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Mike Granville
From: Martin Humphreys
Sent: 09 December 2011 12:30
To: Theresa Iles
Ce: Mike Granville
Subject: Mike Weir MP - PQs on Horizon response for sign off
Importance: High
Attachments: Mike Weir PQ 9 December 2011.doc
Theresa
Please find attached a response to 4 Parliamentary Questions from Mike Weir MP on the Horizon system.
The questions are set out below and cover a range of issues.
Due to the nature of the issues raised the response on this was pulled together by Mike Granville and has
been through a number of iterations with input and clearance with a number of people including; RMG
Legal - Rebekah Mantle and Emily Springford, RMG Comms - David Simpson and Shane O’Riordain and
input from Rod Ismay in POL and checkstep with Mike Young, Chris Day and Susan Crichton.
Grateful if you could arrange for sin off and if I can have a copy please.
Parliamentary Questions
(1) how many (a/ prosecutions and (4/investigations of postmasters instigated by Post Office
Ltd as a result of apparent financial irregularities on the Horizon computer system have
subsequently been abandoned; [77794]
(2) how many complaints Post Office Ltd has received from subpostmasters concerning
difficulties with the Horizon computer system in each of the last five years; [77795]
(3) whether any operational faults have been identified with the Horizon computer system
used by Post Office Ltd since its introduction; and what action has been taken to resolve any
such faults; [77796]
(4) what the monetary value is in current prices of the (a/ original estimate and (b/ final cost
of the Post Office Horizon computer system; and what additional costs at current prices have
been incurred since its completion. [77797]
Martin Humphreys.
Government Affairs
Royal Mail Group
100 Victoria Embankment
London
EC4Y 0OHQ
09/12/2011
POL00120490
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POL00120490
T
E pauta.vennells:
December 2011
. . Your Ref:
Mike Weir MP Our Ref:
House of Commons
LONDON
SW1A OAA
Dear Mr Weir
Mr Edward Davey, Parliamentary Under-Secretary of State, Department for Business,
Innovation and Skills, has asked me to respond to you on the parliamentary questions
that you recently asked on the Post Office Horizon computer system.
As your recent questions cover a range of issues, I believe it would be helpful if I could
provide some context by briefly describing what is generally considered as ‘Horizon’ and
the role it plays within the Post Office network and the accounting undertaken by
subpostmasters.
Let me stress at the outset that Post Office Ltd is fully confident that the Horizon
computer system in its branches, and all the accounting processes around it, enable
subpostmasters to account accurately for the transactions they undertake in their
branch.
The system has been operating for over ten years. In that time around twenty thousand
subpostmasters have used it in performing many millions of successful weekly and
monthly financial reconciliations between the cash they have in the office and the
transactions they have handled. The Horizon system has been rigorously tested. The
National Federation of Subpostmasters, which represents subpostmasters throughout
the country, has expressed its full confidence in the accuracy and robustness of the
system.
Tried and Tested Processes
For the tiny fraction who have not been able to reconcile their cash and transactions,
there are tried and tested systems of checking, auditing and following up to determine
what has happened. Examples include:
¢ transactions might have been miskeyed (entering 100 instead of 10),
e aclerk might have handed out too much change,
e aclerk may have forgotten to take the money for the transaction.
The checking and auditing systems in place resolve virtually all discrepancies
satisfactorily. These discrepancies are caused by the same kind of small day-to-day
mistakes and human errors that any large bank or retailer would experience.
In an extremely small number of cases, after all these checks have been undertaken,
there remain missing sums that can’t be accounted for. Where such sums are
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significant, Post Office Ltd may take action to end the subpostmaster’s contract.
Taxpayers’ money is entrusted to Post Office Ltd and it is vital that everything is fully
accounted for. If significant money is missing - either as a result of lack of sufficient
competence by the subpostmaster or their staff or, in extreme and very rare cases, as a
result of dishonesty (where we clearly have no tolerance) - it is not appropriate for that
subpostmaster to continue to operate the branch. Post Office Ltd will then seek to
appoint someone new to take over.
