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POST OFFICE LIMITED
STRATEGIC EXECUTIVE GROUP REPORT
seine Postmaster Losses Overview/ " . th
Title: Branch Discrepancies Meeting Date: I 20" May 2024
meio Mel Park, Central Operations Saancar Martin Roberts, Group Chief
‘I Director " : Retail Officer
Input Sought: For Noting
Lack of operational compliance and robust processes/systems in both branch and POL
contributes to an annual loss of betwee .
purpose of this pack is to provide SEG with a more detailed understanding of:
“IRRELEVANT
The drivers of loss, their annual cost, and savings embedded in the 2024/25 budget
The initiatives already delivered and in flight, to reduce the number of discrepancies in
the network and ultimately the loss value
Recommendations for further activity requiring more detailed consideration by SEG
Executive Summary
i,
The annual cost to Post Office of loss of cash and cash equivalents due to process failures
this were reduced the saving could be diverted into more
beneficial activities such as strategic growth projects or postmaster remuneration.
The purpose of the presentation in the reading room is to give SEG confidence that activity
is underway to start to reduce the risk of loss to both POL and branches, including:
* improving the branch support framework to reduce discrepancies
e earlier identification of discrepancies to improve the investigation outcome
« better management information and insight to drive action plans
*® recover losses where appropriate.
In addition to the activity described in point 2 above and delivered within existing business
as usual budget and resource, the report below (paragraph 10) details recommendations
for increasing resource to support prevention of losses and also on whether POL should
start recovery activity for any of the losses.
Report
4.
The presentation attached to this paper gives a detailed explanation of all drivers of loss,
how they are accounted for, and any current process in place to recover the loss where
appropriate.
Whilst the amount each activity contributes to the total loss number varies significantly,
branch transactional discrepancies being by far the biggest contributor (2023/24 circa
, it’s important to ensure all activities are identified and processes improved to
reduce their impact. These improvements should look to both prevent the loss as well as
facilitating recovery where appropriate.
The Operational Excellence Programme, established in July 2023 has already identified
and delivered significant improvements to the operational processes and support provided
to branches (over 10,300 data led Operational Excellence visits were conducted by Area
Managers in 2023/24, improved Network Monitoring data and process, changes to the
Branch Assurance visit process). -
Excluding Lottery exit, the volume of transaction corrections reduced by circa
2023/24 and the underlying postmaster loss was circais lower than forecast. This was
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not however reflected in the total loss number due to some one-off charges detailed at
appendix 2.
8. Further initiatives are due to land in 2024/25, the benefits of which have been embedded
within this years budget. Key ones of note are:
Operational Excellence remuneration incentive (September 2024)
Auto Stock Rem in (15 branch pilot Sept 2024)
5 2,700 note counter roll out (July - October 2024)
iv. Relaunch of Operations Manual
v. Relaunch of 0-6 months branch support framework
vi. Recovery of established losses where the Postmaster has agreed with the
outcome of a discrepancy review and also for overdue invoices related to branch
property works where appropriate (see additional SEG Paper)
9. With the exception of note counters and auto stock rem in, all improvements landed to
date, or in progress, have been implemented within existing business as usual resource
and budget and will therefore have a limited impact on reducing the loss. The tables
below highlight further recommendations that would:
i. step change the operational robustness in branches
ii. enable an improved contract performance management framework
iii. provide POL with greater clarity on the value of cash and cash equivalents in
the network
iv. facilitate loss recovery when appropriate
10. Funding to support a significant number of these recommendations (circa Sena per
annum) has been requested through the SPM budget, as having an operationally Tobust
and ‘clean’ network is a key enabler to a successful NBiT implementation. The outcome
of the funding request is expected in June 2024.
11. The table below summarises the key drivers of loss, what additional activity is required
to improve prevention of the loss and also recommendations on whether POL should start
recovery activity on any of these losses.
Csrent OM dacrepancies
post Apri 2
resource a Network
Adana Monitoring (5), Field trainers (17), ranch +
‘Assurance (30), Contract Advisor (7 and Cash Centre Tears to improve
Do not start recovery unt claritied Horton data used inthe
discrepancy review proces is robust
+ Propoted estab los recovery process currentiy undergoing.
‘external egal assurance and wil return to SEG for approval once
anfeation on Mewizon received
Current PM discrepancies
pee Apel 2
+ Falls wthin the scope ofthe Remediation Team but outside scope ofthe HS.
‘SEG Paper being produced a the em Tears to recommend net steps
+ No current recommendations to seek recovery of existing debt
Former PM dacrepencies i [No current recommendations to seek recovery of existing debt
{nd to end review ofthe ‘Leavers’ process to identity and agree repayment +
of outstanding account balances ellowne
eta wil return to SEG August with
the end to end Leavers process review
Strategie Partners H New processes in place to support S's investigate and resaive dacrepancies. Review of aged dncrepances by individual SP underway.
