Confidential
Post Office Ltd - SECURITY POLICY
Document Information
Title Accounting Losses Policy for Agency Branches
Category Standard
Subject Treatment of accounting losses incurred within the
network
Version Control 1.0 February 2003 — Replaces all previous draft versions
Author Audit & Inspections Manager
Owner Head of Security & Audit
Purpose To document accounting of losses
Audience Retail Line, NBSC, Security & Audit Staff
Keywords Accounting Loss
Privacy level Retail Line, NBSC, Security & Audit Staff
Document format I Arial 12
Document type Electronic (MS Word. Doc), Paper,
Review date Annual
Expiry date Ongoing subject to review
Approval
Role Name(s) Date
Business input Original Policy, Duncan McFayden, Steve Various
Gibbs, Jackie llesley, Eddie Herbert, Mike during five
Denison, Neil Salter, Steve Rooney, Danny draft
McDonough, Joanne Hancock, John Holden, I stages
Panther workshops (via Michael Dadra)
Assurance Tony Marsh, Head of Security and Audit
Authorised Head of Security and Audit, Post Office Ltd
Version control
Version No. Reason for issue Date
1.0 Revision of original policy, following transfer I February
of ownership, including amendments 2003
following input from a wide range of
interested parties
1.1 Minor textual amendments to reflect required I March
appeals process 2003
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ACCOUNTING LOSSES POLICY
FOR AGENCY BRANCHES
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SECTION 1 - INTRODUCTION AND PURPOSE
Aside from the direct cost to Post Office Ltd of losses that are ultimately written-off, all
losses involve associated administrative costs in dealing with the errors that cause
them and managing suspense accounts, many also lead to client penalty payments.
Given the impact that losses have on Post Office Ltd costs and profits therefore, this
policy is defined to provide clear and consistent guidelines for the treatment of
accounting losses within the agency network (both commercial and community
segments).
The overall purpose of the policy is to:
. ensure probity, objectivity and conformity across the network;
. clarify roles and responsibilities;
. ensure equality and fairness of treatment of Subpostmasters and other agents.
For the purpose of this policy, the term “agent” refers to all people or companies
operating sub-post office branches under contract to Post Office Limited and the
pronoun “he” refers to people of either gender. The term “retail line manager” applies
to the Post Office Ltd employee with direct responsibility for the control of the relevant
branch
From a purely contractual perspective, the agent is responsible for all losses caused
through his own negligence, carelessness or error. He is also responsible for losses
caused by the actions of any assistants, managers or relief personnel employed by
him. This policy, consistent with the contractual relationships between Post Office Ltd
and its agents, is designed to clarify circumstances where mitigation may be
appropriate and to provide a clear framework to handle individual cases.
SECTION 2 - PREVENTION OF LOSSES
The most effective way of reducing losses in post office branches is to prevent them
occurring in the first place. It is therefore essential that there are good accounting
practices in place and that business procedures are complied with in branches, as
poor accounting practices may lead to carelessness and unnecessary losses.
It is the responsibility of the agent to ensure that the accounting and operational
procedures and practices employed in the branch conform to the current business
standard for branches of that type. It is the retail line manager's responsibility to
satisfy themselves that this is the case and to provide advice, guidance and
instructions where it is discovered that this is not so.
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SECTION 3 - AUTHORITY TO HOLD LOSSES
The Subpostmaster’s contract requires that losses are made good without delay.
Immediate settlement is therefore the expected contractual norm.
Under certain exceptional circumstances losses can be held in the suspense account
for a maximum of 8 weeks. These circumstances require the agent to justify the
reasons for not making the loss good immediately. Before any authority to move a
specific loss to the suspense account is given therefore, the agent must have
completed their own investigation and be able to show that an error notice is likely to
be issued for that loss or an element of the loss.
