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
1, 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
Subpostmaster and the operations of a Post Office branch. I also provide some
commentary on what the real-world effects of the Claimants’ proposed implied
terms would be.
INTRODUCTION...........
A. MY BACKGROUND................
B. POST OFFICE AS A BUSINESS.
Public ownership...
RROD
Commercial operating model......
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Network size and coverage
Brand....
Market change and competition..
Technological change................0
Client products and requirements...........
Regulatory requirements...
Change programmes...........
C. SUBPOSTMASTERS AND THEIR BRANCHES...
Subpostmasters' businesses...
Operating a branch..............0.
Assistants...
HOF iZON...... eee
Training...
Initial training.............
Assistants.
Further training.
Support for Subpostmasters....
Causes of shortfalls.
Reliance on Subpostmasters...
Responsibility for shortfalls..
STATEMENT OF TRUTH...
5. In this statement:
5.1 Paragraph references are to paragraphs in this statement unless
otherwise stated.
5.2 The term "Subpostmaster" is used to generally refer to agents of Post
Office who run branches, including subpostmasters, subpostmistresses,
postmasters and operators.
5.3 References to “all material times" mean from 1994 to present, unless the
context indicates otherwise. (Welvelmoved thisibadl ch the 1994
contract date - is this ok?
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A. MY BACKGROUND
6.
10.
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12.
13.
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 Subpostmasters.
I was a Branch Manager responsible for the 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 operational 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 Subpostmasters,
appointing the Subpostmasters, 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 maintaining the provision of Post Office services and the
operational 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 Subpostmasters, 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 operational and financial
management of 9,000 rural and 500 urban branches.
As National Network Development Manager between 2006 and 2009 I designed,
developed and deployed the process (known as the Network Change
Programme) to deliver 3,000 changes to the Post Office network (2,500 closures
and the establishment of 500 new type services). (Whatis’a new type Service?)
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
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for approximately 1000 agents/franchisees and employees and (d) 2000
recruitment and/or contractual interviews.
14. As Head of Network Services, I was responsible for maintaining the size and
reach of the Post Office network, including determining whether branches in new
locations were warranted.
15. 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).
16. 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 in-branch transactions.
17. As Director of Support Services between April 2015 and December 2016, I was
responsible for our helpline for Subpostmasters (NBSC), our customer helpline,
the Financial Service Centre (FSC), the Human Resources Service Centre
(HRSC), and also managing the Contractor Advisors and Contract Administration
teams.
18. From January 2017 until January 2018, I was the People and Change Director,
responsible for HRSC, Health and Safety and the Change Portfolio [What is the.
Ghahige portfolio?) across the organisation.
19. 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.
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. 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
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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.
22. Today, the ultimate 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 social 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.
23. It also means that Post Office is exposed to changing political sentiments.
Although BEIS does not exercise direct control of Post Office, it sets a tone of
engagement and political direction. A change of government or Secretary of
State at BEIS can therefore have an effect on Post Office's high-level priorities.
For example, in 2011 the coalition government led by David Cameron privatised
Royal Mail, leading to a change in the Post Office management structure. The
current Labour Party manifesto pledges to renationalise Royal Mail’ which would
likely bring further changes for Post Office. Post Office therefore needs to be
able to adapt its operations and commercial models in line with political changes.
? https://www.tescoplc.com/about-us/our-businesses/tesco-uk/tesco-in-the-uk/
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Commercial operating model
24.
25.
26.
27.
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. Nearly all 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 profitable overall. It made a
profit last year (2016/17) 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.
3 https /www.llovdsbankinggroup.com/media/media-kit/fags/lloyds-banking-group-fast-facts/
? https://www.tescoplc.com/about-us/our-businesses/tesco-uk/tesco-in-the-uk/
* Postal Orders are the only product fully "owned" and provided by Post Office.
5 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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28.
29.
30.
31.
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33.
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 as 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 Subpostmasters 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 47m transactions were undertaken in Post Office branches
every week, 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,
with a value of £XX. [Can we get these stats? Do we have a public source for
them? AVDB concerned about releasing this info - TBD]
The Post Office branch network has 17 million customer visits a week and this
footfall is driven by a wide range of services, both those provided on behalf of
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.
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 Subpostmasters. However, reducing Subpostmaster
remuneration too much would make the position of Subpostmaster 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).
This has led to Post Office using a number of different models of Subpostmaster
contracts.’ This is so that it can provide a commercially viable offering to
© Subpostmasters fees of £388m against trading costs of £978m: page 56-57, Annual Report
16/17.