Court Action
There have been a limited number of cases where Court action has been taken over
missing sums of public money. In some of these cases, the subpostmaster has made
allegations against the Horizon system that records their transactions. The Courts have
consistently upheld Post Office Ltd’s position that the Horizon system is accurate and
reliable. When former subpostmasters have been convicted of false accounting and/or
theft, it is, of course, the Courts that have convicted, not Post Office Ltd. In some cases,
the subpostmaster pleaded guilty; in others Post Office Ltd had to provide robust
evidence. A criminal Court will only convict an individual if it considers that the evidence
has shown, beyond reasonable doubt, that the individual is guilty of the offences with
which they have been charged.
The Horizon system is therefore used by every subpostmaster and every Post Office
counter clerk in Crown branches every day. It is used effectively and successfully. Each
person using the system has an individual log in, ID and password, so all the
transactions they undertake are recorded as being done by them as individuals. Each is
able to run off logs of the transactions they have undertaken whenever they wish. They
receive training on the system and have full access to helplines to assist them. The
system underpins efficient service to our customers. It provides our subpostmasters and
staff with an effective tool to accurately and efficiently manage their day to day
operations.
Having established this background context, I would like to consider the questions that
you have raised.
You have asked about the numbers of prosecutions and investigations instigated by Post
Office Ltd as a result of “financial irregularities on the Horizon computer system” which
have subsequently been abandoned.
Discrepancies
“Financial irregularities” reflect situations where the cash or stock that should be in the
branch, according to the data entered into the Horizon system, is not there. A
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discrepancy might arise when the cash and stock that is held in the office is “short”
against the amount that should be in the office in accordance with the transactions
undertaken and recorded by the subpostmaster or Post Office clerk. As has been
previously explained, this may happen for a range of reasons. It may well be that the
issue can be quickly resolved by tracking back and identifying the issue that has caused
the shortage.
We move into the area of “financial irregularity” where there is a significant loss and
there is no clear initial explanation. This is most likely discovered when Post Office Ltd
undertakes an audit of the office and discovers a significant shortage. Like all financial
institutions and retailers, Post Office Ltd will undertake audits of branches to ensure
that proper accounting practices are being followed and the assets of Post Office Ltd
which ultimately belong to the taxpayer, are being kept secure. Such a shortage
represents a loss to Post Office Ltd (as the cash and stock held in branch is the property
of Post Office Limited) and it is, of course, vital for a publicly owned organisation to
ensure that its cash and assets are managed with integrity and care. Therefore these
shortages give rise to investigations and, in appropriate cases, criminal or civil action.
There is no evidence at all that the Horizon system has in some way been at fault with
respect to any financial irregularities discovered in a subpostmaster’s account and no
cases have been abandoned for reason of any doubt about that system.
You have also enquired about the number of complaints that Post Office Ltd has
received in each of the last five years with respect to the Horizon system.
Assistance for Subpostmasters
A subpostmaster has many channels by which he or she can make enquiries or
complaints about matters relating to their operation - via the management structure;
with visiting training; support or audit staff; via the NFSP; or via the various helplines
that are available to assist them in operating in accordance with their contract.
Each case is handled individually and central records are not held of the nature that you
are specifically requesting. For example our Network Business Support Centre (NBSC)
is a helpdesk service to support subpostmasters and their staff with any operational
issues. The NBSC works from the same operational materials e.g. guides and manuals,
that all Post Office branches have. All calls are logged and the vast majority are
answered in line with the published operational manuals.
As the NBSC is the main operational point of contact for most branches,
subpostmasters do from time to time register “complaints” / their dissatisfaction with
the NBSC. These complaints can be about any number of operational matters, all of
which are dealt with and responded to within agreed processes and timescales. A
subpostmaster may have queries about their accounting processes for a wide range of
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reasons and as part of this he/she may need some support on some aspect that
involves operation of the computer system. For example he/she may need assistance on
remedying an inputting error that he/she had already made - these are part of the
normal day to day trading issues that will occur in any large retail or financial
organisation.