Authority to hold an accounting discrepancy must be sought via the National Suspense
Account Team at the Network Business Support Centre (NBSC). The loss needs to
be identified against a known error that has been made and the likelihood that an error
notice will be issued. If there is no known error (and, therefore, no error notice likely to
be issued), authority will not be given.
To give authority to hold losses within the suspense account, even with evidence of
the error, is against the principle of right first time. Granting authority to hold amounts
in suspense should therefore always be considered to be the exception rather than the
norm. Agents are also expected to address the underlying cause of misbalancing and
consequently agents will not be expected to seek subsequent authority to carry further
losses within the suspense account relating to errors of a similar nature.
Where authority is given, it will only be provided for the amount of loss discovered
above a threshold amount (£150 for those in the community segment and £400 for
those in the commercial segment) and providing that no other losses are held in
suspense at the time. A unique reference number will be allocated to any authority,
which the agent should note for audit purposes.
Where the agent cannot demonstrate that a loss is due to an error within a specific
client’s area of work but is unable to make good the loss immediately, authority may
be sought to hold the amount in the suspense account for up to four weeks. During
this period, the agent's case for hardship should receive consideration by the
appropriate retail line manager. Further details on hardship relief are given at section
4. Ahardship case must have been submitted and accepted within four weeks or the
loss made good by the agent.
In all instances where error notices are issued, they should be brought to account in
the next available cash account and any authority to hold a loss in suspense account
will consequently be rescinded.
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SECTION 4 - POLICY ON RELIEF
Occasionally, there may be exceptional circumstances that allow for relief (either
repaying the loss by instalments or writing-off part of the loss). The main
circumstances where consideration may be given are:
. losses incurred by a new agent, during the first six weeks of appointment;
e where there is clear evidence of financial hardship.
In the case of a new agent, consideration can be given to providing partial relief for a
loss. In considering this, it is important that the retail line manager take account of the
agent’s overall performance since appointment, the size and nature of the branch
concerned (including staffing arrangements before and after the transfer) and that he
establishes whether the loss occurred whilst the trainer was present. He should obtain
the trainer’s view of the competency of the new agent as well as any audit report. In
considering giving relief, the retail line must ensure that the agent has completed an
investigation into how the loss occurred and amended their operating or accounting
practices to ensure that a similar loss cannot occur again.
Any loss must be made good by the agent and should not be held in the suspense
account pending a decision on relief. However, if it is likely the loss is due to an error
that will result in an error notice, authority may be given to hold the loss in the
suspense account.
The data collection proforma for assessing hardship is at Appendix B. For the
purposes of this policy, hardship is defined as “Financial circumstances where the cost
of making good a loss will equate to a value higher than the working capital of the
business”.
In agreed hardship cases, the preferred option is to allow repayment of the loss over a
12 month period. However, the repayment period can be extended (by Head of Area
authority) where this is considered the most suitable option in order to prevent
bankruptcy or a partial or full write off. Where repayment is authorised, the following
criteria must be met:
. losses are made good by deduction from remuneration;
. the repayment period is a maximum of 12 months, unless an extension is
authorised by the Head of Area;
e any credit error notices relating to the same cash account week as the loss
should be used to reduce the outstanding balance;
. during the repayment period, any further losses should be made good
immediately;
. should either party terminate the contract for Post Office services, the whole
amount will be paid in full immediately.
. losses have not been incurred due to poor accounting and/or poor operational
practices.
In exceptional circumstances, relief may be given by writing-off part or all of a loss, the
provisions at section 5 on the accounting impact of losses on the retail line manager’s
personal or team Profit & Loss (P&L) account will however apply in all cases.
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SECTION 5 - WRITE-OFFS
Decisions in respect of write-offs are not taken by groups but are the responsibility of
individual managers, who bear P&L accountability for those decisions. The reasons for
a write-off must be fully documented and may be subject to audit.