7 See Witness Statement of Nick Beal for details.
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Subpostmasters across the wide range of constituencies that it serves, from
small rural communities, to competitive high street locations through to large
branches in urban centres. It also provides pop-up branches called "outreach
branches" that may be only temporarily open in a location 1 or 2 days a week but
provide valuable services to remote communities.
More often than not the interests of Post Office and Subpostmasters are aligned,
in the sense that a strong sustainable network is good for both, as is the success
of any particular branch. However Post Office needs also to look at the network
as a whole, and what might be good for the network as a whole might not be
good for some Subpostmasters 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
Subpostmaster's business has benefitted substantially from the ability to sell that
Client's products.
Network size and coverage
35.
36.
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:
35.1 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.
35.2 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
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within three miles of the nearest Post Office branch. In addition, the following
applies at a 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.
37. This requires Post Office to maintain a network that is larger than would
otherwise be commercially optimal, and is reflective of the public service
pressure on its business.®
38. 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
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
as reported to BEIS in April 2018:
[Note to WBD: Is this taken form the Network Report, in which case we should
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
® This obligation is documented in a letter from the UK Government to Post Office:
https:/Awww.gov.uk/government/publications/entrustment-of-post-office-with-the-delivery-
of-public-services-letter-from-ukgi-to-paula-vennells-2018
° This is publicly available — it is placed in the House of Commons Library and the Post Office
publishes it on its corporate website. ADDIINKITO!2017 REPORT
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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.
Brand
41.
42.
43,
0
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.
Post Office is one of the most recognised brands in the UK and is consistently
rated as a trusted and high quality brand by independent reports.'® Post Office is
deeply embedded in the hearts and minds of many local communities.
Subpostmasters are sometimes well-known to local residents, and problems with
a Post Office attract a higher level of attention in the local press than they 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 on [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
https://www.onepostoffice.co.uk/secure/latest-news/our-business/new-postmasters-
boost-business/on-the-business-of-mattering/?p=1
https://www.campaignlive.co.uk/article/aa-post-office-boots-named-uks-trusted-
brands/1289624 [HAVE WE GOT A BETTER LINK FOR THIS?)
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attractive to Subpostmasters. It is important that Subpostmasters 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 Subpostmasters).
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
Subpostmasters are found to take on branches that would otherwise close.
Market change and competition
46.
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 changes I am aware of to illustrate this.
46.1 Over the last [(70)years], there has been a steady decline in market share
for independent small convenience stores, which are a prime location for
a Post Office branch. More local shops are run by, or are franchises of,
large national chains. Post Office has therefore needed to make sure its
offering is attractive to large, sophisticated corporate businesses as well
as small independents. [Today allarder proportionate Of Post Office!
branches are sited in national retail chains than ever before. Correct?)
46.2 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.
46.3 From 2003, 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.
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For examples, Post Office branded mortgages are provided by Bank of
Ireland.
46.4 There has been a nationwide reduction in mail volumes. More
communications are delivered by email with less need to communicate by
letter. Traditional mail volumes have and continue to decline by 2-3% per
annum. 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?].
46.5 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 money in the Subpostmaster'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 4£14’million decrease (BD TO CONFIRM] in
turnover from Department of Work and Pensions contracts."
47. Consumer preferences have moved strongly towards online transactions over the
last 20 years. This trend is affecting all traditional "bricks and mortar" retailers
including Post Office. The growth of online transactions has 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. [If What Way?" HOW did) this!
impact postmasters?].
48. Post Office has also seen a rise in direct competitors and I provide a few
examples below.
48.1 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. In
"' Source?
® Page Ref?
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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.'?
48.2 The rise of FinTech and technology driven payment providers has
increased competition for financial product lines. Post Office now
competes against the likes of Paypal, Western Union and TransferWise,
in the overseas money transfers market, with more of these transaction
being conducted online rather than face-to-face in a branch.
48.3 The UK government competitively tenders some of its services. Recently
Post Office lost the Biometric Resident Permits service which was
awarded to Sopra Steria. As a result, from November of 2018 Post Office
will no longer offer this service.
49. In the future, Brexit will affect Post Office in ways that cannot be fully anticipated.
I can foresee the possibility of changes to a number of services provided by Post
Office including identity documents, travel insurance, foreign exchange
transactions and overseas mail.
Technological change
50. 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.
Subpostmaster
51. 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 [pensions
anid 'benefits S'both?] 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
* https://www.paypoint.com/en-gb/about/our-history
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Pensions and JP Morgan, 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
53.
