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From: Charles Colquhoun
Sent: Tue 08/07/2014 2:31
To: Chris Aujard_ :
Ce: Belinda Crowe, David Oliver?
Subject: RE: Errors that arise between POL and its clients and others
I can do around 5 (I have a meeting finishing about then so will pop up). I’m afraid there’s been a misunderstanding if
you thought no suspense money was taken to the p&l — it is but a very small % of the cash throughput of Post Office
and almost always after sometime investigating it.
Regards
Charles
Charles Colquhoun I Head of Corporate Finance
First Floor - Old Street Wing, 148 Old Street, LONDON, EC1V 9HQ
ostline
GRO
ce — 2014 Winners
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From: Chris Aujard
Sent: 08 July 2014 15:04
To: Charles Colquhoun
Cc: Belinda Crowe; David Oliver1
Subject: Re: Errors that arise between POL and its clients and others
Thanks - can we talk? Am not sure that this hits the spot, as it both raises several questions and implies very
clearly that we do take suspense money to our P&L, which is contrary to our earlier discussion. That said, I
think Rod might be confusing apples with oranges. Are you around at 5:00ish? Cheers Chris
Sent from my iPhone
On 7 Jul 2014, at 04:41 pm, "Charles Colquhoun" <
Chris, Belinda and David,
Is this what you were after?
Regards
Charles
Charles Colquhoun I Head of Corporate Finance
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First Eloor=.Qld Street Wing, 148 Old Street, LONDON, EC1V SHQ
GRO i
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I GRO
Post Office Finance ~ 2014 Winners Public & Voluntary Sector
Best Finance Team Best Annual Report & Accounts
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From: Rod Ismay
Sent: 07 July 2014 15:43
To: Charles Colquhoun
Subject: RE: Fwd: Errors that arise between POL and its clients and others
Charles — further to your request for more clarification.
As part of their daily transactional routines, Subpostmasters process a large number of transactions on
behalf of a wide range of clients. The Subpostmasters are responsible for ensuring receipt or payment
of the relevant amount of money to or from the customer based on the specific transaction being
performed.
If the Subpostmaster records the transaction accurately and administers the correct amount of money
then there would not be a situation of discrepancy or challenge.
If the Subpostmaster records the transaction accurately but does not administer the correct amount of
money then a discrepancy would arise in the branch, not through action of POL, but through local
process failure, and the Subpostmaster would be expected to make it good.
If a situation arose such that a transaction were reported differently at the client end compared to the
branch view of it, then a difference would arise and would be investigated. The client would be
challenged as to the veracity of their data and evidence would be provided to the branch if it were
deemed that a Transaction Correction were appropriate to be issued.
In the cases where amounts have actually been credited to P&L from suspense, these have arisen from
the client requesting less payment than the data keyed in by the Subpostmaster had suggested. They
have not arisen as a result of action by POL to charge a branch. They have arisen based on the
accounting impact of how the branch recorded a transaction versus the value the client felt was payable
in respect of that transaction. Assuming the branch administered money to the same value as that of the
transaction they recorded, then the branch would balance and there would be no discrepancy or
disadvantage to the branch. If a difference arose where the client view exceeded the branch view, and
if that did subsequently lead to a charge from POL to the branch, then evidence would be provided and
the branch would be able to challenge the specific Transaction Correction.
Thanks, Rod
Rod Ismay I Head of Finance Service Centre
<image001.png>
2™ Floor West Block, No.1. Euture Walk, West Bars, Chesterfield, S49 1PF
Ri
Post Office Finance — 2014 Winners Public & Voluntary Sector
Best Finance Team 2014 Best Annual Report & Accounts
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From: Charles Colquhoun
Sent: 20 June 2014 08:04
To: Rod Ismay
Subject: RE: Fwd: Errors that arise between POL and its clients and others
Thanks Rod, unfortunately I had to go back yesterday and got some helpful comments from your team.
