bogerd, People Services Director, of Post Office
Limited (Post Office).
2. I make this statement in support of Post Office's Defence in these proceedings.
3. The facts set out in this statement are within my own knowledge, or if they are
outside my knowledge, I have explained the source of my information or belief.
INTRODUCTION
4. In this statement, I describe the Post Office business, the role of a Postmaster
and the operations of a Post Office branch. I conclude by providing some
commentary on the real-world effects of the Claimants’ implied terms.
INTRODUCTION...
A. MY BACKGROUND...
B. POST OFFICE AS A BUSINESS ...
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Public ownership..
Commercial operating model...
Network size and coverage ..
Brand ......
Market change and competition .....
Technology change ....
Client products and requirements...
Regulatory requirements ..
Change programmes
C. POSTMASTERS AND THEIR BRANCHES...
Postmasters' businesses ..
Operating a branch...
Assistants ...
Horizon...
Training...
Initial training .....
Assistants.
Further training
Support for Postmasters...
Causes of shortfalls .....
Reliance on Postmasters..
Post Office's investigations into shortfalls
Responsibility for shortfalls ...
D. IMPLIED TERMS 46
STATEMENT OF TRUTH . 46
5. In this statement:
5.1 Paragraph references are to paragraphs in this statement unless otherwise
stated.
5.2 The term "Postmaster" is used to generally refer to agents of Post Office who run
branches, including subpostmasters, subpostmistresses and operators.
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References to “all material times" means from 1999 to present, unless the context
indicates otherwise.
A. MY BACKGROUND
6.
I started my employment with Post Office on 1 April 1985. I have operated at all
levels during my career — from branch level to senior positions remaining at all
times close to the operational procedures.
A Branch Counter Assistant as part of the directly managed network of branches
(see paragraph XX) for around 2 years. During this time I was also called upon to
undertake on-site training for newly appointed Postmasters.
A Branch Manager responsible for day to day management and financial
performance of Directly Managed Branches between 1987 and 1996.
A Retail Network Manager between 1996 and 2001 responsible at an area level
for the operational and financial performance of 24 post offices: 6 directly
managed branches employing approximately 130 staff and 18 agency branches.
As part of this role I was responsible for interviewing the Postmaster, appointing
the Postmaster, managing performance and dealing with any contract breaches
including contract termination as appropriate.
Head of Area for the rural agency in Wales between 2001 and 2005 responsible
for maintaining the provision of post office services and the operational and
financial performance of the rural network of 950 branches in Wales & the
Marches. As part of this role I was accountable for a line management team of 18
and 950 Postmasters, and for the delivery of Post Office services to quality and
efficiency standards.
General Manager for the Community Network of branches in the UK between
2005 and 2006, responsible for a team of 9 senior managers and a field based
team of 40 managers, and for the day-to-day operational and financial
performance of 9000 rural and 500 urban deprived branches.
As National Network Development Manager between 2006 and 2009 I designed,
developed and deployed the process (known as the Network Change
Programme) to deliver 3000 changes to the Post Office network (2500 closures
and the establishment of 500 new type services ie outreaches including mobile
post offices).
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13. As Head of Network Services between 2009 and 2012 with a UK wide
geographically dispersed field team of 200 people, I delivered a yearly average of
(a) 1200 network change projects (i.e. branch relocations, refurbishments,
closures and re-openings) across the Post Office network, (b) in excess of 5500
financial and compliance branch audits and interventions (c) new entrant training
to approximately 1000 agents/franchisees and employees and (d) 2000
recruitment and/or contractual interviews.
14. As Head of Network Services, I was responsible for maintaining the size and
reach of the post office network. As part of this role I made the decision on
whether a branch should be advertised in a given situation e.g. whether a branch
in a new location was warranted.
15. As Head of Partnerships between September 2012 and August 2013, I was
responsible for the relationship between Post Office various representative
bodies, such as the Communication Workers Union, Unite the Union and the
National Federation of Subpostmasters (NFSP, see paragraph XX).
16. As Programme Director for the Branch Support Programme between August 2013
and March 2015, I was responsible for making improvements to ways of working
across Post Office, including the handling of the more complex in-branch
transactional issues.
17. As Director of Support Services between April 2015 and December 2016, I was
responsible for our helpline for Postmasters (NBSC), our customer helpline, the
Financial Service Centre (FSC), the Human Resources Service Centre (HRSC)
and also managing the Contract Advisors and the Contract Administration team.
18. From January 2017 until January 2018 I was the People and Change Director,
responsible for HRSC, Health and Safety and the Change Portfolio across the
organisation.
19. Since January 2018 until present, in my role as People Services Director, I am
responsible for HR services within the Finance & Operations business unit,
Health, Safety and well-being and the HR Service Centre.
B. POST OFFICE AS A BUSINESS
20. In this section, I describe the Post Office business, its commercial model and the
changing world in which it operates.
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Public ownership
21. A Post Office service has existed in England for nearly 400 years and throughout
that time it has always been owned by the English or UK state. It was originally
an organ of government known as the General Post Office and then the Post
Office Corporation. In 1986 Post Office Counters Limited was formed as a
subsidiary of the Post Office Corporation, with services being split between the
two entities: the delivery of mail was handled by the Corporation and the Post
Office retail network was transferred to the new subsidiary. In 2001, the Post
Office Corporation became Royal Mail Group and Post Office Counters Limited
was renamed Post Office Limited. On 1 April 2012, the UK government privatised
the Royal Mail Group, with Post Office Limited remaining in public ownership, its
shares being transferred to and held directly by the UK Government. Up to this
point, although Post Office was a separate legal entity, it shared some back-office
services with Royal Mail and key decisions would be taken by, or at least
approved by, Royal Mail as its parent company.
22. Today, the sole shareholder of Post Office is the Secretary of State for the
Department of Business, Energy and Industry Strategy (BEIS). Post Office acts,
and has at all material times acted, under the direction of its chairman and board
of directors, rather than ministerial control. However, because the ultimate owner
of Post Office is, and always has been, the UK Government, it is not a fully
independent commercial business. Those at Post Office describe it as a
commercial business with a social purpose. This sets it apart from nearly all other
organisations in the UK and means its decisions are not driven solely by
commercial returns, but also by its public purpose to support local communities
and to deliver services to the general public.
23. Can we say more about POL's public purpose? The Post Office is a crucial
part of the commercial and social infrastructure of the United Kingdom. Through
its 11,500 branches and an increasing digital presence, it provides convenient
access to essential services - mails, banking, government services, telecoms - for
households and small businesses throughout the country.
The Post Office serves an important public and social purpose. As part it’s funding
agreement the Post Office is under a public service obligation to maintain a network of
post offices beyond its optimal commercial size. That network must meet a number of
minimum access requirements in order to be eligible for this funding:
e Nationally, 99% of the UK population to be within 3 miles and 90% of the
population to be within 1 mile of the nearest post office
« 95% of the total population in deprived urban areas across the UK to be within 1
mile of their nearest post office outlet
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95% of the total urban population across the UK to be within 1 mile of their
nearest post office outlet
95% of the total rural population across the UK to be within 3 miles of their
nearest post office outlet.
In addition, the following criterion will apply at the level of each and every individual
postcode district, establishing a minimum level of coverage at a very local level.
24,
95% of the population of the postcode district to be within 6 miles of their nearest
post office outlet.
What other requirements are there imposed by Govt? POL is required to provide
this network of post office branches with a number of services of general
economic interest. These are:
Processing social benefit and tax credit payments to the public
Processing of national identity and licensing scheme applications
Universal payment facilities for public utility services
Access to postal services
Universal access to basic cash and banking facilities, especially for rural
customers and those on social benefits.
We also have a wide range of further contractual requirements as part of individual
agreements for further products and services provided to government and its agencies.
25.
Have there been any other major changes in govt policy over the last 20 years
that affect Post Office? Can we say that there is a difference between Labour,
Coalition and Conservative governments? As a government owned
organisation, we are subject to legislative decisions made by different
Governments; which can create significant change.
For example, in 2011 the Conservative and Liberal Democrat Coalition
Government introduced the Postal Service Act, formally separating the Royal
Mail and the Post Office. This had significant implications for both organisations.
Furthermore, included within the Labour party's most recent manifesto was a
commitment to renationalise the Royal Mail; which, in the event of a Labour
Government, would lead further significant changes for the Post Office. This
illustrates the changing nature of politics and the implications this could have for
the Post Office.
In addition to any changes to POL's governance model, we are also subject to a
Government's legislative priorities and the changes that they may introduce
throughout a parliamentary term. For example, any changes to financial services
regulations, telco regulations or wider legislative changes which may impact the
markets in which we operate.
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However, from a day to day perspective, the Government is not involved in the
running of the Post Office.
Neither Postal Services Holding Company nor BEIS, through UK Government
Investments Limited (UKGI), have any day to day involvement in the operations
of Post Office or in the management of its branch network and staff. However,
UKGI has the right to appoint nonexecutive directors to the Board. Tom Cooper is
the current representative of UKGI on the Board.
As a Government-owned entity we are committed to acting in accordance with
the Nolan Principles of Public Life, namely: selflessness; integrity; objectivity;
accountability; openness; honesty; and leadership. The Board adopts these
principles both in its decision making and in its responsibility for organisational
culture.
Commercial operating model
26.
27.
28.
Post Office is the UK's largest retail network and financial services chain with
around 11,500 branches. To put this in context, Tesco has around 3,400 stores’
and Lloyds Bank has about 1,100 branches?.
Post Office acts as the "shop front" for the general public to access a range of
products and services, from government benefit payments to postal and banking
services. The [all / nearly all / a majority — are there any products directly provided
by Post Office - Postal Orders?] of these products and services (just referred to
as products in this statement for ease of reference) are provided by third parties
(known as clients). Post Office sells the Client's products to the public, charging
the Client a fee or commission for that service. This allows a range of businesses
and government departments to have a physical access point for their products
without the need to directly invest in real estate. For example, customers can do
their banking through Post Office. If they deposit cash into their bank account at
a Post Office branch, Post Office takes the cash and effects an electronic transfer
of the cash to the customer's bank who deposit the customer's account. It then
charges the customer's bank a fee for this service. This allows a bank to have a
virtual network of bank branches without needing significant investment in new
properties.
Post Office tries to provide all its services for a commercial profit. This applies
even when providing government services (eg. driving licence renewals) where
its government contracts are negotiated at arms' length and often following a
competitive open market tender exercise. It made a profit last year (2016/17) of
" https://www.tescoplc.com/about-us/our-businesses/tesco-uk/tesco-in-the-uk/
2 https:/Avww.lloydsbankinggroup. com/media/media-kit/faqsilloyds-banking-group-fast-facts/
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£13m against operating revenue of £957m, being the first time it has made a profit
in 16 years. Post Office is however still reliant on a government subsidy to support
transformation activities and rural services (see paragraph X). A combination of
nationwide austerity measures, government spending cuts and a corporate desire
to be self-funding has seen that subsidy reduce from £210m in 12/13 to £80m in
16/17.3
29. Post Office provides its services through Post Office branches. These fall into
two categories. Crown branches (now known as Directly Managed Branches) are
directly operated by Post Office. Post Office owns or rents the physical branch
premises and the branch staff (known as counter clerks) are employees of Post
Office. Crowns tend to be larger branches. As at April 2018, there are
approximately 250 Crown Branches.