55.
Post Office provides dozens if not hundreds of products and services to the
public."* The Post Office has approximately 130 Clients [Has'thi d?]
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. [NOTeITORIROGIIIMWENSAylthisiMRtethsmmayaaskifon
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.
RL
55.3 Historically, but at material times, customers were able to come into a
branch and cash a Giro slip. They handed over the paper Giro slip and in
‘4 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 KX
obviously distinguishable services offered at most Post Office branches.
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56.
57.
58.
59.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
return they received the amount of cash stated on the slip. Girobank'®
required Post Office to submit to it the Giro slip in order for Post Office to
recover payment from Girobank for the cash it had paid to the customer.
This required Post Office to design and implement a process in branch for
slips to be stored in branch and dispatched, via a delivery service, to
Girobank.]
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. (Angela I comfortable saying
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. [ROGMNDISCIOSUFEIFISK) Similar restrictions also apply to
Subpostmasters, 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 Subpostmasters.
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 mail products, cash withdrawals
and some types of bill payments. 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.
SEE product might I be ERED
particular, ATM as raised by Stubbs]
‘8 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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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Regulatory requirements
60.
61.
62.
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,
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. (ROGMNGiSclOsUrenish] “°
Change programmes
63.
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 Subpostmaster 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
Subpostmasters 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.
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65.
66.
67.
68.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
Outside nationwide planned closure programmes, Post Office very rarely gives
notice to terminate a Subpostmaster's contract because it wishes to close a
branch for commercial reasons. If a branch is closing for other reasons
(retirement of the Subpostmaster, termination for breach, etc.) it will generally
consider whether the branch is still needed in its current location and operating
model, but a decision not to re-open a branch in these circumstances is still rare.
Generally the pressure is the other way around: Post Office is keen to maintain
the size of the network and keep branches open.
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
Subpostmasters.
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 [What does this mean?).
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
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69.
70.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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 Subpostmasters away from fixed remuneration to variable
remuneration based on volumes of sales. [Why Was this change made?)
Were there branch closures and compensation «
Cc, SUBPOSTMASTERS AND THEIR BRANCHES
71.
72.
In this section, I explain the role of a Subpostmaster 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 Subpostmaster positions could reasonably
be expected to know, or to have found out, before being appointed as a
Subpostmaster.
[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 as to why Subpostmasters
would know this before they are appointed)
Subpostmasters' businesses
73.
By joining the Post Office network, Subpostmasters get access to a wide range of
benefits that would be very difficult for them to procure independently. The key
benefits are as follows:
73.1 Subpostmasters 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
Subpostmaster's retail offering and has the potential to increase the
profits on the retail side of the business.
73.2 IThe Subpostmaster gets a source of revenue in the form of remuneration
from Post Office. Subpostmasters 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
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remuneration. The Witness Statement of Nick Beal discusses
Subpostmaster's remuneration in more detail.
73.3. Subpostmasters 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.
73.4 Post Office provides the cash and stock needed to conduct transactions.
It does this on an unsecured basis" and therefore the Subpostmaster has
no working capital requirements for branch trading. I doubt that many
Subpostmasters would have the financial means to fund the working
capital for a Post Office branch.
73.5 Post Office provides the equipment, including IT equipment, needed to
conduct customer transactions and maintain the branch accounts,
including safes, mail scales, 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.
73.6 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.
73.7 Post Office is liable to customers if its products are defective or not fit for
purpose and provides customer helplines so that branches do not need to
field some queries. This reduces the liabilities of Subpostmasters and
helps save Subpostmasters’ time.
73.8 Post Office (or its Clients) are responsible for building legally compliant
processes. Subpostmasters get the benefit of Post Office's expertise in
doing this and Post Office or its clients bear the legal and regulatory risks
‘7 Where the Subpostmaster is a company, Post Office may require a shareholder or director
guarantee.
‘8 I note that this equipment can be recycled between branches so this is not a direct
investment in a specific branch by Post Office but part of the overall cost of operating
the network.
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74.
75.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
of non-compliance so long as a Subpostmaster follows the stipulated
practices.
The first factor is a major (and in many cases the dominant) reason why people
become Subpostmasters. 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 small
or medium sized branches that had no associated retail offering.
When taking on a branch, the Subpostmaster will have some costs and capital
outlay. These include the following:
75.1 The Subpostmaster 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.
75.2 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.
75.3 The Subpostmaster 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
John 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.