See my email below to Chris Aujard:
Chris
It is extremely unusual for us to have an unidentified mis-balance. Where we can identify the client or
branch we will resolve the mis-balance. Whilst its being resolved the monies are held on the balance
sheet. Where we can’t identify the client or branch we hold the monies for 3 years before releasing to
the p&l. Typically these amounts are less than £200k pa —a tiny % of our cash throughput.
It is worth repeating the point that as far as I’m aware no client has a lack of confidence in Horizon and
as can be seen from the number above the % of successful balanced transactions is very high (>99.9%)
Regards
Charles
Charles Colquhoun I Head of Corporate Finance
<image001.png>
Stel Id Street, LONDON, EC1V 9HQ
Post Office Finance - 2014 Winners Public & Voluntary Sector
Best Finance Team Best Annual Report & Accounts
<image009.png><image010.jpg>
From: Rod Ismay
Sent: 20 June 2014 00:44
To: Charles Colquhoun
Subject: RE: Fwd: Errors that arise between POL and its clients and others
As you say, clients do not appear to have an issue with Horizon. Similarly for your other comment, one
could not say that it would never have happened, but we do challenge client data streams if they differ
to POL streams and we would not charge branches without a justifiable reason based on our
understanding of activities at the counter. As explained below a branch is able to challenge any such
matters if they are concerned.
Firstly, the phrase “could Spmrs have been charged by POL” needs dissecting.
e — Charges by POL would purely be by Transaction Correction or Transaction Acknowledgement.
These have evidence streams as previously explained in various stages of this investigation. For
these reasons, this strand should not become part of the kind of event that the question asks
about. And if a branch were dis-satisfied with the evidence, they can challenge it. Therefore a
branch should not be disadvantaged
© — The other scenario would be that the branch has made an error in how the transaction and the
method of payment were dealt with in Horizon. If a surplus or deficit arises here then that is
due to the branch conformance locally, not to POL making a charge
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Centrally, we do have a “miscellaneous client creditor suspense account”. This is made up of differences
between what we felt we owed a client based on branch transactional data versus what the client said
they were owed.
This is driven by the difference between what the branch has recorded and what the client indicates is
due, It is not driven by a TC or any form of charge to a branch. It is driven by what the branch recorded
themselves.
If the branch had themselves made an error in recording the transaction such that a surplus or deficit
had arisen locally then, if they transparently declared that they had an issue, it would go through normal
enquiry processes to seek a resolution and a branch would not be disadvantaged. If they do not
transparently declare it then POL would not know the branch had a deficit or surplus.
If a branch records the transaction properly but an issue subsequently arises in leading to the client view
of it then we or they would have transactional evidence to rebut the client claim.
Rod
Rod Ismay I Head of Finance Service Centre
<image001.png>
2™ Floor West Block, No.4. Euture Walk, West Bars, Chesterfield, S49 1PF
. GR
Best Finance Team 2014 Best Annual Report & Accounts
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From: Charles Colquhoun
Sent: 19 June 2014 07:32
To: Rod Ismay
Cc: Chris M Day; Sarah Hall
Subject: Fw: Fwd: Errors that arise between POL and its clients and others
Hi Rod see below. This is now urgent. I think the answer is they could but it rarely happens and never
material. Is that right if so can we quantify how often and how much? Think this is good time to point
out clients don't have a problem with Horizon
From: Chris Aujard
Sent: Wednesday, June 18, 2014 07:15 PM Coordinated Universal Time
To: Belinda Crowe; David Oliver1; Charles Colquhoun
Cc: Chris M Day
Subject: Fwd: Errors that arise between POL and its clients and others
Hi all (and Charles) - see below for the question from Second Sight regarding suspense accounts,
taking unreconciled balances to our P&L etc. Is this something that you could take forward
(Charles)? Happy to talk through if anyone is interested! Cheers Chris
Sent from my iPhone
Begin forwarded message:
From: Ron Warmington ‘ GRO
Date: 18 June 2014 02:45:07 pm BST
To: 'Chris Aujard' <>.