Legal Action
To consider your inquiry further, there are a tiny number of ex-subpostmasters who
appear to be making distinct allegations with respect to the operation of the Horizon
system. This small group of ex-subpostmasters no longer have contracts with Post
Office Ltd, after significant shortages of funds were found at their office, for which they
couldn't account. A legal firm, Shoosmiths, has been claiming for around a year that
they are representing a number of these ex-subpostmasters. To date Shoosmiths have
sent four ‘letters before action’, making allegations about Horizon (among other issues)
and seeking information. In two of the cases the individuals have in the past pleaded
guilty to false accounting. These particular cases stretch back over a period of five years.
Post Office Ltd does not accept any of the allegations that are being made and will
robustly defend its position if any civil action is mounted against it.
If we assume that these 4 letters before action constitute ‘complaints against Horizon’
the number can be seen to be absolutely tiny in the context of a system that many
thousands of subpostmasters have been using for over ten years to help produce many
millions of financial reconciliations. Post Office Ltd is vigorously defending itself against
such allegations and will do so in the civil courts if necessary. It regards the claims in
the cases it has received as being absolutely without merit.
Separately, there have been a few occasions where an adverse comment about Horizon
has been made by a subpostmaster in legal proceedings where a subpostmaster is
being prosecuted for theft or false accounting, or pursued for a debt. In such cases, the
Courts have consistently upheld Post Office Ltd’s position that the Horizon system is
accurate and reliable.
You also ask for information about operational faults with the Horizon system since its
introduction and the actions taken to remedy those faults. As with any large system that
is required to support changing business requirements, operational issues can occur.
Industry standard tools are used to alert support teams to any such issues so that the
potential impact can rapidly be assessed and, if required, rectified. Rectification actions
range from straight forward hardware replacement to software patching designed to
combat evolving cyber threats.
External Scrutiny
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Horizon and Post Office Ltd systems environment have always been subject to external
scrutiny for both assurance and accreditation purposes. Ernst & Young carry out an
annual financial systems audit; an independent auditor also carries out a yearly audit to
maintain the system’s Payment Card Industry (PCI) accreditation. The system and its
Data Centre are ISO 27001 accredited which requires an annual audit from an
independent agency. Horizon is also accredited by HSBC Payment Services and
WorldPay (Post Office’s Merchant Acquirers) and must comply with the VocaLink
standard for card payment transactions. In addition to these regular audits, ad hoc
independent audits of the system are initiated by Royal Mail Group and supported by
Post Office Ltd.
At this stage, it is worth pointing out that the Horizon system keeps full audit records of
all transactions undertaken by all log ins - so that it is always possible to track back
anything that has occurred within the system - or at an individual sub post office. The
system is designed such that all data is sequentially numbered at the point of its
creation and is separately stored in a secure tamper proof facility for 7 years - so that
recreation of situations and track back is always feasible.
Cost of Horizon
Finally, you have asked about costs of the Horizon system. You are probably aware that
the system originally developed out of Government processes to automate benefits
payments alongside a major automation of previous Post Office point of sale and
accounting systems. It was therefore designed to meet the rigorous security standards
necessary to undertake the payment of benefits. The original costs and development
were the subject of substantial Parliamentary scrutiny back in the 1999/2000 period.
To respond to your specific question, it may help if I quote an extract from the 2001/02
Royal Mail Group Report and Accounts;
Responsibility for the liabilities of the Horizon ICL/Pathway project was transferred from
the Government to The Post Office in 1999. This resulted in a one-off payment by the
Group for costs incurred by ICL of £550m, a write off of £571m in the 1999-2000
accounts and the incurrence of substantial ongoing maintenance costs. By the time the
contract terminates in 2005, aggregate contract costs are expected to amount to some
£1bn.’
Current contracts for the operation, maintenance and ongoing development of the
Horizon system are held with Fujitsu and the payments within these contracts are
regarded as commercially sensitive (as disclosure could have a material impact on any
future procurement exercises with respect to the system).
