Filed on behalf of the: Defendant
Witness: Angela Margaret Van Den Bogerd
Statement No.: First
Date Made: 23 July 2018
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ROYAL COURTS OF JUSTICE
BETWEEN:
ALAN BATES AND OTHERS
Claimant
AND
POST OFFICE LIMITED
Defendant
WITNESS STATEMENT OF
ANGELA MARGARET VAN DEN BOGERD
[Comments for AVDB in yellow]
yout
[Comments for WBD / Counsel in blue]
I, ANGELA MARGARET VAN DEN BOGERD WILL SAY as follows:
1. I am Angela Margaret Van Den Bogerd, People Services Director, of Post Office
Limited (Post Office).
2. I make this statement in support of Post Office's Defence in these proceedings.
3. The facts set out in this statement are within my own knowledge, or if they are
outside my knowledge, I have explained the source of my information or belief.
INTRODUCTION
4. In this statement, I describe the Post Office business, the role of a Postmaster
and the operations of a Post Office branch. I conclude by providing some
commentary on what the real-world effects of the Claimants’ proposed implied
terms would be.
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INTRODUCTION......
A. MY BACKGROUND.
B. POST OFFICE AS A BUSINESS.
Public ownership...
Commercial operating model......
Network size and coverage........
Brand.....
Market change and competition..
Technology change...
Client products and requirements......
Regulatory requirement:
Change programmes............
C. POSTMASTERS AND THEIR BRANCHES
Postmasters' businesses.
2 22
Operating a branch...
Assistants.......
Horizon.....
Training..........
Initial training..... 131
ASSIStAMS.......2-.sseeseceesteeeeeeeteeteseeeeeeeneeee
Further training......
Support for Postmasters......
Causes of shortfalls...
Reliance on Postmasters..
Post Office's investigations into shortfalls............
Responsibility for shortfalls...
D. IMPLIED TERMS.
STATEMENT OF TRUTH.
5. In this statement:
5.1 Paragraph references are to paragraphs in this statement unless
otherwise stated.
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5.2 The term "Postmaster" is used to generally refer to agents of Post Office
who run branches, including subpostmasters, subpostmistresses and
operators.
5.3 References to "all material times" means from 1999 to present, unless the
context indicates otherwise.
A. MY BACKGROUND
6.
10.
11.
I started my employment with Post Office on 1 April 1985. I have operated at all
levels during my career, from branch level to senior positions, while remaining at
all times close to the day-to-day operational procedures.
I began working as a Branch Counter Assistant as part of the directly managed
network of branches (see paragraph XX), and continued in that position for
around 2 years. During this time I was also called upon to undertake on-site
training for newly appointed Postmasters.
I was a Branch Manager responsible for the maintenance, day to day
management and financial performance of Directly Managed Branches between
1987 and 1996.
Between 1996 and 2001 I was a Retail Network Manager, responsible at an area
level for the maintenance, day-to-day management and financial performance of
24 post offices: 6 directly managed branches employing approximately 130 staff,
and 18 agency branches. As part of this role I was responsible for interviewing
the Postmasters, appointing the Postmasters, managing performance and
dealing with any contract breaches (including contract termination) as
appropriate.
I was Head of Area for the rural agency in Wales between 2001 and 2005,
responsible for the maintenance, day-to-day management and_ financial
performance of the rural network of 950 branches in Wales and the Welsh
Marches. As part of this role I was accountable for a line management team of
18, and 950 Postmasters, and for the conforming of Post Office services to
quality and efficiency standards.
I was General Manager for the Community Network of branches in the UK
between 2005 and 2006, responsible for a team of 9 senior managers and a field
based team of 40 managers, and for the day-to-day management of 9000 rural
and 500 urban branches.
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12.
13.
14.
15.
16.
17.
18.
19.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
As National Network Development Manager between 2006 and 2009 I designed,
developed and deployed the process (known as the Network Change
Programme) to deliver 3000 changes to the Post Office network (2500 closures
and the establishment of 500 new type services).
As Head of Network Services between 2009 and 2012, with a UK wide
geographically dispersed field team of 200 people, I delivered a yearly average
of (a) 1200 network change projects (i.e. branch relocations, refurbishments,
closures and re-openings) across the Post Office network, (b) in excess of 5500
financial and compliance branch audits and interventions, (c) new entrant training
for approximately 1000 agents/franchisees and employees and (d) 2000
recruitment and/or contractual interviews.
As Head of Network Services, I was responsible for the maintenance [D6"you)
mean maintaining numbers of branches? Most people would interpret
imaintenance as meaning! building’ improvements!] of the network of branches,
including determining whether branches in new locations were warranted.
As Head of Partnerships between September 2012 and August 2013, I was
responsible for the relationship between Post Office and various representative
bodies, such as the Communication Workers Union, Unite the Union and the
National Federation of Subpostmasters (NFSP, see paragraph XX).
As Programme Director for the Branch Support Programme between August
2013 and March 2015, I was responsible for improving operations across Post
Office, including the handling of the more complex in-branch transactional
issues.
As Director of Support Services between April 2015 and December 2016, I was
responsible for our helpline for Postmasters (NBSC), our customer helpline, the
Financial Service Centre (FSC), the Human Resources Service Centre (HRSC),
and also managed the Contract Administration team.
From January 2017 until January 2018, I was the People and Change Director,
responsible for HRSC, Health and Safety and the Change Portfolio across the
organisation.
From January 2018, in my role as People Services Director, I have been
responsible for HR services within the Finance & Operations business unit,
Health, Safety and well-being and the HR Service Centre.
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B. POST OFFICE AS A BUSINESS.
20.
In this section, I describe the Post Office business, its commercial model and the
changing commercial and regulatory context in which it operates.
Public ownership
21.
22.
23.
24.
25.
A Post Office service has existed in England for nearly 400 years, and throughout
that time it has always been owned by the English or UK state. It was originally
known as the General Post Office, and then the Post Office Corporation. In 1986
Post Office Counters Limited was formed as a subsidiary of the Post Office
Corporation, with services being split between the two entities: the delivery of
mail was handled by the Corporation, and the Post Office retail network was
transferred to the new subsidiary. In 2001, the Post Office Corporation became
Royal Mail Group, and Post Office Counters Limited was renamed Post Office
Limited. On 1 April 2012, the UK government privatised the Royal Mail Group,
with Post Office Limited remaining in public ownership, its shares being
transferred to and held directly by the UK Government. Up to this point, although
Post Office was a separate legal entity, it shared some back-office services with
Royal Mail and key decisions would be taken by, or at least approved by, Royal
Mail as its parent company.
Today, the sole shareholder of Post Office is the Secretary of State for the
Department of Business, Energy and Industry Strategy (BEIS). Post Office acts,
and has at all material times acted, under the direction of its chairman and board
of directors, rather than ministerial control. However, because the ultimate owner
of Post Office is, and always has been, the Government, it is not a fully
independent commercial business. We at Post Office often describe it as a
commercial business with a public purpose. This sets it apart from nearly all
other organisations in the UK and means its decisions are not driven solely by
commercial returns, but also by its public purpose to support local communities
and to deliver services to the general public. I return to this point below when
explaining Post Office's approach to major changes to its network of branches.
Can we say more about POL's public purpose?
What other requirements are there imposed by Govt?
Hav thet been any other major changes in govt policy over the last 20 years
Coalition and Conservative RETR
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Commercial operating model
26.
27.
28.
29.
Post Office is the UK's largest retail network and financial services chain with
around 11,500 branches. To put this in context, Tesco has around 3,400 stores!
and Lloyds Bank has about 1,100 branches?.
Post Office acts as the "shop front" for the general public to access a range of
products and services, from government benefit payments to postal and banking
services. The [all / nearly all //a majority - are there an\ cts directly
provided! by Post Office’ = Postal Orders?) of these products and services (just
referred to as products in this statement for ease of reference) are provided by
third parties (known as Clients). Post Office sells the Client's products to the
public, charging the Client a fee or commission for that service. This allows a
range of businesses and government departments to have a physical access
point for their products without the need to directly invest in real estate. For
example, customers can do their banking through Post Office. If they deposit
cash into their bank account at a Post Office branch, Post Office takes the cash
and effects an electronic transfer of the cash to the customer's bank who deposit
the customer's account. Post Office then charges the customer's bank a fee for
this service. This allows a bank to have a virtual network of bank branches
without needing significant investment in new properties.
Post Office tries to provide all its services for a commercial profit. This applies
even when providing government services (e.g. driving licence renewals). In
practice, however, Post Office has typically not been able to profitable overall. It
made a profit last year of £13m against operating revenue of £957m, but this was
the first time it has made a profit in 16 years. Post Office is still reliant on a
government subsidy to support transformation activities and rural services (see
paragraph X). A combination of nationwide austerity measures, government
spending cuts and a corporate desire to be self-funding has seen that subsidy
reduce from £210m in 2012/13 to £80m in 2016/17.
Post Office provides its services through Post Office branches. These fall into
two categories. The first category is Crown branches (now known as Directly
Managed Branches), which are directly operated by Post Office. Post Office
owns or rents the physical branch premises and the branch staff (known as
counter clerks) are employees of Post Office. Crowns tend to be larger
branches. As at April 2018, there are approximately 250 Crown Branches.
1 https://www.tescopic.com/about-us/our-businesses/tesco-uk/tesco-in-the-uk/
? https://www. lloydsbankinggroup.com/media/media-kit/faqs/lloyds-banking-group-fast-facts/
* Statistics taken from Post Office's public Annual Report for 16/17:
http://corporate.postoffice.co.uk/sites/default/files/ARA%20Master_FINAL.pdf.
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30.
34.
32.
33.
35.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
The majority of the network is comprised of branches in the second category -
agency branches. These are also sometimes referred to a Subpostoffices.
These branches are run by third parties, who own the branch premises and
employ their own staff. Agency branches take a variety of different forms. The
majority are owned by independent small business owners, who usually locate
the branch within a larger retail offering like a newsagent or convenience store.
