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
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 Subpostmaster
and the operations of a Post Office branch. I also provide some commentary on
what the real-world effects of the Claimants’ proposed implied terms would be.
INTRODUCTION..........ccccseeeeeeeeseseeseee
A. MY BACKGROUND...
B. POST OFFICE AS A BUSINESS
Public ownership....
RR wo
Commercial operating model
Network size and coverage ....
Brand ...
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Market change and competition ....
Technological change...
Client products and requirements.
16
Regulatory requirements ..
Change programmes
C. SUBPOSTMASTERS AND THEIR BRANCHES
Subpostmasters' businesses ...
Operating a branch
Assistants ...
Horizon...
Training...
Initial training...
Assistants.
Further training
Support for Subpostmasters.....
Causes of shortfalls .....
Reliance on Subpostmasters...
Responsibility for shortfalls ...
STATEMENT OF TRUTH...
5. In this statement:
5.1 Paragraph references are to paragraphs in this statement unless
otherwise stated.
5.2 The term "Subpostmaster" is used to generally refer to agents of Post
Office who run branches, including subpostmasters, subpostmistresses,
postmasters and operators.
5.3 References to “all material times" means from 1994 to present, unless the
context indicates otherwise. [We've moved this back to match the 1994
contract date — is this ok?]
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A. MY BACKGROUND
6.
10.
41.
12.
13.
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, while remaining at
all times close to the day-to-day operational procedures.
I began working as a Branch Counter Assistant as part of the directly managed
network of branches (see paragraph XX), and continued in that position for around
2 years. During this time I was also called upon to undertake on-site training for
newly appointed Subpostmasters.
I was a Branch Manager responsible for the day to day management and financial
performance of Directly Managed Branches between 1987 and 1996.
Between 1996 and 2001 I was a Retail Network Manager, 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 Subpostmasters,
appointing the Subpostmasters, managing performance and dealing with any
contract breaches (including contract termination) as appropriate.
I was 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 and the
Welsh Marches. As part of this role I was accountable for a line management team
of 18, and 950 Subpostmasters, and for the conforming of Post Office services to
quality and efficiency standards.
I was 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 management
of 9,000 rural and 500 urban 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 3,000 changes to the Post Office network (2,500 closures and the
establishment of 500 new type services). [What is a new type service?]
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 for
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14,
15.
16.
17.
18.
19.
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approximately 1000 agents/franchisees and employees and (d) 2000 recruitment
and/or contractual interviews.
As Head of Network Services, I was responsible for maintaining the size and reach
of the Post Office network, including determining whether branches in new
locations were warranted.
As Head of Partnerships between September 2012 and August 2013, I was
responsible for the relationship between Post Office and various representative
bodies, such as the Communication Workers Union, Unite the Union and the
National Federation of Subpostmasters (NFSP, see paragraph XX).
As Programme Director for the Branch Support Programme between August 2013
and March 2015, I was responsible for improving operations across Post Office,
including the handling of in-branch transactions.
As Director of Support Services between April 2015 and December 2016, I was
responsible for our helpline for Subpostmasters (NBSC), our customer helpline, the
Financial Service Centre (FSC), the Human Resources Service Centre (HRSC),
and also managing the Contractor Advisors and Contract Administration teams.
From January 2017 until January 2018, I was the People and Change Director,
responsible for HRSC, Health and Safety and the Change Portfolio [What is the
change portfolio?] across the organisation.
From January 2018, in my role as People Services Director, I have been
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 commercial and regulatory context in which it operates.
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
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
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22.
23.
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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.
Today, the ultimate 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 Government, it is not a fully independent
commercial business. We at Post Office often 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. I return to this point below when explaining Post Office's approach
to major changes to its network of branches.
It also means that Post Office is exposed to changing political sentiments. Although
BEIS does not exercise direct control of Post Office, it sets a tone of engagement
and political direction. A change of government or Secretary of State at BEIS can
therefore have an effect on Post Office's high-level priorities. For example, in 2011
the coalition government led by David Cameron privatised Royal Mail, leading to a
change in the Post Office management structure. The current Labour Party
manifesto pledges to renationalise Royal Mail’ which would likely bring further
changes for Post Office. Post Office therefore needs to be able to adapt its
operations and commercial models in line with political changes.
1 Page 19 - https://labour.org.uk/wp-content/uploads/2017/1 O/labour-manifesto-2017.pdf
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Commercial operating model
24.
25.
26.
27.
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. Nearly all 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. Post Office 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 (e.g. driving licence renewals). In practice,
however, Post Office has typically not been able to be profitable overall. It made a
profit last year (2016/17) of £13m against operating revenue of £957m, but this was
the first time it has made a profit in 16 years. Post Office is 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 2012/13 to £80m in 2016/17, and will further reduce to £50m
by 2019/20.5
Post Office provides its services through Post Office branches. These fall into two
categories. The first category is Crown branches (now known as Directly Managed
Branches), which are directly operated by Post Office. Post Office owns or rents
the physical branch premises and the branch staff (known as counter clerks) are
2 https:/Awww.tescoplc.com/about-us/our-businesses/tesco-uk/tesco-in-the-uk/
https:/Awww.lloydsbankinggroup.com/media/media-kit/faqs/lloyds-banking-group-fast-facts/
4 Postal Orders are the only product fully "owned" and provided by Post Office.
5 Statistics taken from Post Office's public Annual Report for 16/47:
http://corporate. postoffice.co.uk/sites/defaultfiles/ARA%20Master_FINAL.pdf.
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28.
29.
30.
31.
32.
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employees of Post Office. Crowns tend to be larger branches. As at April 2018,
there are approximately 250 Crown Branches.
The majority of the network is comprised of branches in the second category -
agency branches. These are also sometimes referred to a Subpostoffices. These
branches are run by third parties, who own [[or rent in their own name]] 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 usually
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 Subpostmasters a remuneration for
operating the agency branch (see the Witness Statement of Nick Beal for more
details). This remuneration is, and has at all material times been [correct?], Post
Office's single largest line item of operating expenditure, and currently accounts for
a third of Post Office's operating costs.®
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? AVDB
concerned about releasing this info - TBD]
The Post Office branch network has 17 million customer visits a week and this
footfall is driven by a wide range of services, both those provided for Post Office
and those provided by the associated retail offering. 25% of customers visit a Post
Office at least fortnightly, and 14p in every £1 spent in the UK is channelled through
a Post Office.