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This has necessarily been a long letter as the issues upon which you enquire are
complex and detailed. They also involve recognising a wider context of the operating
and accounting systems of Post Office Ltd’s business.
We have full confidence in the Horizon system and it is regarded as an important part
of the successful operation of our business and the modern infrastructure that is
necessary to support our nationwide network of Post Offices.
As you are aware, our policy approach is to sustain that network - we have no
programme of closures - rather we have an approach of investment and growth that
seeks to ensure the future viability of the network and retain the social value that it
offers to customers and communities throughout the land. A modern and effective
computer infrastructure is a necessary part of achieving that goal (as will be the case
with any nationwide bank, retailer or Government Department). Horizon provides that
infrastructure in full accordance with modern industry standards. It accurately records
millions of customer transactions every day.
I hope this information is helpful to you.
Yours sincerely
Paula Vennells
Managing Director
POL00120490
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T
E paula.vennells:
December 2011
Mike Weir MP Your Ref:
House of Commons.
LONDON
SW1A OAA
Dear Mr Weir
Mr Edward Davey, Parliamentary Under-Secretary of State, Department for Business,
Innovation and Skills, has asked me to respond to you on the parliamentary questions
that you recently asked on the Post Office Horizon computer system.
As your recent questions cover a range of issues, I believe it would be helpful if I could
provide some context by briefly describing what is generally considered as ‘Horizon’ and
the role it plays within the Post Office network and the accounting undertaken by
subpostmasters.
Let me stress at the outset that Post Office Ltd is fully confident that the Horizon
computer system in its branches, and all the accounting processes around it, enable
subpostmasters to account accurately for the transactions they undertake in their
branch.
The system has been operating for over ten years. In that time around twenty thousand
subpostmasters have used it in performing many millions of successful weekly and
monthly financial reconciliations between the cash they have in the office and the
transactions they have handled. The Horizon system has been rigorously tested. The
National Federation of Subpostmasters, which represents subpostmasters throughout
the country, has expressed its full confidence in the accuracy and robustness of the
system.
Tried and Tested Processes
For the tiny fraction who have not been able to reconcile their cash and transactions,
there are tried and tested systems of checking, auditing and following up to determine
what has happened. Examples include:
© transactions might have been miskeyed (entering 100 instead of 10),
e aclerk might have handed out too much change,
e aclerk may have forgotten to take the money for the transaction.
The checking and auditing systems in place resolve virtually all discrepancies
satisfactorily. These discrepancies are caused by the same kind of small day-to-day
mistakes and human errors that any large bank or retailer would experience.
In an extremely small number of cases, after all these checks have been undertaken,
there remain missing sums that can’t be accounted for. Where such sums are
POL00120490
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Page 2 of 6
significant, Post Office Ltd may take action to end the subpostmaster’s contract.
Taxpayers’ money is entrusted to Post Office Ltd and it is vital that everything is fully
accounted for. If significant money is missing - either as a result of lack of sufficient
competence by the subpostmaster or their staff or, in extreme and very rare cases, as a
result of dishonesty (where we clearly have no tolerance) - it is not appropriate for that
subpostmaster to continue to operate the branch. Post Office Ltd will then seek to
appoint someone new to take over.
Court Action
There have been a limited number of cases where Court action has been taken over
missing sums of public money. In some of these cases, the subpostmaster has made
allegations against the Horizon system that records their transactions. The Courts have
consistently upheld Post Office Ltd’s position that the Horizon system is accurate and
reliable. When former subpostmasters have been convicted of false accounting and/or
theft, it is, of course, the Courts that have convicted, not Post Office Ltd. In some cases,
the subpostmaster pleaded guilty; in others Post Office Ltd had to provide robust
evidence. A criminal Court will only convict an individual if it considers that the evidence
has shown, beyond reasonable doubt, that the individual is guilty of the offences with
which they have been charged.
The Horizon system is therefore used by every subpostmaster and every Post Office
counter clerk in Crown branches every day. It is used effectively and successfully. Each
person using the system has an individual log in, ID and password, so all the
transactions they undertake are recorded as being done by them as individuals. Each is
able to run off logs of the transactions they have undertaken whenever they wish. They
receive training on the system and have full access to helplines to assist them. The
system underpins efficient service to our customers. It provides our subpostmasters and
staff with an effective tool to accurately and efficiently manage their day to day
operations.
