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uy
Batten Peter (ShEx)
From: Wilson Katharine (ShEx)
Sent: 25 November 2011 17:16
‘To: Gibson Will (ShEx); Hoy Jane (ShEx); Whitehead Mike (ShEx); Batten Peter (ShEx); Wake
Katie
Ce: Storey Susannah (ShEx); Lowe Roger (ShEx)
Subject: FW: Horizon computer system
Attachments: Horizon BBC Insight Out final Nov 23 2011.doc
Hi
You may already have this information, but in case you don't, see attached and below.
Thanks
Kat
Katharine Wilson I Royal Mail Team I Shareholder Executive I Departmer
] 1 Victoria Street, London, SW1H OET I
www.bis.gov.uk
BIS - working together for growth
From: David Simpson [mail
Sent: 25 November 2011 1:
To: Lowe Roger (ShEx); Wilson Katharine (ShEx)
Cc: James Mitchell
Subject: Horizon computer system
Roger, Katherine — here is the statement we are using with the BBC Inside Out
programme in East Anglia. We expect them to screen an item about the system on
Monday evening.
Have a good weekend,
David
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24/09/2012 -_ Dow
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Statement
“The Post Office is fully confident that the Horizon
computer system in its branches, and all the accounting
processes around it, enable subpostmasters to account
accurately for the transactions and balances they record.
“The system has been operating for over ten years. In that
time, thousands of subpostmasters will have used it in
performing many millions of successful weekly and monthly
financial reconciliations between the cash they have in the
office and the transactions they have handled. The Horizon
system has been rigorously tested. The National Federation
of Subpostmasters, which represents subpostmasters
throughout the country, has expressed its full confidence
in the accuracy and robustness of the system.
“All three cases that Inside Out has raised have all had
their contracts terminated following the most thorough
investigations by the Post Office. In two of the cases this
was three years ago; in the other it was 18 months ago.
They include a case where there was a subsequent guilty
plea in Court to a charge of theft and three cases of false
accounting, The Post Office has a duty to the tax payer to
ensure that individual branches properly and fully account
for the Post Office funds in their possession,.™
Specific Cases Mentioned.
Mr Ward - Rivenhall.
Mr Ward was suspended in September 2008 following an audit
that identified a significant shortage in his account. The
shortage was investigated meticulously and this led to Mr
Ward’s contract for services being terminated in November
2008. Mr Ward appealed against the termination, but after
the full application of Post Office Ltd's procedures for
such appeals (which are agreed with the National Federation
of Subpostmasters), the decision was upheld.
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Post Office Ltd is fully satisfied that the Horizon
accounting system merely recorded the data entered by Mr
Ward and his staff. The audit revealed a shortage of funds
compared to what the information entered into Horizon
indicated should have been there. There is absolutely no
evidence whatsoever to suggest the losses were down to
“computer error.”
Mrs O'Dell - Great Staughton
Mrs O’Dell was suspended on January 2010 following an audit
that discovered certain discrepancies. The situation was
investigated and Mrs O’Dell’s contract was terminated after
the full and proper procedures, including a right of
appeal, had been undertaken. There is absolutely no
evidence that the Horizon system contributed to the losses
and Post Office Ltd remains fully satisfied that the system
is robust and fit for purpose.
Mr Warren - Castle Hedingham
Mr Warren’s contract with the Post Office was ended in June
2008 after a large shortage of funds was discovered at an
audit. The Post Office followed all the appropriate
investigative and contractual processes before ending the
contract. Mr Warren pleaded guilty on 30 March 2009 to one
charge of theft and three charges of false accounting. On
2nd November 2009 at Chelmsford Crown Court, Mr Warren was
sentenced to nine months’ imprisonment suspended for 18
months, with an unpaid work requirement of 75 hours.
We note that you state that Mr Ward and Mrs O'Dell say that
they have taken their cases to Shoosmiths solicitors. We
have received no information or documentation from
Shoosmith’s with respect to any civil claims being made
with respect to these particular branches, and the Post
Office believes there is no contractual (or other) basis
for such claims. If we were to receive any civil legal
claims in respect of these cases, the Post Office would
vigorously and fully defend its position. We are fully
confident in our position that the Post Office and its
systems have operated properly, accurately and fully
appropriately for an organisation that handles significant
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amounts of public money, and that the Post Office has
acted fully in accordance with our business contracts with
the parties concerned.