A write-off voucher (detailed at Appendix A), signed by an authorised signatory, must
be used in line with the following levels (referring to the amount written off, not the
amount of the loss where that is different):
Up to £2,000 Retail Line Manager
£2,001 to £50,000 Head of Area
Over £50,000 General Manager
To ensure that write off decisions are reviewed against business policy and to review
the impact on Post Office Ltd P&L, a financial concurrence must be obtained in all
write off proposals in line with the following levels:
Up to £50,000 Refer to segment Finance Manager
£50,001 - £100,000 Refer to Head of Operational Finance
and Planning
Greater than £100,000 Refer to Head of Operational Finance
and Planning and then to Finance
Director for final endorsement
SECTION 6 - HORIZON ISSUES
If an agent feels that an error has occurred via the Horizon system, it is essential that
this be reported to the Horizon System Helpdesk (HSH). The HSH will only consider
the incident for further investigation if the branch has evidence of a system fault. If no
evidence is available, the case will not be investigated and the agent will be held
responsible for making good the loss.
System faults are very rare and are normally identified after a full investigation has
been undertaken. All known system errors are managed through Network Support
Problem Management. Access to Problem Management is via the NBSC. If the agent
feels that the issue is not being resolved, they should flag the issue up with NBSC. Ifa
known system error has caused a shortage, the agent should be given authority to
hold the loss in suspense until the system error has been reconciled and an error
notice issued.
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SECTION 7 - REMITTANCE DISPUTES
As a result of Bank of England rules, all cash centres in England and Wales must be
automated by June 2003. Centres located in Scotland and Northern Ireland however
do not currently face such a requirement. As a result the network of cash centres is
split into automated and non-automated cash centres.
The very significant investment made by Post Office Ltd in processing and image
capture and recording equipment in automated cash centres means that the accuracy
of notes supplied and processed at these sites is of an extremely high standard and all
relevant processes take place under automated CCTV supervision. The notes
processing procedures at non-automated sites are still considered to be fully
acceptable, however the level of verification available at those sites is less than that
achieved at automated sites.
As a result of this there are two separate approaches to adjudging liability for losses
caused by reported discrepancies in remittances between branches and cash centres
and vice versa, depending on the status of the cash centre.
Non-Automated Cash Centres (Scotland and N Ireland) will operate the following
principles:
For discrepancies in note remittances from non-automated cash centres to Post Office
branches, all discrepancies will normally be the liability of the sending unit, i.e. if a Post
Office branch discovers a shortage within a “non-automated” remittance the
discrepancy will be borne by the cash centre, unless otherwise proved.
For discrepancies in note remittances from Post Office branches to non-automated
cash centres, all discrepancies will normally be the liability of the sending branch i.e. if
anon-automated cash centre discovers a shortage within an inward remittance the
discrepancy will be borne by the despatching branch, unless otherwise proved.
Automated Cash Centres (England and Wales) will operate the following
principles:
Subject to the detailed provisions below it is not anticipated that undetected
discrepancies will occur in remittances from automated cash centres to Post Office
branches. As a result therefore claims will not normally be accepted from branches for
alleged shortages in note remittances supplied by automated cash centres. Any such
reported discrepancies will be the liability of the receiving branch i.e. if a Post Office
branch reports a shortage within an automated remittance the discrepancy will
normally be borne by the receiving branch.
Due to the effectiveness of the automated image capture surveillance of the inward
remittance opening process at automated cash centres, it is anticipated that clear
evidence will exist to support any discovered discrepancies in note remittances from
Post Office branches to automated cash centres. As a result therefore all
discrepancies will normally be the liability of the sending branch i.e. if a cash centre
discovers a shortage within an inward remittance the discrepancy will be borne by the
despatching branch.
