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Complaint Review and Mediation Scheme
A paper prepared by Post Office to assist Second Sight with the finalisation of their Briefing Report— Part Two
Version two
This paper and accompanying documents are confidential and are not to be disclosed to any person other than
a person involved in the processing of Applicants’ claims through the Scheme
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Introduction ...
Transaction anomalies associated with CASH or STOCK Remittances ....
Transaction anomalies associated with Pensions and Allowances.......
Transaction anomalies following telecommunication or power failures...
Transaction anomalies associated with ATMs.
Transaction anomalies associated with Foreign Currency.
Transaction anomalies associated with Bank / GIRO / Cheques.
1.
2.
3.
4.
5. Transaction anomalies associated with Lottery Terminal or Scratchcards
6.
7.
8. Transaction anomalies associated with Stamps, Postage Labels, Phone Cards or Premium Bonds
9.
Hardware issues e.g. printer problems, PIN pads, touch screens and PayStation...
10. Failure to follow correct procedures or mis-advice by POL's Helpline...
11. Training and Support issues including Helpline and Audit
12. The contract between the Post Office and Subpostmasters ....
13. Post Office Investigations Function .
14. Surpluses..
15. Suspense Accounts...
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Introduction
As part of the Initial Complaint Review and Mediation Scheme (the Scheme), Second Sight is engaged as afirm
of forensic accountants to provide a logical and fully evidenced opinion on the merits of each Applicant's case.
On 21 August 2014, Second Sight's Briefing Report— Part Two (the Report) was sent as a confidential
document to a number of Applicants and their advisors, as well as to Post Office. The purpose of the Report
was to describe and expand on common issues identified by Second Sight as being raised by multiple
Applicants (a thematic issue). The aim being to provide general information that could then be applied in
specific cases.
Post Office has been unable to endorse the Report. It wrote to recipients of the Report immediately after its
release setting out its reasons for this, and prepared a Reply which was released on 22 September 2014,
detailing its position on the issues raised within the Report.
Further, within Second Sight’s Briefing Report— Part Two, several issues were said to require further
investigation. With a view to moving the Briefing Report — Part Two to finalisation, the Secretariat offered to
assist Second Sight in resolving these matters.
The following paper is written to aid this process, detailing the additional questions posed by Second Sight and
the answers provided by Post Office.
Post Office was provided with the questions on 9 December2014 and committed to provide answers to the
questions posed before a meeting with Second Sight on 9 January 2015. In line with the short timetable, Post
Office's approach was to identify a subject matter expert within its organisation to, where possible and
proportionate, answer each question. Post Office was not therefore able to comprehensively search for
information nor canvass views on each question from all parts of its business. The answers provided in version
one represented the best information possible given the limited time availablebut should not have been
considered exhaustive.
Note on Version two
Version one of these answers was provided to Second Sight on 7 January 2015 and subsequently discussed at a
meeting between Post Office and Second Sight on 9 January 2015.
At this meeting and the face to face Working Group meeting on 14 January 2015, Second Sight arified its
position on a number of the questions. This has allowed Post Office to provide additional answers and
information to those included in version one. These are included in version two.
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1, Transaction anomalies associated with CASH or STOCK Remittances (including counterfeit notes)
Post Office is aware that there is an issue of counterfeit notes being circulated within theUK economy in
general. This is an issue that affects all businesses and Post Office has in place various policies and procedures
in order to detect counterfeit notes and prevent them being circulated within the Post Office’s network of
branches.
The large majority of costs / losses associated with counterfeit notes are claimed from other parties
(e.g. clients, cash suppliers, etc.) with Post Office branches being held liable for a very small number;
Where responsibility for allowing counterfeit notes to enter the Post Office network cannot be
established, Post Office absorbs the loss itself.
The process used in Post Office can be summarised as follows:
1.1.
Once a counterfeit note is identified by Post Office, it is verified by a second person.
Post Office then determines responsibility for allowing the counterfeit note into the networkbased
on the information included on the Plastic Bank Note Envelope(PBNE), an envelope used to seal the
cash as it is moved around the network;
If a branch is found to have not followed correct procedures, it may be held liable for the loss created
by taking a counterfeit note.
Please provide full details of the following:
a) All procedures and controls in place to detect and prevent damaged or counterfeit notes being
issued to branches as REMs;
The Post Office’s Cash Centre is responsible for issuing remittances of cash to branches.
There are four key elements within the Cash Centre that ensurethe integrity of notes it sends
out to branches:
* Use of High speed note counting machines. Each note is checked for all possible
characteristics and any notes that fail to meet the required standard are rejected,
either because they fail to meet the Bank of England’s note quality standard or
because they are counterfeit.
* Daily calibration. Each note counter (there are 7 in use nationwide) are calibrated daily
using a standard pack (a test bundle of mixed quality notes) by specialist onsite
engineers. This check ensures that the counters will identify counterfeits and
non-standard Bank of England notes and that they are removed from circulation. The
calibration check exceeds the standard set out by the Bank of England and is subject to
regular audit by the Bank.
© The Note Circulation Scheme (NCS). Under the NCS, the Bank of England does not
distribute banknotes and instead, wholesale cash operators, including Post Office, sort
and distribute notes. Under the NCS, all notes Post Office put into circulation must be
integrity checked.
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b)
c)
e)
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All procedures and controls in place to detect damaged or counterfeit notes in outward REMs
sent from a branch to a cash centre;
There are comprehensive guidelines included within the Methods of Payments section on
Horizon Online Help. Please refer to Annex 1 for further information.
All procedures and controls in place that prevent notes included in an outward REM from a
branch being sent to another branch as an inward REM without being counted or checked for
damaged or counterfeit notes;
All inward remittances from Post Office branches are opened in the Cash Centre before being
sent out through the cash cycle againi.e. the notes are checked before being remitted out to.
branches as per above. There is no process for cash to be sent from branch to branch.
All procedures and controls used to ensure that notesissued as REMS for use in ATMs meet the
relevant quality standards;
All cash that leaves the Cash Centre for ATM use is checked to ensure it is counterfeit free and
is fit for ATM dispense in line with the Bank of England’s note standards. Please refer to the
answer provided in 1.1a for further information.
All procedures and controls used in branch to detect counterfeit notes;
There are comprehensive guidelines included within the Methods of Payments section on
Horizon Online Help. Please refer to Annex 1 for further information.
The procedures to be followed in branch when a Subpostmaster detects counterfeit notes; and
There are comprehensive guidelines included within the Methods of Payments section on
Horizon Online Help, with seven different scenarios covered. Please refer to Annex 1 for
further information.
The seven scenarios covered are as follows:
* Identifying counterfeit banknotes
Treatment of counterfeit banknotes,
© Remitting counterfeit banknotes
* Counterfeit notes found loose in official cash;
* Counterfeit notes returned by acustomer;
* Counterfeit notes impounded when presented by customers for atransaction;
* Counterfeit notes found in a deposit prepared by an Alliance & Leicester (now
Santander) business depositor.
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Who bears the loss associated with accepting counterfeit notes?
There are detailed procedures documented on Horizon Help to assist the branch in dealing
appropriately with counterfeit notes. If the branch follows the correct proceduresas detailed
on Horizon Help then the branch is not held liable for any associated loss. Please refer to Annex
1 for further information.
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2. Transaction anomalies associated with Pensions and Allowances
One of the issues raised by a small number of Applicants to the Mediation Scheme relates to alleged
transaction anomalies which, it has been claimed, are connected to Pensions and Allowances (P&A).
Typically, this has revolved around allegations of reintroduction fraud. This fraud involves P&A vouchers
being entered into Horizon twice (known as a “reintroduction”). The fraud occurs where a customer visits
a branch to receive a pension payment. First, the customer provides the staff member at the branch with
a P&A voucher and receives their pension as cash in return. The staff member then enters the voucher
into Horizon in order to account for the cash that has been paid out to the customer. The P&A vouchers
are sent on a weekly basis to the Department of Work and Pensions(DWP). The act of entering the same
P&A vouchers into Horizon twice is called reintroduction. Where this is done in error, it creates a surplus
of cash in the branch. Where reintroductions are frequent and there is no surplus, these are strong
indicators that reintroduction fraud is taking place at the branch.
Post Office has previously provided Second Sight with apaper on P&As. Annex 2 supplements the
responses provided in this section.
2.1. Please provide full details of the following:
a) Data mining or similar techniques used to identify branches which have processed unusual volumes of
P&A vouchers or have processed previously used P&A vouchers i.e. ‘Reintroduction’ fraud;
P&A vouchers are no longer used by Post Office— DWP replaced them with the Post Office Card
Account. The information below is therefore a historic process about which only limited
information is available.
Typically the process may have involved some or all of the following:
«© DWP staff in Lisahally used to conduct rota checks of all P&A submissions.
* If they identified a discrepancy in a pouch they would check the previous month to see
if this identified a pattern. The Date Stamp indicator would often be used as a method
of identifying potential suspects and the method, e.g. overstamping a voucher with a
second date.
© If further discrepancies were found they would then go back as far as possible which
was normally no more than 12 months.
Ateach stage their check would be corroborated and recorded stating who had carried
out the checks and what had been found.
* As this was happening, Post Office (FSC) was advised by the DWP of the discrepancy
and, if it was deemed necessary, an investigation may be begun by Post Office.
* Post Office Security would arrange for the branch P&A submissions to be intercepted
by Royal Mail.
These would be manually checked, recorded and retained by the allocated Security
Manager.
* Any discrepancies would be scheduled and recorded along with any DWP findings in
preparation for attending the branch.
* Anaudit may be arranged at the branch and the P&A foils on hand would be checked
and recorded as live evidence.
© Fujitsu logs may be requested if required to confirm who had made the Horizon entry
for the fraudulent transaction.
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b)
c)
d)
e)
8)
h)
2.2.
All procedures and controls used to detect ‘Reintroduction’ fraud;
See answer 2.1a and Annex 2.
Any cases in the last 3 years where outgoing P&A vouchers have been stolen or lost in transit;
As detailed within Annex 2, P&A vouchers are no longer used. They were replaced by the Post Office
Card Account in circa 2005.
Who bears the loss associated with lost or stolen P&A vouchers?
See Annex 2.
Any cases in the last 3 years where P&A vouchers have been represented at a branch by a
person unconnected with that branch;
As detailed within Annex 2, P&A vouchers are no longer used. They were replaced by the Post Office
Card Account in circa 2005.
Any cases in the last 3 years where forged P&A vouchers have been presented at a branch;
As detailed within Annex 2, P&A vouchers are no longer used. They were replaced by the Post Office
Card Account in circa 2005.
All procedures and controls used to detect forged P&A vouchers;
Please refer to answer 2.1a.
Who bears the loss associated with accepting forged P&A vouchers?
A Post Office branch would only be held liable for a loss associated withP&A vouchers if they had
been negligent, had not followed correct acceptance and processing procedures or acted
fraudulently.
Are branches required to ensure that the value of the cheques and vouchers being remitted each
week matches the value of benefit pay-outs recorded on Horizon?
At the time of P&A vouchers being used for transactions within Post Office branches those branches
would have been required to validate that the amourt they were claiming as being paid out to
customers (as shown on Horizon) matched the value of the P&A vouchers on hand.
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3. Transaction anomalies following telecommunication or power failures
Another issue raised by a number of Applicants to the MediationScheme was that of alleged transaction
anomalies flowing from telecommunication or power failures. Power and telecommunications failures are a
risk to any business as branches and Post Office are reliant on third party suppliers for these services.
Recognising this risk, Horizon was designed with "recovery" processes in place to correct any issues caused by
a power or telecommunications failure. Post Office notes that as yet no evidence has been adduced to show
that either of these events will cause losses in branches where the recovery process has been correctly
followed by branch staff.
3.1, Please provide full details of the following:
a)
b)
c)
d)
Any tests carried out that ensure that Horizon's screebased recovery instructions are visible
to the person looking at the branch terminal when a power failure or telecommunications
failure (or both at the same time) has occurred or is occurring;
The recovery process is shown on the Horizon terminal screen and willtherefore, always be
visible to branch staff.
The information that needs to be entered by the user to complete the screenbased recovery
process;
When the recovery process is carried out, a recovery receipt will always be printed as part of
the next log on after the failure and a recovery event will be recorded in the Horizon Event
Logs.
Depending upon the stage an individual transaction had reached at the time of the failure,
Horizon may ask questions of the Subpostmaster to help decide whether or not that transaction
was complete. Annex 3 — ‘Transaction Recovery — Horizon Online Reference Guide’ — details
the questions asked for the different scenarios.
Any tests carried out that ensure that the backup mobile telecommunications facility works
effectively in all locations and in all circumstarees including busy, multi-position branches;
Branch back up availability is tested once a week on a rolling basis (one seventh of the estate is
tested every night).
Any tests carried out when a branch is upgraded to Horizon Online that confirm that areliable
signal is available for the backup mobile telecommunications facility.
Please refer to the answer 3.1c.
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4. Transaction anomalies associated with ATMs
A number of Applicants to the Scheme have raised complaints in relation to alleged transaction anomalies
connected with ATMs.
Post Office has previously provided Second Sight with papers in response to their questions involving ATMs.
Annexes 4 and 5 supplement the responses provided in this section.
4.1.
4.2.
Please provide full details of any instances in the last 3 years where Post Office, Bank of Ireland or
Wincor Nixdorf detected an attack against a branch ATM using either malware or hardware devices.
Please describe the technical measures in place to prevent or detect this type of attack.
Post Office is not aware of any malware attack on its BOI ATM fleet that has resulted in loss toa
branch. Hypothetically, if a loss of cash from a branch as a result of a malware attack was detected,
that loss would be passed to BO! and not be absorbed by the branch
Details of the technical measures in place to prevent malware attacks havealready been provided to
Second Sight in Post Office's note on ATMs— see Annex 4.
It is not clear which types of "hardware devices" are being considered by Second Sight. If this relates
to cash trapping devices, Post Office has already explained that this type of attack will not cause loss
to a branch —see paragraph 7.4 of Annex 4,
Given the evidence that the Rejected Notes totals, in several ‘Print Totals' output reports by ATMs,
have on occasions become corrupted, on what grounds does Post Office assert that the Dispensed
Notes totals could not also be corrupted, thereby showing that the ATM had dispensed fewer or more
notes than it really had?
The Print Totals receipt is only used for managing the ATM cash levels and to allow the Subpostmaster
to identify when the ATM needs to be reloaded with cash. As per all transactions/inputsthat take
place on an ATM, Print Total details are recorded on the ATM’s Electronic Journal. However, the
information on these receipts is for the local management of the ATM only, is not used as part of
daily/weekly ATM accounting and the data is not used outside of the local management of the ATM.
This is demonstrated by the fact that the Subpostmaster must zero the totals on the Print Totals
receipt when they reload cash into the ATM, which can be done as often as required.
Where some corruption of the rejected notes total occurred there is evidence of erratic and unusual
behaviour by the postmaster in the management of hardware (cassettes) and software (Print Totals;
balancing activities). For example, many activities were repeated multiple times in avery short space
of time. Cassettes were loaded, unloaded, reloaded. Print Total instructions were performed
multiple times, sometimes with different cassettes in or out of the ATM, in the space of minutes, and
then repeated. In these circumstances itis not surprising that the ATM's logical functions may have
been affected. However following the stated operating procedure would allow these totals to be reset
without there being any impact on the cash dispense/balancing of the ATM as it is the Bank Totds
and the ATM Totals receipts that are required to complete the daily and weekly ATM accounting
procedures.
It is the Bank Totals receipt that specifically details the value of cash dispensed by the ATM ona daily
basis. The value of cash dispensed is taken from this receipt and recorded through Horizon. This value
is tied back to the value of cash that has been dispensed through ATMs for each particular day. In
summary, all ATM transactions are confirmed between Bank of Ireland and the Card Schemes, the
vast majority of which are processed via LINK, as having successfully taken place. Any discrepancies
between LINK and Bank of Ireland’s data would be investigated before Post Office would be involved.
The total value of ATM cash dispensed is then settledon the next working day between Bank of
Ireland and Post Office. This total value is checked by Post Office and matched against the individual
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4.3.
4.4,
4.5.
4.6.
ATM dispense records. Therefore any discrepancy in the cash dispense figures would therefore be
identified as part of the settlement process.
It should be noted that in 2011 a full investigation of ATM cash dispensed figuresin relation to M040
was undertaken by Bank of Ireland and Post Office Security. For the month of April 2009 tte daily
cash dispense figures were compared back to the actual settlement to ensure these were aligned. No
discrepancies were found.
In 2012 POL Security also undertook an investigation in relation to M042 that looked into the number
of Rejected notes that were reported on the ATMduring April 2011. Bank of Ireland provided
electronic journal data for the dates in question. While no discrepancies were identified with the daily
cash dispense figures reported by the ATM the exceptional high rejected notes figure appears to have
resulted from the sequence of actions that took place at the ATM. It was determined that resetting
the Print Totals resolved the local issue without any impact on the cash dispense records for the ATM
Is it a Post Office requirement that when an ATM is instaled that the branch immediately creates a
separate stock unit for the ATM? How is this policy monitored and enforced?
Yes. It is stated in the Post Office Accounting Instructions forBank of Ireland ATMs that a separate
ATM stock unit must be created when the ATM is first installed. The ATM accounting instructions then
refer to this separate stock unit throughout, as required.
The use of an ATM stock unit is not monitored separately as it is just one of the mandatory steps to be
followed to properly account for the ATM. Post Office monitors the completion of daily cash
declarations and weekly balances. Where these processes are not being conducted, this is followed
up with the individual branches.
In circumstances where the Bank of Ireland generates incorrect ATM cash dispensed figures for both
the branch's ATM and in the figures supplied directly to Post Office, please describe the controls and
procedures in place to detect and investigate this type of error.
This question has already been addressed through correspondence with Second Sight around
Suspense Accounts. Please see Annex 6.
Please explain why it is necessary for Subpostmasters to manually print and enter onto Horizon, the
contents of the daily ‘16:30 - 16:30 ATM Reports’ when the same information is sent electronically to
the Bank of Ireland and then to Post Office.
It is necessary for Subpostmasters to key the data in because the ATM is not connected to Horizon
and branches need to know the amount of cash dispensed from the ATM in order to prepare the daily
cash declaration.
Please provide full details of the following:
a) Any investigation in the last 3 years in which a technical fault was discovered with the ATM
which produced a shortage when balancing the ATM or a loss on theHorizon ATM stock unit.
How was the associated loss dealt with by Horizon?
Post Office does not collate statistics on the numbers of "technical faults" in the ATMs across
its entire network. It manages issues with ATMs on a case by case basis.
ATM related enquiries can be raised by branches through a number of routes depending on
the circumstances (Contract Managers, Field Support teams, NBSC, FSC, BO! / Wincor, etc.).
Only a fraction of those enquiries would relate to "technical faults"— although it is not entirely
clear what is meant by this phrase. It should be noted that even where there is a "technical
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b)
c)
d)
e)
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fault" this does not mean that cash has been lost or a branch's accounts have been impacted.
For example, there could be a mechanical failure that causes the ATM to not vend cash.
If an issue raised by one branch may have an impact in other branches, this will be escalated
through the appropriate channels. The escalation route depends on the nature of the issue
but this could be through FSC, Post Office's network support teams, Post Office IT or Bank of
Ireland.
As a general proposition, a "technical error" in an ATM cannot directly cause an error in the
Horizon ATM stock unit as the ATM is not directly connected to Horizon. Should however a
"technical fault" occur in an ATM that were to cause a loss to a branch, the branch would not
be held liable for that loss unless the branch had failed to follow the correct ATM accounting
procedures.
Any escalated investigation in the last 3 years relating to unresolved cash discrepancies
involving a branch ATM;
See answer to question 4.6a above.
Any instance in the last 3 years in whichPost Office, Bank of Ireland or Wincor discovered that
any of their authorised engineers or representatives hadstolen cash from any branch ATM;
There is no record of an authorised engineer or representative (excluding Subpostmasters) of
Post Office, Bank of Ireland or Wincor stealing cash from an ATM.
The only incident that Post Office is aware of relates to a Wincor employee in 2013, though at
this juncture it remains only an allegation. No branch in the Scheme was affected by these
alleged incidents.
Any instance in the last 3 years in which Post Office initially determined that a cash loss was
attributed to a Subpostmaster but where it was subsequently found that the Subpostmaster
was not responsible for the loss;
As explained to Second Sight previously, Subpostmasters can challenge any cash loss or
Transaction Correction in their branch in relation to ATMs. In many circumstances the
information needed to determine the cause of a discrepancy is only held by a Subpostmaster.
It is therefore likely that there have been occasions when a Transaction Correction against a
Subpostmaster has been challenged and reversed — in accordance with standard operating
practice.
The guidance issued to Subpostmasters relating to the '16:30- 16:30 Print Totals Reports' in
circumstances where the rear door of the ATM is located in a retail shop or other nonsecure
area. Is the Subpostmaster required to close the retail shop when obtaining the '16:30- 16:30
Print Totals Reports’ in these circumstances? How does Post Office monitor and enforce this
policy?
The Print Totals Report is not required for balancing the ATM and does nc have to be printed
out on a daily basis as it is only required when additional cash needs to be loaded into the ATM.
As detailed in the Bank of Ireland ATM Operator Manual this receipt is used to ensure cash is
correctly loaded into the ATM (i.e. to ensure the correct number of banknotes is placed into the
ATM).
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As the ATM safe/cassettes would need to be accessed at this point, and in accordance with the
guidance included in the ATM Operator, Accounting Instructions and Post Office Security
Manuals, the premises must be closed to the public at this time.
It should be noted that the Bank Totals receipt (24 hour cash dispensed figures for 16.30 to
16.30) needs to be printed on a daily basis to allowthe cash dispensed figures to be entered
into Horizon. As only the rear cabinet door to the ATM has to be opened, and not the ATM safe,
this receipt can be printed while the branch is open to the public.
Security procedures at branches are part of the compliance audits undertaken at branches.
Subpostmasters are asked about the branches security procedures at the compliance audit so
Post Office can verify that the correct processes are being followed.
Any instance in the last 3 years in which Post Office, Bank of Ireland or Wincor became aware of
a customer receiving more cash than they were entitled to from an ATM. Please also provide
full details of how the resultant cash shortfall was dealt with in the branch's ATM/Horizon
balancing process and whether any Subpostmaster was held accountable for losses that were
later found to be attributable mechanical problems with an ATM;
This question has already been addressed in Post Office's paper to Second Sight on ATMs which
explains the processes used to detect, and protect branches from third party fraud.
In relation to the statistical information sought, see the answer to question 4.6a above.
How Post Office detects and deals with incorrect items reported in the ATM '16:30- 16:30 Print
Totals Reports' in circumstances when the incorrect figures have also been reported
electronically to Bank of Ireland. Please also describe the accounting treatment of any loss that
occurs in these circumstances;
Post Office does not consider that ATM reports are unreliable. However, if there were an issue
with the 1630 report, it would be the same data feedingthrough to Bank of Ireland. Therefore,
if the Subpostmaster accurately keyed in the 1630 data (accurately from the report which, it is
being claimed, could be wrong) then the data in Horizon and the data at the Bank would both
be the same (and wrong). In that event, Post Office FSC would not identify any issue as the two
figures agree with each other.
It would be the Subpostmaster that would be in the position to detect theanomaly. This is
because the Subpostmaster is required to do a weekly physical balance of their ATM at
intervals, during which (if the 1630 report were wrong) they wouldfind a difference between
the physical cash in the machine and the cash that the 1630 data indicates should be in it.
The Subpostmaster would then be able to make a call to the helpline as with any other
balancing issue.
There is no unique accounting treatment that would arise in such a situation. Post Office
finance systems would include the 1630 data and any enquiries/disputes about thatdata would
be handled in the same way as any other balancing queries.
Any instance in the last 3 years in which Post Office, Bank of Ireland or Wincor has become
aware of any theft relating to an ATM, that was carried out (or suspected of having been carried
out) by any person other than a Subpostmaster or a branch employee. Please also describe the
accounting treatment of any associated loss.
Please refer to the answer provided to 4.6 c
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5. Transaction anomalies associated with Lottery Terminal or Scratchcards
A number of Applicants to the Mediation Scheme have complained of alleged transaction anomalies
relating to the lottery terminal in their branch or the accounting process for Scratchcards. Post Office has
addressed these issues in detail in its investigation reports and in its response to Second Sight's Part 2
Report.
5.1.
5.2.
5.3.
5.4.
5.5.
Please provide full details of anyinstance in the last 3 years in which any Post Office or Camelot
employee or representative has been found to have stolen Scratchcards or any other Lottery
products/prizes.
There have been no such incidents that Post Office is aware of.
Has Post Office ever issued an instruction that unused Scratchcards must not be collected by Camelot
representatives? Please provide full details of the circumstances that gave rise to any such instruction
being issued.
Post Office procedures for the return of activated and Unactivated Scratchcards is detailed on Horizon
Online Help. The relevant extract is appended at Annex 7.
Further, there are regular Branch Focus updates reminding branches not to give packs to Camelot
Representatives. An example of which isappended at Annex 8.
Is it possible for a Camelot representative to activate packs of un-activated cards without the
knowledge or approval of the Subpostmaster? How would this unauthorised activation be dealt with
on Horizon?
Anyone with access to and knowledge of the Lottery Terminal in a branch (which is often located in
the retail side of the premises) would be able to activate cards. Unactivated packs should, however,
be held securely by the Subpostmaster and the Lottery Terminal would be expected to be subject to a
form of security in branch as it is sited with cash and retail stock. Ultimately, preventing unauthorised
access to the Lottery terminal is a Subpostmaster's responsibility.
If an unauthorised activation were made, it would currentl lead to a Transaction Acknowledgement
(TA) being sent to the branch to “rem” the pack in. Prior to the deployment of TA’s, it would have led
to a Transaction Correction (TC) being sent to the branch, with the same effect of remming the pack
in.
Both of these events (TA or TC) would lead to a message being presented on Horizon to branch staff
requiring formal acceptance by the branch. They could in turn be challenged and more evidence
asked for by the Branch. The TA or TC could be validated against records from the Lottery Terminal.
Is it true that whenever a claim for a prize is made, in respect of at that point an unactivated
Scratchcard; the entire pack from which that card was taken is automatically activated? Please
describe the accounting treatment of any Scratchcards that are activated in this manner.
Yes, The subsequent accounting would be the same as noted above in the response to 5.3
Prior to the changes made to Standard operating Procedures in February 2010, and the subsequent
implementation of ‘Ping! in February 2012, did Post Office find that many branches were making
similar mistakes in regard to processing Scratchcards? Please provide full details of the types of
mistakes that were routinely being made. Please also provide a schedule showing for each month,
how many TCs were issued and of what aggregate value (separating TC Invoices from TC Credits)
during the years 2005 - 2011 in respect of Lottery matters?
In light of the discussions had with Second Sight and clarifications given, Post Office is investigating to
see if it is able to provide the requested information.
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6. Transaction anomalies associated with Foreign Currency
Post Office is not aware that alleged anomalies connected to foreign currency transactions have been
raised by a material number of Applicants to the Mediation Scheme. Second Sight’s questions on this
subject are answered below however this issue may be better addressed on a case by case bass.
6.1. Please provide full details of how the Forde Moneychanger (‘FM’) system operates. Please explain in
detail how FX deals were accounted for and the instructions that were provided to Subpostmasters.
The Forde Moneychanger was used to manage foreign currency transactions and stock in branches
before these functions were carried out on Horizon. Each morning, the branch would receive a fax
with the daily exchange rates on it and a member of staff would enter each rate into the machine
manually. The machines also sent rates to the rate board (which displayed the rates to customers)
and, once this was done, a member of staffchecked the rate board to verify that the rates were
displayed correctly.
All foreign currency transactions were entered individually onto the Forde Moneychanger throughout
the week and the machine used a carbonated till roll to provide the customerwith a receipt and
branches with a copy of all transactions and balances.
Each night a stock report could be run to check the daily totals. Each Wednesday the machine was
balanced and the totals were then transferred by a member of staff onto Horizon where theforeign
exchange stock would be ‘balanced’ again. The figures were ertered onto Horizon as bulk totals;
individual transactions were not entered onto Horizon.
6.2. Also, how does the FM system, and Horizon, account for the difference between a transaction carried
out at a Special FX rate and the expected Normal FX rate? As anexample, if a customer was given
€150,000 in exchange for £100,000, whereas the Normal FX rate would have only given him €145,000,
how did the FM and Horizon systems account for the €5,000 difference? What flexibility was or is
available to Subpostmasters when agreeing to non-standard FX rates?
The Forde Moneychanger machine was a stand-alone piece of equipment used to convert sterling into
currencies bought and sold to customers. Print-outs from the machine detailed the value of
currencies on hand that the user would validate by way of a physical check. The sterling equivalent of
these currencies was then entered into the Horizon system. A revaluation amount was also detailed
on the print out and entered into the Horizon system. Providing the amount of forign currency on
hand matched what the system stated should be there, the branch accounts (specifically the foreign
currency stock unit) would balance as the revaluation figure accounted for the difference in exchange
rates from one accounting period to the next. The actual exchange rate at which currency was sold
was irrelevant as this was accommodated in the revaluation figure. So, by the Applicant selling
currency at a more favourable rate to the customer and processirg this through the Forde
Moneychanger machine (i.e. manually altering the rate on the machine) the stock unit accounts
would still balance.
A special rate for foreign currency transactions over £2,000.00 could be obtained by contacting First
Rate Travel Services by telephone at the time of the transaction. The transaction would then be
processed via the FM machine at the special rate.
6.3. Allegations have been made about unauthorised access to transaction data by staff located at the
Fujitsu office in Bracknell. As previously requested and agreed, please provide the email archives in
PST or NSF format for Post Office staff working in Bracknell during 2008.
In light of the discussions had with Second Sight and clarifications given, Post Office isworking with
Second Sight to provide an appropriate response to this request
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7. Transaction anomalies associated with Bank / GIRO / Cheques
7.1, We are aware that every night, a data file is sent to every bank into which its customers’ have
deposited funds, and from which its customers have withdrawn funds. It is then those banks that bear
the responsibility to reconcile Post Office's record of what has taken place with their own records of
the entries that have been processed each day into their customers’ accounts.
This is a statement with no question to answer
7.2. It follows that each of those banks is expected by Post Office to take action where (for example due to
telecommunications interrupts between a customer's bank and a branch's Horizon system) a
customer's account has not been debited or credited by the bank when Post Office's records show
that it should have been, or where a customer's account has been debited or credited by the bank
when Post Office's records show that it should not have been. The bank would then usually use this
data to correct its errors and remove the additional deposits from the customer's bank.
This is a statement with no question to answer
7.3. Please provide us with a schedule listing all TC’s issued to branches in the last 12 months relating to
this type of adjustment.
In light of the discussions had with Second Sight and clarifications given, Post Office is investigating to
see if it is able to provide the requested information.