Having established this background context, I would like to consider the questions that
you have raised.
You have asked about the numbers of prosecutions and investigations instigated by Post
Office Ltd as a result of “financial irregularities on the Horizon computer system” which
have subsequently been abandoned.
Discrepancies
“Financial irregularities” reflect situations where the cash or stock that should be in the
branch, according to the data entered into the Horizon system, is not there. A
POL00120490
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Page 3 of 6
discrepancy might arise when the cash and stock that is held in the office is “short”
against the amount that should be in the office in accordance with the transactions
undertaken and recorded by the subpostmaster or Post Office clerk. As has been
previously explained, this may happen for a range of reasons. It may well be that the
issue can be quickly resolved by tracking back and identifying the issue that has caused
the shortage.
We move into the area of “financial irregularity” where there is a significant loss and
there is no clear initial explanation. This is most likely discovered when Post Office Ltd
undertakes an audit of the office and discovers a significant shortage. Like all financial
institutions and retailers, Post Office Ltd will undertake audits of branches to ensure
that proper accounting practices are being followed and the assets of Post Office Ltd
which ultimately belong to the taxpayer, are being kept secure. Such a shortage
represents a loss to Post Office Ltd (as the cash and stock held in branch is the property
of Post Office Limited) and it is, of course, vital for a publicly owned organisation to
ensure that its cash and assets are managed with integrity and care. Therefore these
shortages give rise to investigations and, in appropriate cases, criminal or civil action.
There is no evidence at all that the Horizon system has in some way been at fault with
respect to any financial irregularities discovered in a subpostmaster’s account and no
cases have been abandoned for reason of any doubt about that system.
You have also enquired about the number of complaints that Post Office Ltd has
received in each of the last five years with respect to the Horizon system.
Assistance for Subpostmasters
A subpostmaster has many channels by which he or she can make enquiries or
complaints about matters relating to their operation - via the management structure;
with visiting training; support or audit staff; via the NFSP; or via the various helplines
that are available to assist them in operating in accordance with their contract.
Each case is handled individually and central records are not held of the nature that you
are specifically requesting. For example our Network Business Support Centre (NBSC)
is a helpdesk service to support subpostmasters and their staff with any operational
issues. The NBSC works from the same operational materials e.g. guides and manuals,
that all Post Office branches have. All calls are logged and the vast majority are
answered in line with the published operational manuals.
As the NBSC is the main operational point of contact for most branches,
subpostmasters do from time to time register “complaints” / their dissatisfaction with
the NBSC. These complaints can be about any number of operational matters, all of
which are dealt with and responded to within agreed processes and timescales. A
subpostmaster may have queries about their accounting processes for a wide range of
POL00120490
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Page 4 of 6
reasons and as part of this he/she may need some support on some aspect that
involves operation of the computer system. For example he/she may need assistance on
remedying an inputting error that he/she had already made - these are part of the
normal day to day trading issues that will occur in any large retail or financial
organisation.
Legal Action
To consider your inquiry further, there are a tiny number of ex-subpostmasters who
appear to be making distinct allegations with respect to the operation of the Horizon
system. This small group of ex-subpostmasters no longer have contracts with Post
Office Ltd, after significant shortages of funds were found at their office, for which they
couldn't account. A legal firm, Shoosmiths, has been claiming for around a year that
they are representing a number of these ex-subpostmasters. To date Shoosmiths have
sent four ‘letters before action’, making allegations about Horizon (among other issues)
and seeking information. In two of the cases the individuals have in the past pleaded
guilty to false accounting. These particular cases stretch back over a period of five years.
Post Office Ltd does not accept any of the allegations that are being made and will
robustly defend its position if any civil action is mounted against it.
