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JFSA response issues — paper for BIS
Issues covered in this note;
Suspension and contract termination numbers
Update on cases referred by BIS
Follow up items from 4 November meeting between BIS and POL
JFSA submission to Postal Services Bill Committee and
prospective POL response
Next Steps within POL
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1. Suspension and Contract Termination Numbers
Jesse Norman MP (Hereford and South Herefordshire) (Con): Is my hon.
Friend as concerned as I am about the back-door closure of post offices,
which I raised in a debate last week? I am enormously grateful to the Minister
for recognising the problem. He may be interested to know that, of the 2,406
audits that were done in 2009, 265 suspensions were held, and there were
only two reinstatements after appeal. That very much reinforces the picture
that suspensions are being used as a means of closing post offices, which I
am sure is something that we would all deprecate.
It is worthwhile seeing some more background to these figures — which
related to the period 1 January to 31 October 2009.
In that period there were 2406 audits and there were 265 suspensions as
identified in the Parliamentary quote.
Of those 265 suspensions, 64 were subsequently reinstated following the
initial investigations. A further 67 resigned to avoid termination. There were
subsequently 131 summary terminations, 1 termination at 3 months notice
and 2 reinstated following appeal.
Therefore of the suspensions in the Jan-Oct 2009 period, 25% were
reinstated, 25% resigned themselves and 50% had their contracts terminated
by POL.
If we consider more up to date figures for January to September 2010, we see
166 suspensions. Of these 29 have been reinstated, 37 have resigned to
avoid termination, 30 cases still being considered. There have been 62
terminations of contract, 1 reinstatement following appeal and 7 cases
currently at the appeal stage.
Therefore of the suspensions in the Jan-Sept 2010 period, 22% cases are
still in progress, 18% have been reinstated, 22% have resigned to avoid
termination and 37% have had contracts terminated.
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A final point with respect to Jesse Norman’s comments — where there is a
termination, it does not necessarily mean that the Post Office will close.
Typically we will be seeking to appoint a new subpostmaster to take over the
Business — either at that location or very nearby. Termination of contract
refers to the subpostmasters individual contract; it does not mean that we are
seeking to close the Post Office facilities in that location. Another
subpostmaster will be typically sought and be appointed to run services at the
location concerned.
2. Update on correspondence referred from BIS
Jonathan Djanogly MP (letter to Ed Davey 22 October 2010)
on behalf of Mrs Jenny O’Dell, ex subpostmaster Great Staughton Post
Office
In November 2009 Mrs O'Dell contacted the internal helpline (NBSC)
advising that her branch had seen monthly losses of £1000 since May and
the figure stood at £7,000. Mrs O’Dell stated that she had carried out checks
and had not received any transaction corrections. She believed the Horizon
system to be at fault so refused to make good any losses.
Checks undertaken by the contracts team with the Chesterfield accounting
team confirmed they were not aware of any issues at the branch; no problems
with cheques/cash or ATM and that no losses had been settled centrally.
There were no losses within the last three trading periods so this raised the
possibility that the cash figure may have been inflated to cover losses.
On 9 December 2009 the contracts team wrote to Mrs O'Dell asked her to
supply any evidence to support Horizon was at fault. Mrs O’Dell referred to a
shortage of 16 December 2009 of £8,506 and subsequent gains on 17 & 21
December of £5,000 and £7,000 but could not provide any evidence to
support Horizon was at fault.
An intervention visit took place on 6 January 2010 to try and ascertain the
cause and extent of the losses and whether there was any fault with the
system or incorrect accounting. Following an audit Mrs O'Dell was
suspended as a number of discrepancies were found. Some examples are;
multiple cash declarations added together to hide losses; three cash
declarations on the system totalling £21,000 but less than £8,000 actually on
hand; no losses in balance over 12 months but one misbalance settled
centrally; the branch trading statement of 30 December did not show any
Christmas stamps but there were 9,032 on hand. The total shortage at audit
was £9,616.66.
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Following her suspension Mrs O’Dell was invited to a meeting on 8 February
2010 to put forward her reasons why her contract should not be terminated.
The charge was loss at audit and falsification of accounts. During the
interview Mrs O’Dell was accompanied by NFSP representatives. Mrs O’Dell
admitted to inflating cash figures in the Post Office accounts. Neither Mrs
O’Dell nor the NFSP could provide any evidence to suggest that the losses
had been occurring over a period of time.
Mrs O'Dell was advised on 19 February 2010 that her contact was summarily
terminated and that she was required to make good the outstanding loss.
