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1 I #BRUNSWICK COMMENTS
Initial Complaint Review and Mediation Scheme
Reply of Post Office Limited to Second Sight's Briefing Report — Part Two
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DO1 Yes please
David Oliver1, 10/09/2014 05:05 PM
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Contents
Page
Introduction
This Reply
Overview of Post Office's position
Response to section 4 — The Contract between Post Office and
Subpostmasters
Response to section 5 — Automated Telling Machines (ATMs)
Response to section 6 — Motor Vehicle Licences
Response to section 7 — National Lottery
Response to section 8 — Training, Support and Supervision
Response to section 9 — The Helpline
Response to section 10 — Limitations in the Transactional "Audit Trail"
Response to section 11 — Transactions not entered by Subpostmaster of their
Staff
Response to section 12 — Transaction Reversals
Response to section 13 — Cash and Stock Remittances (Rems) in and out of
the branch
Response to section 14 — Missing, damaged or bounced Cheques
Response to section 15 — Pensions and Allowances
Response to section 16 — Surpluses
Response to section 17 — Cash withdrawals accidentally processed as
deposits and other counter-errors that benefit customers at the expense of the
Subpostmaster
Response to section 18 — Error and fraud repellency [IS THIS A WORD?)
Response to section 19 — One-sided transactions
Response to section 20 — Hardware issues
Response to section 21 — Post Office Audit Procedures
Response to section 22 — Post Office Investigations
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Introduction
As part of the Initial Complaint Review and Mediation Scheme (the Scheme), Second Sight
3 I has been engaged as a firm of expert forensic accountants to provide, where-pessible-a
9, 10
logical and fully evidenced opinion on the merits of each Applicant's case.
On 21 August 2014, Second Sight released its Briefing Report — Part Two (the Report). The
Report was to describe common issues identified by Second Sight as being raised by multiple
applicants (a thematic issue) and to express Second Sight's findings on each of them, the —
Fhe-aim being to provide general information that could then be applied in specific cases.
Regrettably, the Report does not fulfil these objectives. As a result Post Office has prepared
this Reply in order to correct inaccuracies in the Report and to provide information that the
Report omits.
The body of this Reply provides Post Office's detailed comments on each section of the
Report. There are however a number of issues that reoccur throughout the Report which are
summarised below.
Lack of thematic issues
A number of sections in the Report do not identify a thematic issue which could be of general
application to multiple applicants as opposed to matters that need to be addressed on a case
by case basis. Where this arises, Post Office will of course be looking at those issues in its
case specific Investigation Reports.
Of the 19 Sections in the Report, 9 sections do not identify a thematic issue namely sections
6,7, 11, 12, 13, 14, 15, 19 and 20.
Absence of conclusions
The majority of the cases in the Scheme turn on there-having-been-a loss occurring in a
branch for which an Applicant was-has been held liable. For a thematic issue to be of utility, it
must help explain why a loss may have arisen or been attributed to an Applicant. The Report
is largely silent on this critical issue. As it stands, there are a number of topics in the Report
where “enquiries are on-going”. A number of other sections set out the competing views of
Applicants and Post Office but offer no view on whetherthe relative merits of either
parties‘party’s positionis+e-be preferred.
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Of the 10 sections that identify a thematic issue, 5 do not reach a conclusion namely sections
11 I 8, 9, 16, 17 and 21._A firm conclusion would have assisted Post Office and applicants.
13,14
Scope
The scope of the Report and the Scheme is to consider matters “concerning Horizon and any
associated issues”. This scope was set in order to reflect the fact that Second Sight are
engaged as qualified and experienced accountants. Matters such as the Subpostmaster
contract and other legal matters are not within the scope of the Scheme and are outside
Second Sight's professional expertise.
Where the Report goes beyond it terms of reference and Second Sight's expertise, this has
resulted in incorrect conclusions being reached.
Of the 5 sections of the Report that reach a conclusion on a thematic issue, 3 relate to matters
which are outside the scope of Second Sight's expertise namely sections 4, 18 and 22._ DN
needneeds to make clear how this helps horizon
Missing evidence
The Report often lacks supporting evidence, source documents, examples or statistics to
15 I substantiate the few conclusions it draws. It does not describe the overarching methodology
used to examine the weight of evidence from different sources — this is most important when
much of the information provided by Applicants is anecdotal and needs to be carefully
assessed for credibility and accuracy.
At the time the Report was released, Second Sight had investigated 21 cases submitted to the
Scheme and rendered its final Case Review Report in 10 cases. One should also bear in
mind that Second Sight is only receiving information from the approximately 150 Applicants to
the Scheme, whereas the number of Subpostmasters who have used Horizon is over xx'and
in total there have been more than 450,000 users of Horizon since its inception in 2001.
Second Sight has not canvassed the views of Horizon users who have not applied to the
Scheme. The Report is therefore based on the tested views of only 0.00005% Bran Horizon
users and cannot therefore be said to reflect general user experience.
Where findings in the Report are based on very selective or no evidence, Post Office believes
applicants can place little reliance can be placed on them.
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Mc2 I’m told this figure is not available from Fujitsu. Although there is some breakdown by
grade, it does not break down to sub postmasters.
Melanie Corfield, 11/09/2014 05:05 PM
DO3 I think this is wrong I make it 0.03%
David Oliver1, 10/09/2014 05:05 PM
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17 I Of Neither of the 2 sections of the Report that reach findings on thematic issues within the
18, 19 I scope of Second Sight's expertise (namely sections 5 and 10), these-are-both-unare_
20 I supported by any evidence.
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This Reply
It is recommended that the reader familiarises themselves with Second Sight's Briefing Report
— Part One (the Part One Briefing) which provides background information on Post Offices
processes and procedures. This Reply builds on the information in the Part One Briefing.
Care should be taken when applying the Report and this Reply to individual cases. Not all the
information will be applicable in every case. Several of the topics are themselves multifaceted
so even where an Applicant has raised a topic, not all aspects of that topic may exist in that
case. Also, the specific circumstances of a case may show that a topic did not in fact have
any effect on an Applicant.
In this Reply:
References to paragraphs and sections are to paragraphs and section of the Report unless
stated otherwise.
"Applicant" means an applicant to the Scheme whereas "SubpostmasterSub postmaster"
means sub postmasters in general, whether or not they have applied
to the Scheme.
For ease of reference, where reference is made below to "Subpostmasters" or "Applicants"
taking action in a branch, this action could, in most circumstances, also be taken by a
Subpostmaster's assistant.
All capitalised terms are defined in the Part One Briefing.
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Overview of Post Office's position
23
Nearly all Applications to the Scheme centre on there being a loss of cash from a branch that
the Applicant does not consider that he/she caused or are liable for. The focus of the Report
and this Reply is to help identify those issues that can cause such a loss and those that
cannot.
24 I In order_to identify a loss of physical cash, an investigator needs two pieces of key
information:
1 They need to know how much cash should be in the branch as a result of the
transactions processed in the branch. This information is provided by the branch
accounts stored on Horizon.
They need to know how much cash is actually in the branch. This is known by conducting a
physical count of the cash on hand.
Any difference between the above two figures generates a "discrepancy" which may either be
a shortage or a surplus.
Controlling the branch accounts
If cash is missing, the first stage of the investigation is to identify the day on which the cash
went missing. The transactions for that day can then be reviewed for anomalies (see section
25 of the Part One Briefing) eg-e.g.
XX of the Part One Briefing)
Transactions incorrectly recorded (such as withdrawals recorded as deposits)
Values incorrectly entered (entering £2000 instead of £200)
This is done to determine if the branch has made errors that would make the branch accounts
inaccurate (item 1 above). This review must be done by the branch staff as only they will
know the transactions done on that day and may recall the correct transaction details. Many
branch errors (including the two examples above) are most easily identified in branch. They
would not be evident to Post Office unless a complaint was made by a customer.
Post Office helps correct branch errors where possible by reconciling Horizon records against
data collected on some transactions by third parties such as banks and government
departments. Where Post Office detects an error through this reconciliation process, it issues
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a Transaction Correction to a branch notifying them of the error and correcting the branch
accounts.
It has been alleged by some Applicants that they have been issued Transaction Corrections
even when they were not at fault. Post Office does not use Transaction Corrections to pass
tisk to Subpostmasters. Transaction Corrections are only issued where there is clear
evidence of an error in branch. Where the cause of loss rests with Post Office or third party
client, or the cause is just unknown, Post Office absorbs that cost and it is not passed back to
branch. This principle underlies the design of Horizon and all Post Office's back office and
reconciliation processes.
Controlling cash movements
Save when it conducts an audit, Post Office does not have any direct knowledge of what
physical cash is actually in a branch, only the expected stated through Horizon (item 2 above)
— only Subpostmasters have this information. For this reason, branches are required to
Count the amount of cash in the branch daily and record this figure in Horizon as a cash
declaration.
Count all cash and stock at the end of each trading period and record these figures on
Horizon before making good any discrepancies".
If daily cash declarations are not made by a branch or declarations are made falsely (by
declaring that there is more cash in the branch than there actually is) then it is impossible for
Post Office, and will be very difficult if not impossible for a Subpostmaster, to:
Know if cash is missing;
Identify the days on which cash has gone missing;
Identify which member of staff may be the source of errors; or
Locate the erroneous transactions that were the cause of a loss.
Daily accurate cash declarations are the most critical aspect of branch accounting, without
26, 27 I which losses of cash, being-which is taxpayers’ money, go unchecked.
’ See paragraph xx of the Part One Briefing regarding "making good" errors.
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28, 29, 31
32
33
33, 34, ...
37
38
39
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For this reason, Post Office dees notolerate I Is vital that BSubpostmastersSub postmasters
who do-not make accurate daily cash declarations. Subpostmasters habitually failing to make
cash declarations may find their contracts terminated. Post Office also prosecutes those
Subpostmasters who dishonestly make false cash declarations. It is not an excuse to say that
a Subpostmaster was poorly trained or received inadequate support in this regard. The need
for daily cash declarations is known by all Subpostmasters and is easily done — there is no
specialist training or support required (albeit that both do exist). Post Office does not accept
that there is any excuse that could justify committing the criminal offence of [knowingly/
deliberately?] rendering a false account.
In the context of the Scheme, there are a number of cases where accurate cash declarations
have not been made. Many Applicants have challenged Post Office to say where the losses in
their branches have occurred. As explained above, identifying the specific source of the
losses is not possible where an Applicant has failed to follow the simple but critical task of
making accurate daily cash declarations. This negligence on the part of Subpostmasters is
why Post Office holds them liable for any losses hidden or caused by their inaccurate record
keeping. It is also a well-established common law principle that an agent (like a
Subpostmaster) is liable to pay to his principal (being Post Office) any sum declared in his
accounts.
Even where accurate cash declarations have been made, the only persons who have direct
access to the cash in a branch is the Subpostmaster and his staff. Post Office does not have
direct access to this cash as part of normal operations and therefore if cash has gone missing
from a branch this can only have been caused by the persons operating the branch and the
Subpostmaster is liable for that loss.
Responsibility for losses
Ar-even greaterlarger number of Applicants have accused claimed Horizon ef inaccurately
recordinged the transactions processed at their branch (item 1 above) which they say shows
that they were not liable for the losses in their branches. To date, no evidence has been put
forward by either an Applicant or Second Sight that presents even a slight doubt that Horizon
has failed to record transactions accurately.
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DO4 Is this previously used language it sounds wrong
David Oliver1, 11/09/2014 05:05 PM
MC5 Agree with above comment so suggest changed wording
Melanie Corfield, 10/09/2014 05:05 PM
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41, 42, 43 I tenant of the SubpostmasterSub postmaster Contract is that SubpostmastersSub postmasters
are liable for any loss caused by their carelessness, negligence or error.?
Post Office remains committed to fully and open-mindedly investigating every allegation levied
at Horizon through the Scheme. It is in our interest as well as the interest of the 6,000 serving
Subpostmasters who have not applied to the Scheme to identify an issue if one exists.
However, Post Office is confident that there are no systemic problems with branch accounting
44, 45, ... I on Horizon_and all existing evidence everhwelminglyoverwhelmingly supports this position.