30. The majority of the network are “agency” branches. These are also sometimes
referred to a Subpostoffices. These branches are run by third parties, who own
the branch premises and employ their own staff. Agency branches take a variety
of different forms. The majority are owned by independent small business
owners, who locate the branch within a larger retail offering like a newsagent or
convenience store. Some branches are operated by larger commercial chains
such as WH Smiths or The Co-operative. Post Office pays Postmasters a
remuneration for this service (see the Witness Statement of Nick Beal for more
details) which is, and has at all material times been [correct?], its single largest
line item of operating expenditure and currently accounts for a third of Post
Office's operating costs.*
31. Last year, around 47m transactions were undertaken in Post Office branches
every week, with a value of around £XXm per year. At any time, around £XX in
cash is in circulation within the network. On average, each agency branch in the
network has around £XXX cash on hand and conducts XX transactions each day,
for a value of £XX. [Can we get these stats? Do we have a public source for
them?]
32 The Post Office branch network has 17 million customer visits a week and this
footfall is driven by a wide range of services. 25% of customers visit a Post Office
fortnightly or more regularly and 14p in every £1 spent in the UK is channelled
through a Post Office. [Stats to be sourced and verified]
3 Statistics taken from Post Office's public Annual Report for 16/17:
http://corporate. postoffice.co.uk/sites/default/files/ARA%20Master_FINAL.pdf.
+ Postmasters fees of £388m against trading costs of £978m: page 56-57, Annual Report 16/17.
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33. [Is there any other angle that we can raise to make clear that Post Office is a
complex business?]
The Post Office operates in every constituency across the country and has the
largest retail network in the EU. Within our network of 11,500 post offices, we have
a number of different operating models, which enables us to tailor our offer to meet
the needs of the communities in which we serve. These include, but are not limited
to, directly managed branches, mains, local, local plus, community, outreach
(including mobile, hosted, partner), home services and British Forces Post Offices,
The Post Office offers an unparalleled range of products and services (over 170),
some of which we are required to offer as part of our public service obligation. Of
these products and services, POL only has end-to-end ownership of one product,
Postal Orders, the rest of our product range is provided in partnership with a wide
range of other organisations. As a result of this, we have contractual arrangement
with a large and diverse number of third parties across the public, private and third
sectors.
We therefore operate in a number of different markets; including financial services,
telecoms, mails, government services, bill payment services, identity services, retail
and lottery. We also have a subsidiary business, Post Office insurance, and we are
in the process of acquiring a further business, Payzone bill payments Itd (subject
to CMA approval).
We also sell our products through a range of different channels; including counter
services, online, phone, by post and through self-service kiosks.
34. In simple terms, for the Post Office network to be financially sustainable, Post
Office needs to generate more revenue from clients than it incurs in transaction
costs and remuneration paid to Postmasters. However, it's a fine balance as
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35.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
insufficient remuneration would make the position of Postmaster unattractive,
leading to branches closing or vacancies in the network, which could cause the
network to shrink below commercially viable and legally required levels (see
paragraph X)
More often than not the interests of Post Office and Postmasters are aligned, in
the sense that a strong sustainable network is good for both. However Post
Office needs to look at the network as a whole, and what might be good for the
network as a whole, might not be good for some Postmasters in particular
circumstances (see below in relation to Change Programmes at paragraph X).
Network size and coverage
36.
36.2
37.
The UK government considers it important that a large proportion of the public
have easy access to branches. This is driven by a number of factors including:
Post Office is a key route through which government services, particularly
pensions and benefits, are provided. The elderly and those on low incomes have
a higher propensity to have limited means of transport and need a branch close
by.
The decline in bank branches and local shops over the last decade means that
the Post Office branch is sometimes the "last shop in the village". This leads to
political pressure from local politicians and MPs to keep branches open, even
where a branch may be making a trading loss. These small branches are now
referred to as "community branches".
Accessibility criteria were originally laid down by the Government in 2007 and
have been reconfirmed by successive Governments since. The Government's
national access criteria are: 99% of UK population to be within three miles of their
nearest Post Office branch; 90% of the UK population to be within one mile of
their nearest Post Office branch; 99% of total population in deprived urban areas
across the UK to be within one mile of their nearest Post Office branch; 95% of
the total urban population across the UK to be within one mile of their nearest
Post Office branch; and 95% of the total rural population across the UK to be
within three miles of the nearest Post Office branch. In addition the following
applies at local level to ensure a minimum level of access for customers living in
remote and rural areas: 95% of the population of every postcode district to be
within six miles of their nearest Post Office branch.
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38. Post Office produces a Network Report against this criteria.> The Network Report
contains tables of figures showing fluctuations of number of branches over time
including quarterly change figures showing the quarterly change in network size.
The Network Report for 2017/18 shows that at the end of March 2018 there were
11,547 Post Office branches. The size of the network has been stable for about
a decade. It has been significantly larger in the decades before: at its peak in
1965/6 it was 25,056 branches. The decline over subsequent decades has been
driven by a number of factors including Government business reducing, changes
in consumer trends, and increasing competition (see paragraph XX). To reflect
such marketplace changes, improve the network's prospects and avoid
unmanaged decline there have been periodic closure programmes (see
paragraph XX).
39. I set out below the numbers of open branches split by Government office regions
reported to BEIS in April 2018:
Network Report?]
Total number of Outlets split by Govt Urban
Office Regions Rural I Urban I peprived I_ Tota!
1 East Midlands 543 266 72 881
2 East of England 677 396 41 1,114
3 London 7 536 126 669
4 NI 324 76 87 487
5 North East 244 151 94 489
6 North West 387 468 265 1,120
7 Scotland 918 333 145 1,396
8 South East 693 625 56 1,374
9 South West 867 342 61 1,270
10 Wales 631 157 130 918
11 West Midlands 364 377 160 901
12 Yorkshire and The Humber 470 321 165 956
Total 6,125 I 4,048 1,402 11,575
40.
Beyond its legal obligations to maintain a network of a certain size, a large
network also brings economies of scale. There are substantial fixed or capital
costs in building and maintaining complex IT infrastructure, designing a new sales
process or negotiating a new contract with a client. These costs only marginally
increase with the size of the network. If the network were to shrink too much, this
5 This is publicly available — it is placed in the House of Commons Library and the Post Office
publishes it on its corporate website. ADD LINK TO 2017 REPORT
AC_151034087_2 1
Brand
41.
42.
43.
44
45.
46
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
would reduce Post Office's overall revenue and these overheads would not be
commercially sustainable.
Post Office is in the top three most trusted brands in the UK. [CAN WE ADD
SOME REFERENCE TO AN INDUSTRY REPORT THAT SAYS POL's BRAND
IS STRONG] quoted from Brand Asset Valuator from 2014
Post Office is deeply embedded in the hearts and minds of many local
communities. Postmasters are sometimes well-known to local residents and
problems with a Post Office attracts a higher level of attention in the local press
than it would for other local retailers. A simple google search will usually show
up a number of stories about local branch issues.
Local branch issues also attract the attention of MPs. MPs regularly write to BEIS
or direct to Post Office to raise issues on behalf of their constituents regarding
their branches. The allegations that underlie this litigation led to questions to the
Prime Minister in the House, Parliamentary debates and a Select Committee
hearing before these proceedings began.
Major changes in the network often attract national media attention. Again, as an
example, the allegations that underlie this litigation were subject to a Panorama
documentary on the BBC.
This heightened level of media attention means Post Office has to carefully
protect its brand at all times. The strength of its brand is one of the key features
that draws customers to branches. It is important that Postmasters act in a way
that does not damage the brand. A consistent presentation of services at the Post
Office counter and good customer service are important elements. Post Office
also needs to take prompt action to stop any improper conduct, at its worst this
means preventing fraud by Postmasters.
Post Office also needs to maintain continuity of service to customers. Customers
become frustrated if branches are not open when expected or cannot provide
services as promised. This is also important in helping ensure that Post Office
continues to meet the access criteria and avoid the migration of customers to Post
Office's competitors (see paragraph X). Achieving continuity of service has many
elements including ensuring that branches have the stock and cash they need to
trade, branches are opening and closing on time and that new Postmasters are
found to take on branches that would otherwise close.
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Market change and competition
47.
48.
49.
50.
St.
® Source?
Over my time at Post Office, its business has been subject to market changes
and increased competition which have led it to change its operating and
commercial models so to achieve its twin objectives of maintaining network
access whilst also reducing its government subsidy. I set out below a few of the
key changes I am aware of to illustrate this.
As mentioned above, the decline in numbers of bank branches has led to more
banks becoming clients of Post Office so to provide their customers with a
physical access point to their services. This has led to financial services
becoming a key product offering in branches.
From 2003 Post Office began to increase its own-branded financial products,
such as bank accounts, loans, mortgages and insurance. Post Office is not a
financial services business and so these products are provided by, or through a
joint venture arrangement with, selected clients. For examples, Post Office
mortgages are provided by Bank of Ireland.
There has been a nationwide reduction in mail volumes. More communications
are delivered by email with less need to communicate by letter.
volume: clining by ue io increase 5 and comp . The
postal services market was also liberalised in 2006, breaking Royal Mail's
monopoly. This led to new entrants into the market which caused Post Office to...
[what?].
There has been a gradual but material decline in government business,
particularly the number of customers drawing pensions and benefits from
branches. Traditionally this was done by way of paper pensions or benefits books
being presented at the Post Office counter and exchanged for cash. The
government now pays more benefits by direct bank transfer. This is an important
trend because it was common for a person to draw their benefits at the Post Office
counter and then spend some of that money in the Postmaster's associated retail
business. Government business fell from 43% of revenue in 2003/4 to 26% in
2007-2008. This pattern of change continues today. The Post Office Annual
Report for 2016/17 notes a £14 million decrease in turnover from Department of
Work and Pensions contracts.”
7 Page Ref?
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52. The growth of online transactions has also led to Post Office developing its digital
offering (now the preference for financial services products) and increasing
consumer demand for fast and flexible fulfilment solutions has also driven the
modernisation of the network. [In what way? How did this impact postmasters?]
slooments lke the roll oul of e
53.
54. Post Office has also seen an increase in direct competitors. One such competitor
is Paypoint. Setup in 1997, originally PayPoint was a way for customers to pay
utility and energy bills. Small retailers would sign up to be part of the PayPoint
network who then install a bill payment terminal in the shop. Paypoint has now
expanded to new areas. In 2006, it became the exclusive cash payment network
for the BBC's TV Licence fee [and service that was previously provided by Post
Office -CORRECT?]. In February 2011, it launched its Collect+ parcel sending
and collection service. This was a joint venture between PayPoint and Yodel; the
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latter being an entrant into the postal services market following that market being
liberalised.®
55. [Please add examples of two more competitors]
ty (Other IDPs
fester Union,
vit etc)
56. [Can we give an example of where Post Office has lost a government service to
a competitor? Or lost a service due to a competitive tender?]
such as outsourcing
oven
87. [Can we provide an example of changing consumer preferences as opposed to
client side changes]
Consum
Positive impact c
® https:/Avww.paypoint.com/en-gb/about/our-history
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Technology change
59.
60.
60.
61.