[Is there any other angle that we can raise to make clear that Post Office is a
complex business?]
For the Post Office network to be financially sustainable, Post Office of course
needs to generate more revenue from clients than it incurs in transaction costs and
remuneration paid to Subpostmasters. However, reducing Subpostmaster
remuneration too much would make the position of Subpostmaster 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).
® Subpostmasters fees of £388m against trading costs of £978m: page 56-57, Annual Report 16/17.
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33.
34.
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This has led to Post Office using a number of different models of Subpostmaster
contracts.’ This is so that it can provide a commercially viable offering to
Subpostmasters across the wide range of constituencies that it serves, from small
rural communities, to competitive high street locations through to large branches in
urban centres. It also provides pop-up branches called “outreach branches" that
may be only temporarily open in a location 1 or 2 days a week but provide valuable
services to remote communities.
More often than not the interests of Post Office and Subpostmasters are aligned,
in the sense that a strong sustainable network and brand is good for both, as is the
success of any particular branch. However Post Office needs also 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 Subpostmasters in particular circumstances (see below in
relation to Change Programmes at paragraph X). An obvious example of this is
where Post Office decides not to continue a relationship with a Client but a
particular Subpostmaster's business has benefitted substantially from the ability to
sell that Client's products or services.
Network size and coverage
35.
36.
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:
35.1 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.
35.2 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
7 See Witness Statement of Nick Beal for details.
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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.
37. This criteria requires Post Office to maintain a network that is larger than would
otherwise be commercial optimal and is reflective of the public service pressure on
its business.
38. Post Office produces a Network Report by reference to these criteria.2 The Network
Report contains tables of figures showing fluctuations of branch numbers over time,
including 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
had been significantly larger in earlier decades: 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:
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Total number of Outlets split by Govt Urban
Office Regions Rural I Urban Deprived
Total
East Midlands 543 266 72
881
East of England 677 396 41
1,114
London 7 536 126
669
NI 324 76 87
487
North East 244 151 94
489
Olu) Alwiyie
North West 387 468 265
1,120
8 This obligation is documented in a letter from the UK Government to Post Office:
https://Awww.gov.uk/government/publications/entrustment-of-post-office-with-the-delivery-
of-public-services-letter-from-ukgi-to-paula-vennells-2018
® 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
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7__I Scotland 918 333 145 1,396
8 I South East 693 625 56 1,374
9 I South West 867 342 61 1,270
10__I Wales 631 157 130 918
11__ I West Midlands 364 377 160 901
12__I Yorkshire and The Humber 470 321 165 956
Total 6,125 I 4,048 1,402I 11,575
40.
Brand
41.
42.
43.
In addition to Post Office’s 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 would reduce Post Office's overall revenue and these overheads would
not be commercially sustainable.
Post Office is one of the most recognised brands in the UK and is consistently rated
as a trust and high quality brand by independent reports.'° Post Office is deeply
embedded in the hearts and minds of many local communities. Subpostmasters
are sometimes well-known to local residents, and problems with a Post Office
attract a higher level of attention in the local press than it would for other local
retailers. A 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 directly 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 the subject of a Panorama
documentary on the BBC in [date].
0 https:/Awww.onepostoffice.co.uk/secure/latest-news/our-business/new-postmasters-
boost-business/on-the-business-of-mattering/?p=1
https://www.campaignlive.co.uk/article/aa-post-office-boots-named-uks-trusted-
brands/1289624 [HAVE WE GOT A BETTER LINK FOR THIS?]
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44.
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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 and makes operating an agency branch attractive to
Subpostmasters. It is important that Subpostmasters 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 (which, at its worst, includes fraud by
Subpostmasters).
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 to 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 new Subpostmasters are
found to take on branches that would otherwise close.
Market change and competition
46.
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 as to achieve its twin objectives of maintaining network access whilst
aiming for profitability and reducing its government subsidy. I set out below a few
of the changes I am aware of to illustrate this.
46.1 Over the last [10 years], there has been a steady decline in market share
by independent small convenience stores, which are a prime location for a
Post Office branch. More local shops are run by, or franchises of, large
national chains. Post Office has therefore needed to make sure its
offering is attractive to large, sophisticated corporate businesses as well
as small independents. [Today a larger proportionate of Post Office
branches are sited in national retail chains than ever before. Correct?]
46.2 As mentioned above, the decline in numbers of bank branches has led to
more banks becoming clients of Post Office so as to provide their
customers with a physical access point to their services. This has
increased the importance of financial services as a key product offering in
branches.
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47.
46.3
46.4
46.5
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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 joint venture arrangements with, selected Clients.
For examples, Post Office branded mortgages are provided by Bank of
Ireland.
[[Do we want to add something about POMS? — see:
https://www.insurancetimes.co.uk/post-office-creates-broker-and-parts-
with-aon-on-travel-insurance/1411393.article]]
There has been a nationwide reduction in mail volumes. More
communications are delivered by email with less need to communicate by
letter. Traditional mails volumes have and continue to decline by 2-3%
per annum. 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 Subpostmaster'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 § crease [BD TO CONFIRM] in
turnover from Department of Work and Pensions contracts. ‘2
Consumer preferences have moved strongly towards online transactions over the
last 20 years. This trend is affecting all traditional “bricks and mortar" retailers
including Post Office. The growth of online transactions has led to Post Office
developing its digital offering (now the preferred option for financial services
products). 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?].
"! Source?
12 Page Ref?
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48.
49.
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Post Office has also seen a rise in direct competitors and I provide a few examples
below.
48.1
48.2
48.3
Set up in 1997, PayPoint was originally a way for customers to pay utility
and energy bills. Small retailers would sign up to be part of the PayPoint
network, and would then install a bill payment terminal in their shop.
PayPoint has now expanded to new areas, including those in which Post
Office operates. In 2006, it became the exclusive cash payment network
for the BBC’s TV Licence fee [[, a service which POst Office had
previously provided]]. In February 2011, it launched its Collect+ parcel
sending and collection service. This was a joint venture between
PayPoint and Yodel; the latter being an entrant into the postal services
market following that market being liberalised."
