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Confidential
Complaint Review and Mediation
Scheme
Reply of Post Office Limited to Second Sight's Briefing Report - Part Two
April 2015
This Reply is confidential. You may not disclose it to any other person except that Applicants
to the Scheme may disclose it to those advising them on their complaint.
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Contents
Introduction es seceseseeeenes csssseee eee cesses we
This Reply ......cccccsseee
Overview of Post Office's position . . sees vee wees v7
Post Office's response to section 1 - Introduction.
Post Office's response to section 2 - Limitation of Scope in Work Performed .......cccesseseenenn dh
Post Office's response to section 3 - Risk Transfer... 218
Post Office's response to section 4 - structure and content of the report... Od
Post Office's response to section 5 - Scope and Definition of HOriZOn........cscccssssesssseeeessseeeessseeeesnneeeen OG
Post Office's response to section 6 - The Contract between Post Office and Subpostmasters.............. 25
Post Office's response to section 7 - Automated Teller Machines (ATMs)........ seeeeeenee sooner OB,
Post Office's response to section 8 - Motor Vehicle Licences.
Post Office's response to section 9 - Foreign Currency Transactions... 3D
Post Office's response to section 10 - National Lottery ............c.08 1 d6
Post Office's response to section 11 - Training, Support and Supervision .............ccssseeeseeseeenee GO.
Post Office's response to section 12 - The Helpline... wn 4h
Post Office's response to section 13 - Limitations in the Transactional “Audit Trail”........ vee 47
Post Office's response to section 14 - Transactions not entered by Subpostmaster or their Staff.......51
Post Office's response to section 15 - Transaction Reversals 53
Post Office's response to section 16 - Cash and Stock Remittances (Rems) in and out of the branch.54
Post Office's response to section 17 - Missing Cheques .........cussssssscsssssssssnmnetseessesesesnsnnmnenenseeesesssenneeses 56
Post Office's response to section 18 - Pensions and Allowances... wn b2
Post Office's response to section 19 - Surpluses........ 66
Post Office's response to section 20 - Counter-errors that benefit customers at the expense of the
Subpostmaster .. 68
Post Office's response to section 21 - Error and fraud repellency and Horizon’s ‘fitness for purpose’ 69
Post Office's response to section 22 - One-sided transactions.............. sosenneee sesseeeeeeee 16
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Post Office's response to section 23 - Hardware issues .......ccee
Post Office's response to section 24 - Post Office Audit Procedures...
Post Office's response to section 25 - Post Office Investigations ..........se
Conclusion........... oo . seseeeeeeee bose sovosenee ..83
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(ii)
(ii)
(iv)
(vy)
Introduction
As part of the Complaint Review and Mediation Scheme (the Scheme), Second Sight was
engaged as a firm of forensic accountants to provide a logical and fully evidenced opinion on
the merits of each Applicant's case.
On 21 August 2014, Second Sight's Briefing Report - Part Two (the Report) was sent as a
confidential document to a number of Applicants and their advisors, as well as to Post Office.
The purpose of the Report was to describe and expand on common issues identified by
Second Sight as being raised by multiple Applicants (a Reported Issue), the aim being to
provide general information that could then be applied in specific cases.
Post Office was unable to endorse the first version of the Report. In the interests of
transparency and with the overriding aim of assisting the resolution of complaints brought
under the Scheme, Post Office prepared a Reply in order to correct inaccuracies in the first
version of the Report and to provide information that that Report did not. That original Reply
was dated 22 September 2014.
In the first iteration of the Report, a number of Reported Issues were said by Second Sight to
remain under investigation. Second Sight's investigations have continued since then and
subsequently it issued to Post Office a final version of its Report on 9 April 2015.