7.4, Please provide us with a schedule listing all amounts received back from any bank, in response to that
reconciliation process in the last 12 months, clearly describing the accounting treatment of those
amounts.
In light of the discussions had with Second Sight and clarifications given, Post Office is investigating to
see if it is able to provide the requested information.
7.5. We are aware that in some circumstances a customer may benefit from a duplicated transaction.
Please provide full details for any such instances that have been occurred in the last 3 years and state
whether any Subpostmaster was held accountable (during any period beyond the end of a Trading
Period) and required to make good the resultant shortfall.
As described in Post Office's more detailed paper at Annex 11, this scenario does not give rise to any
loss to a branch.
7.6. We are aware that the November 2008 phasing out of two-part paying-in slips increased the
possibility of error or fraud impacting Subpostmasters. Please state what compensating controls were
implemented as a result of this process change and describe the consultative process that was used
prior to implementation. Please provide details of the anticipated cost savings associated withthis
process change together with the estimates of increased financial risk i.e. the cost benefit analysis
carried out by Post Office.
Issues regarding Girobank deposits that are in scope have already been addressedin the paper at
Annex 9, as previously supplied to Second Sight. As described in that paper, the change from
paying-in slips to "chip and pin" was driven by the client bank and was beyond Post Office's control.
Any cost-benefit analysis would therefore have been undertaken by the client bankand not Post
Office.
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77.
7.8.
7.9.
Please provide us with a schedule showing the monthly volumes (and the aggregate values) of EN/TC
Invoices compared to Credits that were issued to branches, in regard to Giro payments and Girobank
Deposits and Withdrawals, in the years 1999 - 2013.
In light of the discussions had with Second Sight and clarifications given, Post Office is investigating to
see if it is able to provide the requested information.
We note that cheques not covered by a Cheque Guarantee Card were not anacceptable Method of
Payment for certain transactions e.g. the sale of Foreign Currency. Please confirm whether or not
Horizon is programmed to reject unacceptable Methods of Payment in these circumstances. Also, if a
branch has systematically been accepting cheques in amounts that exceed approved limits, is there a
process whereby those repeated errors are detected and corrected?
Horizon can advise on the method of payment, but a clerk can in practice choose to take a cheque
instead of cash, for example, but still record the transaction as cash on Horizon. Horizon is
programmed to indicate the appropriate methods of payment for products. If card payment is not
acceptable then it would not be offered and the card would not be recognised. If cheque is na
acceptable then the cheque payment icon would not appear butPost Office cannot control whether a
branch chooses to ignore that fact and still take a cheque and process at the point of settling the
transaction as a cash payment
Whether or not a cheque was covered by a Cheque Guarantee Card was not the reason behind
whether a method of payment was acceptable regardless of whether a guarantee card was
presented, Acceptable payment methods were dictated by what range of payment methods Post
Office's corporate clients wanted Post Office to offer.
As regards the Cheque Guarantee Card, these no longer existas they were phased out by banks.
We are aware that in some circumstances Horizon does not record transactions accurately. Specific
examples include:
Post Office is not aware of the "circumstances" alleged by Second Sight in this question.
a) Where, during Horizon's recovery mode processing, some transactions, that were not
processed, or were only partially processed, may not be properly corrected when the system
invites the counter clerk to correct the errors or omissions and, if the screen instructions to the
counter assistant are interrupted (as would be likely to happen where there are
telecommunications or power interrupts) then discrepancies may ensue;
The transaction may not be recorded accurately but that is due to how the clerk applies and
follows the “recovery instructions” which have been issued to branches(please refer to Annex
10). Whilst it may have been the system that had a connectivity issue, the error in accounting
would be due to the user’s failure to follow the recovery instructions, not a failure by Horizon to
record it accurately. Accounting process is covered by the recovery instructions at Annex 10.
The quick reference guide has been provided in response to question 3.1b.
b) Where misalignment of screen icons results in the inadvertent execution of the wrong type or
value of transaction;
There is a screen calibration application which can be invoked at any time by the
Subpostmaster from the Engineering menuof Horizon. If the screen is out of calibration then
that would affect the whole screen and not individual icons soit would be obvious to the user
that the screen had gone out of alignment. If this issue is noticed and a call made to the
helpdesk then the subpostmaster or staff memberwould be asked by the agent to recalibrate
their screen to fix the issue.
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7.10.
7.11.
7.12.
7.13.
c) Where Foreign Currency transactions have been incorrectly accounted for through interaction
between the Forde Moneychanger System and Horizon (Note: we regard the FM system as a
component part of ‘Horizon'); and
As described in Section 6, such errors would bethe result of user error.
d) Where system-to-system interface problems result in incomplete transaction processing e.g.
where a PINpad, PayStation or other piece of equipment fails to complete its part of a
transaction.
If the above scenarios took place, the transaction would simply decline or the customer would
be asked for an alternative method of payment. As the transaction would be declined and the
branch's accounts thereby left in balance, there is no need for any follow-up accounting
process.
Please provide full details of the controls and procedures that will detect these types of error and
describe the accounting procedures that apply in these circumstances.
The accounting procedures for these are conducted in branch and, wherever a particular process is
necessary, it has been described above.
We are aware that if the root cause of a lost cheque isunknown or attributed to some other cause
outside the branch, Post Office will absorb this loss and not pass it on to the Subpostmaster. Please
provide monthly totals showing the aggregate of all such losses in the years 1999- 2013, describing
how much of that loss was absorbed by Post Office and how much was passed on to Subpostmasters.
Post Office has previously explained (via Spot Review 12) to Second Sight that lost cheques cannot be
the cause of loss to a branch unless it can be shown that the branchis at fault. As Second Sight
accepts this explanation, this request is disproportionate.
. We are aware that some Subpostmasters routinely accept high-value cheques from customers that
are in excess of the monetary limits set by Post Office. Pleasedescribe the procedures that were
followed prior to determining these limits and state the accounting treatment of losses that occur in
these circumstances.
Products may have limits (e.g. savings may only be up to certain values); it is not the cheque that is
limited. There is no high value cheque limit set by Post Office.
We are aware that processing or technical failures can occasionally give rise to ‘one -sided'
transactions. We are also aware that Post Office has stated that ‘in any event a branchwill never be
liable for an error caused by a ‘one-sided’ transaction’.
This is a statement with no question to answer
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7.14, Please describe the controls and processes that detect onesided transactions in circumstances such
as when a customer withdraws funds from an account at the branch counter but, although he has
received the cash, the account never gets debited.
This question has already been addressed bya paper appended at Annex 11 which has already been
supplied to Second Sight.
Nevertheless, “One sided transaction” implies incomplete double entry. We would be grateful if
Second Sight would cease the inappropriate use of the phrase “One sided transactions”.
What the question actually asks about is completeness of record keeping.
If the transaction interruption occurs during the Horizon accounting process, it would be subject to
recovery processes, referred to earlier and previously shared with Second Sight.
If the interruption is beyond the branch, the branch accounts are not affected. How banks would
then detect their own failure to debit their customer's accounts is a matter of their internal process.
From a Post Office point of view, the withdrawals recorded in branch would lead to debits in a central
vendor account which Post Office would in turn clear down by payments received from the bank. If
the bank had not debited their customer's account then that would likely manifest itself in them not
paying Post Office centrally and Post Office would challenge them with evidence of the orignal
transactional record. This is not a situation that would lead to a discrepancy for a Subpostmaster.
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8. Transaction anomalies associated with Stamps, Postage Labels, Phone Cards or Premium Bonds
8.1. We are aware that occasionally postage labels are purchased by customers, but the printer fails to
print correctly. Please describe the procedure whereby the Subpostmaster can recover the cost of the
missing label in circumstances where the missing label has not been processed as a ‘reject’.
After printing, Horizon explicitly asks the clerk “has this label printed correctly Y/N”.
If the label has not printed correctly then the clerk confirms “no” and another label is printed.
Post Office is aware of situations of damage in the printing process and there is a process to “spoi
them so that the branch is not disadvantaged. There is a clear process in Horizon and the branch is,
required to retain the spoilt label. This is appended at Annex 12.
To be able to claim a label as spoilt, the branch is required to produceto Post Office the spoilt label as
evidence.
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9. Hardware issues e.g. printer problems, PIN pads, touch screens and PayStation
9.1. We are aware that occasionally branch Touchscreens get "out of alignment" and that in these
circumstances touching one icon generates a system response associated with another icon. Please
provide full details of the controls and procedures in place that detect or prevent this type of
problem.
Please refer to the answer provided to 7.9b
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10. Failure to follow correct procedures or mis-advice by POL's Helpline
10.1.
10.2.
10.3.
A number of applicants have reported that Helpline staff have said "don't worry, the problem will sort
itself out".
This is a statement with no question to answer.
Please provide full details of the actions taken to investigate these allegations and confirm whether or
not Helpline staff have been instructed to never say "don't worry, the problem will sort itself out", or
similar words.
Where such allegations have been made by Applicants to the Complaint and Mediation Scheme Post
Office has fully investigated the NBSC calls logs as part of its thorough investigation and reported its
findings in the Post Office Investigation Report.
In relation to certain transactions, Post Office has in place processes and controls to detectparticular
errors by branch staff. Where an error is detected, a transaction correction may be sent toa branch
to correct a mistake. In these circumstances, it may well be correct for NBSC to advise a branch to
await receipt of a transaction correction amongst other steps. Post Office understands that it is this
scenario that is being referred to by Second Sight and considersthat this advice may be appropriate in
the right circumstances.
Please provide details of Post Office's Policy and Standard Operating Procedures in regard to those
situations where customers leave parcels and come back some days later to settle their accounts.
Specifically, what is Post Office's position in regard to the credit risk that Subpostmasters take, and
the potentially ‘false accounting! issues that those Subpostmasters risk, when they routinely allow
customers (such as eBay Sellers) to drop off large quantities of parcels that are then dispatched by
settling the labels to 'Fast Cash’ (even though no cash has at that point been received from the
customer) and then reversing all those Fast Cash payments to cheque when the customer later pays
by cheque?
Post Office does not have a policy of providing credit tocustomers. Where Subpostmasters have done
so, they have contravened Post Office operating instructions which state that at the point the
transaction is completed the appropriate method of payment should be taken from the customer.
Therefore, the risk would be the Subpostmaster’s in respect of an unsettled payment from the
customer.
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11. Training and Support issues including Helpline and Audit
Another issue running through the applications to theMediation Scheme was the alleged poor quality of
training and support provided by Post Office to Subpostmasters.
Second Sight’s questions on this topic are dealt with belowhowever Post Office considers that issue
relating to training and support are likely to be case specific and does not see how this can be a thematic
issue suitable for Second Sight's Part 2 Report.
11.1. Please provide us with full details as to how the following issues are dealt with during the handover to
a new Subpostmaster:
a) Ensuring that the new Subpostmaster has manager/supervisorlevel access rights to the
branch's Horizon system;
The Field Support (FSA) team involved in the branch opening process would create the User ID
for the incoming Postmaster at the correct (maximum) level ofmanager. The audit team would:
Delete any obsolete users from the system and ensure that the incoming Postmaster
and any new staff members are added to Horizon in the correct format.
* Check the Horizon User ID’s against the list of Registered Assistants.
© Any staff working in the branch that are not registered with HR should be reported
via the Anomalies Report that the FSA completes to notify HR so that they can follow
up with the Postmaster.
© Inform the Postmaster of the correct process for registering assistants with HR
* Set new alarm codes once the transfer is completed under FSA supervision.
* Add new user(s) to Horizon ensuring that all staff are also listed onthe reporting form
to HR.
b) That every employee has a unique User ID and password;
Please refer to answer provided to 11.1a.
c) Ensuring that every till or employee and ATM is associated with a separate stock unit; and
Some branches operate with just one “shared” stock unit as they don’t feel the need to have
individual units (this depends on the branch’s preference)
ATM's are required to have a dedicated stock unit. This is checked on branch audit. If the
branch does not have a separate ATM stock, one is created (instructions on how to do this can
be found in the Additional Horizon Procedures on EASE) which stands for ‘Engaging and
Supporting Effectively’ and is the library of tools, official forms and processes from which the
Field Team take all of their instructions in the deployment of all types of Field Support Activity.
d) Ensuring that all branch employees are approved by Post Office;
Please refer to answer provided to 11.1a.
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11.2. We are aware that, when attempting to correct errors made at thecounter, and to deal with
incoming TCs, some Subpostmasters make matters worse by making further mistakes at that point.
Please describe the controls and procedures in place to detect and prevent or correct these types of
commonly made error.
“Correcting errors” and “dealing with incoming TCs” are different things. A branch may be seeking to
correct an error it has spotted itself well before a TC becomes necessary.
When correcting errors, some Subpostmasters do indeed sometimes make further errors. The
controls and process are:
Through their own vigilance in concluding a transaction they should spot issues
Through daily cash declarations and other routine supervision of their branch they should
spot errors;
Having spotted an issue they can use local transaction logs to review and reflect on
transactions; and
If they cannot determine the root cause themselves then they can call the Helpline who in
turn may involve FSC. However, for many errors made at the counter by branch staff, there
may be limits on what investigative support Post Office is able to provide because it is not
aware of what is physically happening in each branch only a Subpostmaster knows this.
11.3. Please provide full details of the following:
a)
c)
Any surveys or other quality control procedures in order to measure user satisfaction with
regard to the NBSC and HSD Helplines;
NBSC performance is measured on the time advisors take to answer the phone, referred to as a
“Grade of Service”. The target is to answer 70% of calls within 30 secads and to have no more
than 5% of abandoned calls (i.e. where the caller hangs up before reaching an advisor). For
complaints, NBSC’s target is to resolve 95% of complaints within 10 working days
Further, the Subpostmaster engagement survey also measures satisfaction levels of users of the
NBSC - the most recent of which showed that 83% of respondents felt that the support from
NBSC was effective.
The extent to which that advice provided by the NBSC and HSD Helplines is monitored and
quality checked;
All advisors are coached through a robust quality process called ‘rewarding skills’. This involves
the team leader listening into a selection of calls and providing feedback on call handling,
customer service and quality of the response.
The extent to which the written reports (call logs) of the NBSC and HSD Helplines are routinely
compared to the actual calls and quality checked;
As part of the quality monitoring as outlined in 11.3b, the actual call log is checked to ensure
that it has been categorised correctly and relevant details of the call are logged. There are no
written reports as all calls are logged onto a robust call logging system.
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d)
e)
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Any surveys or quality control techniques used to assess the adequacy of training provided to
Subpostmasters; and
Post Office uses the independent external organisation Kendata to collect feedback from all
customers of Field Team Activity, including Training, Audit and Intervention activities.
Following these support activities which are supplied by the Field Support Advisors (FSA) ,
across all branch segments in the Network, the FSA will ask theSubpostmaster, Operator in
Charge, and all training delegates, if they will completeand return a double sided form to.
describe their experience in terms of the FSA’ performance and the effectiveness of the
activity itself.
A form is handed out at every activity as described below:
© Atall Audits including Branch Closure Audits;
* Classroom and on-site training (BAU & NT);
© Post Transfer Visits;
‘* Interventions visits - including Non-Conformance Visits (NCV’s) e.g. Mail Segregation
/ Dangerous Goods / other Non- Compliance/ standards activities.
Exceptions include:
© Anaudit resulting in Suspension;
© Special Request audits — where fraud is suspected.
Performance Management
All feedback is submitted directly to Kendata, then summarised and sent to the line managers
of the Field Team and the individual FSA. The reports are tailored to the different levelsof line
management on terms of detail ranging from full detail including comments at the FSA and
FTL level, up to an overview of performance by teams and activity at Senior Manager level.
Each Field Team Leader (FTL), the first line managers of the FSA’s, will discuss the
performance of the FSA’s at their appraisals unless there are any concerns raised, in which
case this is dealt with as soon as the reports are received. If further information is needed to
hold an effective discussion, the FTL will call and speak to the person providing the feedback,
wherever possible, to further understand the issues.
The FSA performance, and the FTL’s team performance is discussed monthly as part of their
appraisal with the Regional Manager.
The feedback received on the activity itself is used alongside other information gathered by
the Lead Team to drive and inform change and improvements to the Field Team support
offer.
Examples of the forms used are appended at Annexes 13, 14 and 15.
Any surveys or quality control techniques used to assess the adequacy of training provided to
branch staff other than Subpostmasters.
This is a duplicate of question 11.3d.
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11.4,
11.5.
11.6.
11.7.
11.8.
11.9.
Process issues at the end of each Trading Period
This question is not understood.
Please provide full details as to how and when Post Office notifies Subpostmasters that they may
extend a Trading Period into what should be the next Trading Period.
Branch trading dates are communicated to branches annually through Branch Focus(the branch
newsletter) and are also updated on Horizon online help. If a revision was needed during the year the
same process would be followed.
If a branch wished to request permission to extend their trading period they should contact NBSC.
This would only be permitted in highly exceptional circumstances. NBSC would contact the FSC
Relationship Manager who may consult with the Network Contract Manager. The formal respase
could come from any of the three parties, depending on the circumstances.
Please provide full details as to the options available to any Subpostmaster who, at the end of a
Trading Period, discovered a shortfall that was:
a) Larger than they could ‘centrally settle’; or
The upper limit on being able to ‘centrally settle’ is £999,999.99. Should such an incident occur,
Post Office would manage by exception.
b) Only discovered after the Helpline had closed for the evening.
They could delay closing the Trading Period until the next morning - they could then contact
NBSC before opening the following day. However, well run branches would be unlikely to have
last minute surprises like that, because it would have become evident during other daily cash
declaration processes and checks during the preceding weeks. Last minute surprises usually
reflect poor planning / management by a Subpostmaster.
Bearing in mind that some TCs would be issued many months after the original shortfall, what options
are available to Subpostmasters to ‘fund’ shortfalls that exceed their ‘central settlement’ limit?
Please refer to the answer provided to Q 11.6a.
Please provide full details as to the consequences of introducing ‘Monthly Trading’ periods. For
example, did Post Office notice an increase in the number of branches suffering discrepancies that led
to contract termination?
In light of the discussions had with Second Sight and clarifications given, Post Office is investigating to
see if it is able to provide the requested information.
We understand that when Post Office moved to Monthly Trading, Branch Suspense Accounts
thereafter had to be closed out to zero at the end of each Trading Period. Please provide full details of
options available to a Subpostmaster dealing with the investigation of a loss just before the end of a
Trading Period.
This is answered in Section 9 of Second Sght's Part 1 Briefing.
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12. The contract between the Post Office and Subpostmasters
Some Applicants have made complaints in relation to the contract between them and Post Office. Second
Sight’s questions arising out of these complaints are answered below.
12.1, Please provide full details of the following:
a)
b)
c)
Any insurance coverage Post Office has ever offered to arrange for its Subpostmasters;
Though this question is out of scope, it is a function performed by theNational Federation of
Subpostmasters. Discounted insurance rates have been offered to Subpostmasters by the
National Federation of Subpostmasters and it is their decision whether or not they opt in
The measures Post Office takes in order to reduce the risk that incoming Subpostmasters, who
take over an existing branch and its staff, may be inheriting employees who have been found to
be, or are suspected of having been, incompetent or dishonest. In this context, was there, or is
there now, any competency and integrity verification, performance appraisal, or formal
disciplinary/warning process whereby outgoing Subpostmasters and Post Office's own Line
Managers could warn incoming Subpostmasters where questions had been raised?
Staff members/Subpostmasters assistants are employees of the Subpostmaster and not Post
Office Ltd. It is the Subpostmaster who performance manages the staff members including any
disciplinary action as appropriate. It is also a Subpostmaster who needs to assure themselves
that any assistants are suitable for the role by conducting intaviews, seeking references, etc.
When a Subpostmaster recruits anew member of staff there are a number of checks that have
to be undertaken (e.g, right to work in the UK, proof of identity and proof of address along with
their five year work history).
In addition, the individual must be registered with Post Office Ltd so the security checks can be
undertaken (e.g. criminal record check). There is an annual check of all assistants to ensure
they have been cleared through the preemployment checking system. A recruitment file has
to be established and maintained holding thebasic paperwork for each assistant (please see
section 15 of the Subpostmaster contract for services, paragraph 4, for further information).
Under their contract for services with Post Office, every Subpostmaster must establish,
maintain and adhere to a formal disciplinary policy in respect of any assistants who fail to
comply with the Subpostmaster obligations as detailed in the contract. The disciplinary policy
must include the content as defined in the contract and records must be retained please see
Section 15, paragraph 9, of the Subpostmaster contract for services paragraph 9 for further
information).
The measures Post Office takes in order to satisfy itself that potentialSubpostmasters have the
necessary skills to meet the challenging requirement of being a Subpostmaster?
This is undertaken through:
a) The provision of a business plan to support an individual's application; and
b) A competency based interview of the individual which is undertaken by trained
assessors.
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12.2.
12.3.
At interview, applicants are assessed on their ability to explain their business proposition,
answer any questions raised and provide examples to demonstrate their understanding of what
is required across a number of competency areas. The business plan is also assessed financially
by the Finance team.
d) How Post Office ensures that Subpostmasters have a copy of the Contract no later than the day
that they commence their position.
The contract document is issued with the offer of appointment when an individual is advised
they have been successful at interview. This has been the process since 2001.
. We understand that many Subpostmasters have only signed the one-page ‘Acknowledgement of
Appointment’ Letter and not necessarily been provided with a copy of the Contract. Please describe
the basis upon which Post Office considers the Contract enforceable in these circumstances?
Post Office has stated on a number of occasions that matters relating to the Subpostmastercontract
are out of scope and that, as this is a legal question, it is outside of Second Sight’s area of expertise.
However, in the interests of providing Second Sight with as much information as possible, Post
Office’s position is that this question concerns the formation and enforceability of contracts, the
response to which will be informed by the particular circumstances of each individual contract and
their application to the relevant legal principles. Though it is not therefore capable of giving rise to a
general response it is worth noting that the “Acknowledgment of Appointment” document, whist not
the main contract itself, states that the Subpostmaster has been given and has accepted the terms of
the standard Subpostmaster’s contract.
We understand that Post Office considers the terms of the Contract to be broadly similar to those
used in franchising arrangements across the UK. Please provide full details evidencing this
proposition?
A franchise agreement is a private contract between two (or more) parties recording the basis on
which they agree to do business in their particular circumstances. The SPMR Contract is similar in
that it records the basis on which Post Office and Subpostmasters do business.
Enclosed at Annex 17 is an extract from the Encyclopaedia of Forms and Precedents. This is a leading
legal text providing precedent agreements for various situations, The extract is Form 18 from Vol
16(4) and is a precedent for a "Non-Exclusive franchise agreement for a retail business".
As can be seen from the Precedent, the terms of a standardised franchising arrangment are broadly
similar to the terms of the standard Subpostmaster Contract. There are obviously some differences
between the two as the Subpostmaster Contract is tailored to Post Office's business whereas the
Precedent is generic however the core principles are largely the same- for example (number
references are to clauses in the Precedent):
© Premises (4 and 9): Both Franchisee and SPMR are both responsibk for leasing the premises
and ensuring that it is appropriate to operate the business.
© Setup costs (10.1.2): The Franchisee must pay for the initial fit out and equipment costs if
provided by the Franchisor. Post Office also requires this payment in some, but more
limited, circumstances.
© Training: Franchisor / Post Office to provide initial training to the franchisee / SPMR (5.1.1)
and the Franchisee/ SPMR is required to train their own staff (9.2.11)
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© Employees (9.3.5): The Franchisee / Subpostmaster is responsible for employing suitable
staff.
© Equipment / Software: The Franchisee / Subpostmaster is required to record all sales and
other financial information using the equipment and software provided by the Franchisor
(9.2.23 and 10.9).
Telephone lines (9.2.22): The Franchisee / Subpostmaster must provide the communications
line for the EPOS systems and credit card machines.
* Advice (6.2): At the Franchisor's discretion, it may provide advice to a Franchisee on how to
operate the Franchisee's business — this reflects Post Office's approach to providing advice
through its helplines.
Problem support (6.3): Any support provided by the Franchisor to the Franchisee to help
resolve problems will be at the Franchisee's cost. There is a slight difference here in that
although Post Office's additional support is voluntary, it is provided at nil cost to
Subpostmasters.
© Changes in business (9.2.2): Both Franchisor and Post Office can change its business model
and products for sale.
* Information / Accounts (9.3.8 and 10.9) — the Franchisee is responsible for the accuracy of all
reports, information and accounts.
© Audit (9.2.13 / 13): Both Franchisor and Post Office have a right, but not a requirement, to
audit the Franchisee / Subpostmaster. Audit is described in the Precedent (13.1) as an
inspection of the business and books — not a full accountancy audit. This is in line with Post
Office's use of the word "audit".
© Responsibility for accounting errors (13.2) - Franchisee must "promptly rectify" any
accounting error — again this is very similar to the wording the SPMR Contract.
* Liability: The Franchisee is required to indemnify the Franchisor for any loss resulting (i) a
failure to follow the business operating practices (9.3.7.3) or (ii) "any deliberate or negligent
act, error or omissions by you or your employees" (9.3.7.4) - this is almost identical to the
SPMR Contract wording.
In any event, the terms of the Subpostmaster Contract are the terms on which Applicants agreed to do
business with Post Office. It is the relationship described in those terms that must be applied when assessing
Post Office's and a Subpostmaster's actions. It is not open to anyone to look to retrospectively impose new
duties on Post Office that did not previously exist. For this reason, Post Office maintains that challenges to the
Subpostmaster Contract are outside the scope of the Scheme, which was to focus on Horizon and associated
issues. Such an evaluation is also beyond Second Sight's expertise as they are accountants and not lawyers
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12.4. We understand that Post Office does not recommend that its wouldbe Subpostmasters take legal
advice (in regard to the Standard Contract) prior to enteringinto that contract. This appears to be
contrary to best practice procedures. For example, the British Franchise Association recommends that
independent legal advice should always be taken prior to signing a franchise agreement. Please
provide full details as to why Post Office does not comply with this best practice recommendation?
Itis open to all Subpostmasters to seek legal advice at any time and Post Office does not block this in
any way.
The reference to the BFA standards is not applicable here. The BFA recommendation is directed to
franchisees (in a similar position to Subpostmasters). The BFA does not make a recommendation
franchisors (in a similar position to Post Office) to require on legal advice being taken by franchisees.
12.
in
. Several Applicants have reported their concerns that Post Office employees acted inappropriately in
connection with the closure of transfer of their branches. The inference of the majority of the remarks
made is that certain Post Office employees acted unprofessionally, ether by leaking confidential
information (that was damaging to the Applicants) to potential buyers and/or by thwarting their
efforts to sell a viable branch until it was no longer viable (and consequently of lower value).
These are very serious, but wholly unsubstantiated allegations that Post Office denies and has not
seen evidence or been provided with evidence to support these allegations. Further, it was as agreed
at the Working Group meeting on 15 January that this request for information is too wide.
12.6. The further inference is that certain Post Office employees seemed to be in some way motivated or
incentivised to find reasons to close branches, that were already destined to close under the various
closure and re-invention programmes, without cost to Post Office.
See answer provided to 12.5.
12.7. Please provide full details of the work performed to refute these ‘bad faith’ allegations.
See answer provided to 12.5.
12.8. Please provide full details of Post Office's policy and procedures in respect of writingoff amounts due
from Subpostmasters. Please also provide similar information relating to Crown Offices. Please also
describe the write off authorisation limits applicable to different grades of staff.
Subpostmaster write off levels are documented. Please see a copy of the write-off process for agency
branches appended at Annex 16.
Losses from Crown Offices form part of the individual Crown Office’s P&L and ultimately Post Office’s
P&L.
Though reports have been issued to Crown RSMs on levels of losses,it is not a case of authority levels.
Tolerance is set at individual level. As a general rule an ‘escalation’ investigation is initiated after
three losses of in excess of £30, although there are variations to this depending on local and individual
circumstances. Branch Managers also implement a series of surprise checks on stock units and
separately carry out supervisory misbalance checks when a stock unit is showing £30 or more loss on
two consecutive daily cash declarations.
Discrepancies can also be identified at the end of each trading period where the Branch Manager
undertakes a full cash and stock reconciliation. An ‘escalation’ investigation can be initiated as a
result of errors found as part of that process.
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12.9.
Crown Offices discrepancies are rectified using the same Transaction Correction (TC) process as is
used in Subpostoffices. TCs are sent to the Branch Manager who is responsible for accepting or
querying the TCs based on the evidence in branch. This process could also identify discrepancies
which could result in initiation of an ‘escalation’ investigation.
Depending on the circumstances, actions against an individual member of staff in cases of persistent
negligence or wrongdoing can include disciplinary action, dismissal and prosecution.
Please provide details of Post Office's Policy and Standard Operating Procedures in regard to helping
Subpostmasters recover shortfalls that they have made good as a result of proven theft by branch
employees.
Recovery of losses caused by theft bybranch assistants is a matter for Subpostmasters as the
assistants are their employees. Post Office may help, as a matter of goodwill, but there is no policy in
this regard.
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13. Post Office Investigations Function
13.1.
13.2.
13.3.
13.
B
13.5.
. Please provide full details of any criticism of Post Office’s (or Royal Mail’s) investigative actions or of
its employees in any Court judgement or ruling.
This question is very broad in scope - it could be interpreted to apply to the whole of Post Office's
business and not just those issues under review in the Scheme. Through further discussions with
Second Sight, Post Office now understands that Second Sight is looking for criticisms of Post Office's
security investigation team and not criticisms of other parts of Post Office's business nor its legal /
prosecutions practices.
Although this greater clarity is welcomed, the question still remains premised on an assumption that
there is an issue with Post Office's investigation function that would give rise to criticism. To date, no
such issue has been identified by Second Sight. This enquiry also needs to be placed in context. Post
Office, like all large organisations, is regularly involved in legal processes. It also only separated from
the Royal Mail Group in April 2012, prior to which investigation functions were shared across both
businesses. There is therefore no single source for the information that Second Sight is seeking.
Against this background, those individuals currently responsible for the security team and legal
proceedings at Post Office have confirmed that they are not personally aware of any criticism in a
written Court judgment or ruling of the nature described above. For the sake of clarity, no review of
historic judgments involving Post Office has been undertaken in reaching these views— such
judgments are in any event a matter of public record and could therefore be reviewed by Second
Sight.
Please provide a schedule showing the number of requests from Subpostmasters forassistance in
investigating discrepancies their branch's accounts for each of the years 1999- 2013. Please also
show for each year the number of requests when assistance was provided.
Post Office does not hold this information. To undertake this exercée would require POL to review 14
years of calls to NBSC and HSD from a network of almost 12,000 branches. This request is clearly
disproportionate.
Please provide a schedule showing the number of investigations into branch surpluses or shortfalls
for each of the years 1999 — 2013 clearly setting out the number of investigations in each category.
Post Office does not hold this information. To undertake this exercise would require POL to review 14
years of data from a network of almost 12,000 branches. This request is clearly disproportionate.
