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POST OFFICE AUDIT, RISK AND COMPLIANCE COMMITTEE
Prosecutions Policy
1. Purpose
The purpose of this paper is to:
. seek the ARC’s views on proposed changes to the prosecutions policy and the way in
which POL will prosecute criminal cases in the future; and
. update the ARC with respect to certain aspects of the Business Improvement Project.
2. Background
2.1 At its meeting on 19 November 2013, the Committee considered whether or not there was
merit in formally amending the existing approach to prosecutions and if so what the
substance of those amendments should be. It was agreed at that meeting that before any
firm decision could be taken in this regard:
(a) further work needed to be done to understand the financial and other consequences of
amending the policy such that fewer cases being referred to the criminal courts;
(b) the Committee needed a clearer understanding of the work that was being done as part
of the Business Improvement Programme and the impact this would have on detecting
(and preventing) losses at an earlier stage; and
(c) would be helpful to understand how banks and other large companies dealt with
criminal loss caused by employees.
2.2 In this connection it is probably useful to note that in a report for POL Brian Altman QC
observed that, “Post Office Ltd’s prosecution role is perhaps anachronistic...”, and that we
are “the only commercial organisation (albeit Government owned) I have been able to
identify (apart from RMG that retains a prosecution function) that has a commercially
based, sophisticated private prosecution role, supported by experienced and dedicated
teams of investigators and lawyers. To that extent it “is exceptional if not unique.”
3. Activities/Current Situation
3.1 The way in which prosecutions have historically been brought was set out in some detail in
the paper on prosecutions considered by the Committee in November. In that paper is was
noted that typically we prosecute subpostmasters for False Accounting combined with
Theft, and/or Fraud. The choice of charge is largely dependent on whether we have
obtained an admission of guilt, or other compelling evidence that the Defendant has taken
money directly from us, or have only secured evidence that the Defendant covered up
losses by falsely recording the branch’s financial position (e.g. to avoid paying losses back
and/or to keep their branch) on the Horizon system. As will be recalled, typically
Defendants plead guilty to a charge of False Accounting, with the charge of Theft then being
dropped.
3.
ie
In terms of the volume and cost of cases, over the past few years we have averaged about
250 investigations into possible criminal conduct a year, of which about 50 resulted in
criminal prosecutions. The financial losses (to POL) in those cases where a prosecution was
brought ranged between £1,738 and £175,260 per incident in 2012/2013, and £2,347 and
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£192,990 in 2013/2014. The average cost of bringing a criminal prosecution the in 2012-2013
financial period was about £7,500 (£3,600 for the costs of our internal security investigators,
plus £3,900 for our external solicitors).
3.3 The amount recovered from Defendants in respect of stolen, misappropriated or
unaccounted for stock or money in the cases closed so far in the 2013/2014 period was
£741,182, or approximately £10,500 per case. Total losses in those cases were £1,603,932,
implying a recovery rate of 46%. These figures must, however, be treated with a degree of
caution, as any amounts recovered must be seen as coincidental consequence of the current
policy on prosecutions. It is clear from judicial pronouncements and the Rules of Court that
the principal purpose of criminal prosecutions is to punish and deter wrongdoing, not to
recover financial loss.
3.4 POL does however frequently initiate actions in the civil courts for debts it believes are due
and owing to it by subpostmasters. In 2012/13, the civil debt team (a team which is entirely
separate to the criminal team) recovered approximately £1.9 million, and instructed
external lawyers in 100 cases, at an average cost per case in 2012-2013 of about £1,200
(£400 for the costs of Former Agent Accounting Team, plus £800 for our external solicitors).
It is not proposed at this stage to review the civil recovery process, as it outside the scope of
the work undertaken by Project Sparrow. That said, the way that POL interacts with
subpostmasters generally is in scope for the Business Improvement Project.