75.4 A Subpostmaster may incur some time / salary costs in recruiting and
training assistants when opening a new branch. These are ordinary
business costs. For Subpostmasters taking on existing branches, it is
likely that the incumbent staff of the outgoing Subpostmaster will transfer
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76.
77.
78.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
to the new Subpostmaster, so in some cases there will be no recruitment
or training costs at all.
75.5 [Anything €isé?)
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
Subpostmaster’s remuneration for the first year and so was not a capital outlay.
(CORRECT?)
One allegation made in these proceedings is that the Subpostmaster 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 Subpostmaster cannot "sell" a branch
because it is not a saleable asset. The Subpostmaster 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 Subpostmaster's contract is terminated. Often a temporary
Subpostmaster’® 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 Subpostmaster's retail unit. Often the buyer of
a retail unit will make the acquisition conditional on the buyer being appointed as
Subpostmaster. The combination of these factors means that the value of the
business is usually preserved, and initial capital outlays recovered, even if the
Subpostmaster is terminated.
Their investments are also not long-term. Most Subpostmasters 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 Breeden 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.
*® See the Witness Statement of Nick Beal for more information on temporary Subpostmasters
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79. 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).*° Having appointed, spoken to and
worked with Subpostmasters for many years, I understand that when they are
considering joining Post Office, they 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.
80. Further, an incoming Subpostmaster will be aware of the above before they enter
into a contract with Post Office and therefore can pull out if they do not like the
risks or might look to renegotiate the price they will pay for acquiring the outgoing
Subpostmaster's business to reflect these risks. See the Witness Statement of
John Breeden for more details.
81. In addition to the commercial advantages, the role of a Subpostmaster also offers
a lot of choice and flexibility. Most of the Subpostmasters 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:
81.1 Being able to hire assistants (see paragraph X in relation to assistants).
This allows each Subpostmaster to strike their own balance between
working in the branch and delegating that work to others.
81.2 It is possible for a Subpostmaster to completely delegate responsibility to
an assistant to run the branch, with the Subpostmaster being absent.
Some Subpostmasters 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 Subpostmasters treat the branch as nothing
more than a financial investment and may have multiple businesses,
including potentially as a Subpostmaster of multiple branches.
81.3 Subpostmasters are free to allocate responsibilities within the branch.
Subpostmasters could treat all assistants equally or could have a
hierarchy with more senior staff supervising junior staff. In larger
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82.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
branches, assistants may have designated roles e.g. just doing mail-work
or having authority to cash up and submit monthly accounts.
81.4 Subpostmasters 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.
‘Subpostmasters 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
83.
85.
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 Subpostmaster 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 Subpostmaster's possession. It is for these reasons that
Subpostmasters are agents of Post Office, rather than franchisees who would
trade with their own cash and stock and be directly liable to customers for those
transactions. Subpostmasters are generally required to keep Post Office cash
and stock separate from their retail cash and stock [I8"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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86.
87.
88.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
captured, recorded and dispatched (digitally or physically) in relation to each type
of transaction.
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.
For example, if a customer pays an £80 utility bill by cash then, if entered
correctly by the Subpostmaster, 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 Subpostmaster 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, the receipt of £80 in cash
and, if the Subpostmaster has done the transaction correctly, he should have £80
in the till. A similar allocation of responsibility exists for all transactions, with the
Subpostmaster being responsible for keeping his end of the transaction records
accurate, namely the branch accounts. Put! Simply," the "Subpostmaster's’
responsibility is to ensure that the physical movement of cash and stock over the
branch counter is reflected in the branch accounts.
Post Office reconciles transaction data recorded in branch with corresponding
transaction data from clients, where available and appropriate to do so. If a
discrepancy is identified, it may send a "Transaction Correction" to the branch
through Horizon.*? The Transaction Correction only enters the branch accounts
when accepted by the Subpostmaster. This means that the Subpostmaster has
complete control over the branch accounts and transactions only enter the branch
accounts with the Subpostmaster's knowledge.”
21 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
2 These were previously called Error Notices. Transaction Acknowledgements work on a
similar principle.
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89.
90.
91.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
The accounting system was designed to separate the Subpostmaster's branch
accounts from the client side of the accounts, with the only connection back to
the branch accounts being Transaction Corrections, over which the
Subpostmaster exercises control. This means that, in theory, a diligent
Subpostmaster can keep a perfectly accurate set of accounts without any input
from Post Office, without Post Office effecting the underlying transaction with the
client or customer and without any information from the client.
The alternative, that Post Office has to effect all client transactions for the branch
accounts to be accurate and then, as a necessary consequence, provide
Subpostmasters with access to all client data, would be completely unworkable.
