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From: Susan Crichton
Te Paula Vennells
Subject:
Date: Wed, 6 Jun 2012 18:45:27 +0200
Importance: Normal
orizon-_Terms_of_reference.doc; 2nd_Sight_-_Horizon_Matters_-_Proposal.ppt
Alice - I have prepared a TOR for the investigation to be undertaken by the independent forensic accountant, at this
stage I have not included the extra piece of work where we will want him to explain the facts of the various cases to
the relevant MP's. Both Ron and lan have had experience in dealing with MPs and indeed in fan's case a group
similar to Justice for Sub-postmasters, as you can see from the second presentation which gives details of their
careers and their approach to investigations.
Please let me know if you have any questions otherwise we can discuss tomorrow moming, in addition I have emailed
Ron Warmington to see if he is available to attend the meeting on 48" June, I have not heard back from him yet.
Susan
Susan Crichton
Legal and Compliance Director
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[Filename [4:18 TOR for Second Sight to work on the investigation(1).msg [ORIGINAL]
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[ Draft — Post Office Limited ~ Strictly Confidential
Terms of Reference
. . . Alice Perkins
From: Susan Crichton To: Paula Vennells
Ce:
Date: 6% June 2012
Post Office Ltd - proposal for an independent review of past cases
Background
Post Office Limited has decided to conduct an independent review of a number of closed, and possibly
some open fraud and theft cases. The background is that the Post Office has, in accordance with its
statutorily-authorised powers, pursued cases involving fraud, theft and false accounting principally in the
criminal courts. This has resulted in a large number of prosecutions and restitution of stolen funds. In
recent years, a number of defendants have asserted that there are issues with the Post Office's
National Computer System, ‘Horizon’. The defendants claim that the system has been throwing up
mysterious differences (shortages) for which they have taken the blame. Some of these cases have
been taken up by Members of Parliament and this has resulted in heightened publicity attaching to
individual cases and to the issue as a whole. This involvement and publicity has also lent support to
assertions that Horizon really is the root cause of the problem and that some of those convicted only
made false accounting entries because there seemed at the time to be no other viable course of action.
They claim, in effect, that they have been unfairly convicted and financially ruined.
Objectives & Scope
The Post Office has instructed an independent third party organisation, 2nd Sight Limited provide a
proposal to conduct a review which would include the following tasks:
Select a representative sample of cases that have {ed to prosecutions/court-appointed restitution.
The sample needs to cover cases:
* where defendants claim they didn't take any cash
* where assertions have been made that ‘The System’ (i.e. Horizon) caused the shortage (include
old and new versions of Horizon if possible)
« which have been taken up by MPs
Carefully review all company-held documentation focussing heavily on probable reasons why
shortfalls occurred or built up
Interview company investigators to gain insights and to verify faimess of findings
Review defence submissions focussing on evidence of innocence (consider separately False
Accounting and Theft)
Try to establish why the shortages arose (assign each case to a Probability Category such as: Skill
shortfall; Diversion to Failing Business; Straightforward Theft (by whom?); Mysterious Disappearance;
etc.)
Review all materials from the viewpoint of the Defence (seek Proof of Innocence and test evidence
indicative of guilt)
Study and selectively test, the ‘Horizon’ system in order to find any ‘Black Hole’, Program Bug; etc.
that might have caused mysterious shortages
Reach conclusions on each case and identify any systemic issues/concems
Information re independent investigators
2nd Sight Limited investigators have extensive knowledge of complex financial computer systems; Ron
Warmington, one of the directors and investigators is a Fellow of the Institute of Chartered Accountants
and a member of the Association of Certified Fraud Examiners. He spent 35 years working for two of
the world’s largest banks in a number of positions including heading up Global Banking Investigations
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and European Director of Fraud Management. His fellow Director is lan Henderson, is also a Chartered
Accountant, IT Auditor and a Forensic Computer Examiner. His previous roles have included Head of
investigations at the Personal Investment Authority and prior to that he held a number of roles with
Lloyds of London.
Timescales and Costs
It is anticipated that the review will commence in late June or early July, at present the costings that
have been provided are on a time and material basis, it may be possible to move from this once a small
number of cases have been reviewed and it is easier to assess how much time is required for each
review.