? Clause 12, Section 12
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Post Office's response to section 4 — The Contract between Post Office and
Subpostmasters
1. Section 4 of the Report concerns the contract between Post Office and
Subpostmasters dated September 1994 (as revised over the years) (Contract). It
considers (1) the potential impact of some of the terms and conditions and (2) issues
relating to notification to Subpostmasters.
2. An assessment of the Contract is outside the scope of the Scheme which was to
consider "Horizon and associated issues". Second Sight was not given any mandate
by either the Working Group or Post Office to consider the Contract. Unfortunately, in
taking it upon itself to comment on the Contract, Second Sight has made a number of
statements that are [factually?]incorrect. These errors arise from the fact that Second
Sight are not lawyers, but forensic accountants, and any assessment of the Contract
can only be undertaken against legal principles. S id Sight's app! A is reckl
i it wil i i . For this
reason, no weight should be placed on this section of the Report as it reflects only
Second Sight's lay opinion on matters where they have no expertise or experience.
3. To help alleviate the confusion created by the Report, Post Office sets out the true
position in respect of the Contract below.
Impact of selected terms and conditions
4. At paragraph 4.5 the Report sets out selected sections of the Contract. Whilst these
provisions do reflect the terms and conditions as stated within the Contract these are
selective and not reflective of the Contract as a whole. In addition, Secend-Sightthe_
Part Two Report does not appear to have considered the other documentation that is
incorporated into the Contract such as manuals, booklets and operational instructions
issued by Post Office from time to time.
Fairness of the Contract
5. Paragraphs 4.4 and 4.6 both make the same conclusion that "from a business
perspective" the contractual provisions referred to (in particular Section 12 requiring
the Subpostmaster to make good losses) operate to the detriment of a Subpostmaster.
6. Second Sight also comments that under the Contract (presumably again in reference
to clause 12, section 12 though this is not clear in the Report) there is a transfer of
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51, 52,
54,
56, 57,
62, 63,
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53 "risk" to the- SubpostmastersSub postmasters, implying—The-suggestion being that this
is somehow unfair on Subpostmasters.
7. First, the Contract is a business to business arrangement. Save in a few very narrowly
defined areas (which are not applicable here), there is no general principle at Common
55 Law of whether a Contract is "fair" or not. The Contract terms apply-as-they-are written_
59 to be consistent with what might be considered “fair’. Second-Sight'sThe-analysis-has-
MCB)
8. Second, Subpostmasters are agents and Post Office is their principal. Under the
Common Law agents owe duties to their principals including the duty to act in good
faith, to render accurate accounts and to make good any losses they cause. Section
12 of the Contract simply reflects these Common Law principles — it does not transfer
61 any additional risk to Subpostmasters. Again, Second -Sight's-misunderstanding arises-
9. Thirdly, when considering this issue no reference is made in the Report to any other
similar agency agreement or benchmarks that may provide a view on what is common
practice. In Post Office's experience, the terms of the Contract are broadly similar to
those used in franchising arrangements across the uk
10. Fourthly, the Report does not appear to consider the role of NFSP. Any variations to
the Contract are discussed with NFSP prior to being implemented. This is in clear
64 contrast to the position that Second Sight seek to-portrayset out in the Repert—
thatReport that Post Office arbitrarily imposes its terms and conditions on
Subpostmasters.
11. Whilst the Contract does place responsibilities on Subpostmasters (as well as Post
Office), these are not commercially or legally unfair. In any event, the Contract reflects
the basis on which Post Office and thousands of Subpostmasters have successfully
65 conducted business for decades. It is not now open to Applicants-or Second Sightto-
66 seek to retrospectively change that foundation. At a number of points-in the Report,
67 Second-Sighthas alluded to "duties" on Post Office that do not exist in the Contract.
68 These duti flect nothing than S d-Sight's speculation. Post Office acts in
accordance with the Contract and expects Subpostmasters to do the same.
Subpostmaster's understanding of the Contract
12. The Report suggests that Subpostmasters may not have reviewed or fully understood
69 the terms before entering the Contract. As a result, Second Sight saysthe Report
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MC6
MC7
I don’t like this — it implies we don’t care about fairness. If we need to include can we
reword?
Melanie Corfield, 10/09/2014 05:05 PM
Can we go further than this? Our current press briefing wording, agreed with Craig T’s
team, is: Our contracts compare favourably with the marketplace and offer a fair
balance of risk to reward for our agents.
Melanie Corfield, 10/09/2014 05:05 PM
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states, at paragraph 4.7, that Subpostmasters are unable to mitigate "risks" that they
may face.
13. Post Office disagrees with the conclusion reached in the Report. In addition, this
conclusion is not supported by any evidence.
14. The Contract that is entered into between Post Office and Subpostmasters is done so
freely and at arm's length. Ultimately, it is for the Subpostmasters to choose whether
they enter into the Contract or not. The Report does not provide any examples where
Post Office is accused of using undue influence or other unfair behaviour to acquire
the agreement of individual Subpostmasters to the Contract — and it is strongly denied
that any such improper conduct has occurred.
15. The Report provides no evidence that Subpostmasters do not understand the
Contract. If the view being taken in the Report is from a business perspective (whether
Post Office or a Subpostmaster) the provisions are very clear and written in plain
English.
16. In any event, it is a well-established legal principle that a person who agrees to a
contract is bound by its terms even if he does not have a copy of those terms, has not
read them or does not understand them. Post Office cannot be responsible for a
Subpostmaster who may not have taken the time to read the Contract.
17. The Report also notes that Post Office does not recommend that Subpostmasters take
legal advice. There is no obligation on Post Office to make this recommendation. It is
however open to any Subpostmaster to take legal advice on the Contract at any time.
70,71 18. Secend-SightThe report also appears to discount that the Applicants are business
people and from a business perspective, they would be used to agreeing contracts and
72 should be aware of the-any risks of agreeing to a contract without legal advice.
alt y-this-line-of enquiry is futil _ d-Sighth pertise in-the legal
pAneielal d-parti tering int Set eee FRET tn SRNL
74 4 -Notification to SubpostmastersSub postmasters of Contract
75 19. Paragraphs 4.8 to 4.11 say-state that Post Office does not provide a copy of the
Contract to Supostmasters. Post Office does not see what evidence this conclusion is
based upon. It appears to be based on the fact that a Subpostmaster does not recall
receiving the Contract or cannot produce a copy now. This does not mean that the
Contract was not provided. Given the age of some of the cases in the Scheme, it is
not surprising that recollections are hazy and that some records are now not available.
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76b, 77, ... 20. It is also-open to the SubpostmastersSub postmasters to request a copy of the
Contract throughout negotiations when seeking appointment and from Post Office's
Human Resource Support Centre (HRSC) if they have misplaced or lost a copy"ffis
Post Offices' Standard Operating Procedure to ensure that the Subpostmasters have a
76a copy of the Contract no later than the day that they commence their position. {tis-also-
21. Paragraph 4.10 highlights that it is common practice for new Subpostmasters to sign
an "Acknowledgement of Appointment" without a copy of the Contract. It is common
82 practice that a separate document will be signed rather than the full Contract. As a
point of law, terms and conditions can be incorporated into a contract by reference to
another document that is not signed. Secondly, as noted above, Subpostmasters are
business people and will have had opportunity to request and review the Contract prior
to signing. Also they would have had opportunity to take legal advice on the Contract
prior to entering into it. Subpostmasters would therefore have had a number of
opportunities to be aware of the specific provisions.
Conclusion
83, 84, 85 22. The Report states that Second-Sight are-considering the Contract was censidered—
“considered “from a business perspective". It is not clear what this means in light of
the criticism in the Report. Post Office would suggest that this should mean that
Subpostmasters, as business people, enter into the Contract of their own choice
having had opportunity to seek legal advice should they wish to do so.
23. Post Office does not see how this section provides greater clarity on the issues in
86 dispute between Applicants and Post Office. {tis-entirely unsupported by evidence
based-_on inexpert-opinion_and +t in-its-concl
Per-opt
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mcs I suggest changing order of this para as shown because to start with the fact that sub
postmasters get a copy of contract on the day they start sounds odd.
Melanie Corfield, 11/09/2014 05:05 PM
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Post Office's response to section 5 — Automated Telling Machines (ATMs)
1. Section 5 of the Report raises various issues concerning the accounting in branch for
ATM transactions.
2. The Report does not clarify which precise part of the ATM accounting process is under
consideration by Second Sight. In broad terms, the accounting process breaks down
into three elements:
a. Loading — Cash for the ATM is sent to the branch by Post Office and is loaded
by the Subpostmaster into the ATM. This requires the recording of the ATM
Cash as part of the branch's stock.
b. Cash dispensed — the amount of cash dispensed by an ATM is recorded daily
on Horizon — see further below.
c. Exceptions — jammed cash and retracted cash — see further below.
3. From the content of the Report, Post Office believes that Second Sight has focused
primarily on the processes for the recording of cash dispensed from the ATM however
other issues are touched on also.
4. Additionally, it should be noted that some ATMs are pure CViT load. In respect of
these ATMs, the Post Office security van drivers load the cassettes of cash into the
ATM and there is no need for action by the Subpostmaster. The report does not
distinguish between this type of ATM and those where the Subpostmaster is
responsible. Neither does the Report consider whether any Applicants ATMs are CViT
load.
5. In short, nothing in this section of the Report gives rise to any issue that could cause a
loss of cash in a branch. The Report does highlight a few areas where Applicants
have claimed to struggle with accounting for ATM transactions but the design of the
accounting process and the safeguards put in place by Post Office mean that even a
failure to account for ATM transactions will, save in a few minor areas (highlighted
below), not cause a loss to a branch.
Out of sync / air gap
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6. The Report focuses on the situation where cash is dispensed from an ATM. The
process for accounting for dispensed cash is set out at paragraph x of the Part One
Briefing. In short, on a daily basis (or on a Monday following a weekend) the
Subpostmaster prints a receipt from the ATM showing the amount of cash dispensed.
This cash dispensed figure is then entered into Horizon by the Subpostmaster.
7. Simultaneously, the amount of cash dispensed is also automatically transmitted to BOI
by the ATM. This means that there are two parallel records kept of the cash being
dispensed by the ATM: one by the Subpostmaster on Horizon and one by BOI.
8. The Report notes that there are situations when these two systems can become out of
sync with one another, with one record showing more or less dispensed cash than the
other record. This could be caused by the Subpostmaster entering the wrong figure on
Horizon.
9. What is not highlighted by the Report is that even if the amount of money dispensed
by an ATM as recorded on Horizon by the Subpostmaster is different from the amount
actually dispensed as recorded by BOI, therefore resulting in the records being "out of
sync", this would not result in there being a loss to the branch. This is a pure
accounting error by the branch.
10. There is a subsequent reconciliation of the Horizon figure against the BOI accounts.
This means that any error on the Horizon account as to the amount of cash dispensed
by the ATM would be picked up within a matter of days and corrected by way of a
Transaction Correction to the branch.
11. As a result of this process, there is no difference in the amount of cash held on site.
Indeed, the above accounting processes do not require anything to be done with the
physical cash at all.
12. Simply because the accounts may be "out of sync" does not mean that there is a loss
87
88
branch-Complexity of accounting for dispensed cash
13. At paragraph 5.4 the Report states that the Post Office system for operating ATMs is
"a complex arrangement, requiring greater human intervention... that that typically
need in most high street banks". The Report does not specify which part of the branch
accounting process is considered more complex, however given the focus on the "out
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89
90
91
93, 94 I
95 I
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of sync" issues it seems that the Report is levying this allegation at the accounting
process for dispensed cash (see above).
14. Second-Sight'sThe Report's conclusion is not supported by any evidence and does not
outline the differences between Post Office's and a bank's processes save to say that
banks' ATMs are fully computerised.
15. At various points, and particularly paragraph 5.18, the Report suggests that Applicants
also found it difficult to account for cash being dispensed from ATMs. Again, little
evidence is presented to support this view,
16. As described above, the ATM automatically records the amount of cash dispensed.
The only part of the process that is manual is the need for the Subpostmaster to take
the cash dispensed figure from the ATM and enter into onto Horizon. Second Sight
has adopted the phrase "Air Gap" for this manual interaction. As-farasPest Office is-
aware, itis nota phrase-used by any-of the Applicants Within this accounting
process, no calculation or counting is required — it is literally typing a single figure into
Horizon on a daily basis. Given the complete absence in the Report of any
explanation or justification for the view that this is "complex", Post Office cannot
understand how this process can be called "complex" or how this cannot be
understood by Applicants.