Although Post Office has engaged directly with Second Sight to help analyse the Reported
Issues and provided comprehensive information and explanations in relation to its processes,
the Report still lacks clear and substantiated conclusions of general application which would
assist the resolution of Applicants’ complaints. In particular:
a A number of the Reported Issues, which on first assessment appeared to demonstrate
some general pattern or similarity do not reflect any systemic issue, but turn on the
specific circumstances of the individual cases. They are therefore not matters that
can be applied to Applicants generally but require a case by case assessment as has
been done in the individual case reports of both Post Office and Second Sight.
b. The majority of the cases in the Scheme involve a loss of cash or stock in a branch for
which an Applicant was held liable. Even where a Reported Issue of potentially general
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application has been identified by Second Sight, it has not been shown that that issue
caused a loss of cash or stock
As explained in more detail below, the scope of the Scheme is to consider matters
“concerning Horizon and any associated issues’. Matters such as the Subpostmaster
contract and other legal matters are not within the scope of the Scheme and fall
outside Second Sight's professional expertise. Regrettably, Second Sight's
consideration of these topics has meant that the conclusions of the Report in these
areas are therefore unreliable and often incorrect.
Throughout, the Report suffers from a lack of supporting evidence, source documents
and/or examples or statistics to substantiate the conclusions it draws. Further, it does
not describe the overarching methodology used to examine the weight of evidence
from different sources - this is most important where the information provided by
Applicants is anecdotal, unsupported by contemporaneous material.
(vi) As a result, Post Office remains unable to endorse the final version of the Report and has
therefore produced this updated Reply in order to correct the Report's errors and provide
additional, relevant information that the Report omits.
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This Reply
(vii) It is recommended that the reader familiarises themselves with Second Sight's Briefing Report
~ Part One (the Part One Briefing) which provides background information on Post Office's
processes and procedures. This Reply builds on the information in the Part One Briefing
(viii) Care should be taken when seeking to apply the Report's findings and this Reply to individual
cases since the extent to which they may or may not apply will very much depend on their
specific circumstances.
(ix) In this Reply:
. ‘Report’ means the final version of the Report unless stated otherwise.
. ‘Reply’ means this version of the Reply unless stated otherwise.
° References to paragraphs and sections are to paragraphs and sections of the Report
unless stated otherwise.
. ‘Applicant’ means an applicant to the Scheme whereas ‘Subpostmaster’ means
Subpostmasters in general, whether or not they have applied to the Scheme.
. For ease of reference, where reference is made below to ‘Subpostmasters’ or
‘Applicants’ taking action in a branch, this action could, in most circumstances, also be
taken by a Subpostmaster's assistant.
. All other capitalised terms are defined in the Part One Briefing.
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(xi)
(xii)
Overview of Post Office's position
Nearly all Applications to the Scheme centre on there being a loss of cash from a branch that
the Applicant does not consider that they caused or for which they are liable. The purpose of
this Reply is to help identify those issues that can cause such a loss and those that cannot.
In order to identify a loss of physical cash, an investigator needs two pieces of key information:
a. How much cash should be in the branch as a result of the transactions processed in
the branch. This information is provided by the branch accounts stored on Horizon.
b How much cash is actually in the branch. This is known by conducting a physical
count of the cash on hand.
Any difference between the above two figures generates a ‘discrepancy’ which may either be a
shortage or a surplus.
Controlling the branch accounts
(xiil)
(xiv)
(xv)
If cash is missing, the first stage of the investigation is to identify the day on which the cash
went missing. The transactions for that day can then be reviewed for anomalies (see section
10 of the Part One Briefing) e.g.
° transactions incorrectly recorded (such as withdrawals being recorded as deposits);
and
. values incorrectly entered (e.g. entering £2000 instead of £200).
This is done to determine if the branch has made errors that would make the branch
accounts inaccurate. This review must be done by the branch staff as only they will know the
transactions performed on that day and may recall the correct transaction details. Many
branch errors (including the two examples above) are most easily identified in branch. They
would not be evident to Post Office unless, for instance, a complaint was made by a customer.
Post Office helps correct branch errors where possible by reconciling Horizon records against
data collected on some transactions by third parties such as banks and government
departments. Where Post Office detects an error through this reconciliation process, it issues
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(xvi)
a Transaction Correction to a branch notifying them of the error and requiring an adjustment
to the branch accounts.
It has been alleged by some Applicants that they have received Transaction Corrections even
when they were not at fault. Transaction Corrections are only issued where there is clear
evidence of an error in branch. Where the cause of loss rests with Post Office or a third party
client, Post Office absorbs that cost and it is not passed back to the branch. This principle
underpins the design of Horizon and all Post Office's back office and reconciliation processes.