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The principles outlined above will apply where the relevant criteria detailed below have
been met in full:
. all notes dispatched to Post Office Branches have been integrity checked;
. the high speed notes sorting equipment is calibrated daily (i.e. a known quantity
is counted and verified) and records maintained;
. the operation of the high-speed note sorting equipment is under cover of high
resolution CCTV;
. adequate processes are in place to ensure the integrity of notes held in storage;
. the outward remittance process is structured in such a way that the following can
be witnessed on the CCTV system;
- the appropriate numbers of bricks are laid out on the processing bench in
a way that allows remote verification;
- the placement of bricks into the security container can be witnessed;
- the sealing of the security pouch can be witnessed;
. the inward remittance process is structured in such a way to allow the discovery
of a discrepancy to be witnessed on the CCTV;
- the opening of the pouches and the contents should be visible under
camera;
- the inward remittance processor must remain within camera coverage at
all times until a supervisor has verified the discrepancy;
. records are maintained of any CCTV system down time.
Note: In the event of the CCTV system being out of commission, or the integrity of the
note sorting equipment being in doubt, the rules governing the discrepancy process
revert to the non-automated cash centre rules for the given period i.e. the receiver is
deemed to be correct. Cash centre processors must adhere to processes laid down
when undertaking these duties, any evidence to the contrary will result in a
presumption in favour of the branch.
Automated cash centres are equipped with state of the art CCTV. Cameras will cover
inward and outward note processing so evidence of notes despatched and notes
received can be scrutinised in the event of claims. In the event of disputes, agents will
have the right to appeal. An independent panel will scrutinise CCTV footage for
adherence to processes before making a judgement.
Discrepancy reporting and appeals
For both automated and non-automated cash centres, shortages must be reported
within the following timescales:
Full block - 24 hours
Individual notes - within 5 days
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The following information is required to support discrepancy claims from agents:
Missing Brick of notes
(NBSC script to confirm whether supplying centre is Automated or Non-automated)
Branch (FAD)
Dates
Pouch Number & Physical pouch retained which has been correctly opened
Evidence of pouch integrity (e.g. no tears)
Value of shortage
Name of person opening pouch and second check officer (if practical)
Missing Individual Note
(NBSC script to confirm whether supplying centre is Automated or Non-automated)
Branch (FAD)
Dates
Pouch Number
Band around notes to be retained
Value
NBSC will inform the agent where the outward notes process is automated and
monitored by CCTV. If there are no known errors or problems with equipment at the
cash centre the agent will be asked to make good the loss. If the agent is unhappy
with the decision and wishes to appeal, he will be asked to put his appeal in writing to
the NBSC within 7 working days.
Appeals will be heard by a national panel, which will be chaired by a senior manager
from the Post Office Ltd Security team and will include an NFSP representative and a
senior manager from cash centre line management.
On receipt of a letter of appeal NBSC will send a questionnaire to the agent to
complete. The agent must complete and return the questionnaire within 14 days of the
initial call to NBSC. NBSC will then inform the appeals panel of claims to be reviewed
and will ensure that camera evidence is safeguarded until the panel are next due to
meet.
The appeals panel will meet as required dependant on levels of appeals and will
review all evidence for relevant claims. In particular the appeals panel will:
. review relevant camera footage to ensure that necessary criteria are fully met;
. consider any other relevant information;
. communicate the decision to the agent, retail line manager and cash centre
manager, with a detailed rationale to support the decision;
e record details of claims rejected/accepted and any follow up action required i.e.
cash centre to review procedures where criteria were not fully met.
The processes for dealing with remittance disputes are illustrated in Appendices C-G.
Note: Coin discrepancies will be dealt with as for non-automated sites, as camera
footage will not be available for this element of the remittance and the likelihood of
large discrepancies in this area is minimal.
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SECTION 8 - LOSSES REVEALED AT AUDIT
Auditors working for Post Office Ltd Security visit post office branches as part of a
programme of audits.
The agent is advised of any loss revealed at the audit and is required to make it
good immediately, as would happen for any other accounting losses.
If the agent is unable to make the loss good at the time of the audit, proposals to
make good the loss will be sought from the agent and these will be detailed within
the audit report. Regardless of the statement within the audit report however,
treatment of the loss should follow the process outlined in section 3 of this policy.