She took up the right of appeal, which was held on 30 April 2010. Mrs O’Dell
was advised in a letter dated 21 May 2010 that the decision to terminate her
contract was upheld.
A separate case was also raised by Post Office Security to follow up the audit
findings. The registered staff at the branch was Mrs O’Dell and her son
Daniel O'Dell. Both were interviewed under caution. Mrs O’Dell admitted to
inflating the official cash on hand to cover up shortages in the Post Office
account and falsifying branch trading statements. Despite Post Office Ltd
being able to prove that more than one cash declaration was being made,
Mrs O'Dell maintained the system was at fault. An official caution was
administered under Section 1 of the Fraud Act 2006, which Mrs O'Dell
refused to accept. The outstanding debt is currently being pursued via our
Civil Litigation team.
Neither Mrs O'Dell nor her son provided any evidence of or identified any
specific transactions which contributed to the losses. Post Office remains
fully satisfied that the Horizon system is robust and fit for purpose.
Jonathan Lord MP - Letter to Edward Davey 25 October re Mrs S Misra —
West Byfleet
In the case of Mrs Misra the case has now been before the Courts, and Mrs
Misra was found guilty after a full jury trial. She has subsequently been
sentenced to 15 months by the Judge taking all due regard to Judicial
guidelines.
Background information is provided below
Brief on Mrs Misra is below;
Mrs Misra was the subpostmaster at West Byfleet.
An audit was carried out on 14 January 2008 and Mrs Misra was suspended
the same day
Audit was £77,643.87 short, which included a loss settled centrally of
£3,034.03
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Audit report: cash & stock left in counter drawers over night which included
date stamps and MVL's
Mrs Misra told the audit team that the account would be £50-£60K short and
that this had been going on for about a year prior to the audit. She said staff
had taken £89k and that she had not informed anyone in the Post Office as
she was worried she would lose the branch. She stated she had made good
some of the losses and was looking at ways to make the rest good. She
admitted she had been adjusting the branch trading to make it balance. There
was an amount in the suspense account £27K + £3k; Mrs Misra showed the
auditors the grey pouches & rem slips but there was no money in the
pouches.
Mrs Misra was charged by Elaine Ridge, contacts manager, on 12 March
2008 of misuse of PO funds & false accounting
Mrs Misra attended interview and more or less repeated the statement she
made to the auditors
The decision was taken to terminate her contract for services on 1 April 2008;
Mrs Misra sent in her resignation on 7 April
She was interviewed by POID and again admitted the account had been short
for a long period and that she had been falsifying her account to cover it up.
She blamed it on staff theft.
The case has now been before the Courts, and Mrs Misra was found guilty
after a full jury trial. She has subsequently been sentenced to 15 months by
the Judge taking all due regard to Judicial guidelines. It is probably
inappropriate to comment about the detail of the trial — although it is worth
pointing out that the Defence for Mrs Misra did utilise an IT expert with regard
comments on the Horizon system and a clear decision was arrived at by the
Court.
Jamail Singh, who was the RMG lawyer on the case, explains that the
charges were one of theft of £74,000 and five charges of false accounting.
There was a 7 day Jury trial at Guildford Crown Court between 11 October
and 21 October 2010 where she was found guilty. The sentencing hearing
took place at Guildford Crown Court on 11 November 2010.
A hearing is being arranged for a confiscation order to seize Mrs Misra’s
assets.
Please note that this was a criminal not a civil case. With a criminal case
there is higher of proof and beyond reasonable doubt - civil cases are
decided on a balance on probabilities. Issy Hogg was her criminal barrister &
is closely associated with JFSA. There were also lots of adjournments, whilst
Mrs Misra’s solicitors kept asking for more & more evidence, which was
supplied.
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It is probably inappropriate to comment to the MP about the detail of the trial
— although it may be worth pointing out that the Defence for Mrs Misra did
utilise an IT expert with regard comments on the Horizon system (the MP’s
letter suggested that they wished to employ at IT auditor to look at the case
but the costs were prohibitive) and a clear decision was arrived at by the
Court.