Improvements in technology have changed the way that products have been
transacted and delivered to customers. These changes are invariably to reduce
transaction costs which is frequently achieved through a reduction in the amount
of manual labour required in branch for each transaction. Due to the size of the
network and volumes of transactions even removing, say, a 30 second manual
task from each transaction can deliver a considerable cost saving to a client. This
does however reduce the work done in each branch and therefore reduces, albeit
may be not directly, the remuneration for a Postmaster that can be attributed to
that transaction.
An example of this is the Post Office Card Account. With the government's
decision to pay benefits via direct bank transfers this created the need for
everyone to have bank accounts. Due to various factors, including poor credit
history, there are thousands of people in the UK who cannot get a regular bank
account. The Post Office Card Account is the bank account of last resort. It is
intended only to be available to people in receipt of benefits who cannot get a
regular account. This change from paper-based benefits to digitalised benefits
through the Post Office Card Account required new contracts to be entered into
with the Department of Work and Pensions and JP Morgan, who provide the
banking facilities. It also caused changes to ways of working in branch, from
handling paper vouchers to using a car swipe / chip and pin system.
Another example of a technology change is the removal of paper paying in slips for
customers making banking deposits, who now instead use a chip and pin card. This
change was made by all the banks at the behest of the Post Office, to ensure
consistency, security and standardisation throughout our branch network. The
changes were implemented from 2016-2018, in favour of utilising the well-adopted
chip and pin system, proven to be more secure and less prone to fraud. This required
the banks to change their internal systems and communicate accordingly to their
customers, and the Post Office to ensure ail chip and pins terminals in branches were
fully compliant and able to accept the changes, and then to change the operating and
accounting processes for these transactions. This in turn changed ways of working
in branches.
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62. [Any other technology changes that changed the ways of working in branch?
Postal orders: When sold, the date, value and unique serial number are recorded
onto an online database via Horizon. The online database verifies the order was
genuinely sold and for the value shown before it is cashed, reducing the risk of
fraud from counterfeit orders.
Transaction Acknowledgements: an automated way to account for transactions; mainly
lottery & paystation.
Postage Labels: used on items posted over the counter, containing a mail segregation
indicator
Introduction of Branch Trading: moving from weekly to monthly (4/5 weeks periods)
balancing.
Paystation: A stand-alone terminal that is sited mainly in the retail area and enables
customers to carry out a number of automated transactions (e.g. recharging of
gas and electricity keys, top up of mobile phones, etc) during normal office hours,
but also 'Out of Hours’.
63. Barcodes on bills?].__ The introduction of barcodes on bills resulted in a reduction
of paper slips being despatched nightly from branches. As these transactions
were now treated as automated payments, the information was downloaded
overnight resulting in quicker settlement for our clients and a reduction of pouches
delayed in the post, preventing client settlement and inconvenience to
customers.
Barcoded documents are read using the barcode reader on the Horizon. The types of
payment that can be accepted using a barcoded document include utility bills,
V11 Motor Vehicle Licence applications and Post Office Local Collect. All Post
Office branches are able to process barcoded documents as Automated
Payments.
Client products and requirements
64. Post Office provides dozens if not hundreds of products and services to the
public.2 The Post Office has approximately 130 clients [Has this been verified?]
® Setting an exact number depends on how you define a "product" or "service". For example, you
could say that "lottery" is a single product, but there are several different types of lottery service:
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65.
66.
66.1
66.2
66.3
67.
68.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
including large companies such as Royal Mail, Bank of Ireland and the High Street
banks. Working with its clients, Post Office is active in the mail delivery, financial
services, banking, telecoms and bill payment marketplaces amongst others.
A key benefit for Post Office's clients is its large physical network which reaches
customers throughout the UK. Many of our client contracts contain provisions
that require Post Office to maintain a minimum level of geographic coverage and
continuity of service. [Not 7
Clients also often require their products to be represented in branch and sold ina
particular manner. I set out below a few examples.
[Please can we give some examples of practical things that clients require Post
Office to do? Please avoid regulatory examples, there will go in the next section.
Customers can cash ATM security requirements?
Historically, but at material times, customers were able to come into a branch and
cash a Giro slip. They handed over the paper Giro slip and in return they
received the amount of cash stated on the slip. Girobank'® required Post Office to
submit to it the Giro slip in order for Post Office to recover payment from Girobank
for the cash it had paid to the customer. This required Post Office to design and
implement a process in branch for slips to be stored in branch and dispatched, via
a delivery service, to Girobank. CORRECT?]
Many of the products offered by Post Office relate to the communication of
information. Financial services and bill payments, for example, are really the
communication of information about money transfers. This requires the IT
systems in branch to tie into and communicate with client's IT systems. I am not
a technical expert on IT systems but I understand from discussions with
colleagues over the years that clients set strict parameters for how those IT
systems interact, the nature and format of data transferred and security
requirements. [Angela — are you comfortable saying this?]
Some clients also place restrictions on Post Office from providing competing
products in branches. For example, Royal Mail restricts Post Office from offering
<] These restrictions are passed
any other postal services. [F
Lotto, Scratchards, Prize payouts, etc. I believe it would be fair to say that there are over XX obviously
distinguishable services offered at most Post Office branches.
‘0 Girobank was part of the General Post Office. In 2003, it was sold to Alliance & Leicester which
was subsequently acquired by Santander in 2008.
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69.
70.
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down to Postmasters who are not allowed to sell "restricted products" in their retail
businesses. These restrictions change over time with the evolving nature of
clients' products, their businesses and their competition, which means Post Office
needs the flexibility to able flow down these changes to Postmasters.
There is a minimum list of products that are sold in every branch so that a
customer has a guaranteed minimum offering no matter which branch they go into
across the country. This currently includes [give some examples]. It would be a
very frustrating customer experience if these basic products were not available,
causing damage to the Post Office brand and general damage to the network.
This minimum product range changes over time in accordance with customer
preferences and the other factors set out in this section.
Not all products are sold in all branches. This is due to a combination of reasons:
70.1 meeting client requirements (e.g. DVLA), lottery
70.2 meeting market/customer demands e.g. on demand travel money; ATMs
70.3 the type of post office i.e. Post Office Local models are designed with
intention of only selling simple products
[Why does not every branch offer every product? Why can't branches pick their
products? What would happen if every branch could pick their own products? If
Can we give a couple of examples of where a product might be appropriate eg.
lottery terminal and ATM? ]
Regulatory requirements
71.
72.
73.
In 2001 the UK Government obtained clearance under the EU State Aid
Regulations for £180 million to enable the Urban Network Reinvention
programme and between 2010 and 2017 the Government allocated £2 billion to
fund the Post Office's modernisation and transformation programme, which
included investing £20m in more than 3000 community branches. [Note for WBD
Beyond direct regulatory requirement, the wide range of products offered by Post
Office means that it encounters considerable regulations specific to those clients.
Not all those regulations apply directly to Post Office; some apply to its clients,
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74,
75.
76.
Change
77.
78.
1 ADD WEBPAGE LINK
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
who then flow down those obligations, or at least mandate steps to implement
their obligations, in their contracts with Post Office. [Re Kk] I set
out below a few examples of how regulations affect Post Office's business.
Foreign exchange transactions are a high risk area for money laundering and
fraud. Post Office is required to [what?... obtain proof of identity of the customer
before conducting a transaction. It also does not allow FX transactions to be
conducted by cheque due to the risk of fraud / default on payment. Post Office
has a hotline for branches to call in the event that they suspect money laundering
by a customer.]
There are statutory and international restrictions on sending "dangerous goods"
through Royal Mail postal services unless specially marked.'1 Royal Mail
requires Post Office, and therefore its Postmasters, to comply with those
restrictions.
[Please can we insert 2-3 more regulatory examples? I'd like one about Telcoms
products if possible, because we haven't mentioned those yet. Also something
from a financial service perspective.]
programmes
In light of the above objectives, requirements and pressures on Post Office, it is
almost always in a constant state of change and improvement and as far as I can
predict this will continue into the foreseeable future.
There have been over the last 20 years a number of major transformation projects
and I describe these below. When Post Office makes major network-wide
changes, they come under intense scrutiny from MPs and the media, especially
where it leads to large scale branch closures. Closing a single branch, say
because the incumbent Postmaster has retired or been dismissed, can soak up a
lot of time but is manageable in the grand scheme of Post Office given its size.
When that scales up to thousands of branches, the impact on Post Office could
be significant. Where a large transformation programme is underway, the
government and Post Office prefer to close branches on a voluntary basis and
this generally means offering a payment to exiting Postmasters that goes above
and beyond their usual termination rights. This payment is one of pragmatism: it
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smooths the exit process to avoid the programme becoming unmanageable if
every closure was contested.
79. Outside nationwide planned closure programmes, Post Office very rarely gives
notice to terminate a Postmaster's contract because it wishes to close a branch
because there is no commercial need for it. If a branch is closing for other reasons
(retirement of the Postmaster, termination for breach, etc.) it will generally
consider whether the branch is still needed in its current format and location, but
a decision not to re-open a branch in these circumstances is rare. Generally the
pressure is the other way around: Post Office is keen to maintain the size of the
network and keep branches open. [Correct?]
80. The first major change programme was the Urban Network Reinvention
Programme. This programme was primarily a ‘voluntary closure’ programme
within the urban segment of branches and took place between 2001 and 2004.
This was Post Office's first major work on network optimisation. The Government
provided the funding for Post Office to carry out rationalisation in areas where
there were too many Post Office branches serving the same district for them all
to remain viable. Post Offices in the 10% most deprived urban areas with no other
branch within half a mile were ring-fenced and protected from consideration for
closure (other than in exceptional circumstances to warrant consideration). The
programme involved around 2,500 closures. The programme also involved a £30
million investment fund to make remaining Post Office branches more attractive
for customers, as well as compensation to exiting Postmasters.
81. The Network Change Programme was a compulsory closure programme which
impacted all the network and took place between 2005 and 2008. It was also
Government funded. The predecessor to BEIS, the Department for Business
Innovation and Skills, and Post Office agreed a £1.7 billion strategy to make the
network financially sustainable, including a £150 million annual subsidy. One
element of the plan was the Network Change Programme, whereby up to 2,500
Post Office branches were to be closed. The other elements of the strategy,
alongside Network Change, were the restoration of Crown branches to
profitability, central cost cutting efficiencies and developing and expanding new
business.
82. . The Network Transformation Programme which started in November 2011 and
is continuing to March 2019 sought to change the way that Post Office services
were offered in branches. Network Transformation is the biggest retail
transformation ever in the UK and has transformed c. 7700 branches for
Postmasters and customers. The purpose of Network Transformation was to
modernise and sustain Post Office services for customers so that every
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community that had a Post Office service at the start of NT would retain that
service and in most cases have a modern open plan counter service with longer
opening hours so that customers could use services outside traditional hours.
Longer opening hours were achieved through utilising retail staff to offer Post
Office services. Postmasters had the choice to receive investment into their
business along with a conversion payment in Mains or transition payment in
Locals; or leave the service with compensation as a leaver. Under the Network
Transformation programme agency branches transferred to either a "Main"
branch model in which a dedicated counter, physically separated from the
Subpostmaster's retail business; or a "Local" branch model which fully integrated
Post Office services within the retail business so the Subpostmaster could offer
Post Office services from the retail counter (see the Witness Statement of Nick
Beal for more details on these branch types). This often means that Post Office
services can be offered for longer hours than before, in some cases from early
morning until late at night, seven days a week.