Controlling cash movements
(xvii)
(xviii)
(xix)
(xx)
Save when it conducts an audit, Post Office does not have any direct knowledge of what
physical cash is actually in a branch - only Subpostmasters have this information. For this
reason, branches are required to:
. count the amount of cash in the branch daily and record this figure on Horizon as a
cash declaration; and
. count all cash and stock at the end of each trading period and record these figures on
Horizon before making good any discrepancies’
If daily cash declarations are not made by a branch or declarations are made falsely (by
declaring that there is more cash in the branch than there actually is) then it is impossible for
Post Office, and will be very difficult if not impossible for a Subpostmaster to:
° know if cash is missing;
. identify the day or days on which cash has gone missing;
. identify which member of staff may be the source of errors; or
° locate the erroneous transactions that caused a loss.
Daily accurate cash declarations are the most critical aspect of branch accounting. Where
these are not performed, losses of cash go unchecked.
For this reason, it is critical that Subpostmasters make accurate daily cash declarations as a
fundamental requirement of their contract with Post Office. Subpostmasters habitually failing
‘ See paragraph 8.8 of the Part One Briefing regarding "making good" errors.
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(xxi)
(xxii)
to make cash declarations may find their contracts terminated. Post Office also prosecutes
those Subpostmasters who dishonestly make false cash declarations. It is not an excuse to
say that a Subpostmaster was poorly trained or received inadequate support in this regard.
The need for daily cash declarations is known by all Subpostmasters and is easily done - there
is no specialist training or support required. Post Office does not accept that there are any
circumstances capable of justifying committing the criminal offence of rendering a false
account.
In the context of the Scheme, there are a number of cases where accurate cash declarations
have not been made. Many of these Applicants have challenged Post Office to identify the
cause of losses in their branches which they had hidden by falsely accounting. As explained
above, identifying the specific source of the losses is not possible where an Applicant has failed
to follow the simple but critical task of making accurate daily cash declarations
Subpostmasters are contractually liable for any losses hidden or caused by their inaccurate
record keeping whether owing to error, dishonesty or otherwise. It is also a well-established
common law principle that an agent (e.g. a Subpostmaster) is liable to account to his principal
(e.g. Post Office) for any sum declared in his accounts.
Responsibility for losses
(xxiii)
(xxiv)
(xxv)
A number of Applicants have accused Horizon of inaccurately recording the transactions
processed at their branch which, they say, shows that they were not liable for the losses in
their branches. To date, Post Office has not been provided with any evidence, either by an
Applicant or in the Report, of Horizon’s failure to record transactions accurately.
The Report looks to identify points where Second Sight considers that Horizon may be flawed.
However, these points are either not supported by evidence or have been proved not to be
the cause of losses in branches.
Absent any doubt over the integrity of the branch accounts produced by Horizon, Post Office
considers it fair to assume that if a loss has occurred then it has been caused in the branch
and is something for which, in most circumstances, a Subpostmaster is liable to make good.
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This reflects the core tenet of the Subpostmaster Contract that Subpostmasters are liable for
any loss caused by their carelessness, negligence, dishonest conduct or error?.
(xxv) Post Office has investigated every allegation made about Horizon through the Scheme. It is in
its interest, as well as the interest of the 8,000 serving Subpostmasters who have not applied
ta the Scheme, to identify an issue if one exists. However, there is no evidence of systemic
problems with branch accounting on Horizon. All existing evidence overwhelmingly supports
this position.
? See paragraph 8.8 of the Part One Briefing regarding "making good" errors.
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Post Office's response to section 1 - Introduction
Section 1 of the Report provides details around Second Sight's initial investigation and the
establishment of the Complaint Review and Mediation Scheme. This section does not explain
that Second Sight has performed two distinct roles in two discrete phases.
In early 2012, a group of Members of Parliament led by the Rt Hon James Arbuthnot MP
raised a number of concerns with Post Office over the reliability of Horizon, having been
approached by a small number of mainly former Subpostmasters under the banner of the
Justice for Subpostmasters Alliance (JFSA). These Subpostmasters considered that
apparently unexplained accounting issues in their Post Office branches might be the product
of a flaw in the Horizon operating system.