The rise of FinTech and technology driven payment providers has
increased competition for financial product lines. Post Office now
competes against the likes of Paypal, Western Union and TransferWise, in
the overseas money transfers market, with more of these transaction
being conducted online rather than face-to-face in a branch.
The UK government competitively tenders some of its services. Recently
Post Office lost the Biometric Resident Permits service which was
awarded to Sopra Steria. The new contract (starting November 2018) is
very different to the biometric data capture service Post Office currently
delivers for the Home Office. As a result, from November of 2018 Post
Office will no longer offer this service.
[[Add anything about the competitive Telecoms market? — the Annual
Report on Telecoms looks ok says we made an acquisition last year to
consolidate our market position, but we're a small player in the market...]]
In the future, Brexit will affect Post Office in ways that cannot be fully anticipated
but I can foresee the possibility of changes to a number of service provided by Post
Office
including identify documents, travel insurance, foreign exchange
transactions and overseas mail.
13 https://www.paypoint.com/en-gb/about/our-history
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Technological change
50.
51.
52.
Improvements in technology have changed the way that products have been
delivered to customers. These changes are invariably to reduce transaction costs
[[and times???]], 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 volume of transactions, even eliminating, for example, a 30 second
manual task from each transaction can deliver a considerable cost saving to a
Subpostmaster.
An example of this is the Post Office Card Account. The Government's decision to
pay benefits via direct bank transfers created a need for everyone to have bank
accounts. For various reasons, 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 for those who are unable to open or manage a bank, building society or
credit union account. It is only available for the receipt pension, benefits or tax
credits. 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, JP Morgan, who provide the banking facilities,
and Hewlett Packard, which supports the administration. It also caused changes
to the nature of the work undertaken in branches, which had previously handled
paper vouchers.
Another example of technological 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 driven by banks from around DATE to about DATE, because a
chip and pin system is more secure and less prone to fraud. This required Post
Office to install new chip and pin terminals in branches, and to change the operating
and accounting processes for these transactions.
Client products and requirements
53.
Post Office provides dozens if not hundreds of products and services to the public. 4
The Post Office has approximately 130 Clients [Has this been verified?] including
large companies such as Royal Mail, Bank of Ireland and the high street banks.
‘4 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:
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.
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54.
55.
56.
57.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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. Some of our client contracts contain provisions that
require Post Office to maintain a minimum level of geographic coverage and
continuity of service. [h
Clients also often have particular requirements as to how they want their products
to be presented and sold in branches. I set out below a few examples.
55.1 [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.
55.2 Customers can cash ATM security requirements?
55.3 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.]
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 Clients’ IT systems. I am nota 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
any other postal services. [I
Subpostmasters, who are not allowed to sell "restricted products" in their retail
Similar restrictions also apply to
‘8 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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58.
59.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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 to reflect changes in restrictions in its contracts with
Subpostmasters.
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 mails products, cash withdrawals and some types
of bill payments. 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. [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? Can we give a couple of examples of where
a product might be appropriate eg. lottery terminal and ATM? In particular, ATM
as raised by Stubbs]
Regulatory requirements
60.
61.
62.
In 2001 the UK Government obtained clearance under the EU State Aid
Regulations for a payment of £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.
Beyond regulatory requirements applying to Post Office as a whole, the wide range
of products offered by Post Office means that it encounters considerable
regulations specific to those products or Clients. Not all those regulations apply
directly to Post Office; some apply to its clients, and are then reflected in their
contracts with Post Office. I set out below a few examples
of how regulations affect Post Office's business.
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63.
64.
65.
66.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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.’® Royal Mail requires
Post Office, and therefore its Subpostmasters, 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.] As a provider of communications services to the
general public through our Telecoms business, Post Office must comply with
relevant provisions of Ofcom's General Conditions to the extent they apply to the
communications services Post Office makes available to its customers.
Post Office also has to adapt to general changes in the law. A major recent legal
change has been the General Data Protection Regulation, which required Post
Office to update its contractual terms with suppliers, clients and Subpostmasters
and change ways of working across its business, including in branches.
Change programmes
67.
68.
16 ADD WEBPAGE LINK
In light of the above objectives, requirements and pressures on Post Office, it is 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,
which I describe below. When Post Office makes major network-wide changes,
they come under intense scrutiny from MPs and the media (especially when large
scale branch closures are involved). Closing a single branch, for example because
the incumbent Subpostmaster 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 Subpostmasters that goes above and beyond
their usual termination rights. This payment is for pragmatic reasons: it smooths
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69.
70.
71.
72.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
the exit process, and avoids the programme becoming unmanageable, as would
be the case if every closure was contested.
Outside nationwide planned closure programmes, Post Office very rarely gives
notice to terminate a Subpostmaster's contract because it wishes to close a branch
for commercial reasons. If a branch is closing for other reasons (retirement of the
Subpostmaster, termination for breach, etc.) it will generally consider whether the
branch is still needed in its current location and operating model, but a decision not
to re-open a branch in these circumstances is still rare. Generally the pressure is
the other way around: Post Office is keen to maintain the size of the network and
keep branches open.
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. 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). 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
payments to exiting Subpostmasters.
The second was the Network Change Programme, which was a compulsory
closure programme which impacted all of 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, agreed with Post Office 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 [What does this mean?].
Finally, the Network Transformation Programme, which took place between [Ask
Kate Steel], sought to change the way that Post Office services were offered in
branches. [What was the purpose for NT?] Under the Network Transformation
Programme agency branches were classified into two categories. Some became
part of a "Main" branch model in which a dedicated counter, physically separated
from the Subpostmaster's retail business, was maintained. Others became part of
a "Local" branch model, which fully integrated Post Office services within the retail
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73.
74.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
business, so that 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.
It also moved Subpostmasters away from fixed remuneration to variable
remuneration based on volumes of sales. [Why was this change made?]
Were there branch closures and compensation as part of NT?
Cc, SUBPOSTMASTERS AND THEIR BRANCHES
75.
76.
In this section, I explain the role of a Subpostmaster and the basic operation of a
Post Office branch. This is only a high-level overview, reflecting information which
I believe that new applicants for Subpostmaster positions could reasonably be
expected to know, or to have found out, before being appointed as a
Subpostmaster.
: nted]
Subpostmasters’ businesses
77.