83. It also moved Postmasters away from fixed remuneration to variable
remuneration based on volumes of sales. The change was made to provide better
customer services with Post Office products offered to customers in an open plan
modern environment where Postmasters are remunerated per transaction without
a fixed annual remuneration fee. In addition to remunerating Postmasters for the
products sold and transacted this change also reduced the annual burden on the
taxpayer through the Post Office Network subsidy payment as fixed remuneration
ceased under NT for the majority of branches. Community branches under
Network Transformation are branches where there is no other suitable retailer to
run a Post Office within half a mile of the existing community branch. These
community branches had the further option of retaining fixed remuneration under
NT. Where this option was taken by community branches they did not convert to
a Main or a Local and stayed on the traditional contract. The vast majority of
community branches stayed on the traditional contract.
84. . There were no branch closures under NT; any community that had a Post
Office at the start of the programme retained a service by the end of the
programme, NT improved customer service and access to services. Postmasters
that chose to convert to a Main received £10,000 each as a conversion payment
to convert to a Main and investment from the Post Office of on average £45,000
to build the new Main branch on site. Postmasters that chose to convert to a local
received a full year’s remuneration as a transition payment and in addition on
average £18,000 each to build the local branch. The Post Office determined in
AC_151034087_2 22
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
each area whether a Main or Local branch was required based on customer
demand. Postmasters also had the option to leave with compensation as long as
The Post Office could find a suitable new Postmaster in the local area. In cases
where an existing Postmaster left with compensation this was based on 26
months remuneration based on the best years remuneration from the previous 3
years of service.
C. POSTMASTERS AND THEIR BRANCHES
85.
86.
In this section, I explain the role of a Postmaster and the basic operation of a Post
Office branch. This is only a high-level overview as it reflects information that I
believe that new applicants for Postmaster would reasonably know before being
appointed as a Postmaster or would have obtained through foreseeable questions
they might ask.
here to make sure. e have lai
know this before they are appointed]
Postmasters' businesses
87.
87.1
87.2
87.3
By joining the Post Office network, Postmasters get access to a wide range of
benefits that would be very difficult for them to procure independently. The key
benefits are as follows:
Postmasters get the right to use Post Office's brand, which immediately gives
their business credibility without needing to build up its own goodwill.
Postmasters are able to sell wider range of products than a small business would
normally be able to sell. Post Office negotiates all the terms with its clients for the
sale of client products. Without these often long term and complex framework
agreements, small business owners would need to contract directly with each
client to provide these services which I think would be practically impossible for
them to do.
Post Office provides the cash and stock needed to conduct transactions. It does
this on an unsecured basis‘? and therefore the Postmaster has no working capital
requirements for branch trading. Given that the average branch is holding around
12 Where the Postmaster is a company, Post Office may require a shareholder or director guarantee.
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87.4
87.5
87.6
87.7
88.
88.1
88.2
88.3
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£XX in cash, I doubt that many Postmasters would have the financial means to
fund this working capital.
Post Office provides the IT equipment needed in branch to conduct customer
transactions and maintain the branch accounts, including Horizon, printers,
barcode scanners and chip and pin machines. It also provides the back-end IT
infrastructure that connects each branch with Post Office's clients. No small
business owner could put this infrastructure in place on their own.
Post Office facilitates the payments required for each transaction. It provides
cash management planning and cash delivery vans to get cash to and from each
branch, its banks customers’ cheques, recovers payment for debit and credit card
transactions and processes payments to clients. A small business owner could
arrange this themselves but it would be an added admin burden for them to
manage.
Post Office provides customer helplines so that branches do not need to field
some queries. This helps save Postmaster's time.
Post Office (or its clients) are responsible for building legally compliant processes.
Postmasters get the benefit of Post Office's expertise in doing this and Post Office
or its clients bear the legal and regulatory risks of non-compliance so long as a
Postmaster follows the stipulated practices.
These benefits generally all come back to three main advantages for a
Postmaster:
First, the Postmaster gets an extra source of revenue in the form of remuneration
from Post Office. Postmasters receive fixed monthly remuneration and / or
variable remuneration according to the volumes of sales of products in branch.
The amount and structure of remuneration has changed over time but broadly
speaking larger branches receive more remuneration. The Witne:
Second, the Postmaster avoids the costs and difficulties in having to set up the
infrastructure to sell a similar range of products: those costs being prohibitively
expensive for small businesses.
Third, the presence of a Post Office, its brand and the wide range of products
offered attracts customers. This increases footfall in the Postmaster's retail unit
and has the potential to increase the profits on the retail side of the business.
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89.
90.
90.1
90.2
90.3
90.4
90.5
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
This last factor is a major (and in many cases the dominant) reason why people
become Postmasters. Post Office does not maintain aggregated information on
whether a branch is located within an associated retail unit. However, in my
experience I would say that less than 5%of agency branches are pure Post Office
branches offering nothing but Post Office services. Those that are pure Post
Office branches tend to be the very large branches that are profitable as a
freestanding Post Office (having typically been converted Crown branches). In
my 30 years at Post Office, I can only recall coming across a handful of small or
medium sized branches that had no associated retail offering at all.
When taking on a branch, the Postmaster will have some costs and capital outlay.
These include the following:
The Postmaster needs to acquire a legal interest in the branch premises if they do
not already own it. This may be either a lease or the freehold. They will likely
incur transaction costs in securing the property interest (eg. legal fees, stamp
duty, etc.) and may also incur finance costs (eg. mortgage interest repayments).
However, the capital value of the property can often be recovered when selling
the property.
If acquiring an existing business, then they may need to pay for the goodwill
associated with the business. That goodwill will usually be higher if there is an
existing Post Office branch in the retail business because, as explained above,
the Post Office usually increases the profit made on the retail side. Again,
however, the price paid for the goodwill can often be recovered on the sale of the
business.
The Postmaster may need to pay for some fit out works to bring the branch up to
Post Office standards. This is more likely needed for a new branch than an
existing one. I note that the Wi tater of John Breedon describes this in
more detail. Again, it may be possible to recover some of these costs on a future
sale if they have improved the premises’ or business’ value.
A Postmaster may incur some time / salary costs in recruiting and training
assistants when opening a new branch. These are ordinary business costs.
They are only as long term as the assistants' employment contracts. For
Postmasters taking on existing branches, it is likely that the incumbent staff of the
outgoing Postmaster will transfer to the new Postmaster, so in some cases there
will be no recruitment or training costs at all.
[Anything else?]
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91. Post Office historically charged an introductory fee, licence fee or franchise fee
when an incoming Subpostmaster began to operate a new branch. The rationale
for charging this fee was that there was a commercial benefit to a retailer in
operating a Post Office branch. This tended to be for larger, more profitable
branches. This fee took the form of an fixed percentage abatement of the
Postmaster’s remuneration for the first year and so was not a capital outlay.
[CORRECT?]
92. One allegation made in these proceedings is that the Postmaster loses the ability
to "sell" his branch, and therefore the ability to recoup any capital outlay, if his
contract is terminated by Post Office. This is not necessarily correct. Regardless
of his contractual status, a Postmaster cannot "sell" a branch because it is not a
saleable asset. The Postmaster has the benefit of a contract for services with
Post Office that cannot be assigned. However, the goodwill of his business
attaches to the branch's location, premises and customers. This is not destroyed
because the Postmaster's contract is terminated. Often a temporary Postmaster’?
takes over the branch and so the business (retail and Post Office) continue to
trade together. Due to the need to maintain a minimum network size and
continuity of service, it is likely that Post Office will want to continue to locate a
branch in the Postmaster's retail unit. Often the buyer of a retail unit will make
the acquisition conditional on the buyer being appointed as Postmaster. The
combination of these factors means that the value of the business is usually
preserved, and initial capital outlays recovered, even if the Postmaster is
terminated.
93. For the above reasons, I do not consider the investments made by the Postmaster
to be significant; they reflect the ordinary start-up risks taken by any small
business owner. Most are recoverable capital investments that can be recouped
on asale. Like any capital investment, their value can go up and down, depending
on many factors, some within the Postmaster's control (eg. how well he or she
runs their business) and some not (eg. general economic conditions, property
prices, changes in competition when other local business open or close, etc).
94. Their investments are also not long-term. Most Postmasters have the right to
terminate their contracts on notice of between three to six months and this gives
them protection should the branch not turn out as profitable as they had hoped or
they have a change in personal circumstances. By contrast, Post Office does not
routinely close branches unless there is a problem (see the Witness Statement of
John Breedon for more details on this) or the branch has been selected for closure
+8 See the Witness Statement of Nick Beal for more information on temporary Subpostmasters.
AC_151034087_2 26
95.
96.
96.1
96.2
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
under a change programme (see paragraph XX). This is because of its need to
maintain network coverage and continuity of service. [CORRECT?]
Combining a retail business with a Post Office can create a highly valued
community service and business. In the 2016 Local Shop Report published by
the Association of Convenience Stores, Post Office was recognised as the
number 1 service for the impact it has on the local area, ahead of both
convenience stores (2nd) and banks (8th).* When joining the network,
Postmasters therefore make an assessment about whether the additional cost in
running a branch (principally setup costs, labour costs and the reduction in retail
floor space) and the risks (principally in the form of liabilities for shortfalls) are
outweighed by their Post Office remuneration and the potential for increased profit
in their retail offering.
In addition the commercial advantages, the role of a Postmaster also offers a lot
of choice and flexibility. Most of the Postmasters whom I have appointed or
worked with relished the autonomy of the role. They are proud to be independent
small business owners, with the ability to grow their businesses as they see fit.
This autonomy includes:
Being able to hire assistants (see paragraph X in relation to assistants). This
allows each Postmaster to strike their own balance between working in the
branch and delegating that work to others.
It is possible for a Postmaster to completely delegate responsibility to an assistant
to run the branch, with the Postmaster being absent. Some Postmasters have
no involvement in their branches at all, to the extent that they would not even
know how to run a branch or they may even live abroad. These Postmasters
treat the branch as nothing more than a financial investment and may have
multiple businesses or even be a Postmaster of multiple branches.
Postmasters are free to allocate responsibilities within the branch. Postmasters
could treat all assistants equally or could have a hierarchy with more senior staff
supervising junior staff. In larger branches, assistants may have designated roles
eg. just doing mail-work or having authority to cash up and submit monthly
accounts.
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96.4
96.5
97.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Postmasters can flex their employees between their retail and Post Office
businesses. It may be that staff work mainly on the retail side but help out in the
branch during busy periods or vice versa.
[Any other ways that Postmaster's are autonomous]?
This autonomy is not absolute. The key control asserted by Post Office is that it
sets down minimum operating standards on the way Post Office business is
conducted and the way transactions are recorded. This is described below.
Operating a branch
98.
99
100.
101.
Unlike an ordinary retailer, Post Office branches do business in both debit and
credit transactions. Most retailers are one way: they take in payments and hand
out goods or services. Post Office branches are different in that they often make
payments out, nearly always in cash. The most common type of physical asset
transferred by a Post Office is not stock or goods but physical cash. [ADD SOME
STATS FOR CASH MOVEMENTS ACROSS POL]. Bank withdrawals and
benefit payments are examples of outflows of cash. In some branches, the
outflows are greater than the incoming cash, leading them to be "cash negative".