In relation to requests for assistance, we understand that, where several instances of the same
problem occurs, a ‘problem record’ is created and the root cause of the issue is identified and fixed
(ie. to avoid further instances). Please provide a schedule of all significant ‘problem records’ and all
process and software modifications (excluding "minor amendments to processes") that have been
implemented, in the years 1999 - 2013, that were designed to reduce the frequency and impact of
“errors made at the counter”.
This is a disproportionately wide request for general information, without identification of a specific
issue raised by Applicants. If Second Sight is able to identify, with supporting materials, specific cases
where Applicants to the Scheme have been affected by these issues, Post Office will of course
reconsider this request.
Please provide full details and results of any user satisfaction surveys Post Office has conducted into
the Horizon system.
Post Office constantly receives feedback on Horizon from its tens of thousands of users through a
variety of sources.
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13.6.
13.7.
13.8.
The primary sources are the NBSC, Horizon Service Desk, Branch User Forum and NFSP. Feedback is
also delivered through a variety of BAU processes, for example, from contact with the Finance Service
Centre, and through discussion in the field with Contract Advisars and Field Support Agents.
That feedback is then implemented through regular system reviews and upgrades implemented by
both POL and Fujitsu, and in product development (e.g. to streamlinethe processes for transacting a
new product).
We understand that many of the unexplained branch losses are attributed to "errors made at the
counter". Please provide a schedule showing the number and value of unexplained branch losses or
“errors made at the counter" for each month for the period 2008 to 2013. Please also provide similar
information relating to Crown Branches including the amounts written off each month.
Post Office does not hold this information
. Please provide a schedule showing the number and value of ENs and TCs issued to branches for each
of the years 1999 to 2013 (we need tosee separate volumes and values for Credits and Invoices).
In light of the discussions had with Second Sight and clarifications given, Post Office is investigating to
see if it is able to provide the requested information.
Please provide full details of changes to the Horizon system and/or to its Standard Operating
Procedures that were designed to reduce the risk, incidence and severity of errors and fraud, as a
direct result of investigations carried out into unexplained branch shortfalls, or in respon to
problems, vulnerabilities and susceptibility to errors or fraud, for the years 1999- 2013.
Second Sight has clarified that it is not seeking an exhaustive list of all the changes described above;
rather it is seeking a summary of the key changesover this period and brief description of each
change. This information is provided below.
* MoneyGram Automation - Quotes and financials are now provided directly into
Horizon rather than the clerk telephoning and transcribing the rate / amounts.
Broadband Sign Up — Addressing the issue of “slamming’(an illegal
telecommunications practice, in which a subscriber's telephone service is changed
without their knowledge or consent) accusations by onscreen “Read to customer...”
messages, and key terms being printed on the signed receipt.
© Bureau Pre-Order — Order lifecycle is now managed through Horizon to ensure
payment is taken at the point of order, and issuance is to thecorrect customer.
* Care Quality Commission / Disclosure and Barring Service (DBS) Identity Checking —
There is now automated customer identity verification to ensure key data attribute
checks are performed and the correct fee taken.
* Motor Vehicle Licenses (MVL) ~ Stock lifecycle is now automated to track all MVL
stock from the point it leaves the warehouse to issuance or destruction.
* Post Office Card Account (POCA) Card Issuance — Automation is now in place in
terms of the issuance of new and replacement card stock to customers.
© Regulatory Compliance Training — The model has been simplified to allow tests to be
rolled out at reduced cost with full auditability based on Horizon user log on.
© Rod Fishing Licence - The licence issuance process is now automated for both short
term and annual licences; removing the paper licence from branch.
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Camelot Cheques -— The cheque issuance process is now automated for large prizes.
Stock Ordering - The creation of an online ordering process through Horizon has
removed the need to fax / post order cards; product codesand allowable order
volumes are now automated to ensure branches received the correct stock.
Travel Insurance — Price look up for policiesis now automated, these were
previously keyed manually from the brochure look up tables.
Horizon Recovery — Online transactions with 3rd parties (e.g. MoneyGram) are
recovered in the event of, for example, a temporary loss of power or
telecommunications to ensure synchronisation of branch, PO datacentre, and 3rd
party systems. The situation before the change was that the branch had to
remember what transaction they were in when the power/comms went down, and
then contact the service provider directly to find out if the transaction had
completed.
Bureau 2nd receipt -The production of a duplicate session receipt (necessary for
Bank security checks) is now automated, previously the clerk had to remember to
print it manually.
Lottery TA (PING) — Lottery sales figures are now incorporated into the Transaction
Acknowledgement (PING) process.The branch confirms the system reported figure
for the previous days sales when logging in the next morning.
Spoilt Postage Labels — There is a revised process for spoilt postage labels to ensure
labels are correctly accounted for and VAT automatically reversed correctly, where
applicable.
Display of long addresses in postcode lookup — Screen displayhas been revised to
allow long postal addresses to be displayed on two lines. This has resolved an issue
of postcodes not appearing.
(pending) Cheque Rem out - There are plans in place to implement a revised process
to bring all elements of the cheque Rem out and despatch onto a single screen, with
automation of cheque totals entry, and printing of despatch slip. (expected May
2015)
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14, Surpluses
14.1. Please provide full details as to how Post Office trackssurpluses and shortfalls at the end of Trading
Periods at both branch level and in aggregate.
This data is not collated by Post Office but at an individual branch level it can usually be reconstructed
from the branch's Horizon logs so long as the branch has accurately conducted its end of branch
trading processes.
14,2. Is it possible that an error which has generated a surplus in one branch can result in a shortfall in
another branch? Please provide full details as to how this may occur.
No (except for in connected Core and Outreach branches where remittances of cash between the
branches are not correctly recorded by branch staff).
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15. Suspense Accounts
Post Office has already addressed Second Sight's questions on its Suspense Accounts in its Suspense Accounts
paper. This paper demonstrated that so long as a branch follows Post Office's standard operating practices, it
cannot suffer a loss due to the operation of a Suspense Account.
15.1. Please provide full details of all Suspense Accounts held by Post Office. Please also provide a schedule,
for each year end between 2008 and 2013, showing the amounts transferred to Post Office’s Profit
and Loss Account (both debits and credits) for each Suspense Account held.
In light of the discussions had with Second Sight and clarifications given, Post Office isworking with
Second Sight to provide an appropriate response to this request
15,2. Please also provide a schedule, for each year end between 2008 and 2013, showing the balance held
on each Suspense Account (both credits and debits).
In light of the discussions had with Second Sight and clarifications given, Post Office isworking with
Second Sight to provide an appropriate response to this request.
15.3. Please provide an electronic report in CSV format or similar showing for the last 3 years the following
information for every item posted to any Suspense Account:
a) Full transaction details;
In light of the discussions had with Second Sight and clarifications given, Post Office isworking with
Second Sight to provide an appropriate response to this request.
b) —_ Originator’s reference;
In light of the discussions had with Second Sight and clarifications given, Post Office isworking with
Second Sight to provide an appropriate response to this request.
c) Any comments or notes associated with the transaction; and
In light of the discussions had with Second Sight and clarifications given, Post Office is working with
Second Sight to provide an appropriate response to this request.
d) Full account details of the account the transaction relates to or is being transferred to.
In light of the discussions had with Second Sight and clarifications given, Post Office is working with
Second Sight to provide an appropriate response to this request.
15.4. Please describe the controls used to detect errors in Post Office client reports that if not corrected
could give rise to an incorrect TA or TC being issued.
Where Post Office receives client reports, these are part of matching accounts, where Horizon data is
matched to the client data. Therefore, if the client report was wrong, it should lead to a difference
compared to the Branch data. Post Office would then investigate that difference. If a wrong
approach were made to a branch, the branch themselves could, in turn, challenge it.
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Annex 1
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Methods of Payment
Cash Handling ch_index v1.0
Introduction
This section deals with the procedures relating to accepting cash (notes & coin) as a method of payment for products and services in all Post
Office branches.
It provides general details about banknotes and Plastic Banknote Envelopes (PBNEs)/banded notes that you need to know in order to accept
cash as payment, explains in detail the treatment of mutilated, contaminated or dyestained, and counterfeit banknotes. It also includes the
procedures to be followed to ensure that Post Office Ltd meets its regulatory obligations to comply with Anti Money Laundering legislation.
A subsection has also been added about various types of discrepancy, including how to deal with alleged discrepancies in customer payments at
the counter.
(ca (ce
( FA ) General information Money Laundering ( F5)
} Damaged or mutilated banknotes
F3 ) Contaminated/dye-stained banknotes
(Fa) Counterfeit banknotes
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Cash Handling / Counterfeit banknotes ch_05 v1.0
Introduction
Counterfeit banknotes must always be withdrawn from circulation.
The Counterfeit Notes or Discrepancies Found in Banknote Envelopes form P6005 is now used to claim all note shortages caused by counterfeits,
both those found in loose cash or in cash Remittances in Post Office branches or those returned by customers who were paid them in
transactions.
You should use the section on the form appropriate for the type of discrepancy you have found, as detailed below and remit the counterfeit
banknotes on the Horizon Online™ system if appropriate.
{ FA ) Identifying counterfeit banknotes Counterfeit notes retumed by a
X customer
nant
~~ \ Counterfeit notes impounded when
2 } Treatment of counterfeit banknotes presented by customers for a
ed transaction
{_\ Counterfeit notes found in a deposit \
F3 } Remitting counterfeit banknotes prepared by an Alliance & Leicester { FF?
ad business depositor N 7 /
(Fe) Counterfeit notes found loose in
\ official cash
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Cash Handling / Counterfeit banknotes (Page 1 of 2) : ch_05_01 v1.0
Identifying counterfeit banknotes
The most reliable method of identifying a counterfeit banknote is to compare it with a note of the same type which is known to be genuine.
However, genuine banknotes issued by all Sterling banknote issuers (except Danske Bank and Ulster Bank) have a security thread embedded in
the note.
In addition, all banknotes have the following key security features which should be checked:
The feel of the paper
A note in reasonable condition
= should be crisp
= should not be limp, waxy or shiny
= should have heavily printed areas which feel raised and rough to the touch.
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Cash Handling / Counterfeit banknotes (Page 2 of 2) : ch_05_01a v1.0
Identifying counterfeit banknotes
The quality of the printing
The printed condition of banknotes should always adhere to the following standards:
= lines should be sharp and well defined with no blurred edges
= colours should be clear and distinct
The watermark
The watermark on a banknote:
= should be barely apparent until held up to the light
= should become clearly defined when held up to the light
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Cash Handling / Counterfeit banknotes (Page 1 of 5) : ch_05_02 v1.0
Treatment of counterfeit banknotes
It is illegal to knowingly pass on a counterfeit banknote. After checking a banknote to determine whether it is genuine, any that you suspect to be
counterfeit must be impounded. Under no circumstances should a suspected counterfeit note be returned to the customer.
When you impound a banknote that you suspect to be counterfeit:
@ Place the note in a polythene banknote envelope and mark the envelope ‘Forged’ or ‘Counterfeit’
All instances of counterfeit notes must be recorded on the Counterfeit Notes or Discrepancies Found in Banknote Envelopes form P6005.
In all situations when a counterfeit note has been found, you must complete the top section of the form. You will also need to obtain an incident
reference number from the NBSC which must be recorded at the top.
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Cash Handling / Counterfeit banknotes (Page 2 of 5) ch_05_02a v1.0
Treatment of counterfeit banknotes
1 - Top section - this must be completed in all cases of
counterfeit notes 4) COUNTENIFIT NOTES O8 DISCREPANCIES FOUND IN RANK NOTE ENVILODES
2 - Reference number - this must be obtained — from the NBSC
in all cases of counterfeit
notes
3 - To be completed if the counterfeit note was _ found in loose
cash in your branch
4 - To be completed if the counterfeit note was _ paid to a
customer in your branch and you — exchange it for a genuine
oddest pehsence aver
op tne te Neto ines
Suppeet Cane, NUSCS
rake Sit inthe var ds hor cen arcs re tere
note ah oe: ees, ent rafiewann dewey bebo CITG TIA Iaructieks ae at Ter revere)
I Discxrvered by Gsianere
‘Cheshast tytigraninth
‘2 Cuntertele notetsi reterned is 2 contnewer geet eecheseed [
Name, adileces seal teboptve carrier PUI
(of cotter ecuneny a ceuaeten . .
tae! FeCeTE I Asberore I
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Cash Handling / Counterfeit banknotes (Page 3 of 5)
Treatment of counterfeit banknotes
1 - To be completed if you have impounded the _ counterfeit
ch_05_02b v1.0
note when a customer presented it Former rere rr ; 1 .
as payment at the counter tendering tbe tragcunded nets) ease Age I
2 - To be completed if you found the counterfeit fhnpoiaece ti: fegruanse I sca ane Nationality I
note in a PBNE in your Cash Remittance (4) I e I
“Hae cobeur pe colar I
{cto I
DASGREPANCY POUND US HANK. NOTE ESVELORE RERORT
Roseved tae Paw weceived
trate opened Shoragessinpvan®,
‘chew apyébeabhe
(Cay tare veins mone
Cpwmned hy (siguateret
Wienesoe by teagrettre)
Prnns
The sections of the form that you will need to complete in addition to the top section and the incident reference number, which you must obtain
from the NBSC, will depend upon the circumstances in which the discovery of the counterfeit note occurred. The instructions in each case are
mandatory and must be carefully followed.
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Cash Handling / Counterfeit banknotes (Page 4 of 5) : ch_05_02c v1.0
Treatment of counterfeit banknotes
Counterfeit
If a counterfeit note is discovered in official cash (ie you cannot establish where it originally came from), you Notes Fou @
must complete section 1 and tick the corresponding box (see link). Loose in Cash Fi
If a counterfeit note is found by a customer, you must deal with the note according to the individual circumstances of the case. Notes that are
given to customers that are found to be counterfeit at the time of the transaction should be exchanged for genuine notes. When a customer
returns with a counterfeit banknote that they claim they were paid in an earlier transaction, you should try to discover, if possible, if the customer's
claim is genuine, by checking details of their transaction.
Unless you are convinced the claim is false, you should exchange the note and complete section 2 of the Se @
P6005, and tick the corresponding box (see link). by Customer F2
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Cash Handling / Counterfeit banknotes (Page 5 of 5) : ch_05_02d v1.0
Treatment of counterfeit banknotes
If a customer presents a counterfeit note as payment during a transaction at the counter (this includes ‘loose’ Alliance & Leicester cash deposits),
you must impound the note and issue the customer a receipt.
In this case you complete section 3 of the P6005 and input the customer's name, address and telephone oe i)
number in section 2 (see link).
Impounded F
When a counterfeit note is found in a Plastic Banknote Envelope (PBNE)/banded notes as part of your Cash Remittance, you must complete
section 4 of the form and tick the corresponding box.
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Cash Handling / Counterfeit banknotes (Page 1 of 1) : ch_05_03 v1.0
Remitting counterfeit banknotes
In all cases you must remit the counterfeit banknote to your Cash Centre, unless it has been collected by the Police, when you should send a
receipt signed by the Police instead.
When a counterfeit banknote is found in a PBNE deposited by an Alliance & Leicester customer, you should contact your Cash Centre and ask
them to communicate with the customer or Alliance & Leicester direct.
In this case you claim for the value of the note in the normal way but ask your Cash Centre to give you a Se @
reference to enter in section 4 of the P6005 (see link). A&L Depositor F1
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Cash Handling / Counterfeit banknotes (Page 1 of 2) i: ch_05_04 v1.0
Counterfeit notes found loose in official cash
If you discover a counterfeit banknote or notes amongst official cash in your branch (ie. the original source of the note cannot be identified):
@ Telephone the Network Business Support Centre (NBSC) to obtain an incident reference number
@ Complete section 1 of form P6005 and tick the corresponding box
1 - The signature of the person
who discovered the counterfeit
note(s)
2 - The signature of the witness
(if applicable)
@ Input the general details (including the incident reference number supplied by the NBSC) at the top of the form
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Cash Handling / Counterfeit banknotes (Page 2 of 2)
Counterfeit notes found loose in official cash
1 - The name of your branch
2 - Your branch code & (2) 3)
3 - The NBSC incident reference
number a a
4 - The number of counterfeit INTERFEIT NOTEY OR DISCREPAN
notes
5 - The value of counterfeit notes
ch_05 04a v1.0
ES FOUND IN BANK NOTE ENVEL I
ions are included on the reverse of this form. I
Incident reference number. 4
(Telephone the Network Business
Support Centre, NBSC)
GENE
Number of notes...
COUNTERFEIT,
(Fick one box and fi
thos ane onthe revierse).
Inputting Cash @)
@ Remit the counterfeit banknote(s) as unusable banknotes on the Horizon Online™ System. Remittance
Out Fi
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Cash Handling / Counterfeit banknotes (Page 1 of 7) : ch_05_05 v1.0
Counterfeit notes returned by a customer
At the time of the transaction
If the customer complains at the time of the transaction that they have been paid with a counterfeit banknote:
Identifying @
@® Check whether the banknote appears counterfeit (see link) Counterfeit
Banknotes Fi
© If appropriate, exchange it for a genuine banknote.
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Cash Handling / Counterfeit banknotes (Page 2 of 7) : ch_05_05a v1.0
Counterfeit notes returned by a customer
After the transaction
If a customer leaves the counter but subsequently returns with a counterfeit banknote (or an official headed stationery receipt from a retailer or
banking organisation because a banknote has been impounded by them):
@ Check the banknote/official receipt
@ Make a note of:
= the customer's name and address
= their telephone number
= their description
® Advise the customer that you will need to check local records before you can make a compensating payment
@ If possible, check whether payment has recently been made (eg. for a Pension or Allowance).
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Cash Handling / Counterfeit banknotes (Page 3 of 7)
Counterfeit notes returned by a customer
After the transaction
If you believe the customer's claim is genuine:
@ Complete section 2 of the form P6005 and tick the corresponding box
@ Please ensure that you obtain the customer's full name and address, and telephone number
by
Natne, address and ekephone number
af cxasomer returning a exoamerfedt
nate! neoeipt:
A Jenpounded counterfelt note(s)
Dextipsnn af customer cewming oF
tendering the impxninded note(s)
I Naine.. KEVIN THOMPSON
IB 'BROADWATER AVENUE
Lo cRINDHAM
[one een
[oR pe Bey
[Telepioone m0... 0208 682 SS5¢
7
I
I
I
Hi
I
I
J
Lad
[riche Me I
® Advise the customer that you need to consult your helpline before the note(s) can be exchanged
@ Telephone the NBSC to obtain an incident reference number
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Cash Handling / Counterfeit banknotes (Page 4 of 7) : ch_05_05c v1.0
Counterfeit notes returned by a customer
After the transaction
If you believe the customer's claim is genuine:
[ tnstructhons are included on the reverse of this form, i
@ Input the incident reference number given by GENERAL
the NBSC at the top of the form with other
general dotaile P Office name, Meh Hadhame Bort Offe® —pciters roterence rumber! 19224386
FAD code [OP (Telephone the Network Business
SAPADS Plant Code I 7
Counterfeit note(s) value
Support Centre, NBSC}
Number of motes... 5.7 ess
@ Exchange the counterfeit banknote/official receipt for a genuine one (but only if you have been given an incident reference number by the
NBSC)
® Remit the counterfeit banknote(s) as unusable banknotes on the Hae ee
Horizon Online™ System . Out
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Cash Handling / Counterfeit banknotes (Page 5 of 7) : ch_05_05d v1.0
Counterfeit notes returned by a customer
After the transaction
If you do not believe the customer's claim is genuine:
@ Try to impound the banknote, if possible.
If the customer refuses to hand over the note:
@ Advise the customer to report the counterfeit note to the Police.
If the customer is dissatisfied with this advice:
® Ask them to call the customer helpline on C
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Cash Handling / Counterfeit banknotes (Page 6 of 7) : ch_05_05e v1.0
Counterfeit notes returned by a customer
After the transaction
If you do not believe the customer's claim is genuine:
If you manage to impound the note:
® Complete section 3 of the Counterfeit Notes or Discrepancies Found in Banknote Envelopes form P6005 and tick the corresponding box
‘Telephone no.
A. Lempounded counterfeit note(s)
‘Description of customer retuming ae
fenderinng the impounded natal 83 WEhox gf i “Fa
ME Ny ‘
Hair cviourOARK ve colin BLUE/GREY
LEATHER JACKET, TEE SHIRT, JEANS
Clottin
@ Issue the customer with a Miscellaneous Receipt P1091 in exchange for the banknote (ensure that you input the value of the note and
the serial number on the receipt)
@ Call the NBSC to obtain an incident reference number
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Cash Handling / Counterfeit banknotes (Page 7 of 7) : ch_05_05f v1.0
Counterfeit notes returned by a customer
After the transaction
If you do not believe the customer's claim is genuine:
[ COUNTERFEDT NOTES OR TASCREPANCIES POUND IN arial NOTE ENVELOPES: I
@ Input the incident reference number given by the NBSC. Cities coat isa POST OFFICE Doaidont elon ei: MER RLEES
at the top of the form with the other general details Fadente OUT PA EEe \(Fileghiaie te Nipeas Beare
SAPADS Pant upon Ceeies, MBSE)
‘Coen fit eres wale te,
Nesmnber oF mates. c Fo
‘(Tick or ho ans ill the rebow sen abel hoki: coeephition:instnictions are one the never
® Report the counterfeit note to the Police and ask them to collect it
@ When the Police call to collect the note, ask them to supply an official receipt in exchange
@ Keep the copy of the form P6005 and the Police receipt in your branch for one year in case of further enquiries.
Please note: If the Police do not collect the note or refuse to supply a receipt, you should send the counterfeit note and the form P6005 to your
Cash Centre. You must not claim for the value of the note or remit the value of the note on the Horizon Online™ system as you are not
exchanging it for a good one.
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Cash Handling / Counterfeit banknotes (Page 1 of 5) : : ch_05_06 v1.0
Counterfeit notes impounded when presented by customers for a transaction
Transactions where you believe that the customer knows the banknote is counterfeit
If a customer pays you a banknote in a counter transaction for products or services and you suspect it to be counterfeit:
@ Issue a Miscellaneous Receipt P1091 in exchange for the banknote and include the customer's name and address with the details on the
receipt
® Keep a personal note of the customer's description
@ Advise the customer that the banknote will be handed to the Police
@ Report the incident to the Police by telephone and arrange for the &
suspect banknote to be collected
@ Hand the impounded banknote, with any further details available, to the I Recoipe for Miscellaneous paprient E foe Past Cote Lnsieed
Police } poy.
@ Ensure that you obtain a Police receipt (or Miscellaneous Receipt I sccabais eth oe - I I Baie searep
P1091 stamped/endorsed by the Police) in exchange for the note One counterfeit banknote X £20 I I
Keep the receipt in your branch for 12 months before destroying it.
GARY PARLOUR
\
I MWALKERN TERRACE, STEVENAGE, SG# 8XE
{
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Cash Handling / Counterfeit banknotes (Page 2 of 5) : : ch_05_06a v1.0
Counterfeit notes impounded when presented by customers for a transaction
Transactions where you believe that the customer knows the banknote is counterfeit
Please remember: The receipt has no monetary value as the customer was not able to use the note as payment for a transaction
If the Police refuse to supply a receipt (or to collect the counterfeit banknote):
@ Follow the procedure described in ‘Transactions where you believe that the customer does not know Se rel @
the banknote is counterfeit; see link. Counterfeits F1
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Cash Handling / Counterfeit banknotes (Page 3 of 5) : : ch_05_06b v1.0
Counterfeit notes impounded when presented by customers for a transaction
Transactions where you believe that the customer does not know the banknote is counterfeit
@ Advise the customer that the banknote must be sent to the issuing bank as you believe it is counterfeit
@ Complete section 3 of the Counterfeit Notes or Discrepancies Found in Banknote Envelopes form P6005 and tick the corresponding box
Descripsion of curtomer rehoming or
tendermg the impounded newest 6}
ROX. St 10 AEEROX 25-30
impounded by tsignaeune? Sex: MF Netonalty ASTAN I
Haie colmOARK Bye colon, PROWN I
IcathngENSTRIRE SMUT, WHITE SHORT AD THE
N IN <M ENV
@ Input the customer's name, address and telephone number in section 2 of the form
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Cash Handling / Counterfeit banknotes (Page 4 of 5) : : ch_05_06c v1.0
Counterfeit notes impounded when presented by customers for a transaction
Transactions where you believe that the customer does not know the banknote is counterfeit
@ Do not enter a tick in the tick box in section 2 of the form as you are impounding the banknote on this occasion, and not exchanging it
Name, address and telephone number UAL ALT ten
e€cusomer neturiing conantertet [Name ° : ]
sete bee EAL DERMASTER RSTREE
TRRUPPING I
SUSSEX I
BNE PO I
. “06103 938 602g I
[Tetepibane i. +
@ Issue the customer with a Miscellaneous Receipt P1091 in exchange for the banknote (ensure that you input the value of the note and
the serial number on the receipt)
@ Telephone the NBSC to obtain an incident reference number
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Cash Handling / Counterfeit banknotes (Page 5 of 5) : : ch_05_06d v1.0
Counterfeit notes impounded when presented by customers for a transaction
Transactions where you believe that the customer does not know the banknote is counterfeit
@ Input the incident reference number given by the NBSC with the other general details at the top of form P6005
COUNTERFERT NOTES OR DISCREPANCIES FOUND IN BANK SOTE ENVELOPES
Instructions are incheded on the reverse of this form,
ZEN.
cnt trad ANCERY COURT POST OFFICE ct ins LOMESESS
FAD code OSLO TTA {Telephone the Network Busines
SAPADS Phunt Code [JT 7} Suppert Cenine, NESC)
Counterfeit notets) value... £52,
Number cf rites
COUNTERFEIT NOTE REPORT
(Fick ane hex and fill in the releware detail: helen: completion instractions are on the reverse}.
@ Send the form to your Cash Centre with the counterfeit note
Please note: Ensure that you have input the incident reference number given by the NBSC as this is essential information.
® Do not claim for the value of the counterfeit note or remit the value of the note on the Horizon Online™ system as you are not
exchanging it for a good one.
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Methods of Payment
Cash Handling / Counterfeit banknotes (Page 1 of 8) ch_05_07 v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in ‘loose note’ deposits made at the counter
If you discover a counterfeit banknote in a ‘loose note' deposit made in your branch by an Alliance & Leicester customer (i.e. when a Plastic
Banknote Envelope (PBNE) is not used):
@ Impound the counterfeit banknote
@ Ask the customer to provide a genuine banknote for the same value
@ lf the customer is unable to do this ask them to amend the original barcoded document or cash ladder (if presented with a cash deposit
card) or, if they have presented a standard Cash Handling deposit document, to amend and initial the deposit form and counterfoil, and
sign the reverse of the deposit form in full, adding their title (eg. store manager)
@ Provide the customer with a Miscellaneous Receipt P1091 for the impounded note
Please remember: The receipt has no monetary value.
@ Advise the customer that the banknote must be sent to the issuing bank as you believe it is counterfeit
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Cash Handling / Counterfeit banknotes (Page 2 of 8) ch_05_07a v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in ‘loose note’ deposits made at the counter
@ Complete section 3 of the Counterfeit Notes and Discrepancies Found in Banknote Envelopes form P6005 and tick the corresponding box
3. Impounded counterfeit note(s) [7
Description of customer retuming or -
tendering the impounded notets) Height
I APPROX... SEE
aenieh by y Somes I Sex MF Nationality
oo SERRA I E . WHITE EUROPEAN
Hair colour... FAIR, Bye colour... BLUE...
@ Input the customer's name, address and telephone number in section 2 of the form
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Cash Handling / Counterfeit banknotes (Page 3 of 8) ch_05_07b v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in ‘loose note’ deposits made at the counter
@ Do not enter a tick in the tick box in section 2 of the form as you are impounding the banknote on this occasion, and not exchanging it
2. Counterfeit mote(s) returned by a customer and sot Cl
Name, address and telephone number
of’ customer retuming a counterfcit Nate.
nol’ receipe: Address.
Telephone no...0207 828: 2898... ccoene
® Telephone the NBSC to obtain an incident reference number
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Cash Handling / Counterfeit banknotes (Page 4 of 8) ch_05_07c v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in ‘loose note’ deposits made at the counter
@ Input the incident reference number at the top of the form P6005 with the other general details
COUNTERFEIT NOTES OR DISCREPANCIES FOUND IN BANK NOTE ENVELOPES
Instructions are inclided on the reverse of this form,
GENERAL
Office name.. CHANCERY, COURT PO Incident reference number. AISS2070F
FADeode PS P12 Iz] TRS (Telephone the Network Business
SAPADS Plant Code [_[T I} Support Centre, NBSC}
Counterfeit motels) value...£22 00...
Send the form to your Cash Centre with the counterfeit note
Please note: Ensure that you have input the incident reference number given by the NBSC as this is essential information.
@ Do not claim for the value of the counterfeit note or remit the value of the note on the Horizon Online™ system as you are not
exchanging it for a good one.
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Cash Handling / Counterfeit banknotes (Page 5 of 8) ch_05_07d v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in sealed Plastic Banknote Envelopes (PBNEs)
If you find a counterfeit banknote in a sealed Plastic Banknote Envelope that forms part of an Alliance & Leicester Business Deposit:
@ If possible, ask a second person to check the counterfeit note and witness the resulting shortage
@ Telephone your Cash Centre and ask them to contact the customer or Alliance & Leicester to invite them to make good the counterfeit
banknote (advise them to instruct the customer that the banknote will be passed to the issuing bank)
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Cash Handling / Counterfeit banknotes (Page 6 of 8) ch_05_07e v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in sealed Plastic Banknote Envelopes (PBNEs)
If the customer calls at your branch to make good the counterfeit note
® Accept the genuine banknote from the customer to replace the counterfeit one in the Alliance & Leicester Business Deposit
@ Issue a Miscellaneous Receipt P1091 to the customer in exchange for the counterfeit note
@ Send the counterfeit note to the issuing bank with a covering letter, giving the circumstances of the Eagend @)
transaction and the customer's details. Banknotes Fi
(for a list of bank addresses, see link)
If the customer does not call at your branch to make good the counterfeit note
@ Ask the Cash Centre to give you a reference number to enter in section 4 of the Counterfeit Notes and Discrepancies Found in Banknote
Envelopes form P6005
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Cash Handling / Counterfeit banknotes (Page 7 of 8)
ch_05_07f v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in sealed Plastic Banknote Envelopes (PBNEs)
If the customer does not call at your branch to make good the counterfeit note
@ Tick the corresponding box in section 4
Received from L405 COWAN £ Date received
Date opened... 2/8702 ..... Shortagesurptnst,...8/8/22
*delete as applicable
Cash Centre reference mamber.
Opened by (signature)...
Witnessed by (signature)?