90.1 The sheer volume of branches (11,000) and transactions (43,000,000 per
week) would require a very significant effort just to get the correct data to
the correct branch.
90.2 It would undermine one of the key benefits of the Subpostmaster
relationship — that Post Office handles all this on behalf of the
Subpostmaster.
90.3 It would make Post Office's management of its Client relationships
impossible. All commercial supplier relationships involve a degree of
ongoing negotiation, variation and compromise. If every change to a
relationship needed approval by Subpostmasters because it might affect
their branch accounts, those relationships would fail.
90.4 ‘It would be contrary to the overall scheme of the Subpostmaster
relationship. Nobody at Post Office would say that it effects transactions
for Subpostmasters or that Post Office acts as the agent of
Subpostmasters in recording and processing transactions.
Post Office's operating rules require a Subpostmaster to submit the branch's
accounts to Post Office at regular intervals. This used to be done weekly, but it
is now every 4 or 5 weeks (called a Trading Period). This is now all done online
through Horizon. In submitting the accounts, the Subpostmaster 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
Subpostmaster in a given period. Should the actual cash on hand be less than
the cash position recorded in the accounts by the Subpostmaster, there will be a
‘shortfall’ of cash. If the opposite is true, there will be a ‘surplus’ of cash. In this
way, any surplus or shortfall is declared by the Subpostmaster and not Post
Office.
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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
Subpostmasters to run their businesses as they see fit.
92.
92.1
92.2
92.3
Assistants
93.
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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 - at a guess, I would say around
five times more staff than they currently have doing this work. The cost
would be massive.
The rules however cannot be too prescriptive as this could put an undue
burden on Subpostmasters. An operational change can cause more or
less labour time to be needed in branch, which has a direct impact on a
Subpostmaster'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 Subpostmasters may decide to go further. A good example
of this is whether Subpostmasters undertake more accounting checks
than are required by Post Office. A small branch run by a single long-
serving and experienced Subpostmaster 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, 4 assistants and 2 customer serving positions, which is
suffering from repeated shortfalls, may decide it necessary to do a full
cash and stock count every day or week.
Subpostmasters are allowed to employ staff, known as assistants, to conduct
Post Office business on their behalf. Subpostmasters are free to decide how
many people to employ (if any), who to employ, for what working hours and in
what roles. Subpostmasters are responsible for assistants' wages and set their
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95.
96.
97.
98.
99.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
salary levels. Subpostmasters are responsible for taking disciplinary action,
dismissals and all the legal requirements that come with being an employer.
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.
Subpostmasters are required to register assistants with Post Office. However,
Post Office cannot accurately know how many assistants are active in the
network because:
95.1 Post Office is not present in branches so cannot monitor first-hand who is
serving customers or handling Post Office cash and stock.
95.2 Some Subpostmasters do not register assistants. Post Office relies on
Subpostmasters to do this, rather than itself trying to monitor the position
(which would be impracticable).
95.3 Even if an assistant is registered that does not mean that they are
actively working in a branch.
It is therefore not possible to accurately state how many Subpostmasters are
actively employing assistants to work in branches at any one time. In my
experience, only in very small branches would the Subpostmaster 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 //pérson], there are currently
XX ‘active’ assistants registered with Post Office.
In the above section on “operating a branch", any reference to actions in branch
by Subpostmasters could also be actions by assistants. Subpostmasters are free
to delegate as much or as little of the branch work to an assistant as they see fit.
It is for the Subpostmaster to decide 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.
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
Subpostmaster. For example:
99.1 If a Post Office decides an assistant should be dismissed, any resulting
grievance or tribunal claim would be against the Subpostmaster as
employer. Post Office could not therefore sensibly exercise those
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
dismissal powers (which are the ultimate sanction for poor performance or
gross misconduct by an assistant).
99.2 If Post Office were to compel mandatory training for an assistant, he or
she would generally be entitled to be paid by the Subpostmaster for that
period of training. The Subpostmaster 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 Subpostmaster 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.
99.3 Post Office does not know what, if any, supervisory regime the
Subpostmaster has put in place. It may be that the Subpostmaster is
closely supervising his staff, on the one hand, or providing no supervision
at all (in the case of an "absentee" Subpostmaster), on the other hand.
Subpostmasters 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.
100. Post Office may offer advice to Subpostmasters in relation to their assistants but
the only circumstance in which it would get actively involved is when an assistant
has acted dishonestly or failed vetting checks. Post Office may then require the
Subpostmaster 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 Subpostmaster.