Wendy Buffery — Up Hatherly
Background to this case as follows;
e Chesterfield noticed a pattern of unusual cash rises on Tues, Weds &
Thursdays
e Following an audit of the branch on 11/12/08 an initial shortage of
£27,776.63 was identified. £1,500 was later found, reducing the loss to
26,256.63.
e Mrs Buffrey told the lead auditor the main stock would be £20k short
e Ather RTU interview on 21/01/09 Mrs Buffrey admitted that she had
started to inflate her cash to cover losses from May 2008 but that she
had not taken any money for her own use.
ses occurred he:
ad ill health
e Mrs Buffrey raised no issues around her accounting difficulties with
either POL or the NFSP
e lt appears Mrs Buffrey went to appeal and the decision to terminate her
Contract for Services was upheld in March 2009 for falsifying accounts
« Post Office security took forward a prosecution and went to court in
April 2010. A trial date was given for September 2010.
e Aweek before the trial date, we were advised that Mrs Buffrey would
be changing her plead to guilty and produced a cheque for £26,256.63 -
which was the amount of the outstanding debt.
e On 18 October 2010, Mrs Buffrey admitted to one count of fraud was
sentenced to a 12 month community order of 150 hours unpaid work.
Note: Although Mrs Buffrey stated she had not taken any money, she
admitted to falsifying accounts. No claims were made to challenge Horizon
integrity. However, security advised that Horizon was mentioned prior to her
court date but after Mrs Buffrey’s forensic accountants had gone through the
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reports her plea was changed to guilty. No evidence has been provided to
support that Horizon was at fault.
3. Follow up points from POL meeting with Mike Whitehead on 4
November (subsequent to the JFSA meeting with Edward Davey).
Points discussed at the meeting
- Whether the contract has changed since 1994 to reflect Horizon —- The
Contract has had a series of amendments and associated operational
instructions which mean that it remains a proper legal and commercial
document with respect to the operation of a Post Office. There has
been no legal challenge to the appropriate nature of POL’s agency
contracts
- Lack of audit trail for subpostmasters — subpostmasters can pull off a
transaction log every day and declare their cash at the end of the day.
The facilities are there for subpostmasters to track their own
transactions should they wish
- POL can access the system remotely and make changes to it -—. The
system is based on a user log in, and all actions have to be endorsed
by the user. POL cannot remotely control a branches system. Any
technical changes by Fujitsu that impact the system have to go through
clearance processes which would prevent any amendment to existing
data. All system activity, down to the individual key stroke, is also
recorded into a separate vaulted transaction file with every record
encrypted and written to the log and with each record having a unique
incrementing sequence number. This log is retained on a separate
server independent of Horizon, is retained for at least seven years,
cannot be altered in any way and all access to it is securely controlled.
This approach is consistent with that of banking systems.
- Frequency of software updates — these are normal operational updates
such as those that occur in any system. They do not indicate in any
way any faults or unreliability in the system
- Equipment moved from one branch to another. lf any equipment is
moved from one branch to another there is no potential for past
transactions in any way to impact the system. Transactions are not
held on or tagged to the equipment in the branch — they are recorded
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against the branch code. As previously advised — every transaction
undertaken on the system is also recorded and maintained in a
separate tamper proof file and retained on a separate server
independent of Horizon. There is always therefore the capability to
track back transactions related to the branch independent of the
equipment on which it was undertaken.
- No regular audit systems — our audit systems are based on random
choice and on risk factors. Audits from the central team are not needed
for the subpostmaster to operate the system or to know where they are
with their own account. Subpostmasters can obtain a full transaction
log, make daily cash declarations and can regularly balance their
account. They have access to phone help and personal visit in any
cases of difficulty.
- Subpostmasters having to agree to a loss or can’t open the office the
next day — this is not the case. If there is a discrepancy in an account
when it is balanced, the subpostmaster has the option for ‘settle
centrally.’ — this means that they can roll the system over whilst the
issue is being looked into. It is a standard process which does not
imply acceptance or otherwise of the discrepancy by the
subpostmaster. It is a standard part of the process.
- Processes for suspension and afterwards — The Post Office processes
cover the situation whereby the subpostmaster is made clear of the
situation, has the opportunity for interview, can be accompanied at that
interview — and there are clear rights of appeal once the decision is
made. In cases where the Post Office Investigation Branch is involved,
the procedures followed within their investigation and interviews are
fully compliant with the relevant UK legislation.
4. JFSA submission to Postal Services Bill Committee
Memorandum submitted by Justice For Subpostmasters Alliance
(JFSA) (PS 14)
The submission comprises of:-
o Introduction — who we are and why we came into existence
o Aim — the objectives of the Alliance
o Background Examples — offers a brief insight into subpostmaster
problems relating to:-
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o The Subpostmaster Contract
o Audits
o Suspensions
o Recommendations
Introduction
Justice For Subpostmasters Alliance (JFSA) was established during
November 2009. It is an entirely voluntary self-help group comprising
of mainly ex-subpostmasters, a smaller group of serving
subpostmasters and a number of professionals who are able to assist
with their expertise. Since the introduction of Post Office Ltd.’s (POL)
Horizon system during the late 1990's, many individual
subpostmasters in isolation have endeavoured to stand up to POL.