Susan Crichton
June 2012
wa]
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Metadata
Filename
THorizon-_Terms_of_reference.doc
LORIGINAL]
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Confidential and Privileged Document
©
Past Office Limited ©
Proposal to carry out an Independent Review of past fraud and
theft cases in order to determine whether the facts support the
business's findings and the charges brought against individuals
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z
Proposal:
Proposal for an Independent Review of past fraud and theft
cases:
Second Sight has been invited to carry out a review of a yet to
be determined number of closed, and possibly some still open,
fraud and theft cases. The background here is that the Post
Office has, in accordance with its historical and statutorily-
authorised powers, pursued cases involving fraud, theft and
false accounting principally in the criminal courts. This has
resulted in a large number of prosecutions and restitution of
stolen funds. In recent years, a number of defendants have
asserted that the Post Office's National Computer System,
‘Horizon’ is the real culprit here. They claim that it has been
throwing up mysterious differences (shortages) for which they
have taken the blame. Some of these cases have been taken
up by Members of Parliament and this has resulted in
heightened publicity attaching to individual cases and to the
issue as a whole. This involvement and publicity has also lent
support to assertions that Horizon really is the root cause of the
problem and that some of those convicted only made false
accounting entries because there seemed at the time to be no
other viable course of action. They claim, in effect, that they
have been unfairly convicted and financially ruined. It has
become obvious that a truly Independent and thorough Review
needs to be carried out and indeed this has, we understand,
been requested by some MPs. This Review would determine,
for the sampled cases, whether:
» the Post Office has thoroughly investigated the facts,
including the alleged perpetrator’s claims about Post Office
systems and other inadequacies
» there is any indication that assertions that “Horizon is the Real
Culprit” have any basis in truth
» the Courts have been presented with all relevant investigative
findings and that any evidence that might support any
defendant’s case has also been properly considered by the
company’s investigators and then disclosed to the Court
» there is any indication, or pattern, as to where the missing
funds really went (the point here being to review defendants’
claims that the false accounting - that most of them have
admitted - was their only way out when those “mysterious
shortages” hit them)
» there exists any evidence of systemic flaws or control
weaknesses within the old or new Horizon systems and the
Post Office's related operational procedures
» the Post Office has failed to do anything that it should have
done... or done anything that it should not have done... in
regard to the investigations and prosecutions
Our investigators have extensive knowledge of complex
financial systems and a wealth of experience of investigating
fraud. They will, as discussed, need to be given powerful rights
of access to data and Post Office employees and agents.
Clearly, were the Brief, or our investigators’ access rights, to be
unduly constrained, then the quality and utility of the resultant
conclusions would be seriously devalued . We are delighted
that, in our initial meeting, there was not the slightest
suggestion that the Post Office is calling for anything less than
the sort of comprehensive, thorough, independent I Review. that
we would be delighted to undertake. \7
Indi ht
Proposal:
Proposal for an Independent Review of past fraud and
theft cases, cont’d:
We will bring a dedicated and experienced team to carry out
this work and our aim will be to utilise a flexible and scalable
approach involving meetings, interviews, documentation
reviews and testing to achieve a reliable and robust result. In
order that we may deal with prior commitments, we plan to start
the work no later than June 26th. :
As to our fees, we know that you understand that we cannot, at
this early stage, present you with a firm ‘total job’ budget. We
can assure you that you will not be paying for any ‘on the job
learning’ and that, with the sort of good and fast communication
that we confidently expect, things will move quickly and
therefore at reasonable cost. We will be better able to forecast
over-all costs once we have completed the initial review of
some of the selected cases and that will give you an opportunity
to maintain control over costs. As patterns emerge, over-all
conclusions will become easier to derive and more reliable. Our
findings will be addressed to Susan Crichton, Legal and
Compliance Director... and no Final Report will be issued until a
draft has been verbally agreed and approved by the Post Office.
We consequently propose that we work on a ‘Time & Materials
plus expenses’ basis until the work is completed or until such
time as the Post Office indicates that it has no further
requirements from us.
We propose that our fees, for lan Henderson and myself, will
each be charged at a rate of £1,350 per day (plus VAT and
expenses at cost). We envisage that a budget of around
£15,000 plus VAT should be allocated for this initial Case
Review.
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Should you have any queries, or wish to discuss this
further... or have us modify this Proposal... please contact
self — or lan Henderson oni”
This Proposal i is signed, for and on behalf of Second Sight
Ron Warmington, Director
London
June1*!, 2012
m 4
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2nd Sight — Core Principles: —
At 2nd Sight, we gain and retain clients by
being trusted to achieve results that exceed
expectations without embarrassing anyone
with unreasonable costs. Our Core
Principles include:
> If what you need is beyond our » Where we know of others who can serve
capabilities we will tell you that; you better, we will, without cost,
> We will only undertake work that we recommend them;
know we are exceptionally good at » Where we observe that work we would
delivering; otherwise carry out could better be done
> We will at all times work with your by an existing in-house resource we will
tell you that;
people and give credit for their ideas...
rather than trying to sell back to you your > We will ensure that our range of
own work product; solutions, wide as it is, is demand-driven
not supply-led (i.e. we will not try to
convince you that your problems can be
hammered into a match with one of our
off-the-shelf solutions).
> We will at all times guard against
duplicating the activities of others;
» We will only recommend investments in
procedural change, software, etc. where
we are convinced that the net cost of the
changes that we recommend will be less >
than zero; 4
2nd ots ind
4
Case Review — Approach:
This Case Review will include the following
tasks:
» Select a representative sample of cases
that have led to prosecutions/court-
appointed restitution. The sample needs to
cover cases:
» where defendants claim they didn't
take any cash
»where assertions have been made that
‘The System’ (i.e. Horizon) caused the
shortage (include old and new versions
of Horizon if possible)
»>which have been taken up by MPs
» Carefully review all company-held
documentation focussing heavily on
probable reasons why shortfalls occurred or
built up
»Interview company investigators to gain
insights and to verify fairness of findings
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» Review defence submissions focussing
on evidence of innocence (consider
separately False Accounting and Theft)
»Try to establish WHY the shortages
arose (assign each case to a Probability
Category such as: Skill shortfall; Diversion to
Failing Business; Straightforward Theft (by
whom?); Mysterious Disappearance; etc.)