101. From my experience, I would say that, in reality, the only commercially
sustainable arrangement is for Subpostmasters 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.
Horizon
102. 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 Subpostmaster to be aware of this information or to
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103
104.
105.
106.
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be provided with this level of information if he or she requested it during the
application process. [PI6asé feel free to amend below as appropriate]
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.
The system keeps a record of transactions and allows easy access to that
information. It automatically generates the branch accounts 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 Subpostmasters and Post Office time, and cost,
by automating these exercises. In my experience, the introduction of Horizon
substantially reduced the burden on Subpostmasters in respect of preparing,
maintaining and submitting accounts.
Horizon also allows transaction information to be quickly filtered and sorted,
giving the Subpostmaster 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 Subpostmaster had to interrogate various paper records.
Originally, a branch user could look back through 42 days of transaction data but
now it goes back 60 days. Having spoken to my colleagues in Post Office's IT
team, this date range was set so to strike a balance between giving the
Subpostmaster the ability to review recent transactions (noting that they should
be completing their accounts every 4-5 weeks) and keeping down the cost of
holding very large volumes of transaction data in a live and readily accessible
database (as opposed to cheaper long term secure storage). I am told by Post
Office's IT team that to keep years of transaction data in a live database, directly
accessible by branches, would be very expensive, technically challenging and
create information security risks. Also, this information will be irrelevant for
nearly all branches most of the time, because they will have little need to look
back further than the last trading period as their accounts should be balanced
within the 4 or 5 week trading period. The only exception is where there is a
Transaction Correction, but this will relate to a particular transaction or group of
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107.
108.
109.
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transactions noted on the Transaction Correction and targeted information can be
provided as required without the need for providing months or years of historic
transaction records. [Angela 2"ean!\youl/Say"this?] [DC: was such “targeted
information” provided with Transaction Corrections provided after the (say) 42
days — or did this have to be requested by the PM ? Either way, I think we should
make the position clear].
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
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. In light of this inevitable risk, which exists in any IT system, Post Office
provides helplines and support manuals so that users can get guidance on how to
deal with issues. The helpline for IT technical support is known as Horizon
Service Desk (HSD).
No-one truly expects an IT system to be perfect but they would expect it to be
robust and for Post Office to have in place reasonable processes for detecting
and correcting any problems. I believe that my view of Horizon is held by the vast
majority of Subpostmasters in the network. The NFSP has publicly supported
Post Office's view that Horizon is robust.”* I would therefore expect any applicant
for the position of Subpostmaster, who has done a reasonable level of due
diligence or spoken to other Subpostmasters or Post Office, to have a similar
view about Horizon when they took on the role of Subpostmaster.
Training
110.
sven eames aaa
The aim of training is to equip the Subpostmaster 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:
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111.
112
113.
114.
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110.1 It reduces the chance of an accounting or cash / stock handling error in
branch, thereby reducing shortfalls.
110.2 Its helps deliver a better customer experience, thereby improving the
Post Office brand and the prospects of the whole network.
110.3 It helps ensure consistent practice across the network.
110.4 It may reduce the amount, and therefore cost, of other support needed by
Subpostmasters (eg. calls to the NBSC helpline).
110.5 It avoids the cost of having to repeat training.
110.6 It may reduce other costs at Post Office (eg. back-office processing of
transaction corrections; handling customer complaints, etc.).
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.
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
operations, otherwise significant cost could be wasted in delivering training when
there may be better solutions.
Initial training
One common feature of Post Office's training was that at all material times initial
training was offered to new Subpostmasters. This has evolved in line with the
changing size of the network, the costs of providing training and the mix of
products offered in branches and improvements in technology. The general
pattern has been a move away from only in branch training to classroom and in-
branch based training and now to a training and on-boarding approach that starts
with online training; then classroom training, followed by on-site in branch training
with follow-up visits.
Not all 'new' Subpostmasters needed training. A Subpostmaster may choose not
to attend training, or only attend part of a training session if, for example, he or
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she has worked in a branch previously and therefore already knows how to
Operate Horizon and carry out transactions. Some may already been
Subpostmasters 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 Subpostmaster there may take the view that there is little need for them
to know how the branch operates. For those Subpostmasters 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.
115. No matter the method of delivery there are some core features that have always
been covered in initial training programmes:?°
115.1 How to conduct basic transactions.
115.2 How to deal with remittances of cash and stock in and out of the branch.
115.3 How to make daily cash declarations and submit the weekly / monthly
accounts.