By joining the Post Office network, Subpostmasters get access to a wide range of
benefits that would be very difficult for them to procure independently. The key
benefits are as follows:
77.1. Subpostmasters get the right to use Post Office's brand, which
immediately gives their business credibility without needing to build up its
own goodwill. The presence of a Post Office, its brand and the wide range
of products offered attracts customers. This increases footfall to the
Subpostmaster's retail offering and has the potential to increase the profits
‘on the retail side of the business.
77.2 The Subpostmaster gets a source of revenue in the form of remuneration
from Post Office. Subpostmasters 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
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remuneration. The Witness Statemen ok E
Subpostmaster’s remuneration in more detail.
77.3. Subpostmasters are able to sell a 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 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.
77.4 Post Office provides the cash and stock needed to conduct transactions.
It does this on an unsecured basis"’ and therefore the Subpostmaster has
no working capital requirements for branch trading. I doubt that many
Subpostmasters would have the financial means to fund the working
capital for a Post Office branch.
77.5 Post Office provides the equipment, including IT equipment, needed to
conduct customer transactions and maintain the branch accounts,
including safes, mail scales, 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. I do not believe that a
small business owner could put this infrastructure in place on their own.
77.6 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, it banks customers’ cheques, recovers payment
for debit and credit card transactions and processes payments to Clients.
Small business owners could arrange this themselves but it would be an
added administrative burden for them to manage.
77.7 Post Office is liable to customers if its products are defective or not fit for
purpose and provides customer helplines so that branches do not need to
field some queries. This reduces the liabilities of Subpostmasters and
helps save Subpostmasters' time.
77.8 Post Office (or its Clients) are responsible for building legally compliant
processes. Subpostmasters get the benefit of Post Office's expertise in
17 Where the Subpostmaster is a company, Post Office may require a shareholder or director
guarantee.
‘8 I note that this equipment can be recycled between branches so this is not a direct
investment in a specific branch by Post Office but part of the overall cost of operating the
network.
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78.
79.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
doing this and Post Office or its clients bear the legal and regulatory risks
of non-compliance so long as a Subpostmaster follows the stipulated
practices.
The first factor is a major (and in many cases the dominant) reason why people
become Subpostmasters. Post Office does not keep aggregated information on
whether a branch is located within an associated retail unit. However, in my
experience I would say that less than xx% 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 from 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.
When taking on a branch, the Subpostmaster will have some costs and capital
outlay. These include the following:
79.1 The Subpostmaster 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 (e.g. legal fees, stamp duty, etc.) and may also incur finance costs
(e.g. mortgage interest repayments). However, the capital value of the
property can often be recovered (potentially with an uplift) when selling the
property.
79.2 If acquiring an existing business, 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 branch usually increases the profit made
on the retail side. Again, however, the price paid for the goodwill can
often be recovered (potentially with an uplift) on the sale of the business.
79.3 The Subpostmaster may need to pay for some fit-out works to bring the
branch up to Post Office standards. This is more likely to be needed for a
new branch than an existing one. I note that the Witni tater
n 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.
79.4 A Subpostmaster may incur some time / salary costs in recruiting and
training assistants when opening a new branch. These are ordinary
business costs. For Subpostmasters taking on existing branches, it is
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80.
81.
82.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
likely that the incumbent staff of the outgoing Subpostmaster will transfer
to the new Subpostmaster, so in some cases there will be no recruitment
or training costs at all.
79.5 [Anything else?]
Post Office historically charged an introductory fee, licence fee or franchise fee
when an incoming Subpostmaster began to operate a new branch (generally only
charged for larger, more profitable branches). The rationale for charging this fee
was that there was a commercial benefit to a retailer in operating a Post Office
branch. This fee took the form of a fixed percentage abatement of the
Subpostmaster's remuneration for the first year and so was not a capital outlay.
[CORRECT?]
One allegation made in these proceedings is that the Subpostmaster 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 Subpostmaster cannot "sell" a branch
because it is not a saleable asset. The Subpostmaster has the benefit of a contract
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
if the Subpostmaster's contract is terminated. Often a temporary Subpostmaster’?
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
Subpostmaster's retail unit. Often the buyer of a retail unit will make the acquisition
conditional on the buyer being appointed as Subpostmaster. The combination of
these factors means that the value of the business is usually preserved, and initial
capital outlays recovered, even if the Subpostmaster is terminated.
Their investments are also not long-term. Most Subpostmasters 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 to be as profitable as they had
hoped, or should 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 Breeden for more details on this) or the branch has been
selected for closure under a change programme (see paragraph XX). This is
because of its need to maintain network coverage and continuity of service.
19 See the Witness Statement of Nick Beal for more information on temporary Subpostmasters.
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83.
84.
85.
20 ADD WEBPAGI
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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).2° Having appointed, spoken to and worked with
Subpostmasters for many years, I understand that when they are considering
joining Post Office, they make an assessment about whether the additional cost of
running a branch (principally set-up costs, labour costs and the reduction in retail
floor space) and the risks (principally in the form of liabilities for shortfalls if mistakes
are made by them or their employees) are outweighed by their Post Office
remuneration and the potential for increased profit in their retail offering.
Further, an incoming Subpostmaster will be aware of the above before they enter
into a contract with Post Office and therefore can pull out if they do not like the risks
or might look to renegotiate the price they will pay for acquiring the outgoing
Subpostmaster's business to reflect these risks. See the Witness Statement of
John Breeden for more details.
In addition to the commercial advantages, the role of a Subpostmaster also offers
a lot of choice and flexibility. Most of the Subpostmasters 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:
85.1 Being able to hire assistants (see paragraph X in relation to assistants).
This allows each Subpostmaster to strike their own balance between
working in the branch and delegating that work to others.
85.2 It is possible for a Subpostmaster to completely delegate responsibility to
an assistant to run the branch, with the Subpostmaster being absent.
Some Subpostmasters 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 Subpostmasters treat the branch as a financial
investment and may have multiple businesses, including potentially as a
Subpostmaster of multiple branches.
85.3 Subpostmasters are free to allocate responsibilities within the branch.
Subpostmasters could treat all assistants equally or could have a
hierarchy with more senior staff supervising junior staff. In larger
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86.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
branches, assistants may have designated roles e.g. just doing mail-work
or having authority to cash up and submit monthly accounts.