PEOOS
@ Telephone the NBSC to obtain an incident reference number
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Cash Handling / Counterfeit banknotes (Page 8 of 8) ch_05_07g v1.0
Counterfeit notes found in a deposit prepared by an Alliance & Leicester business depositor
Counterfeit banknotes discovered in sealed Plastic Banknote Envelopes (PBNEs)
If the customer does not call at your branch to make good the counterfeit note
Instructions are included on the reverse of this form,
COUNTERFEIT NOTES OR DISCREPANCIES FOUND IN BANK NOTE ENVELOPES I
®@ Input the incident GENERAL
reference number at the
top of the form, with the Office nume., WARREN STREET PO Incident referenos number. AIZS965E7
other general details FADeode PPC BEES (Telephone the Network Business
SAPADS Plant Code [_[ TT] Support Centre, NBSC)
Counterfeit notets) value. .A82,.....
Number of notes... 2 occvcs
@ Remit the counterfeit banknote(s) as unusable banknotes on the Inputting Cash
Horizon Online™ System. Remittance Out
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Annex 2
14
12
13
14
21
2.2
2.3
24
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Initial Complaint Review and Mediation Scheme
Pensions and Allowances "Reintroduction" Fraud
Summary
Second Sight has asked whether there is an overarching briefing report which covers all
Pensions and Allowances “Reintroduction” fraud. In asking the question, Second Sight assert
that there appears to be “something of a pattern emerging” and, in particular, Second Sight
questions why some of the prosecutions it has seen references to in Applicants’ CQRs did not
proceed to a conviction.
It is not within the scope of the mediation scheme or within Second Sight's expertise to
comment on whether prosecutions should or should not have been brought, but for the
avoidance of doubt Post Office only prosecutes cases which merit prosecution and does so
always on legal advice. However, Second Sight may wish to note that Post Office's experience
is that the vast majority of the cases it takes to court involving reintroduction fraud are
successful prosecutions.
Second Sight appears to be drawing its information from eight CQRs which is only a narrow
subset of cases and which do not reflect all of Post Office's prosecutions. In addition, Post
Office has neither seen nor had the opportunity to investigate all of those cases. Nor has
Second Sight, except in relation to two cases, been able to consider the evidence and
assessment provided by Post Office.
There is no overarching briefing report which would assist Second Sight explain a ‘pattern’ as,
for the reasons explained in this paper, Post Office does not consider that such a pattern
exists. However, Post Office hopes that the information provided in this paper will answer
the points raised by Second Sight.
Pensions and Allowances Reintroduction Fraud
“Reintroduction fraud” occurs where a subpostmaster (or assistant) dishonestly processes a
false benefit claim through Horizon and then either does not remit the associated benefit
paperwork (because no paperwork exists) or, more commonly, remits (reintroduces)
paperwork for another benefit transaction (in effect trying to claim the same benefit twice).
This generates a cash surplus within the branch accounts which can be set off against existing
shortages or removed from the branch.
Second Sight has asked why the standard operating procedure, the design of the dockets, and
the cancellation process did not prevent reintroduction fraud occurring.
Second Sight has also queried whether the surpluses could be created by human error rather
than fraud.
In summary, Post Office's response is that:
3.1
3.2
241
2.4.2
2.43
2.4.4
2.4.5
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P&A dockets were designed by Department of Work and Pensions (DWP) and
therefore their design was outside of POL's control.
P&A dockets are no longer used - they have been replaced with the Post Office
Card Account which uses a "Chip and Pin" system.
Nevertheless, DWP did have in place a process whereby dockets were checked to
ensure that they were not duplicates, thereby identifying any fraud.
Even where the re-introduction of a benefit payment is accidental, this is still an
error for which the subpostmaster is liable
“Overclaims” and "reintroductions” will not cause a cash loss to a branch. They
generate a cash surplus, which as long as the cash is not removed from the
branch, will be off-set by a later transaction correction.
Benefit payment methods
There are various methods by which benefits can be received by customers:
Pension & Allowance (P&A) books
3.2.1
P&A books were provided by 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, address, reference number (National Insurance or pension
number), serial number of book and Common Payment Package Number.
Within each book were (usually) 20 dockets, vouchers or foils (referred to in this
note as vouchers). These vouchers were not barcoded but did detail the customer's
unique National Insurance or Pension number, serial number, a due on and not
before date (to ensure that the benefits could not be claimed in advance), FAD code
of the nominated Post Office branch, voucher number and amount to be paid. The
vouchers normally appeared two to a page and were sequentially numbered.
The vast majority of P&A books were barcoded. The subpostmaster or assistant
should scan the barcode or, where for some reason that was not possible (because
the barcode was damaged or missing) enter the P&A book details manually on to
Horizon.
On being presented with a P&A book by a customer, the subpostmaster or
assistant should examine the front cover to check the branch is the nominated Post
Office branch of payment, and then scan the barcode. Scanning the barcode or
entering the required details manually ensures that the P&A book is checked
against the Order Book Control Service (OBCS) electronic stop list, to see whether a
payment should be made or restricted in some way. Once these checks were
completed, Horizon would then instruct the subpostmaster or assistant to pay, pay
and impound the P&A book, or impound the P&A book. There could be a number
of reasons for a payment to be stopped or a book impounded (eg. the book had
been flagged as being stolen).
3.3
3.4
44
42
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3.2.5 In rare instances P&A books were not, and were not intended to be, barcoded. This
was as a result of the DWP requirements which varied for different benefits. It was
also DWP which specified which checks should be carried out for the different types
of books. In such cases, the subpostmaster or assistant was required to check that
the book did not appear on a manual stop payment list. Provided that it did not, in
the case of non bar-coded books, the subpostmaster or assistant would enter the
group number of the benefit to be paid as specified on the voucher, and the
amount to be paid. These details did not result in the book being checked against
OBCS and as such the instruction to pay or impound would not be given on
Horizon.
3.2.6 The vouchers collected from customers were despatched each week by each
branch to the Paid Order Unit (which in effect is the DWP) in Lisahally, Northern
Ireland.
3.2.7 P&A books ceased to be used in circa 2005 and were replaced with Post Office
Card Account.
Post Office Card Account (POCA)
3.3.1 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 customer taking his POCA card into a Post Office and withdrawing in cash
either some or all of the benefits within his account. POCA uses a chip and pin
security system to control access to the account.
Green Giros
3.4.1 Customers who lose their POCA cards or customers who are on temporary benefits
may be sent Green Giros by the DWP.
3.4.2 These are cheques (also known as DWP cheques) which set out the payment
amount and can be cashed in the usual way. These cheques are datestamped 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
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 as detailed above. These methods are as
follows:
Overclaim fraud
4.21 Overclaims occurred with P&A books and Green Giros.
4.2.2 For each benefit payment to a customer recorded on Horizon, the branch should
take from the customer the associated voucher or cheque and remit each week all
43
44
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vouchers to 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).
4.23 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.
4.24 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 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).
42.5 Where a fraudulent purpose was intended, the perpetrator would not scan the P&A
book barcode but would rather manually input partial details of the P&A book on
Horizon so to avoid the automated OBSC checks.
Reintroduction fraud
43.1 Reintroduction fraud is a more sophisticated version of overclaim fraud whereby
the false benefit pay-outs are disguised by the submission of duplicate paperwork.
4.3.2 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 datestamped or remitted out. 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 voucher / cheque is
date-stamped at the later date and remitted to DWP / Santander.
43.3 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 submitting the cheque or voucher from week 11 (by this time
datestamped). The fraud is premised on DWP / Santander not spotting the
reintroduced voucher / cheque.
43.4 The material difference between “overclaims” and "reintroductions” is that the
former is possibly caused by human error (eg. forgetting to remit a voucher)
however the latter takes a positive decision to re-process a benefit pay-out even
though the transaction with the customer has already occurred. Although a
“reintroduction” can happen by accident, the subpostmaster would still be liable for
this error and multiple reintroductions would be indicative of fraud.
Each of these frauds have 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.
51
5.2
5.3
5.4
5.5
61
6.2
63
6.4
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Detection of fraud
The detection of P&A book frauds, of any kind, was by the DWP (specifically the Paid Order
Unit or POU responsible for paid orders) which referred them to the Post Office where
appropriate.
The detection of Green Giro frauds, of any kind, are identified by Santander and the DWP (for
lost/stolen cheques) and referred to Post Office where applicable.
Examples of patterns that would suggest improper activity would include large overclaims,
high volumes of manual entries (as opposed to scanning barcodes or entering full details
manually) with barcoded P&A books, reintroductions week after week and significant amounts
of lost/stolen encashments in a branch.
Following investigation, where appropriate, a prosecution may have been brought by Post
Office, or sometimes a jointly led case with DWP. Accordingly, Post Office did / does not
instigate these investigations and in effect there were / are at least two parties who assessed
the situation and determined whether a case was worthy of investigation.
By the nature of these frauds, which often involve DWP, police assistance and powers of
arrest were often required, for example if a fraud was deemed to be significant or prolific, or if
there were reasonable grounds to suspect searches were necessary and evidence was likely.
Post Office only deals with suspects on a voluntary basis whereas suspects can be compelled
where the police are involved. For this reason, suspicions of this type of fraud are often
passed to the police to investigate.
Prevention of fraud
Second Sight has queried why such frauds have not been prevented.
In the above cases, the fraud is committed at the point in time that the Horizon operator in a
branch records a duplicate or false transaction on Horizon, or alternatively when the
perpetrator deliberately inputs a bar-coded book as non bar-coded. At that point, POL has no
information available to determine whether the transaction is fraudulent or not. This checking
process is engaged when the branch remits (or fails to remit) vouchers / cheques to DWP /
Santander as described above or where DWP identifies that barcoded P&A book vouchers
were being inputted as if they were non bar-coded. Horizon was required to have functionality
to permit subpostmasters to input the details of non bar-coded books because DWP issued
these books and required POL to pay the benefits from them.
Due to the number of transactions carried out throughout the Post Office network on a
weekly basis, it is not possible for the DWP or Santander to check every single transaction
carried out. Instead, they conduct random or rota checks. This may mean a fraud is not
immediately discovered. If an overclaim or reintroduction was discovered as a result of a rota
check, then Post Office would issue a transaction correction provided only a single instance of
an overclaim or reintroduction had been discovered. Where more overclaims or
reintroductions are evident, an investigation would be raised.
However, it was open to a subpostmaster to carry out immediate checks for PSA fraud as the
subpostmaster will have access to (i) each week's batch of cheques/vouchers and (ii) that
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week's records of P&A transactions as recorded in Horizon. It is therefore possible for a
subpostmaster to 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.
Non-fraudulent errors
A cash surplus may also be created in error if a subpostmaster or an assistant accidentally
duplicates a benefit payment entry on Horizon. The Mediator's Briefing Report at sections
10.5 (mis-key) and 10.8 (errors in cash handling) describes potential “operator-error” causes
of surpluses in more detail.
Although these errors would not be fraudulent, the branch is still liable for the error and it is
appropriate for POL to submit a transaction correction to the branch to correct the error.
In the case of an overclaim, if on receipt of the transaction correction the branch has the
missing voucher, then they can remit the voucher to POL and the transaction correction will
be withdrawn.
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.
Criminal prosecution of P&A fraud
There are a number of important matters to be taken into consideration when deciding
whether to prosecute a case of suspected P&A fraud. In particular, Post Office applies the
two-stage test for prosecution set out in the Code for Crown Prosecutors namely that:
. There must be evidence sufficient to provide a realistic prospect of conviction; and
. The prosecution must be in the public interest.
Various parties contribute to this decision-making process including DWP, Post Office
investigators, Post Office Decision Managers, Post Office Legal and the instructed barrister.
There are therefore a number of checks and balances built into the systern before a decision
is taken to prosecute.
Post Office also confirms that from its experience where prosecutions were conducted by
Royal Mail prior to separation, those prosecutions were also only brought following the same
process and on legal advice.
Investigations can take time, partly as a result of the involvement of the DWP and Santander
and the additional time needed to obtain witness statements or evidence from them.
In considering why prosecutions may not proceed, it is relevant to be aware that the victims in
P&A frauds are often the elderly and vulnerable. These victims are crucial as witnesses. Given
their circumstances, it can be a difficult experience for them to give evidence in court and
8.6
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some, naturally, do not wish to do so. In addition, some victims/witnesses pass away before a
case gets to trial or are otherwise unable to take matters forward due to ill health.
The availability of crucial witnesses is a factor in Post Office's decision whether to pursue a
case to prosecution. It does not follow that simply because a prosecution is not progressed all
the way to trial, Post Office was incorrect to seek to bring that prosecution in the first place.
It should be noted that where Post Office offers "no evidence" in Court this does not mean
that there is no evidence of an offence. Offering "no evidence" is the legal process by which
criminal proceedings can be brought to a close for a variety of reasons (eg. there may be very
strong evidence of an offence but it may not be in the public interest to proceed).
25 July 2014
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Annex 3
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Transaction Recovery - Horizon Online Quick Reference Guide
Hints and tips -when there's a failure
(Refer to flow diagrams on reverse)
Avoid logging on to more than one counter at once with same user name
If there’s a Disconnected Session Receipt, settle with the customer in line with what it says. KEEP A
NOTE OF ANY CASH exchanges.
Make a note of what you did, in case there are recovery questions
If counter has to be replaced and user hadn't logged out, make a note of last successful session
Hints and tips -awaiting recovery
Don’t use Transaction Log search to check the outcome of the failed session until recovery is
complete as it won't appear until fully complete.
Don't try to reverse transactions from the failed session
Don't use the customer's account balance to check the outcome as there could be a delay inthe
refund.
Don't put transactions through again unless recovery is complete.
You may have a cash variance. The stock unit can’t be balanced until the recovery has completed.
Stock volumes may require correcting.
Do log on to all counters with failed sessions as soon as possible (once the system seems stable)
Hints and tips -in recovery
Use the Disconnected Session receipt, or notes made when the counter failed, to help answer
recovery questions (if any)
If a different clerk is likely to be using the counter, make sure they have this information
Once recovery is complete, you can use Transaction Log search if needed
Contact NBSC if the outcome doesn’t match what you did and it is not something you can reverse /
put through again
If recovery fails, this will be automatically investigated, but you should inform NBSC
Recoverable transaction types
During a customer session, the basket of transactions is built up on the counter, and stored on the
database at the data centre when the session is settled
For some types of transactions, information is stored centrally during the transaction -these are
Recoverable transactions
Recoverable transactions are usually those where there is an interaction with an external system
during the transaction
Non-recoverable transactions are also referred to as Cancellable
The only information stored permanently on the counter is the last completed session number
And those that aren't recoverable
Which transactions are Recoverable? (Everything else is Cancellable, including)
Bureau Pre-orders. All Mails transactions (including labels)
Moneygram Bill payments
Online Banking Services Personal banking
E-Top Up Transcash
Reversals (new and existing) Back office transactions other than reversals
Postal Orders All Mails transactions (including labels)
Post Office Payout
National Savings and Investments
Drop and Go
.Debit/credit card payments
Horizon Online Transaction Recovery — Quick Reference Guide
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Transaction Recovery - Horizon Online Quick Reference Guide
What to do when a Horizon Online counter is unable to connect to the What to do when a Horizon Online connectivity is restored
Data Centre or becomes unavailable due to Screen Freeze
Start Here
—— co -
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as detailed on the the customer
Disconnected Session
a
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‘When the Counter resumes
‘you should follow the on
screen instructions to process
the recovery
Koop 1 copy wih the stock unit
Horizon Online Transaction Recovery — Quick Reference Guide
Transactions that have
ben recovered are
deta onthe screen,
You wil see one screen
for each transaction to
be recovered,
Select Yes or No as
I atveit to rose
os
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trarsacton was dealt with at
the time the counter becarne
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automatically recover
‘some transactions if
required
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Annex 4
11
1.2
13
14
15
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3.1
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Initial Complaint Review and Mediation Scheme
ATMs - power, telecommunications and third party fraud
Summary
Second Sight has questioned whether Post Office ATMs accurately retain transaction
records in the event of a power or telecommunications failure. It has also questioned
whether branches can suffer losses due to third party attacks on ATMs.
The ATMs used by Post Office are designed to be resilient to a power and
telecommunications failure. In the event of such a failure, data is stored securely on a
hard-disk in the ATM and the ATM shuts down in order to prevent misuse. These
systems are tested and upgraded by Wincor Nixdorf / Bank of Ireland ("BOI"), the ATM
provider, and they meet industry standards.
Post Office is confident that a power and telecommurnications failure in relation to an
ATM will not cause any discrepancy that could feed through to an error in a branch's.
accounts.
Neither Post Office nor BO! are aware of any form of ATM fraud that will create a
shortage in a branch if a branch is following the correct ATM accounting procedure.
This does not mean that cash is not lost due to ATM fraud (this is a risk for any
operator of ATMs) but Post Office's standard procedures mean that such losses does
not fall on a branch.
This paper responds to a series of questions on these topics posed by Second Sight.
What happens if an ATM is turned off and on again during the day or weekend and
what happens if there’s a power cut interrupt?
If there is a loss of power then the ATM will go out of service but the transaction data
and information on the daily ATM total receipts will not be lost as this will be stored in
the electronic journal on the ATM.
Does the ATM always pick up from where it left off and incrementally add new
dispensed figures (dispensed before 16:30 hrs but AFTER the power or telecoms
interrupt) to those stored figures?
Yes.
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Have POL/Bol/Wincor ever run tests on this functionality?
BO! and Wincor perform tests at User Acceptance Testing level when any change is
developed or deployed which would test for this functionality.
Also any rebuild/maintenance to an ATM in the field that affects its software would
also go through user acceptance testing before being brought back into service.
Are the ATMs running on a Windows NT platform?
All BOI ATMs in Post Office branches have always operated on Windows XP and never
the Windows NT platform.
There are currently changes to ATM operating systems across the industry as XP is
being replaced. BOI is working with Wincor on planning for this change. This
programme is planned for 2015 as both central and local device changes are
required.
In the interim, whilst the ATM fleet is on the WIN XP operating system, BO! do not rely
on Windows XP security. BOI uses industry leading software on all fleets to mitigate
against the security risks associated with WIN XP.
What sort of routine investigations are carried out (by POL/Bol/Wincor) when ATM
cash shortages are reported?
Any unresolved cash discrepancies can be escalated by the branch for further
investigation by BOI, POL or Wincor as appropriate.
Any ATM Horizon stock unit misbalances (shortages or surpluses) can be escalated to
NSBC. NBSC (or the ATM team at Post Office) will, where applicable, then go through
all relevant ATM Horizon transactions (e.g. cash transfers, cash dispensed figures, etc.)
with the branch to help resolve the issue.
If further investigation is required, the matter can be escalated to Wincor. Initial
investigations carried out by Wincor typically involve reconciling the weekly balancing
information submitted by the branch through Horizon against the Electronic Journal
information recorded on the ATM. Wincor will contact the branch directly with the
outcome of its investigations
If the outcome of these investigations point to an incorrect figure being recorded in
Horizon by branch staff or there being a miscount of physical ATM cash in branch, this
will be discussed with the branch as the subpostmaster may be liable for this type of
shortage/loss.
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If the outcome of these investigations point to a technical fault with the ATM (which is
extremely rare) this can produce a shortage when balancing the ATM or a loss on the
Horizon ATM stock unit. In these cases a credit is passed to branch in the form of a
transaction correction.
Are Wincor ATMs susceptible to partial retract, transaction reversal or malware
attacks / fraud? What steps has POL / Wincor taken to combat any recent malware or
hacking attacks on ATMs?
Neither Post Office nor BO! are aware of any form of ATM fraud that will create a
shortage in a branch if a branch is following the correct ATM accounting procedure.
This does not mean that cash is not lost due to ATM fraud but Post Office's standard
procedures mean that such losses do not fall on a branch.
As explained in Post Office's previous note to Second Sight on retract fraud, this type
of fraud does not cause a loss to a branch where the correct Post Office procedure is
followed. Second Sight has not defined what it means by a “transaction reversal
attack” but Post Office understands this to be fundamentally the same as retract fraud.
As explained above, BOI ATMs have in place industry leading software security against
malware attacks which includes Wincor’s PSA/Protect-1 OS which protects each ATM
from remote attack.
Although not specifically raised by Second Sight, another form of ATM attack is cash
trapping. In the case of cash trapping, there is no loss to the branch as cash has been
dispensed correctly from ATM (and will be recorded as being dispensed by the ATM on
the Bank Totals receipt) but intercepted by fraudster. It will be the customer that did
not receive their cash. Although Post Office will assist customers and BO! to
investigate any cases of cash trapping, it will not cause a loss in the branch accounts
as the accounts will record cash being dispensed and the cash will have been taken
(albeit by the fraudster rather than the customer).
20 October 2014
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Annex 5
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Initial Complaint Review and Mediation Scheme
Retract fraud on ATMs: Post Office Review
Executive summary
Retract fraud:
Retract fraud occurs where a customer conducts a withdrawal transaction from their ownbank account
using an ATM. When the cash is vended, the customer looks to remove the middle notes, leaving the
top and bottom notes behind, therebyhoping to trick the ATM into believing that the cash has not been
taken. The ATM then retracts the cash back into the machine, believing that it has retracted the entire
sum withdrawn,
Issue:
Second Sight has raised a concern that when a subpostmaster comes to count the cash in a ATM
which has been subject to retract fraud, there would be a shortfall between the amount of cash
physically in the ATM and the amount recorded on the ATM as being retracted. Second Sight asis
whether subpostmasters are held liable for this loss.
Response:
As long as a subposmaster follows the correct ATM balancing procedures andaccurately records the
amounts of cash in the ATM, the subpostmaster will not be liable for anyATM cash loss caused by
retract fraud. A loss of cash from an ATM caused by retract fraud falls on Bank of Ireland (BOI). It is
not passed to a subpostmaster and there will be no negative impact on a branch's accounts if the
subpostmaster has followed the proper accounting process.
Retract fraud
All ATMs in the UK (including those operated byBO! at Post Office branches) are at risk of retract
fraud. Customers undertake this fraud in the hope of persuading their bank that theyhave not
received the cash withdrawn from an ATM.
After physically removing cash from the ATM in the manner described above, the fraud is perpetrated
in two ways:
(i) The customers waits to see if a full refund of their cash withdrawal isautomatically
refunded by their bank; or
(ii) The customer contacts their bank to "complain" about a withdrawal from their account
on the false grounds that theydid not receive the withdrawn cash from the ATM.
It should be noted that where moneyis retracted, the withdrawal transaction still proceeds and the sum
“withdrawn" is debited from the customer's account.
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 re-credit the customer's account.
ATM accounting process for retracts
The branch accounting process for retracts is set out in Post Office accounting instructions. The latest
version of the process is set out at section 3.3 of MISC1425: Post Office® Accounting Instructions for
Bank of Ireland ATMs-— a copy of which has been provided to Second Sight.
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This accounting process has not materially changed for a number of years. Previous versions of the
accounting instructions have also been provided to Second Sight.
The accounting process for retracts is as follows:
1. Each working day, a subpostmaster must check the ATM 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.
2. If any retracts have taken place, the subposmaster must physically remove the
retracted notes from the ATM (which are stored in a separate partof the ATM from
other cash).
3. 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
4. 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.
The subpostmaster does not have access to, nor is required to record on Horizon, the value of the
withdrawal transactions conneded to the retracts. Therefore any loss due to retract fraud (ie. where
there is a difference between the withdrawal value and actual amount of retracted cash)will not be
recorded on Horizon bythe subpostmaster and cannot therefore be the cause of a loss in the branch
accounts.
It should be noted that BOI ATMs onlyallow 2 retract transactions before the machine goes out of
service. In this instance, the retracts need to be reported (as described above) and the retract counter
within the ATM has to be reset to zero in order to bring the ATM back into service. This is to prevent
multiple retract frauds happening. It also means that accounting for retracts on Horizon is verysimple
as the amount of cash involved is likelyto be small.
Reconciliation with BOI
Post Office provides to BO! 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 amountof 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.
As long as Post Office can provide the dailyretract declarations from Horizon then any loss caused by
any retract fraud does not fall on the subpostmaster.
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 informatiorm 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 byBO! to
Post Office.
Reconciliation with the subpostmaster
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.
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 properlyaccounted for this cash on
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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.
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 due to them not following proper accounting procedures
Post Office considers that this allocation of risk between the parties is fair and reflects each parties’
respective responsibility for preventing retract fraud. In the round, the risk to subpostmasters is small,
entirely within a subpostmaster's control and can be eliminated if the subpostmaster accounts for
retracts on a daily basis as per the ATM operating and accounting instructions issued byPOL.
5 March 2014
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Annex 6
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Strictly confidential and commercially sensitive
Initial Complaint Review and Mediation Scheme
Suspense Account
This paper
This paper has been prepared for Second Sight in response to the following question raised by
Second Sight:
“Could any SPMRs have been charged by Post Office Ltd for amounts that become incorporated in
suspense account balances that were subsequently taken into profit by POL or any of its
Counterparty Companies, or that remain as credit balances on the balance sheet of POL or any of
its Counterparty Companies?”
Summary Postion
Post Office principally pays its clients according to transaction information originating from
branches. If the transaction is completed correctly the branch accounts will balance (ie. they will
show no loss or surplus of cash or stock). Post Office will then deal separately with any
reconciliation discrepancy with a client.
If a branch, a client or a customer suspects an error with a transaction then there are processes in
place for investigating that suspected error. Where an error is suspected in branch and a
transaction correction is sent to that branch, the branch has full visibility of that transaction
correction and has the ability to challenge that transaction correction. So long as the branch
validly challenges the transaction correction with the necessary supporting paperwork from the
branch's records, the branch will not be held liable for the underlying discrepancy.
Client reconciliation - how it works
Horizon collects data on a substantial volume of transactions which allows it to identify issues by
branch, transaction type, client and method of payment according to how the transaction was
recorded in the branch. In conjunction with clients, and subject to data protection requirements,
Post Office can also sometimes track transactions back to individual customers or, in many cases,
the subpostmaster may themselves recall the customer involved through their own knowledge of
their customer base.
For many services, the transactional records as recorded in Horizon in branch are the sole data
stream regarding activity in a branch. For a number of transactions and methods of payment,
though, it is possible to compare the transactional records as recorded in Horizon with the clients’
view of the transactions. In these latter cases, the daily transactional totals recorded in Horizon by
the subpostmaster are matched with clients’ records which in almost all cases are the same. In
the rare cases where there is a mis-match, Post Office investigates the difference - a process
which can involve the subpostmasterand the client.
Where an error is suspected in branch, a transaction correction may be issued with relevant
evidence to correct the accounting record of what has happened in branch. This may occur, for
example, where there is a discrepancy between the branch records and the client records. If a
difference arose where the client records exceeded the branch records then for services where the
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Strictly confidential and commercially sensitive
customer was paying money in that could lead to a charge from Post Office to the branch or where
the customer was withdrawing money it could lead to a credit from Post Office to the branch.
The transaction correction process is fully visible to each branch and corrections cannot be made
without an subpostmaster having accepted them. Subpostmasters may also challenge a
transaction correction which would result in the transaction correction being put on hold pending
further investigation by Post Office. For some transactions, the branch may hold additional
paperwork or evidence not available to Post Office. Often branches are asked to submit this extra
evidence to Post Office in order to validate the subpostmaster's challenge.
It should be noted that assuming the branch paid out or took from the customer cash to the same
value as the actual transaction, then there will be no physical loss of cash and the transaction
correction will simply correct the accounting error.
However, the branch is accountable for any failure to follow correct operating procedures in terms
of processing transactions. It is the case that a subpostmaster may bear a loss if they have
incorrectly processed a transaction or failed to follow the necessary processes for correcting that
transaction or should they accept a transaction correction even though they were holding the
necessary evidence to disprove the transaction correction.
Example
An ATM is directly connected to the LINK network and hence to the banks. Customer withdrawals
are therefore reported direct to the customer banks and to Bank of Ireland as the provider of the
ATMs. Bank of Ireland therefore knows how much should be paid to Post Office for the value of
withdrawals done in the Post Office estate. In tandem with this, subpostmasters are required to
record in Horizon the value dispensed to customers on a daily basis (as shown on the 16:30-16:30
receipt).
If a subpostmaster erroneously records the wrong cash dispensed figure on Horizon, this would be
revealed as a discrepancy once the Horizon figures were compared to the Bank of Ireland figures
directly recorded from the ATM. However, this would not cause a cash loss, only an accounting
error, that would be corrected by a transaction correction.
Alternatively, if (in theory) Bank of Ireland's figures were incorrect, it would be a relatively
straightforward exercise for a subpostmaster to challenge a transaction correction and submit to
Post Office the 16:30-16:30 receipt from the ATM that would prove they have entered the correct
figure into Horizon.
Suspense account
The proposition underlying Second Sight’s question is that where the Counterparty Company - the
“client"- informs Post Office that an amount due to the client is greater than that recorded by the
Branch, that charge is automatically passed onto the branch, and the branch has limited data on
which to investigate discrepancies. Second Sight appears to assert that this results in a systemic
control weakness. This assertion is incorrect given that:
+ Post Office and the client are often able to resolve differences between themselves in the first
instance, or are able to resolve them with the help of the subpostmaster, before getting to the
stage of issuing a transaction correction.
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Strictly confidential and commercially sensitive
+ A transaction correction will be issued where appropriate with supporting evidence and the
subpostmaster can either accept or challenge (on the basis of the evidence and other
information held in branch or available on Horizon).
+ Horizon provides a subpostmaster with a number of ‘reports’ which can be used to resolve
queries in branch.
It is acknowledged that Post Office has a suspense account for discrepancies between Horizon
records and client records. These discrepancies are held for 3 years for investigation before being
released to Post Office's profit and loss account.
This does not however operate to the disadvantage of subpostmasters. As described above, there
are extensive processes in place to investigate Horizon-client discrepancies. To the extent that
Post Office issues a transaction correction to a branch then the transaction correction and its
evidence may be challenged by the branch. So long as a subpostmaster challenges a transaction
correction and submits the applicable evidence to show there is no error on their part, Post Office
will withdraw the transaction correction even where the client does not accept the evidence from
the branch. The unresolved discrepancy therefore does not fall on the branch, but rests in the
suspense account to be resolved between Post Office and the client.
Post Office notes that in addition to the assurance processes referred to in this note, Second Sight
have given subposmasters the opportunity to challenge specific transactions or transaction
corrections through the Spot Review process and through the Scheme. The outcomes of those
investigations have not revealed any findings that overturn Post Office's position.
Other issues
In the narrative supporting the central question, Second Sight also raise a number of other issues
which we would like to address:
+ Second Sight claims to have seen many cases where a non-cash payment does not hit the
customer's bank account, particularly in relation to power or communications interruptions
which Second Sight alleges can cause one side of a transaction to fail. Post Office has already
set out in some detail what happens in relation to power or other communications disruptions
and the subject is covered in Second Sight’s Part One Mediation Briefing Report. In addition,
the issue Second Sight refers to as a “one-sided transaction” is being dealt with separately.