Cc: <mediationg
Subject: RE: FW: E
Reply-To: <rjw
hat arise between POL and its clients and others
Chris:
As promised in Monday's Working Group Meeting, the purpose
of this email is to state, hopefully more clearly previously, the
question that we are asking in regard to the reconciliation and
writing off of differences.
The key question that we are trying to address here is: Could
any Subpostmasters have been charged by POL for amounts
that became incorporated in suspense account balances
that were subsequently taken into profit by POL or by any
of its Counterparty Companies, or that remain as credit
balances on the Balance Sheet of POL or of any of its
Counterparty Companies?
First of all, what do we mean by "POL and its Counterparty
Companies?". We are referring here to Companies or other
Entities which POL deals with in regard to products and
services delivered at or through its branches. We have seen
POL refer to these Companies as its ‘Clients’. These will
include, for example:
2 Royal Mail
2 Camelot
2 DVLA
2 The TV Licensing Body
2 Banks such as Alliance & Leicester/Santander and
others, including the Bank of Ireland
2 Alarge number of Utility Companies
2 Other Government Departments
2... and possibly hundreds of others
How can differences arise?: Taking say the London
Electricity Board (LEB) as an example, if a branch has
processed in a day £1,000 worth of customers’ electricity
bills, that branch will have accounted for those payments
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through Horizon and POL will then owe the LEB £1,000 and
will settle that sum. If one of the bills (let's say one for £90)
was paid by cash but the actual bill was not or could not later
for some reason be processed (we have several examples of
this happening) then the LEB will not record that customer's
bill as having been paid even though the branch took the
customer's cash. It follows that, at that point, the customer
is down by £90 and the branch is up by £90. All other things
being equal, the branch would have shown a £90 surplus on the
day if the bill payment failed to be processed through Horizon
at the counter, or would be in balance if the bill payment
failed at a later stage.
In the event that the bill payment process failed at the
branch counter, POL will have overpaid LEB by the £90 that
its branch will, in effect, have ‘overcharged’ the customer.
The LEB will then (hopefully) tell POL that it has been
overpaid by £90 and will credit POL's account in its books
with that amount. When that happens then, at that point, POL
(Central) and the LEB are all square but the branch still has
its £90 surplus and the customer's bill remains unpaid. POL
will then try to re-process the customer's bill and, when it
succeeds in doing so, will need to charge the branch the £90
cost of doing that... and of course pay the LEB £90 in
settlement.
POL will balance its central books by offsetting that £90 that
it has paid to the LEB by sending a Transaction Correction
(‘TC’), in the sum of £90, to the branch. When that TC is
accepted by the branch, it will have the effect of increasing,
by £90, the amount of cash that the branch is then meant to
have in its tills. All four parties (The LEB; POL; the branch;
and the branch's customer) are then all square and, in effect,
the branch's £90 surplus has been removed.
The opposite effect occurs when a customer's bill does get
recorded as paid, but the non-cash payment (e.g. where a
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credit or debit card, rather than cash, is used as the method
of payment) does not hit the customer's bank account. We
have seen many examples of this happening, particularly when
power or telecommunications interrupts prevent one side of a
transaction from going through, but the other side does go
through (the two ‘sides’ being the bill payment and the LINK
payment).
While all this is going on, there will be balances, made up of
the amounts that have been over or under paid, shown in the
LEB's books as under or over paid by POL. POL clears these
by issuing TCs to its branches. In the event that this process
breaks down, a mismatch will occur such that the amount that
LEB shows as due from POL will be different from the amount
that POL shows as due to the LEB. In many companies
(clients), this will result in unreconciled balances that are held
in suspense accounts and that have, in due course, to be
written off to (or written back to) that company's Profit and
Loss Account. Those write-offs/write-backs would ordinarily
(where there are only TWO parties) occur in one or both
companies. In POL's case, there are FOUR parties involved
(the Client (in this example the LEB); POL itself; the branch;
and the branch's customer). Because POL is acting only as an
Agent/Intermediary, those write-offs and write-backs will
impact only the three parties other than POL.