Some branches are operated by larger commercial chains such as WH Smiths or
The Co-operative. Post Office pays Postmasters a remuneration for operating
the agency branch (see the Witness Statement of Nick Beal for more details).
This remuneration is, and has at all material times been [orrect?], Post Office’s
single largest line item of operating expenditure, and currently accounts for a
third of Post Office's operating costs.*
Last year, around XXm transactions were undertaken in Post Office branches
every day, with a value of around £XXm per year. At any time, around £XX in
cash is in circulation within the network. On average, each agency branch in the
network has around £XXX cash on hand and conducts XX transactions each day,
for a value of £XX. [(GAHIWS'@etlthesel Stats De source for
them?]
The Post Office network has 17 million customer visits a week and this footfall is
driven by a wide range of services, both those provided for Post Office and those
provided by the associated retail offering. 25% of customers visit a Post Office at
least fortnightly, and 14p in every £1 spent in the UK is channelled through a
Post Office. [Statsito\be!sourced) erified)
y other angle that we can raise to make clear that Post Office is a
For the Post Office network to be financially sustainable, Post Office of course
needs to generate more revenue from clients than it incurs in transaction costs
and remuneration paid to Postmasters. However, reducing Postmaster
remuneration too much would make the position of Postmaster unattractive,
leading to branches closing or vacancies in the network, which could cause the
network to shrink below commercially viable and legally required levels (see
paragraph X).
Often the interests of Post Office and Postmasters are aligned, in the sense that
a strong sustainable network is good for both, as is the success of any particular
branch. But Post Office needs also to look at the network as a whole, and what
* Postmasters fees of £388m against trading costs of £978m: page 56-57, Annual Report 16/17.
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might be good for the network as a whole, might not be good for particular
Postmasters in particular circumstances (see below in relation to Change
Programmes at paragraph X). An obvious example of this is where Post Office
decides not to continue a relationship with a Client but a particular Postmaster’s
business has benefitted substantially from the ability to sell that Client's products
or services.
Network size and coverage
36.
37.
38.
The UK government considers it important that a large proportion of the public
have easy access to branches. This is driven by a number of factors including:
36.1 Post Office is a key route through which government services, particularly
pensions and benefits, are provided. The elderly and those on low
incomes have a higher propensity to have limited means of transport and
need a branch close by.
36.2 The decline in bank branches and local shops over the last decade
means that the Post Office branch is sometimes the "last shop in the
village". This leads to political pressure from local politicians and MPs to
keep branches open, even where a branch may be making a trading loss.
These small branches are now referred to as "community branches".
Accessibility criteria were originally laid down by the Government in 2007 and
have been reconfirmed by successive Governments since. The Government's
national access criteria are: 99% of UK population to be within three miles of their
nearest Post Office branch; 90% of the UK population to be within one mile of
their nearest Post Office branch; 99% of total population in deprived urban areas
across the UK to be within one mile of their nearest Post Office branch; 95% of
the total urban population across the UK to be within one mile of their nearest
Post Office branch; and 95% of the total rural population across the UK to be
within three miles of the nearest Post Office branch. In addition, the following
applies at local level to ensure a minimum level of access for customers living in
remote and rural areas: 95% of the population of every postcode district to be
within six miles of their nearest Post Office branch.
Post Office produces a Network Report by reference to these criteria.» The
Network Report contains tables of figures showing fluctuations of branch
numbers over time, including figures showing the quarterly change in network
5 This is publicly available — it is placed in the House of Commons Library and the Post Office
publishes it on its corporate website. ADD/LINK'TO'2017 REPORT
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size. The Network Report for 2017/18 shows that at the end of March 2018 there
were 11,547 Post Office branches. The size of the network has been stable for
about a decade. It had been significantly larger in earlier decades: at its peak in
1965/6 it was 25,056 branches. The decline over subsequent decades has been
driven by a number of factors including Government business reducing, changes
in consumer trends, and increasing competition (see paragraph XX). To reflect
such marketplace changes, improve the network’s prospects and avoid
unmanaged decline there have been periodic closure programmes (see
paragraph XX).
39. I set out below the numbers of open branches split by Government office regions
reported to BEIS in April 2018:
[Note to WBD: Is this taken form the Network Report, in which case we should
say Network Report?]
Total number of Outlets split by Govt Urban
Office Regions Rural”) Urban Deprived Total
1 East Midlands 543 266 72 881
2 East of England 677 396 41 1,114
3 London 7 536 126 669
4 NI 324 76 87 487
5 North East 244 151 94 489
6 North West 387 468 265 1,120
7 Scotland 918 333 145 1,396
8 South East 693 625 56 1,374
9 South West 867 342 61 1,270
10 Wales 631 157 130 918
11 West Midlands 364 377 160 901
12 Yorkshire and The Humber 470 321 165 956
Total 6,125 I 4,048 1,402 11,575
40.
In addition to Post Office’s legal obligations to maintain a network of a certain
size, a large network also brings economies of scale. There are substantial fixed
or capital costs in building and maintaining complex IT infrastructure, designing a
new sales process or negotiating a new contract with a client. These costs only
marginally increase with the size of the network. If the network were to shrink too
much, this would reduce Post Office's overall revenue and these overheads
would not be commercially sustainable.
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Brand
41.
42.
43,
45.
46.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Post Office is one of the most recognised brands in the UK. [GAN)WE ADD’
SOME REFERENCE TO AN INDUSTRY REPORT THAT SAYS POL's BRAND
IS STRONG]
Post Office is deeply embedded in the hearts and minds of many local
communities. Postmasters are sometimes well-known to local residents, and
problems with a Post Office attract a higher level of attention in the local press
than it would for other local retailers. A Google search will usually show up a
number of stories about local branch issues.
Local branch issues also attract the attention of MPs. MPs regularly write to
BEIS, or directly to Post Office, to raise issues on behalf of their constituents
regarding their branches. The allegations that underlie this litigation led to
questions to the Prime Minister in the House, Parliamentary debates and a Select
Committee hearing before these proceedings began.
Major changes in the network often attract national media attention. Again, as an
example, the allegations that underlie this litigation were the subject of a
Panorama documentary on the BBC in [date].
This heightened level of media attention means Post Office has to carefully
protect its brand at all times. The strength of its brand is one of the key features
that draws customers to branches and that makes operating an agency branch
attractive to Postmasters. It is important that Postmasters act in a way that does
not damage the brand. A consistent presentation of services at the Post Office
counter and good customer service are important elements. Post Office also
needs to take prompt action to stop any improper conduct (which, at its worst,
includes fraud by Postmasters).
Post Office also needs to maintain continuity of service to customers. Customers
become frustrated if branches are not open when expected or cannot provide
services as promised. This is also important in helping to ensure that Post Office
continues to meet the access criteria and avoid the migration of customers to
Post Office's competitors (see paragraph X). Achieving continuity of service has
many elements including ensuring that branches have the stock and cash they
need to trade, branches are opening and closing on time, and new Postmasters
are found to take on branches that would otherwise close.
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Market change and competition
47.
48.
49.
50.
51.
52.
Over my time at Post Office, its business has been subject to market changes
and increased competition which have led it to change its operating and
commercial models so as to achieve its twin objectives of maintaining network
access whilst aiming for profitability and reducing its government subsidy. I set
out below a few of the key changes I am aware of to illustrate this.
As mentioned above, the decline in numbers of bank branches has led to more
banks becoming clients of Post Office so as to provide their customers with a
physical access point to their services. This has led to financial services
becoming a key product offering in branches.
From 2003 [CHECK], Post Office began to increase its own-branded financial
products, such as bank accounts, loans, mortgages and insurance. Post Office is
not a financial services business and so these products are provided by, or
through joint venture arrangements with, selected Clients. For examples, Post
Office branded mortgages are provided by Bank of Ireland.
There has been a nationwide reduction in mail volumes. More communications
are delivered by email with less need to communicate by letter. The postal
services market was also liberalised in 2006, breaking Royal Mail's monopoly.
This led to new entrants into the market which caused Post Office to.. [What?].
There has been a gradual but material decline in government business,
particularly the number of customers drawing pensions and benefits from
branches. Traditionally this was done by way of paper pensions or benefits books
being presented at the Post Office counter and exchanged for cash. The
government now pays more benefits by direct bank transfer. This is an important
trend because it was common for a person to draw their benefits at the Post
Office counter and then spend some of that cash in the Postmaster's associated
retail business. Government business fell from 43% of revenue in 2003/4 to 26%
in 2007-2008.° This pattern of change continues today. The Post Office Annual
Report for 2016/17 notes a £14 million decrease in turnover from Department of
Work and Pensions contracts.”
The growth of online transactions has also led to Post Office developing its digital
offering (now the preferred option for financial services products). Increasing
consumer demand for fast and flexible fulfilment solutions has also driven the
modernisation of the network. [linlWhat\Way?" How didithis impact postmasters?)
® Source?
” Page Ref?
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53.
55.
56.
57.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Post Office has also seen an increase in direct competitors. One such
competitor is PayPoint. Set up in 1997, PayPoint was originally a way for
customers to pay utility and energy bills. Small retailers would sign up to be part
of the PayPoint network, and would then install a bill payment terminal in their
shop. PayPoint has now expanded to new areas. In 2006, it became the
exclusive cash payment network for the BBC’s TV Licence fee [alService’ that
was previously provided st Office) =ICORRECT?). In February 2011, it
launched its Collect+ parcel sending and collection service. This was a joint
venture between PayPoint and Yodel; the latter being an entrant into the postal
services market following that market being liberalised.®
Technological change
59.
60.
Improvements in technology have changed the way that products have been
delivered to customers. These changes are invariably to reduce transaction
costs, which is frequently achieved through a reduction in the amount of manual
labour required in branch for each transaction. Due to the size of the network
and volume of transactions, even eliminating, for example, a 30 second manual
task from each transaction can deliver a considerable cost saving to a Client.