+ Likewise with other examples quoted where Second Sight alleges errors have occurred - it is
not possible to comment on those in the absence of more detail and the opportunity to
properly investigate what happened in those instances. However, assuming that these
examples relate to cases in the Scheme, Post Office will investigate them in the normal way.
+ In relation to comments made by Post office about challenging regulated and audited entities,
this was not meant to be interpreted as meaning those entities would never make
administrative errors. The reasoning was simply that such entities are regulated and are
required to have systems and processes in place to comply with industry standards. It is,
therefore, not wrong of Post Office to assume that those systems and processes work properly
unless there is evidence to suggest that they do not.
29 July 2014
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Annex 7
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HOL help National Lottery Scratchcard returns
Unactivated full packs
When a Scratchcard game is withdrawn, Camelot notifies Parcelforce Worldwide
(their contracted courier) of the number of unactivated packs of expired Scratchcard
games to be collected from each branch. Camelot will send you a collection bag in
which the stock should be despatched. You should complete the form provided by
Camelot and attach the label, also provided by Camelot, to the collection bag.
Please remember: You must not place stock that is still activated in the collection
bag.
If you have unactivated full packs on hand, and the Parcelforce Worldwide
collection officer visits your branch:
* Check the identity of the courier, who will carry a photo ID card
¢ If you have,any.doubts about their identity, phone the Camelot Retailer
Helpline or GRO
¢ Sign the form (showing the number of packs to be collected) presented by the
courier and ask them to sign as proof of the collection
Please note: The Parcelforce Worldwide collection officer will only collect complete
unactivated packs. If there are no packs to be collected the courier will complete a nil
return. The Camelot Field Sales Executive will not deactivate full or part packs that
have been activated.
Keep two copies of the form locally for six months.
Unactivated full packs Accounting
As unactivated packs of expired scratchcards are not part of your value stock, you
do not need to account for their withdrawal on the Horizon Online™ system.
Unsold activated stock
The Parcelforce Worldwide collection officer will not collect full activated packs
from your branch when a Scratchcard game is withdrawn.
Instructions for the return of any activated stock to Swindon Distribution Centre are
published in Operational Focus. When you return this stock as instructed, you must
add the activation slip.
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Please remember: If the activation slip is not included, Swindon Distribution Centre
will return the Scratchcards to the relevant branch and the branch bears the cost of
the unsold stock.
If you have lost the activation slip for the stock you are returning:
* Call the NBSC on
¢ Explain which games you do not have an activation slip for.
Unsold activated stock
The NBSC will request:
* your Post Office Branch Code
* your branch Camelot Lottery Retailer number
e the relevant game and number
* the game pack serial number (the first nine numbers of the 12 - digit serial
number)
Please remember: The game pack serial number can be found on any of the
Scratchcards in the pack and is made up of the following: first three digits: the game
number; next six digits: the serial number of the pack (eg 149 - 293847). All nine
numbers must be quoted.
The NBSC will phone you back to confirm if you have authorisation to send the
stock without an activation slip, or not. If the authorisation is given, the NBSC will
provide you with an authorisation reference number.
Please note: Authorisation will be denied if the game was activated after the Post
Office Ltd game end date or if the withdrawal deadline date for remitting the stock
to Swindon Distribution Centre has passed. The stock must then be removed from
the stock unit and the loss made good by the relevant branch.
Please make a note of the authorisation reference number as this number must be
recorded against the appropriate game on the Monthly Stock Returns form RS 1, in
order that the stock is accepted at Swindon Distribution Centre.
Unsold activated stock
If you have several games to return without activation slips, the NBSC will provide
you with a separate authorisation reference number for each authorised game.
Returning Withdrawn Scratchcards
When you need to return Scratchcards to Swindon Distribution Centre you will
receive a Monthly Stock Returns form RS 1 (forms must be completed in duplicate,
carbon paper will be required).
The following details will be pre-printed on the form when you receive it:
* your Post Office Branch Code
¢ the name of your branch
* your branch address (including the postcode)
* your telephone number
* the Client Accounting week number when you are due to return your stock
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Please note: You should make every effort to return your stock in the specified week.
If you miss the return date, for example due to annual leave commitments, you
should return it as soon as possible after this date.
Returning Withdrawn Scratchcards
Details of all the value stock items you need to
return will also be listed. Again, the following
details will be pre-printed:
¢ the item code (this column has been
divided to match the code format on the
Swindon Distribution Centre computer
system)
¢ adescription of the stock
«the unit of measure
¢ the value per unit
« Complete table A of the form RS I as
follows:
© print your name and sign the form
o date-stamp the RS 1
o enter the current Client
Accounting week number if you
return your stock in a week other
than the Client Accounting week
specified on the form
Please remember: You should make every
effort to return your stock in the specified week.
«For each of the items listed, enter:
othe quantity
othe total value of each item (if you do not have a particular item that is listed,
insert 0.00)
¢ Enter the total of Table A
Do not add the details of any additional stock items in this table.
When you have completed the Stock Returns Forms RS1:
Enter the stock Remittance onto the Horizon Online™ system and despatch the items
from your branch.
The appropriate options are as follows:
Value of scratchcard Option
£1 Instants £1
£2 Instants £2
£5 Instants £5
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Annex &
Return of non-activated scratchcard games
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Your branch should have received a grey Pack Number Game Name
pouch with a yellow label from Camelot 0611 Cool Cash
to return un-activated National Lottery 0575 Quick Cash
scratchcard packs (the returnable games 0591 Cash Match
and numbers are listed in the table to a a ae
the right). Please follow the instructional ou =
. 0589 Match 3 Tripler
guide that comes with the pouch and =
0578 Money Spinner
ensure that you return ALL of these un- 0583 £100,000
activated packs to Camelot by Monday 0608 £100,000
22" December 2014. 0601 Lucky Streak
Failure to do this will result in a financial 0604 Cash Rich
loss for Post Office. 0598 £70,000
0597 £250,000
Please return un-activated packs to 0616 £250,000
Camelot by following the instructions 0612 Monopoly
mo 0603 Bingo
Return of un-activated scratchcards to 9600 Bejeweled
0587 £1 Million
Camelot
Please make sure you return all un-activated scratchcard packs from the above list
to Camelot in the correct grey collection pouch provided by them.
If you haven't received a grey collection pouch marked “September” please contact
the Camelot Retailer Hotline immediately, they will then send out a Black returns
pouch with a red label. You MUST return stock in this pouch as soon as you receive
this.
Call Parcelforce o1
packs.
If Parcelforce doesn't collect, report this to the Camelot retailer hotline immediately.
Under NO circumstances should packs be given back to your Camelot
Representative.
arrange for the collection of un-activated
Please Note: You must proactively sell to exhaustion any activated scratchcards of the
closing games until the end date of the pack as any retumed activated cards incur a loss to
the Post Office.
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Annex 9
14
12
13
14
15
16
17
18
21
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Initial Complaint Review and Mediation Scheme
Audit Trail on Girobank Deposits
Summary
Second Sight has raised a question about whether there is an “audit trail” available in relation
to Girobank deposits on Horizon
Although Second Sight characterise this as an “audit trail" issue, it is in fact an issue about
there being safeguards against branch staff making an error by keying in the wrong figure
into Horizon. An audit trail is simply one possible safeguard against this type of error.
Before 2008, at the end of each day the subpostmaster would rem out the paper paying in
slips presented by customers for Girobank deposits. The safeguard being that FSC (via
Girobank) would then compare the figures on the paying in slips against the information input
on Horizon by branch staff to identify and correct any keying in errors.
After 2008, the use of paper paying in slips started to be phased out by Girobank and it
moved customers to using chip and pin cards. This change was outside of Post Office's
control and so there was no way to retain the audit trail presented by paying in slips.
Post Office implemented a substitute safeguard in that customers were asked to confirm
through the chip and pin machine that the figure entered on Horizon was correct.
In effect, the safeguard of seeking the customer's confirmation of the amount to be deposited
was still in place but it moved from being via the paying in slip to via the chip and pin
confirmation.
Post Office considers that its safeguards, both pre and post 2008, against keying in errors in
branch are adequate. In any event, this issue only arises where branch staff make the initial
keying in error and, as per the terms of the subpostmaster contract, subpostmasters will be
liable for any loss that arises as a result of this error. It is an obvious point that, regardless of
any safeguards, the best way to manage this risk is for branch staff to be diligent in their
work.
It is noted that the chip and pin method of making deposits into bank accounts without any
paper audit trail is industry standard practice in high street banks which have also phased out
the use of paying in slips.
Girobank deposits
Girobank was the company that provided the banking services behind Girobank deposits.
Alliance & Leicester acquired Girobank in 1990 and Santander took over Alliance & Leicester
in October 2008. For ease of reference, all three organisations are referred to as "Girobank"
in this note. Girobank deposits are deposits of cash into a customer's bank account. They
work, for all intents and purposes, like a customer making a deposit of cash into a bank
account at any high street bank.
2.2
3.1
3.2
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Girobank deposits should not be confused with Green Giro payments. Green Giro payments
relate to the payment of benefits to customers. This is an entirely different product and is
outside the scope of this note.
The issue
Second Sight have described their concern as follows:
3.11 "In mid-2008 the method of processing receipts into Giro Bank accounts was
changed. Previously, customers completed a two-part paying-in slip. One copy of
the paying-in slip was retained by the customer, another was retained in the
branch and cross-referenced to the entry made on Horizon. If, for example, the
counter clerk accidentally keyed in £2,000 instead of £200 and did not spot that
error immediately then, when the next balance was carried out, Horizon would
have reported that there should be £2,000 cash in the safe whereas in fact there
was only £200 in it (i.e. there would be a £1,800 cash shortfall).
3.1.2 Prior to the mid-2008 processing change, the Subpostmaster would have been
able to identify that £2,000 cash had been entered onto the system relating to a
customer whom, by cross-checking with the paying-in slip, in fact had only paid in
£200. Hence, a correction could have been actioned and the branch's books
brought back into balance. In such a case, the apparent cash shortage would have
been eliminated because the audit trail enabled the specific cause of the shortage
to be identified and corrected.
3.1.3 However, after the processing change, paying monies into Giro Bank accounts was
actioned via swipe cards and one-part paying in books with no supporting
documentation being retained in branch.
3.1.4 After that processing change, the counter clerk would swipe the customer's card to
access the account details and then key in the cash deposit. After inputting the
deposit, the system printed out just one copy of a receipt (which specifically states
on it "NOT TO BE RETAINED") and this was then passed back to the customer
along with their swipe card.
3.1.5 It follows that, if the counter clerk had accidentally input £2,000 instead of £200
into Horizon and did not immediately spot the error, the balance would show an
£1,800 difference between the cash holdings on Horizon and the actual cash
holdings (as in the previous example). However, after the processing change, there
would be no supporting documentation available either to the Subpostmaster, or to
Post Office centrally. Therefore neither the Subpostmaster nor the Post Office's
central processing unit would be able to check whether or not the cash deposit
entries on the system reflected the actual amount of cash that had been
deposited.”
The process change described above was driven by Girobank. Post Office had no control over
the bank's change in the way it conducted its business and could only adapt its processes to
accommodate the change. The lack of a paying in slip after 2008 was therefore outside of
Post Office's control.
44a
4.2
43
44
45
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Response
Pre-2008 the process for recording a Girobank deposit was:
414 A paying in slip would be completed by the customer showing the total amount of
the deposit and the various denominations of cash that made up that total.
41.2 The customer would hand over the cash to be deposited which would be counted
by the branch staff and checked against the amount on the paying in slip.
4.13 The amount to be deposited would then be typed into Horizon by the branch staff,
the transaction completed and a receipt given to the customer.
414 The paying in slip would be retained in branch until the end of the day when it
would be remitted to Girobank via Royal Mail.
In processing a Girobank deposit, there is a risk that branch staff could key in the wrong
deposit amount into Horizon (a Miskey Error). This creates a discrepancy because the amount
of money that will be deposited into the customer's account (as per the paying in slip) is
different from the amount recorded on Horizon.
To mitigate this error, Santander would compare the value of the deposits on the paying in
slips to the values stated on Horizon. Through this reconciliation process any discrepancies
would be notified to FSC. Where there was a discrepancy, FSC would generate a transaction
correction back to branch to correct the mistaken Horizon entry.
If a subpostmaster identified an error, he/she could contact NBSC to highlight the transaction
for review during the reconciliation process described above.
It should be noted that:
45.1 It was not standard Post Office process for branches to correct Miskey Errors in
branch - they should have been reported to NBSC. In fact, in branch corrections
could create confusion in the accounts making it difficult for FSC to determine if an
error had been corrected. For example, if the Miskey Error was corrected at the
end of the day (by reversing the erroneous transaction and putting through a new
correct transaction), the Horizon record of the transaction would be correct and
match the paying in slip but would not then match the receipt handed to the
customer early that day (which would reflect the details of the erroneous
transaction). This could then lead to a customer complaint that could be difficult to
reconcile with the branch accounts.
45.2 The above process does not include any check of the cash taken for the Girobank
deposits. Indeed, such a check could not be undertaken as the Girobank deposit
cash would have been mixed during the day with the branch's general cash
holdings. Also, the Girobank slips are typically picked up by Royal Mail at around
5pm, which in most branches would be before that day's cash declaration so the
slips would not have been available to help resolve any cash handling error. The
only point at which it is possible to check that the correct amount of cash has been
taken from the customer is at the point of the transaction.
46
47
48
49
4.10
411
4.12
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After 2008, Girobank deposits were processed by way of swipe card or a chip and pin card
although paper paying slips were still used by some customers:
461 The customer would either hand the card to the counter clerk to swipe on the
Horizon keyboard or place their card into the chip and pin reader and tell the
branch staff how much cash they wished to deposit.
4.6.2 The branch would take the cash from the customer and count it to make sure it
matched the deposit amount; the branch staff would key in the deposit amount on
Horizon.
4.6.3 The chip and pin machine would then display the amount to be deposited (as per
the figure keyed into Horizon) and ask the customer to confirm the amount;
46.4 The customer would confirm the amount and enter their pin number. The branch
staff would then complete the transaction on Horizon.
4.65 No paperwork is retained in branch and nothing is remitted to Girobank.
It is noted the post-2008 process described above is the same as operated by all High Street
banks conducting bank deposits after those banks phased out paying in slips in favour of chip
and pin machines.
Although Second Sight suggests that a lack of an “audit trail" is in itself a problem, Post Office
considers that it is more important to understand the holistic risks and safeguards in place -
which are different for different products.
For Girobank deposits, the purpose of the pre-2008 paying in slips was to facilitate the
processing of payments between Post Office and Girobank. These slips were not designed or
used to provide an “audit trail” to assist branches in checking for Miskey Errors at the end of a
day - the branch should check that they are keying in the correct amount at the point of
conducting a transaction. This is why it was not part of Post Office standard process for
branches to correct such errors in branch. The safeguard pre-2008 was the reconciliation
process undertaken by Girobank and FSC. .
Post 2008, the safeguard was that the customer would double check the Horizon figure on
the chip and pin machine before completing the transaction. Therefore the chance of a
Miskey Error going unnoticed was significantly reduced.
In any event, post 2008, the amount recorded on Horizon is the amount credited to the
customer's account. Therefore even if the wrong figure was keyed into Horizon, this would
match the amount deposited into the customer's account and would not generate a
transaction correction to the branch but would result in a discrepancy in the branch accounts
if the branch took the incorrect amount of cash from the customer. This however is a cash
handling error and not an accounting error (and is therefore outside the “audit trail” issue
being raised by Second Sight).
If a customer later complains about the wrong amount being deposited into their account,
then this is an issue between the customer, Girobank and Post Office depending on whether
the customer has proof of the amount they deposited. In practice, the only evidence the
customer may hold is the receipt from Post Office which will validate that the customer
confirmed the Horizon recorded figure on the chip and pin machine.
4.13
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The lack of an audit trail post 2008 as claimed by Second Sight is therefore not a failing of
Horizon or Post Office in that Post Office operates an effective safeguard against Miskey
Errors in the form of confirmation through the chip and pin machine. In any event, and as
noted above, it was outside of Post Office's control to retain the old audit trail of paper paying
in slips and this approach to bank deposits is used across the industry.
20 October 2014
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Annex 10
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Horizon
Transaction Recovery
Guidelines
Horizon Online — Transaction Recovery Page 1
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Background
Sometimes when logging on to the Horizon terminal or during the processing of a transaction, the Horizon terminal
screen displays a “Recovery” or “Retry Communication” message tothe person working on that particula counter unit.
res ty Cac
yey pear, et cnet
Reese storeprearedrenlon. Ie
If the person working on that counter doesn't follow the correct steps when these messages are displayed, this can have
a negative impact on the successful completion of a customer's transaction, which may also then impact on the cash
and/or stock balance of the branch.
The purpose of this document is to help you understand:
e Why the system displays these messages
What happens to the transactions that are being or have just been processed when you see these messages
What you should do when these messages are displayed including what you should tell the customer
What the information means on any receipts that are printed
What may happen if the correct procedures aren't followed
What happens if a system recovery fails
e Where to go for extra help and support when you need it
The document will show you example screen shots from the Horizon system and help you understand what to do in
these circumstances.
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1. When will a Recovery message be displayedand what does it mean?
A Recovery message will be displayed on the Horizon screenin the following scenarios:
a) Scenario 1: Someone tries to log onto another Horizon terminal using the same user ID and password whilst
they are still logged onto another terminal This will appear even if the user is trying to attach to a different
stock unit.
b) Scenario 2: The Horizon system loses communication withthe relevant data centre during the processing of a
transaction due to an incident with the communication line
c) Scenario 3: The Horizon system loses communication with the relevant data centreas a result of a power cut
d) Scenario 4: An Horizon terminal counter unit has been replaced and the previous user on the counter unit
being replaced had not logged out
When serving a customer, there are certain transactions where the information is sent directlyto external data systems
during the transaction, and some where no interaction with the data systems happens until the customer session is
completed. Those transactions where the information is sent directly to the data systems during the transaction are
known are Recoverable transactions and those that aren't are known as either Norrrecoverable or Cancellable.
Which transactions are Recoverable?
e Bureau Pre-orders
e Moneygram
e Online Banking Services, including Post Office card account
e E-Top Up
¢ Reversals (new and existing)
Postal Orders
Post Office Payout
National Savings and Investments.
Drop and Go
Debit/credit card payments
And those that aren't recoverable
Everything else is known as non-recoverable or Cancellable, including
All Mails transactions (including labels and the sale of postage stamp
Automated Bill payments including DVLA transactions
Personal banking (does this mean the likes of cheque deposits?)
Transcash
Back office transactions other than reversals
Once the Recovery process starts, there will be different outcomes depending on the type of transaction that the system
is trying to recover, and it will depend on what information is printed on the receipt.
e Completed recoverable transactions listed above where a receipt is printed should be settled with the customer
- i.e. take payment for an e-top-up
e Transactions which are classed as recoverable but a receipt is not printed are classed as incomplete and
therefore the should not be settled with the customer- i.e. don’t take payment or assume that a banking
withdrawal has been processed so don’t pay the customer
e Non-recoverable or cancellable transactions should be discarded and the item shouldn't be settled with the
customer - i.e. don’t give them the stamps or take payment for an AP billpayment
Below are some examples of the different types of scenarios and takes you through whatto do in these instances.
Horizon Online — Transaction Recovery Page 3
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2. Scenario 1 - User tries to log onto another Horizon terminal while still logged onto another terminal
If you or one of your team is logged on to one Horizon terminaland is in the process of selling stampsand an attempt is
made to log onto another terminal the following message will appearon the terminal where an additional log on is
being attempted:
If you press “Continue”, you can still use the first Horizon terminal but when you come to
settle the transaction for the sale of the stamps, thesystem will automatically log you out
and force a transaction recovery. The following message will appear:
tee eeetece ee
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Three copies of a disconnected session receipt will be printed. You will see from the receipt below
that the stamp transaction has not been completed.
Therefore the stamps should not be given to the customer and payment should not be taken.
I DISCONNECTED SESSION
I Recovery Code: 0120416
I Do not attempt to reverse
I any transaction from this
session, until this counter
haz been successfully
I recovered.
last class stap
8 O60 0.00
ase retain for future reference
I ‘Thank You
Once the receipt has been printed, you or anyone who wants to use this erminal again will need
to log-in again and the message below will appear.
ome 3
No recovery is needed because the previous transaction was recovered and therefore no receipt
will be printed.
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3. Scenario 2 - The system loses connectivity (for example where workmen dig through a phone line) if duringwith
the data centre whilst a customer is undertaking a cash withdrawaland the system asks you for the outcome of
how you settled the transaction
If the Horizon terminal screen shows this message during the transaction, connectivity with the data
centre has been lost.
ae
Press Rebyor ance!
you Rey ad robin part lee contact
‘nenevanse TAPE
you Cancel you maybe man vou
ioe siese we gong ou a rege,
Press “Cancel”. In this scenario, the withdrawal will have already been authorised anda receipt will be
printed like the one below. It will be called disconnected session receipt which says payment should be
made to the customer. If you press “Retry”, there is a risk you have duplicated the transaction.
PRA ne Rl
DISCONNECTED SESSION I
Recovery Code: 0154206
Do not atteapt to reverse
amy transaction from wits
session, until this counter
thas been successtully
recovered.
I
Sentander Varo
a a) 50.00-
Tash FROM CUSTOMER 0.00
cash 0 CUSTOMER 50.00
BALANCE 0.00
Please retain for tuuce cefeence
When you log back in, the message on the scret id you that the Recover process will start.
‘Aelure accured cunng the premous session.
Slang recover process.
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In this case, you will be asked what the outcome of the transaction was. For this example, the screen is
asking for confirmation as to whether the customer was paid.
Answer YES
‘VAT REG No. GB 243 1700 02
Date of Issue: 18/12/2012 14:43
SESSION: 4-15427
Recovery Successful.
Santander Udeul
- 8 50.00 50.00-
‘TOTAL DUE TO CUSTOMER 50.00
Cash TO CUSTOMER 50.00
BALANCE 0.00
Please retain for Cucure reference
‘Thenk You
BE CAREFUL, if you
don’t know or are not
sure STOP and ring for
help.
NO
YAT REG Wo, GB 243 1700 02
Date of Issuer 19/12/2012 14:57
SESSTON: 4-15490
Recovery Successful.
Santander Wdevi
8 0,00 0.00
TOTAL DUE TO POST OFFICE 0,00
BALANCE 0.00
Please retain for tuture reference
‘Thank You
If you select YES: £50 withdrawal and the cash settlement will be allocated to your branch account.
If you select NO: a reversal communication will be sent to the customer's bank account, if withdrawal had been
authorised, and zero-value transaction written to the branch accounts This means that your branch account will be
short by £50 if you have pressed “No” by accident.
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4. Scenario 2 - The Horizon system is unable to connect to the data centre and the customer is in the middle of a
transaction with both a cash withdrawal (recoverable) and a bill payment (non-recoverable). The system knows the
outcome of the recoverable transaction.
If the Horizon system loses connectivity to the data centre, the same Retry Communication message as above will
appear on the screen. CARO ACCOUNTICASH
lee eee
Press Retry or Cancel. ee
you Retry and problems persist, please contact I View Full Receipt I Back
mee esi E
you Cancel, you may be taken throuc __ Fi) RECPT) __
oh
Recovery steps when logging oul and atnextiogn. I GaleulateI Loaaut
ii) 3)
Po
Press Cancel and the Disconnected Session receipt will be printed. Remember that the recoverable
transaction which is the cash withdrawal will have started to complete and the bill-payment one is
cancelled.
Settle the customer transaction as shown on Disconnected Session receipt
DISCONNECTED SESSION
Recovery Code: 0120487
Do not attempt to reverse
any transaction from this
session, until this counter
hee been successfully This receipt shows that the Bill Payment
recovered. FAILED so give the customer the full
amount of £123.45 and record this event
CA CASH WDL and amount given.
a- @sa23,.45 123..45-
Avon Cosmetics You need to tell the customer that the Bill
o 8 20.00 9.00 was not paid.
TOTAL DUE TO CUSTOMER 123.48
cash FROM CUSTOMER 0.00
cash TO CUSTOMER 123.45
BALANCE 0.00
Please retain for future reference
Thank You
Horizon Online — Transaction Recovery Page 8
Once the receipts have been printed andyou are asked to log back in, the Recovery message will
appear.
‘failure occurred during the previaus session.
Starting
recovery process.
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If the system knows the outcome of the transaction which has just been recovered, it will not ask you
for confirmation but will print an automatic “Recovery Successful” receipt.
VAT REG No. GB 243 1700 02
Date of Issue: 16/01/2013 13:12
SESSION: 13-12050
Recovery Successful.
ICA CASH WDL
1- 8 123.45 123. 45-
ITOTAL DUE TO CUSTOMER 123.45
Cash TO CUSTOMER 123.45
[BALANCE 0.00
Please retain for future reference
Thank You
Once the recovery has been completed and the customer is still at the counter, they can then pay the
bill as a new transaction and payment will need to be taken.
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Scenario 3 - The Horizon system loses connectivity with the data centre due to a power cut. The bill payment has
been settled by debit card which has been authorised but the power cut happens before the branch receipt has
been printed.
In this instance, no Disconnected Session receipt has been printed and therefore the transaction is classed as
incomplete.
You must make it clear to the customer that:
e The bill has not been paid
¢ The debit card will be refunded (but this may not be instant)
Once the power is restored and the Horizon terminal restarts, when you next log in, the standard
Recovery message will appear.
(Sore
Total Due To Customer
An automatic system correction will be initiated and a receipt like the one below will be printed.
‘YAT REG Wo. GB 243 1700 02
Date of Issue: 18/12/2012 17:24
\ SESSION: 4-15474 This is telling you that the Bill has not been
paid and the customer will be automatically
Syoeen Coreection refunded on their debit card.
Itacetewoods: No action required, but please don’t give
1 & 30.00 30.00-
: any cash to the customer.
‘TOTAL DUE TO cusToMER 30.00
Ivise ota to customa 0.00
BALANCE 0.00
I Please retain for future reference
‘Thank You
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6. Scenario 4 - The Horizon terminal has been replaced and the user on the old counter has not logged out
Whoever attempts to log on following the replacement of the counter unit will see the Recovery
message on the screen.
You will be asked if you have a Disconnected Session receipt for the last transaction which happened on
the terminal.
In most instances there will not be a receipt available. When you press “No”, the following screen will
appear. You will be asked if the previous session was successful.
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If you select “No” to say the session wasn’t successful, the Horizon system will undertake an automatic
System Correction. In this instance, if the last transaction you did was sell 100, 2% class stamps, then it
will reverse this transaction out of you branch account. If you had completed the transaction with the
customer, then your stock of 2% class stamps would be down by 100 and your cash would be over by
£51
VAT REG No. GB 243 1700 02
Date of Issue: 18/12/2012 15:55
SESSION: 4-15448
Recovery Successful.
System Correction
2nd class stmp Therefore a correction to adjust the stock
oo- 8 0.50 50..00- may be required if this has happened.
TOTAL DUE TO CUSTOMER 50.00
Cash TO CUSTOMER 50.00
BALANCE 0.00
Please retain for future reference
‘Thank You
7. What should you do if you are undertaking a DVLA transaction if the Recovery process starts?
DVLA licencing transactions are classed as Automated Payment Services and therefore these are cancelled during the
Recovery process following a system failure and the Method of Payment is reversed.
If you experience a system failure during an MVL transaction youmust not, under any circumstances ssue a tax disc to
the customer.
e Retain the tax disc to be spoiled, and spoil it as soon as the system is restored
e Read Disconnected Session Receipts and hand one copy to the customer with their paperwork,retain the
second receipt in the till and attach the ce receipt to the Horizon screen terminal so the person performing the
recovery knows what transaction failed.
e Return any payment by cash or cheques to the customer, and if they have paid by debitcard, inform them that
their card will automatically be refunded
e If you have given the customer the tax disc by mistake, it will not be validand the customer will receive a
continuous registration penalty letter for failure to relicense or SORN their vehcle. When the customer then
produces the tax disc as evidence for their case, the DVLA notify the Finance Service Centre (FSC) that a disc
has been issued without being scanned onto the Horizon Orline system.
e FSC investigate and issue a Transaction Correction to the relevant branch for the full amount of the tax payable
(please be mindful that this could be for the price of an HGV disc in the future).
e NOTE: If the method of payment was by cash or cheque and retained during the failure, you will be able to
associate the gain incurred at the time of recovery with the loss generated by the Transaction Correction. If
however a debit card (or in the future credit card) was accepted, the card will be refunded as part of the
recovery procedure and you will have tostand the loss when a Transaction Correction is processed.
Horizon Online — Transaction Recovery Page 12
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8. The E Top Up Scenario.
Note that a similar scenario applies to any Recoverable transaction where the customer has to give money to Post Office
Ltd.
In such cases, it is the clerk's responsiblity to ensure that the customer is able to pay for a transaction before they
process the E Top up or Deposit. If the customer is offering to pay for it with a Debit or Credit card (plastic), then thiss
not possible, since the E Top Up has to be added 6 the basket before processing the plastic payment.
This then gives rise to the following scenario:
Request an E Top Up (£10 say)
E Top Up successful
Communication line fails
Attempt to settle using plastic
Payment fails
Request customer pays cash
Customer has no cash
Nom P wn
If the plastic payment had been declined, and communication lines are OK, then the way to progress is to do an ETU
Reversal on a different counter and settle to cash and use this cash to settle the basket.
However if communication lines are down, the system will expect the session to be settled to cash and so the branch
will be out of pocket by £10 unless they can do the reversal on a different counter (unlikely if communication lines are
down)
If you unable to resolve the incident with these instructions, please contact the Network Business Support Centre
(NBSC).
Horizon Online — Transaction Recovery Page 13
9. What if recovery fails?
Below are some examples of what the receipts will look like if the Recovery process fails.
DISCONNECTED SESSION
Recovery Code: 2955958
Do not attempt to reverse
any transaction from this
session, until this counter
has been successfully
recovered
Co-op Cash wdrl
1- @ 50.0
Thank You
50.00-
TOTAL DUE TO CUSTOMER 50.00
Cash FROM CUSTOMER
Cash TO CUSTOMER 50.00
BALANCE
Please retain for future reference
VAT REG No. GB 243 1700 02
Date of Issue: 09/07/2012 12:50
SESSION: 2-295597
Recovery Failed
TOTAL DUE TO POST OFFICE 0.00
BALANCE 0.00
Please retain for future reference
Thank You
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All these failures are monitored and investigated automatically by Fujitsu, but you should also report them to the
Network Business Support Centre (NBSC).
In the event of any confusion, retaining documentation is the key. Please keep a record of any reference numbers,
transaction details and the action or advice taken.