Given the serious nature of the issues raised, Post Office agreed to appoint an independent
firm of forensic accountants (Second Sight) to investigate these claims as a matter of
urgency. The basis of Second Sight’s initial engagement was reflected in a document for
Subpostmasters entitled ‘Raising Concerns with Horizon’, and included the requirement to:
“Consider and advise on whether there were any systemic issues and/or concerns with
the Horizon system including training and support processes, giving evidence and
reasons for the conclusions reached.”
This scope of work expressly did not extend to investigating or commenting on any individual
concerns raised.
After a year’s investigation, Second Sight issued an ‘Interim Report’ dated 8 July 2013 which
stated that they had found:
“no evidence of system-wide (systemic) problems with the Horizon software’.
However, Second Sight considered that a limited number of other issues may have
contributed to difficulties being experienced by those Subpostmasters who had raised
concerns, most notably around the effectiveness of the support offered to them by Post Office
in their individual cases. The Interim Report did not, as claimed at paragraph 1.8 of the
Report, conclude that Second Sight needed to look at the "totality of the user experience of
Horizon’. Nor did it conclude as also claimed at paragraph 1.8 that "many of the concerns
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17
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1.9
1.10
1.11
reported to [Second Sight] clearly demonstrated problems with the interface between Horizon
and other systems’. Neither statement is reflected in the Interim Report.
Since Second Sight had not found any evidence of systemic issues with Horizon that could
affect all Subpostmasters, Post Office decided to establish the Scheme in order to provide an
avenue for Subpostmasters to raise their specific concerns regarding "Horizon and associated
issues’ directly with Post Office on an individual, case by case, basis.
The purpose of Second Sight’s engagement by Post Office changed fundamentally following
the establishment of the Scheme. Whereas Second Sight had previously been concerned with
reporting to Post Office about the workings of Horizon as a system (and not individual
concerns), its remit was now to focus on the individual complaints about Horizon in the
Scheme. In doing so, they were to investigate, as forensic accountants, the specific issues
raised by each Applicant concerning Horizon or associated issues, and report on these to Post
Office and the Applicant. The Scheme was not, as alleged in paragraph 1.7, an extension of
the original inquiry that led to the Interim Report.
The alleged “undertakings” from Post Office regarding access to information and scope of
work, referred to in paragraph 1.3 of the Report, appear to relate to Second Sight's initial
investigation, which was a general review of Horizon which concluded when Second Sight
issued its Interim Report in July 2013. Accordingly, they would not be applicable to the
Scheme, being a review of specific issues about Horizon raised by, and particular to, individual
Applicants.
Those “undertakings” also do not reflect the ‘Ra/sing Concerns with Horizon’document nor
the Scheme documentation, both of which have been publicly disclosed, and both of which
clearly define the two different stages and different purposes of Second Sight's work. Both
documents however, expressly state that Second Sight's work was to be confined to the
Horizon system and the training and support processes / associated issues connected with it.
In line with the above, Second Sight's work is now, having reviewed 116 of the 136 cases
accepted into the Scheme and having produced its final version of the Report, almost
complete.
Although Post Office has given Second Sight notice to end its engagement, Second Sight will
first complete its investigation into the remaining cases. No supplemental report will
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therefore be needed from Second Sight (as suggested in paragraph 1.14 of the Report) as any
residual issues can be addressed in Second Sight's individual case reviews.
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2.2
Post Office's response to section 2 - Limitation of Scope in Work Performed
Before and during the Scheme, Post Office has provided Second Sight with a considerable
amount of information including:
a Spot Reviews;
b. Post Office's comprehensive investigation findings into specific cases;
c line-by-line comments on Second Sight's own case reports;
d. technical papers on particular issues raised by Second Sight;
e. detailed feedback on Second Sight's first version of the Report and feedback on a draft
version of the final Report; and
f. answers to more than 100 questions posed by Second Sight.
Section 2 of the Report, however, suggests that Post Office has not made available all of the
information it has previously committed to providing. This suggestion, which relates to the
three broad areas covered in the following paragraphs, is incorrect.