Post Office provides every branch with a quantity — varying according to local
demand and branch size — of Post Office cash and stock (such as stamps) with
which the Postmaster may undertake transactions on behalf of Post Office. The
physical cash and stock remain the property of Post Office, even though it is in
the Postmaster's possession. Postmasters are required to keep Post Office cash
and stock separate for their retail cash and stock [Is this still true for Local
branches?]
In order to meet the demands on Post Office described in Section B above, Post
Office sets down operating rules on how Post Office business is to be conducted
in branch. These rules are also sometimes set to reflect best practice eg. keeping
cash in a safe overnight is not a legal or client requirement but is a very good idea
for obvious reasons. These operating rules require Post Office's assets to be
handled in a certain way and require certain information to be captured, recorded
and dispatched (digitally or physically) in relation to each type of transaction.
When a client product is transacted, details of the transaction are communicated
to the client. Post Office is liable to account to the client for the transaction value
or vice versa (depending on whether the payment is a credit transaction eg. bill
payment, or a debit transaction eg. bank withdrawal. Before 1999, these records
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were kept in paper form, known as the branch accounts. In around 1999/2000,
Post Office rolled out the Horizon IT system in branches. This digitised the branch
accounts. The basic operation of Horizon is that it records, like a traditional
double entry bookkeeping account, all movements of cash and stock in and out
of a branch.
102. For example, if a customer pays a £80 utility bill by cash then, if entered correctly
by the Postmaster, the branch accounts, whether in the old paper form or on
Horizon, will record an increase in £80 in the branch's cash holdings.® Post
Office will then pay the £80 recorded in the branch accounts to the customer's
utility company. The Postmaster is not responsible for this onward payment to
the utility company so long as he has recorded the transaction correctly in branch.
If, for some reason, the onward payment to the utility company failed to go
through, this would not directly affect the branch's accounting position. The
branch accounts would still show a £80 bill payment and the receipt of £80 in
cash. A similar allocation of responsibility exists for all transactions, with the
Postmaster being responsible for keeping his end of the transaction records
accurate, namely the branch accounts.
{Note to WBD / Counsel: Do we need to say more about this cover off the real-loss
103. Post Office's operating rules require a Postmaster to submit the branch's
accounts to Post Office at regular intervals. This is now all done online through
Horizon. In submitting the accounts, the Postmaster must count all the cash and
stock in the branch and compare it to the cash and stock holdings on Horizon
which reflect the net effect of all transactions recorded by the Postmaster in a
given period. Should the actual cash on hand be less than the cash position
recorded in the accounts by the Postmaster, there will be a loss, which is
frequently referred to as a ‘shortfall’. If the opposite is true, there would be a
surplus, which is frequently referred to as a ‘gain’.
104. When setting operating rules Post Office consciously balances the need for
consistent practice across the network with respect for the autonomy of
Postmasters to run their businesses as they see fit.
104.1 Aconsistent approach is needed because it would be unworkable if each branch
operated in its own way, conducting transactions as it saw fit and submitting
accounts in a variety of formats. It would be very onerous for Post Office to
+8 I put to one side here the Claimant's allegations regarding defects in Horizon as these are not
within the scope of the Common Issues Trial.
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104.2
104.3
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
interact and cooperate with a branch if each one did things differently. This would
likely requiring Post Office to hire [hundreds?] more back-office staff to run the
network. The cost would be massive and the Post Office business would likely
not be sustainable in that scenario.
The rules however cannot be too prescriptive as this may then put an undue
burden on Postmasters. An operational change can cause more or less labour
time to be needed in branch, which has a direct impact on a Postmaster's staffing
costs (or their own time). A change that would require an extra hour of work each
week for all 11,000 branches would be equivalent to the workload of around 300
full-time assistants.
The rules need to be capable of being applied to branches of all sizes. What may
be appropriate in a large branch may be unduly onerous in a small branch. The
operating rules therefore reflect minimum required practice and Postmasters may
decide to go further. A good example of this is whether Postmasters undertake
more accounting checks than are required by Post Office. A small branch run by
a single long-serving and experienced Postmaster who has no track record of
shortfalls may be comfortable only doing a full set of cash and stock accounts at
the end of each month. To do it more often would be time-consuming and costly,
and be for little benefit. A larger branch with, say, 4assistants and 2customer
serving positions which is suffering from repeated shortfalls may decide it
necessary to do a full cash and stock count every day or week. .
Assistants
105.
106.
107.
Postmasters are allowed to employ staff, known as assistants, to conduct Post
Office business on their behalf. Postmasters are free to decide how many people
to employ (if any), who to employ, for what working hours and in what roles.
Postmasters are responsible for assistants’ wages and set their salary levels.
Postmasters are responsible taking disciplinary action, dismissals and for all the
legal requirements that come with being an employer.
Post Office only has one role in selecting assistants: it undertakes criminal records
checks on assistants — see the Witness Statement of Sarah Rimmer for more
detail on this.
Postmasters are required to register assistants with Post Office. However, Post
Office cannot accurately know how many assistants are active in the network
because:
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107.1 Post Office is not present in branches so cannot monitor first-hand who is serving
customers or handling Post Office cash and stock.
107.2 Some Postmasters do not register assistants. Post Office trusts Postmasters to
do this.
107.3 Even if an assistant is registered that does not mean that they are actively
working in a branch.
108. It is therefore not possible to accurately state how many Postmasters are actively
employing assistants to work in branches are any one time. In my experience,
only in very small branches would the Postmaster be able to run the branch on
their own. I would estimate that over 93% of branches have assistants working
in them. According to a combination our BizX Database (sits alongside
SuccessFactors and hold information for all Assistants) and Horizon terminal use
data there are currently circa 50,500 ‘active’ assistants registered with Post
Office.
109. In the above section on “operating a branch", any reference to actions in branch
by Postmasters could also by actions by assistants. Postmasters are free to
delegate as much or as little of branch work to an assistant as they see fit.
110. It is for the Postmaster to decide on whether an assistant is suitable for the role.
Post Office cannot do this because it does not know the assistant and cannot
regularly supervise their work in branch. Put simply, Post Office does not
generally know which assistants are good and which are bad. It cannot therefore
make informed decisions about an assistant.
111. Itwould also be inappropriate for Post Office to strictly and directly control the use
of assistants when the consequences of those decisions will fall on the
Postmaster. For example:
111.1 If a Post Office decides an assistant should be dismissed, any resulting grievance
or tribunal claim would be against the Postmaster as employer. Post Office could
not therefore sensibly exercise those dismissal powers, being the ultimate
sanction for poor performance or gross misconduct by an assistant.
111.2. If Post Office were to compel mandatory training on an assistants, he or she
would be entitled to be paid by the Postmaster for that training. The Postmaster
may prefer not to pay that cost and be happy to run his branch with untrained
assistants or dismiss an assistant. Alternatively, it may be that the Postmaster
has given the assistant only has a limited role in the branch such that some parts
of the training may not be needed for their job. It could also be that training was
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111.3
112.
113.
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conducted at an inappropriate time, say during peak trading or when the branch is
short staffed due to illness or resignations of other assistants.
Post Office does not know what, if any, supervisory regime the Postmaster has
put in place. It may be that the Postmaster is closely supervising his staff or
providing no supervision at all in the case of an "absentee" Postmaster. Post
Office may therefore cut across the instructions of a Postmaster causing
confusion in the branch.
Post Office may offer advice to Postmasters on their assistants but the only
[correct?] circumstance in which it would get directly involved is when an assistant
has acted dishonestly. Post Office may then require the Postmaster to exclude
that assistant from the branch in order to protect Post Office cash and stock.
Given Post Office's lack of first-hand knowledge about, and control over,
assistants, it would be impossible for Post Office to directly supervise them on a
day to day basis. Again the size of the network needs to be taken into account.
With 11,000 agency branches, I would expect Post Office to need to employ
[thousands] of additional staff if did have direct responsibility for assistants.
Again, this would make the network financially unsustainable.
The better, more cost-effective and in reality only commercially sustainable
arrangement is for Postmasters to supervise their assistants. They are in the best
position to detect incompetence or dishonesty by assistants or to put in place a
supervisory regime and operating controls to detect these things when they are
not there. As they are exercising control (and not Post Office) it is therefore
reasonable for the Postmaster to be liable for the actions of their assistants. If
they were not liable, then this would lead to the perverse situation whereby the
Postmaster would be incentivised to train and manage his staff as little as
possible, knowing that he would benefit from a cost saving and Post Office would
bear the adverse financial and commercial consequences.
Horizon
115.
Horizon is Post Office's accounting IT system used in branches. I am not an IT
expert but have used or been involved with the system since its rollout in 1999.
The Horizon Issues are being addressed in a separate trial so I only briefly
describe the Horizon system below. I would expect any reasonably diligent
applicant for the position of Postmaster to be aware of this information or to be
provided with this level of information if requested during the application process.
[Please feel free to amend below as appropriate]
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116. I describe Horizon to new users as a big calculator. It records the transactions
input and then adds or subtracts from the branch cash or stock holdings
depending on whether it was a credit or debit transaction. The Horizon user just
needs to remember what they need to do to initiate a transaction (eg scan the
barcode or touch the screen) on the Horizon system and then follow the on-screen
prompts.
117. The system keeps a record of transactions and allows easy access to that
information. It automatically generates the branch accounts (subject to a manual
cash count by the Postmaster) and flags any shortfalls or surpluses to the user.
This is better than the old paper ledger system which would require multiple
ledgers to be tallied and manual calculations made before the true branch position
could be seen. Horizon therefore saved Postmasters and Post Office time, and
cost, by automating these exercises.
118. Horizon also allows transaction information to be quickly filtered and sorted, giving
the Postmaster the ability to more quickly target areas of interest than in a paper
system, making investigating problems easier. The introduction of Horizon
represented a general all round improvement over the old paper ledger system
used in branch.
119. It is possible for the user to press an on-screen touch button and move on the
screens without reading the prompts to try toshortcut the process. If this happens
the user may have input incorrect information into the system eg processing a
deposit as a withdrawal or vice versa. And of course the system is only as good
as the information input into it and Horizon does not know whether the user has
entered correct data. Entering incorrect data or not using the system properly
could cause shortfalls in branch and it could be difficult or in some instances
impossible for the user to realise or remember they have done this.
120. As with any IT system, there are instances where the system or the screen goes
down. The system was built with safeguards against the occasions when
connectivity could be lost, a power line could go down or the communication link
could be faulty. The system is not perfect, but I am not aware of any material bug
in the system that could cause shortfalls in branch. I am aware of some historic
small-scale bugs but to the best of my knowledge these have been corrected and
any harm to Postmasters put right. It would be adverse to Post Office's interests
to leave bugs unresolved. They could cause a loss of confidence in the system
by Postmasters, customer complaints, incorrect payments to clients, regulatory
breaches and brand damage.
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121. — In light of this inevitable risk, which exists in any IT system, Post Office provides
helplines and support manuals so that users can get guidance on how to deal
with issues. The helpline for IT technical support is known as Horizon Service
Desk. Some Postmasters would say that the level of support could be improved,
with for example faster response times, but I believe that on the whole the support
is adequate.