4. Options Considered
4.1 As noted in the November paper, broadly the options considered comprised:
(a) Preserving the status quo — i.e. retaining prosecutorial capability and continuing
with a prosecutions policy which is substantially the same as that which has
been used in the past;
(b) Pursuing a prosecutions policy more focussed on more egregious misconduct -
e.g. higher value cases/cases involving vulnerable members of society/cases of
involving particularly wilful wrongdoing, and engaging with the police in relation
to other matters; and
(c) Ceasing all prosecutorial activities but instead actively involving the police/CPS
etc where it is felt that they are likely to take matters forward.
4.2 For a variety of reasons, option (a) did not gain a large degree of support from the
Committee at its meeting in November and for that reason is not the focus of this paper.
Similarly, given that we have been advised that, due budgetary constraints, the CPS is
unlikely to have an appetite to prosecute all but the most serious cases, option (c) is not
discussed in any great detail, though should the Committee decide that it is an option worth
exploring further much of the analysis in the following paragraphs, particularly with respect
to cost and financial implications will still be of relevance. Instead, the balance of this paper
focuses on option (b), and the possible “filters” that could be applied to our prosecution
policy in order to ensure that only cases displaying an appropriate “fact pattern” are
prosecuted.
4.3 One of the “filters” that could be applied is financial: currently there are no formal financial
limits set out in our prosecution policy (though in practice de minis amounts are not
pursued), an approach which gives us a run rate of approximately 50 criminal cases a year. If
a financial filter were applied then (based on our analysis of historic cases) the number
prosecutions would (be likely to) reduce as follows:
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e £15,000 - approx. 25 cases a year
¢ £30,000 - approx. a dozen a year
* £100,000 - one or two cases a year (and these could possibly be of interest to the
cps)
In order to ensure that an appropriate balance is struck between providing a suitable
deterrent, and POL not being viewed as being too heavy handed, it is recommended that a
financial limit be introduced into the policy as a matter to “take into account” when deciding
whether to initiate proceedings. The significance of this “guide” figure would be that cases
involving losses of an amount less than it would not typically be prosecuted save where
there are highly compelling or special circumstances (e.g. the victims of the conduct are
elderly or otherwise vulnerable members). It is proposed that this figure be fixed, initially, at
£20,000.
4.4 It is also suggested that factors other than financial ones should be expressly introduced into
any revised prosecutions policy. After discussion with our prosecutions team and taking into
account the fact patterns displayed in those cases that are being considered by the
mediation scheme, it is proposed that those factors include:
. whether the losses in question have been repaid;
. the nature of the alleged misconduct;
e whether there is evidence that the Defendant took money directly from
us/others;
. whether the facts disclose a pattern of deliberate conduct designed to
materially benefit him/her, or whether there fact pattern discloses
inadvertence/poor book-keeping skills or muddle-headiness;
. the degree of sophistication of the alleged wrongdoing;
. the number of incidents;
. the extent to which any members of the public suffered loss, and if so whether
they were from vulnerable groups in society;
. the period of the alleged offending;
e the cost of bringing the prosecution; and
. whether there are any alternative, more suitable, remedies available to POL.
4.5 It should be noted that, although POL is still currently able to bring cases where the evidence
concerned is extracted from the Horizon system, there is a strong risk that in such cases, a
defence will be mounted to the effect that the Horizon system cannot be relied upon. We
have been advised that in these cases, there is a strong likelihood that such a defence would
be successful, at least until such time as a new independent expert in identified and
familiarised himself with the system. This is likely to take at around 12 weeks, and cost up
to £200,000. Accordingly it is proposed that pro tem, at least until such time as the
dimensions of this work are fully understood, the policy makes it clear that proceedings will
not be started in such cases.
4.6 For completeness, and at the request of the Committee, we have also considered how other
retailers, financial institutions and quasi-public organisations respond to criminal conduct
within their organisations. Although definitive information is hard to obtain, it appears that:
. Most retailers and financial institutions maintain in-house security/investigative
functions, which pass evidence of crime (often CCTV footage) over to the police
and then support any actions taken by the external prosecutor (e.g. CPS). Other
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than Royal Mail Group, could not identify any that habitually bring private
prosecutions.