Access to the complete legal files
23
24
Second Sight says that it needs access to Post Office legal files because Applicants have raised
concerns about Post Office's “investigative and prosecution processes’. These matters do not
fall within the terms of Second Sight's engagement. The Report incorrectly suggests (at
paragraph 2.7) that the Working Group sanctioned Second Sight to analyse prosecutions
conducted by Post Office. No such instruction was ever given by the Working Group.
Nevertheless, Post Office has provided non-legally privileged material from its relevant ‘legal’
files so that Second Sight can see the bundle of documents which would have been made
available to the defence lawyers and the Courts. This would include documents such as
witness statements and exhibits - in short, anything which Post Office relied on to support a
criminal charge or which could undermine the prosecution or support the defendant's case.
In addition, Post Office agreed to provide, where held, other Court documents such as a
memorandum of conviction.
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At paragraph 2.5 the Report questions whether there have been any miscarriages of justice.
Post Office takes any allegation of this nature extremely seriously. In none of Post Office's
own investigations, nor through all of Second Sight's work, has any evidence emerged to
suggest that a conviction is unsafe. Nevertheless, Post Office will engage with the
appropriate independent bodies to review any possible miscarriage of justice (noting that
matters relating to criminal law and procedure, such as prosecutor conduct and the safety of
convictions, are outside Second Sight's scope of expertise as forensic accountants).
Access to the emails of Post Office employees working at Bracknell
2.6
27
28
In 2013, Second Sight asked for the email accounts of a number of Post Office employees
dating from 2008. This was in response to an issue raised by Second Sight as part of its
initial investigation, prior to the publication of its Report in July 2013. The allegation related
to whether the Horizon test environment in the basement of Fujitsu's office in Bracknell
could have been used to edit live branch data. Post Office explained at the time that it may
be difficult to provide such information in view of its age but did, in May 2013, provide the
email data it was then able to retrieve.
In order to address the allegation more comprehensively, Post Office also provided Second
Sight with a witness statement from a key member of staff who worked at a Fujitsu site at
Bracknell. This confirmed that the basement was a secure test environment, there was no
connection to any live transaction data; live transaction data could not be accessed from the
basement; and the basement was never used to access, change or manipulate live
transaction data in branches. In addition, Post Office provided Second Sight with a
considerable amount of policy documentation relating to the Bracknell office covering
systems access, building access and security. Recently, in relation to a further request, Post
Office provided Second Sight with emails from key staff during August 2008; this being the
month in which the key events which triggered for this line of enquiry were said to take place.
The Report links the questions around the test environment in Bracknell to the possibility of
some form of unauthorised remote access to transaction data. Post Office notes that no
evidence of unexplained alterations of transaction data has been provided. To be clear,
Horizon does not have functionality that allows Post Office or Fujitsu to edit or delete the
transactions as recorded by branches.
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Transaction data relating to third party client accounts
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2.10
211
212
2.13
In June 2014, Second Sight asked Post Office to explain the operation of its Suspense
Account. Post Office replied to that request in a written paper in July 2014. Second Sight
then made a request for further data on the accounting entries being posted to the Suspense
Account. Given that the purpose of this request was unclear, Second Sight agreed to provide
further clarity on the nature of the enquiry, which it did in October 2014. Following some
residual uncertainty over the focus and purpose of the request, Post Office sent a further
written paper to Second Sight explaining the operation of its Suspense Account.
Whilst Post Office acknowledges it originally took longer to respond to Second Sight's initial
requests than it would have wished, it was able to answer Second Sight’s questions when a
shared understanding of the nature of the enquiry had been reached.
Post Office’s Chief Financial Officer has held two meetings with Second Sight to discuss these
matters and has provided Second Sight with further ‘contextual data’. At the most recent
meeting, Second Sight agreed that it needed no further information on the Suspense
Account and Post Office has provided examples to reassure Second Sight that unmatched
differences were not left for long periods in the underlying client accounts, thereby masking
issues.