17. Second SightThe Report appears to rely on a number of extracts from Post Office's
Operations Manual to show that the above accounting method was too confusing for
some Applicants. Paragraph 5.11 states that Applicants misunderstood the instructions
from the February 2008 Operations Manual update quoted in the Report. Paragraph
5.13 states that the out-of-sync problem described above, was common place prior to
February 2008. Second Sight goes-onto-expressThe Report sets out the opinion, at
Paragraph 5.15, that the instructions from the Operations Manual represents an
example of the complex instructions and a cause of confusion. Paragraphs 5.13 and
5.15 are therefore a contradiction of one another — the first saying the problem pre-
dated 2008, the other saying the problem resulted from the 2008 update.
18. Second-SightThe Report does not describe any instructions provided prior to the
February 2008 Operations Manual or any subsequent updates. No assessment is
made bySecernd-Sightas to any change in the reporting of problems in relation to
ATMs (and specifically not understanding the instructions) before or after the February
2008 Manual update and in particular whether there was an increase or reduction of
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mcg I might be wrong but I thought I saw the phrase recently used by an applicant.
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96, 97, 98 the potential for errors. As-Second-Sight are-seeking toThe Report-specificallyReport
99 specifically criticises the February 2008 Manual this would appear to be a fundamental
assessment and consideration that has not been made. Together with the fact that no
evidence is provided to confirm how many Applicants did attribute errors to these (or
any other) instructions, whether before or after February 2008, this undermines the
position taken within the Report and the conclusions reached are unreliable as a result.
ATM Support
19. The Report notes that Applicants have alleged that the Helpline repeatedly told them
that the "problem would sort itself out".
100, 101 20. At paragraph 5.19 of the Report; Second-Sight states that the advice from the Helpline
was inadequate and misleading. There is no evidence provided to support this
allegation. The advice provided should be assessed on a case by case basis and
without any evidence that there is a wider issue with the advice provided it has not
been shown to be a thematic issue.
21. Even if the advice provided was that matters would "sort itself out", in light of the
reconciliation between Horizon and BOI (as described above) if there was an "out-of-
sync" problem it would be corrected by a Transaction Correction. This would prevent
the build-up of any accounting shortfalls. As stressed above, there is no loss caused
to the branch as the overall cash in branch relating to the ATM remains the same.
102 22. Overall, the assertion by-Secernd-Sight that the instructions were complex and support
provided was inadequate has not been supported by any evidence or logical
reasoning.
Weekend trading
23. Paragraph 5.18, which considers trading over weekends, appears to have no
relevance to the cause of losses on the ATM.
Power and telecommunication issues
103 I 24. At Paragraph 5.20 ofthe Report Second Sight states that many Applicants have
commented on the impact of power and telecommunications failures on the ATM.
104 I Second-SightThe Report acknowledges that, even when they have dates of power or
telecommunications failures, Applicants cannot clearly link them to specific deficiencies
in their branches.
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25. There are standard recovery processes in place to ensure that no data is lost or
corrupted. This recovery processes were reviewed in detail by Second Sight in their
Interim Report and found to work. Post Office remains confident that branch accounts
will not be corrupted due to a power or telecommunications failures.
26. Despite this, the Report speculates that the need to re-boot the ATM by either the
Subpostmaster or BOI could "introduce a possible risk of data loss or corruption". This
comment is entirely speculative and is not supported by any evidence either from a
specific Applicant's case or contemporaneous evidence that such a problem may exist.
105 27. Post Office places-ittle weight-onnotes the comment that Second Sight has evidence
that contradicts the assurances provided by Post Office that data cannot be corrupted.
106 Post Office is-not f this “evid "and again, lusion app: toh
108
reasoned conclusienhas asked to see this evidence but, to date, none has been
forthcoming.
Retracts
28. Paragraphs 5.21 to 5.25 discusses failed cash withdrawals. As paragraph 5.22 and
5.23 state, if cash dispensed is not physically removed then after a period of time the
cash will be retained by the ATM. This is known as a retract. It can occur for a number
of reasons but often because the customer gets distracted. It is also possible that
retracts can be subject to fraud by customers. Second Sight has indicated that
Subpostmasters might be liable for losses caused by this fraud. This is correct where
Subpostmasters have failed to account for retracts correctly. Provided the accounting
is done correctly, the Subpostmaster will not be liable for retract fraud.
29. The accounting process for retracts is as follows:
a. Each working day, a Subpostmaster must check the ATM Bank Totals receipt
(which is generated by the ATM) to see if any retracted transactions have taken
place since the last ATM weekly balance was completed. The receipt will show
the number of retracts.
b. If any retracts have taken place, the Subpostmaster must physically remove the
retracted notes from the ATM (which are stored in a separate part of the ATM
from other cash).
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DO10 — Have we asked for their evidence?
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c. For all retracted cash removed from an ATM, the Subpostmaster must count
and report on Horizon the total value of retracted cash on the same day (using
the ATM Surplus Cash button on Horizon). If a retract occurs when the Post
Office branch is closed it should be removed and reported on the next working
day.
d. Once reported on Horizon, the retracted cash should be placed in the main
branch safe and forms part of the cash holdings of the branch.
30. Customers’ accounts will be debited even though they did not remove their cash. This
is often re-credited but it is an issue for the customer and their bank, although Post
Office will provide information to the customer to assist them. At this point, the branch
accounts will balance as the amount of cash physically dispensed (including any cash
subsequently retracted) will match the cash dispensed figure on Horizon and the
amount of cash in the retract cassette will have been counted and added to Horizon.
31. Retract fraud occurs where a customer conducts a withdrawal transaction from their
own bank account using an ATM. When the cash is vended, the customer looks to
remove the middle notes, leaving the top and bottom notes behind, thereby hoping to
trick the ATM into believing that the cash has not been taken. The ATM then retracts
the remaining cash back into the machine, believing that it has retracted the entire sum
withdrawn. The fraudulent customer's intention is that when the bank checks the
retract records for the ATM in question, it sees that there was a retract recorded
against the customer's withdrawal transaction and would then fully re-credit the
customer's account.
32. Provided the Subpostmaster follows the above procedure in relation to retracts, he will
not be liable for any ATM cash loss caused by retract fraud.
33. Post Office provides to BOI details of the amount of each retracted cash transaction as
part of its weekly ATM balances recorded in Horizon. BOI uses that information to look
for a match between the actual amount of retracted cash removed from the ATM and
the amount of the original cash withdrawal transaction. If there is a match, then this will
indicate that there has been no retract fraud and the full amount will typically be re-
credited to the customer. If there is a discrepancy, then BOI may undertake further
investigations into the customer's activity.
34. As long as Post Office can provide the daily retract declarations from Horizon then any
loss caused by any retract fraud does not fall on the Subpostmaster.
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35. If a Subpostmaster does not declare a weekly ATM balance through Horizon, which
includes the amount of any retracted cash, then Post Office cannot provide that
information to BOI. As BOI has not been provided with balancing information it is
unable to determine whether a retract was fraudulent. The full amount of the cash
withdrawal re-credited to the customer is therefore charged on by BOI to Post Office.
36. Where Post Office is charged by BOI, it passes on this charge to the Subpostmaster
by way of a transaction correction where the weekly ATM balance, including any
retracted cash records, are not available because of the Subpostmaster's failure to
follow proper accounting processes.
37. It should be noted that where the retract was not fraudulent, the correct amount of
cash will have been retracted into the ATM. Even if the Subpostmaster has not
properly accounted for this cash on Horizon, the retracted cash will still be in the
branch (either in the branch's cash holdings or still in the ATM) as surplus cash. This
surplus cash will offset any Transaction Correction for failing to follow proper
accounting procedures.
38. Where retract fraud has occurred, then the amount of surplus cash recovered from the
ATM will be less than the amount of the original cash withdrawal transaction. This
discrepancy will fall on the Subpostmaster if they have not following proper accounting
procedures.
39. The Report does not suggest there is any failure in the above procedure that may
109, 110 cause a unwarranted loss to a SubpostmasterSub postmaster (and-this information-
has-been-provided-toSecond Sight previously). Post Office therefore remains
confident provided the above process is followed by a branch the Subpostmaster will
not be liable for retract fraud. However, should they not follow the above process, then
they may be liable for some or all of the cash lost to the fraud (which will be passed to
the branch by way of a Transaction Correction). Post Office considers that this
allocation of responsibility for preventing retract fraud is fair and Subpostmasters can
avoid all risk altogether by following the above simple accounting process.
Other frauds
40. Post Office accepts that there are other forms of fraud that may be occurring.
However, we are not aware of any form of fraud (including retract fraud) that has
created a loss to an Applicant, provided they follow the correct procedures.
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Conclusion
41. Overall, provided the Subpostmaster follows the appropriate procedures there will be
no loss to the Subpostmaster whether the issues arising is due to an "out-of-sync"
problem or retract fraud. Post Office does not agree that the instructions and support
in relation to ATMs is inadequate. No evidence is provided to support this positon and
XX number of ATMs are operated without concern across the Post Office network.
This would support the position that the instructions are clear, understood and work in
practice.
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Post Office's response to section 6 — Motor Vehicle Licences
1. Section 6 of the Report considers the issuing of Motor Vehicle Licences (MVL). The
Report itself notes that only a small number of Applicants reported problems
concerning processing MVL. It is not clear that this can properly therefore be
considered a system wide issue of general application.
2. Paragraph 6.1 describes a problem encountered (by what Post Office believes to be a
single Applicant) when for V11C (the form used by customers to renew their MVL tax
discs) was misprinted with the incorrect bar code. Form V11 is not produced by Post
lll I Office and therefore this was an external error. Second-Sight sayThe Report states
that the effect was that a sale was recorded as a 12 month tax renewal rather than the
112 I 6 month tax disc as was sold. Second Sight saysThe Report states that whilst the
customer would have paid for and received a 6 month MVL tax disc, the accounts
would have recorded a sale of a twelve month disc and, as a result, there was a
potential liability to the Subpostmaster for the additional 6 months.
3. This is fundamentally incorrect. The barcode on the V11C form does not define the
duration of the tax disc but the overall cost whether taxing the vehicle for 6 or 12
months. A V11C is printed with tick boxes for the customer to confirm whether they
would like to tax a vehicle for 6 or 12 months. Upon scanning the V11C, which
identifies the registered vehicle, Horizon will prompt the user to enter whether the
customer wants a 6 or 12 month tax disc. If the barcode printed was incorrect this
could lead to a charge based on a different vehicle, which could be potentially more or
less than the appropriate charge if the vehicle identified by the barcode is in a different
tax band to the customer's actual vehicle.
4. If there is an error with a barcode, it would be an issue with the tax banding not
whether a vehicle is taxed for 6 or 12 months. This issue could benefit or
disadvantage the customer. However, Horizon would invite payment at the level
requested by the bar code. Provided that payment was taken for the amount
requested by Horizon the branch would not suffer a loss as there is no loss or gain
from the transaction. Whilst this issue is clearly not desirable (and Post Office would
offer all possible assistance to the customer to correct any error on the DVLA issued
V11C form), it is an issue outside of the scope of Second Sight's review as it does not
impact on branch accounting.
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5. Paragraph 6.2 speculates that if this type of discrepancy occurred, resulting in a loss
for the branch which the Subpostmaster would be liable for, the amounts could be
significant. There appears to be no evidence to support this assertion. This appears
to be a one off incident, created by a bar code that was created by a third party. As
this issue is so specific to a particular customer's circumstances, Post Office cannot
see how this can be classed as a thematic issue affecting Applicants generally.
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115
116
117
118
119
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Post Office's response to section 7 — National Lottery
1. Section 7 concerns National Lottery transactions which are described in more detail at
paragraph 5.35 of the Part One Briefing. In particular the Report highlights alleged
problems that Subpostmasters may have in relation to (1) Scratch cards and the
activation of them and (2) sales continuing outside of Post Office hours of Lottery
products in a connected retail shop resulting in Horizon and Camelot terminals being
"out of sync".