SECTION 9 - NON-DEPLOYMENT OF THE POLICY
If it becomes evident that an agent has not applied this policy, e.g. holding losses
without authority or beyond the authorised period, there are three stages to be
followed.
Stage 1 should be applied to an agent who has not previously been found to be
in breach of the policy and should involve promoting awareness of the policy with
the individual agent.
Stage 2 relates to an agent who continues not to apply the policy, for example by
continually holding unauthorised losses in suspense. In such cases the retail line
manager should advise the agent in writing of the consequences of not applying
business policy.
Stage 3 relates to an agent who continues to ignore business policy on
accounting losses having been formally advised in writing. In these
circumstances consideration must be given to the agent’s suitability to continue
under their contract for service.
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APPENDIX A
RETAIL LINE WRITE OFF AUTHORITY VOUCHER
BRANCH .........cccccccsceeeseessssenseeeeseeesseseeeeeeeeeseensaer
BRANCH FAD CODE ...... ee eeceeseesseseeeteeeeeeeeeseeneeee
COST CENTRE CODE .........cccssccceceeesssssnreeeeeeeeeessaes
AMOUNT £
AMOUNT IN WORDS ..........:cccessceesseeceeseeseeseeseeseeesesauesseaeeeeeseuesseeeeseseeeee
LOSS DESCRIPTION (record narrative details below)
Prepared by Retail Line Manager/Contracts Manager
(supporting papers available for review by concurring personnel)
Name (in block capitals) «0.2.00...
Signature 2.0.0... c ccc c cece cee eeseeeseeeeeeeeeeeeeeeenenes
Operational Concurrence
Name (in block capitals)
Position
Signature of Authorisation
Date
Position
Financial Concurrence
Name (in block capitals)
Position
Signature of Authorisation
Date
Position
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APPENDIX B
FINANCIAL HARDSHIP CASE
Please provide the following details for annual income and expenditure.
BUSINESS DETAILS
Income
Retail Sales
Less Cost of Sales
PO Remuneration
Int Allowances
Other (please specify)
TOTAL (1)
Overheads
Wages
Gas
Electric
Telephone
Printing/Stationery
Accountancy Fees
Insurance
Motor Expenses
Uniform Business Rate
Water Rates
Rent
Repairs
Bank Interest/Charges
Loan Repayments
Taxation
Other (please specify)
TOTAL (2)
NET PROFIT (3)
(1) -(2)=3
PERSONAL DETAILS
Income
PO Drawings
Interest on Savings
Spouses Salary
Other (please specify)
TOTAL
Overheads
Mortgage/Rent
Council Tax
Electric
Gas
Water Rates
Telephone
Motoring Expenses
Housekeeping
Clothing
Other (please specify)
TOTAL
Please provide details of
funds available from your own
resources.
Bank/Building Society
Stocks/Share
PEPs/TESSAs/ISAs
Premium Bonds
What do you take out of the Business as personal income (drawings)
NB: PLEASE NOTE THAT YOU WILL BE REQUIRED TO PROVIDE
SUPPORTING DOCUMENTATION TO SUBSTANTIATE THE ABOVE
INFORMATION. (e.g. LATEST SET OF ACCOUNTS).
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APPENDIX C
Non-Automated Cash Centre
- Outward Remittance Discrepancy Process
Receivedin aw
Remittance I I Branch & Pr Block of nates
Despatched reports a ~_ shortage
discrepancy Sa
Potsmaster to Provide: __Midividual Note
Branch name and FAD code << Shortage” Reports to NBSC-
Pouch No. ee
NS with relevant
Retain pouch for Future N r details - within 24
‘examination hours
Value & nature of shortage
\
\\ [Reports to NBSC -
NBSC Log Gall and
advise Prat to book in
‘as per paperwork and
show discrepancy in
appropriate suspense
tables and issued with
incident number
NBSC contact,
Cash Centre to
notify them of
discrepancy, with
details and
incident number
cach Centte hold Pu Cash Centre rectify
Man discrepancy with
investigation and iscrepancy~ Branch and hold in
notify NBSC of I__—><" rectified? No_>———py Sse ants
any unusual Yes 7 Suspense awaiting
circumstances write off
Cash Centre ( s
‘rectify discrepancy} END
with Branch \ A
January 2003
‘Whatever the outcome, Pmr should always book value as per paperwork.