It is also not the case, as stated in the Report, that, for most of the past five years, substantial
credits have been made to Post Office’s Profit and Loss Account as a result of unreconciled
balances held by Post Office in its Suspense Account. Post Office compares its data with that
of third parties in the normal way and the credits are not at all substantial in that context.
Similarly, the statements at paragraphs 2.18 and 2.19 about Post Office client accounts are
equally inaccurate. Second Sight appears to have misunderstood the information provided
by Post Office. The balances of £96m and £66m were taken from routine trading balances
yet to be settled with other organisations at a particular month end. In other words, they
represent amounts due to other parties, not amounts that are unreconciled and which may
be due to Subpostmasters. As previously reported to Second Sight, the fact that gives
genuine comfort is that neither account had any unreconciled balances which were more
than six months old. If the client accounts were being operated as an alternative suspense
account (as can be inferred from the Report) this would not be the case.
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2.14 Taking this with the work previously shared on the suspense account, Post Office can see no
grounds for any ongoing concern.
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Post Office's response to section 3 - Risk Transfer
3.1 Section 3 of the Report broadly pulls together a number of strands elsewhere in the Report
into an allegation that Post Office had improperly transferred ‘risk’ to Subpostmasters over
time. Once the constituent elements of this claim are properly analysed, it becomes clear that
either they are unsupported by evidence, or the underlying analysis is incorrect.
3.2 Second Sight premises this view on three limbs:
a the Subpostmaster Contract;
b. changes in processes that make operating a branch more difficult for Subpostmasters;
and
c the error-repellency of Horizon
The Subpostmaster Contract
3.3 Detailed comments on the Subpostmaster Contract are set out in section 7 of this Reply.
However, at paragraph 3.6 of the Report it is suggested that the Contract does not commit
Post Office to support Subpostmasters in finding the source of losses in their branches.
3.4 First, under the terms of the Contract, Subpostmasters are only responsible for losses caused
through their “own negligence, carelessness or error’ or for losses caused by their assistants.
Subpostmasters are therefore only liable for losses arising from those operations that are
under their control and responsibility. As described in the overview above, Subpostmasters
play a critical role in identifying the cause of losses and often Post Office, which is not in
attendance in any branch, cannot know what has happened.
3.5 Second, and contrary to the suggestion in paragraph 3.7 of the Report, support is available to
Subpostmasters from the Post Office Helpline in relation to dealing with discrepancies.
Further support is also available from the Post Office's Finance Service Centre (FSC), the
Branch Support Team and the Field Based Training Team.
3.6 FSC could become aware of issues owing to:
a branch calling FSC directly or being referred to FSC via the Helpline;
FSC identifying an anomaly in a branch from its accounting records; or
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. a customer raising an enquiry to the Post Office about a transaction in a branch.
3.7 FSC works with a branch to try to identify the cause of any erroneous transaction. This may
38
include speaking to the branch about how they have conducted the transaction, asking the
branch to provide missing details, checking the paper records held at the branch against the
transaction data on Horizon, liaising with clients (whether customer banks, utility companies,
etc.) to gather different data streams on a transaction, and contacting customers to obtain
their consent to remedy errors.
The Branch Support Team and the Field Based Training Team assist branches when NBSC
and/or FSC are unable to resolve the query or issue by way of a telephone discussion and
on-site (in branch) support is required
Changes in operating practices
3.9
3.10
3.11
The second limb of Second Sight's argument is that Post Office has changed its practice in
ways that make it more difficult for Subpostmasters to operate.
It should be noted that the Subpostmaster Contract provides that Post Office may only require
Subpostmasters to offer new products and services where it is “ reasonable’ to do so. The
contention that the Subpostmaster Contract provides Post Office with a carte blanche to
dictate to Subpostmasters is wrong.
In paragraph 3.10, the Report sets out five examples of changes to business processes that
Post Office allegedly implemented without proper consultation and which transferred
additional risk to Subpostmasters. In none of these examples has Second Sight properly
explained how they result in a transfer of risk to Subpostmasters:
a Phasing out of Third Party ATMs - Although this led to Subpostmasters taking on
responsibility for operating ATMs, their remuneration was accordingly increased to
reward this extra responsibility. Also, a Subpostmaster can refuse to operate an ATM
in their branch if they do not want to take on this responsibility.
b. Removal of paper paying in slips. As explained in more detail in Section 14, this
change was initiated by the UK banking industry which, over the last 5-10 years, has
removed paper paying in slips in place of customers making banking deposits using a
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chip and pin card. The chip and pin system is more secure and less prone to error
and, if anything, has de-risked this process for Subpostmasters.