Horizon Online — Transaction Recovery
Page 14
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10. Helpful hints and tips and where to go for support
e Avoid logging on to more than one counter at once with same user name Create a second user name ID if you
regularly use another counter - i.e for processing large numbers of mails transactions. Please remember you
must not share these user IDs and passwords.
e If there’s a Disconnected Session Receipt, settle with the customer in line with what it says KEEP A NOTE OF
CASH
e Make a note of what you did, in case there are recovery questions
e If counter has to be replaced and user hadn't logged out, make a note ofthe last successful session
Hints and tips -awaiting recovery
e Don't use Transaction Log search to check the outcome of the failed sessionuntil recovery is complete as it
won't appear until fully complete.
e Don't try to reverse transactions from the failed session
e Don't use the customer's account balance to check the outcome as there could be a delay in the refund.
e Don't put transactions through again unless recovery is complete.
e You may have a cash variance. The stock unit can’t be balanced until the recovery has completed Stock
volurnes may require correcting.
¢ Do log on to all counters with failed sessions as soon as possible (once the syem seems stable)
Hints and tips -in recovery
e Use the Disconnected Session receipt, or notes made when the counter failed, to help answer recovery
questions (if any)
e = Ifa different colleague is likely to be using the counter, make sure they have this inbrmation
e Once recovery is complete, you can use Transaction Logto search if needed
e Contact NBSC if the outcome doesn’t match what you did and it is not something you can reverse / put through
again
e = If recovery fails, this will be automatically investigated, but you should inform NBSC
Full details of Horizon On-line system failures and recovery procedures can be found in subsection 36 and 37 of the
Horizon Online™ equipment and administration operations manual.
Information can also be found on Horizon on-line help by going to Home, F10, F6, and paging Down
Horizon Online — Transaction Recovery Page 15
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What to do when a Horizon Online counter is unable to connect to the Data Centre or becomes unavailable due to
Screen Freeze
To ensure that you are able to deal correctly with any outage while the customer is still present in the branch you should
familiarise yourself with this process.
Start Here
f Was a Disconnected Were Customer receipts
I
\
Session Receipt printed? printed during the session?
Cees ° ~
Receipts may have been printed for. Where a customer
> Bureau de Change Pre-Order receipt is produced
> Debit/Credit Card Payments ~a 3” party system
>E Top-up has authorised a
Yes >MoneyGram Yes transaction.
>NS&I Payments Horizon Online will
> Online Banking ») account for this
> Postal Orders transaction as
> Post Office Payout detailed on the
v receipt. All other
~ . receipts, including
re (Was payment by " mails items will be
Read the receipt Cash or debit / cancelled.
: \ credit card?
eee
Cash No
Card
y
Have any items been Was payment
ICancelled on the receipt? authorised?
X
No
Cancelled items
are shown as a
zero value. I Yes ¢ Yes
Ensure you retain I Can the customer
any cancelled stock I settle by Cash? ‘No >I
} items or get them No \
back from the
\ customer, fGen OG mend
This includes any Vv. - . Vv
postage labels that € Seale cath All items in this session
have been printed, ettle with the will be cancelled.
customer for the De h h
. value of the 2 us oe aos Sa
( Settle with the customer customer receipt(s) SOs OF NEL
I as detailed on the x X ee
_ Disconnected Session
\ Receipt
Pay or take the Amount Due shown yo >
on the receipt as appropriate. When the Counter resumes
3 copies of the receipt are produced. you should follow the on
Hand 1 copy to the customer, screen instructions to process
Leave 1 copy at the terminal,
Keep 1 copy with the stock unit \ the recovery
Horizon Online — Transaction Recovery Page 16
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Recovery - What to do when Horizon Online connectivity is restored
The diagram below provides a simplified view of the generic approach to recovering a counter that has forced a user
logout from the system following an unexpected outage.
The key point to remember is that you need toensure you do the right thing at the time the counter becomes
unavailable.
A folre oozured rng the previous session
Staring recovery process
ne
There are no recovery
N Oneal actions for you to
\ undertake.
Is a Recovery screen
displayed?
YES \ The system may
v \I automatically recover
2 some transactions if
Transactions that have (w) Read the screen required
been recovered are i —
detailed on the screen.
You will see one screen
for each transaction to
be recovered. Vv -
——— —
( Select Yes or No as
appropriate to proceed
Secon
You need to know how the
transaction was dealt with at
the time the counter became
unavailable. v v
Recovery receipt f A Recovery receipt will
produced I be printed where required
c Receipt should be
associated with the
Discontinued Session
Receipt (if available)
retained.
Recovery Completed
(7) Recovery is complete
Horizon Online — Transaction Recovery Page 17
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Annex 11
14
12
13
14
15
16
17
21
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Initial Complaint Review and Mediation Scheme
One sided transactions - "something for nothing”
Summary
Second Sight has raised a question about whether it is possible for there to be a "one sided
transaction” where a customer receives a benefit without having to pay for it which in turn
either (1) causes a discrepancy in a branch's accounts and/or (2) creates a loss that is passed
on to a branch (for short this has been referred to as the "something for nothing" issue).
As Second Sight has been unable to identify any general issue with Horizon that could give
rise to this situation, it has put forward an example from an Applicant's CQR. As described in
more detail below, in this example, a customer attempted on several occasions to make a
cash deposit into her bank account. Although, the branch Horizon terminal recorded that the
transaction failed multiple times and only completed once, the customer's bank account was
credited on 3 occasions.
Post Office’s review has determined that Horizon operated correctly and that no discrepancy
was caused in the branch's accounts nor was any loss passed to the branch.
It is of course possible that any data being transmitted over the internet may not be received
by the recipient. It is therefore possible that Horizon may not be able to contact a customer's
bank's IT systems (and vice versa) in order to complete a deposit transaction.
However, every night there is a reconciliation between the bank deposit transactions recorded
on Horizon and those processed by a customer's bank. From this information, the bank
corrects any mistaken deposits it has made into a customer's account which have not been
recorded on Horizon. Post Office is not responsible if the customer's bank does not take this
corrective action or does not do so promptly. This error is never corrected by the discrepancy
being passed back to a branch by way of a transaction correction.
From a branch's perspective no discrepancy will arise from this situation as the branch
accounts will have recorded only the completed deposits and cash will only have been taken
from customers for those completed deposits. The branch will therefore be in balance.
Although this briefing only deals with the example put forward by Second Sight, it reflects the
approach that Post Office takes to this issue in relation to other products. It is therefore
confident that the "something for nothing" issue cannot be the cause of discrepancies in a
branch's accounts or a source of losses for subpostmasters.
The issue
Second Sight has provided the following example which it has asked Post Office to investigate:
"In this instance, the benefitting customer was also the SPMR so would only have
benefitted at her own expense thus having no incentive to keep
quiet. Nonetheless, it serves as an example of the phenomenon.
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As you may recall, in this example the SPMR asked a clerk to pay £300 in for her
and she was credited with that amount three times over. POL initiated one
reversal, but the SPMR herself, as we understand it, had to action the other
reversals in order to correct the position.
Our point all along has been that, when a customer gets nothing for something
(e.g. if he/she pays a Utility bill and gets debited with the cost of doing that, but the
bill doesn’t get paid, then there exists a very effective secondary error detection
control (they'll get a Final Demand from the Utility Company). There is, on the
other hand, no such secondary error detection control in the case of one-sided
transactions that benefit customers (the bill gets paid but they don't pick up the
cost: the SPMR does). "*
3 Response
3.1 When a customer wishes to deposit cash into their bank account at a Post Office branch, the
processing sequence on Horizon is as follows:
3.1.1 The customer hands the cash to the subpostmaster (or assistant) who counts the
cash and enters the amount to be deposited on Horizon.
3.1.2 The customer enters their bank card into the chip and pin machine or the card is
swiped on Horizon by the branch staff. The amount to be deposited is shown on
the chip and pin machine and the customer confirms the amount of the deposit.
3.1.3 Horizon then sends the (encrypted) transaction details to the customer's bank over
the internet.
3.1.4 If the bank accepts the deposit, it sends a message back to the Horizon terminal
confirming that the deposit is accepted.
3.1.5 Horizon then informs the subpostmaster that the transaction is completed, prints a
receipt for the customer and records the transaction as completed in the branch
accounts.
3.2 The branch terminal may not record the confirmation message from the customer's bank for
a number of reasons:
3.2.1 The bank may not accept the deposit;
3.2.2 There may be an error in the bank systems such that the confirmation message is
not sent;
3.2.3 There may be issue with the third party network connection between Horizon and
the bank such that the transaction details are never received by the bank (in which
case the transaction would fail totally with no funds being deposited at all);
* Email from Ron Warmington to Angela Van Den Bogerd on 23 July 2014. Second Sight has also provided Post Office with
the case details from which this example is taken but this information has been omitted from this briefing in order to protect
the Applicant's privacy.
3.3
3.4
3.5
3.6
41
42
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3.2.4 There may be issue with the third party network connection between the bank and
Horizon such that the confirmation message from the bank does not reach the
branch terminal:
3.2.5 The customer could remove their card from the chip and pin machine before the
confirmation is received; or
3.2.6 The branch staff could terminate the transaction on Horizon before the
confirmation is received.
All of these reasons are outside of Post Office's control. If the confirmation message is not
received within a set period of time, the branch terminal assumes that the transaction has
failed and this is displayed on screen to the user. The user may then either return the cash to
the customer or retry the transaction. Either way, the attempted cash deposit will be
recorded in the Horizon transaction logs as a failed transaction and nothing will have changed
in the branch accounts.
In the 4" scenario above (and possibly the 2", 5" and 6" scenarios), the customer's bank will
have processed the cash deposit into the customer's account before the point of failure which
causes the confirmation message not to be received by the branch Horizon terminal. This
occurs notwithstanding that Horizon will have subsequently and correctly recorded the
transaction as failed.
To correct for this error in the bank's records, every night a file is sent from Post Office to the
client bank listing all the deposits recorded on Horizon across the entire Post Office network.
The client bank then reconciles this data against the deposits it has made into customers’
accounts. If it finds that the bank has made a deposit where Horizon records a failed
transaction, the bank will take corrective action, usually by withdrawing the deposited funds
from the customer's account.
Critically, Post Office is not liable for the bank's error in making a mistaken deposit and no
transaction correction is generated going back to the branch for this error. Indeed, the branch
accounts are perfectly correct as the branch will have only taken cash from customers where
transactions are confirmed as completed on Horizon.
Application to the specific example
In the example highlighted by Second Sight, Fujitsu has confirmed that there were recorded
network difficulties on 15 January 2013 from 13:39 to 17:00 which covers the time of the
transactions which took place between 15:35:55 and 17:00:04 (the last transaction being the
successful one).
The transaction data* shows that:
4.21 6 attempts were made to deposit £300 into a bank account;
4.2.2 The first 5 attempts failed and are recorded by the branch logs as having failed:
? This data will be provided to Second Sight separately with the Post Office Investigation Report into the relevant case but is
not enclosed with this briefing to protect the privacy of the Applicant in the example
43
44
45
51
5.2
53
5.4
5.5
5.6
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4.2.3 The final attempt is recorded as being successful.
The transaction data therefore supports the Applicant's version of events but also proves that
there was no error in the branch's accounting and cash positions (as the branch accounts
recorded one successful deposit of £300 and the branch took from the Applicant £300 in
cash). For the sake of clarity, there was no subsequent transaction correction in relation to
these transactions.
Post Office cannot verify if 3 deposits were made into the customer's account as this
information is held exclusively by the customer's bank. However, assuming that the 3
deposits did in fact occur, this pattern of events is consistent with a scenario in which the first
5 confirmation messages were lost in transit from the bank to Horizon due to the network
difficulties.
In line with normal procedure, the overnight data file was sent to the customer's bank. The
bank would then usually use this data to correct its errors and remove the additional deposits
from the customer's bank. Post Office cannot however confirm this as it does not control the
bank's corrective procedures: that is a matter between the bank and its customer.
Second Sight's specific comments
Second's Sight's statement in the quoted example that "POL initiated one reversal, but the
SPMR herself, as we understand it, had to action the other reversals in order to correct the
position " is not understood.
Neither Post Office nor Horizon generates reversals of this nature. If the deposit transaction
does not complete (because the confirmation message is not received) the transaction will be
recorded as failed on Horizon. This is not a reversal because there was no completed
transaction to reverse.
Once the confirmation message is received at the terminal, the user is asked to confirm that
the deposit should be completed. If the user declines the deposit at that stage, it is shown as
cancelled in the branch logs and not added to the basket on Horizon - there is therefore no
transaction to reverse on Horizon. However, Horizon does send a message to the customer's
bank confirming that the previously confirmed deposit did not in fact complete at the counter
and needs to be reversed at the bank's end.
If the user accepts the deposit, it is recorded in the basket and from that point forward cannot
be cancelled or reversed. This is because the deposit will already have been credited to the
customer's bank account. The branch would need to contact NBSC to seek their assistance in
correcting any error in the transaction.
As with the situations described above, whichever option is selected at the counter, the branch
accounts remain in balance as the record on Horizon will reflect the amount of cash taken (or
not) from the customer.
The view that there is no "secondary error detection control in the case of one-sided
transactions that benefit customers” is incorrect. As described above, the overnight data file is
used to identify and correct any errors. In any event, these errors will not cause any
discrepancy in the branch's accounts.
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57 The claim that, where there is a one-sided transaction, customers "don't pick up the cost: the
SPMR does" is incorrect. For the reasons stated above, deposit errors in the bank's records
are not reflected in the branch's accounts and are never passed back to a branch.
20 October 2014
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Annex 12
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Postal Services - Postage Labels
Spoiled Labels (Page 1 of 3) I pl_spo_labels v1.0
All Horizon Online postage labels now have extra code characters printed on them for the spoilt postage label accounting process. These codes
will need to be entered onto Horizon Online to process a spoilt label. The codes ensure the label being spoiled is correctly accounted for by
product and VAT type.
Royal Mail labels
A one code character (a letter) will appear at the end of the Royal Mail line of the label, the other code character (a number) will appear at the
end of the Postage Paid line.
Parcelforce Worldwide labels
Similar to the Royal Mail arrangement except that both the code character at the end of the Parcelforce line and the one at the end of the
Postage Paid line are numbers.
Counter Procedure
The new Spoilt Postage Label process is accessed via the [Spoilt Label] button on the Postal Services [F1] Home screen. The onscreen
prompts will let you know what information you need to input.
A label can only be spoilt if the label is on hand (Horizon Online will remind you of this when you select the Spoilt Label button).
When you have selected Spoilt Label [83], you're prompted to select the carrier [Royal Mail] or [Parcelforce] named on the label, then the first
code character on the label (a letter for Royal Mail, a number for PFW).
You will only be asked to select the second code character where there is more than one possible option.
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Postal Services - Postage Labels
Spoiled Labels (Page 2 of 3) pl_spo_labels1 v1.0
Horizon Online will summarise the entries you have made and ask you to confirm if they are correct. (see image on right).
You will then be asked to write “SPOILT” across the label, add it to the printed system receipt and store these safely in branch for two years.
The credit value due to the customer should normally be used to transact a new label of the appropriate type. Only in exceptional
circumstances should a cash refund to the customer be necessary.
Reconciliation process
Spoilt Postage Label transactions will need to be reconciled by each VAT transaction type using the second code printed on the Horizon Online
Label.
On the Balance Snapshot report, Spoilt labels will be totalled by VAT type and include the 2nd code from the label. Any labels spoilt under the old
Horizon Online process are grouped under Miscellaneous.
If the total value of Spoilt Postage Labels on hand is less than the value shown on the Balance Snapshot report, you will need to use the new
Spoilt Postage Label Reconciliation process to correct the value for each VAT transaction type.
The new reconciliation transaction is initiated via the Spoilt Label button [61] under Reconciliation on the Other Postal Services screen.
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Postal Services - Postage Labels
Spoiled Labels (Page 3 of 3) pl_spo_labels2 v1.0
® Horizon Online will remind you to have a balance snapshot report on hand before proceeding
You will be asked to select a carrier to reconcile [Royal Mail] or [Parcelforce], you will then be asked to select the VAT type you wish to
reconcile for that carrier
You will be asked to enter the value for this carrier and the VAT type from the balance snapshot report
You will then be asked to enter the total value of spoilt postage labels on hand for this carrier and VAT type
Horizon Online will display a comparison of the balance snapshot value and the on hand value. Where the on hand figure entered is less
than the balance snapshot, you will be asked to confirm the adjustment
Please note: should the on hand figure entered be more than the balance snapshot you will be asked to add any unprocessed labels using the
Spoilt Label button. The reconciliation will then be abandoned.
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Annex 13
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° POST OFFICE LTD ® °
Customer Feedback Questionnaire
This customer feedback form is designed to assess the effectiveness of the Field Support Advisor's delivery of the
training activity deployed. Your feedback is valuable to us and will form the basis of future improvements.
My Training
Type of training:
(please select one box) Classroom Onsite
Up to Up to Up to Up to
Please select one box only for each of the following questions... 25% 50% 75% 400%,
1. How suitable was the classroom environment and the equipment
(if applicable)?
2. How effective was the content of your classroom/on-site training?
3. How confident are you that using the customer sales conversations
will help you to maximise your income opportunities?
4. How confident do you feel processing mails products & services?
5. How confident do you feel that the training received will enable
you to deliver excellent customer service?
6. How confident do you feel in processing daily 'Back Office’ tasks?
7. How confident do you feel in your ability to prepare the branch
balance (Stock Unit and/or Branch Trading Statement)?
8. How effective was the training in helping you to find and rectify
any discrepancy?
9. To what extent did the training meet your expectations?
If you have marked any of your answers 'Up to 25%' or 'Up to 50%’ please tell us why in the comments section below
Please comment on the overall experience
sanrieoszissi26
TRAINING
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q POST OFFICE LTD ® °
ustomer Feedback Questionnaire
This customer feedback form is designed to assess the effectiveness of the Field Support Advisor's delivery of the
training/audit/supportactivity deployed. Your feedback is valuable to us and will form the basis of future improvements.
Your Name Branch Name
Branch Code: Field Advisor Code: Date:
Branch Type: PO Local Main Community Core & Outreach Crown
(please select one box)
My Field Support Advisor
Please select one box only for each of the following questions... Strongly Disagree Agree Strongly
Disagree Agree
1. The Field Support Advisor introduced themselves and explained the
purpose of the activity and the times of attendance.
2. The Field Support Advisor was polite and approachable and behaved
in a positive manner.
3. The Field Support Advisor was knowledgeable and answered
questions relating to the visit in a positive manner.
4. The activity was delivered in an organised, focused and logical way I
5. The Field Support Advisor regularly checked my understanding
6. I feel confident that the Field Support Advisor was well prepared and
competent to support me
7. The Field Support Advisor was wearing career/business wear and
was neat and tidy
If you have marked any of your answers 'Disagree' or 'Strongly Disagree' please tell us why in the comments section below
Please comment on the overall experience
seurieosentsi6
V2 April 2014
(© KENOATA Print Services Te 01922 459490 Ap order no: 97S swihendata.com
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Annex 14
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@
POST OFFICE LTD ®
Customer Feedback Questionnaire OST.
This customer feedback form is designed to assess the effectiveness of the Field Support Advisor's delivery of the
support activity deployed. Your feedback is valuable to us and will form the basis of future improvements.
My Support Activity
My Support Activity: . . .
(please select one box) Post Transfer Visit O Accounting O Training O Branch Standards I
Yes No
1. The date and time of the visit was agreed in advance im im
2. The purpose of the visit was clarified in advance? oO oO
Up to Up to Up to Upto
Please select one box only for each of the following questions.. 25% 50% 75% 100%
3. How confident do you feel that the support received will enable you to
deliver your role effectively? O O O oO
4. How effective was the support you received in resolving your issue
and informing you of any appropriate next steps? O O O O
5. To what extent did the support meet your expectations? C I O O
Mails Dangerous Accessibility
Compliance Goods
6. Which of the following areas were discussed during the audit
(select all that apply) O O O
If you have marked any of your answers 'Up to 25%! or 'Up to 50%' please tell us why in the comments section below
Please comment on the overall experience
seu rienszissi26
SUPPORT
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q POST OFFICE LTD ®
ustomer Feedback Questionnaire OST.
This customer feedback form is designed to assess the effectiveness of the Field Support Advisor's delivery of the
training/audit/supportactivity deployed. Your feedback is valuable to us and will form the basis of future improvements.
Your Name Branch Name
Branch Code: [JTF LIE] — Feta aavisor cove: JIE] ote FT/OO/OO
Branch Type: PO Local Main Communit Core & Outreach Crown
(please select one box) O O y O O O
My Field Support Advisor
Please select one box only for each of the following questions. Strongly Disagree Agree Strongly
Disagree Agree
1. The Field Support Advisor introduced themselves and explained the
purpose of the activity and the times of attendance. O O O O
2. The Field Support Advisor was polite and approachable and behaved
in a positive manner.
3. The Field Support Advisor was knowledgeable and answered
questions relating to the visit in a positive manner.
4. The activity was delivered in an organised, focused and logical way
5. The Field Support Advisor regularly checked my understanding
6. I feel confident that the Field Support Advisor was well prepared and
competent to support me
OoOodoao o
OoOoOdoao 0
OoOodo oOo
OHoOoOodo oO
7. The Field Support Advisor was wearing career/business wear and
was neat and tidy O O O O
If you have marked any of your answers 'Disagree' or ‘Strongly Disagree' please tell us why in the comments section below
Please comment on the overall experience
V2 April 2014 © KENDATA Print Services Ta: 01922 459499 Re-ordior no: 9715 yowwkondata.com
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Annex 15
° POST OFFICE LTD ®
Customer Feedback Questionnaire
POL00220159
POL00220159
@
swyop
POST
This customer feedback form is designed to assess the effectiveness of the Field Support Advisor's delivery of the
audit activity deployed. Your feedback is valuable to us and will form the basis of future improvements.
My Audit
Please select one box only for each of the following questions..
1. Introductions were made and the purpose of the visit was explained
2. Appropriate steps were taken to advise customers of alternative
branches during the audit
3. I was kept informed of progress throughout the audit
4. The audit findings were clearly explained and if necessary any
actions agreed
5. There was minimal disruption to the branch
6. The audit team was knowledgeable and able to answer my
questions/queries about the audit
7. I feel the audit was conducted in a professional manner
Mails
Compliance
8. Which of the following areas were discussed during oO
the audit (please select all that apply)
O
OoOdoo Oo
Dangerous
Goods
O
Strongly Disagree
Disagree
O
OOdodo oo
General
Agree
Oo
OoOdoo Oo
Compliance
Strongly
Agree
O
OOdoo Oo
Accessibility
O
lf you have marked any of your answers Disagree or Strongly Disagree please tell us why in the comments section below
Please comment on the overall experience
AUDIT
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q POST OFFICE LTD ® Ce °
ustomer Feedback Questionnaire POST:
This customer feedback form is designed to assess the effectiveness of the Field Support Advisor's delivery of the
training/audit/supportactivity deployed. Your feedback is valuable to us and will form the basis of future improvements.
Your Name Branch Name
Branch Code: [JTF LIE] — Feta aavisor cove: JIE] ote FT/OO/OO
teen weer one box) PO Local O Main oO Community O Core & Outreach oO Crown O
My Field Support Advisor
Please select one box only for each of the following questions... Strongly Disagree Agree Strongly
Disagree Agree
“Tupoeolteaciiyandttetmescatecnce MO OS COO
2. The Field Support Advisor was polite and approachable and behaved
in a positive manner.
3. The Field Support Advisor was knowledgeable and answered
questions relating to the visit in a positive manner.
4. The activity was delivered in an organised, focused and logical way
5. The Field Support Advisor regularly checked my understanding
6. I feel confident that the Field Support Advisor was well prepared and
competent to support me
OoOodoao o
OoOoOdoao 0
OoOodo oOo
OHoOoOodo oO
7. The Field Support Advisor was wearing career/business wear and
was neat and tidy O O O O
If you have marked any of your answers ‘Disagree’ or 'Strongly Disagree' please tell us why in the comments section below
Please comment on the overall experience
seurieosentsi6
V2 April 2014 ‘© KENOATA Print Sonics TH 01922459499. Fe-ordorno: 9718 wnthendta.com
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Annex 16
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Branch Write Off Process
Proposal to write-off a branch loss could result from several
scenarios.
If discrepancy is disputed by agent/operator, then the
disputes process should be followed and the agent advised to
contact the Relationship Manager (RM) in the Finance Service
Centre (FSC).
FSC Relationship Manager investigates case and makes decision
on whether the discrepancy is proper to stand and whether this
loss is attributable to the agent/operator, FSC or Network.
If consideration is to be sought for write off, documentary
evidence to support recommendation will be provided.
There may be occasions where Network propose write-off of a
discrepancy after completing investigations which indicate an
agent should not be held responsible for the cause of the
loss. If investigations highlight the cause is outside of
Network, the case should be passed to the appropriate team
within Post Office Ltd. to deal with the case. (These cases
should be minimal as majority of cases will be resolved within
FSC and Network).
With these cases, liaison with the Relationship Manager is
essential to agree course of action.
If consideration is to be given for FSC to write-off the
loss:
Case forwarded to appropriate person for authorisation by
proposer.
Return authorised case to Relationship Manager
Relationship Manager communicates decision to agent
Relationship Manager arranges for any necessary branch
accounting procedures to clear the loss from the branch
accounts
Relationship Manager arranges for the loss to be charged to
the relevant FSC budget
Supporting documentation retained for probity purposes.
If consideration is to be given for Network to write-off
a disputed loss:
The Relationship Manager advises the agent/operator in writing
that the case is being passed to the Contract Advisor (CA) for
further investigation.
Write off Process - Revised October 2013
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The Relationship Manager forwards the case to the relevant
Contract Advisor who will review the case and make further
investigations as required. If the loss relates to Field
Support Advisor (FSA) activity it will be necessary for the CA
to refer the case to the relevant BAU Area Manager (AM) for
the Field Change Advisor (FCA) to investigate.
Proposer (either CA or FCA) for write-off completes first
section of ‘Write-off Proposal’ document and the decision
rationale document detailing why the recommendation for
writing off a debt partially or wholly is being made. The
relevant (branch) cost centre code will be supplied by the CA
on request.
The documents to be completed are embedded below:
3)
Write-off decision
rationale doc v5.xis
Write Off Proposal v
6.doc
Rationale document-
Write off proposal form-
The case is forwarded to the relevant sign off authority as
shown in the section headed Authority levels.
Authority levels:-
° < £5k - Agents Contracts Deployment Manager or BAU
Regional Manager
e < £25k - Head of Network Services or Head of Network
Operations
© >£25k and <£100k - General Manager Network Agency Sales,
Services & Transformation
e >£100k - would need to be referred to Finance for write
off by Director
Complete write-off documentation and return to the proposer
for action.
Return authorised case to Contract Advisor if passed to higher
level for authorisation who will send to Proposer and where
appropriate the proposer’s line manager.
Contract Advisor to advise the Network Services Finance
Analyst by email, of the write off decision.
Write off Process - Revised October 2013
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Proposer returns authorised case to Relationship Manager and
arranges via Contracts Admin Team for copy to be filed on
branch EFC.
der communicates decision to agent - in certain instances it
may be more appropriate for the proposer to advise the agent.
This should be agreed between the proposer and Relationship
Manager e.g. where the case has been instigated by Network.
If the case is not going to be completed within 10 working
days of the escalation, due to the complexity of the case or
additional time required for verification of data, then the
agent/operator should be advised accordingly in writing by the
Contract Advisor and the Relationship Manager updated.
If appropriate the Relationship Manager arranges for any
necessary branch accounting procedures to clear the loss from
the branch accounts.
Relationship Manager arranges for the loss to be charged to
Network budget.
Supporting documentation retained for probity purposes.
Write off Process - Revised October 2013
Branch write-off process when loss attributable to Network
Network
Follow intemal process if
loss attributable to P&BA
(or forward to CA if loss
attributable to Network
‘Advise agertioperator of
decision for escalated dispute
cases. Arrange for any acctg
Procedures to take place for I
all cases,
ry
Forward to the
>! relevant signoff
authonty
Write off Process - Revised October 2013
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Branch write-off process when loss attributable to Network — authority levels
Agents Contracts Deployment
Manager or BAU Regional
Manager
Head of
Network
Services or
Head of
Network
Operations
GM Network
Services .
—r
& ‘Case referred to
g >! Finance Analyet
ic for information
Write off Process - Revised October 2013
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Write off Process - Revised October 2013
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Annex 17
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Page 1
Encyclopaedia of Forms and Precedents/FRANCHISING, AGENCY AND DISTRIBUTION vol 16(4)/(C)
Forms and Precedents/A: FRANCHISING/3: FRANCHISE AGREEMENTS/18 Non-exclusive franchise
agreement for a retail business
18
Non-exclusive franchise agreement for a retail business?
[817]
EFP 16(4): 04/2014.
THIS FRANCHISE AGREEMENT is made on (date).
PARTIES
(1) (name of franchisor)[[a company incorporated with limited liability under the laws of England and]
whose registered office is at (address), company registration number ... (or as required)] (referred
to in this agreement as ‘we’, ‘our’, ‘ourself, 'us'); and
(2) (name of franchisee)[of (address) (or) whose registered office is at (address), company
registration number ... ] (referred to in this agreement as ‘you’, ‘your’, 'yours' or ‘yourself’.
RECITALS?:
(A) We have developed the Concept and have established a reputation and distinctive image with the
public for the Business.
(B) We are the proprietors of the Marks which are known as representing high standards of (insert
details, eg quality canine accessories).
(C) We wish to expand our franchised network and are therefore willing to grant to you the rights set
out in this agreement to enable you to operate Your Franchise Business within an exclusive area.
(D) You desire the right during the continuance of this agreement to operate Your Franchise
Business in the Territory from the Premises.
(E) You agree to enter into a lease in respect of the Premises®.
(F) You acknowledge that you alone will carry the risk of operating Your Franchise Business‘.
(G) You acknowledge that you have taken full legal and financial advice on this agreement before its
execution.
[818]
IT IS AGREED:
1 Definitions and interpretation’
11 The following expressions, which are frequently used in this agreement, shall have the meanings
attributed to them below. Other less frequently used expressions are defined in the body of this
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agreement.