122. I amnotan IT expert but I have every confidence in Horizon. In my experience
the system accurately records transactions as entered by branch staff and only
very, very rarely have there been instances where this has not been the case. In
my experience, Horizon is not the cause of shortfalls in branches. It is much more
likely that an accounting error by the Postmaster or his assistants has caused the
shortfall. I also believe that Horizon is fit for purpose. Some might say that
Horizon could be slightly easier to use, but it is common to want more from an IT
system. No-one truly expects an IT system to be perfect but they would expect it
to be robust and for Post Office to have in place reasonable processes for
detecting and correcting any problems. I believe that my view of Horizon is held
by the vast majority of Postmasters in the network. The NFSP has publicly
supported Post Office's view that Horizon is robust.’® I would therefore expect
any applicant for the position of Postmaster, who has done a reasonable level of
due diligence or spoken to other Postmasters or Post Office, to have a similar
view about Horizon when they took on the role of Postmaster. It would be very
odd if a person agreed to join the Post Office network, with the personal liability
that entails, under the belief that they would be using a defective IT system.
123. One untenable allegation in this litigation is that Post Office or Fujitsu may have
been improperly edited transaction data in Horizon that has been recorded by
branches. Although this question will be addressed in more detail in the Horizon
Issues trial, it is important to make clear now how ridiculous this allegation is. It
is tantamount to an allegation of a fraudulent conspiracy between Post Office and
Fujitsu. Neither Post Office nor Fujitsu has any incentive to do this. Both benefit
when the accounts are as accurate as possible so it would make no sense to
corrupt the audit trail on those accounts through malicious manipulation of data.
If true, this would cause a devastating loss of confidence in both businesses, legal
and regulatory breaches and a public outcry.
*® Can we find a source for this that is not the Select Committee hearing because thatis likely covered
by Parliamentary privilege?
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125.
126.
Training
129. The aim of training is to equip the Postmaster with the skills to perform the role
that they have been asked to do. There are strong incentives for Post Office to
deliver effective training:
129.1 It reduces the chance of an accounting or cash / stock handling error in branch,
thereby reducing shortfalls.
129.2 Its helps deliver a better customer experience, thereby improving the Post Office
brand and the prospects of the whole network.
129.3 It helps ensure consistent practice across the network.
129.4 It may reduce the amount, and therefore cost, of other support needed by
Postmasters (eg. calls to the NBSC helpline).
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129.5 It avoids the cost of having to repeat training.
129.6 It may reduce other costs at Post Office (eg. back-office processing of transaction
corrections; handling customer complaints, etc.).
130. Training nevertheless comes at a [high] cost to Post Office because it can be very
labour intensive. Training is currently delivered by around XX employees of Post
Office at a cost of around £XX each year.
131. Training is not, on its own, a cure for all problems. For some issues, it may be
more effective and cost-efficient for Post Office to, for example, send out a
reminder notification to each branch, update in-branch user guides, provide better
advice through NBSC, develop an improvement to Horizon, build more on-screen
prompts into Horizon, change the way it communicates with branches and / or re-
design a sales or accounting process. Training cannot therefore be considered
in isolation but only as part of wider Post Office and branch operations otherwise
significant cost could be wasted in delivering training when there may be better
solutions.
132. A good example of this was sale of scratchcards. Before a lottery scratchcard
can be sold, the pack of scratchcards needs to be "activated" on the Camelot
lottery terminal in branch and then recorded as live stock in the branch accounts.”
Before January 2012 there were an increasing number of Postmasters who were
activating scratchcards but not recording them as stock in branch. This was
leading to a high number of transaction corrections being issued and causing
additional administrative costs in Post Office having to account to Camelot for the
scratchcards. Rather than re-train all Postmasters on the correct process, Post
Office rolled out an update to Horizon. Now, Horizon prompts a branch each
morning on first logon to record their scratchcard activations and provides a
number of activated scratchcards from the previous trading day based on data
received overnight from Camelot. This change dramatically reduced the number
of issues with scratchcard activations.
Initial training
133. One common feature of Post Office's training was that at all material times initial
training was offered to new Postmasters. This has evolved in line with the
changing size of the network, the costs of providing training and the mix of
products offered in branches and improvements in technology. [Any other
‘7 An un-activated scratchcard has no value because a prize cannot be claimed on a winning but un-
activated scratchcard. Because they have no value, they are not classed as branch stock until they
are activated. ;
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factors?] The general pattern has been a move away from only in branch training
to classroom and in-branch based training and now to a training and on-boarding
approach that starts with online training; then classroom training, followed by on-
site in branch training with follow-up visits at the end on month one and month
three
134. Not all 'new' Postmasters needed training. A postmaster may choose not to
attend training, or only attend part of a training session if, for example, he or she
has worked in a branch previously and therefore already knows how to operate
Horizon and carry out transactions. Some may already been Postmasters of other
branches, some may have worked in branches as assistants or some may have
no intention of working in their branch — as an absentee Postmaster there may
take the view that there is little need for them to know how the branch operates.
For those Postmasters who were truly new to Post Office and even for those who
werenot intending to work in their branch, Post Office would strongly insist that
they attended and it would be very rare and odd if they did not do so, to the extent
that Post Office might reconsider their suitability for the role.
135. No matter the method of delivery there are some core features that have always
been covered in initial training programmes:"®
135.1 How to conduct basic transactions.
135.2 How to deal with remittances of cash and stock in and out of the branch.
135.3 How to make daily cash declarations and submit the weekly / monthly accounts.
135.4 How to declare, investigate, make good and dispute shortfalls.
135.5 How to process and / or dispute transaction corrections.
135.6 How to get further advice and support.
136. I set out below a short summary of how initial training was delivered over the
years. This reflects the standard training that most Postmasters received but
there would be exceptions and variations from this due to individual
circumstances eg. very remote branch, Postmaster was ill during training, etc.
137. Pre-Horizon, initial training was carried out on site (at the branch) over a period
of around two weeks, as “on the job" training. I recall that training at this time was
one week for branches with no car tax and two weeks for those that did car tax.
‘8 NOTE 1
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138.
139.
140.
141.
142.
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This was due to the volume of car tax renewals being processed through
branches at that time; that business now having reduced greatlydue to car tax
now being done online. Post Office would come back on site to help the
Postmaster complete his first two sets of accounts that were due to Post Office —
known as "follow-up balances".
[What happened in 2000 — 2001: there is a gap]
From 2001 to 2002, classroom training was offered to new Postmasters followed
by around ten days of onsite training and support. There would then be a follow-
up balance .
From 2003 to 2006, between five and ten days of classroom training was offered
to new Postmasters (the training being optional) and then five to ten days of onsite
training and support was then given depending on whether the classroom training
was attended. This would be followed by a further day of follow-up balance
support.
From 2007 to 2011, new Postmasters received five, eight or ten days of training
on foundation, sales and other specialised modules. Six days of onsite training
and support was provided, again followed by one day of follow-up balance
support.
In 2007 follow-up telephone calls were introduced at intervals of one month and
six months after a branch was taken over by a new Postmaster, with a one-day
site visit taking place three months after the branch was taken over.
In 2012, as part network transformation (see paragraph XX), Post Office tailored
its training to reflect the specific role being undertaken, whether he/she is taking
over an existing branch with existing staff, the size of the branch, the branch
operating model (i.e. Main or Local) and the types of products and services to be
transacted. The number of days over which the training took place depended on
which model of training was provided. The training usually took place over 8 to 10
days and involved some classroom and some on-site training.
The current position is that the Postmaster will be sent a link to the online training
that they access on their own device eg laptop. The online training is interactive
and requires user participation. The online training is a precursor to classroom
and on-site training. This is a change I introduced in 2015; this approach ensures
the Postmaster has a variety of methods to take in the training, namely online,
classroom and on-site.
Assistants
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144. The training for Postmasters has always emphasised their responsibility for the
safekeeping of cash and stock, the accuracy of their branch accounts and the
actions and competency of their assistants.
145. Before Network Transformation, if there was space on an initial training course it
would sometimes be suggested that the Postmaster bring their assistants with
them to utilise the spaces on the course. With the new Mains and Local contracts
the training is set out explicitly: for Mains the Subpostmaster and up to 50% of
their staff are invited to attend the training. For Locals if the Subpostmaster has
more than 5 staff then in addition to the Subpostmaster sufficient spaces will be
offered to train 50% of their staff. [WB 16)
146. Where training was delivered on-site, there was of course the opportunity for
those assistants who were present to get involved in the training.
Further training
147. If the trainer has any concerns about the competence of a Postmaster following
their initial training, they may arrange further training for the Postmaster.
148. After this point further training can be provided to Postmasters where necessary.
As Post Office is not present in branches, it is often not possible for it to know
whether training is needed by the Postmaster. It could be that the Postmaster is
absent from the branch and requires no further training at all. It could be that the
Postmaster is well trained but there are errors in branch caused by assistants.
For most branches, where all Post Office sees its accounting data, it is difficult to
determine a Postmasters (or an assistant's) training needs.
149. Where a specific concern has been reported by a Postmaster or there is a re-
occurring problem in branch, Post Office may pro-actively contact the branch to
enquire as to what is happening and that may lead Post Office identify a need for
further training need. Even then, Post Office cannot directly impose more training
on Postmasters'® because this training also comes at a cost to them, in that it
takes up their time. Most further training is therefore request driven, where a
Postmaster asks for more training of their own volition or agrees to training
suggested by Post Office.
‘8 Save maybe in circumstances where there have been breaches of contract and Post Office
requires a Postmaster to undertake further training as a condition of it not exercising its termination
rights.
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When Post Office introduces new products or changes to products, the need and
type of training is determined by the type of change or the level of complexity
around the new product. If a new product is introduced that is similar to a product
Post Office has already trained its Subpostmasters to use, then Post Office would
likely not do face to face training. Instead it would more likely issue instructions
and easy to user guides.
Support for Postmasters
[Note to WBD /
151.
152.
153.
154.
Some Postmasters run their branches successfully for years, rarely calling for
help, suffering minimal, if any, shortfalls and generally get on with running their
businesses without incident. Some Postmasters do not have a face to face
interaction with Post Office for years. It is perfectly possible to run a branch
without problem, using only the operational manuals and help guides provided by
Post Office. [True?]
Most branches will require some degree of support and guidance from Post Office
at some points in time. Most of this support is in the form of routine queries about
how to do something and is of little consequence. It is a minority of Postmasters
that require regular or pro-active intervention and it is those types of Postmaster
that make up a fair proportion of the Claimants. I do not therefore believe that the
Claimants’ complaints in these proceedings are representative of the views of the
wider body of Postmasters, as can be seen from the fact that the NFSP is
supporting Post Office in this litigation.2°
Historically, an Area Manager would be responsible for the whole life cycle of the
Postmaster, including supporting any issues in branch. Over time the Area
Manager position has had different names such as Retail Network Manager
(RNM) or Business Development Manager (BDM). Area Managers knew the
branches very well due to this high level of personal contact. [Note fo
Around 1995 Post Office started to centralise its business. As part of this, in
around 1999, Post Office set up a helpline for Postmasters. This was partly
because improvements in technology made it more cost-effective to run a
telephony support service but also to support continuous improvement. All calls
0 Source?
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155.
156.
157.
158.