In this context, we are aware of a situation where a string of
payments were mis-routed to a charity instead of to the
intended recipient company. We understand that the cause of
this was that part of the POL and client company customer
reference fields corrupted the beneficiary sort and account
code fields in the outgoing payments.
And what of BoI?: In the case of Bank of Ireland, we know
that there have been many instances where the actual
amounts loaded into or taken out of ATMs (whether
dispensed, removed by theft or lost) is different (sometimes
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by tens of thousands of pounds) from the figures entered into
Horizon by the branch staff. The consequence of these
differences is that the Bol's figures (as to how much has
been loaded or dispensed) are different from POL's. This
gives rise to debit or credit adjusting entries made by BolT in
its account with POL. POL deals with those adjustments, in
the same way as described above, by sending TCs to those
branches that it believes have generated the differences.
Again, given the huge volumes and complexity, one would
reasonably expect differences and disputes to arise
practically every day - and we know they do. One would also
expect that, until such time as those disputes are resolved,
there will be a mismatch between what POL shows it needs to
pay to Bol and what BoI shows POL needs to pay to it. Where
such disputes cannot be resolved, one or both parties (POL and
BoI) will need to write the difference off to, or write it back
into, its Profit and Loss Account. Until such time as the
difference is written to the debit or credit of BoI's P&L
account, it will reside on BoI's Balance Sheet as an asset ora
liability. Once again, we understand that POL will have no
unreconciled balances to be written off or written back
because all differences are zeroed out by the issuance of TCs
to its branches. The point remains, however, that the only
check and balance as to the numbers notified by Bol are those
carried out in the branches, rather than by POL. Second
Sight regards this as a systemic control weakness.
In our experience, the only time when no differences ever
surface in account relationships between entities is when one
or both parties are not checking the other party's account
entries and simply accepts them as being correct.
Furthermore, what we have experienced is that, when such
account relationships remain unverified and unchallenged,
errors will remain undetected. We have also found that such
situations provide a perfect opportunity for fraud since
fraudulent entries will routinely (and predictably) remain
undetected and consequently always be absorbed by the
victim(s). In this case, since POL is not checking BoI's (or its
other clients') entries other than by comparing some of them
with the figures that the branches have supplied, the
checking/verification/investigation processes that would
normally be deployed by the second party (in this case POL)
devolve to the third party (POL's branches) and to the fourth
party (the branches’ customers). We know that branches
have little or no investigative abilities or resources so the
entire process relies on the accuracy - and integrity - of those
first and fourth parties. Put bluntly, were erroneous or
possibly even fraudulent entries to be passed by any of those
first parties (such as Camelot, Royal Mail, BoL, etc.), the
impact would pass straight through POL to the victim
branch(es). Similarly, we know that, where customers have
benefitted from ‘one-sided’ transactions, not all of them have
admitted to their good fortune. Where such customers have
benefitted, the SPMR will, under the current process, in many
instances finish up suffering the cost.
Chris, you have twice mentioned, in the above context, that
Second Sight is challenging Regulated and Audited Entities
and that it is unreasonable or unacceptable for us to do that.
Our understanding of your reasoning here is that such entities
can and should be trusted to produce accurate data. We
absolutely reject that notion. History (and our own
experience as External and Internal Auditors; as Bank
Directors; and as Corporate/Bank Fraud Investigators) has
clearly shown us that Regulated and Audited Entities do not
suffer materially less error and fraud (including
internal/employee fraud) as Unaudited, Unregulated ones. We
therefore reject the suggestion that data emanating from
such entities can be so heavily relied upon that there is no
need to check it.
So... that brings us back to the Question: Could any
Subpostmasters have been charged by POL for amounts
that became incorporated in suspense account balances
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that were subsequently taken into profit by POL or by any
of its Counterparty Companies, or that remain as credit
balances on the Balance Sheet of POL or of any of its
Counterparty Companies?
Best regards,
Ron Warmington