. Although Virgin Media recently conducted a high profile, high value (c. £144
million) private prosecution of a set-top box fraud, this was conducted with the
police and appears to have been an exceptional step rather than a “business as
usual” activity.
. Quasi-public organisations (e.g. TfL) and charities (e.g. RSPCA) are also known to
bring private prosecutions, however these are typically brought against external
persons (e.g. fare dodgers or animal abusers), and not employees involved in
the organisations’ day-to-day operations.
4.7 Other factors which may be considered when considering whether we should change our
approach to prosecutions include:
. Our duty to look after public money;
. The “Deterrence Effect” of prosecutions;
. Expectations of corporate clients;
. Wasted management time and money;
. Cost of complying with the duty of disclosure in criminal cases;
. Engagement with subpostmasters; and
. Brand inconsistency.
These factors are discussed further in Appendix A.
5. Commercial Impact/Costs
5.1 The immediate financial impact of the above policy approach, assuming that no other
changes are made, would be that the sums of money that are currently recovered via the
criminal law system (£741,182 in the 2013/2014 period), would no longer be as readily
recoverable. As explained in the November paper, however, it would be open to us to use
the civil courts to recover losses, though this is a more time consuming process, and there is
greater scope for assets to be hidden from view.
5.2 However, if POL can deal with problems that arise in subpostmasters’ offices before they
turn in to significant financial losses, the financial impact of any change in the prosecutions
policy should be greatly reduced. This in part is the aim of the Business Improvement
Programme (BIP), the key elements of which include:
. gathering better MI from the network systems;
* providing better training and support to subpostmasters and branch staff;
. identifying problem losses earlier;
. liaising with the relevant persons sooner; and
. reviewing how we respond when a subpostmaster has materially breached his
obligations to us.
5.3 It is strongly believed by the BIP (though at this stage without a track record of evidence to
support the claim) that many of the losses that currently give rise to prosecutions could be
avoided if
5.4 Appendix B provides an overview of the Business Improvement Programme and the actions
that have and will be taken.
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5.5 It should also be noted that any decision made now with respect to the future conduct of
criminal prosecutions will, when approved by the Board, have an immediate impact on the
so-called “stacked cases” cases. These cases, which are the subject of the separate paper
due to be considered at the next meeting of the ARC/Board, are ones where no decision to
prosecute has been made, but where the subpostmaster concerned has been interviewed
under caution, and is waiting to hear whether or not a charge will be brought. In the
interests of dispensing justice quickly, typically it would be expected that a decision would
be made very quickly, in a matter of months at the outside. Given that a number of cases
now date back to late summer last year, when a decision was made to suspend all
prosecutorial activity, POL should communicate its decision in this regard as soon as
possible. The working assumption is that there could be some adverse publicity as and
when the decision is communicated to subpostmasters.
6. Proposal
6.1 It is proposed that:
a) A revised prosecution policy be implemented and applied against more stringent
financial and conduct criteria set out in paragraphs 4.3 and 4.4,with the over-rider
set out in paragraph 4.5.
b) The policy be published on our website in accordance with best practice and so as to
inform our business and the public of the principles which guide our enforcement
decisions.
c) The new policy, its interpretation and application be reviewed by a committee of
ExCo every six months.
d) An individual within Post Office Limited be appointed to take responsibility for
deciding whether or not an individual case should be prosecuted against that policy
(currently this accountability is shared across a number of individuals).
e) Any prosecutions be conducted through an external law firm.
f) The Communications team maintain a living strategy for dealing with all PR issues
arising from any and all prosecutions.
g) In conjunction with the BIP, we work to improve our civil recovery operation to
maximise the losses it can recover.
7. Key Risks/Mitigation
These pertain mainly to the potential increased risk of fraud, and being seen to be “soft” with
public money, but should be capable of being addressed by enhanced MI and improvements to
the control framework etc.
8. Long term considerations — horizon scan
8.1 Not taking action now in relation to the prosecutions policy could lead to, or exacerbate,
the impact of further adverse publicity regarding Post Office’s treatment of sub-
postmasters.