Activation of Scratch Cards
2. Paragraph 7.2 states, correctly, that before February 2012 any Lottery Scratch Cards
received by a branch had to be manually "activated "on Camelot terminal and then
remmed in to Horizon. This process is described in more detail at paragraph 5.42 of
the Part One Briefing.
3. Paragraph 7.3 of the Report describes how a branch could become "out of sync". This
means that the activation of scratcheardsscratch cards on the Camelot terminal did not
reflect those remmed in on Horizon. This would result in either a surplus or a
deficiency of ScratcheardScratch card stock in the branch accounts. To remedy this
error, Post Office and Camelot conducted daily reconciliations of the data on the
Camelot terminal and on Horizon. Where there was a discrepancy, a Transaction
Correction would be issued to the branch.
4. Any errors that occurred through the failure to activate or rem in serateheardsscratch
cards were errors that occurred in branch and therefore were the Subpostmaster's
responsibility.
5. However, the effect of not remitting in scratecheardsscratch cards into Horizon will not in
itself create a loss. The physical seratchcardscratch card stock will still be in the branch
as it must have been delivered to the branch for it to be activated on the Lottery
terminal. The Transaction Correction only increases the amount of
sceratcheardsscratch cards shown in the branch accounts to reflect the amount actually
on hand.
6. If the serateheardsscratch cards have been sold but not remmed into Horizon, the
branch would show a negative stock value for serateheardsscratch cards (as each sale
reduces the stock line in the accounts even if this goes below zero). The subsequent
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Transaction Correction will therefore increase the scratehcardscratch card holdings,
cancelling out the negative figure and bringing the accounts back into balance.
7. The opposite effect will happen if scratehcardsscratch cards have not been activated
on the Lottery terminal but remmed into Horizon.
8. Insummary, it is clear that (1) this issue is caused by errors in branch for which
Subpostmasters are responsible but that in any event (2) this issue cannot be a source
of actual losses.
Support
9. At paragraph 7.6 the Report states that the problems encountered by the Applicants
(prior to procedural improvements described at paragraph 5.43 of the Part One
Briefing) were exacerbated by the Helpline who were not able to offer assistance.
Post Office is not aware of the specific calls or incidents that the Report is referring to
which demonstrate a thematic failure to provide adequate advice.
10. This is very much an issue that will need to be considered on case by case basis
depending on the advice provided to an individual Applicant. However, as noted
above, the reconciliation process conducted by Post Office means that regardless of
advice given by the Helpline, any error would be corrected in due course.
Out of hours sales
11. Paragraph 7.2 of the Report describes an alleged problem relating to the syncing of
sales that take place "Out of Hours". Sales of Lottery products (as described at
paragraph 5.39 of the Part One Briefing) may continue while a connected retail shop is
open but the Post Office counter is closed however the branch needs to ensure that
any cash taken for any "out of hours" sales is transferred from the retail shop to the
branch cash holdings the following day.
12. The value of the "out of hours" sales (and any other sales) will be automatically sent to
Horizon each day by way of a Transaction Acknowledgement which will increase the
cash position in the branch's accounts. The amount of cash to be transferred from the
retail side to the Post Office side is easily identified as the figure is displayed on the
Transaction Acknowledgement. If a Subpostmaster does not transfer the physical
cash from the retail side into the branch for these sales, this will produce a cash
shortage. The Subpostmaster will be liable for this cash shortage at the end of the
trading period.
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123, 124, ... 13. At pParagraph 7.7 of the Report Second-Sight highlights the "complication" occurring
on the final Wednesday evening of the monthly trading period. This is reference to the
period reconciliation completed on a monthly basis. Rather than process the
reconciliation on a Wednesday evening as they would normally do, Subpostmasters
have to first enter the Lottery sales from the previous evening and complete the
126, 127 reconciliation as a matter of priority the following morning-. Second-SightThe Report
128 states that this process was not always provided by the Helpline. As above, Post
Office has not seen any evidence to support this assertion and would highlight that
129 Second Sight havehas been provided with call logs relating to the Applicants cases.
However, no specific calls are referenced in support of this statement.
14. In any event, the Report appears to suggest that this was a problem at the end of
trading periods. In fact, branches operating a Lottery Terminal needed to make daily
cash declarations (see paragraph XX of the Part One Briefing) like all other branches.
As Lottery sales data is sent overnight, Lottery branches are instructed to conduct their
cash declarations and end of trading period balances (see paragraph XX of the Part
One Briefing) first thing in the morning after the Lottery data was received. This was
not therefore a complication but an adjusted daily process for branches with Lottery
terminals.
15. In practice, some branches chose not to follow “next day” guidance and may have
conducted balances several days later. Post Office operational instructions have
however always focussed on next day accounting.
16. In summary, any loss arising from "out of hours" issues highlighted in the Report will
arise as a result of an error in the branch for which the Subpostmaster is liable.
Conclusion
17. Procedures have evolved to assist Subpostmasters and reduce the number of
Transaction Corrections that are necessary in relation to Scratch Cards, especially in
130 relation to the activation of them. However, the "out of sync" aeffect created by either
incorrect activation or non-activation of scratch cards or not correctly recording the out
of hours’ sales are errors that arise within branch. The errors were not due to either
Post Office or Horizon and therefore any liability appropriately remains with the
Subpostmaster if it arises.
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Post Office's response to section 8 — Training, Support and Supervision
1. Section 8 principally considers the training on Horizon and branch accounting provided
to Subpostmasters by Post Office. Currently training for Subpostmasters consists of a
mixture of classroom training and in-branch training. Further training is available upon
request and there is well developed support network including the NBSC, managerial
support and Field Support Advisors. This training and support is described in more
detail at section 4 of the Part One Briefing.
2. The Report comments that the training was adequate in relation to "Business as usual"
transaction processing but was weak in relation to the end of day, end of week and
end of trading period balancing. In addition, the Report states that there was no
consideration given to dealing with discrepancies, how to identify the root causes of
problems and how to deal with Transaction Corrections.
131 3. These views appear to be based entirely on Second Sight acceptingatface-vatue_the
anecdotal information provided by Applicants in their CQRs. As noted in the
132 introduction to this Reply, the credibility of that information remains largely untested-by-
133, 134 Second-Sight. Second Sight has net asked Post Office has not been asked to provide
135 any training materials for their review nor established-has any industry standard or
136 contractual benchmark been established against which to judge Post Office's
137, 138 performance. The few-pieces of analysis used to support the Report's conclusion are
considered below and shown to be incorrect.
139, 140, ... 4. Given that Second Sighttehe Report has presented no evidence or analysis that shows
that Post Office's standard training is defective, Post Office stands by its training
practices as being effective. Post Office considers that the training and support that is
provided is fit for purpose and adequate to meet the needs of the large majority of
Subpostmasters. This is proven by the thousands of Subpostmasters who are
successfully operating Horizon having received the training from Post Office.
5. There may of course be specific cases where training and support has not been
provided to Post Office's usual standards (which is not impossible given the thousands
of Subpostmasters trained and support by Post Office over the years) but these
situations will be considered on a case by case basis and are not reflective of any
general thematic issue.
Move to Horizon
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147, 148
149
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6. In support of the Report's views, at paragraphs 8.3 and 8.4, it finds that many
Applicants found that discrepancies began to occur when they moved to Horizon. The
conclusion reached by-Secend-Sightin the Report is that this was due to a lack of
understanding of how the system was due to operate and be used, meaning they were
insufficiently trained, had not been able to train their staff properly or there were issues
with the new screen-based processes.
7. Post Office does not agree with this conclusion and it appears to be unsupported by
any evidence that fewer mistakes were made prior to the introduction of Horizon.
Transaction records are not available for the pre-Horizon period and it is not possible
to test the conclusion which is put forward. It therefore appears that Second-
Sighttehthe Report has accepted Applicant's anecdotal recollection of events without
any corroborating evidence. Paragraph XX in the introduction to this Reply highlights
the deficiencies in this approach.
ATMs, Lottery transactions, MVL foreign currency or other specialist products
1. At paragraph 8.6 the Report highlights that Applicants considered that the Post Office
trainers and Line Managers were weak in relation to dealing with ATMs, Lottery
transactions; Motor Vehicle Licences; Foreign Currency and other products.
2. There is a lack of evidence to support these comments from Applicants. Due to
document retention policies training records for a number of staff are no longer
available. There also appears to be no contemporaneous evidence that Applicants
were not provided with adequate support by trainers or line managers whether in
relation to ATMs, Lottery transactions, MVL foreign currency or other specialist
products. If there was a lack of understanding in relation to these aspects Post Office
would expect the Subpostmasters to request further training or otherwise seek
assisting through NBSC.
Training Needs Analysis
C enton Horizon. This would be an fe) sible-tas St raining support
upportis however-provided through ether-various means including through the NBSC.
and managerial support. In addition, training materials are provided on a regular basis
and further training can be requested by Subpostmasters.
4. Second Sight note at paragraph 8.7 that further training was delivered in accordance
with user demand rather than being determined by a Training Needs Analysis. This is
not correct. When Subpostmasters complete their training there are follow up reviews
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at one, three and six monthly intervals. In addition to confirming that the business is
operating as it should be there is an analysis on the Subpostmasters' understanding.
If there are any gaps, these are highlighted and further training can be provided. After
this stage there is a reasonable assumption that the Subpostmaster will be reasonably
competent, with the support network highlighted above, to operate Horizon. There
should not be the need to periodically check the knowledge of Subpostmasters.
Subpostmasters are operating a commercial business and if required they can request
additional assistance and training when required.
Training assistants
5. Asis made clear within the Contract (at section 15, paragraph 7) itis a
154,155) axe Subpostmaster's responsibility to train his/her staff. Nevertheless, Second Sighttehe_
159 Report criticises Post Office at paragraph 8.7 for not operating a "quality control
function" to ensure that branch staff are properly trained by Subpostmasters.
160, 161, ... I 6. First-Second-SightThe Report is-seekings to impose on Post Office a responsibility
which is not stated in the Contract (see paragraph XX of the introduction to this Reply).
7. Secondly, any failure by a Subpostmaster to train their staff adequately could be the
reason for the losses or increase in discrepancies however any resulting losses would
be due to the Subpostmaster's error and he would be liable for them (under section 12,
clause 12 of the Contract).
8. Third, and in any event, Post Office could not operate the quality control function
163, 165, ... proposed by Second-Sighttehthe Report. Each Subpostmaster is free to employ
whoever they wish and to give their employees whatever tasks they wish. It may be
that some employees are tasked to manage all aspects of branch accounting, whereas
others may only have much more limited roles. There is therefore no universal training
regime that could be applied to assistants and which could be centrally monitored by
Post Office given the range of roles assistant fill.
9. Furthermore, Post Office cannot monitor the performance of individual assistants (as
167 Post Office employees are not located in agency branches), only-a-
Subpostmastersonly a Sub postmaster can do this, and so there is no way for Post
Office to respond to the training needs of assistants as it does not know what they are.
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Post Office's response to section 9 — The Helpline
1. Section 9 concerns the assistance provided by the Helpline to the Applicants. Post
Office operates a number of helplines including the Horizon Help Desk and Financial
168, 169, ... Services Centre. It is presumed that Second-Sight aretehthe Report is referring to the
NBSC. More detail on the Helpline can be found at paragraph 4.2 of the Part One
Briefing.
2. The following criticisms of the Helpline are listed in the Report:
a) Difficulty contacting the Helpline due to limited availability;
b) Unhelpful, script based responses;
c) Many calls were afforded "Low Priority", including those relating to balancing
problems and discrepancies;
d) Contradictory advice that revokes previous advice.
173 3. This section of the Report merely-repeats allegations of Applicants. Those allegations
174, 175 appearare untested by Second-Sight(see paragraph Xx of the introduction to this
Reply) and the Report reaches no conclusion at all. On this basis, Post Office cannot
understand how this topic is considered a thematic issue. Nevertheless, the
176 allegations presented by-Second-Sightin the Report are addressed below.
177
Helpline due to limited availability
4. Post Office has previously acknowledged that during busy periods the Helpline could
be difficult to contact. Changes were made, especially at the end of trading periods,
and the hours that the Helpline was available for was extended.