85.4 Subpostmasters can flexibly move their employees between the 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.
85.5 [Any other ways that Subpostmasters 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
87.
88.
89.
Unlike an ordinary retailer, Post Office branches do business in both debit and
credit transactions. Most retailers 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 Subpostmaster may undertake transactions on behalf of Post Office. The
physical cash and stock remain the property of Post Office, even though they are
in the Subpostmaster's possession. It is for these reasons that Subpostmasters
are agents of Post Office, rather than franchisees who would trade with their own
cash and stock and be directly liable to customers for those transactions.
Subpostmasters are generally required to keep Post Office cash and stock
separate from 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, e.g. 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.
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90.
91.
92.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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 e.g. bill
payment, or a debit transaction e.g. bank withdrawal). Before 1999, these records
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.
For example, if a customer pays an £80 utility bill by cash then, if entered correctly
by the Subpostmaster, 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 Subpostmaster is not responsible for the cost of 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 (leaving the customer with an outstanding liability for those utilities), this
would not directly affect the branch's accounting position. The branch accounts
would still show a £80 bill payment, the receipt of £80 in cash and, if the
Subpostmaster has done the transaction correctly, he should have £80 in the till.
A similar allocation of responsibility exists for all transactions, with the
Subpostmaster being responsible for keeping his end of the transaction records
accurate, namely the branch accounts. Put simply, the Subpostmaster's
responsibility is to ensure that the physical movement of cash and stock over the
branch counter is reflected in the branch accounts.
Post Office reconciles transaction data recorded in branch with corresponding
transaction data from clients, where available and appropriate to do so. If a
discrepancy is identified, it may send a "Transaction Correction” to the branch
through Horizon. The Transaction Correction only enters the branch accounts
when accepted by the Subpostmaster. This means that the Subpostmaster has
complete control over the branch accounts and transactions only enter the branch
accounts with the Subpostmaster's knowledge.?3
21 I do not take into account in what I say here the Claimant's allegations regarding defects in Horizon
because I understand that these are not within the scope of the Common Issues Trial.
22 These were previously called Error Notices. Transaction Acknowledgements work on a
similar principle.
23 I put to one side here the Claimant's allegations around Post Office remotely editing
branch accounts without a Subpostmaster’s knowledge as these issues are the subject of
the Horizon Issues trial. I note however that these allegations, which are put in a variety of
different ways, are spurious or only true in incredibly rare circumstances such that they are
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93.
94.
95.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
The accounting system was designed to separate the Subpostmaster's branch
accounts from the client side of the accounts, with the only connection back to the
branch accounts being Transaction Corrections, over which the Subpostmaster
exercises control. This means that, in theory, a diligent Subpostmaster can keep
a perfectly accurate set of accounts without any input from Post Office, without Post
Office effecting the underlying transaction with the client or customer and without
any information from the client.
The alternative, that Post Office has to effect all client transactions for the branch
accounts to be accurate and then, as a necessary consequence, provide
Subpostmasters with access to all client data, would be completely unworkable.
94.1 The sheer volume of branches (>1 1,000) and transactions (43,000,000
per week) would require a very significant effort just to get the correct data
to the correct branch.
94.2 It would undermine one of the key benefits of the Subpostmaster
relationship — that Post Office handles all this on behalf of the
Subpostmaster.
94.3. It would make Post Office's management of its client relationships
impossible. All commercial supplier relationships involve a degree of
ongoing negotiation, variation and compromise. If every change to a
relationship needed approval by Subpostmasters because it might affect
their branch accounts, those relationships would fail.
94.4 It would be contrary to the overall scheme of the Subpostmaster
relationship. Nobody at Post Office would say that it effects transactions
for Subpostmasters or that Post Office acts as the agent of
Subpostmasters in recording and processing transactions.
Post Office's operating rules require a Subpostmaster to submit the branch's
accounts to Post Office at regular intervals. This used to be done weekly but it is
now done 12 times a year, every 4 or 5 weeks (called a Trading Period). This is
now all done online through Horizon. In submitting the accounts, the
Subpostmaster 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 Subpostmaster in a given period. Should the actual
cash on hand be less than the cash position recorded in the accounts by the
Subpostmaster, there will be a 'shortfall' of cash. If the opposite is true, there will
inconsequential. In any event, they would not be in the mind of a Subpostmaster when
they joined Post Office.
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
be a 'surplus' of cash. In this way, any surplus or shortfall is declared by the
Subpostmaster and not Post Office.
When setting operating rules Post Office consciously balances the need for
consistent practice across the network with respect for the autonomy of
Subpostmasters to run their businesses as they see fit.
96.
96.1
96.2
96.3
Assistants
97.
AC_151448389_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 interact and cooperate with the branches if each one did
things differently. This would likely require Post Office to hire hundreds
more back-office staff to run the network. At a guess, I would say around
five times more staff than they currently have doing this work. The cost
would be massive.
The rules however cannot be too prescriptive as this could put an undue
burden on Subpostmasters. An operational change can cause more or
less labour time to be needed in branch, which has a direct impact on a
Subpostmaster'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 Subpostmasters may decide to go further. A good example
of this is whether Subpostmasters undertake more accounting checks
than are required by Post Office. A small branch run by a single long-
serving and experienced Subpostmaster 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, for little corresponding benefit. A much larger
branch with, say, 4 assistants and 2 customer serving positions, which is
suffering from repeated shortfalls, may decide it necessary to do a full
cash and stock count every day or week.
Subpostmasters are allowed to employ staff, known as assistants, to conduct Post
Office business on their behalf. Subpostmasters are free to decide how many
27
98.
99.
100.
101.
102.
103.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
people to employ (if any), who to employ, for what working hours and in what roles.
Subpostmasters are responsible for assistants’ wages and set their salary levels.
Subpostmasters 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.
Subpostmasters are required to register assistants with Post Office. However, Post
Office cannot accurately know how many assistants are active in the network
because:
99.1 Post Office is not present in branches so cannot monitor first-hand who is
serving customers or handling Post Office cash and stock.
99.2 Some Subpostmasters do not register assistants. Post Office relies on
Subpostmasters to do this, but cannot itself physically monitor the position
given the number of branches.
99.3 Even if an assistant is registered that does not mean that they are actively
working in a branch.