115.4 How to declare, investigate, make good and dispute shortfalls.
115.5 How to process and / or dispute transaction corrections.
115.6 How to get further advice and support.
116. I set out below a short summary of how initial training was delivered over the
years. This reflects the standard training that most Subpostmasters received but
there would be exceptions and variations from this due to individual
circumstances eg. very remote branch, Subpostmaster was ill during training, etc.
117. 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 greatly reduced due to car tax
now being done online. Post Office would come back on site to help the
Subpostmaster complete his first two sets of accounts that were due to Post
Office — known as "follow-up balances".
» Source this please in relevant documents?
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118.
119.
120.
122.
123.
124.
125.
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From 2001 to 2002, classroom training was offered to new Subpostmasters
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 Subpostmasters (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 Subpostmasters 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 Subpostmaster, 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 Subpostmaster will be sent a link to the online
training that they access on their own device eg laptop. The online training is
interactive 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 Subpostmaster has a variety of methods to take in the
training, namely online, classroom and on-site.
Assistants
The training for Subpostmasters 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.
Before Network Transformation, if there was space on an initial training course it
would sometimes be suggested that the Subpostmaster bring their assistants with
them to utilise the spaces on the course. With the new Mains and Local contracts
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126.
127.
128.
129.
130.
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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]
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
If the trainer has any concerns about the competence of a Subpostmaster
following their initial training, they may arrange further training for the
Subpostmaster.
After this point further training can be provided to Subpostmasters 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 Subpostmaster. It could be that the
Subpostmaster is absent from the branch and requires no training at all. It could
be that the Subpostmaster 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 Subpostmasters (or an assistant's) training needs.
Where a specific concern has been reported by a Subpostmaster 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 Subpostmasters”® because this training also comes at a cost to them,
in that it takes up their time. Most further training is therefore request driven,
where a Subpostmaster 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 as this would be an inefficient use of resources.
Instead it would more likely issue new instructions and user guides. Further, it
may be disruptive to a branch to enforce mandatory training when a
Subpostmaster may be comfortable dealing with the new product.
8 Save maybe in circumstances where there have been breaches of contract and Post Office
requires a Subpostmaster to undertake further training as a condition of it not exercising its
termination rights.
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Support for Subpostmasters
[Note to WBD / Counsel: Is this section admissible?] TO BE SHORTENED
131.
132.
133.
134,
135.
Some Subpostmasters 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 Subpostmasters 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 Subpostmasters that require regular or pro-active intervention and it is those
types of Subpostmaster 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 Subpostmasters, 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
Subpostmaster, 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 Co Ee
How do we square this with above statements on Post Office no being present in
banch?]
Around 1995 Post Office started to centralise its business. As part of this, in
around 1999, Post Office set up a helpline for Subpostmasters. This was
because improvements in technology made it more cost-effective to run a
telephony support service [60rect Of Was there another reason?) than provide
each Subpostmaster 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 it known as" a) the!
NBSC before this?]
It was important that Subpostmasters 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
* Source?
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136.
137.
138.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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.
Even if the Subpostmaster 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 Subpostmaster.
As the Area Manager role became more focused on business development and
sales, NBSC became the primary point of contact for Subpostmasters seeking
support on operational questions. NBSC is dealt with in more detail in the
Witness Statement of Kendra Dickinson.
In [year], Contract Advisors were introduced. Contract Advisors were responsible
for managing the contracts of Subpostmasters 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
139.
140.
141.
When becoming a Subpostmaster, 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.
Mis-key. If a Subpostmaster 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 shortfall of £9,000 for the branch.
The same thing would sometimes happen with paper records.
Mixing retail and Post Office business. Generally, a branch will maintain a
physical separation between retail and Post Office cash. Subpostmasters 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
* Can we cite an industry report on retail shrinkage?
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142
143.
144,
145.
146.
147.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
become difficult to track the amount of cash that should be allocated to the Post
Office and retail sides.
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.
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.
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.
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.
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 but historic 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
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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.
148. 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.
149. 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.
Reliance on Subpostmasters
150. Post Office is not present in branches, except when its staff are on site providing
training or support or conducting audits. It does not have first-hand knowledge
of:
150.1 The interaction between the Subpostmaster and the customer, what was
said or what was handed across the counter.
150.2 Whether the Subpostmaster entered a transaction correctly on Horizon.
Post Office only sees what was recorded by Horizon and what may be
communicated to it by Clients and customers. It does not know whether
that entry accurately reflects the transaction that actually happened.