5. Currently the opening times for the Helpline are from 06:00 — 23:00 on Monday to
Saturday and 07:00 to 17:00 on Sunday and Bank Holidays. Post Office
178 Faonitermonitors the number of calls made to the Helpline.
6. Statistics available for the period from April 2011 to March 2014 show that:
Calls made: 1,825,059
Calls Answered: 1,687,537 (92.46%)
Average waiting time until answer: 45 seconds
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Calls abandoned: 137,522 (7.54%)
7. As can be seen from the above calls the average waiting time was just 45 seconds.
Over 92% of all calls made to the Helpline were answered. Of the abandoned calls,
179 this will include all abandoned calls and therefore will not seleysolely be callers who
have decided to abandon their call because they cannot get through to the Helpline
(for example they may have resolved the issue themselves).
Unhelpful, script based responses
8. The Helpline do not use scripts. The operators, many of whom are very experienced
with Horizon, listen to the query and then using ‘categorisations’ in Remedy (the
contact management system) the Knowledge Base is accessed where there are
articles relating to that category of call. The adviser then selects the relevant article
according to the issue raised by the caller and relays the information to them. The
system records which category was selected and therefore which articles in the
Knowledge Base that could be accessed on this subject (but the not the exact
Knowledge Base article that the advisor selects). If the Knowledge Base does not
provide the relevant information there is a second tier of advisors that the enquiry can
be escalated to.
Many calls were afforded "Low Priority"
9. There is no priority system in place for calls to the Helpline with the exception of
matters relating to robbery or burglary. Whilst those calls are dealt with as a priority
other calls are answered and dealt with in the order they are received.
10.. In addition, if the Subpostmaster was not satisfied by the advice provided they could
seek a higher level of support as described at paragraph 4.6 of the Part One Briefing.
Contradictory advice
180 11. No evidence is presented at-altin the Report to support the view that contradictory
advice has been given by the Helpline.
General
12. All calls to the Helpline are recorded by the Helpline operators in the NBSC call logs.
The logs described briefly the nature of question and the answer given if appropriate.
181, 182 Second-SightThe Report states that there is insufficient evidence within the call logs
that have been provided to them to conclude what advice was provided. However,
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183, 185 Post Office considers that if calls were not being answered or addressdaddressed
appropriately then either the matters would be escalated (which would be noted) or
there would be repeated calls about the issue that the Subpostmaster was facing.
There would be evidence that the advice had not resolved the problem or the applicant
was not happy with the advice. In the absence of this or other circumstantial evidence
then Post Office would suggest that the calls had generally been resolved
satisfactorily.
13. At paragraphs 9.2 the Report states that a frequent comment by the Helpline was that
matters would resolve themselves. It is likely that this was reference by the Helpline to
a Transaction Correction being generated following a surplus or deficiency and that
would resolve the issue.
14. Through its own investigation Post Office has found no evidence to support the
allegations that Helpline would often merely comment that matters would resolve
themselves or be dismissive of any enquiry. In addition to the initial contact on the
Helpline, if matters could not be resolved they could be escalated to a higher level of
support. Support could have been provided by Field Support Offices or other
managerial support if it had been requested. Post Office is not aware of any wider
systemic problems where this support was not being provided.
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Post Office's response to section 10 — Limitations in the Transactional “Audit Trail"
186 1. Section 10 of the Report considers what Second-Sightit generically refers to as
187 "limitations in audit trails". Secend-SightThe Report is concerned that Subpostmasters
are not able to investigate the root cause of errors (even where they admit it is caused
by their own or an in-branch error) due to a lack of access to the data.
2. The Report considers three situations:
a. Data that is not available even on the day of transaction under investigation;
b. Data that is available but after 42 / 60 days is no longer available; and
c. Data that is not available after suspension.
3. In general, Post Office considers this section is premised on a misunderstanding of the
nature of the information needed by branches to investigate losses.
4. If at the end of a day, a branch produces a cash declaration that shows a discrepancy,
then the branch will have access to a range of reports on different products and
transactions to investigate the possible causes for the discrepancy (including a
complete line by line listing of all transactions that day). This also applies at the end of
the trading period as a trading period is either 4 or 5 weeks (28 or 35 days) and the
above reports and data have always been available for a minimum of 42 days.
5. Ifa Transaction Correction is sent to the branch, the information needed to contest the
Correction will not be the Horizon data (Post Office has this data and takes this into
account when generating the Transaction Correction) The information is likely to be in
the paper records held at the branch.
Data that is not available even from the day of transaction
6. Paragraphs 10.4 to 10.8 of the Report raise the issue that some information is not
available to Subpostmasters even on the day that a transaction takes place. The
example provided by Second Sight is where an aggregate amount or volume is
provided for Debit or Credit Card transactions. An aggregate amount for the number
of transactions or provided at the end of each day rather than a breakdown of the
188 individual transactions. As a result, Second-Sight saysthe Report states, that
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189 SubpostmastersSub postmasters are not able to identify the individual transaction that
may have caused a balancing error.
190, 192, I 7. Subsequently, Second-Sighttehthe Report considers that this would prevent the
Subpostmaster from mitigating their loss or remedying the error by contacting the
customer. This position was different prior to the introduction of Horizon when paper
records were kept and could be reviewed.
[POL — can we set out how this may be investigated and resolved? Is there any way for
Subpostmasters to be able to resolve these errors?]
Data that is available but after 42 days is no longer available (this was extended to 60
days)
8. On the original Horizon system, line by line transaction data was available in branch for
42 days after a transaction occurred. On Horizon Online (since 2010), this data is
available for 60 days.
194 9. SecerndSightThe Report considers that with data only being available for a limited
period of time, it may not be available to support a challenge by a Subpostmaster to a
Transaction Correction that may be issued after the date that data can be retrieved (ie.
beyond 42 or 60 days). Second-SightThe Report states says that this restricts
Subpostmasters' ability to challenge Transaction Corrections.
195, 196
10. What the Report does not take into consideration is that Subpostmasters may
challenge a Transaction Correction without transaction data. Also Transaction
Corrections are often preceded by an enquiry and so even if the Transaction
Correction is beyond 42/60 days then an enquiry may well have been received within
the period enabling the matter to be investigated within the 42/60 day period. There is
a wide range of evidence that can be provided to review or challenge a Transaction
Correction. Often it is very product specific and not a general view across all data
entries. Typically, the necessary data is kept in branch records rather than on Horizon.
These documents should be retained beyond the period that data is available through
Horizon and is used by Subpostmasters to challenge or review a Transaction
Correction.
11. For example, if a branch wishes to contest a Transaction Correction relating to ATM
transactions, the information needed is on the paper "Totals Receipt" printed daily by
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the ATM which shows how much cash has been dispensed by the ATM and other
important information. This receipt must be retained in branch. No access to Horizon
data is needed as all the necessary information is on the "Totals Receipt".
12. The general proposition in the Report that Horizon data needs to be available for more
than 42 or 60 days is incorrect. Any challenge to a Transaction Correction, and the
data needed to make that challenge, must be considered on a product by product
basis. Post Office is prepared to investigate any product specific allegation that there
is insufficient data or information available to Subpostmasters to challenge and review
Transaction Corrections. It is confident that it will be able to show that sufficient
information is available to Subpostmasters.
Data that is not available after suspension
13. Paragraph 10.10 of the Report highlights that some Applicants were refused access to
data following their suspension and access to their own records that may have been
seized upon audit. As a result they say that they were unable to defend themselves
from any claim made by Post Office for the recovery of monies.
14. Whilst Post Office are aware that some Applicants have raised the issue that their own
records were removed and not returned to them there is no evidence produced or
197 I referenced by Second-Sightthe Report to support the position that data being withheld
has prejudiced the Applicant in any way.
[POL — is it correct that data is not provided by way of policy?]Giro Transactions
15. A connected issue that is considered at paragraph 17.4 of the Report is the process
relating to Giro Transactions (under the heading counter errors that benefit customers).
Giro Transactions are, in essence, deposits of cash into a customer's bank account.
Previously, this involved two-part paying in slip with one copy retained by the customer
and the other retained by the branch. At the end of the day, the branch copy could be
cross-referenced to the entry made on Horizon to check for any errors by the branch in
keying in the wrong figure into Horizon. This process changed to a chip and pin
system using a swipe card at the request of the bank (Santander) that ran the Giro
banking service. Following the change, no deposit slip would be presented by the
customer and no paper documentation was retained by the branch.
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16. Second-SightThe Report states that due to the change in process there is nothing to
allow the Subpostmaster to check whether or not the cash deposit entries on the
system reflected the amount of cash deposited. This is incorrect as the amount
recorded on Horizon to be deposited is now confirmed by the customer through the
chip and pin machine in branch. This is the same process used by all high street
banks which have also moved away from paying in slips to card based deposits.
17. In any event, this appears the example given at paragraph 17.4 has been taken from
one specific Application. Post Office does not consider this issue to be one that has
affected the Applicants generally.
Conclusion
18. Post Office considers that the specific issues raised within the Report in relation to the
audit trail available to Subpostmasters are not of assistance to the Applicants of the
Scheme as a whole.
19. In any event, there is sufficient information available, whether through the data on
Horizon or branch data required to allow Subpostmasters to operate, and challenge
Transaction Corrections.
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Post Office's response to section 11 — Transactions not entered by Subpostmaster of
their Staff
1. Section 11 of the Report considers transactions that have not been entered by the
Subpostmaster or their staff such as where there is an "automated transactional
reversal". This appears to be the same underlying issue as raised in section 12 —- see
that section for Post Office's reply.
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Post Office's response to section 12 — Transaction Reversals
1. Section 12 of the Report considers the issue of Transaction Reversals.
2. Transaction Reversals are where part of a basket of transactions is reversed because
the basket is interrupted before completion (typically due to a power or communication
failure).
3. Second Sight says that when a Transaction Reversal happens, Horizon records the
reversal against a user ID of the Subpostmaster or a member of staff. Second
SighttheThe Report states-considers-thatstates that this is misleading because the
reversal is "automatic". This interpretation is incorrect.
4. As far as Post Office is aware, this issue has only been raised as part of a Spot
Review conducted by Second Sight whilst preparing its Interim Report. The
Subpostmaster who put forward the Spot Review has decided not to make an
Application to the Scheme and no other Applicant has raised this issue.
5. As detailed in Post Office's response to the Spot Review (full details of which are
confidential in order to protect the privacy of the Subpostmaster whom it concerned),
the reversals were caused by the Subpostmaster cancelling a number of transactions
that they were conducting for a customer. The user's System ID is shown as the
person making the reversal because they initiated the reversal process.
6. The extracts taken from the report by Helen Rose (as quoted at paragraph 12.3 and
12.4) are taken out of context. The report was addressing concerns that reversals
were not being clearly shown on the particular data being reviewed (ie. the ARQ and
credence data being the main transaction data used by Post Office). However, this
data is available on other records that can be extracted from Horizon. The report
makes clear that this is not an issue with Horizon itself or its data but the way that the
data it produced was presented within one particular data log. It does not suggest that
there was any entry being made that was not initiated within the branch by the
Subpostmaster or their staff.
7. This section raises no issue that could be the cause of losses in a branch.
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the branch
1. Section 13 of the Report focuses on the remittance of cash and stock to and from
branches. Paragraphs XX and XX of the Part One Briefing described the remittance
process.
2. On occasions issues can arise such as cash pouches not being received or there
being less or more cash within the pouch than stated. This will result in a Transaction
Correction being raised.
3. Ifthe cash centre remits a cash pouch to a branch and it is not received this will not
result in a loss to the branch. The cash centre will investigate why the pouch has not
arrived and ultimately bearare the loss. The cash pouch is scanned upon receipt by
the branch and therefore it is only at this stage that the cash is registered on Horizon
as being held in branch. From this point any loss of cash is the responsibility of the
branch and Subpostmaster. There may be some occasions when the pouch barcode
will not scan. In such circumstances the pouch is entered as received manually.
4. If there is more cash within the pouch than stated the branch should report this within
24 hours of receipt. This will result in a surplus to the branch and a Transaction
Correction is issued to correct the balance on Horizon.
Post Office's response to section 13 - Cash and Stock Remittances (Rems) in and out of
5. In circumstances where the pouch contains less cash than expected the matter should
be reported by the Subpostmaster within 24 hours of receipt. The issue is investigated
by the cash centre. If the cash centre accepts that the pouch contains less cash due
to their error they will bear the loss (if any). A Transaction Correction is issued to the
branch to correct the balance on Horizon. Where the cash centre does not accept that
it is their error the Subpostmaster is invited to review the security cameras monitoring
the pouch. If the Subpostmaster wishes to continue to challenge the amount received
they can do so through the FSC in the same way that a Transaction Correction is
challenged. If less cash is held in Horizon a Transaction Correction would be issued.