1.1.4 ‘the Additional Support’ means support with substantial or continual operational,
business or customer service problems in Your Franchise Business;
1.1.2 ‘the Advertising and Promotion Fee' means a monthly contribution to our [national (or)
regional] advertising and promotion fund in a sum equivalent to [2]% of the monthly
gross turnover of Your Franchise Business (exclusive of VAT), plus VAT on it;
1.1.3 ‘the Annual Sales Target’ means:
Year Target
(dates) [£200,000]
(dates) [£250,000]
(dates) [£300,000]
(dates) [£350,000]
(dates) [£450,000];
1.1.4 ‘the Business' means the business of [retailing the Products] operated using the
Concept;
1.1.5 ‘the Concept' means the concept of retailing the Products in the manner that has been
carefully developed by us using the System and the Marks;
1.1.6 ‘the Equipment’ means the equipment, fixtures and fittings and other materials from
time to time required by you for use in the establishment and operation of Your
Franchise Business, details of which are set out in Schedule 1 as amended by us from
time to time;
1.1.7 ‘the Franchise Fee' means the sum of [£9,000] plus VAT;
1.1.8 ‘the Initial Package’ means the Equipment and other materials necessary for the
start-up of Your Franchise Business, details of which are set out in Schedule 2 as
amended by us from time to time at the cost set out in that schedule;
1.1.9 ‘the Initial Training’ means training in the correct operation of the System and the
Concept comprising an initial induction course in the appropriate retail management
and marketing techniques and training in the operation of the Business;
1.1.10 the Inventory’ means such of the Products as we deem appropriate to be sold in Your
Franchise Business;
4.4.11 ‘the Know-how' means our substantial knowledge of and expertise in the retailing of
the Products developed over a period of time;
1.1.12 ‘the Management Fee' means [£6] an hour for each person or as increased from time
to time, plus [90p] a mile travel or as increased from time to time, plus the reasonable
costs of hotels and meals, and plus VAT;
1.1.13 ‘the Manual’ means our operating manual, which contains full details of the System
and the operation of the Business;
1.1.14 ‘the Marketing Materials' means such marketing materials as we deem appropriate
from time to time;
1.1.15 ‘the 'Marks' means the '(name)' trade mark described in Schedule 3;
1.1.16 ‘the Premises’ means the premises located at (address);
1.1.17 ‘the Products’ means (insert details of the products);
1.1.18 ‘the Service Fee' means a monthly service fee in a sum equivalent to [6]% of your
monthly gross turnover excluding VAT;
1.2
1.3
1.4
1.5
1.1.19
1.1.20
1.1.21
1.1.22
1.1.23
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‘the System’ means the methods of operating the Business developed by us using the
Know-how, as set out in the Manual or otherwise communicated to franchisees;
‘the Term’ means a period of [5] years, commencing on (date);
‘the Territory' means [the area comprising postcode (insert details) (or as required)];
‘VAT' means value added tax;
‘Your Franchise Business' means your individual business as one of our franchisees
retailing the Products under this agreement.
[819]
The headings in this agreement are for convenience only and do not affect its interpretation.
In this agreement, the words ‘include’, ‘includes’, including’ and 'such as’ are to be construed as if
they were immediately followed by the words ‘without limitation’.
In this agreement, unless the context clearly indicates another intention:
1.4.1
1.4.2
1.4.3
1.4.4
1.4.5
1.4.6
1.4.7
1.4.8
1.4.9
reference to one gender includes all other genders,
reference to the singular includes the plural and vice versa,
reference to a clause, schedule or party is a reference to a clause of or a schedule or
party to this agreement,
obligations undertaken by more than a single person or company are joint and several
obligations,
teference to a statutory provision is a reference to that provision as modified or
re-enacted or both from time to time and to any subordinate legislation made under the
statutory provision,
reference to a document is a reference to that document as from time to time
supplemented or varied, and in particular reference to 'the Manual includes all updates
and other changes made to it by us from time to time,
reference to writing includes fax, e-mail and similar means of communication,
a number of days shall be reckoned exclusively of the first day and inclusively of the
last day unless the last day falls on a day that is not a normal working day in England in
which case the last day shall be the next succeeding day that is a normal working day
in England, and
any reference to a person includes natural persons and partnerships, firms and other
such unincorporated bodies, corporate bodies and all other legal persons of whatever
kind and however constituted.
The schedules and recitals form part of this agreement and any reference to ‘this agreement’
includes the schedules and recitals.
[820]
Rights granted
We grant to you during the Term and subject to the terms and conditions of this agreement the
non-exclusive rights to carry on Your Franchise Business from the Premises and use the Marks in
accordance with this agreement. All other rights are reserved to us.
Term and renewal®
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3.1 Subject as appears below this agreement shall be for the Term.
3.2 [Subject as provided below we (or) We] must grant you a renewal if you give us written notice of
your desire to have one not more than 9 months or less than 6 months before the end of the
Term.
[3.3 (insert detailed conditions to be satisfied before renewal will be granted)]
3.4 Any renewal agreement shall operate from the date of the expiry of this agreement.
3.5 We confirm that you shall be under no obligation, having served the notice referred to in clause
3.2, to accept the terms of the standard agreement.
3.6 No fee will be charged on renewal, but you must pay our legal and administrative costs incurred
in connection with the renewal agreement and any associated documentation.
3.7 It is a condition precedent of the grant of a renewal that before entering into the new agreement
you must waive all and any claims you have or may have against us in respect of this agreement,
your lease of the Premises or related matters.
3.8 Your right to require us to enter into a renewal agreement shall cease and be of no effect if, after
the service of the notice referred to in clause 3.2 and before entry into the renewal agreement,
you commit a breach of this agreement such as to justify the termination of it or that may result in
its termination.
3.9 You shall not be under any obligation to pay any sum stated to be an initial fee and we shall not
be under any obligation to fulfil any of the initial obligations or other obligations in the standard
agreement that are not appropriate on renewal.
[821]
4 Premises”
41 You must take a lease in respect of the Premises, the terms of which must be agreed in writing
by us before you enter into it.
4.2 You must observe and perform the agreements, obligations, covenants and stipulations
contained or referred to in your lease.
4.3 You must comply with any notices served on you by any person entitled to the reversion
expectant on the term of your lease, and give us a copy and full particulars of them.
44 You must notify us and keep us fully informed of any rent review that takes place pursuant to your
lease and notify us of any revised rent that is either agreed or determined pursuant to it.
45 You must enforce the agreements, obligations, covenants and stipulations on the part of any
landlord contained or referred to in your lease.
46 You must not vary or agree to vary the lease, or surrender or agree to surrender it.
47 You must not assign or otherwise dispose of the lease to any person other than a buyer of Your
Franchise Business pursuant to and in accordance with the provisions of this agreement.
48 You must notify us and give us a copy and full particulars of any notices received by you relating
to the Premises, including any notices served by any statutory, public or other competent authority
or by the owner or occupier for the time being of any neighbouring or adjoining properties. You
must comply with such notices where any owner or occupier for the time being of the Premises is
obliged to do so.
5 Our initial obligations
5.1 We must®:
5.2
6.2
6.3
6.4
6.5
6.6
6.7
6.8
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5.1.1 provide you with the Initial Training,
5.1.2 at our reasonable discretion assist you to establish and operate Your Franchise
Business from the Premises including advice with regard to alterations, refurbishment,
renovation or other work necessary for the conversion of the Premises so that it is
suitable for the operation of Your Franchise Business, providing you with access to our
architects to produce, subject to our approval, a design for the interior of the outlet
using our trade dress,
5.1.3 provide you with the Manual,
5.1.4 advise you on the Equipment that you require to commence Your Franchise Business
and provide you with the Initial Package, and
5.1.5 provide you with the Marketing Materials.
The Manual and the copyright in it shall at all times remain our property. The term ‘the Manual’
includes all updates and other changes made to it by us from time to time®.
[822]
Our continuing obligations
We must train you in the System by providing introductory and periodical refresher courses at
such premises and, as and when we, in our full discretion, deem necessary’°.
We must give you, free of charge, such reasonable continuing assistance and advice as we
consider necessary for the efficient running of Your Franchise Business as and when we consider
it to be necessary to provide 'on the spot’ help and advice'’.
In addition to the reasonable continuing assistance and advice given to you by us under clause
6.2, we must help you with the Additional Support’? at the cost of a reasonable sum to be
determined at our sole discretion.
We must advise you in relation to advertising and public relations.
We must advise you in relation to staffing levels.
We must develop and change the Concept as we deem to be appropriate.
We must ensure that the Manual is kept up to date’ with any alterations or improvements in the
System and the operation of the Business. In the event of any dispute as to the content of the
Manual, the authentic copy of it shall be the copy kept as such by us.
We must keep you fully informed of all relevant public health, environmental and other regulations
impacting upon Your Franchise Business.
Review of your business
In order to ensure that the Concept is not diluted and Your Franchise Business is operated to a
consistently high standard, and to maintain the common identity and reputation of the franchise,
we may review and audit Your Franchise Business regularly or as often as we deem necessary'4.
You must, at our request, provide or ensure that there is provided to us all information and
documentation and other matters we require to carry out such quality control. Without prejudice to
the generality of the foregoing you must provide us with any information we require in connection
with quality control on a regular basis we determine and notify to you.
[823]
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8 Your obligations concerning the Marks15
8.1 We authorise you to use the Marks solely for the operation of Your Franchise Business, and only
at the Premises and in advertising Your Franchise Business, for so long as this agreement
subsists. Any such usage must be in accordance with our reasonable directions‘®.
8.2 You undertake not to do anything to prejudice or damage our goodwill in the Marks or our
reputation, and you must not do anything that is likely to bring the Marks into disrepute. In
particular you must operate Your Franchise Business only under the Marks and must use the
Marks without prefix or suffix. You must not use the Marks as part of your corporate or other
name.
8.3 If you become aware of any infringement of the Marks by any other party trading with marks
similar or identical to the Marks, you must immediately notify us of it in writing, but must take no
other action against the infringer save to assist us in any action we may take, in accordance with
this agreement!7.
8.4 You must use the Marks in connection with the System and the Business, and must not use any
other names in connection with the System and the Business'8.
8.5 You must comply with all reasonable requirements from time to time laid down by us as regards
the use and presentation of the Marks.
8.6 You must ensure that the Premises and any items regularly used by you in operating Your
Franchise Business carry such words, devices or designs, in such prominence and colour, as may
be specified by us from time to time, complying at all times with the provisions of this agreement
as to notice of your status.
8.7 Where required by us you must join with us at our cost and expense in making any application or
applications to record this or other trade mark licences at a Trade Mark Registry as we require
and conform to the terms of the licence.
8.8 Any additional goodwill generated by you for the Marks shall be our sole property’.
8.9 You must not under any circumstances apply for registration of any trade or service mark in
respect of the Marks or any part of them or colourable imitations of the same.
8.10 You must in all representations of the Marks used in Your Franchise Business append in a
manner approved by us such inscriptions as are usual or proper for indicating that the Marks are
unregistered where this is the case. When the Marks are registered you must, in all
representations of the Marks used in Your Franchise Business, append in a manner approved by
us such inscriptions as are usual or proper for indicating that the Marks are registered.
8.11 No warranty either express or implied is given by us with respect to the validity of the Marks.
8.12 We reserve the right to substitute, add to or withdraw those trade marks and other indicia that
comprise the Marks at the date of execution of this agreement if the present ones can no longer
be used or if we, in our sole discretion, determine that substitution of different marks will be
beneficial to the Business. In such circumstances, the use of the substituted marks shall be
governed by the terms of this agreement, and you shall not be eligible for any compensation for
the substitution2°.
8.13 You must use the Marks only in accordance with the System and the standards and
specifications associated with and symbolized by the Marks.
8.14 You must not use the Marks to incur any obligation or indebtedness on our behalf.
[824]
9.1
9.2
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Your obligations
In order to maintain uniform high standards in the System and the Business, protect our
intellectual property rights and maintain the common identity and reputation of the Business, you
must, during the Term, observe the obligations set out below.
The Premises?"
9.1.1 Decor
You must ensure that the Premises are painted, cleaned, maintained, decorated and
fitted out in accordance with our requirements from time to time.
9.1.2 Fitting-out
You must ensure as soon as reasonably possible after signing this agreement that the
Premises are altered, refurbished, equipped, fitted-out and decorated in accordance
with our requirements, and must purchase the Equipment necessary to establish and
operate Your Franchise Business from us or approved suppliers, including any
suppliers nominated by you and approved by us.
9.1.3 Use of the Premises
You must not carry on Your Franchise Business from any location other than the
Premises. The Premises must satisfy all planning and environmental and health and
safety requirements22.
[825]
Operations
9.2.1 Carrying on Your Franchise Business
You must operate Your Franchise Business under the Marks and no other name and
use your best endeavours to promote the Marks. You must not carry on Your Franchise
Business anywhere other than at the Premises.
9.2.2 Changes to the Concept
You must accept and put into practice such changes to the Concept as we in our sole
discretion deem fit23.
9.2.3 Charges
You must not supply the Products without making a proper charge for them, except to
remedy previously provided substandard products. You must carefully consider
charging the prices that are from time to time recommended by us24.
9.2.4 Competition25
During the currency of this agreement or any renewal of it, you must not be directly or
indirectly engaged, concerned or interested in a business similar to the Business where
it would compete with us or one of our franchisees, including having a financial interest
in such a business that may enable you to influence its economic conduct, but
excluding a financial interest that does not allow you to influence the economic conduct
of the business.
9.2.5 Complaints and inspections
You must notify us of all material customer or other complaints received by you within
[24 hours] of your receiving them. You must handle all complaints in the way we shall
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from time to time direct. Failing this, we shall be entitled to handle complaints directly
as we, in our complete discretion, think fit, after consultation with you and we may
require you to make a full refund of the cost of the Products to the customers
concerned. If a customer commences legal proceedings against Your Franchise
Business you must notify us immediately and we shall have the option of conducting
the proceedings on your behalf.
[826]
9.2.6 Compliance with regulations etc
You must at all times comply with all relevant British, European and other health and
safety standards or regulations relating to the storage and retailing of the Products and
all statutory and other legal requirements and regulations of local authorities and other
bodies.
9.2.7 Confidentiality and undertakings26
(a) You must not divulge or communicate to any person (other than to those whose
province it is to know or upon our instructions or with our approval), or use for your own
purposes or for purposes other than Your Franchise Business, any of our trade secrets
or other confidential information you may have received or obtained during the Term or
any renewal of it.
(b) You must not reveal to or discuss with the press or any other third party any details of
any dispute or disagreement between us and you or between us and any other third
party and you must ensure that your officers and employees do not do so. Such
information is confidential.
(c) You must use your best endeavours to prevent the publication or disclosure by any
other person of any of our trade secrets or other confidential information. This
restriction shall apply indefinitely, but shall cease to apply to information that has come
into the public domain other than by way of your breaching this clause. You must
ensure that all of your employees and sub-contractors sign our approved form of
employment contract immediately before commencing their employment with you[, and
that your directors sign an undertaking of confidentiality and non-competition in the
form approved by us].
9.2.8 Credit cards and other schemes?”
You must participate in any credit card or similar scheme operated or to be operated by
us, including but not limited to the '[(name) Bonus Bonanza] gift token scheme, and
comply with the terms of such schemes.
9.2.9 Customers' access to information
You must not withhold information legally required to be given to customers, or make
any misleading warranties or representations in respect of the Concept in the conduct
of Your Franchise Business.
9.2.10 Data protection
You will, subject to this clause and in accordance with the requirements of the Manual
(including privacy policies and standards), maintain a customer database containing all
Customer Data and you will accurately record on the customer database prescribed by
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us for use in Your Franchise Business the Customer Data of all persons who supply
such information or details to you or whose information and details you obtain, when
such person purchases services from, or makes enquiries in relation to Your Franchise
Business in such a way as to allow the transfer of such Customer Data to us for the
purposes of:
(a) contacting those persons and offering them [Services (or) Products], subject to the
declared preferences of such persons;
(b) conducting quality control activities; and
(c) maintaining a database of all Business customers.
All rights (including all database rights) and data held by you pursuant to this clause
will, so far as is possible under the provisions of the relevant applicable legislation,
belong solely and absolutely to and be vested in us, and you will take all steps
reasonably requested by us to vest such rights in us and neither any such list of
Customer Data nor any of the contents or information set out in it will be used by you
for any purpose, other than in the normal course of operation of Your Franchise
Business without our prior written consent.
9.2.11 Diligence
You must use your best endeavours to maintain the highest standards in all matters
connected with the Business. You must carry on Your Franchise Business diligently
and in a manner in all material respects reasonably satisfactory to us, and as may be
reasonably required by us from time to time to maintain our image and reputation. You
must not conduct Your Franchise Business or use the Marks in any way that may
adversely affect the reputation of the Business, our franchise network or the Marks.
[827]
9.2.12 Employee training
You must ensure that all your employees are adequately trained as specified in the
Manual before actually working in Your Franchise Business, and are retrained by you
as and when we deem necessary. You must not allow any person responsible for the
management of Your Franchise Business to be engaged in or assist with Your
Franchise Business unless that person has undergone training and displayed a level of
competency acceptable to us. At our request you must release your employees to us
on full pay for training upon not less than [5 working days'] notice for no more than
(number, eg 5) working days every [6 calendar months], provided that only [1]
employee is to be so released at any one time. You must be responsible for the cost of
salaries and all travel and accommodation and subsistence costs.
9.2.13 Hours?®
You must carry on Your Franchise Business from the Premises for a minimum of [6
days a week] from [0900] hours to [1700] hours minimum or during such other
minimum opening hours as we may decide. Further, you must ensure that the
telephone at the Premises is answered by a competent individual between the hours of
[0900] and [1700] all year round. An answer phone should be used outside of these
hours.
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9.2.14 Inspection and access to employees and customers??
You must permit us or our agent without any further or other authority or notice to visit
the Premises and inspect the quality of Your Franchise Business and the merchandise
sold and to speak to customers and your employees at the Premises or elsewhere
about Your Franchise Business and the Services so as to ensure that the standards
associated with the Marks are being achieved and maintained. If necessary you must
make arrangements to enable us or our agent to do so.
9.2.15 Merchandise
You must display all the merchandise offered for sale in Your Franchise Business in
accordance with the retail display guidelines detailed in the Manual.
9.2.16 Misappropriation of funds
In order to protect the reputation of the Business and the goodwill in the Marks you
must not:
(a) withhold, misdirect or appropriate for your own use any funds withheld from your
employees' wages, taxes, insurance or other benefits,
(b) generally fail to deal fairly and honestly with your employees or customers,
(c) knowingly permit any agent or employee to embezzle any funds or property of any of
your other employees or clients, or having discovered the facts fail to take any action
against or discharge him,
(d) employ any member of staff without making proper deductions for income tax and
National Insurance contributions as required by law, or employ any member of staff
who is not permitted legally to work in the United Kingdom.
[828]
9.2.17 Purchase of goods
Due to the importance of providing only premium quality goods at competitive prices in
the Business and in order to protect our intellectual property rights, maintain the
common identity and reputation of the network and enable you and other franchisees to
enjoy the benefits of bulk purchase, before commencing Your Franchise Business and
during the Term and any renewal of it you must purchase the Products deemed
necessary for you by us from us, our other franchisees, or channels of distribution or
other third parties approved by us. Any goods purchased by you from us shall be
purchased on our standard terms and conditions of business as notified to you from
time to time.
9.2.18 Quality control
You must co-operate fully and comply with all our requests for information,
documentation or other matters in the course of the quality control activities carried on
by us, and must comply with and carry out all our instructions and requests aimed at
ensuring quality control. You must use your best endeavours to ensure that any third
party co-operates with us and complies with our instructions and requests in this
regard.
9.2.19 Stationery3°
You must ensure that all letter paper, invoices and other stationery used by you in
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connection with Your Franchise Business is in the form designated by us and has our
prior approval.
9.2.20 Suppliers1
We may from time to time review the quality of the goods purchased by you from
suppliers to ascertain whether they comply with our objective quality standards. If we
feel that a product does not meet with our objective quality standards we shall notify
you of that fact and ask you to purchase that item from an alternative supplier.
9.2.21 Targets
You must achieve the Annual Sales Target. Failure to do so shail entitle us, at our sole
option, to terminate this agreement, without liability.
9.2.22 Telephone lines®2
You must subscribe for [3] or more telephone lines, as directed by us, to support
telephone lines specifically for the business, the electronic point of sale system and the
credit/debit card machines used in Your Franchise Business. You must only use these
lines in connection with Your Franchise Business.
9.2.23 Till system33
At our request you must install and operate at your own expense an electronic point of
sale till linked to our central computer so that we have daily access from our head
Office to the till receipts, which must include all takings of Your Franchise Business for
the period in question. In storing and processing personal data you must at all times
comply with the provisions and obligations imposed by the Data Protection Act 1998
and the Data Protection Principles set out in it.
9.2.24 VAT registration®4
You must at all times during the Term and any renewal of it maintain your registration
with HM Customs and Excise for VAT.
[829]
General
9.3.1 Admissions and statements
You must not make any admission of liability or pay any damages without our consent.
Also, you must make no statement or otherwise directly or indirectly pass any
information to the press or any other third party regarding any dispute or potential
dispute between you and us or between us and any other of our franchisees. If you do
so it shall be a material breach of the terms of this agreement.
9.3.2 Anti-bribery
You must not (and must procure that no person acting on the Franchisee's behalf shall)
directly or indirectly make or facilitate:
(a) any expenditure for any unlawful purposes in connection with the Franchisee's
Business or in connection with any activities in relation thereto;
(b) any offer, payment or promise to pay any money or to give anything of value to any
government official, political party or any other person with a view to influencing any
action or decision of such person; nor
(c) commit or consent to or participate in any other way in any act of bribery (howsoever
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called) under the laws of any jurisdiction.
You further agree to comply with all applicable legal requirements and our policies
against corrupt business practices, money laundering and facilitating or supporting
persons who conspire to commit crimes or acts of terror against any person or
government.
9.3.3 Branding
You must conform with our reasonable requirements regarding the branding of Your
Franchise Business. You must display the Marks prominently in Your Franchise
Business both internally and externally.
9.3.4 Disclosure®5
On entering into this or any other agreement or transaction with us during the
continuance of this agreement, you must make full disclosure of all material facts or
circumstances and of everything known to you respecting the subject matter of the
contract or transaction that would be likely to influence our conduct, including any
material fact concerning your, or if you are a company your officers', Franchise
Business.
9.3.5 Employees3¢
(a) You must ensure that you retain at all times to our satisfaction personnel sufficient in
number and ability to service Your Franchise Business adequately and must ensure
that their terms and conditions of employment or engagement are acceptable to us.
(b) You must ensure that all your employees conduct themselves in such manner as not
to discredit or adversely affect the reputation of the Concept or the Marks. Your
employees must at all times be clean and tidily clothed in such clothing as we at our
discretion designate. You must comply with all instructions we give you with regard to
the cleanliness, clothing, appearance or demeanour of your employees. We may give
you any such instructions that are, in our reasonable opinion, desirable in order to
maintain the uniform high standards associated with the Marks. You must immediately
notify us if any of your directors, shareholders, employees or agents are arrested or
questioned by the police in connection with an offence committed on the Premises or
otherwise connected with Your Franchise Business.
9.3.6 Goodwill?”
You agree that all goodwill in the System, the Marks and the Business belongs to us
and that any additional goodwill generated from the use or exploitation of the System,
the Marks and the Concept in Your Franchise Business belongs to us and is held by
you solely as our trustee. Further, all the customers of Your Franchise Business are,
for the purposes of this agreement, but not as regards any liability for defective
products or otherwise, our customers and not yours.
[830]
9.3.7 Indemnity
You must indemnify us and keep us indemnified against all loss, damage or liability
suffered by us as a result of your conduct of Your Franchise Business, including but not
limited to costs, claims, damages, losses, penalties, fines, liabilities and expenses of
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investigating and defending any claim, including legal fees and disbursements and
consultants’ fees and disbursements, and in particular those incurred as a result of:
(a) failure to comply with or contravention of any laws, applicable present and future
authorisations, registrations, duties of care, codes of conduct, regulations, notices,
permits, consents, approvals and licences issued, imposed or directed by any relevant
body, including without limitation any matter relating to the protection of the
environment, damage to or use of any property or harm to human health,
(b) use of the Marks or the System by you,
(c) any failure by you or your employees to comply with any provision of this agreement or
the Manual, or
(d) any deliberate or negligent act, error or omission by you or your employees or agents.
9.3.8 Information to be provided to us
You must provide us with, or allow us to obtain otherwise, all information and reports
specific to Your Franchise Business specified in the Manual and this agreement. The
preparation and accuracy of all information you submit pursuant to this agreement and
the Manual shall be your responsibility.
9.3.9 Insurance8
You must insure with a major reputable insurance company with cover at a prudent
level appropriate for the Territory, or such other minimum sum as we advise from time
to time, against all normal and reasonably foreseeable risks relating to the conduct of
Your Franchise Business and the retail of the Products and use of the Equipment as
specified in the Manual, including without prejudice to the generality of the foregoing:
(a) public and employers liability,
(b) product liability, howsoever arising,
(c) all risks insurance for the full replacement value of the Equipment, fittings and stock
and other items used in Your Franchise Business in the Territory damaged as a result
of fire, flood, explosion impact, vandalism and burglary and loss of profits of Your
Franchise Business,
(d) buildings insurance in respect of the Premises,
(e) key person insurance to cover the death or incapacity of (name of key person) for the
Term or any renewal of it,
(f any other insurance necessary in the Territory.
We may require proof that premiums have been paid, and we must be named as
beneficiaries on the key person insurance policy. In addition you must pay the
Premiums on our business interruption insurance. We will advise you of the current
levels of these premiums when you enter into this agreement. Certified copies of all
cover notes and insurance policies must be sent to us. Our interest in Your Franchise
Business must be noted on all policies. We shall not be liable for any losses you may
suffer or claims you may have as regards the adequacy of the insurance cover taken
by you.
[831]
9.3.10 Internet and electronic rights??
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You may during the Term have your own website on the Internet to advertise and
promote Your Franchise Business, and it may feature the Marks. You must comply with
our social media policy, as amended by us at our sole discretion from time to time.
9.3.11 Leaflets
You must ensure uniformity in the design and quality of all publicity leaflets used in
Your Franchise Business by ensuring that they are supplied by us or have our
approval.
9.3.12 Manual
You must operate the System properly and strictly in accordance with the Manual as
amended by us at our sole discretion from time to time.
9.3.13 I Maximum charges4°
You must not charge excessive prices that might bring the Business or the Marks into
disrepute. [You must consider keeping charges in line with those charged for similar
products in the Territory].
9.3.14 Know-how
You must refrain from using the Know-how or exploiting the Concept except in the
operation of Your Franchise Business.
9.3.15 Name‘?
You must not use the name ‘(trade mark name)' or any name resembling it as part of
your or your company's name, either during or after termination of the Term or any
renewal of it. You must comply with the Business Names Act 1985. You may however
use the Marks as your trading name during the Term provided that you use them only
in accordance with the terms of this agreement.
[832]
9.3.16 Notice of status42
You must not hold yourself out as or describe yourself as our agent, or in any way
pledge our credit. You must clearly indicate on all literature and correspondence and by
way of a prominently displayed notice at the Premises a sign stating 'An independent
business owned and operated by (insert your name) under the (trade mark name)
name as a franchisee of (insert details). You must take all other reasonable steps to
publicise the fact that you are our independent franchisee and are in no other way
connected with us, including the above notice on all literature used in Your Franchise
Business. Nevertheless as regards goodwill all customers serviced by you shall be our
customers not yours.
9.3.17 Other interests4>
You must not carry on any other business or be involved in any other business during
the Term or any renewal of it save as approved by us. Before signing this agreement
you must disclose to us by way of Schedule 4 to this agreement your full business
interests and those of your directors and shareholders. This list must be kept regularly
updated.
9.3.18 Our requirements
You must comply with all reasonable requirements consistent with the terms of this
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agreement that we notify to you from time to time for the efficient conduct of the
Business, including but not restricted to providing our prospective franchisees with
reasonable information and implementing any changes to the System and the decor or
layout of the Premises
9.3.19 Software
If we license you to use any software you agree to be bound by the terms of the
software licence we require.
9.3.20 Taxes
You must pay all stamp duty and other taxes due and payable due to the execution of
this agreement. All sums paid to us will be paid gross of any withholding tax in the
Territory.
9.3.21 Updates44
If you are a company, you must immediately provide us with copies of any
amendments made to your memorandum and articles of association and provide us
with any shareholders' agreement between your shareholders. If you are a partnership
franchisee you must immediately provide us with copies of your partnership agreement
and any changes to it.
9.3.22 Use of the Know-how
You must not use the Know-how for any purpose other than exploitation of the
Concept, and must not disclose the Know-how to third parties.
[833]
10 Your financial obligations
10.1 You must pay to us without deduction or set-off:
10.1.1 immediately upon signing this agreement, the Franchise Fee;
10.1.2 immediately on signing this agreement, the fee for the Initial Package set out at
Schedule 2;
10.1.3 the Service Fee, which shall become due and payable within [3 working days] of the
end of each calendar month, by direct debit;
10.1.4 the Advertising and Promotion Fee, which shall become due and payable within [3
working days] of the end of each calendar month, by direct debit, subject to clause
10.2;
10.1.5 within [30 days] of the date of an invoice presented to you by us, the cost of any
products or services from time to time provided to you, including but not limited to
advertising, promotional aids such as leaflets and other goods or services supplied to
you by us during the invoice period;
10.1.6 our legal costs in respect of the signing of this agreement;
10.1.7 the reasonable administrative costs incurred by us in vetting any insurance policy; and
10.1.8 in respect of us providing you with the Additional Support, a reasonable sum to be
determined at our sole discretion.
10.2 The Advertising and Promotion Fee shall not be payable for the first [6 months] of the Term. This
concession shall only be applicable to the first franchise agreement you enter into with us and not
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to any renewal agreement.
10.3 Interest shall be payable on all sums due in accordance with this agreement at [4]% above the
base rate of (name of bank) or, if no such base rate is published, at a reasonable rate determined
by us at our sole discretion until payment is received, as well before as after any judgment.
10.4 All money paid to us under this agreement shall become our sole property upon payment to us,
shall be deemed to be fully earned at the time of payment and shall not be refunded to you under
any circumstances.
10.5 You must meet the cost of wages incurred by your staff during training.
10.6 You must pay all of your debts, including but not limited to, the costs of [shop fitting], or any
supplies or equipment supplied by third parties, in a prompt manner so as not to bring the Marks
into disrepute.
10.7 We shall not charge you for the Initial Training provided at our training premises, but you must
meet the cost of any travel, board and lodging incurred by you or your staff and the wage costs of
your staff.
10.8 We shall be entitled to make a reasonable mark-up on any products and the Equipment sold to
you.
10.9 You must record all sales and other financial information we require on point of sale and other
equipment or software approved by us. You must maintain an accounting system in a manner and
form satisfactory to us, prepare on a current basis complete and accurate records concerning
sales and other aspects of Your Franchise Business, and preserve them for not less than [3
years]. The records must include, but shall not be limited to, books of account, tax returns, daily
reports, and statements of revenue which must be prepared at least annually45.
10.10 We may attribute any money received by us from you to any money owed to us by you whether
under this agreement or otherwise, regardless of your purported designation of the payment to
any account.
10.11 If statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 would be
higher than the interest payable under clause 10.3, then we shall be entitled to claim statutory
interest in lieu of interest under clause 10.3, and whether claiming statutory interest or interest
under clause 10.3 we shall also be entitled to claim, once interest begins to run, any fixed sums
due (or which would be due if statutory interest were claimed) under the Late Payment of
Commercial Debts Regulations 2002 or any regulation amending or replacing the same.