Sicrepaecies 1 This should avoid any further non recovery of discrepancies ‘Outcome of review wil determine recovery wil be made ot write
i H off euired
Current PM Property IRRELEVANT Lend to end project process and dacuments reviewed and improvements ‘Start recovery of outstanding invoices via new process as s00n 28
Invoices post April 2028 [made ‘externallega assurance provided (est ly ~see ational SEG paper)
+ External egal assurance underway
Caren PM Property
Invoices pre Apri 2023
‘uo casrent recommendations to sek recovery of existing debt
Former PM property H [No curent recommendations to seek recovery of existing debt
invowes i
Countecten notes + Updated training materials insved to branches to support identification of + ‘Recommendation not to seek recovery
countertets + etal wil return to SEG in Sept 24 with a proposed overarching cash
i + Note counters tobe isued to top 2,700 cash tahing branches policy which wil include the approach to recovery of counterfeits
i + Further funding for sutomation tobe requested via BF assed through tothe cash centre
‘Robibery/Burgaries ] i auc to support the police improve of Nocurrent to seek
Feriminal ewestigations
‘Massing cheques End to end process review to see can impcove/automate the process This cost of accepting of cheques as a method of payment amis
‘nly to reduce unless POL stops accepting cheques as a payment
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Financials
The balance sheet provision as at the end of 2023/24 totalled {i and the detailed
breakdown of the provision is shown at appendix 1. The total balance on Postmaster Accounts
being less than 60 days old and therefore
not provided for.
The breakdown of losses over the last ind budget for 2024/25 is shown at appendix 2.
We recognise the cost for 2023/24 of excluding the central year end provision) is too
high and through the Operational Excellence Programme commenced a number of initiatives in
2023/24 that are budgeted to deliver a saving in 2024/25 (budget }
‘ear on year reduction for 2024/25 includes:
note counters (counterfeit: I and cash pouch discrepancies
operational excellence project and BAU activity ie rem incentive, op €x visits, O-
jiths support framework
robbery/burglary run rate reduction
Non-transactional losses - recovery of 0/s invoices from current postmasters and
reduced
Lottery exit: reduction in transaction corrections and resulting discrepancies due
to complicated branch accounting process
Next Steps
The purpose of this paper and the more detailed presentation in the reading room is to align
SEG on the current loss landscape and make recommendations for further activity to reduce
the risk of loss to both postmasters, strategic partners and POL.
These recommendations will also ensure the network is ready for NBiT implementation.
Following discussion at SEG, the presentation will be updated and used to facilitate a
conversation with the new Chairman and Board.
Where requested, more detailed papers will be presented to SEG on each of the
recommendations.
The paper on the proposed process to recover outstanding property invoices is the first one of
these.
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Appendix 1 - Breakdown of Postmaster Loss Balance
Sheet Provision
The table below details the split of the provision between (1) pre and post April 2021, (2)
current and former postmasters, and (3) transactional balances and outstanding invoices:
cas
Provision
Former
Non-Transactional losses
Current}
(small branch property works) i
Total I i
Former
Transactional losses
worsen wianeng decwoence) "I IRRELEVANT I
Total
Current & Former PM Provision Total =; '
Multiples/SP Total
Total Provision
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Appendix 2 - Profit and Loss account loss charge
The table below highlight the different drivers of loss and their actual cost for the previous two
years and budget for 2024/25. In addition, it highlights where the loss is charged to within
Retail.
P&
Current Postmaster Discrepancies
23/24
Actual
24125
Budget
22/23
Actual
Former Postmaster Discrepancies
SP Losses
Robbery / Burglary
Counterfeit Notes
Missing Cheques/AP errors
RMSD
Personal Banking errors
Cash assurance
Supply Chain Losses
: IRRELEVANT
Property Losses
Other (FX, TC errors, other)
Other - Stock adjustment
Customer release *
TOTAL Finance and losses (excl.
period end provision movement)
Central Provisions (for known and
unknown losses)
Total P&L Finance and Losses
+ Central Operations
Central Operations
Central Operations
[Supply Chain I
Retail Operations
Central Operations
Supply Chain I
Central Operations
Central Operations
“Supply Chain]
Property
: Central Operations
+ Supply Chain I
Central Operations
Central Operations
* Customer receipts we've been unable to allocate to a payee nor contact the customer to return the payment are
released back to the P&L after 6 years
Within the actual 2023/24 cost of
a. a single significant single branch loss of circa
police investigation
wiwhich is currently under
b. a change to the strategic partner provisioning policy, which was brought into
line with that fo
c. Acentral provision off irrevevanr
Independents, with all discrepancies fully provisioned after 60
ade at year end to recognise that not all branches
have a full cash and ‘cash equivalents count annually and therefore there is a
risk that the value held on the balance sheet is not present in the network
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