The loss can be placed in the suspense account whilst the matter is investigated and
resolved.
6. Asimilar process is applied when cash is remitted to the cash centre from the branch.
The amount of cash sent within the pouch is recorded. If this sum is less than
anticipated when received by the cash centre the issue is investigated. The
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Subpostmaster has the opportunity to view security cameras that monitor the
movement of the pouch and can choose to accept the shortfall or place the loss into
the suspense account and investigate the matter further.
7. Paragraph 13.4 deals specifically with the instances where foreign currency has been
accidentally sent to the wrong branch. The Report speculates that this could result in a
Subpostmaster being responsible for a shipment that was never received.
8. The same process outlined above applies to foreign currency. If a pouch is not
received by a branch it will not be scanned into Horizon and there will be no increase in
cash holdings. If the pouch is not received there is no loss to the branch.
9. Where the pouch is taken to a different branch in error it can be rejected and will be
returned to the cash centre. If an alternative branch accepts the pouch it will be
scanned into Horizon and increase the foreign current held at that branch.
Transactions Correction will be issued to correct any discrepancies that may have
been created but overall there would be no loss to either the branch that received the
foreign currency or the branch that accepted it.
10. Irrespective of what the remittance relates to cash or foreign currency, a branch is not
liable for cash that they have not taken delivery of.
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Post Office's response to section 14 — Missing, damaged or bounced Cheques
1. Section 14 of the Report discusses the process of remitting cheques from Post Office
branches to Post Office's cheque processing provider. It considers the situations
where (1) cheques go missing and do not reach the cheque processor, (2) are
damaged so that they cannot be processed by the cheque processor or (3) are
rejected by the customer's bank.
2. To assist Applicants, Post Office has set out below the cheque remittance process and
the process followed when cheques go missing, get damaged or bounce.
3. In summary, it is inevitable that cheques will occasionally go missing or are damaged
at some stage in their processing. However, as stated in paragraph 14.6, provided
that the Subpostmaster follows the correct procedure for processing the cheques in
branch this will not result in a loss. The cost of a lost, damaged or bounced cheque is
only passed to a Subpostmaster where there is clear evidence that the Subpostmaster
has failed to follow proper remittance processes and Post Office has exhausted all
other possibilities of recovering the missing cheque. This is done in accordance with
clause 12, section 12 of the Contract under which the Subpostmaster is liable for any
losses caused by his carelessness, negligence or error.
Process in branch
1. Most Post Office branches are entitled to accept cheques from customers as the
method of payment for range of designated counter transactions. The cheque should
be scrutinised by branch staff to make sure it is not a forgery and the reverse of the
cheque needs to be date stamped, initialled and the relevant transaction details
recorded. This will enable identification of the specific product and/or customer in the
event of an error. There may be no customer details recorded on Horizon against the
cheque transaction hence the need to endorse the cheque with those details.
2. The method of payment (MOP) by way of cheque should be recorded as a part of the
Horizon transaction. When recording a MOP as by cheque, the customer's cheque is
automatically recorded on Horizon as a part of the branch stock.
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3. All cheques taken should be despatched from the branch via the final Royal Mail
collection of the day (except Fridays). The branch process for remitting cheques is as
follows:
vi.
vii.
FSC process
Subpostmaster produces a cheque listing report from Horizon (which shows the
value of each cheque accepted that day).
Subpostmaster verifies that the cheques held in the till match (volume and
value) against the cheque listing report.
The total cheque value is then marked on Horizon as being remitted to POL
(known as "remmed out").
iv. A further cheque listing report is then produced. This will show the cheques
being remmed out as a negative value and the report will now total zero.
The cheque listing report is "cut off". The branch cheque stock will now also be
zero.
A Batch Control Voucher (BCV) is manually completed to show number of
cheques, value and despatching branch. The cheques are attached to the
BCV. The cheques are then despatched for processing in the relevant
envelope via Royal Mail to the cheque processor.
Horizon cheque listings and remittance slips are retained in branch.
4. The POLSAP finance system at the FSC is automatically updated each night from
Horizon (for the values of cheques remmed out from branches). The cheque team in
FSC are able to view this data the next day after the transactions and will see the
outward remittances recorded.
5. Similarly an electronic file will be received overnight by FSC from the cheque processor
via an automatic upload into POLSAP which shows the actual cheques received from
each branch. FSC can then compare the values recorded by the branch as
despatched against the values recorded by the cheque processor as received.
6. Approximately 1,000 entries will remain unmatched each day (ie. there is a
discrepancy between the cheques received by the cheque processor and the
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information sent via Horizon by Subpostmasters about cheque remittances) and could
be an indication of missing cheques. Many cases are resolved quickly (ie. late delivery
by Royal Mail or the Subpostmaster missed the collection or forgot to put a cheque in a
pouch). There will be around 100 cases per month where it becomes apparent that a
cheque has actually gone missing.
Investigating lost cheques
7. Itis acknowledged that a cheque loss could occur at the branch, in the Royal Mail
pipeline or at the cheque processor. Post Office's policy is that a branch will only bear
the cost of a lost cheque if the branch has not followed proper procedures. If the root
cause of a lost cheque is unknown or attributed to some other cause outside the
branch, POL will absorb this loss and not pass it on to the Subpostmaster.
8. Inthe vast majority of cases, Post Office either mitigates the loss caused by a lost
cheque or absorbs the loss itself. Only a very small number of missing cheque cases
result in Transaction Corrections being issued to a branch.
9. The process for investigating missing cheques is as follows:
¢ The transaction to which a missing cheque relates is (if possible) identified from
the information input into Horizon by the Subpostmaster.
e Branches will be contacted when the missing cheque case is set up to see if
the cheque can be found in branch or if they are aware of which customer has
presented the cheque which has subsequently gone missing.
e If the branch cannot find the lost cheque, a variety of techniques (depending on
product/information available) is employed to identify the customer and their
address from the transaction data.
¢ The customer is then contacted to request a replacement cheque. If a
replacement cheque is provided then the loss to Post Office is avoided.
e If areplacement cheque is not forthcoming, the relevant client organisation (ie.
the product supplier, say Bank of Ireland, Environment Agency, etc.) is
informed that the payment for that particular transaction has not been received
and the transaction is reversed where possible. By reversing the transaction,
the loss to Post Office is avoided.
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¢ Alternatively, if Post Office is unable to identify the customer details, the
relevant client organisation may be asked to try to contact the customer directly
for payment. By payment being made direct from the customer to the client, the
loss to Post Office is avoided.
e If the transaction related to the missing cheque cannot be identified or if the
transaction is identifiable but payment cannot be recovered from the customer
or the client and the transaction cannot be reversed, Post Office will absorb the
loss of the cheque provided discussions with the branch and review of
transactional data does not reveal a breach of the operational processes.
10. There are two typical scenarios where Subpostmaster has failed to follow operational
processes and will be held liable for missing cheques:
« Cheques have been accepted by the Subpostmaster for a non-cheque
acceptable product (e.g. foreign exchange sales). By accepting payment by
cheque for a non-cheque acceptable product, it may not be possible to link a
missing cheque to a transaction record. If the transaction record cannot be
identified then it may not be possible to identify the customer and/or client.
This then frustrates Post Office's usual loss mitigation steps described above.
e¢ The method of payment has not been correctly recorded on Horizon with
cheque as the MOP and it subsequently proves impossible to associate any
transactions with the missing cheque. Such an instance will typically be
illustrated by branches recording multiple/all transactions through “Fast Cash”
and then introducing a bulk cheque value to Horizon via a “Cash/Cheque
Adjustment” at the end of the day prior to remitting out. Again, this may
frustrate Post Office's usual loss mitigation steps described above.
11. Where a Subpostmaster is held liable for a missing cheque, a transaction correction
will be sent to the branch reversing the remittance of the cheque by the branch. This
will return the value of the "missing" cheque to the branch's cheque stock. If the
branch cannot obtain a replacement cheque from the customer, there will be a cheque
206 shortage at the end of the trading period that the subpostmastersub postmaster will
need to make good.
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Damaged cheques
12. At paragraph 14.3, the Report states that a branch may be liable where a cheque has
been mutilated whilst being processed at the cheque processor. In such a scenario:
. Post Office will try to recover the payment using the means described above in
relation to missing cheques.
. If this is not possible, then Post Office bears the loss caused by the damage to
the cheque.
. No transaction correction is ever issued to a branch due a customer cheque
being damaged at FSC.
13. Damaged cheques will therefore never be the cause of a loss to a branch unless there
has been a breach of operational procedures, such as when payment by cheque is
207 taken despite it not being a permitted method of payment for some products (egeag
the purchase of foreign currency).
Bounced cheques
14. Paragraph 14.4 makes reference to specific complaints by Applicants (rather than it
being a common theme amongst Applicants) that they were liable for cheques that
bounced. As described above, the branch accounts treat cheques like a stock item.
So long as the branch accurately records the receipt of cheques from customers and
the remittance of cheques to Post Office, then the branch is not concerned with the
banking of any cheques. The banking of cheques and recovery of payment from
customer's bank is conducted by FSC. Post Office absorbs the credit risk posed by
accepting payment by cheque and should a cheque bounce, Post Office will absorb
the resulting loss.
15. The only exception to this rule is where the branch has failed to follow operational
procedures. This may have included not completing the details in accordance with a
cheque guarantee card (until these ceased in 2011) or taking payment for a product
where payment by cheque is not permitted.
Transaction corrections for missing or bounced cheques
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16. Paragraph 14.5 makes reference to Applicants not being able to mitigate their losses
as the transaction correction for a missing or bounced has been sent to them too long
after they accepted the cheque. Transaction corrections may be delayed on occasions
but this is not necessarily the fault of Post Office. In some instances Post Office is
208 dependeant on a response from a third party (such as the customer's bank) before the
transaction correction can be issued. This may have resulted in some delay but, as
stated above, if the correct process is followed then Subpostmasters will not be liable
for any lost or bounced cheques.
17. Typically, however if there is an issue with a cheque this issue will be raised through
209 otherver channels with the branch. In most cases, the branch will be aware of the
issue long before the transaction correction is submitted.
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Post Office's response to section 15 — Pensions and Allowances
18. Section 15 of the Report concerns the risk of fraud taking place in relation to Pensions
and Allowances (P&A) transactions. In particulas-Second Sightis-
csencernedtheparticular the Report states that subpostmasterssub postmasters could
be innocent victims of this type of fraud but still liable for the resulting losses in their
branches.
19. For the reasons set out below, P&A fraud by branch staff can be is easily detected by
a subpestmastersub postmaster before any loss occurs so long as he/she is carrying
out proper end of day checks on P&A transactions. Subpostmasters are therefore
liable for any losses in their branch caused by P&A fraud as this loss arises due to
their failure to conduct adequate checks.
Benefit payment methods
20. There are various methods by which benefits can be received by customers:
P&A books
21.P&A books were provided by the Department of Work and Pensions (DWP) to
customers entitled to benefits. A nominated Post Office branch was set out on the
cover of each P&A book, together with the customer's name and address. Within each
book were (usually) 20 dockets, vouchers or foils (referred to in this note as vouchers)
stating FAD code of the nominated Post Office branch, voucher number and amount to
be paid. The vouchers were presented to the branch staff, processed through Horizon
and then cash paid to the customer. The vouchers were despatched each week by
each branch to the Paid Order Unit (which in effect is the DWP) in Lisahally, Northern
Ireland.
22. P&A books ceased to be used in circa 2005 and were replaced with Post Office Card
Account.
Post Office Card Account (POCA)
23. POCA is a limited service bank account that only allows benefits to be deposited into
the account by DWP and cash to be withdrawn. Withdrawals are conducted by the
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customer taking his POCA card into a Post Office and withdrawing in cash either some
or all of the benefits within his account.
Green Giros
24. Customers who lose their POCA cards or customers who are on temporary benefits
may be sent Green Giros by the DWP.