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are logged and the type of enquiry categorised. A summary of the information
given to the branch is recorded on the call log. This data can then be used to
identify any trends in the type of calls enabling a better understanding of any
issues and enable us to reach a resolution more quickly. For example if the
helpline receives a higher than usual volume of calls regarding a transaction this
triggers an investigation into what's driving the increase in call volume. . It was
first implemented on a regional basis and was later centralised when it became
known as the National Business Support Centre (NBSC). [Correct? Or was it
known as a the NBSC before this?]
It was important that Postmasters used the Helpline as Post Office wanted a
record of the calls reporting issues so that we could understand trends in the
volume of calls and also the type of calls. Again, technology allowed Post Office
to collate this data and produce trend analysis at a national level to ascertain
whether there are particular things taking place that are not just one offs. If, for
example, Post Office brought a new product in and the Helpline received a large
number of calls, Post Office could consider whether the training had not landed
properly; or that the product design is not quite right.
Even if the Postmaster wanted to get hold of me as an RNM, I would inform them
that they needed to go through the helpline. I would inform them that the contact
at the helpline would then page the relevant RNM or BDM and ask the person to
contact the Postmaster.
As the Area Manager role became more focused on business development and
sales NBSC became the primary point of contact for Postmasters seeking support
on operational questions. NBSC is dealt with in more detail in the Witness
Statement of Kendra Dickinson.
In [year], Contract Advisors were introduced. Contract Advisors were responsible
for managing the contracts of Postmasters and took over this role from area
managers. They were centrally based and did not visit branches unless
addressing a specific issue. They were involved in the appointment process,
handled any contract breaches and dealt with suspensions, resignations and
terminations. These matters are dealt with in more detail in the Witness
Statement of John Breedon.
Causes of shortfalls
159.
When becoming a Postmaster, a person will know that there is a risk of losses of
cash and stock from a branch. This is a known risk in any retail environment and
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is commonly called shrinkage.2' There are innumerable ways that a shortfall or
surplus may arise. I set out some examples below.
160. Mis-key. If a Postmaster enters the wrong value of a transaction into Horizon
compared to the actual amount of the transaction this could cause a discrepancy.
By way of example, a banking customer wishes to deposit £1000 into his/her
account and the person serving the customer mistakenly enters £10,000 but only
£1,000 cash is taken from the customer. This would create a shortage of £9,000
for the branch.
161. Mixing retail and Post Office business. Generally, a branch will maintain a physical
separation between retail and Post Office cash. Mixing these two sets of cash
can lead to Post Office cash being lost to the retail business and vice versa as it
can become difficult to track the amount of cash that should be allocated to the
Post Office and retail sides.
162. Errors in cash handling. At the end of a customer transaction, payment normally
needs to be made to or received from the customer. Even if the transaction is
correctly recorded in Horizon, branch staff may take or hand out the wrong
amount of cash. This error could be as simple as miscounting cash before
handing it to, or receiving it from, the customer. This error may also happen when
excess cash is sent from a branch to Post Office or vice versa.
163. Miscounting cash on hand. When completing the physical cash count, notes and
coins can sometimes be miscounted or missed altogether. If cash is temporarily
mislaid one day and found the next, it can lead to related shortages and surpluses
on different days or in different trading periods.
164. Cash remittance errors. If there is mistake made between the amount that is
“Remmed” in or out and what is received from, or sent to, the Post Office Cash
Centre, then this will lead to a branch discrepancy. When a pouch is received
from a branch, the handling clerk at the Cash Centre opens the seal and empties
the contents onto their workstation, which is monitored by CCTV. This is the same
for pouches that are made up in the Cash Centres and sent to branches. By way
of example, if a branch has bagged up £25,000 to send to the Cash Centre but
enters £20,000 into the system then there will, in the short term, be a shortage of
£5,000. If the cash has left the branch then the mistake cannot be rectified by the
branch. The cash will be counted at the Cash Centre and a Transaction Correction
will be sent to the branch to rectify the branch account.
21 Can we cite an industry report on retail shrinkage?
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165.
166.
167.
168.
169.
170.
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Stock handling. In the same way that cash can be mishandled, stock can also be
mishandled eg. giving the wrong type of stamps to a customer.
Cheque handling. Branches can accept cheques as payment for certain products
and services. There are set procedures that must be followed in branch to ensure
that the cheques are handled correctly and submitted to Post Office promptly so
that they can be entered into the banking system. A failure to follow these
processes may make it impossible to recover the value of the cheque and the
cost of this may be passed back to the branch.
Product specific errors. A failure to follow the correct process for accounting for
certain products can also cause errors. A good example is the accounting process
for Motor Vehicle Licence (MVL) discs (commonly referred to as tax discs).
Branches will receive MVL discs from Post Office, which they have to record as
part of their stock using Horizon. When the discs have passed the time where
they can be put onto a vehicle, the branch is responsible for destroying the discs
and following a process to inform Post Office that they have been destroyed.
When destroying the discs, if the branch does not follow all of the steps of “spoiling
the disc” and remitting it to Post Office, Horizon will still record the disc as being
in the branch even though it has been destroyed.
Accidental loss. Other losses may occur accidentally in branches. For example,
money dropped in bins with rubbish, money dropped or knocked into mail bags,
and money left on counter tops taken by a customer without branch knowledge.
Theft. Theft by branch staff can and has occurred involving staff taking cash or
stock or colluding with a customer to generate a gain for the customer and an
offsetting loss for the branch.
Reliance on Postmasters
171.
Post Office is not present in branches, except when its staff are on site providing
training or support or conducting audits, which would perhaps give it at best
visibility of maybe 1 in every 10,000 transactions. It does not have first-hand
knowledge of:
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171.1 The interaction between the Postmaster and the customer, what was said or what
was handed across the counter.
171.2 Whether the Postmaster entered a transaction correctly on Horizon. Post Office
only sees what was recorded by Horizon and what may be communicated to its
by clients and customers. It does not know whether that entry accurately reflects
the transaction that actually happened.
171.3 The handling and counting of cash and stock, and whether the correct amount of
cash was taken from the customer or paid out to the customer.
171.4 Whether the correct related paperwork is completed for certain transactions (eg.
endorsing backs of customer cheques with the transaction details).
172. Because of this lack of first-hand knowledge and direct control, Post Office relies
on Postmasters to accurately conduct and record transactions undertaken in their
branches. This is important because:
172.1 Post Office pays or receives money from clients based on the value of the
transactions recorded in branch. Incorrect transactions could lead to it paying
more or receiving less than it is due, thus creating a loss to Post Office.
172.2 Customers trust Post Office to complete their transactions accurately. Its brand
would be damaged and customers would stop coming to Post Offices if, for
example, when they paid a bill or deposited money, their bill remained unpaid or
their accounts were not credited in the correct amount.
172.3 Failing to compete customer's transactions could also damage Post Office's
relationship with clients. If clients receive complaints from customers this could
lead to clients taking their business elsewhere or demanding compensation.
172.4 Post Office receives fees and commissions from its clients based on the
transactions recorded in branches.
172.5 Postmasters are remunerated with reference to the transactions completed in
branch.
172.6 Postmasters are responsible for the handling and security of Post Office cash and
stock in their possession.
173. [In what other ways is Post Office reliant on Postmasters doing their jobs
properly?]
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174. Post Office sets minimum requirements for accounting checks so to ensure the
accurate handling of cash and stock and recording of transactions. These
currently include daily cash declarations?? and the submission of monthly
accounts’, The exact frequency and nature of accounting checks have changed
over time but are, and have at all material times been, in line with the practices of
other retailers (big and small), where the industry standard is for the tills to be
“cashed up" at the end of every day. This is good practice because (i) it allows a
retailer to quickly spot any problems and (ii) for security reasons a retailer will
want large volumes of cash to secured in a safe overnight. I would expect any
reasonable person entering the retail business to understand the importance of
regular cash and accounting checks, and I would also expect them to know that
it is best practice that this is done at the end of every trading day and to promptly
correct any problems found.
175. With over 11,000 agency branches each producing a daily cash declaration, this
would amount to over 26,000 cash declarations each month. It would be
completely impractical for Post Office to review all these accounting submissions.
It would also be pointless. The only information Post Office would have at the
end of each day's trading would be the cash declaration. If there was a shortfall,
it would have no way of knowing which transaction on that day may be the
problem. The only person with this information is the Postmaster.
176. The problem is exacerbated when looking at weekly or monthly accounts. An
average branch conducts XX transactions per day, or XX transactions per week
or XX transaction per month. As the period of time extends so does the pool of
data and thus finding a problem transaction becomes more difficult.
177. A diligent business person would check their accounts daily to identify any
discrepancies and will look to resolve them there and then. If a material problem
is identified, I would expect the Postmaster to work hard to find the problem. The
starting point is a recount of cash in the branch to make sure there have been no
22 This involves a count of all cash in the branch by denomination and the submission of that cash
declaration to Post Office. This is done so that Post Office knows whether to send more, or collect
excess, cash from a branch. Once the cash declaration is done, it is possible for the Postmaster to
run a report from Horizon showing any shortfalls or surpluses that have occurred that day.
3 Strictly speaking the accounts are submitted every 4 or 5 week trading period depending the
accounting timetable set for each branch, but they are often referred to as the monthly accounts or
“end of trading period" accounts. Historically, these accounts were submitted weekly
24 Assuming that there are 26 trading days in a month.
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counting mistakes. One would then look at the cash, cheque and stock
remittances in and out of the branch to make sure everything has been logged as
being sent or received. It would also be prudent to speak to any assistants to see
if any of them had any idea of what might have happened.
178. The next step would be to review all the day's transactions looking for an anomaly.
From the branch accounts, it has always at all material times been and is still now
possible to review a list of all transactions completed that day, their value and the
corresponding payment method (cash, card, cheque, etc). It would be sensible
to start looking for a transaction around the value of the loss eg. if there was a
loss of £900, I would be looking for a mis-key transaction where £100 was entered
as £1,000.
180. Most small businesses like a Post Office branches have repeat regular customers
eg. a customer who always draws their benefits on a Wednesday morning or the
local garage that deposits its weekly takings on a Friday afternoon. You get to
know the ebb and flow of trade in a branch and when you look down the daily
transaction log, you do not just see numbers, you see patterns of customers. This
allows a Postmaster to spot anomalies in a way that Post Office never could.
181. Postmasters also have knowledge of how their branch runs in practice:
knowledge that Post Office does not have. They understand when they have had
busy trading periods that makes mistakes more likely or have had difficult
customers with complex transactions. They will know which assistants are more
reliable, especially when new staff have just been hired. They will know if they or
their assistants are having any personal or financial difficulties that may have
affect their performance or create a greater risk of theft. Subtle little things, like
rushing to close the branch early one evening so to go to an event or see your
family, may change the risks of errors. The Postmaster's own risk for tolerance
for errors will be important: some will want their accounts to balance to the last
penny every day; others will be happy to allow small losses to rollover for a period
of days without any investigation.
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182. [Is there any other information that the Postmaster has about the cause of losses
that POL does not have?]
183. Given that each branch is different, each Postmaster will have their own way of
investigating any shortfalls or losses. However I would say that the above steps,
or a variant of them, is ordinary practice in a retail business.