150.3 Whether the correct related paperwork is completed for certain
transactions (eg. endorsing backs of customer cheques with the
transaction details).
151. Because of this lack of first-hand knowledge and direct control, Post Office relies
on Subpostmasters to accurately conduct and record transactions undertaken in
their branches. This is important because:
151.1 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 potentially creating a
loss to Post Office.
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151.2 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.
151.3 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.
151.4 Subpostmasters are remunerated by reference to the transactions
completed in branch.
152. [In what other ways is Post Office reliant on Subpostmasters doing their jobs
Properly?]
153. Post Office sets minimum requirements for accounting checks 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
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.
° 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
Subpostmaster 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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154. 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 Subpostmaster.
155 The problem is exacerbated when looking at weekly or monthly accounts. An
average branch conducts XX! transactions per day, or Xx transactions per week
Or XX transaction permonth. As the period of time extends so does the pool of
data and thus finding a problem transaction becomes more difficult.
156. 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 Subpostmaster 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.
157. 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.
158. 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
Subpostmaster to spot anomalies in a way that Post Office never could. An
experienced Subpostmaster will often have his or her own ways of quickly
spotting when something has gone wrong in the branch and putting it right.
% Assuming that there are 26 trading days in a month
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159. Subpostmasters 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. Subpostmasters’ own
risk for tolerance for errors will be important: some will want their accounts to
balance to the last penny every day; others will be happy to allow small losses to
rollover for a period of days without any investigation. This is not unique to Post
Office but reflects the ordinary challenges of running a small or medium sized
business.
/ other informat
that POL does not have?)
that the Subpostmaster has about the cause of
160. It is fair to say that small shortfalls or surpluses 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
Subpostmaster or Post Office to spot after the event. Practically, I would not
expect a Subpostmaster to put much time into trying to discover the cause of a
very small loss or gain. However, if a Subpostmaster conducts their business
responsibly and with care, I am confident that they should be able to identify any
substantial or reccurring 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 Subpostmaster trying to work out, and I would expect him
or her to succeed, but 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
161. By contrast, it can be very difficult, if not impossible, to find the root cause of
shortfalls if the Subpostmaster 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 Subpostmaster (and the assistants) are actually there, in
possession of the cash and stock and actually carrying out the transactions.
AC_151448389_1 41
162.
163.
164.
165.
Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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
Subpostmasters 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 Subpostmaster. It
generally does not know whether the Subpostmaster has submitted false entries
or not.*? False accounting causes two principal problems:
164.1 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.
164.2 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 Subpostmaster 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
* 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_151448389_1 42
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
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
Subpostmasters for the network to function.
Responsibility for shortfalls
166. Where a Subpostmaster 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 Subpostmaster 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
Subpostmasters, 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.
167. Subpostmasters 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 Subpostmasters before they form
part of the branch accounts. Subpostmasters have a variety of ways to contest
any shortfall. They should do so promptly and the usual route is via NBSC.
168. If there is a shortfall, the most likely cause is an error by the Subpostmaster
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, and not disputed,
then the Subpostmaster is responsible for it.
169. 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 Subpostmaster,
the administrative burden would be massive. It would also potentially require a
disproportionate amount of effort to be put into proving very small losses in
branches, which to a single branch may be immaterial, but across 11,000
branches could add up to significant losses. To put this in context, as at the date
of this statement, the level of declared losses by Subpostmasters that are
outstanding to Post Office is £XXX.
® I dismiss here the groundless accusation about Post Office or Fujitsu maliciously editing branch
accounts — see paragraph KX
% Previously known as Error Notices. (Note! t6I WBD Counsel: The’ évidehee’ plan incluided’'anI
explanation of transaction corrections but this n would not be available to Postmater
applicants so is inadmissible. Should we still include this?)
AC_151448389_1 43
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Claim No: HQ16X01238, HQ17X02637 and HQ17X04248
170. In any event, for the reasons set out in paragraphs KX {6 XX, the Subpostmaster
is best placed to investigate shortfalls and Post Office generally cannot find the
root cause of a shortfall without the Subpostmaster'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 Subpostmaster, the less likely Post Office will be able to find the root cause
of a shortfall, and thus the more likely the Subpostmaster would not be held liable
for that shortfall. This would expose Post Office to uncontrollable losses.
STATEMENT OF TRUTH
I believe that the facts stated in this witness statement are true.
Signed:
Date:
AC_151448389_1 44
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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
Gi
Dx: 38517 Sauthainpten's
(Our Ref: AP6/IAR1/364065,1369
Solicitors for the Defendant