Inevitably they have been crushed under the weight of their power and
their endless funds underwritten by a Labour Government that allowed
them to act with such impunity. This, when combined with the flat
refusal to confront POL over the failures of its Horizon system by the
so called representative body for subpostmasters, the National
Federation of Subpostmasters (NF SP), is the reason why JFSA has
been formed. We are still a small group with over a hundred active
cases and roughly twice that number of serving subpostmasters who
are following our developments. Yet our numbers continue to grow
weekly as people discover JFSA and many more subpostmasters fall
victim to the vindictive and punitive actions of POL. There is little doubt
that when the true extent of the antics of POL are finally exposed the
victims will number in the thousands.
Aim
Our aim is to bring to the attention of those in power the abusive and
destructive manner in which POL have, and are still treating
subpostmasters, and to seek to redress the many injustices that we
have been subjected to by POL. We intend to highlight the
miscarriages of justice that have been inflicted on subpostmasters by
an organization that abuses its licensing power to criminally prosecute
without providing evidence in cases of a civil matter.
The systemic faults of POL and its Horizon system are too numerous
and too complicated to deal with in this brief submission. Though in
order to offer some insight into the points and recommendations that
appear at the end of this document, a brief outline of the background
to some of these issues has been included.
Background Examples
The Subpostmaster Contract
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The Performance and Innovation Unit report of 2000, "Counter
Revolution: Modernising The Post Office Network" identified "The
majority of sub-postmasters still work under a contract which can be
traced back a hundred years". POL uses this contract, emanating from
the Victorian era, to pursue subpostmasters through the courts in
order to recover POL’s losses from their flawed Horizon system. Even
with the introduction of the latest technology POL still rely on clauses
such as "a Subpostmaster is responsible for all losses", originating
from a contract from a time when the lighting was by oil lamp and the
ledger was completed by quill and ink. They use such clauses to
extract money from a subpostmaster, either from their salary or
through the courts, should their flawed Horizon system decides it is
owed. System errors are never considered (POL states it handles 2.4
billion transactions a year and this is without a single error), only the
contract is used to recover any shortage. Yet the IT part of that system
can be accessed and manipulated over a network without a
subpostmasters’ knowledge or agreement, but it is only the
subpostmaster who is made financially liable.
The few hundred Crown Post Offices left that are directly run by POL,
they also use this Horizon system and during the financial year 2007/8
these offices lost £2.2m using this system, and whilst their staff are not
treated as guilty until proven innocent, a subpostmaster is.
Audits
POL refers to it as an audit when they descend upon a subpostoffice,
but the reality is, it is little more than a stock take. The POL staff that
carry out these ‘audits’ can be anybody though we have yet to find a
member of Institute of Internal Auditors or any other professionally
recognized body in attendance. What makes them qualified to carry
out an ‘audit’ of a subpostoffice? After all they hold a subpostmasters’
future in their hands and the least you should expect is a suitably
qualified professional person to be involved, but they are not, and a
subpostmaster is not allowed to bring in his own professional auditor to
check the findings.
Then there is the matter of POL and their total failure to undertake
routine ‘audits’ of subpostoffices. There are subpostmasters who have
never had an ‘audit’ in eight years and post offices which turn over
£5m every year that have never had an ‘audit’ for over 5 years, and
they have to use Horizon, a system they are unable to gain full access
to in order to check all the information they have entered into the
system. Yet they are being held responsible for the accuracy of
everything during this period.
A question often asked is why does POL not ‘audit’ all subpostoffices
on a regular basis? Many people believe that they are well aware of all
the faults in Horizon and the more post offices they ‘audit’ the more
these faults will become apparent. After all, from the POL standpoint
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they don’t have to undertake ‘audits’ as they can rely on using the
contract to pursue subpostmasters through the courts or deduct
money from their wage packets to recover any shortfall due to
whatever reason.
Suspension
Should a subpostmaster begin to have problems and then find
themselves suspended, they soon discover they have nowhere to turn
to for support. Their salary is stopped instantly and they are treated as
being guilty from the outset by POL. There is no independent
adjudicator you can apply to, POL act as judge, jury and executioner in
all matters. The National Federation of Subpostmasters, the so called
representative of the subpostmaster have taken the decision that
Horizon faults do not exist as POL has decided it has to be that way.
When POL requests the subpostmaster to attend an informal interview
they are not even permitted to take a solicitor, partner or anyone with
them other than a Federation representative who is then not allowed to
say anything.