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Additional specific questions asked by Maggie Dolan on 22
November
1. One of the case studies says that the Post Office does
not allow independent scrutiny of the Horizon system. Is
this the case?
Horizon and the Post Office systems environment have always
been subject to external scrutiny for both assurance and
accreditation purposes. Ernst & Young carry out an annual
financial systems audit; an independent auditor also
carries out a yearly audit to maintain the system’s Payment
Card Industry (PCI) accreditation. The system and its data
Centre are ISO 27001 accredited which requires an annual
audit from an independent agency. Horizon is also
accredited by HSBC Payment Services and WorldPay (Post
Office’s Merchant Acquirers) and must comply with the
VocaLink standard for card payment transactions. In
addition to these regular audits, ad hoc independent audits
of the system are initiated by Royal Mail Group and
supported by the Post Office.
2. Have you identified any operational faults with Horizon
or other systems and processes that interface with it which
could be behind some of the shortfall problems sub-
postmasters have had?
No - the integrity of the Horizon system is sound.
3. Could you give me a timescale as to when you are likely
to answer the questions put to your Managing Director Paula
Vennells by the Government about complaints made about the
Horizon system?
We assume you are referring to a number of Parliamentary
Questions raised by Mike Weir MP to which Post Office Ltd
are in the process of responding. These are not questions
that have been asked by Government, they are questions
asked by an MP and as they refer to an operational matter,
the Government has said that Post Office Ltd will reply.
This is in line with normal procedural practice.
4. As the operational responsibility for the Horizon system
rests with the Post Office, is there anything wrong with
it?
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“The Post Office is fully confident that the Horizon
computér system in its branches, and all the accounting
processes around it, enable subpostmasters to account
accurately for the transactions and balances they record.
The system has been operated successfully for ten years by
thousands of subpostmasters who handle millions of
transactions every day. The National Federation of
Subpostmasters, who represent subpostmasters, has expressed
its full confidence in the accuracy and robustness of the
Horizon system.
General Background
The Horizon system has been operating for over ten years.
In that time over 20,000 different subpostmasters will have
used it in performing many millions of successful financial
reconciliations between the cash they have in the office
and the transactions they: have handled.
For the tiny fraction who have not been able to reconcile
their cash and transactions, there are tried and tested
systems of checking, auditing and following up to determine
what has happened. For example, transactions might have
been miskeyed (writing 100 instead of 10), a clerk might
have handed out too much change, a clerk may have forgotten
to take the money for the transaction, there may even have
been rare instances of fraud by a customer. These checking
and auditing systems resolve virtually all discrepancies
satisfactorily. These discrepancies are caused by the same
kind of small day-to-day mistakes and human errors that any
large bank or retailer would experience.
In a extremely small number of cases after all these checks
have been undertaken, there remain significant missing sums
that can’t be accounted for. In such cases the Post Office
may take action to end the subpostmaster’s contract as
public money is entrusted to the Post Office and it is
vital that everything is fully accounted for. If
significant money is missing - either as a result of lack
of sufficient competence by the subpostmaster or their
staff or, in extreme and very rare cases, as a result of
dishonesty -it is not appropriate for that subpostmaster to
continue to operate the branch, and the Post Office will
seek to appoint someone new to take over.
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There have been a limited number of cases where Court
Action has been taken over missing sums of public money.
In some of these cases, the subpostmaster has made
allegations against the Horizon system that records their
transactions. The Courts have consistently upheld the Post
Office position that the Horizon system is accurate and
reliable. When former subpostmasters have been convicted of
false accounting and/or theft, it is, of course, the Courts
that have convicted, not the Post Office. In some cases,
the subpostmaster pleaded guilty; in others the Post Office
had to provide robust evidence to support the Crown’s case.
A criminal court will only convict an individual if it
considers that the evidence has shown, beyond reasonable
doubt, that the individual is guilty of the offences with
which they have been charged.
The Post Office takes meticulous care to ensure that the
Horizon computer system in branches nationwide is fully
accurate. Tens of thousands of Post Office branches have
used the system to reach financial reconciliations without
difficulty.