25. These are cheques (also known as DWP cheques) which set out the payment amount
216 and can be cashed in the usual way. These cheques are datestampeddate stamped
and retained by the Post Office after paying the customer. They have historically been
accounted for and despatched by each branch weekly to Alliance & Leicester. They
are now sent to Santander (both banks are referred to in this note as Santander for
ease of reference).
P&A fraud
26. P&A fraud encompasses a number of different types of fraud, some of which are
historical due to the change in payment methods over time.
Overclaim fraud
27. For each benefit payment to a customer recorded on Horizon, the branch should take
from the customer the associated P&A voucher or cheque and remit each week all
vouchers to the DWP and all Green Giro cheques to Santander. An overclaim occurs
when the branch records a benefit payment on Horizon but does not remit the
associated voucher or cheque. Without the voucher / cheque POL cannot recover the
payment from DWP / Santander. This places a loss on POL which is then passed to
the branch by way of a Transaction Correction (formerly known as an error notice, but
referred to in this note as a Transaction Correction for ease of reference).
28. Overclaims are relatively easy to identify as the branch must record the remittance of
vouchers or cheques out of the branch on Horizon and therefore it is possible to
identify any missing weekly remittance.
29. A fraud can be committed by recording fake benefit pay-outs on Horizon, which lowers
the amount of cash recorded to be in the branch (as Horizon assumes the cash has
been passed to the customer). This causes a short term surplus (until the missing
voucher / cheque is discovered and a Transaction Correction sent through) which can
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be used to cover other losses or removed from the branch at the end of trading period
(assuming that there are no other offsetting losses).
Reintroduction fraud
30. Reintroduction fraud is a more sophisticated version of overclaim fraud whereby the
false benefit pay-outs are disguised by the submission of duplicate paperwork.
31. In reintroduction fraud, a legitimate benefit pay-out is recorded on Horizon with cash
being paid to a customer but with the corresponding voucher / cheque not being
217 datestampeddate stamped or remitted out to DWP / Santander. At a later date
(typically the following week), the same benefit pay-out is recorded again on Horizon.
This time however no cash is paid to a customer (as the customer is not present) but
the previous voucher / cheque is date-stamped at the later date and remitted to DWP /
Santander.
32. For example, in week 1 there would appear to be an overclaim (amount claimed but no
corresponding voucher or cheque). The amount would be claimed again in week 2 by
218 submitting the cheque or voucher from week 1 (by this time datestampeddate_
stamped). The fraud is premised on DWP / Santander not spotting the reintroduced
voucher / cheque. However, in practice, each voucher / cheque has a unique
reference number which allows duplicate paperwork to be identified.
33. Each of these frauds has taken place both before the introduction of Horizon and once
Horizon was in operation in Post Office branches. This is not a Horizon related issue.
Itis also largely an historic issue as most benefit payments are now through POCAs
(which are not susceptible to the above frauds) although some Green Giro Cheques
are still processed in branches.
Fraud prevention in branch
34. It should be noted that "overclaims" and “reintroductions" will not cause a loss to a
branch. They generate a cash surplus, which as long as the cash had not been
removed from the branch, will off-set any later transaction correction.
219 35. It was historically and remains open to a subpostmastersub postmaster to carry out
220 immediate checks for P&A fraud as a subpostmastersub postmaster will have access
to (i) each week's batch of cheques/vouchers and (ii) that week's records of P&A
transactions as recorded in Horizon. It is therefore possible for a Subpostmaster to
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easily confirm that the value of the cheques and vouchers being remitted each week
match the value of benefit pay-outs recorded on Horizon. This would reveal any
overclaims or reintroductions.
36. For this reason, Post Office does not consider that a Subpostmaster could be the
innocent victim of P&A fraud. Although they may not have committed the fraud, they
are easily able to prevent it. If a subpostmastersub postmaster does not follow the
proper process for remitting out P&A documents, and thereby fails to stop any
overclaims or reintroductions at source, they are liable for any resulting losses.
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Post Office's response to section 16 — Surpluses
Section 16 of the Report considers Post Office's approach towards the surpluses that
may be generated within branch.
As stated at paragraph 16.1, the contract between Post Office and Subpostmasters
allows surpluses to be withdrawn provided that any subsequent charge is made good
immediately. This means that Subpostmasters may retain surpluses that may be
generated. The report confirms, correctly, that Post Office views both surpluses and
deficits as discrepancies. However, the Report makes the incorrect conclusion that
Post Office are not as concerned with discrepancies as they are with deficits.
. Whenever Post Office discovers a discrepancy that can be attributed to an error in
branch, whether it is a surplus or a deficit, it will generate a Transaction Correction to
correct the branch's accounts.
. Where discrepancies occur in branch (say at the end of a trading period where there is
a shortage or a surplus of stock or cash), it is for the Subpostmaster to dispute the
discrepancy. This is done by contacting the NBSC. Unsurprisingly, Subpostmasters
challenge shortages more frequently than surpluses. As a result of there being more
challenges to deficit discrepancies (and debit transaction corrections) Post Office
spends more time investigating deficits.
. The system processes six million transactions every working day. Post Office only
investigates a discrepancy in branch if the Subpostmaster requests assistance — it
does not investigate every minor discrepancy identified in a branch's accounts:
o First, most discrepancies are fairly small and so do not warrant a full
investigation unless the Subpostmaster raises an issue.
king-day-i tigating-alithe-sh I di i Id
gay; gating P
k tigating th HH kable- ‘dlySecondly, where a
discrepancy arises in branch (ie. the cash on hand does not match the
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cash figure on Horizon) an investigation will require close involvement of
238 the subpostmastersub postmaster and their staff as only they will know
how the branch has transacted its business. It would therefore not be
fair to a Subpostmaster to force them to investigate every discrepancy
with Post Office as they may not have time to do this.
6. The Report's conclusion that Post Office is not concerned with surpluses is therefore
not correct. In any event, it is noted that this topic does not give rise to any thematic
issue that indicates the Post Office is liable for losses caused in branches.
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Post Office's response to section 17 — Cash withdrawals accidentally processed as
deposits and other counter-errors that benefit customers at the expense of the
Subpostmaster
1. Section 17 of the Report considers occasions when customers may benefit from
certain errors in branch to the detriment of Subpostmasters. This section does not give
rise to any thematic issue but rather appears to raise a series of discrete points.
2. Paragraph 17.1 of the Report highlights that mistakes can occur when a counter clerk
presses the "Deposit" icon rather than the adjacent "withdrawal" icon. This error by a
239 subpostmastersub postmaster or their staff would have the effect of doubling the size
of the error (as the branch will record the receipt of money into the branch in the
accounts which increases the recorded cash position but will have also handed over
cash to the customer thereby lowering the amount of cash in the branch).
3. Post Office agrees that this error may occur but that this would be an error within the
branch, not a systematic problem with Horizon. In these circumstances the
Subpostmaster would be liable for the error and any loss that has been created in
240 accordance with section 12, clause 12 of the subpostmastersub postmaster contract.
4. Paragraphs 17.2 and 17.3 are a repetition of the issue raised in section 19 — to which
see Post Office's comments on that section.
5. Paragraphs 17.4 — 17.8 are a repetition of the issue raised at paragraph 10.1 — to
which see Post Office's comments on that section.
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241 Post Office's response to section 18 — Error and fraud repellency [is this a word?]
1. Section 18 of the Report considers whether Horizon is sufficiently error and fraud
repellent. It raises 4 issues under this heading:
a) Has Post Office sufficiently upgraded and developed Horizon over time?
b) Does Horizon accurately record transactions processed in branches?
Cc) Is Horizon resistant to power and telecommunications failures?
d) Should Horizon work for every single user no matter their competence?
Developing Horizon
242 2. Second Sightis-of the-viewThe Report states that Post Office has not sufficiently
upgraded and developed Horizon over the years so that there is a situation where
“errors and fraud that could possibly have been designed out of the system" did not
happen. As a result, the Report alleges that Subpostmasters have been liable for
losses that could have been avoided.
3. This conclusion is unsupported by any evidence and is incorrect.
243 4. The Report has undertaken no analysis of the development of Horizon over the years:
244 It is therefere-unclear on what basis the Report considers Horizon to be under-
developed when there has been no consideration of Post Office's processes for
reviewing and improving Horizon or of the upgrades that have been implemented.
5. The Report references a single example to support its opinion:
"18.4. A good example is an issue that has been raised by Applicants in regard to
Giro transactions. This relates to Horizon operating in Recovery Mode, for
example following power or telecommunications failures that resulted in the
branch terminals freezing. In these situations the system goes through a
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complete reboot, then, when it has finally rebooted, a message appears on
screen asking "do you need to recover any Giro transactions?".”
18.5. A few Applicants have reported, when faced with that question, they usually did
not have sufficient information to know whether or not the system needed to
recover any Giro transactions. If they responded in the affirmative, the system
asked for the details of the Giro transactions that needed to be recovered. As
the user did not have the relevant details to hand (and could not access the
data as Horizon was still completing its reboot process), they were forced into
responding in the negative and hoping that was the correct response. This
often resulted in the ‘wrong’ answer being entered and transaction errors being
generated."
6. Itis noted that this example does not include any suggestion as to the improvement or
upgrade that could have been implemented by Post Office to alleviate the above
alleged issue. This example does not therefore support Second-Sigh#the conclusion.
7. Post Office in fact has a number of processes in place for regularly reviewing and
improving Horizon. These include:
a. Incident and Problem Management processes. Both of these processes
ensure that where a branch reports an issue it is investigated and resolved.
Where several instances of the same issue occur, then a problem record is
created and the root cause of the issue is identified and fixed (ie to avoid
further instances). The resolution of problems can sometimes be minor
amendments to processes or can result in a change to the software code via
the next release.
b. Operational reviews with Fujitsu. These take place on a monthly basis across
a number of different specialist teams in both Post Office and Fujitsu. The
purpose is to monitor and review past performance, addressing any issues as
required, and to prepare for known changes or upcoming events.
c. Operational reviews with the NFSP. These have been in place for over 10
years and have operated on either a monthly or quarterly basis across this
period. It has involved the NFSP Executives meeting with senior
representatives from Post Office's IT Service, Network and FSC teams. A
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249
250
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number of operational issues are raised via these meetings and actions taken
to resolve and improve either Horizon (the system) or associated processes.
Other systems are also discussed as and when relevant ege.g. ATM's.
d. Continuous Service Improvement. This is a standard process that Post
Office's IT Services operates with all of its suppliers. Post Office considers that
Fujitsu are particularly good in this area and have over a number of years
developed and introduced a number of improvements. This has included
Fujitsu, by their own initiative, providing additional funds to be used by the Post
Office for improvements to Horizon. Fujitsu were not contractually obliged to do
this. The approach agreed with Fujitsu was to use NFSP's input to drive the
improvement initiatives. Through this process and the tri-party working,
including NFSP members active involvement in conducting demonstrations and
tests, resulted in improvements directly driven by the NFSP and funded by
Fujitsu.
8. Ultimately, the Report appears to agree with Post Office's position in that it states at
paragraph 18.8 that "a number of enhancements have been made to Horizon following
experience and feedback". Whilst specific examples are not provided as evidence,
this shows that Post Office is engaged in evolving its systems to improve user
experience.
Accuracy of capturing transactions
9. At paragraph 18.9 Second-Sightthe Report state that, in their opinion, for Horizon to be
"fit for purpose" for all users it needs to record and process a wide range of products
and services offered by Post Office and enable SubpostmastersSub postmasters to
investigate any cause of issues that may arise. --ReyThe Report concludes that from
the cases they have-reviewed, although no specific examples are provided, that
although the core software of the system works it may not provide an ideal user
experience for less IT literate users.
10. This conclusion is incorrect and unsupported by evidence.
11. Horizon is capable of capturing all information and processing all transactions if used
properly. No system errors have been highlighted in the Report. Further, no examples
or explanations are provided to suggest that Horizon, if operated in accordance with
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254,255, 10. standard operating procedure, would not achieve thise purpose-purposeset by Second-
Sight.
12. In fact, of the cases that have been fully reviewed so far, not one has presented any
evidence whatsoever that Horizon did not accurately record the transactions processed
by Applicants or their staff.