If we assume that these 4 letters before action constitute ‘complaints against Horizon’
the number can be seen to be absolutely tiny in the context of a system that many
thousands of subpostmasters have been using for over ten years to help produce many
millions of financial reconciliations. Post Office Ltd is vigorously defending itself against
such allegations and will do so in the civil courts if necessary. It regards the claims in
the cases it has received as being absolutely without merit.
Separately, there have been a few occasions where an adverse comment about Horizon
has been made by a subpostmaster in legal proceedings where a subpostmaster is
being prosecuted for theft or false accounting, or pursued for a debt. In such cases, the
Courts have consistently upheld Post Office Ltd’s position that the Horizon system is
accurate and reliable.
You also ask for information about operational faults with the Horizon system since its
introduction and the actions taken to remedy those faults. As with any large system that
is required to support changing business requirements, operational issues can occur.
Industry standard tools are used to alert support teams to any such issues so that the
potential impact can rapidly be assessed and, if required, rectified. Rectification actions
range from straight forward hardware replacement to software patching designed to
combat evolving cyber threats.
External Scrutiny
POL00120490
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Horizon and Post Office Ltd systems environment have always been subject to external
scrutiny for both assurance and accreditation purposes. Ernst & Young carry out an
annual financial systems audit; an independent auditor also carries out a yearly audit to
maintain the system's Payment Card Industry (PCI) accreditation. The system and its
Data Centre are ISO 27001 accredited which requires an annual audit from an
independent agency. Horizon is also accredited by HSBC Payment Services and
WorldPay (Post Office’s Merchant Acquirers) and must comply with the VocaLink
standard for card payment transactions. In addition to these regular audits, ad hoc
independent audits of the system are initiated by Royal Mail Group and supported by
Post Office Ltd.
At this stage, it is worth pointing out that the Horizon system keeps full audit records of
all transactions undertaken by all log ins - so that it is always possible to track back
anything that has occurred within the system - or at an individual sub post office. The
system is designed such that all data is sequentially numbered at the point of its
creation and is separately stored in a secure tamper proof facility for 7 years - so that
recreation of situations and track back is always feasible.
Cost of Horizon
Finally, you have asked about costs of the Horizon system. You are probably aware that
the system originally developed out of Government processes to automate benefits
payments alongside a major automation of previous Post Office point of sale and
accounting systems. It was therefore designed to meet the rigorous security standards
necessary to undertake the payment of benefits. The original costs and development
were the subject of substantial Parliamentary scrutiny back in the 1999/2000 period.
To respond to your specific question, it may help if I quote an extract from the 2001/02
Royal Mail Group Report and Accounts;
Responsibility for the liabilities of the Horizon ICL/Pathway project was transferred from
the Government to The Post Office in 1999. This resulted in a one-off payment by the
Group for costs incurred by ICL of £550m, a write off of £571m in the 1999-2000
accounts and the incurrence of substantial ongoing maintenance costs. By the time the
contract terminates in 2005, aggregate contract costs are expected to amount to some
£1bn.’
Current contracts for the operation, maintenance and ongoing development of the
Horizon system are held with Fujitsu and the payments within these contracts are
regarded as commercially sensitive (as disclosure could have a material impact on any
future procurement exercises with respect to the system).
POL00120490
POL00120490
Page 6 of 6
This has necessarily been a long letter as the issues upon which you enquire are
complex and detailed. They also involve recognising a wider context of the operating
and accounting systems of Post Office Ltd’s business.
We have full confidence in the Horizon system and it is regarded as an important part
of the successful operation of our business and the modern infrastructure that is
necessary to support our nationwide network of Post Offices.
As you are aware, our policy approach is to sustain that network - we have no
programme of closures - rather we have an approach of investment and growth that
seeks to ensure the future viability of the network and retain the social value that it
offers to customers and communities throughout the land. A modern and effective
computer infrastructure is a necessary part of achieving that goal (as will be the case
with any nationwide bank, retailer or Government Department). Horizon provides that
infrastructure in full accordance with modern industry standards. It accurately records
millions of customer transactions every day.
I hope this information is helpful to you.
Yours sincerely
Paula Vennells
Managing Director