The few examples given above really only scratch the surface of the
problems facing subpostmasters trying to offer a service to their
community. Through JFSA we will continue to raise these and many
other points.
Recommendations
Regardless of the direction which lays ahead for the Post Office, there
are, at the very minimum, a number of issues which should be
addressed and included in any way forward.
oA full and complete independent IT audit of POL systems and
support should be undertaken with its findings made public.
o An external independent adjudicator should be appointed to review
cases and issues between POL and subpostmasters. The adjudicator
should have the authority to demand documents from both POL and
the subpostmaster and should be assisted by a team of skilled
technical staff who are able to gain access and check any system or
document that they deem necessary.
o A new subpostmaster contract should be produced to replace the
Victorian template still in use today. Above all, it should reflect the
introduction of new technology and address in detail where
responsibilities, liabilities and boundaries lay. It should ensure that
there is full and easy access to the records of transactions that a
subpostmaster is being held liable for during the full term of that
liability.
o There must be a legal or a contractual requirement for POL to
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undertake a full audit of all subpostoffices at least annually and by
qualified staff.
0 The licence to prosecute should be removed as a tool from POL and
any prosecutions should be referred to the Crown Prosecution
Service.
o Any external access to a subpostmasters Horizon terminals over the
network should be accompanied by an automatically generated
system log entry recording the details of the event which is then made
available to that subpostmaster.
November 2010
©Parliamentary copyright Prepared 17th November 2010
POL Internal Initial Comments on the JFSA Memorandum to the Bill
Committee
Post Office Ltd does not accept the unsubstantiated allegations that are
being made by JFSA — a small self appointed group which, by its own
admission, consists mainly of ex-subpostmasters. The Horizon system
has brought major benefits to subpostmasters and customers and
carries the full confidence of the NFSP who represent serving
subpostmasters that use the system throughout the Business. It should
be noted that all subpostmasters are able to obtain their own
transaction log from the system and conduct a daily cash declaration —
thereby being in a position to fully understand their own accounts within
the system. In addition the system also creates a separate independent
audit file of every transaction on the system.
The commercial contractual position between subpostmasters and Post
Office Ltd is well established and both its content, and the way it is
applied, is compliant with, and subject to, all relevant UK legislation.
The contract is fully recognised by the National Federation of
Subpostmasters (NFSP) and any amendments or changes to the
contract will typically be discussed with that representative
organisation. Should a situation arise whereby Post Office Ltd seeks to
end a subpostmasters contract, processes are in place whereby the
subpostmaster involved can put forward their case, can be assisted in
doing so by the NFSP or by a friend, and the subpostmaster also has a
subsequent right to appeal any decision made to a separate appeals
authority within the company which will look at the case afresh. Of
course, as independent business people, all subpostmasters also have
access to the UK legal system should they believe that Post Office Ltd
are acting inappropriately. The results of individual cases that have
come before the Courts do not indicate that Post Office Ltd’s systems
or processes are inappropriate.
In Strictest Confidence
The future development of contracts and associated processes
affecting subpostmasters is a matter that would be discussed between
Post Office Ltd and the National Federation of Subpostmasters to help
ensure that the interests of subpostmasters are represented.
5. Conclusions
The Horizon system and accompanying contractual processes remain
fully robust. Their integrity and sound basis have been demonstrated
over many years, and they have underpinned the provision of effective
and sustainable service to Post Office customers. POL refutes the
unsubstantiated allegations made by the JFSA.
POL maintains a legal contractual relationship with subpostmasters
which is based on values of trust and mutual respect. In cases where
there are reasons why this relationship cannot continue, there are full
processes of internal appeals and the parties can have full subsequent
recourse to the UK legal system. As a matter of course, and on an
ongoing basis, POL works with the National Federation of
Subpostmasters (a recognised representative body for subpostmasters)
on the development of contractual and associated process matters.
Looking forward, as part of its future strategy consistent with the Policy
Statement outlined by Government in November 2010, Post Office Ltd
will be seeking to further review its contracts and accompanying
processes to meet the changing needs of its customers. This approach
will continue to ensure that the contractual basis and associated
procedures between Post Office Ltd and individual subpostmasters
remains sound, fair, commercial and equitable.
It is this combination of;
- the current robustness and integrity of Horizon,
- clear internal processes with appeal systems with the ultimate
backstop of the UK legal system (should cases be referred to it),
- ongoing liaison with the NFSP as the recognised group representing
subpostmasters and
- a forward looking approach to the further development of contracts
and associated policies in line with developing strategy and
Government policy
that provides assurance to BIS that the approach taken by Post Office
Ltd continues to be fair and equitable.
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2 December 2010