184. It is fair to say that small shortfalls or gains sometimes cannot be tracked down.
For example, a simple mistake of handing over to a customer a £10 note rather
than a £5 note will be nearly impossible for either a Postmaster or Post Office to
spot after the event. However, if a Postmaster conducts their business
responsibly and with care, I am confident that they should be able to identify any
material or re-occurring problems or at least localise them to a particular
transaction, type of transaction or member of staff. In this context, I would
consider a £100 shortfall (dependent on the size of the branch) to be a material
error. It would be very rare that a Postmaster, having kept his accounts diligently,
would have no idea where a material problem was arising from. [Can you add any
more context as to why a SPMR would normally be able to track down material
errors?] A diligent postmaster who accurately declares the branch cash
accurately at the end of the day and discovers a discrepancy would be able to
review the branch transaction log looking for transactions of a similar value — mis-
keys on cash deposits for instance a £50 deposit keyed in as £500 would generate
a £450 loss. The branch staff would usually remember the transactions they had
done that day. The same would apply in a smaller branch with a smaller
discrepancy for instance £10 deposit key in as £100 or £20 as £200 etc
185. By contrast, it can be very difficult, if not impossible, to find the root cause of
shortfall if the Postmaster has not kept regular and accurate accounts. As
explained above, it is easier to find a problem if it can be localised to one trading
day, which can be easily done if daily checks are completed. Regular but
inaccurate entries are also a problem eg. if a branch has recorded cheque
payments as cash payments, then this may disguise a loss of cheques.
186. Compounding errors makes finding a loss more difficult. It could be that two errors
are made in one day, a loss of £300 and a gain of £100, making it look like a net
loss of £200 at the end of the day. Disaggregating these types of errors can be
done on a small scale, but if not addressed for even a few days or weeks, they
compound and make it increasingly difficult to locate the underlying cause of
problems.
187. False accounting is a major problem when it comes to identifying and correcting
errors. As with any business where accounts are kept, there is a risk that the
AC_151034087_2 47
188.
188.1
188.2
189.
190.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
book-keeper may make false entries to hide problems. This could take a number
of forms but the simplest way is to declare that the business has more physical
cash than it actually has or to declare in the accounts that a shortfall has been
made good when in fact it has not been. These would both make the accounts
look like they are in balance (with no shortfalls or gains) when in the real-world
there is a shortfall. Other types of false accounting include recording false debit
transactions so to reduce the cash position recorded in the accounts so to bring
it in line with the real cash position.
Save when opening new branches, closing branches and undertaking audits (see
paragraph XX), Post Office does not undertake a first-hand manual count of a
branch's cash. It only sees the accounts submitted by the Postmaster which
would appear to balance. It generally does not know whether the Postmaster has
submitted false entries or not.?° False accounting causes two principal problems:
It makes it very difficult, if not impossible, to know on what day a real error
occurred because the falsified accounts will likely show that they were in balance
every day. It will likely not even be possible to tell from the accounts when the
false accounting started.
There is no way for Post Office to know which transactions in the accounts are
real transactions that are innocently incorrect and which are intentionally false.
False accounting therefore puts the entire set of accounts under suspicion.
False accounting could in theory happen, and not be discovered by Post Office,
for weeks, months or even years. This means that long periods of the accounts
may be subject to challenge and genuine errors in these periods will have been
hidden from Post Office. This often makes it impossible for Post Office to
investigate retrospectively the root cause of problems at a branch where there
has been false accounting. Post Office is reliant on the honesty of Postmasters.
for the network to function.
Post Office's position is that false accounting is always unacceptable. There is
also no need for it. It is perfectly possible for a Postmaster to always submit
accurate branch accounts; they just need to fairly disclose the shortfalls in their
accounts so that Post Office can then work with them to understand the cause of
a shortfall and whether the Postmaster is at fault for it.
25 There are patterns of behaviour or transactions that could suggest a problem. For example, a
branch asking Post Office to send out more cash deliveries even though its declared cash position in
its accounts should be sufficient to cover its usual daily trading. These patterns only tend to come to
light after extended periods of false accounting.
AC_151034087_2 48
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191.
inadmissible. Should we delete it?
192. Post Office does not investigate every shortfall encountered at every branch. With
11,000 agency branches conducting XX transactions per day, this would be
impossible unless Post Office hired [hundreds/thousands] of new employees. [Is
this correct? If POL to investigate every declared shortfall in every cash dec, how
many staff would be needed?]. Post Office's investigations of shortfalls in
branches tend to originate from three trigger events:
192.1 The Postmaster raises an issue with Post Office. This could be via a number of
routes including where the Postmaster contacts a helpline, when Post Office staff
are on site at a branch or through a Postmaster's line management.
192.2 There has been an audit of a branch by Post Office that has highlighted a
shortfall.
192.3 Post Office receives information about a transaction in a branch from a customer
or a client.
193. Where an issue is raised with Post Office, it can sometimes piece together what
may have happened by looking at secondary sources of information eg. Horizon
records, submitted paperwork, data from clients, information for customers, etc.
But none of this can replace the Postmasters first-hand experience. Post Office
therefore works with its Postmasters to help them understand what has happened
in their branch but it requires the cooperation of the Postmaster to do this.
194. There are lots of different teams who might "investigate" an issue at a branch and
this will depend on the nature of the issue and to whom it is reported:
194.1 Accounting and operational process concerns will usually by addressed by the
NBSC.
194.2 Alack of competence by branch staff may be addressed by a field support team /
trainer if the root cause was thought to be a training issue.
194.3 Suspected dishonesty or criminal misconduct will usually be investigated by Post
Office's security team.
AC_151034087_2 49
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194.4
194.5
194.6
194.7
194.8
195.
196.
197.
198.
199.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Horizon Service Desk (operated by Fujtisu and now ATOS) would likely
investigate an suspected IT problems
Anything related to a specific product or client would likely go to the team at Post
Office responsible for that client or product.
Major issues that are potential breaches of contract will usually be investigated
through the Postmaster's contract manager = Witness Statement of John
Breedon for more details on this.
Sometimes Postmasters (or their MPs) will write direct to the CEO and the CEO's
office may coordinate an investigation and response.
Threatened legal proceedings will get dealt with by Post Office's in-house legal
team or external solicitors.
Most of these investigation routes (save for suspected dishonesty and threatened
legal proceedings) are conducted in cooperation with a Postmaster. They are not
adversarial processes
Itis very much in Post Office's interests to understand the source of discrepancies
so that everyone working in the network and its clients and customers have
confidence in the robustness of the network. Understanding how discrepancies
might arise also helps to drive improvements in training and processes to
minimise risk from human errors.
Sometimes, Post Office will audit a branch. The audit is a detailed check of cash,
cheques and stock on site by staff directly employed by Post Office. This is one
of the few occasions when Post Office will have first-hand knowledge of the
branch's cash and stock holdings.
The Subpostmaster is not usually given advance notice that the auditors will be
attending. One of the reasons for an audit is to reveal any dishonest practices and
this would be ineffective if a dishonest Postmaster was given sufficient prior
warning to cover up their actions (eg. temporarily transfer cash from the retail tills
to the branch tills to cover up branch losses).
The branch must be closed for the audit because the auditors need to work from
a static set of accounts that are not changing due to further customer transactions.
An audit is therefore disruptive to a Postmaster's business, but it is a necessary
disruption. A Subpostmaster is asked sign the auditor's findings. The auditor will
discuss any findings at that point in time so the Subpostmaster is completely clear
on the audit output.
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200.
201.
202.
203.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
When I was involved with the audit team between 2009 — 2012, it was carrying
out around 5000 audits a year. These were broken down into random audits, risk
based audits, special audits, branch transfer and compliance audits. Around 100
random audits are carried out each year.
The "risk based audits" were for branches which had been identified using a risk
model. The risk based audit system generates a list of between 50 and 100
branches [per month] that are potentially at risk of carrying a loss/funds at risk.
There are also "special audits" which were carried out when something does not
appear quite right. This is not through the risk profiling system and could come
from a myriad of sources: it may be from a conversation somebody has had with
a Postmaster, some intelligence Post Office has received from a client, a tip off
from a member of the public, customer or an assistant, through the NFSP or a
Police report of unusual activity at a branch [Any other examples?].
A similar process to an audit is also carried out when opening a new branch, so
to verify the opening levels of cash and stock, and when closing a branch, so to
verify the final accounting position. A transfer of branch from one Postmaster to
another could result in a close and open audit if there was a delay between these
two things happening.
Responsibility for shortfalls
204.
205.
Where a Postmaster is at fault for a shortfall, it is reasonable that he should be
held liable for that shortfall and should compensate Post Office for that loss. If a
Postmaster was not held so responsible he would have a disincentive run his
branch properly. This would lead to mounting losses in the network, with
Postmasters, customers and clients taking the benefits of those errors and Post
Office suffering the consequences. In this situation, the network would become
financially unsustainable very quickly.
Postmasters are solely responsible for their branch accounts. There is no
transaction that enters their accounts without their consent (or their consent by
proxy through their assistants).2° This includes transaction corrections?’ issued
by Post Office that must be accepted by the Postmasters before they form part
28 I dismiss here the groundless accusation about Post Office or Fujitsu maliciously editing branch
accounts — see paragraph XX
27 Previously known as Error Notices. [Ni
S
iti
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206.
207.
208.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
of the branch accounts. Postmasters have a variety of ways to contest any
shortfall. They should do so promptly and the usual route is via NBSC.
If there is a shortfall, the most likely cause is an error by the Postmaster given
that he has control over (a) the transactions conducted (b) the entries made in the
accounts and (c) physical control of the cash and stock in the branch. It is
therefore fair to assume that, absent any complaint from the Postmaster, if a
shortfall is declared then the Postmaster is responsible for it or at least accepts
he is responsible for it.
It would be very arduous for Post Office if this assumption was reversed. If Post
Office had to positively prove every shortfall was the fault of a Postmaster, even
where the Postmaster raises no complaint, the administrative burden would be
massive. To put this in context, as at the date of this statement, the level of
declared losses by Postmasters that are outstanding to Post Office is XXX. Only
a fraction of these are disputed. See the Witness Evidence of Alison Bolsolver
for more details.
In any event, for the reasons set out in paragraphs XX to XX, the Postmaster is
best placed to investigate shortfalls and Post Office cannot often find the root
cause of a shortfall without the Postmaster's cooperation. A reversal of burden
for determining the root cause of shortfalls would also create the perverse
situation whereby the greater the scale and sophistication of the false accounting
by a Postmaster, the less likely Post Office will be able to find the root cause of a
shortfall and thus the more likely the Postmaster would not be held liable for that
shortfall. This would expose Post Office to uncontrollable losses.
D. IMPLIED TERMS
STATEMENT OF TRUTH
I believe that the facts stated in this witness statement are true.
Signed:
Date:
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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Filed on behalf of the: Defendant
Witness: Angela Margaret Van Den Bogerd
Statement No.: First
Date Made: 23 July 2018
Claim No: HQ16X01238, HQ17X02637 and
HQ17X04248
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ROYAL COURTS OF JUSTICE
BETWEEN:
ALAN BATES AND OTHERS
Claimant
AND
POST OFFICE LIMITED
Defendant
WITNESS STATEMENT OF ANGELA
MARGARET VAN DEN BOGERD
y WOMBLE
BOND
i i’ DICKINSON
Womble Bond Dickinson (UK) LLP
Oceana House
39.49 Commercial Road
Southampton
$015 1GA
Tel: 0345 415 0000
Fax: 0345 415 8200
DX: 38517 Southampton 3
Our Ref: AP6/IAR1/364065.1369
Solicitors for the Defendant