It is therefore not possible to accurately state how many Subpostmasters are
actively employing assistants to work in branches at any one time. In my
experience, only in very small branches would the Subpostmaster be able to run
the branch on their own. I would estimate that over XX% of branches have
assistants working in them. According to [system / person], there are currently XX
‘active’ assistants registered with Post Office.
In the above section on “operating a branch", any reference to actions in branch by
Subpostmasters could also be actions by assistants. Subpostmasters are free to
delegate as much or as little of the branch work to an assistant as they see fit.
It is for the Subpostmaster 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.
It would 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
Subpostmaster. For example:
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104.
105.
106.
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103.1 If a Post Office decides an assistant should be dismissed, any resulting
grievance or tribunal claim would be against the Subpostmaster 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.
103.2 If Post Office were to compel mandatory training for an assistant, he or
she would generally be entitled to be paid by the Subpostmaster for that
period of training. The Subpostmaster might prefer not to pay that cost,
being happy to run his branch with untrained assistants or to dismiss an
assistant. It may be that the Subpostmaster has given the assistant only a
limited role in the branch, such that some parts of the training may not be
needed for their job.
103.3 Post Office does not know what, if any, supervisory regime the
Subpostmaster has put in place. It may be that the Subpostmaster is
closely supervising his staff, on the one hand, or providing no supervision
at all (e.g. in the case of an "absentee" Subpostmaster), on the other
hand. Subpostmasters can tailor the training that they provide to reflect
the roles that they have given to their assistants and the extent of
oversight that they are themselves able to provide.
Post Office may offer advice to Subpostmasters in relation to their assistants but
the only circumstance in which it would get actively involved is when an assistant
has acted dishonestly or failed vetting checks. Post Office may then require the
Subpostmaster to exclude that assistant from the branch in order to protect Post
Office cash and stock. Even here, however, Post Office's intervention is through
the Subpostmaster.
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 it did have direct responsibility for assistants. In the context of
Post Office's usually fairly weak financial position, I would expect a change of this
kind to make the network financially unsustainable.
From my experience, I would say that in reality, the only commercially sustainable
arrangement is for Subpostmasters to choose, employ and 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 themselves not present in the branch. As the
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Subpostmaster (and not Post Office) is exercising control, I have always thought
that it was reasonable [[and appropriate??]] for the Subpostmaster to be liable for
the actions of his assistants.
Horizon
107.
108.
109.
110.
111.
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 Subpostmaster to be aware of this information or to be provided with this
level of information if he or she requested it during the application process. [Please
feel free to amend below as appropriate]
I describe Horizon to new users as a big calculator. I think this captures the essence
of the system in that it records the transactions inputted into it, 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 (e.g. scan the barcode; put the card in the pin-
pad or touch the screen) on the Horizon system and then follow the on-screen
prompts. It is ultimately a fairly simple system, at least from the user's perspective.
The system keeps a record of transactions and allows easy access to that
information. It automatically generates the branch accounts and flags any shortfalls
or surpluses to the user. I have always argued that this means it 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 Subpostmasters and Post Office time, and cost, by automating
these exercises. In my experience, the introduction of Horizon substantially
reduced the burden on Subpostmasters in respect of preparing, maintaining and
submitting accounts.
Horizon also allows transaction information to be quickly filtered and sorted, giving
the Subpostmaster the ability to more quickly target areas of interest than in a paper
system, making investigating problems easier than would be the case if the
Subpostmaster had to interrogate various paper records. I cannot see how anyone
could dispute that the introduction of Horizon represented an improvement over the
old paper ledger system used in branch.
Originally, a branch user could look back through 42 days of transaction data but
now it goes back 60 days. Having spoken to my colleagues in Post Office's IT
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team, this date range was set so to strike a balance between giving the
Subpostmaster the ability to review recent transactions (noting that they should be
completing their accounts every 4-5 weeks / 28 to 35 days) and keeping down the
cost of holding very large volumes of transaction data in a live and readily
accessible database (as opposed to cheaper long term secure storage). I am told
by Post Office's IT team that to keep years of transaction data in a live database,
directly accessible by branches, would be very expensive, technically challenging
and create information security risks. Also, this information will be irrelevant for
nearly all branches, as most of the time because they will have little need to look
back further than the last trading period as their accounts should be balanced within
the 4 or 5 week trading period. The only exception is where there is a Transaction
Correction, but this will relate to a particular transaction or group transactions noted
on the Transaction Correction and targeted information can be provided as required
without the need for providing months or years of historic transaction records.
[Angela — can you say this?]
112. I should add that it is of course possible to do things wrongly on Horizon, like any
computer system I have used. One source of problems arises from the fact that it
is possible for the user to press an on-screen touch button and move onto the next
screen without reading the prompts that are there to help. If the user does not
exercise sufficient care, he or she might input incorrect information into the system,
e.g. 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 or, for that matter, gains.
113. As with any IT system, there are instances where the system or the screen goes
down. The system was built with safeguards that sometimes connectivity could be
lost, that a power line would 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
is causing 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
Subpostmasters put right. It would not be in Post Office's interests to leave
problems in Horizon unresolved. They could cause a loss of confidence in the
system by Subpostmasters, customer complaints, incorrect payments to clients,
regulatory breaches and brand damage.
114. 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
(HSD).
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115.
116.
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I am not an IT expert but I have used and have every confidence in Horizon. To
me, 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 Subpostmaster 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 Subpostmasters 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 Subpostmaster [[(and certainly anyone applying after the Claimants
allegations first gained prominience in or around July 2013)]], who has done a
reasonable level of due diligence or spoken to other Subpostmasters or Post Office,
to have a similar view about Horizon when they took on the role of Subpostmaster.
It would be very odd if a person agreed to join the Post Office network, with the
personal liability that entails, under the suspicion that they would be using a
defective IT system.
One untenable allegation in this litigation is that Post Office or Fujitsu may have
been improperly editing 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.
Training
117.
The aim of training is to equip the Subpostmaster 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:
4 Can we find a source for this that is not the Select Committee hearing because that is likely covered
by Parliamentary privilege?
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117.1 It reduces the chance of an accounting or cash / stock handling error in
branch, thereby reducing shortfalls.
117.2. Its helps deliver a better customer experience, thereby improving the Post
Office brand and the prospects of the whole network.