PMR should NOT accept any pouch if integrity of the seal/pouch is broken.
Pouch needs to be opened as directed, eg scissors along line indicated
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: PMR should raise missing brick within 24 hours, individual notes within 5 days.
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APPENDIX D
January 2003
Non-Automated Cash Centre
- Inward Remittance Discrepancy Process
Received in cash
Pirin Branch centre and
makes up discrepancy found
Outward Rem and verified by
second officer
¥
Cash Centre
contacts NBSC
with details of
discrepancy and
receive incident
number
‘ash Centre must inform
NBSC of discrepancy within
three days of receipt
¥
NBSC contact the
Branch to
investigate
discrepancy
oN Remittance
Aiserepaney~ adjusted and
rectified? No. >» branch informed of
Yes correct amount to
ee claim
Branch rectify
discrepancy with
Cash Centre
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Remittance
Despatched
APPENDIX E
Automated Cash Centre
- Outward Remittance Discrepancy Process
Received in van
Branch & Pmr Block of notes
reports a “shortage 7”
discrepancy a,
Avividual Notes, ——_Repotts to NBSC -
shortage > vith relevant
NY details -vaithin 24
na hours
Reports to NBSC -I NBSC raise vith
vith relevant Cash Centre -
details - Within 5 Given reference
days number
So™
{Claim )
NBSC Log Call and \Aecerted
advise Pr to book in Cash Centre QU
as per papenvotk and reviews ofiteria to
‘old discrepancy not censure itvias filly
possible from meet
automated cash centre
f ~
{ Claim
\ Rejected )
o™
{No ) AN
NBSC raise with es ais. Fed back to NBSC
RUM ask to @————— <P Baoan contact
advice
intervene ace branch
Vy
=
Fes}
an (8 )
(ves YY
om a
aw i ~
{ END }
Appeals process
invoked - See
Separate
Flovichart
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Discrepancy deal
with as per the
non-automated
claim process
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APPENDIX F
January 2003
Automated Cash Centre
- Inward Remittance Discrepancy Process
Received in cash
Pmrin Breneh centre end
makes up discrepancy found
Outward Rem and vented by
second officer
Cash Centre must intorn
NBSC of discrepancy within
three days of receipt
Cash Centre
careactsnasc I
with detais of I//
discrepancy and
receive incicent
number
NBSC contact the
Branch to.
investigate
discrepancy
aN Remttence
~
Sn adjusted and
4 ~~
<\ Piseropaney™, __y branch informed of
Sesion correct aout to
“4 Cw aim
( wi
D
Kos Pe
7 Postmaster
<< accepts
Branch rectity Ay, Boles
discrepancy wth *
Cash Centre .
‘Appeals pr
invoked - St
Seperate
Flowchart
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APPENDIX G
Appeals Process for Automated Cash Centres ——
Writer
Postmaster confiemsaon of HHESC send out
discrepancy
invokes appeals esiel Hes cuestomaiete
within 7 day “
intial report
I questionnaire nat retumed
to timescale then appeals
process to be stopped
Questionnaire
retumed to NBSC
thin 14 days of
intial call
NBSC contact
appeals panel to
inform them of
ses tobe
f
Tpoeals panel
inform Cash
Centres of video
footage to be
archived and
requests papers to
ensure tat criteria
was fully meet on
day of m
Appeals panel
documentation
ciding on
case
Contract Migr and
Branch Manager
Deals of appeal
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