An example of this is the Post Office Card Account. The Government's decision
to pay benefits via direct bank transfers created a need for everyone to have
bank accounts. For various reasons, there are thousands of people in the UK
who cannot get a regular bank account. The Post Office Card Account is the
bank account of last resort. It is only available to people in receipt of benefits
who cannot get a regular account. This change from paper-based benefits to
digitalised benefits through the Post Office Card Account required new contracts
to be entered into with the Department of Work and Pensions and JP Morgan,
® https://www.paypoint.com/en-gb/about/our-history
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61.
62.
63.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
who provide the banking facilities. It also caused changes to the nature of the
work undertaken in branches, which had previously handled paper vouchers.
Another example of technological change is the removal of paper paying-in slips
for customers making banking deposits, who now instead use a chip and pin
card. This change was driven by banks from around DATE to about BATE,
because a chip and pin system is more secure and less prone to fraud. This
required Post Office to install new chip and pin terminals in branches, and to
change the operating and accounting processes for these transactions.
Client products and requirements
64.
65.
66.
Post Office provides dozens if not hundreds of products and services to the
public.? The Post Office has approximately 130 Clients [Aas this been Verified?)
including large companies such as Royal Mail, Bank of Ireland and the high street
banks. Working with its Clients, Post Office is active in the mail delivery,
financial services, banking, telecoms and bill payment marketplaces amongst
others.
A key benefit for Post Office's Clients is its large physical network which reaches
customers throughout the UK. Many of our client contracts contain provisions
that require Post Office to maintain a minimum level of geographic coverage and
continuity of service. (NOTSITORIROG:NifGWeNsayathisintethsmmayeaskifon
disclosure of these contracts.)
Clients also often have particular requirements as to how they want their products
to be presented and sold in branches. I set out below a few examples.
° Setting an exact number depends on how you define a "product" or "service". For example, you
could say that "lottery" is a single product, but there are several different types of lottery service:
Lotto, Scratchards, Prize payouts, etc. I believe it would be fair to say that there are over XX
obviously distinguishable services offered at most Post Office branches.
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67.
68.
69.
70.
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Many of the products offered by Post Office relate to the communication of
information. Financial services and bill payments, for example, are really the
communication of information about money transfers. This requires the IT
systems in branch to tie into and communicate with Clients’ IT systems. I am not
a technical expert on IT systems but I understand from discussions with
colleagues over the years that Clients set strict parameters for how those IT
systems interact, the nature and format of data transferred and security
requirements. [An
Some Clients also place restrictions on Post Office from providing competing
products in branches. For example, Royal Mail restricts Post Office from offering
any other postal services. (ROGLADISCIOSUFEINISK) Similar restrictions also apply to
Postmasters, who are not allowed to sell "restricted products" in their retail
businesses. These restrictions change over time with the evolving nature of
clients’ products, their businesses and their competition, which means Post Office
needs the flexibility to able to reflect changes in restrictions in its contracts with
Postmasters.
There is a minimum list of products that are sold in every branch so that a
customer has a guaranteed minimum offering no matter which branch they go
into across the country. This currently includes [gis camples
It would
be a very frustrating customer experience if these basic products were not
available, causing damage to the Post Office brand and general damage to the
network. This minimum product range changes over time in accordance with
customer preferences and the other factors set out in this section.
*° Girobank was part of the General Post Office. In 2003, it was sold to Alliance & Leicester which
was subsequently acquired by Santander in 2008.
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Regulatory requirements
71.
72.
73.
74.
75.
76.
In 2001 the UK Government obtained clearance under the EU State Aid
Regulations for a payment of £180 million to enable the Urban Network
Reinvention programme, and between 2010 and 2017 the Government allocated
£2 billion to fund the Post Office's modernisation and transformation programme,
which included investing £20m in more than 3000 community branches. [Note!
aT
Beyond regulatory requirements applying to Post Office as a whole, the wide
range of products offered by Post Office means that it encounters considerable
regulations specific to those products or Clients. Not all those regulations apply
directly to Post Office; some apply to its clients, and are then reflected in their
contracts with Post Office. [ROGMM@ISCIOSUFeNISK) I set out below a few examples
of how regulations affect Post Office's business.
Foreign exchange transactions are a high risk area for money laundering and
fraud. Post Office is required to [What?ili//obtainIproof of identity/of the/clistomer!
There are statutory and international restrictions on sending "dangerous goods"
through Royal Mail postal services unless specially marked." Royal Mail
fequires Post Office, and therefore its Postmasters, to comply with those
restrictions.
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Change programmes
77.
78.
79.
80.
In light of the above objectives, requirements and pressures on Post Office, it is
almost always in a constant state of change and improvement, and as far as I
can predict this will continue into the foreseeable future.
There have been over the last 20 years a number of major transformation
projects, which I describe below. When Post Office makes major network-wide
changes, they come under intense scrutiny from MPs and the media (especially
when large scale branch closures are involved). Closing a single branch, for
example because the incumbent Postmaster has retired or been dismissed, can
soak up a lot of time but is manageable in the grand scheme of Post Office given
its size. When that scales up to thousands of branches, the impact on Post
Office could be significant. Where a large transformation programme is
underway, the government and Post Office prefer to close branches on a
voluntary basis and this generally means offering a payment to exiting
Postmasters that goes above and beyond their usual termination rights. This
payment is for pragmatic reasons: it smooths the exit process, and avoids the
programme becoming unmanageable, as would be the case if every closure was
contested.
Outside nationwide planned closure programmes, Post Office very rarely gives
notice to terminate a Postmaster's contract because it wishes to close a branch
for commercial reasons. If a branch is closing for other reasons (retirement of
the Postmaster, termination for breach, etc.) Post Office will generally consider
whether the branch is still needed, but a decision not to re-open a branch in these
circumstances is still [fare Uneommon]. Generally the pressure is the other way
around: Post Office is keen to maintain the size of the network and keep
branches open. [Correct?]
The first major change programme was the Urban Network Reinvention
Programme. This programme was primarily a ‘voluntary closure’ programme
within the urban segment of branches and took place between 2001 and 2004.
The Government provided the funding for Post Office to carry out rationalisation
in areas where there were too many Post Office branches serving the same
district for them all to remain viable. Post Offices in the 10% most deprived
urban areas, with no other branch within half a mile, were ring-fenced and
protected from consideration for closure (other than in exceptional
circumstances). The programme involved around 2,500 closures. The
programme also involved a £30 million investment fund to make remaining Post
Office branches more attractive for customers, as well as payments to exiting
Postmasters.
AC_151034087_2 16
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81.
82.
83.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
The second was the Network Change Programme, which was a compulsory
closure programme which impacted all of the network and took place between
2005 and 2008. It was also Government funded. The predecessor to BEIS, the
Department for Business Innovation and Skills, agreed with Post Office a £1.7
billion strategy to make the network financially sustainable, including a £150
million annual subsidy. One element of the plan was the Network Change
Programme, whereby up to 2,500 Post Office branches were to be closed. The
other elements of the strategy, alongside Network Change, were the restoration
of Crown branches to profitability, central cost cutting efficiencies and developing
and expanding new business.
Finally, the Network Transformation Programme, which took place between [ASk’
Kate’Stéél], sought to change the way that Post Office services were offered in
branches. [What WAS’ the purpose for/NT?] Under the Network Transformation
Programme agency branches were classified into two categories. Some became
part of a "Main" branch model in which a dedicated counter, physically separated
from the Subpostmaster's retail business, was maintained. Others became part of
a "Local" branch model, which fully integrated Post Office services within the
retail business, so that the Subpostmaster could offer Post Office services from
the retail counter (see the Witness Statement of Nick Beal for more details on
these branch types). This often means that Post Office services can be offered
for longer hours than before, in some cases from early morning until late at night,
seven days a week.
It also moved Postmasters away from fixed remuneration to variable
remuneration based on volumes of sales. [Why Was'this éhange fiiadé?)
Were there branch closures and compensation as part of NT?
C. POSTMASTERS AND THEIR BRANCHES
85.
86.
In this section, I explain the role of a Postmaster and the basic operation of a
Post Office branch. This is only a high-level overview, reflecting information
which I believe that new applicants for Postmaster positions could reasonably be
expected to know, or to have found out, before being appointed as a Postmaster.
[NOTE FOR WBD / Counsel: We need to tie into to SR, TD and JB's statements
here to make sure that we have laid a clear narrative a:
would know this before they are appointed)
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Postmasters' businesses
87.
By joining the Post Office network, Postmasters get access to a wide range of
benefits that would be very difficult for them to procure independently. The key
benefits are as follows:
87.1
Postmasters get the right to use Post Office's brand, which immediately
gives their business credibility without needing to build up its own
goodwill. The presence of a Post Office, its brand and the wide range of
products offered attracts customers. This increases footfall to the
Postmaster's retail offering and has the potential to increase the profits on
the retail side of the business.
The Postmaster gets a source of revenue in the form of remuneration
from Post Office. Postmasters receive fixed monthly remuneration and/
or variable remuneration according to the volumes of sales of products in
branch. The amount and structure of remuneration has changed over
time but broadly speaking larger branches receive more remuneration.
The Witness Statement of Nick Beal discusses Postmaster's
remuneration in more det
Postmasters are able to sell a wider range of products than a small
business would normally be able to sell. Post Office negotiates all the
terms with its Clients for the sale of products. Without these often long
term and complex framework agreements, small business owners would
need to contract directly with each Client to provide these services, which
I think would be practically impossible for them to do.
Post Office provides the cash and stock needed to conduct transactions.
It does this on an unsecured basis" and therefore the Postmaster has no
working capital requirements for branch trading. Given that the average
branch is holding around £XX in cash, I doubt that many Postmasters
would have the financial means to fund this working capital.
Post Office provides the IT equipment needed to conduct customer
transactions and maintain the branch accounts, including Horizon,
printers, barcode scanners and chip and pin machines. It also provides
the back-end IT infrastructure that connects each branch with Post
Office's Clients. I do not believe that a small business owner could put
this infrastructure in place on their own.