° The Post Office is fully confident that the Horizon
computer system in its branches, and all the
accounting processes around it, are absolutely
accurate and reliable.
® The Horizon system has been rigorously tested using
independently-assured, robust procedures. The Horizon
information security processes meet the relevant
industry standards which apply to such organisations
as banks and building societies.
*® Subpostmasters are given fully appropriate training,
typically including classroom training and further
time on site under close supervision and guidance from
a Post Office manager. Subpostmasters can also ring a
dedicated helpline for advice.
e The Horizon system has operated successfully for over
10 years across the Post Office network, which
currently stands at more than 11,500 branches.
e The National Federation of Subpostmasters, which
vigorously represents the views and interests of
subpostmasters around the entire country, has gone on
record on a number of occasions to express its full
confidence in the accuracy and robustness of the
Horizon system.
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¢ The Horizon system provides detailed records of every
transaction, no matter how small or large, in any
individual Post Office branch. Separate records of all
key strokes in the system are stored in a tamper-proof
way.
e The Post Office handles large sums of public money as
well as the money entrusted to it by the 20 million
people who visit our branches each week. The Post
Office rightly makes every effort and takes all
reasonable steps to protect the money in its care.
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Information about document “Losses and Gains Quick Guide
for Crown Managers
There is no suggestion whatsoever in this document to
support the assertion that losses are due to the Horizon
system. In fact, the document that you have identified is
an internal management document covering managerial
processes at the branches — Crown branches - that Post
Office Ltd directly operates. The document refers to the
2007/8 year - a time when there were 405 Crown branches.
These are typically very large city centre locations
employing significant numbers of staff and having a high
number of serving positions (typically around 10 per
branch) and handling around 20% of the total business
across the entire Post Office network.
The document covers the kinds of good managerial practice
that any large company handling significant amounts of cash
{such as the banks) would apply.
You draw attention to the stated figure of Crown Office
losses in 2007/8 amounting to £2.2m.
It is important to be clear about what this figure referred
to. The figure represents an end-of-year snapshot on the
total cases where clerks have not reconciled the cash and
stock (stock here includes value items such as stamps)
against the transactions that they have undertaken. This
can occur for a number of reasons. The clerk may have
recorded the transaction incorrectly (saying they paid out
£10 instead of £100); they may have made a mistake when
dealing with the customer (giving £10 change instead of
£5); they may have given out the wrong stamps (a First
Class instedd of a Second Class, two stamps instead of
one); they may have miscounted the amounts that a customer
has paid in; they may have neglected to retain the
transactional supporting document; there may be examples of
fraudulent activities by the customer (forged documents); a
clerk may lose stamps or cash (falling behind a cupboard
etc); there may be cases whereby the clerk enters all the
details of the transaction, serves the customer but then
forgets to take payment from the customer — in most cases
the customer would point this out but there are some who
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just walk off! In very rare cases there may be actual
dishonest activity by a member of staff.
As a result of all the above it is quite feasible for there
to be both losses and gains when the clerks’ tills are
reconciled. This is a situation that can and does occur in
any bank or indeed is a situation any retailer which
handles millions of transactions per week may experience.
The document shows the sensible managerial practice and
checks that any responsible bank or retailer would employ.
None of this implies in any way that there are any issues
with the Horizon system. These kinds of gains and losses
occurred when all recording was done manually before any
computerised systems (there were similar managerial control
systems and guides before any computerised systems). Every
bank and retailer will have similar approaches.
You draw attention to a particular phrase in the document
and draw attention to the words “accounting error” namely:
Additional Notes
Managers may apply some discretion should a ‘one-off large
loss’ be incurred with likely mitigating circumstances e.g.
known giro error, accounting error identified etc
This refers to situations where a large loss has been
recorded but it is clear to the manager what has happened -
in this case “accounting error” is shorthand for perhaps
recording something wrongly (keying in £10000 instead of
£1000 for example). In such cases although a large loss
will have been recorded, it is known that this can be
ultimately explained and corrected. All that this
“additional note” in the document is saying is that the
Manager has discretion in such cases with respect to
applying the defined escalation processes of informal and
formal interviews that ultimately can lead to possible
disciplinary code activity if a clerk is making a series of
mistakes. These procedures have been fully agreed at
national level with the CWU and form part of the Crown
Office Staffing Agreement.
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