117.3 It helps ensure consistent practice across the network.
117.4 It may reduce the amount, and therefore cost, of other support needed by
Subpostmasters (eg. calls to the NBSC helpline).
117.5 It avoids the cost of having to repeat training.
117.6 It may reduce other costs at Post Office (eg. back-office processing of
transaction corrections; handling customer complaints, etc.).
118. 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.
119. 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.
Initial training
120. One common feature of Post Office's training was that at all material times initial
training was offered to new Subpostmasters. How this has been provided 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. 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.
121. Not all 'new’ Subpostmasters needed training. A Subpostmaster 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
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Horizon and carry out transactions. Some may already been Subpostmasters 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 Subpostmaster they
may take the view that there is little need for them to know how the branch operates.
For those Subpostmasters who were truly new to Post Office and were 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.
122. No matter the method of delivery there are some core features that have always
been covered in initial training programmes:2°
122.1 How to conduct basic transactions.
122.2 How to deal with remittances of cash and stock in and out of the branch.
122.3 How to make daily cash declarations and submit the weekly / monthly
accounts.
122.4 How to declare, investigate, make good and dispute shortfalls.
122.5 How to process and / or dispute transaction corrections.
122.6 How to get further advice and support.
123. I set out below a short summary of how initial training was delivered over the years.
This reflects the standard training that most Subpostmasters received but there
would be exceptions and variations from this due to individual circumstances eg.
very remote branch, Subpostmaster was ill during training, etc.
124. 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. This
was due to the volume of car tax renewals being processed through branches at
that time (that business is now greatly reduced due to car tax now being done
online). Post Office would come back on site to help the Subpostmaster 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]
AC_151448389_1 34
125.
126.
127.
128.
129.
130.
132.
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From 2001 to 2002, classroom training was offered to new Subpostmasters
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 Subpostmasters (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 Subpostmasters 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 Subpostmaster, 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 Subpostmaster 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 Subpostmaster has a variety of methods to take in the training, namely
online, classroom and on-site.
Assistants
The training for Subpostmasters 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.
Before Network Transformation, if there was space on an initial training course it
would sometimes be suggested that the Subpostmaster 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
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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. [WBD TO DOUBLE CHECK THE CONTRACTS]
133. I 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
134. If the trainer has any concerns about the competence of a Subpostmaster following
their initial training, they may arrange further training for the Subpostmaster.
135. After this point further training can be provided to Subpostmasters 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 Subpostmaster. It could be that the
Subpostmaster is absent from the branch and requires no training at all. It could
be that the Subpostmaster 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 for Post Office to determine whether a Subpostmaster (or an assistant)
need further training.
136. Where a specific concern has been reported by a Subpostmaster 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 Subpostmasters”® 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
Subpostmaster asks for more training of their own volition or agrees to training
suggested by Post Office.
137. 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 as this would be an inefficient use of resources.
Instead it would more likely issue new instructions and user guides. Further, it may
be disruptive to a branch to enforce mandatory training when a Subpostmaster may
be comfortable dealing with the new product.
28 Save maybe in circumstances where there have been breaches of contract and Post Office
requires a Subpostmaster to undertake further training as a condition of it not exercising its
termination rights.
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Support for Subpostmasters
138. Some Subpostmasters 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 Subpostmasters 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?]
139. 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 does not affect branch operations overall. It is a minority
of Subpostmasters that require regular or pro-active intervention (the agency
network model would not work if it were otherwise) and it is those types of
Subpostmaster 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 Subpostmasters.2”
140. Historically, an Area Manager would be responsible for the whole life cycle of the
Subpostmaster, 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. [I for \
is with
141. Around 1995 Post Office started to centralise its business. As part of this, in around
1999, Post Office set up a helpline for Subpostmasters. This was because
improvements in technology made it more cost-effective to run a telephony support
service [correct or was there another reason?] than provide each Subpostmaster
with an individual Area Manager. 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?]
142. It was important that Subpostmasters 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,
27 Source?
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143.
144.
145.
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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 Subpostmaster 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 Subpostmaster.
As the Area Manager role became more focused on business development and
sales, NBSC became the primary point of contact for Subpostmasters 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 Subpostmasters 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
146.
147.
148.
When becoming a Subpostmaster, 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
is commonly called shrinkage.28 There are many ways that a shortfall or surplus
may arise. I set out some examples below.
Mis-key. If a Subpostmaster enters the wrong value of a transaction into Horizon
this could cause a discrepancy. By way of example, if a banking customer deposits
£1000 into his/her account and the person serving the customer mistakenly enters
£10,000. This would create a shortfall of £9,000 for the branch. The same thing
would sometimes happen with paper records.
Mixing retail and Post Office business. Generally, a branch will maintain a physical
separation between retail and Post Office cash. Subpostmasters are supposed to
maintain this separation. Mixing these two sets of cash can lead to Post Office cash
28 Can we cite an industry report on retail shrinkage?
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149.
150.
151.
152.
153.
154.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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.
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.
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.
Cash remittance errors. If there a mistake is 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 [[very high definition??]]
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.
Stock handling. In the same way that cash can be mishandled, stock (which now
is predominantly postage stamps) can also be mishandled, e.g. 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 but historic 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
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155.
156.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
to record as part of their stock using Horizon. When the discs become out of date,
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 if it has been physically
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 which is taken by a customer without branch
knowledge.
Theft. Theft by branch staff 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 Subpostmasters
157.
158.
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:
157.1 The interaction between the Subpostmaster and the customer, what was.
said or what was handed across the counter.
157.2 Whether the Subpostmaster 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.
157.3 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.
157.4 Whether the correct related paperwork is completed for certain
transactions (eg. endorsing backs of customer cheques with the
transaction details).
Because of this lack of first-hand knowledge and direct control, Post Office relies
on Subpostmasters to accurately conduct and record transactions undertaken in
their branches. This is important because:
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158.1 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.
158.2 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.
158.3 Failing to complete customers’ 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.
158.4 Post Office receives fees and commissions from its Clients based on the
transactions recorded in branches, and can be expected to correct the
account with its Client (including repaying any fees or commission) if the
transactions was not accurate.
158.5 Subpostmasters are remunerated by reference to the transactions
completed in branch.
158.6 Subpostmasters are physically in control of and therefore responsible for
the handling and security of Post Office cash and stock in their
possession.