* Where the Postmaster is a company, Post Office may require a shareholder or director
guarantee.
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88.
89.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
87.6 Post Office facilitates the payments required for each transaction. It
provides cash management planning and cash delivery vans to get cash
to and from each branch, it banks customers’ cheques, recovers payment
for debit and credit card transactions and processes payments to Clients.
Small business owners could arrange this themselves but it would be an
added administrative burden for them to manage.
87.7 Post Office provides customer helplines so that branches do not need to
field some queries. This helps save Postmasters’ time.
87.8 Post Office (or its Clients) are responsible for building legally compliant
processes. Postmasters get the benefit of Post Office's expertise in doing
this and Post Office or its clients bear the legal and regulatory risks of non-
compliance so long as a Postmaster follows the stipulated practices.
The first factor is a major (and in many cases the dominant) reason why people
become Postmasters. Post Office does not keep aggregated information on
whether a branch is located within an associated retail unit. However, in my
experience I would say that less than XX% of agency branches are pure Post
Office branches offering nothing but Post Office services. Those that are pure
Post Office branches tend to be the very large branches that are profitable as a
freestanding Post Office (having typically been converted from Crown branches).
In my 30 years at Post Office, I can only recall coming across [a handful Of] of
small or medium sized branches that had no associated retail offering.
When taking on a branch, the Postmaster will have some costs and capital
outlay. These include the following:
89.1 The Postmaster needs to acquire a legal interest in the branch premises if
they do not already own it. This may be either a lease or the freehold.
They will likely incur transaction costs in securing the property interest
(e.g. legal fees, stamp duty, etc.) and may also incur finance costs (e.g.
mortgage interest repayments). However, the capital value of the
property can often be recovered (potentially with an uplift) when selling
the property.
89.2 If acquiring an existing business, they may need to pay for the goodwill
associated with the business. That goodwill will usually be higher if there
is an existing Post Office branch in the retail business because, as
explained above, the Post Office branch usually increases the profit made
on the retail side. Again, however, the price paid for the goodwill can
often be recovered (potentially with an uplift) on the sale of the business.
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90.
91.
92.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
89.3. The Postmaster may need to pay for some fit-out works to bring the
branch up to Post Office standards. This is more likely to be needed for a
new branch than an existing one. I note that the Withess Statement of
Yoni Breedon describes this in more detail. Again, it may be possible to
recover some of these costs on a future sale if they have improved the
premises’ or business’ value.
89.4 A Postmaster may incur some time / salary costs in recruiting and training
assistants when opening a new branch. These are ordinary business
costs. For Postmasters taking on existing branches, it is likely that the
incumbent staff of the outgoing Postmaster will transfer to the new
Postmaster, so in some cases there will be no recruitment or training
costs at all.
89.5 (Anything/else?)
Post Office historically charged an introductory fee, licence fee or franchise fee
when an incoming Subpostmaster began to operate a new branch (generally only
charged for larger, more profitable branches). The rationale for charging this fee
was that there was a commercial benefit to a retailer in operating a Post Office
branch. This fee took the form of a fixed percentage abatement of the
Postmaster’s remuneration for the first year and so was not a capital outlay.
[CORRECT?]
One allegation made in these proceedings is that the Postmaster loses the ability
to "sell" his branch, and therefore the ability to recoup any capital outlay, if his
contract is terminated by Post Office. This is not necessarily correct. Regardless
of his contractual status, a Postmaster cannot "sell" a branch because it is not a
saleable asset. The Postmaster has the benefit of a contract with Post Office
that cannot be assigned. However, the goodwill of his business attaches to the
branch's location, premises and customers. This is not destroyed if the
Postmaster's contract is terminated. Often a temporary Postmaster’ takes over
the branch and so the business (retail and Post Office) continue to trade together.
Due to the need to maintain a minimum network size and continuity of service, it
is likely that Post Office will want to continue to locate a branch in the
Postmaster's retail unit. Often the buyer of a retail unit will make the acquisition
conditional on the buyer being appointed as Postmaster. The combination of
these factors means that the value of the business is usually preserved, and
initial capital outlays recovered, even if the Postmaster is terminated.
*® See the Witness Statement of Nick Beal for more information on temporary Subpostmasters
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93.
95.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Their investments are also not long-term. Most Postmasters have the right to
terminate their contracts on notice of between three to six months and this gives
them protection should the branch not turn out to be as profitable as they had
hoped, or should they have a change in personal circumstances. By contrast,
Post Office does not routinely close branches unless there is a problem (see the
Witness Statement of John Breedon for more details on this) or the branch has
been selected for closure under a change programme (see paragraph XX). This
is because of its need to maintain network coverage and continuity of service.
[CORRECT?]
Combining a retail business with a Post Office can create a highly valued
community service and business. In the 2016 Local Shop Report published by
the Association of Convenience Stores, Post Office was recognised as the
number 1 service for the impact it has on the local area, ahead of both
convenience stores (2nd) and banks (8th). When joining the network,
Postmasters therefore make an assessment about whether the additional cost of
running a branch (principally set-up costs, labour costs and the reduction in retail
floor space) and the risks (principally in the form of liabilities for shortfalls if
mistakes are made by them or their employees) are outweighed by their Post
Office remuneration and the potential for increased profit in their retail offering.
In addition to the commercial advantages, the role of a Postmaster also offers a
lot of choice and flexibility. Most of the Postmasters whom I have appointed or
worked with relished the autonomy of the role. They are proud to be independent
small business owners, with the ability to grow their businesses as they see fit.
This autonomy includes:
95.1 Being able to hire assistants (see paragraph X in relation to assistants).
This allows each Postmaster to strike their own balance between working
in the branch and delegating that work to others.
95.2 It is possible for a Postmaster to completely delegate responsibility to an
assistant to run the branch, with the Postmaster being absent. Some
Postmasters have no involvement in their branches at all, to the extent
that they would not even know how to run a branch or they may even live
abroad. These Postmasters treat the branch as nothing more than a
financial investment and may have multiple businesses, including
potentially as a Postmaster of multiple branches.
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96.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
95.3 Postmasters are free to allocate responsibilities within the branch.
Postmasters could treat all assistants equally or could have a hierarchy
with more senior staff supervising junior staff. In larger branches,
assistants may have designated roles e.g. just doing mail-work or having
authority to cash up and submit monthly accounts.
95.4 Postmasters can flexibly move their employees between the retail and
Post Office businesses. It may be that staff work mainly on the retail side
but help out in the branch during busy periods or vice versa.
95.5 [Any other ways that Postmasters are autonomous]?
This autonomy is not absolute. The key control asserted by Post Office is that it
sets down minimum operating standards on the way Post Office business is
conducted and the way transactions are recorded. This is described below.
Operating a branch
97.
98.
99.
Unlike an ordinary retailer, Post Office branches do business in both debit and
credit transactions. Most retailers take in payments and hand out goods or
services. Post Office branches are different in that they often make payments
out, nearly always in cash. The most common type of physical asset transferred
by a Post Office is not stock or goods but physical cash. [ADD SOME STATS)
FOR CASH"MOVEMENTS ACROSS’ POL). Bank withdrawals and benefit
payments are examples of outflows of cash. In some branches, the outflows are
greater than the incoming cash, leading them to be "cash negative".
Post Office provides every branch with a quantity - varying according to local
demand and branch size — of Post Office cash and stock (such as stamps) with
which the Postmaster may undertake transactions on behalf of Post Office. The
physical cash and stock remain the property of Post Office, even though they are
in the Postmaster's possession. Postmasters are generally required to keep Post
Office cash and stock separate from their retail cash and stock (IS! this’ Still true’
for Local branches?]
In order to meet the demands on Post Office described in Section B above, Post
Office sets down operating rules on how Post Office business is to be conducted
in branch. These rules are also sometimes set to reflect best practice, e.g.
keeping cash in a safe overnight is not a legal or client requirement but is a very
good idea for obvious reasons. These operating rules require Post Office's
assets to be handled in a certain way and require certain information to be
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
captured, recorded and dispatched (digitally or physically) in relation to each type
of transaction.
100. When a Client product is transacted, details of the transaction are communicated
to the Client. Post Office is liable to account to the Client for the transaction
value or vice versa (depending on whether the payment is a credit transaction
e.g. bill payment, or a debit transaction e.g. bank withdrawal). Before 1999,
these records were kept in paper form, known as the branch accounts. In around
1999/2000, Post Office rolled out the Horizon IT system in branches. This
digitised the branch accounts. The basic operation of Horizon is that it records,
like a traditional double entry bookkeeping account, all movements of cash and
stock in and out of a branch.
101. For example, if a customer pays an £80 utility bill by cash then, if entered
correctly by the Postmaster, the branch accounts, whether in the old paper form
or on Horizon, will record an increase in £80 in the branch's cash holdings."®
Post Office will then pay the £80 recorded in the branch accounts to the
customer's utility company. The Postmaster is not responsible for the cost of this
onward payment to the utility company so long as he has recorded the
transaction correctly in branch. If, for some reason, the onward payment to the
utility company failed to go through (leaving the customer with an outstanding
liability), this would not directly affect the branch's accounting position. The
branch accounts would still show a £80 bill payment and the receipt of £80 in
cash. A similar allocation of responsibility exists for all transactions, with the
Postmaster being responsible for keeping his end of the transaction records
accurate, namely the branch accounts.
[Note to WBD / Counsel: Do we need to say more about this cover off the real-
loss argument?)
102. Post Office's operating rules require a Postmaster to submit the branch's
accounts to Post Office at regular intervals. This is now all done online through
Horizon. In submitting the accounts, the Postmaster must count all the cash and
stock in the branch and compare it to the cash and stock holdings on Horizon
which reflect the net effect of all transactions recorded by the Postmaster in a
given period. Should the actual cash on hand be less than the cash position
recorded in the accounts by the Postmaster, there will be a loss, which is referred
to as a ‘shortfall’. If the opposite is true, there will be a surplus, which is referred
to as a ‘gain’.