8.2 Taking this action may assist in developing better stakeholder engagement.
9. Communications Impact
91 The Communications team is already heavily involved in Project Sparrow, and they have
seenthis paper.
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10. Recommendations
The ExCo/ARC is asked to approve the proposals set out in paragraph 6 above.
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Appendix A
Other Considerations
1. Public Money Duty:
We have an obligation to protect public money, including investigating suspected wrongdoing.
The action we take when an investigation suggests that public money has been put at risk should
reflect that obligation, and be proportionate and necessary having regard to the seriousness of
the conduct, the parties affected, and the sums involved.
2. Deterrence:
It is arguable that the fear of apprehension and prosecution (rather than the sentence
consequences) acts as a deterrent to some people who would otherwise steal from us, and
experience shows that a criminal prosecution can lead a defendant to make voluntary
repayments to try to mitigate the consequences of their actions.
It is however questionable how much the fear of apprehension and prosecution deters false
recording of branch financial data, which a subpostmaster may not perceive to be criminal
conduct, especially when s/he may not accept responsibility for the actual financial loss. It is for
this reason we recommend that in the future, we only prosecute cases involving the “higher
level” of criminal conduct referred to in para. 4.6. of the this Report.
3. Expectations of Corporate Clients:
Some of our government clients are comforted by the idea that we bring prosecutions. Indeed,
in our agreement with UKBA we are obliged as part of the service we provided to maintain “a
team of specialist experts including Forensic Accountants and a Criminal Law Team [who] will
advise on all potential sub-investigation outcomes up to and including prosecution, resultant
from any malpractice, collusion or illegal activity.”
4. Wasted management time and money:
To date, we have spent approximately £5million seeking to address the concerns raised over our
Horizon system and the criminal prosecutions. It has also taken up a considerable number of
man hours of senior management at a time of significant, strategic and fast change in the
company.
5. Cost of Compliance with Duty of Disclosure:
We have a continuing duty to act properly as a prosecutor. This required us (through our
external solicitors) to review the prosecutions of 325 individuals to ensure that the information
which came to light in the Second Sight report did not affect the safety of any convictions. The
cost of this review was approx. £180,000.
Similar reviews would need to be undertaken every time new information comes to light which
may call into question the safety of a conviction. To seek to minimise the need for such future
reviews, we have instituted a weekly, cross-business conference call at which attendees (which
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include our external solicitors) are expected to raise all Horizon-related issues. The estimated
external cost of these calls is approx. £27,000 a year.
6. Engagement with Subpostmasters:
7. It is questionable whether the systematic prosecution of agents is consistent with a modern
approach to commercial relationships. Amending our prosecution criteria to focus on fewer, but
more serious, cases could therefore assist developing a less paternalistic, more commercial
working relationship with subpostmasters.
8. Brand inconsistency:
This is hard to quantify but enforcing agency relationships through systematised criminal
prosecutions appears inconsistent with our brand and core values.
9. The risks of getting it wrong:
It must be remembered that if we wrongly prosecute someone there are consequences. These
are summarised in the table in Appendix [[XXX]]. It is worth noting that if we do continue to
undertake any prosecutions ourselves, it would be prudent to use an external law firm to do so
to minimise our exposure to adverse claims.
10.What Other Businesses Do:
We have considered how other retailers, financial institutions and quasi-public organisations
approach criminal conduct within their networks.
Most retailers and financial institutions maintain in-house security/investigative functions,
which turn over evidence of crime to the police and support and collaborate with the external
prosecutor (e.g. CPS). Although Virgin Media recently conducted a high profile, high value (c.
£144 million) private prosecution of a set-top box fraud, this was conducted with the Police and
appears to have been an exceptional step rather than a “business as usual” activity.
Quasi-public organisations (e.g. TfL) and charities (e.g. RSPCA) are also known to bring private
prosecutions, however these are typically brought against external persons (e.g. fare dodgers or
animal abusers), and not those involved in the organisations’ day-to-day operations.
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