» Review all materials from the viewpoint
of the Defence (seek Proof of Innocence
and test evidence indicative of guilt)
» Study and selectively test, the ‘Horizon’
system in order to find any ‘Black Hole’,
Program Bug; etc. that might have caused
mysterious shortages
»Reach conclusions on each case and
identify any systemic issues/concerns
NY
Lf
2nd ih
mt
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Resources -
Director, London, United Kingdom
Contact Information:
Areas of Expertise”
+ Managing large and high profile fraud
investigations
« Interviewing both witnesses and
suspects
+ Liaising with legal teams and law
enforcement
+ Preparing affidavits, witness
statements and expert witness reports
« Advising on how to improve Fraud
Awareness
+ Assessing systems in order to identify
control weaknesses, and devising cost
-effective ways to repair them
+ Advising and implementing antt-fraud
programmes and policies
« Reducing Credit and Fraud Losses in
Financial Institutions
* Getting to the underlying truth In highly
complex fraud situations, for example
where employees have been falsely
accused and evidence planted to draw
attention away from the true
perpetrator
¢
eee
Ron Warmington
Ron is a Fellow of the Institute of Chartered Accountant and a Member of
the Association of Certified Fraud Examiners.
In his 44-year career, Ron spent 35 years in two of the world’s largest
banks: Citibank and GE Capital. Prior to moving into the field of fraud
investigation, Ron held a number of senior positions, in Systems and
Process Design, Technology Audit; Internal Audit and Investment
Management, including serving as Regional Head of Internal Audit and as
CFO of Citigroup’s Global Investment Management Business. He also
served as a member of Citigroup’s European Audit Committee. Since
then, he has spent over twenty years specialising in bank fraud
investigations and fraud management, including heading up Global
Banking Investigations (and European Director of Security) at Citigroup .
In 2001, Ron joined GE Capital as European Director of Fraud
Management, leaving in 2009 to undertake contract investigations and
fraud management business through his company: 2nd Sight.
Ron has led hundreds of investigations in every aspect of banking and
finance, including: Retail and Card businesses; Commercial Lending and
Investment Banking; Trading and Derivatives (including ‘Rogue Trader’
cases); Investment Management; Mortgages (including sub-prime); Asset-
based Finance; Internal fraud and corruption at all levels; es Commercial
& Trade Finance
Moe
vit
drinks
Contact Information:
Mobile!
em’ ~=—s GRO :
+ The acquisition and examination of
evidence derived from computers and
other digital devices
+ Expert witness testimony on
technology matters at various Courts
and Tribunals including as an expert
instructed by the Crown Prosecution
Service
* The investigation of complex or high
profile fraud involving technology
issues
+ Managing large or high profile fraud
investigations
* Interviewing both witnesses and
‘suspects
Liaising with IT specialists, legal
teams and law enforcement
+ Preparing affidavits, witness
statements and expert vitness reports
+ Assessing systems in order to identify
control weaknesses, and devising cost
-effective ways to repair them
« Advising and implementing anti-fraud
programmes and policies
~ Resources — lan Henderson
Contractor, London, United Kingdom
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lan is uniquely qualified as an investigator, a Chartered “Accountant, an
IT Auditor and a Forensic Computer Examiner. Professional
‘ qualifications include FCA, CISA and CCE.
lan was previously Head of Investigations at the Personal Investment
Authority. Immediately prior to this, lan held a number of senior
regulatory roles at Lloyd’s of London. As Manager of the Lloyd’s Loss
Review Department, lan was responsible for the independent
investigation of financial losses exceeding £800 million. He was also
Manager of the Action Group Support Unit who worked closely with
members of Lloyd’s who were disputing liability for Lloyd’s losses. In this
role lan dealt directly with Members of Parliament who were raising a
various issues concerning Lloyd’s losses.
lan has examined over 300 personal computers, network servers and
personal digital devices in the last 5 years. He has also been responsible
for over 20 major fraud investigations and has directly facilitated
substantial financial recoveries as a result of examining the digital
evidence. He has been appointed as the Court's computer expert in civil
cases in both England and Scotland and has given evidence as a
forensic computer expert in numerous civil and criminal cases, including
a major terrorism trial at the Old Bailey. Between January 2004. and July
2005, lan acted (part time) as Special Advisor to the Criminal‘Cases
Review Commission. lan was also a selected as a corffipyying author to
the Association of Certified Fraud Examiners’ “Fraud looks HEA
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[Fitename [2nd_Sight_-_Horizon_Matters_-_Proposal.ppt [__oriGinaL]}
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