© I do not take into account in what I say here the Claimant's allegations regarding defects in
Horizon because I understand that these are not within the scope of the Common Issues Trial.
AC_151034087_2 23
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
When setting operating rules Post Office consciously balances the need for
consistent practice across the network with respect for the autonomy of
Postmasters to run their businesses as they see fit.
103.
103.1
103.2
103.3
Assistants
104.
AC_151034087_2
A consistent approach is needed because it would be unworkable if each
branch operated in its own way, conducting transactions as it saw fit and
submitting accounts in a variety of formats. It would be very onerous for
Post Office to interact and cooperate with the branches if each one did
things differently. This would likely require Post Office to hire (hundreds?)
more back-office staff to run the network. The cost would be massive
and the Post Office business would likely not be sustainable in that
scenario.
The rules however cannot be too prescriptive as this could put an undue
burden on Postmasters. An operational change can cause more or less
labour time to be needed in branch, which has a direct impact on a
Postmaster's staffing costs (or their own time). A change that would
require an extra hour of work each week for all 11,000 branches would be
equivalent to the workload of around 300 full-time assistants.
The rules need to be capable of being applied to branches of all sizes.
What may be appropriate in a large branch may be unduly onerous in a
small branch. The operating rules therefore reflect minimum required
practice and Postmasters may decide to go further. A good example of
this is whether Postmasters undertake more accounting checks than are
required by Post Office. A small branch run by a single long-serving and
experienced Postmaster who has no track record of shortfalls may be
comfortable only doing a full set of cash and stock accounts at the end of
each month. To do it more often would be time-consuming and costly, for
little corresponding benefit. A much larger branch with, say, 12/assistants)
and/40 ctistomer Serving positions, which is suffering from repeated
shortfalls, may decide it necessary to do a full cash and stock count every
day or week. Indeed in a larger branch it may be commercially viable to
hire an assistant for the sole purpose of preparing the accounts.
Postmasters are allowed to employ staff, known as assistants, to conduct Post
Office business on their behalf. Postmasters are free to decide how many people
to employ (if any), who to employ, for what working hours and in what roles.
Postmasters are responsible for assistants’ wages and set their salary levels.
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Postmasters are responsible taking disciplinary action, dismissals and for all the
legal requirements that come with being an employer.
105. Post Office only has one role in selecting assistants: it undertakes criminal
records checks on assistants — see the Witness Statement of Sarah Rimmer for
more detail on this.
106. Postmasters are required to register assistants with Post Office. However, Post
Office cannot accurately know how many assistants are active in the network
because:
106.1 Post Office is not present in branches so cannot monitor first-hand who is
serving customers or handling Post Office cash and stock.
106.2 Some Postmasters do not register assistants. Post Office relies on
Postmasters to do this, rather than itself trying to monitor the position
(which would be impracticable).
106.3. Even if an assistant is registered that does not mean that they are
actively working in a branch.
107. It is therefore not possible to accurately state how many Postmasters are actively
employing assistants to work in branches at any one time. In my experience,
only in very small branches would the Postmaster be able to run the branch on
their own. I would estimate that over XX% of branches have assistants working
in them. According to [System // person], there are currently XX ‘active’ assistants
registered with Post Office.
108. In the above section on "operating a branch", any reference to actions in branch
by Postmasters could also be actions by assistants. Postmasters are free to
delegate as much or as little of the branch work to an assistant as they see fit.
109. It is for the Postmaster to decide on whether an assistant is suitable for the role.
Post Office cannot do this because it does not know the assistant and cannot
regularly supervise their work in branch.
110. It would also be inappropriate for Post Office to strictly and directly control the
use of assistants when the consequences of those decisions will fall on the
Postmaster. For example:
110.1 If a Post Office decides an assistant should be dismissed, any resulting
grievance or tribunal claim would be against the Postmaster as employer.
Post Office could not therefore sensibly exercise those dismissal powers,
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being the ultimate sanction for poor performance or gross misconduct by
an assistant.
110.2 If Post Office were to compel mandatory training for an assistant, he or
she would generally be entitled to be paid by the Postmaster for that
period of training. The Postmaster might prefer not to pay that cost,
being happy to run his branch with untrained assistants or to dismiss an
assistant. It may be that the Postmaster has given the assistant only a
limited role in the branch, such that some parts of the training may not be
needed for their job.
110.3 Post Office does know what, if any, supervisory regime the Postmaster
has put in place. It may be that the Postmaster is closely supervising his
staff, on the one hand, or providing no supervision at all (in the case of an
"absentee" Postmaster), on the other hand. Postmasters can tailor the
training that they provide to reflect the roles that they have given to their
assistants and the extent of oversight that they are themselves able to
provide.
111. Post Office may offer advice to Postmasters in relation to their assistants but the
only [€orrect?] circumstance in which it would get actively involved is when an
assistant has acted dishonestly. Post Office may then require the Postmaster to
exclude that assistant from the branch in order to protect Post Office cash and
stock. Even here, however, Post Office’s intervention is through the Postmaster.
112. Given Post Office's lack of first-hand knowledge about, and control over,
assistants, it would be impossible for Post Office to directly supervise them on a
day-to-day basis. Again, the size of the network needs to be taken into account.
With 11,000 agency branches, I would expect Post Office to need to employ
[tholisands) of additional staff if did have direct responsibility for assistants. In
the context of Post Office’s usually fairly weak financial performance, I would
expect a change of this kind to make the network financially unsustainable.
113. From my experience, I would say that, in reality, the only commercially
sustainable arrangement is for Postmasters to choose, employ and supervise
their assistants. They are in the best position to detect incompetence or
dishonesty by assistants or to put in place a supervisory regime and operating
controls to detect these things when they are themselves not present in the
branch. As the Postmaster (and not Post Office) is exercising control, I have
always thought that it was reasonable for the Postmaster to be liable for the
actions of his assistants.
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Horizon
114. Horizon is Post Office's accounting IT system used in branches. I am not an IT
expert but have used or been involved with the system since its rollout in 1999.
The Horizon Issues are being addressed in a separate trial so I only briefly
describe the Horizon system below. I would expect any reasonably diligent
applicant for the position of Postmaster to be aware of this information or to be
provided with this level of information if he or she requested it during the
application process. [PléaseIfeel free'to/ amend below as’ appropriate)
115. I describe Horizon to new users as a big calculator. I think this captures the
essence of the system in that it records the transactions inputted into it, and then
adds or subtracts from the branch cash or stock holdings depending on whether it
was a credit or debit transaction. The Horizon user just needs to remember what
they need to do to initiate a transaction (e.g. scan the barcode; put the card in the
pin-pad or touch the screen) on the Horizon system and then follow the on-screen
prompts. It is ultimately a fairly simple system, at least from the user's
perspective.
116. The system keeps a record of transactions and allows easy access to that
information. It automatically generates the branch accounts (with the benefit of
the Postmaster’s manual count and declaration of the cash in branch) and flags
any shortfalls or surpluses to the user. I have always argued that this means it is
better than the old paper ledger system which would require multiple ledgers to
be tallied and manual calculations made before the true branch position could be
seen. Horizon therefore saved Postmasters and Post Office time, and cost, by
automating these exercises. In my experience, the introduction of Horizon
substantially reduced the burden on Postmasters in respect of preparing,
maintaining and submitting accounts.
117. Horizon also allows transaction information to be quickly filtered and sorted,
giving the Postmaster the ability to more quickly target areas of interest than in a
paper system, making investigating problems easier than would be the case if the
Postmaster had to interrogate various paper records. I cannot see how anyone
could dispute that the introduction of Horizon represented an improvement over
the old paper ledger system used in branch.
118. I should add that it is of course possible to do things wrongly on Horizon, like any
computer system I have used. One source of problems arises from the fact that it
is possible for the user to press an on-screen touch button and move onto the
next screen without reading the prompts that are there to help. If the user does
not exercise sufficient care, he or she might input incorrect information into the
AC_151034087_2 27
119.
120.
121.
122.
123.
124.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
system, e.g. processing a deposit as a withdrawal or vice versa. And of course
the system is only as good as the information input into it, and Horizon does not
know whether the user has entered correct data.. Entering incorrect data or not
using the system properly could cause shortfalls or, for that matter, gains.
As with any IT system, there are instances where the system or the screen goes
down. The system was built with safeguards based on the assumption that
sometimes connectivity could be lost, e.g. because a power line goes down or
because the communication link is faulty. The system is not perfect, but I am not
aware of any material bug in the system that is causing shortfalls in branch.
I believe that my view of Horizon is held by the vast majority of Postmasters in
the network. It is always under improvement but is basically sound and a good
tool. The NFSP has publicly supported Post Office's view that Horizon is robust.'®
I would therefore expect any applicant for the position of Postmaster, who has
done a reasonable level of due diligence or spoken to other Postmasters or Post
Office, to have a similar view about Horizon when they took on the role of
Postmaster.
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125.
Training
126. The aim of training is to equip the Postmaster with the skills to perform the role
that they have been asked to do. There are strong incentives for Post Office to
deliver effective training:
126.1 It reduces the chance of an accounting or cash / stock handling error in
branch, thereby reducing shortfalls.
126.2 Its helps deliver a better customer experience, thereby improving the
Post Office brand and the prospects of the whole network.
126.3 It helps ensure consistent practice across the network.
126.4 It may reduce the amount, and therefore cost, of other support needed by
Postmasters (eg. calls to the NBSC helpline).
126.5 It avoids the cost of having to repeat training.
126.6 It may reduce other costs at Post Office (eg. back-office processing of
transaction corrections; handling customer complaints, etc.).
127. Training nevertheless comes at a [high] cost to Post Office because it can be
very labour intensive. Training is currently delivered by around KX employees of
Post Office at a cost of around £XX each year.