13. Horizon is designed to ensure the accuracy of transaction data submitted from
branches. Safeguards are in place to ensure that no transactions are lost, altered or
improperly added to a branch's accounts:
. Encryption. Transmission of transaction data between Horizon terminals and
the Post Office data centre is encrypted.
. Net to Nil. Baskets’ must net to nil before transmission. This means that the
total value of the basket is nil and therefore the correct amount of payments,
goods and services has been transacted — as the value of goods and service
should always balance with the payment (whether to or from the customer).
Baskets that do not net to nil will be rejected by the Horizon terminal before
transmission to the Post Office data centre.
. No partial baskets. Baskets of transactions are either recorded in full or
discarded in full — no partial baskets can be recorded
. No missing baskets. All baskets are given sequential numbers (called "Journal
Sequence Numbers" or JSNs) when sent from a Horizon terminal. This allows
Horizon to run a check for missing baskets by looking for missing JSNs (which
triggers a recovery process) or additional baskets that would cause duplicate
numbers (which would trigger an exception error report to Post Office / Fujitsu).
. Secure data store. Transaction data is stored on a secure audit server. All
transaction data is digitally sealed — these seals would show evidence of
tampering if anyone, either inadvertently, intentionally or maliciously, tried to
change the data within a sealed record
14. In summary, Post Office remains confident that Horizon accurately records transaction
data and the Report presents no evidence to change this conclusion.
° See paragraph XX of the Part One Briefing for an explanation of "baskets".
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Power and telecommunications failures
15. Paragraph 18.10 says that for Horizon to be effective, the system must be able to
operate in areas where power and telecommunications reliability is a problem. It is
noted that the Report does not offer a view on whether Horizon achieves this standard.
16. For clarity, Post Office maintains that Horizon is capable of handling power and
telecommunications problems.
17.In Post Office branches, Subpostmasters are responsible for power supplies and the
cabled telecommunications line (see paragraph XX in the Part One Briefing Report).
Interruptions in power supplies and telecommunication lines are a risk faced by all IT
systems. There are however recovery systems built into Horizon to prevent losses
occurring where there is a power or telecommunication failure. The following is a
description of the recovery process:
a. Following a failure to contact the Data Centre and complete the transaction, the
system would automatically carry out a retry and attempt to save the basket to
the Data Centre again.
b. Following the failure of the second attempt, a message displays to the User
informing them that there was a failure to contact the Data Centre and asking
them if they wish to Retry or Cancel. It is recommended that Users only "Retry"
a maximum of twice.
c. When the User selects "Cancel" this results in a Forced Log Out. This means:
i. Horizon would cancel those transactions that could be cancelled.
ii. Horizon would then have printed out 3 copies of the Disconnected
Session Receipt (one for Customer, one for Branch records and one to
attach to the till to aid with recovery).
iii. The receipt would show transactions that are either recoverable
or cancellable. Those products considered recoverable must be settled
with the customer in accordance with the Disconnection Receipt.
iv. If a transaction is cancellable then stock should be retained by
the branch.
v.Horizon would then have logged out and disconnected.
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d. The Subpostmaster should then make sure that, in accordance with the
Disconnect Receipt, the Customer is provided with any funds due to the
returned to them in accordance with the Disconnect Receipt.
e. The system would then display the Log On screen. The User may then attempt
to Log On again.
f. As part of the Log On process, the system checks the identity of the last basket
successfully saved at the Data Centre and compares it with the identity of the
last Basket successfully processed by the counter. If the last basket saved in
the Data Centre has a higher number than that considered to be the last
successful basket processed by the counter, the recovery process at the
Counter would then repeat the process that the counter had carried out at the
point of failure.
g. A Recovery receipt would have been printed reflecting these transactions. This
should be stored with the failed terminal.
h. A message is displayed to the user confirming that the recovery is complete.
They the return to the Home screen. Depending on the transactions being
conducted at the time, the user may be asked a series of questions to complete
the recovery process.
18. It is noted that in Second Sight's Interim Report last year, it specifically looked into this
recovery process following a telecommunications failure. Second Sight found that the
recovery process worked but questioned the speed of the response from Horizon. As
far as Post Office is aware, this conclusion is still valid and has not been revoked by
Second Sight.
257, 25
19. Second-Sightthe Part Two Report goes-en-to-states that there arey have-+reviewed-
cases where errors are more likely to occur when unusual sets of circumstances and
behaviour are present. It is not clear what these circumstances or, in particular, the
behaviour is and so Post Office cannot comment on this line of enquiry.
Fitness for all users
20. At paragraph 18.11, the Report notes that there are some people who are unsuited
from the outset to using a computerised branch. It is not understood how this relates
to the question of whether Horizon is fit for purpose.
21. Horizon is operated by thousands of Subpostmasters, the majority of whom have not
had any issue with the system or the effectiveness of it. Whilst a small number may
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find the operation of the system difficult, this does not make Horizon not fit for purpose.
The subjective experience of a few people is not evidence that an IT system is
objectively not fit for purpose.
22. For this assessment to be carried out the Report would need to identify some form of
industry benchmark against which to judge Horizon. This exercise has not been
undertaken and so the Report's findings are entirely unsupported by evidence or any
expert analysis.
23. Post Office maintains that the fact that the over XX Subpostmasters have used
Horizon since its inception and only 150 have raised a complaint to the Scheme
shows that it is fit for purpose.
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Post Office's response to section 19 — One-sided transactions
262, 263 1. Section 19 of the Report comments on what Secerd-Sight hasit callsed "one-sided
264 transactions". These are transactions that Secerd-Sightsaythe Report states have
not fully completed all the constituent parts of the transaction. This is either because
there has been a charge to the customer for goods or services but they do not receive
the goods/service. Alternatively, a transaction is processed but the customer's bank
account is not charged for the purchase.
2. The Report speculates that these situations could, somehow, give rise to a loss to a
Subpostmaster despite the lack of evidence.
265 3. Post Office has asked Second Sightte-providefor more details on this alleged
266 scenario. tnreply Second Sight has net been -abletoThus far Post Office has not
267 been provided with identify any general issue with Horizon or Post Office's processes
that could rise to the above scenario in a manner that would affect a wide number of
Subpostmasters generally.
4. Instead, Second Sight has provided Post Office with two examples from two Applicant's
CQRs that show the above pattern of events. Post Office has thoroughly investigated
both cases and proven definitively that Horizon's standard processes, which comply with
268 standard banking practices, meant there was no loss to either branch. More-detailed-
hich. " ted-h
lanati hi b ided-directto-S
p
P PA
Safeguards
5. The Report suggests at paragraph 19.2 that one cause for a "one sided transaction" is
due to a telecommunications failure. Post Office accepts that telecommunications
issues can give rise to "one-sided transactions". This is an inevitable risk of
transacting business across the internet and affects all retailers and banks. Also like
269, 271 all retailers and banks, Horizon has redundancy recoveryprocessesrecovery processes
in place to rectify any errors. These safeguards are specific to particular products so it
is not possible to explain them all in one document.
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6. Communication failures can have two broad impacts. The main impact would be the
type of interruption that is addressed by recovery prompts that are referred to at
paragraph XX above.
7. The other impact (which would affect the customer, not the Subpostmaster) would be
where a debit card payment was interrupted after the bank had ring-fenced the
customer funds for the payment but before the counter confirmed that the transaction
was complete. This can lead to a situation where, although there is no issue for the
branch accounts;, but the customer is no longer able to draw down on funds in their
bank account because they remain ring-fenced for the original attempted transaction.
Banks have routine processes to clear down ring-fences within a couple of days or on
an accelerated basis by specific enquiry. This would not affect branch accounts but
could of course lead to customer complaints to their banks.
No risk to branches
8. From a branch's perspective no discrepancy will arise from a one-sided transaction as
the branch accounts are based on the information received by Horizon and not on the
information held by a third party client.
9. Ifa transaction is recorded as completed on Horizon, then the accounts will also have
recorded a corresponding payment from the customer or the handing over of cash or
stock to the customer.
10. If Horizon records the transaction as failed, then the transaction will not complete on
Horizon and no payment, to or from the customer, will be recorded. Likewise, as
Horizon records the transaction as failed, the branch staff should not hand over any
cash or stock to a customer.
11. Regardless of whether the client's IT systems record a completed transaction or not,
the effect of the above is that the branch accounts will be in balance. The fact that
there may be a discrepancy between Horizon and the third party client's records does
not, as described above, change the branch's accounting position.
Branch awareness of this issue
12. At paragraphs 19.3 — 19.6 the Report states that the only way Second Sight believes a
one-sided transaction would be discovered is if the customer was to notify the branch.
The Report goes on to suggest that where the customer has benefited from the
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Report - Part 2 ("Report")
Final Draft
transaction (ie they have received goods which they did not pay for) they would not be
aware or would not say anything. Therefore the Subpostmaster would only be aware
of the error if the customer disclosed it.
13. For the reasons stated above, this view is incorrect and, in any event, irrelevant as a
branch will never be liable for an error caused by a "one sided transaction".
Conclusion
14. In summary, whilst the Report has yet to prove that this is a thematic issue of general
application, Post Office has demonstrated that a "one-sided transaction" cannot give
rise to a loss to Subpostmasters.
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Final Draft
Post Office's response to section 20 — Hardware issues
1. Section 20 of the Report makes some general comments and observations about
275, 276 Horizon and other associated ether-branch hardware. However, the Report does not
present any evidence to support its speculations nor does it clearly identify any issues
that may be common to many Applicants within the Scheme.
2. Post Office accepts that hardware problems can arise and that equipment is replaced
from time to time. However, this is a very dependent on the circumstances of an
individual case and does not give rise to a thematic issue.
3. Paragraph 20.1 of the Report highlights that some equipment is more than 10 years
old. Whilst this may be correct, there is nothing to show that the age of the equipment
is a cause of any losses.
277 4. At paragraph 20.2 Second-Sightsaythe Report states that there is little routine
hardware maintenance. This is correct but equipment is replaced as and when
needed.
5. Paragraph 20.3 states that many Applicants believe that faulty equipment could be
responsible for the losses suffered. This is not correct and no evidence has been put
forward to support this view.
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Post Office's response to section 21 — Post Office Audit Procedures
1. The Report says at paragraph 21.1 that Applicants were not provided with copies of
audit reports, although it does acknowledge, at paragraph 21.2, that Post Office's
current practice is to provide each Subpostmaster with a copy of any audit report.
2. In response Post Office says that the practice of providing a copy of the audit report
has always been in place. CAN WE SAY THAT THIS POLICY HAS ALWAYS BEEN
IN PLACE??
3. Post Office is not aware of Applicants not being provided with copies of audit reports
when requested however it is accepted that this may happen in individual cases.
Nevertheless, the lack of access to an audit report is not a cause of losses in a branch
and would not exonerate a Subpostmaster from his contractual responsibility to make
good loses caused in his/her branch that were revealed by an audit.
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Post Office's response to section 22 — Post Office Investigations
Paragraphs 22.1 to 22.8 of the Report provide Second Sight's opinion on the process
that is undertaken by Post Office when it investigates criminal activity in branches.
This topic is outside the scope of the Scheme (which is to consider "Horizon and
associated issues") and is also outside the scope of Second Sight's expertise. Second
Sight, as forensic accountants and not criminal lawyers, are not qualified to comment
on Post Office's prosecution processes-and-any-epinion they offeris-oHitte value.
. This is highlighted by the factthat Second Sight saystatement that the focus of Post
Office investigators is to secure an admission of false accounting and not to consider
the root cause of any losses. It should be noted that by falsifying the accounts
(whether through the inflation of cash in hand or otherwise) subpostmasterssub _
postmasters or their assistants prevent Post Office from being able to identify the
transactions that may have caused discrepancies and losses. The first step in
identifying a genuine error is to determine the day's on which the cash position in the
accounts is different from the cash on hand. Where the cash on hand figure has been
falsely stated, this is not possible.
. The false accounting therefore hides any genuine errors from Post Office and the
subpestmastersub postmaster. It hides it at the time the losses occur and it remains
the case now that Post Office is not able to identify which transactions may have
caused the losses. Secend-Sights-viewThe Report is therefore entirely incorrect-
hich-reflects_the fact that this i in-which itis not qualified to-comment.
Given that this is topic on which Second Sight can offer no expert opinion, Post Office
is refraining from commenting further save to confirm that it rejects all the Report's
findings in this section.
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