159. [In what other ways is Post Office reliant on Subpostmasters doing their jobs
properly?]
160. Post Office sets minimum requirements for accounting checks so as 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,
29 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 cash to, or
collect excess cash from, a branch by reference to the amount of cash the branch reasonably requires
for the transactions it typically performs. Once the cash declaration is done, it is possible for the
‘Subpostmaster to run a report from Horizon showing any shortfalls or surpluses that have occurred
that day.
% 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. CROSS-REF
TO EARLIER IN THE STATEMENT?
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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 be secured in a safe overnight or removed from the premises. 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 that any
problems will need to be promptly corrected. It is obviously particularly important
where the business involves a large throughput of cash, as does a Post Office
branch.
(Note to WBD / Coun: an we find any retail accounting standard or industry
161. With over 11,000 agency branches each producing a daily cash declaration, this
amounts 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 might be the cause of the problem.
The only person with this information is the Subpostmaster.
162. 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.
163. I have always taken the position that a diligent businessperson would check their
accounts daily to identify any discrepancies and look to resolve them there and
then, while the information is fresh in their mind. If a material problem is identified,
I would expect the Subpostmaster 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 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 as to what might have happened.
164. The next step would be to review all the day's transactions looking for an anomaly.
From the branch accounts, it has at all material times been possible to review a list
31 Assuming that there are 26 trading days in a month.
AC_151448389_1 42
165.
166.
167.
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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 by reference to the value of the loss, e.g. if there was a loss of £900, I
would be looking for a mis-keyed transaction where £100 might have been entered
as £1,000.
Most Post Office branches have repeat regular customers e.g. 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 Subpostmaster
to spot anomalies in a way that Post Office never could. An experienced
Subpostmaster will often have his or her own ways of quickly spotting when
something has gone wrong in the branch and putting it right.
Subpostmasters 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 make mistakes more likely, or have had difficult customers.
with complex transactions. They will know which assistants are more reliable. They
could know if their assistants are having any personal or financial difficulties that
might have affected their performance or created a greater risk of theft. Small
things, like rushing to close the branch early one evening to go to an event or see
your family, can increase the risk of errors. Subpostmaster'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. This is not unique to Post Office but reflects the
ordinary challenges of running a small or medium sized business.
[Is there any other information that the Subpostmaster has about the cause of
losses that POL does not have?]
It is fair to say that small shortfalls or surpluses sometimes cannot be tracked down,
as in any business. 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
Subpostmaster or Post Office to spot after the event. Practically, I would not expect
a Subpostmaster to put much time into trying to discover the cause of a very small
loss or gain. However, if a Subpostmaster conducts their business responsibly and
with care, I am confident that they should be able to identify any substantial or re-
occurring problems, or at least localise them to a particular transaction, type of
transaction or member of staff so that a solution can be found. In this context, I
would consider a £XX shortfall to be at the kind of level that it would be worth a
Subpostmaster trying to work out, and I would expect him or her to succeed, but
AC_151448389_1 43
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168.
169.
170.
171.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
people will differ in the level of loss or gain that they will want to investigate further.
It would be surprising and hard to understand if a Subpostmaster, having kept his
accounts diligently, still had 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?]
By contrast, it can be very difficult, if not impossible, to find the root cause of
shortfalls if the Subpostmaster has not kept regular and accurate accounts. I think
this would be obvious to anyone who thought about how a branch works and the
fact that only the Subpostmaster (and the assistants) are actually there, in
possession of the cash and stock and actually carrying out the transactions.
Multiple errors make 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
ona 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.
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 book-
keeper may make false entries to hide problems. Post Office has to trust
Subpostmasters to be honest. False accounting takes 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 as to reduce the
cash position recorded in the accounts in order 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, as it instructs and relies on the Subpostmaster for this. It only sees.
the accounts submitted by the Subpostmaster. It generally does not know whether
the Subpostmaster has submitted false entries or not.%2 False accounting causes
two principal problems:
% 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.
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172.
173.
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171.1 It makes it very difficult, if not impossible, to know on what day an 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.
171.2 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. It also means that Post Office can no longer
trust the Subpostmaster with its cash, stock or its brand.
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 Subpostmasters for the network
to function, including that they record accurately the cash held in the branch each
day.
Post Office's position is that false accounting is always unacceptable. There is also
no need for it. Itis perfectly possible for a Subpostmaster to always submit accurate
branch accounts; they just need to fairly disclose the shortfalls in their accounts
[[and/or notify them of any problems in their branch operations??]] so that Post
Office can then work with them to understand the cause of a shortfall and whether
the Subpostmaster is at fault for it.
Responsibility for shortfalls
174.
175.
Where a Subpostmaster 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. Ifa
Subpostmaster was not held so responsible he would lose an incentive to run his
branch properly. This would lead to mounting losses in the network, with
Subpostmasters, 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.
Subpostmasters are solely responsible for their branch accounts. There is no
transaction that enters their accounts without their consent (or their consent by
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176.
177.
178.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
proxy through their assistants).*? This includes transaction corrections issued by
Post Office, which must be accepted by the Subpostmasters before they form part
of the branch accounts. Subpostmasters 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 Subpostmaster 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
generally fair to assume that if a shortfall is declared, and not disputed, then the
Subpostmaster 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 Subpostmaster, the
administrative burden would be massive. It would also potentially require a
disproportionate amount of effort to be put into proving very small losses in
branches, which to a single branch may be immaterial, but across 11,000 branches
could add up to significant losses. To put this in context, as at the date of this
statement, the level of declared losses by Subpostmasters that are outstanding to
Post Office is £XXX.
In any event, for the reasons set out in paragraphs XX to XX, the Subpostmaster
is best placed to investigate shortfalls and Post Office generally cannot find the root
cause of a shortfall without the Subpostmaster'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
Subpostmaster, the less likely Post Office will be able to find the root cause of a
shortfall, and thus the more likely the Subpostmaster would not be held liable for
that shortfall. This would expose Post Office to uncontrollable losses.
STATEMENT OF TRUTH
I believe that the facts stated in this witness statement are true.
Signed:
Date:
38 I dismiss here the groundless accusation about Post Office or Fujitsu maliciously editing branch
accounts — see paragraph XX
% Previously known as Error Notices. [Ni
S
iti
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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