128. Training is not, on its own, a cure for all problems. For some issues, it may be
more effective and cost-efficient for Post Office to, for example, send out a
reminder notification to each branch, update in-branch user guides, provide
better advice through NBSC, develop an improvement to Horizon, build more on-
screen prompts into Horizon, change the way it communicates with branches and
/ or re-design a sales or accounting process. Training cannot therefore be
considered in isolation but only as part of wider Post Office and branch
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operations, otherwise significant cost could be wasted in delivering training when
there may be better solutions.
“Initial training
130. One common feature of Post Office's training was that at all material times offer
initial training was offered to new Postmasters. This has evolved in line with the
changing size of the network, the costs of training and Post Office's financial
position, the mix of products offered in branches and improvements in
technology. [Any 6ther factors?] The general pattern has been a move away from
1-2-1 in branch training to classroom based training and now to online training.
131. Not all 'new' Postmasters needed training. A postmaster may choose not to
attend training, or only attend part of a training session if, for example, he or she
has worked in a branch previously and therefore already knows how to operate
Horizon and carry out transactions. Some may already been Postmasters of other
branches, some may have worked in branches as assistants or some may have
no intention of working in their branch — as an absentee Postmaster there may
take the view that there is little need for them to know how the branch operates.
For those Postmasters who were truly new to Post Office and were intending to
work in their branch, Post Office would strongly insist that they attended and it
would be very rare and odd if they did not do so, to the extent that Post Office
might reconsider their suitability for the role.
132. No matter the method of delivery there are some core features that have always
been covered in initial training programmes:®
132.1 How to conduct basic transactions.
132.2 How to deal with remittances of cash and stock in and out of the branch.
132.3 How to make daily cash declarations and submit the weekly / monthly
accounts.
132.4 How to declare, investigate, make good and dispute shortfalls.
132.5 How to process and / or dispute transaction corrections.
132.6 How to get further advice and support.
133. I set out below a short summary of how initial training was delivered over the
years. This reflects the standard training that most Postmasters received but
* NOTE TO WBD: Can we source this please in relevant documents?
AC_151034087_2 30
134
135.
136.
137.
138.
139.
140.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
there would be exceptions and variations from this due to individual
circumstances eg. very remote branch, Postmaster was ill during training, etc.
Pre-Horizon, initial training was carried out on site (at the branch) over a period
of around two weeks, as "on the job" training. I recall that training at this time was
one week for branches with no car tax and two weeks for those that did car tax.
This was due to the volume of car tax renewals being processed through
branches at that time; that business now having [gone completely] due to car tax
now being done online. Post Office would come back on site to help the
Postmaster complete his first two sets of accounts that were due to Post Office -
known as "follow-up balances".
From 2001 to 2002, classroom training was offered to new Postmasters followed
by around ten days of onsite training and support. There would then be a follow-
up balance .
From 2003 to 2006, between five and ten days of classroom training was offered
to new Postmasters (the training being optional) and then five to ten days of
onsite training and support was then given depending on whether the classroom
training was attended. This would be followed by a further day of follow-up
balance support.
From 2007 to 2011, new Postmasters received five, eight or ten days of training
on foundation, sales and other specialised modules. Six days of onsite training
and support was provided, again followed by one day of follow-up balance
support.
In 2007 follow-up telephone calls were introduced at intervals of one month and
six months after a branch was taken over by a new Postmaster, with a one-day
site visit taking place three months after the branch was taken over.
In 2012, as part network transformation (see paragraph XX), Post Office tailored
its training to reflect the specific role being undertaken, whether he/she is taking
over an existing branch with existing staff, the size of the branch, the branch
operating model (i.e. Main or Local) and the types of products and services to be
transacted. The number of days over which the training took place depended on
which model of training was provided. The training usually took place over 8 to
10 days and involved some classroom and some on-site training.
The current position is that the Postmaster will be sent a link to the online training
that they access on their own device eg laptop. The online training is interactive
AC_151034087_2 31
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and requires user participation. The online training is a precursor to classroom
and on-site training. This is a change I introduced in 2015; this approach ensures
the Postmaster has a variety of methods to take in the training, namely online,
classroom and on-site.
Assistants
141. The training for Postmasters has always emphasised their responsibility for the
safekeeping of cash and stock, the accuracy of their branch accounts and the
actions and competency of their assistants.
142. Before Network Transformation, if there was space on an initial training course it
would sometimes be suggested that the Postmaster bring their assistants with
them to utilise the spaces on the course. With the new Mains and Local contracts
the training is set out explicitly: for Mains the Subpostmaster and up to 50% of
their staff are invited to attend the training. For Locals if the Subpostmaster has
more than 5 staff then in addition to the Subpostmaster sufficient spaces will be
offered to train 50% of their staff. [WBD TO DOUBLE CHECK THE!
CONTRACTS}
143. Where training was delivered on-site, there was of course the opportunity for
those assistants who were present to get involved in the training.
Further training
144. If the trainer has any concerns about the competence of a Postmaster following
their initial training, they may arrange further training for the Postmaster.
145. After this point further training can be provided to Postmasters where necessary.
As Post Office is not present in branches, it is often not possible for it to know
whether training is needed by the Postmaster. It could be that the Postmaster is
absent from the branch and requires no training at all. It could be that the
Postmater is well trained but there are errors in branch caused by assistants. For
most branches, where all Post Office sees its accounting data, it is difficult to
determine a Postmasters (or an assistant's) training needs.
146. Where a specific concern has been reported by a Postmaster or there is a re-
occurring problem in branch, Post Office may pro-actively contact the branch to
enquire as to what is happening and that may lead Post Office identify a need for
further training need. Even then, Post Office cannot directly impose more
training on Postmasters"® because this training also comes at a cost to them, in
‘8 Save maybe in circumstances where there have been breaches of contract and Post Office
AC_151034087_2 32
147.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
that it takes up their time. Most further training is therefore request driven, where
a Postmaster asks for more training of their own volition or agrees to training
suggested by Post Office.
When Post Office introduces new products or changes to products, the need and
type of training is determined by the type of change or the level of complexity
around the new product. If a new product is introduced that is similar to a product
Post Office has already trained its Subpostmasters to use, then Post Office would
likely not do face to face training. Instead it would more likely issue instructions
and easy to user guides.
Support for Postmasters
[Note to WBD / Counsel: Is this section admissible?]
148.
149.
150.
Some Postmasters run their branches successfully for years, rarely calling for
help, suffering minimal, if any, shortfalls and generally get on with running their
businesses without incident. Some Postmasters do not have a face to face
interaction with Post Office for years. It is perfectly possible to run a branch
without problem, using only the operational manuals and help guides provided by
Post Office. [True?]
Most branches will require some degree of support and guidance from Post
Office at some points in time. Most of this support is in the form of routine
queries about how to do something and is of little consequence. It is a minority
of Postmasters that require regular or pro-active intervention and it is those types
of Postmaster that make up a fair proportion of the Claimants. I do not therefore
believe that the Claimants' complaints in these proceedings are representative of
the views of the wider body of Postmasters, as can be seen from the fact that the
NFSP is supporting Post Office in this litigation.?°
Historically, an Area Manager would be responsible for the whole life cycle of the
Postmaster, including supporting any issues in branch. Over time the Area
Manager position has had different names such as Retail Network Manager
(RNM) or Business Development Manager (BDM). Area Managers knew the
branches very well due to this high level of personal contact. [Note for Counsel!”
How do we square this with above statements on Post Office no being present in.
banche?]
tequires a Postmaster to undertake further training as a condition of it not exercising its
termination rights.
” Source?
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151. Around 1995 Post Office started to centralise its business. As part of this, in
around 1999, Post Office set up a helpline for Postmasters. This was because
improvements in technology made it more cost-effective to run a telephony
support service [orrect Or Was tht another feason?] than provide each
Postmaster with an individual Area Manager. It was first implemented on a
regional basis and was later centralised when it became known as the National
Business Support Centre (NBSC). (Correct?) Or Was if known as5"a" the’ NBSC’
before this?]
152. It was important that Postmasters used the Helpline as Post Office wanted a
record of the calls reporting issues so that we could understand trends in the
volume of calls and also the type of calls. Again, technology allowed Post Office
to collate this data and produce trend analysis at a national level to ascertain
whether there are particular things taking place that are not just one offs. If, for
example, Post Office brought a new product in and the Helpline received a large
number of calls, Post Office could consider whether the training had not landed
properly; or that the product design is not quite right.
153. Even if the Postmaster wanted to get hold of me as an RNM, I would inform them
that they needed to go through the helpline. I would inform them that the contact
at the helpline would then page the relevant RNM or BDM and ask the person to
contact the Postmaster.
154. As Area Managers were phased out, NBSC became the primary point of contact
for Postmasters seeking support on operational questions. NBSC is dealt with in
more detail in the Witness Statement of Kendra Dickinson.
155. In [year], Contract Advisors were introduced. Contract Advisors were responsible
for managing the contracts of Postmasters and took over this role from area
managers. They were centrally based and did not visit branches unless
addressing a specific issue. They were involved in the appointment process,
handled any contract breaches and dealt with suspensions, resignations and
terminations. These matters are dealt with in more detail in the Witness
Statement of John Breedon.
Causes of shortfalls
156. When becoming a Postmaster, a person will know that there is a risk of losses of
cash and stock from a branch. This is a known risk in any retail environment and
is commonly called shrinkage.”’ There are many ways that a shortfall or surplus
may arise. I set out some examples below.
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157. Mis-key. If a Postmaster enters the wrong value of a transaction into Horizon this
could cause a discrepancy. By way of example, if a banking customer deposits
£1000 into his/her account and the person serving the customer mistakenly
enters £10,000. This would create a shortage of £9,000 for the branch. The same
thing would sometimes happen with paper records.
158. Mixing retail and Post Office business. Generally, a branch will maintain a
physical separation between retail and Post Office cash. Postmasters are
supposed to maintain this separation. Mixing these two sets of cash can lead to
Post Office cash being lost to the retail business (and vice versa), as it can
become difficult to track the amount of cash that should be allocated to the Post
Office and retail sides.