[834]
11 Advertising and promotion
11.1 [National (or) Regional] advertising
In consideration of you paying the Advertising and Promotion Fee to us in accordance with this
agreement, we must fulfil the following obligations:
11.1.1 We must establish and maintain a [national (or) regional] advertising and promotion fund (‘the
Fund’) to promote the Business.
11.1.2 We must pay all advertising and promotion fees received by us into a separate bank account to
be used only in accordance with the provisions of this clause 11.
11.1.3 We must expend the Fund upon such national and regional advertising or promotional activities
as we in our sole discretion think fit. We shall not, however, be under any obligation to expend on
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advertising and promotion in each year any greater sum than the aggregate of the Advertising and
Promotion Fees received from all our franchisees.
11.1.4 At the end of each of our financial years ending (date) we must arrange for an audited account to
be prepared by our auditors of the sums received from all our franchisees and expended by us
pursuant to this clause*®. We must forward to you an auditor's certificate showing the total of such
receipts and payments. If that account shows that we have either overspent or under spent the
money available in the Fund the amount overspent, including the cost of money borrowed or
advanced, may be recovered by us from the next year's contributions but not so as to increase the
sum payable by you in any year beyond ...% of your annual gross turnover excluding VAT. If that
account shows that we have under spent the money available in the Fund, the proportion of the
amount under spent attributable to you shall be deducted from your monthly Promotion and
Advertising Fee during the next financial year, so as to reduce your monthly payment.
11.1.5 We must advise you as regards any further local advertising you may carry on. Such further local
advertising may be carried on only in accordance with this agreement.
11.1.6 We do not guarantee that you and our other franchisees will benefit equally as a result of our use
of the Fund.
11.1.7 We must meet with you each year to discuss our proposals for the use of the Fund in the
forthcoming year.
11.2 Local advertising and promotions
In order to market the Business in your locality properly, you must:
11.2.1 regularly undertake at your own cost the local advertising and promotion described in the Manual
from time to time;
11.2.2 follow our directions as regards advertising and promotions without delay, and use only
advertising and promotional material previously approved by us in writing; and
11.2.3 ensure that your advertising and promotions activities comply with all relevant laws and
regulations in the Territory.
[835]
12 Your accounts
12.1 You must maintain proper books of account relating to Your Franchise Business as required by
us from time to time and keep them on the Premises or at some other place required by us from
time to time. You must employ a chartered accountant to prepare annual accounts for Your
Franchise Business.
12.2 Within [30 days] after the end of each financial year of Your Franchise Business you must supply
us with a copy of the management accounts of Your Franchise Business and such other
accounting and financial information relating to it as we may reasonably require.
12.3 Within [4 months] after the end of each financial year of Your Franchise Business you must
supply us with a copy of the audited accounts of Your Franchise Business and such other
accounting and financial information relating to it as we may reasonably require.
12.4 You must supply us with any certificates and other documents referred to in clauses 12.2 and
12.3 that are prepared after the termination of this agreement but relate to any financial period of
Your Franchise Business that falls wholly or partly within the period of this agreement.
13 Audit
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13.1 We or our auditor or authorised representative shall be entitled to inspect and audit your books of
account and all supporting documentation relating to Your Franchise Business at any time in
respect of the whole or any part of the period of this agreement and within [6 months] after the
receipt by us of the management accounts for the year or other period of this agreement up to
termination or surrender of it or sale or transmission of Your Franchise Business to a new
franchisee by us giving reasonable notice to you, such inspection or audit to be during reasonable
business hours.
13.2 If an audit or any other periodic inspection not being a full audit shows that your accounting as to
the calculation of the payments due under this agreement or any other financial matter is
incorrect, you undertake to promptly rectify the defect in the amount accounted for or the
accounting system defect as the case may be.
[836]
14 Sale of Your Franchise Business4”
14.1 Your right to sell Your Franchise Business
You may not assign or delegate the performance of your franchise granted by this agreement or
any right or obligation under it. However, subject to obtaining our prior written consent and subject
to the conditions listed in clauses 14.2 and 14.3, you may sell Your Franchise Business. On the
date of completion of the sale this agreement shall forthwith terminate. Subject to clauses 14.2
and 14.3 and subject to the terms of the lease or underlease of the Premises, we undertake to
grant to an acceptable buyer of Your Franchise Business an agreement for not less than [5 years]
commencing on the date of the sale. This replacement agreement shall be in the form of the
standard agreement offered by us to our franchisees current at that time.
14.2 The conditions
The conditions to be fulfilled if we are to give our written consent to the sale of Your Franchise
Business shall include the following:
14.2.1 Any proposed buyer must be bona fide and at arm's length and must meet our standards with
respect to business experience, financial status and ability. [He] must successfully complete a
programme of initial training by us.
14.2.2 Your lease of the Premises‘® must be transferred or assigned to any proposed buyer, provided
that the transfer or assignment has the consent in writing of all requisite landlords.
14.2.3 On completion of the sale you must pay to us a sum equal to [10]%*9 of the sale price of Your
Franchise Business if we introduced the buyer and [5]% otherwise to cover our costs of dealing
with the application for consent, including all external costs incurred by us such as surveyors’,
estate agents' or legal fees, and the legal and administrative costs of any head landlord incurred
in negotiating and granting any licence to assign or underlet, plus disbursements, together in each
case with VAT at the then current rate.
14.2.4 You must not be in breach of any of your obligations under the terms of this agreement or have
been in persistent breach of any of them during the Term.
14.2.5 You must execute a release or discharge in our favour of all claims against us and indemnify us
against any claim arising from the period of operation of the franchise by you.
14.26 You must provide us with a financial statement of affairs and a business history of the proposed
buyer and any other information we may reasonably require.
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14.2.7 At our request you must have Your Franchise Business independently valued, taking into account
the net market value of the assets to be sold and any additional value arising from sale of Your
Franchise Business as a going concern but also taking into account your obligations under this
agreement and the nature of the licence of the Marks and other intellectual property under it. The
valuer must be a chartered accountant chosen by the parties or, in the event of a failure to agree
on a choice within [14 days] appointed by the President for the time being of the Institute of
Chartered Accountants of England and Wales. The chartered accountant shall act as an expert
and not as an arbiter. His decision as to the sale price of Your Franchise Business shall be
conclusive and binding and shall be the price at which you sell Your Franchise Business to the
proposed buyer or to us if we exercise our option under clause 14.3. The costs of the chartered
accountant in certifying the sale price shall be your responsibility.
14.2.8 The sale must be completed in time to enable us to enter into a replacement agreement with the
buyer before the expiry of this agreement.
14.2.9 In respect of each and every proposed buyer's offer to purchase Your Franchise Business, the
proposed buyer must submit to us a complete copy of [his] written purchase offer within [7
working days] of making it, together with a financial statement of [his] affairs and [his] business
history and any further information we may reasonably require. It is a condition of our consent that
the terms of the offer as submitted to us are the terms of the actual sale of Your Franchise
Business. If the sale price or any other significant term of the offer is changed the amended terms
must be submitted to us to be processed under and subject to this clause in place of the original
or previous offer.
14.2.10 The period within which we may exercise our right of first refusal must have expired or we must
have confirmed in writing that we do not intend to exercise our right.
[837]
14.3 Our right of first refusal5°
14.3.1 In addition to our other rights under this agreement, we shall have an option to purchase Your
Franchise Business for the same amount and on the same terms as those set out in any copy
purchase offer submitted to us as required above. The option must be exercised by written notice
given to you within [28 days] after we receive the copy purchase offer and accompanying items as
required by us. During this period the terms of the purchase offer may not be altered without our
consent.
14.3.2 If we do not exercise our option to purchase but consent to the sale to the buyer, it shall be a
condition of the sale that the buyer must deposit [25]% of the purchase price with our solicitor
upon exchange of contracts. Upon completion of the sale the buyer must pay the balance of the
purchase price to our solicitor as your agent, subject to a lien for any money owed to us by you.
We may deduct from the price the amount of any of your unpaid obligations to us together with the
amount due to us under clause 14.2 and must remit any outstanding balance of the price to you
within [30 days] after we receive the final amount of the purchase price.
14.3.3 If we exercise our option to purchase, your lease of the Premises must be assigned®" to us on
the basis of the Standard Conditions of Sale current at the date of completion of the assignment,
or if the Standard Conditions of Sale are no longer published the National Conditions of Sale 20th
Edition, except in so far as the applied conditions are inconsistent with the terms of this
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agreement. In any event:
(a) no deposit shall be payable;
(b) title must be deduced in accordance with the Land Registration Act 1925 Section 110
in the case of a sale of registered land, or must commence with the lease under which
the Premises are held in the case of a sale of leasehold unregistered land;
(c) the sale must be with vacant possession of the Premises on completion;
(d) you must sell with full title guarantee; and
(e) you must join with us in any necessary application for and co-operate fully to obtain
any necessary order pursuant to the Landlord and Tenant Act 1954 Section 38(4) or
otherwise to render fully enforceable the foregoing provisions of this clause and must
take any other reasonably necessary steps to give effect to them.
14.4 Our right to assign etc
We may assign or transfer this agreement and all rights under it to any other party at any time. We
must inform you in writing within a reasonable time after doing so. In the event of any such
assignment or transfer, in consideration of our procuring for you and other developers an
undertaking from the assignee or transferee to be bound by our obligations under this agreement,
you must re-execute this agreement with the assignee or transferee if we require or [he] requires
you to do so. If you fail to comply with the provisions of this clause you irrevocably appoint us as
your agent with full authority to re-execute this agreement with the assignee or transferee.
[838]
15 Termination
15.1 Remediable breach
We may terminate this agreement forthwith by notice in writing to you if you have failed to remedy
any remediable breach within a period of [28 days] of the receipt of a notice in writing from us
requiring you to do so.
15.2 Irremediable breach®2
We may terminate this agreement forthwith by notice in writing to you if:
15.2.1 you commit any material breach of your obligations under this agreement;
15.2.2 you are in persistent breach of your obligations under this agreement;
15.2.3 you are wound-up or become insolvent or are deemed unable to pay your debts or are subject to
any application or any procedure for winding up or corporate reorganisation, except for the
purpose of and followed by a reconstruction, or amalgamation without insolvency where the
resultant company is or agrees to be bound by the terms of this agreement and is a company
whose shares are owned by persons not in competition with us or you except to an amount not
exceeding [5]%;
15.2.4 you enter into negotiations for an arrangement or composition with or for the benefit of your
creditors;
15.2.5 a liquidator, receiver or manager is appointed in relation to Your Franchise Business or property
or any part of it;
15.2.6 an administration order is made against you;
15.2.7 any part of your assets or Your Franchise Business is lawfully seized as payment or security for
payment;
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15.2.8 any procedure of similar effect to any of the foregoing is commenced or any other event occurs
that causes your dissolution;
15.2.9 any sum required under the terms of this agreement is not paid or submitted at the latest within
[14 days] following its due date;
15.2.10 any document is not submitted at the latest within [14 days] following its due date;
15.2.11 you fail to commence Your Franchise Business or you cease it or take any steps to cease it;
15.2.12 you challenge our intellectual property rights;
15.2.13 you are convicted of an indictable criminal offence or one involving dishonesty;
15.2.14 you behave in an immoral manner or any other way that may damage our reputation or yours;
1.2.15 you take, withhold, misdirect or appropriate for your own use any funds withheld from your
employees' wages for any employees’ taxes, insurance or benefits, generally fail to deal fairly and
honestly with your employees or clients or knowingly permit or, having discovered the facts, fail to
take any action against or to discharge any agent or employee who has misappropriated any
funds or property of any clients or ourselves; or
15.2.16 you divulge confidential information to unauthorised third parties.
15.3 Other rights
The termination or expiry of this agreement shall be without prejudice to any rights and obligations
in respect of any period after such termination and shall also be without prejudice to the rights and
obligations of either of us against the other in respect of any antecedent breach of any of the
terms and conditions of this agreement.
15.4 Set-off etc
Notwithstanding anything contained or implied in this agreement, we may set off against any
money that would otherwise be payable or owing by us to you under or pursuant to this
agreement unless and until you have paid, satisfied or discharged all moneys, debts or liabilities
due or owing to us and have satisfied all of your other obligations to us.
[839]
16 Post termination provisions
16.1 Your duties on termination®3
In the event of the termination of this agreement howsoever arising, in order to protect our
intellectual property rights and reputation:
16.1.1 you must immediately cease operation of Your Franchise Business;
16.1.2 you must forthwith deliver the Manual to us, with all copies of it and all stationery and signs
bearing the Marks, and all other items loaned to you by us then in your possession whether or not
supplied by us;
16.1.3 you must cease using the telephone lines and any electronic point of sale equipment;
16.1.4 you must remove the trade dress;
16.1.5 you must take whatever steps we require in order to cancel your right to use the Marks or any of
our other property;
16.1.6 you must not at anytime thereafter:
(a) disclose or use any confidential information or Know-how related to the System or the
Business and the Products acquired by you during or as a result of this agreement,
save that you shall be allowed to use any of the Know-how that has come into the
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public domain by means other than your breach;
(b) make any use of the Marks;
(c) purport to be a franchisee of or otherwise associated with us; or
(d) use any recommendation or reference provided as a result of your work as a
developer; and
16.1.7 you must forthwith pay all sums and amounts due to us under the terms of this agreement or
otherwise.
[840]
16.2 Post termination restrictions on you54
16.2.1 You must not for a period of [one year] following the termination of this agreement directly or
indirectly be engaged, concerned or interested in a business similar to the Business that operates
within the Territory, save for a financial interest that does not allow you to influence the economic
conduct of such a business.
16.2.2 You must not for a period of [one year] following the termination of this agreement directly or
indirectly be engaged, concerned or interested in a business similar to the Business that operates
within a radius of [4 miles] from any Premises in the United Kingdom from which the Business is
being carried on by us or any of our franchisees, save for a financial interest which does not allow
you to influence the economic conduct of such a business.
16.2.3 You must not for the period of [one year] following the termination of this agreement, either on
your own behalf or on behalf of any other person, firm or company seek to sell or obtain orders in
respect of the Products for any person, firm or company who at the date of such termination is
one of our customers or in the habit of dealing with us [within the Territory] or represent yourself
as being in any way connected or having been formerly connected with or interested in the
Business, the Marks or our franchise.
16.2.4 You must not without our consent in writing during the period of [6 months] after termination of
this agreement, either on your own account or in connection with or on behalf of any other person,
firm or company, solicit or entice away from us or our other developers any person who at the
date of such termination is employed by us or our other developers, whether or not any such
person would commit a breach of his contract of employment by reason of leaving such
employment.
16.3 Restrictions reasonable
While the above restrictions are considered by both of us to be reasonable in all the
circumstances, it is agreed that if, taken together, they are judged to go beyond what is
reasonable in all the circumstances for our protection but would be judged reasonable if part or
parts of the wording of them were deleted, they shall apply with such words deleted.
[841]
17 Copyright
17.4 The copyright and all other rights in the text of the Manual, any software, our intranet, our
website, any designs and photographs and all other documents that we supply to you (‘the
Copyright Materials’) and all secret or confidential information contained in them are our property.
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You undertake not to copy the Copyright Materials or disclose any of their contents or concepts to
any other party. You undertake to not make any direct or indirect use of the Copyright Materials
otherwise than in operating the Business in accordance with the terms of this agreement.
17.2 For the purpose of this clause:
17.2.1 the Manual shall be deemed to include the Manual as originally provided to you
together with all additions and amendments to it from time to time, and
17.2.2 ‘secret or confidential information’ shall include all confidential information provided to
you from time to time, by memorandum or correspondence or howsoever otherwise,
appertaining to the operation of the Business save for any that has come into the public
domain other than through your own breach.
18 Entire agreement
18.1 This agreement and the Manual express the entire agreement between you and us and
supersede any negotiations or prior agreements on their subject matter.
18.2 Both of us confirm that the whole of our negotiations and intentions have been included within the
context of this agreement and it expresses clearly our requirements.
18.3 You confirm that no warranties, representations or other matters were relied upon by you causing
you to sign this agreement that have not been satisfied in it.
18.4 This agreement shall not be modified in any way except by a written instrument signed by both of
us.
18.5 Nothing in this agreement shall seek to exclude any liability for fraudulent misrepresentation.
Except in the case of fraudulent misrepresentation, the only remedy available in respect of any
misrepresentation or untrue statement made to either you or us shall be a claim for breach of
contract.
18.6 All or any financial information relating to the operation of both Your Franchise Business and the
operation of the Business, including, but without prejudice to the generality of the foregoing,
forecasts, budgets and performance ratios or cash flow projections provided to you by or on our
behalf or any of our employees or agents, whether before the signing or during the continuation of
this agreement, is provided on the basis that such information is for your guidance only and shall
in no way be treated by you as a warranty, representation or guarantee. You acknowledge that
you have not and will not rely upon such financial information.
[842]
19 Waiver
Neither our failure to exercise any power given to us under this agreement or to insist upon strict
compliance by you with any obligation under it, nor any custom or practice of you or us shall
constitute any waiver of any of our rights under this agreement. Waiver by us of any particular
default by you must be in writing and shall not affect or impair our rights in respect of any
subsequent default of any kind by you, nor shall any delay by or omission of us to exercise any
rights arising from any of your defaults affect or impair our rights in respect of the said default or
any default of any kind.
20 Severability
If any item or provision contained in this agreement or any part of it (‘the Offending Provision’) is
declared or becomes unenforceable, invalid or illegal for any reason whatsoever, including, but
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not detracting from the generality of the foregoing, a decision by the competent domestic or
European courts, an Act of Parliament, European Union legislation or any statutory or other
byelaws or regulations or any other requirements having the force of law, the other terms and
provisions of this agreement shall remain in full force and effect as if this agreement had been
executed without the Offending Provision appearing in it. If the exclusion of the Offending
Provision will in our opinion adversely affect either our right to receive payment of all or any fees
or remuneration by whatever means payable to us or the Marks, the Know-how or the methods of
the Business, we may terminate this agreement on [30 days'] notice given to you in writing.
21 Warranties, undertaking and disclosure
21.4 You must make no statements, representations or claims and may give no warranties to any
customer or potential customer in respect of the Business or Your Franchise Business, save those
that have been specifically authorised by us, either in writing or in the Manual in force at the
relevant time. You undertake to keep us fully and effectively indemnified against all claims,
demands, losses, expenses and costs we may incur as a result of any breach by you of this
provision or of any other provision contained in this agreement.
21.2 You warrant that you alone will carry the risk of carrying on Your Franchise Business, and that
you have no previous knowledge of the Business.
21.3 You warrant that you have taken full legal advice on this agreement before its execution.
21.4 You acknowledge that we have supplied to you all information concerning us and the Business
you deem necessary to enable you to make a decision whether or not to enter into this
agreement.
[843]
22 Improvements and atypical modifications to the System®>
You acknowledge that because complete and detailed uniformity under many varying conditions
may not be possible or practical, we specifically reserve the right and privilege at our sole
discretion and as we deem to be in the best interests of all concerned in any specific instance, to
vary certain standards for any [territory] based upon the peculiarities of any [territory's] customer
base, location, density of population, business potential, population of the locality, existing
business practices or any other condition we deem to be of importance to successful operation [in
any specific territory]. You shall not be entitled to require us to disclose or grant to you any like or
similar variation.
23 Force majeure
23.41 This agreement shall be suspended for any period during which we reasonably believe that either
of us is prevented or hindered from complying with any of our obligations under it by any cause
beyond your or our reasonable control as the case may be, including but not restricted to strikes,
fuel shortages, war, civil disorder, and natural disasters.
23.2 If such a period of suspension exceeds [180 days], then, upon giving written notice to you, we
may require that:
23.2.1 all money due to us shall be paid immediately, and
23.2.2 you shall immediately cease trading until further notice from us.
24 Approvals and consents
Any approval or consent given under this agreement shall be valid only if given in writing by [one
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of our directors]. You may not claim any money, damages, remedy by way of set off,
counterclaim, or defence or otherwise, based upon any claim or assertion that we have
unreasonably withheld or unreasonably delayed any consent or approval required under this
agreement.
25 Third party rights
The parties to this agreement do not intend that any term of it shall be enforceable by a third party
as defined in the Contracts (Rights of Third Parties) Act 1999 under the provisions of that Act.
[844]
26 Notices
Any notice required to be given for the purposes of this agreement must be given by sending it by
pre-paid first class post or fax, or by delivery by hand at the relevant address shown in this
agreement or such other address as has been notified in accordance with this clause by the party
concerned as being [his] address for the purposes of this clause. Any notice sent by post shall be
deemed to have been served [2 days] after posting. In proving service it shall be sufficient to
prove that a notice was properly addressed and stamped and put into the post. Any notice sent by
fax shall be deemed to have been served on the next business day following the date of despatch
of it. Any notice delivered by hand shall be deemed to have been served when physically
delivered at the relevant address.
27 Choice of law and jurisdiction
This agreement shall be governed by and construed according to English law by the [High Court
in London (or) ICC Arbitration in London. If the parties cannot agree on an arbitrator within 30
days one will be appointed by the President of the Law Society of England and Wales].
[28 Corporate issues®®
28.1 Directors
You must not change your directors without our prior written consent, such consent to be given at
our sole discretion.
28.2 Change of your owners
You shall not have the right to allow any change in your owners, including but not limited to the
transfer or charging of your existing shares or the issue or charging of new shares either to your
existing shareholders or to third parties, without obtaining our prior written consent. If we consent
to a change in your owners we may at our sole discretion treat this as a sale of Your Franchise
Business and the provisions of clause 14 shall then apply, including, for the avoidance of doubt,
clause 14.3.
28.3 Appointment of executive
28.3.1 You must appoint and at all times during the Term have in position, a full time executive to run
Your Franchise Business on a day to day basis. The person appointed must be previously
approved by us, and at all times after his or her appointment be acceptable to us, such approval
and acceptance not to be unreasonably withheld.
28.3.2 We may at any time, if the approved executive is no longer employed by you or if he or she
becomes incapacitated or dies, at our sole discretion if we consider it appropriate, manage Your
Franchise Business on your behalf until such time as a new executive, acceptable to us is
appointed. During that period we shall be entitled to the Management Fee together with the cost
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of the travel, accommodation and subsistence of our employee or other representative engaged in
the management, and shall be entitled to [50]% of the pre-tax profits of Your Franchise Business,
to be calculated in accordance with generally accepted accounting policies applied on a
consistent basis.
28.3.3 If a new executive approved by us is not appointed within 90 days of the previous executive
ceasing to be employed by you, we shall be entitled to terminate this agreement on 30 days'
notice without liability.]
[845]
AGREED by the parties etc(For execution clauses and signature blocks see vol 12(3) (2013)
DEEDS, AGREEMENTS AND DECLARATIONS)
SCHEDULE 1
The Equipment
(insert details of the equipment including licences for any software)
SCHEDULE 2
The Initial Package and Cost
(insert details)
Schedule 3
The Marks
(insert details of the trade marks, including for each mark the application number, class and filing date)
SCHEDULE 4
Your Business Interests
(insert details)
[846]
1 Overview: This is a non-exclusive franchise agreement for use by a retail business.
2 Recitals: Lengthy and accurate recitals are helpful in the event of future litigation over the circumstances surrounding the
recruitment of the franchisee
3. Recital (E): Some franchisors prefer to take the head lease of the premises and sublet them to the franchisee. Others take
the view that this is taking too great a financial risk and prefer a third party landlord
4 — Recital (F): This recital aims to limit any claim by an unsuccessful franchisee that the franchisor should take on the
franchisee's losses.
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5 Clause 1--Definitions:
‘Additional Support’: This definition helps to avoid future disputes over what is included in the various fees paid to the
franchisor.
‘Advertising and Promotion Fee': The franchisees’ collective power to buy advertising is a great commercial advantage. For a
provision for a fixed monthly fee see Form 14 clause 1.1.2 [707] above
‘Initial Package’: The initial package is usually detailed in the manual
‘Initial Training’: The initial training is usually detailed in the manual.
‘the Know-how’: Know-how must be secret, substantial and identified. ‘Secret’ means that the know-how, as a body or in
precise configuration and assembly of its components is not generally known or easily accessible, ‘substantial’ means that it
includes information indispensable to the buyer for the use, sale or resale of the contract goods or services, and ‘identified’
means that it is described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of
secrecy and substantiality: see the Vertical Restraints Block Exemption Regulation EC 2790/99.
‘the Management Fee’: The management fee is to cover circumstances in which the franchisor is obliged to manage the
franchise's business, eg on sickness or death of the franchisee
‘the Manual’: The manual is the cornerstone of the franchise. It is usually the embodiment of the franchisor's know-how.
‘the Marks’: The brand is an essential element in the franchise package.
‘the Service Fee’: The franchisee must check that the service fee enables his business to remain financially viable.
‘the Term’: If the term is more than 5 years, then an agreement seeking to take advantage of the Vertical Restraints Block
Exemption Regulation EC 2790/99 will encounter issues arising under Article 5(a),
6 Clause 3: This window of opportunity balances the interests of both parties.
Some agreements list detailed provisions that must be satisfied for a renewal agreement to be granted
Charging a renewal fee is acknowledged to be contrary to the British Franchise Association's Code of Ethics.
7 Clause 4: Some franchisors prefer to take the head lease and sublet to franchisees. However, this increases the
franchisor’s commercial risk.
8 Clause 5.1: Some agreements deal with the need to retrain individuals who do not pass the initial training.
Some franchisors arrange for the equipment to be leased from a third party on commercially attractive terms otherwise
unavailable to smaller operators.
9 Clause 5.2: Continuously updating the manual is crucial
10 Clause 6.1: Consider how the cost of this should be met. if it is not included in the fees, the cost should be specified.
11 Clause 6.2: The difference between assistance given under clause 6.2 and additional support under clause 6.3 must be
carefully defined
12 Clause 6.3: It is wise to define ‘the Additional Support’ carefully.
13 Clause 6.7: Updating the manual on a regular basis is essential to the success of the franchise.
14 Clause 7: Regular policing of franchisees is essential.
15 Clause 8: The franchisor should not give warranties as regards to validity of the marks.
16 Clause 8.1: The Trade Marks Act 1994 s 28 requires trade mark licences to be in writing
17 Clause 8.3: Only the franchisor should take action against infringers. See also the Trade Marks Act 1994 s 30
18 Clause 8.4: This is critical to protect the brand.
19 Clause 8.8: Ownership of goodwill can be controversial
20 Clause 8.12: As brands continuously evolve, this clause is essential.
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21. Clause 9.1: All outlets must appear to be identical.
22 Clause 9.1.3: Public health regulations must be complied with to help maintain the brand's reputation.
23 Clause 9.2.2: Franchisees can ruin a business for themselves and other franchisees if they do not adopt the latest
changes to the concept.
24 — Clause 9.2.3: Price maintenance breaches the Treaty of Rome art 81 and is a ‘hard core' restriction. However,
maintaining the brand's price profile is important.
25 Clause 9.2.4: This clause is essential to protect the know-how of the franchisor. See Pronuptia de Paris GmbH v
Pronuptia De Paris Irmgard Schillgalis: 161/84 [1986] ECR 353, [1986] 1 CMLR 414, ECJ and the Vertical Restraints Block
Exemption Regulation EC 2790/99 art 5.
26 Clause 9.2.7: This clause is essential to protect the know-how of the franchisor. See Pronuptia de Paris GmbH v
Pronuptia De Paris Irmgard Schillgalis: 161/84 [1986] ECR 353, [1986] 1 CMLR 414, ECJ and the Vertical Restraints Block
Exemption Regulation EC 2790/99 art 5.
27 Clause 9.2.8: This clause helps to preserve the common identity of the network.
28 Clause 9.2.13: Uniform opening times are important unless particular circumstances dictate otherwise
29 Clause 9.2.14: This clause helps the franchisor to police standards.
30 Clause 9.2.19: Uniformity is very important,
31 Clause 9.2.20: Quality maintenance is essential. This is a practical alternative or supplement to product tying
32 Clause 9.2.22: This clause is of great importance on termination. By returning the telephone numbers loss of clients can
be reduced.
33 Clause 9.2.23: Uniform point of sale equipment can make policing franchisees much simpler.
34 Clause 9.2.24: See the Trading Schemes (Exclusions) Regulations 1997, SI 1997/31
35 Clause 9.3.4: This clause can prove useful in any later dispute between franchisor and franchisee
36 Clause 9.3.5: This clause helps to protect the franchisor's trade secrets and know-how.
37 Clause 9.3.6: This clause can have a substantial impact on the valuation of the franchisee’s business.
38 Clause 9.3.9: Franchisees can see insurance as an easy cost cut. However, this can put the franchisor at risk.
39 Clause 9.3.10: See the Commission Guidelines on Vertical Restraints para 50.
40 Clause 9.3.13: Price maintenance breaches the Treaty of Rome art 81
41 Clause 9.3.15: This abuse is common amongst franchisees not expressly prohibited from practising it
42 Clause 9.3.16: This clause prevents the franchisee being part of the franchisor's corporate business and so helps reduce
the risk of litigation against the franchisor resulting from the franchisee's acts or omissions.
43 Clause 9.3.17: Franchisees must devote all of their time to the franchised business. If this is not possible, a key man
should be identified and charged with devoting all of his time to the franchised business on behalf of the franchisee.
44 Clause 9.3.21: This clause helps avoid franchisees restricting their ability to comply with the terms of the franchise
agreement.
45 Clause 10.9: This clause helps with policing the franchisee's activities.
46 Clause 11.1.4: This transparency is essential for the franchisee.
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47 Clause 14: Not all franchisees are allowed to sell their business although it is best practice
48 Clause 14.2.2: The property is usually a fundamental part of the sale
49 Clause 14.2.3: This percentage varies greatly amongst the various franchise networks in the United Kingdom:
50 Clause 14.3: A pre-emptive right gives the franchisor greater control over the ownership of the franchise.
51 Clause 14.3.3: If the franchisor is the landlord this clause should provide for the franchisee to surrender the sublease.
52 Clause 15.2: Specifying individual breaches is recommended as the courts are less sympathetic to general powers to
terminate.
53 Clause 16.1: it is essential that former franchisees debrand as quickly as possible.
54 Clause 16.2: See the Vertical Restraints Block Exemption Regulation EC 2790/99 art 5(b); Prontaprint plc v Landon Litho
Ltd [1987] FSR 315; Office Overload Ltd v Gunn [1977] FSR 39, 120 Sol Jo 147, CA; Kall-Kwik Printing (UK) Ltd v Bell [1994]
FSR 674; Kall-Kwik Printing (UK) Ltd v Rush [1996] FSR 114; Prontaprint v Devancy (1992) unreported
55 Clause 22: Atypical modifications must be specifically mentioned to avoid complications in the event of litigation with
franchisees on the basis of discrimination against them.
56 Clause 28: This clause is relevant only for corporate franchisees. Personal guarantees may also be desirable
[847]-[890]