159. Errors in cash handling. At the end of a customer transaction, payment normally
needs to be made to or received from the customer. Even if the transaction is
correctly recorded in Horizon, branch staff may take or hand out the wrong
amount of cash. This error could be as simple as miscounting cash before
handing it to, or receiving it from, the customer. This error may also happen
when excess cash is sent from a branch to Post Office or vice versa.
160. Miscounting cash on hand. When completing the physical cash count, notes and
coins can sometimes be miscounted or missed altogether. If cash is temporarily
mislaid one day and found the next, it can lead to related shortages and
surpluses on different days or in different trading periods.
161. Cash remittance errors. If there is mistake made between the amount that is
“Remmed? in or out and what is received from, or sent to, the Post Office Cash
Centre, then this will lead to a branch discrepancy. When a pouch is received
from a branch, the handling clerk at the Cash Centre opens the seal and empties
the contents onto their workstation, which is monitored by CCTV. This is the
same for pouches that are made up in the Cash Centres and sent to branches.
By way of example, if a branch has bagged up £25,000 to send to the Cash
Centre but enters £20,000 into the system then there will, in the short term, be a
shortage of £5,000. If the cash has left the branch then the mistake cannot be
rectified by the branch. The cash will be counted at the Cash Centre and a
Transaction Correction will be sent to the branch to rectify the branch account.
162. Stock handling. In the same way that cash can be mishandled, stock can also be
mishandled, e.g. giving the wrong type of stamps to a customer.
* Can we cite an industry report on retail shrinkage?
AC_151034087_2 35
163.
164.
165.
166.
167.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Cheque handling. Branches can accept cheques as payment for certain products
and services. There are set procedures that must be followed in branch to
ensure that the cheques are handled correctly and submitted to Post Office
promptly so that they can be entered into the banking system. A failure to follow
these processes may make it impossible to recover the value of the cheque and
the cost of this may be passed back to the branch.
Product specific errors. A failure to follow the correct process for accounting for
certain products can also cause errors. A good example is the accounting
process for Motor Vehicle Licence (MVL) discs (commonly referred to as tax
discs). Branches will receive MVL discs from Post Office, which they have to
record as part of their stock using Horizon. When the discs become out of date,
the branch is responsible for destroying the discs and following a process to
inform Post Office that they have been destroyed. When destroying the discs, if
the branch does not follow all of the steps of “spoiling the disc” and remitting it to
Post Office, Horizon will still record the disc as being in the branch even though it
has been destroyed.
Accidental loss. Other losses may occur accidentally in branches; for example,
money dropped in bins with rubbish, money dropped or knocked into mail bags,
and money left on counter tops which is taken by a customer without branch
knowledge.
Theft. Theft by branch staff has occurred, involving staff taking cash or stock, or
colluding with a customer to generate a gain for the customer and an offsetting
loss for the branch.
ESE SEES i
of legal responsibility? Would this be better in SR or JB's statement
appointment process?)
Reliance on Postmasters
168.
169.
Post Office is not present in branches, except when its staff are on site providing
training or support or conducting audits
Because of this lack of first-hand knowledge and direct control, Post Office relies
on Postmasters to accurately conduct and record transactions undertaken in their
branches. This is important because:
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170.
171.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
169.1 Post Office pays or receives money from Clients based on the value of
the transactions recorded in branch. Incorrect transactions could lead to
it paying more or receiving less than it is due, thus creating a loss to Post
Office.
169.2 Customers trust Post Office to complete their transactions accurately. Its
brand would be damaged and customers would stop coming to Post
Offices if, for example, when they paid a bill or deposited money, their bill
remained unpaid or their accounts were not credited in the correct
amount.
169.3 Failing to complete customers’ transactions could also damage Post
Office's relationship with Clients. If Clients receive complaints from
customers this could lead to Clients taking their business elsewhere or
demanding compensation.
169.4 Post Office receives fees and commissions from its Clients based on the
transactions recorded in branches.
169.5 Postmasters are remunerated by reference to the transactions completed
in branch.
{in what other ways is Post Office reliant on Postmasters doing their jobs
Post Office sets minimum requirements for accounting checks so to ensure the
accurate handling of cash and stock and recording of transactions. These
currently include daily cash declarations” and the submission of monthly
accounts”. The exact frequency and nature of accounting checks have changed
over time but are, and have at all material times been, in line with the practices
of other retailers (big and small), where the industry standard is for the tills to be
"cashed up” at the end of every day. This is good practice because (i) it allows a
retailer to quickly spot any problems and (ii) for security reasons a retailer will
want large volumes of cash to be secured in a safe overnight. I would expect any
reasonable person entering the retail business to understand the importance of
regular cash and accounting checks, and I would also expect them to know that it
2 This involves a count of all cash in the branch by denomination and the submission of that cash
declaration to Post Office. This is done so that Post Office knows whether to send more cash to,
or collect excess cash from, a branch. Once the cash declaration is done, it is possible for the
Postmaster to run a report from Horizon showing any shortfalls or surpluses that have occurred
that day.
® Strictly speaking the accounts are submitted every 4 or 5 week trading period depending the
accounting timetable set for each branch, but they are often referred to as the monthly accounts
or “end of trading period" accounts. Historically, these accounts were submitted weekly.
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172.
173.
174.
175.
176.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
is best practice that this is done at the end of every trading day, and that any
problems will need to be promptly corrected. It is obviously particularly important
where the business involves a large throughput of cash, as does a Post Office
branch.
guide that says that cash should be counted daily]
With over 11,000 agency branches each producing a daily cash declaration, this
amounts to over 26,000 cash declarations each month.” It would be completely
impractical for Post Office to review all these accounting submissions. It would
also be pointless. The only information Post Office would have at the end of
each day's trading would be the cash declaration. If there was a shortfall, it
would have no way of knowing which transaction on that day might be the cause
of the problem. The only person with this information is the Postmaster.
The problem is exacerbated when looking at weekly or monthly accounts. An
average branch conducts XXltfansactions per day, Or XX transactions per Week’
Of XXtransaction!per month. As the period of time extends so does the pool of
data and thus finding a problem transaction becomes more difficult.
I have always taken the position that a diligent businessperson would check their
accounts daily to identify any discrepancies and look to resolve them there and
then, while the information is fresh in their mind. If a material problem is
identified, I would expect the Postmaster to work hard to find the problem. The
starting point is a recount of cash in the branch to make sure there have been no
counting mistakes. One would then look at the cash, cheque and stock
remittances in and out of the branch to make sure everything has been logged as
being sent or received. It would also be prudent to speak to any assistants to see
if any of them had any idea as to what might have happened.
The next step would be to review all the day's transactions looking for an
anomaly. From the branch accounts, it has always at all material times been
possible to review a list of all transactions completed that day, their value and the
corresponding payment method (cash, card, cheque, etc). It would be sensible to
start looking for a transaction by reference to the value of the loss, e.g. if there
was a loss of £900, I would be looking for a mis-keyed transaction where £100
might have been entered as £1,000.
% Assuming that there are 26 trading days in a month
AC_151034087_2 38
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Iwas been available in branch for‘ iinimum of 42 days (60
010) and so has been available when completing dally, weekly and
[Note to WBD / Counsel: Admissible? This is also a Horizon Issue.]
177. Most Post Office branches have repeat regular customers e.g. a customer who
always draws their benefits on a Wednesday morning or the local garage that
deposits its weekly takings on a Friday afternoon. You get to know the ebb and
flow of trade in a branch and when you look down the daily transaction log; you
do not just see numbers, you see patterns of customers. This allows a
Postmaster to spot anomalies in a way that Post Office never could. An
experienced Postmaster will often have his or her own ways of quickly spotting
when something has gone wrong in the branch and putting it right.
178. Postmasters also have knowledge of how their branch runs in practice:
knowledge that Post Office does not have. They understand when they have had
busy trading periods that make mistakes more likely, or have had difficult
customers with complex transactions. They will know which assistants are more
reliable. They could know if their assistants are having any personal or financial
difficulties that might have affected their performance or created a greater risk of
theft. Small things, like rushing to close the branch early one evening to go to an
event or see your family, can increase the risk of errors. This is not unique to
Post Office but reflects the ordinary challenges of running a small or medium
sized business.
179
POL does not have?}
180. It is fair to say that small shortfalls or gains sometimes cannot be tracked down,
as in any business. For example, a simple mistake of handing over to a customer
a £10 note rather than a £5 note will be nearly impossible for either a Postmaster
or Post Office to spot after the event. Practically, I would not expect a
Postmaster to put much time into trying to discover the cause of a very small loss
or gain. However, if a Postmaster conducts their business responsibly and with
care, I am confident that they should be able to identify any substantial or re-
occurring problems, or at least localise them to a particular transaction, type of
transaction or member of staff so that a solution can be found. In this context, I
would consider a £XX shortfall to be at the kind of level that it would be worth a
Postmaster trying to work out, and I would expect him or her to succeed, but
AC_151034087_2 39
181.
182.
183.
184,
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
people will differ in the level of loss or gain that they will want to investigate
further. It would be surprising and hard to understand if a Postmaster, having
kept his accounts diligently, still had no idea where a material problem was
arising from. [Can you add any more context as to why a SPMR would normally
By contrast, it can be very difficult, if not impossible, to find the root cause of
shortfalls if the Postmaster has not kept regular and accurate accounts. I think
this would be obvious to anyone who thought about how a branch works and the
fact that only the Postmaster (and the assistants) are actually there, in
possession of the cash and stock and actually carrying out the transactions.
Multiple errors make finding a loss more difficult. It could be that two errors are
made in one day, a loss of £300 and a gain of £100, making it look like a net loss
of £200 at the end of the day. Disaggregating these types of errors can be done
on a small scale, but if not addressed for even a few days or weeks, they
compound and make it increasingly difficult to locate the underlying cause of
problems.
False accounting is a major problem when it comes to identifying and correcting
errors. As with any business where accounts are kept, there is a risk that the
book-keeper may make false entries to hide problems. Post Office has to trust
Postmasters to be honest. False accounting takes a number of forms, but the
simplest way is to declare that the business has more physical cash than it
actually has or to declare in the accounts that a shortfall has been made good
when in fact it has not been. These would both make the accounts look like they
are in balance (with no shortfalls or gains) when in the real world there is a
shortfall. Other types of false accounting include recording false debit
transactions so as to reduce the cash position recorded in the accounts in order
to bring it in line with the real cash position.
Save when opening new branches, closing branches and undertaking audits (see
paragraph XX), Post Office does not undertake a first-hand manual count of a
branch's cash. It only sees the accounts submitted by the Postmaster. It
generally does not know whether the Postmaster has submitted false entries or
not. False accounting causes two principal problems:
25 There are patterns of behaviour or transactions that could suggest a problem, for example, a
branch asking Post Office to send out more cash deliveries even though its declared cash position
in its accounts should be sufficient to cover its usual daily trading. These patterns only tend to
come to light after extended periods of false accounting.
AC_151034087_2 40
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185.
186.
187.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
184.1 It makes it very difficult, if not impossible, to know on what day an error
occurred because the falsified accounts will likely show that they were in
balance every day. It will likely not even be possible to tell from the
accounts when the false accounting started.
184.2 There is no way for Post Office to know which transactions in the
accounts are real transactions that are innocently incorrect and which are
intentionally false. False accounting therefore puts the entire set of
accounts under suspicion. It also means that Post Office can no longer
trust the Postmaster with its cash, stock or its brand.
False accounting could in theory happen, and not be discovered by Post Office,
for weeks, months or even years. This means that long periods of the accounts
may be subject to challenge, and genuine errors in these periods will have been
hidden from Post Office. This often makes it impossible for Post Office to
investigate retrospectively the root cause of problems at a branch where there
has been false accounting. Post Office is reliant on the honesty of Postmasters
for the network to function.
Post Office's position is that false accounting is always unacceptable. There is
also no need for it. It is perfectly possible for a Postmaster to always submit
accurate branch accounts; they just need to fairly disclose the shortfalls in their
accounts so that Post Office can then work with them to understand the cause of
a shortfall and whether the Postmaster is at fault for it.
or Alison Bolsover
TSREITOROSEEA
[Note to WBD: Please can we ask Paul Smi
Office factor in false accounting and errors in
Post Office's investigations into shortfalls
Post Office does not investigate every shortfall encountered at every branch.
With 11,000 agency branches conducting XX transactions per day, this would be
impossible unless Post Office hired [Rundreds/thousands] of new employees. [IS!
t rect? If POL to investigate LC shortfall in every cash dec,
how mai aff would be. l6d?]. Post Office's investigations of shortfalls in
branches tend to originate from three trigger events:
188.1 The Postmaster raises an issue with Post Office. This could be via a
number of routes including where the Postmaster contacts a helpline,
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when Post Office staff are on site at a branch or through a Postmaster's
line management.
188.2 There has been an audit of a branch by Post Office that has highlighted a
shortfall.
188.3 Post Office receives information about a transaction in a branch from a
customer or a client.
189. Where an issue is raised with Post Office, it can sometimes piece together what
may have happened by looking at secondary sources of information eg. Horizon
records, submitted paperwork, data from clients, information for customers, etc.
But none of this can replace the Postmasters first-hand experience. Post Office
therefore works with its Postmasters to help them understand what has happened
in their branch but it requires the cooperation of the Postmaster to do this.
190. There are lots of different teams who might "investigate" an issue at a branch and
this will depend on the nature of the issue and to whom it is reported:
190.1 Accounting and operational process concerns will usually by addressed by
the NBSC.
190.2 A lack of competence by branch staff may be addressed by a field
support team / trainer if the root cause was thought to be a training issue.
190.3 Suspected dishonesty or criminal misconduct will usually be investigated
by Post Office's security team.
190.4 Horizon Service Desk (operated by Fujtisu and now ATOS) would likely
investigate an suspected IT problems
190.5 Anything related to a specific product or client would likely go to the team
at Post Office responsible for that client or product.
190.6 Major issues that are potential breaches of contract will usually be
investigated through the Postmaster's contract manager 2ee the!
Witness Statement of John Breedon for more details on this.
190.7 Sometimes Postmasters (or their MPs) will write direct to the CEO and
the CEO's office may coordinate an investigation and response.
190.8 Threatened legal proceedings will get dealt with by Post Office's in-house
legal team or external solicitors.
AC_151034087_2 42
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192.
193.
194,
195.
196.
197.
198.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Most of these investigation routes (save for suspected dishonesty and threatened
legal proceedings) are conducted in cooperation with a Postmaster. They are not
adversarial processes
It is very much in Post Office’s interests to understand the source of
discrepancies so that everyone working in the network and its clients and
customers have confidence in the robustness of the network. Understanding how
discrepancies might arise also helps to drive improvements in training and
processes to minimise risk from human errors.
Sometimes, Post Office will audit a branch. The audit is a detailed check of
cash, cheques and stock on site by staff directly employed by Post Office. This
is one of the few occasions when Post Office will have first-hand knowledge of
the branch's cash and stock holdings.
The Subpostmaster is not usually given advance notice that the auditors will be
attending. One of the reasons for an audit is to reveal any dishonest practices
and this would be ineffective if a dishonest Postmaster was given sufficient prior
warning to cover up their actions (eg. temporarily transfer cash from the retail tills
to the branch tills to cover up branch losses).
The branch must be closed for the audit because the auditors need to work from
a static set of accounts that are not changing due to further customer
transactions. An audit is therefore disruptive to a Postmaster's business, but it is
a necessary disruption. A Subpostmaster is asked sign the auditor's findings. The
auditor will discuss any findings at that point in time so the Subpostmaster is
completely clear on the audit output.
When I was involved with the audit team between 2009 — 2012, it was carrying
out around 5000 audits a year. These were broken down into random audits, risk
based audits, special audits, branch transfer and compliance audits. Around 100
random audits are carried out each year.
The "risk based audits" were for branches which had been identified using a risk
model. The risk based audit system generates a list of between 50 and 100
branches [per month] that are potentially at risk of carrying a loss/funds at risk.
There are also "special audits" which were carried out when something does not
appear quite right. This is not through the risk profiling system and could come
from a myriad of sources: it may be from a conversation somebody has has with
a Postmaster, some intelligence Post Office has received from a client, a tip off
from a member of the public, customer or an assistant, through the NFSP or a
Police report of unusual activity at a branch [Any other éxamples?).
AC_151034087_2 43
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199.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
A similar process to an audit is also carried out when opening a new branch, so to
verify the opening levels of cash and stock, and when closing a branch, so to
verify the final accounting position. A transfer of branch from one Postmaster to
another could result in a close and open audit if there was a delay between these
two things happening.
Responsibility for shortfalls
200.
201.
202.
203.
Where a Postmaster is at fault for a shortfall, it is reasonable that he should be
held liable for that shortfall and should compensate Post Office for that loss. If a
Postmaster was not held so responsible he would lose an incentive to run his
branch properly. This would lead to mounting losses in the network, with
Postmasters, customers and clients taking the benefits of those errors and Post
Office suffering the consequences. In this situation, the network would become
financially unsustainable very quickly.
Postmasters are solely responsible for their branch accounts. There is no
transaction that enters their accounts without their consent (or their consent by
proxy through their assistants).”° This includes transaction corrections”’ issued
by Post Office, which must be accepted by the Postmasters before they form part
of the branch accounts. Postmasters have a variety of ways to contest any
shortfall. They should do so promptly and the usual route is via NBSC.
If there is a shortfall, the most likely cause is an error by the Postmaster given
that he has control over (a) the transactions conducted (b) the entries made in
the accounts and (c) physical control of the cash and stock in the branch. It is
therefore generally fair to assume that if a shortfall is declared then the
Postmaster is responsible for it.
It would be very arduous for Post Office if this assumption was reversed. If Post
Office had to positively prove every shortfall was the fault of a Postmaster, the
administrative burden would be massive. To put this in context, as at the date of
this statement, the level of declared losses by Postmasters that are outstanding
to Post Office is £XXX. See the Witness Evidence of Alison Bolsolver for more
details.
8 I dismiss here the groundless accusation about Post Office or Fujitsu maliciously editing branch
accounts — see paragraph KX
2” Previously known as Error Notices. [Note te
explanation of transaction corrections but this
D / Counsel: The evidence pla
yn would
applicants so is inadmissible. Should we still include this?)
AC_151034087_2 44
included I
not be available to Postmater
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
204. In any event, for the reasons set out in paragraphs XX to XX, the Postmaster is
best placed to investigate shortfalls and Post Office generally cannot find the root
cause of a shortfall without the Postmaster's cooperation. A reversal of burden
for determining the root cause of shortfalls would also create the perverse
situation whereby the greater the scale and sophistication of the false accounting
by a Postmaster, the less likely Post Office will be able to find the root cause of a
shortfall, and thus the more likely the Postmaster would not be held liable for that
shortfall. This would expose Post Office to uncontrollable losses.
D. IMPLIED TERMS
STATEMENT OF TRUTH
I believe that the facts stated in this witness statement are true.
Signed:
Date:
AC_151034087_2 45
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Filed on behalf of the: Defendant
Witness: Angela Margaret Van Den Bogerd
Statement No.: First
Date Made: 23 July 2018
Claim No: HQ16X01238, HQ17X02637 and
HQ17X04248
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ROYAL COURTS OF JUSTICE
BETWEEN:
ALAN BATES AND OTHERS.
Claimant
AND
POST OFFICE LIMITED
Defendant
WITNESS STATEMENT OF ANGELA
MARGARET VAN DEN BOGERD
WOMBLE
BOND
DICKINSON
Womble Bond Dickinson (UK) LLP
‘Oceana House
39-49 Commercial Road
Southampton
S015 1GA
Dx: 38877 Séuthaniptén 3
‘Our Ref: APG/IAR1/364065. 1369
Solicitors for the Defendant