Introduction of new products such as Lottery products and Foreign Currency services.
No explanation is provided in the Report as to how these changes have transferred
risk to Subpostmasters.
Removal of Suspense Accounts. This function was not removed but changed into the
Settle Centrally and Dispute function described at paragraph 9.5 of the Part One
Report. This allegation is therefore incorrect.
Change from weekly to monthly balancing. No explanation has been provided as to
how this change transferred risk to Subpostmasters, particularly given that it is, and
always has been, open to Subpostmasters to balance their accounts on a weekly basis
(or at any other time). The move to monthly balancing simply meant that the only
compulsory balance that needed to be undertaken was at the end of the trading
month.
3.12 These five examples therefore provide no support for the Report's conclusion in this section
about risk transfer.
The error repellency of Post Office’s business systems
3.13 The suggestion made at paragraph 3.11 that “there /s little incentive for Post Office to
improve the error repellency of its business systems’ is incorrect. As recognised by Second
Sight at paragraph 3.12, human error has been found to be the primary cause of cash and
stock losses in the cases investigated. Such errors are not only detrimental to
Subpostmasters but also to Post Office. For this reason, and the reasons described in more
detail in section 22, Post Office does regularly improve its systems.
3.14 In paragraph 3.13, the Report sets out 7 examples of alleged inadequacy in Horizon’s error
repellency:
a
Hardware and technology failure rate. The Report does not establish that hardware
failures cause errors in branch accounts. Indeed at paragraph 23.4, in the section on
Hardware Issues, the Report states that Second Sight "have been unable to come toa
reliable, evidence based view on this matter’
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b. Telecommunications equipment. The telecommunications line to a branch is, in large
part, provided by the Subpostmaster. This is not part of the Horizon system.
[ Limited testing of Horizon. Second Sight has undertaken no analysis of the user
experience testing undertaken by Post Office and therefore has no evidence on which
to form the view that this testing was “/imitea’.
d. No auto-calibration of the touch screen icons on the Horizon screen. Although the
screen does not ‘auto-calibrate’ there is a screen calibration application which can be
invoked at any time by the Subpostmaster from the Engineering menu of Horizon. If
the screen is out of calibration then that would affect the whole screen and not
individual icons so it would be obvious to the user that the screen had gone out of
alignment. If this issue is noticed and a call made to the Helpdesk then the
Subpostmaster or staff member would be asked by the agent to re-calibrate their
screen to fix the issue.
e. Lack of token-based access to Horizon. Horizon uses unique user passwords to
control access to the system. If a user shares their user ID and password with another
person, this cannot be prevented by software as there would be nothing to suggest to
the system that anything untoward was occurring. Using a token-based access
system is open to the same possibility of misuse as users could share tokens. User ID
and password sharing is a serious contravention of procedure. Only a Subpostmaster
is in a position to stop this happening.
f. No software to detect suspicious out of hours transactions. Subpostmaster can check
for this as they have access to the dates and times of the transactions conducted in
their branches. In those cases where Applicants identified specific transactions that
they did not recognise this was shown to have been caused by a number of innocent
reasons (e.g. the Applicant forgot that they had done the transactions, the transaction
was done by another member of staff without the Applicant's knowledge, etc.)
g. Lack of additional controls over high value transactions. The Report does not explain
what these controls may be. It is noted that this would typically mean some sort of
escalation process to a higher grade member of staff for authority. However, Post
Office has no control over the management structure offered in branch; this is a
Subpostmaster's responsibility and so is the implementation of such controls.
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Conclusion
3.15 As can be seen from the above paragraphs, none of the three limbs of the Report's
arguments in this Section can be substantiated. Second Sight has not therefore
demonstrated any unfair transfer of risk to Subpostmasters. Where errors occur in branch,
a Subpostmaster is responsible for these as they are within their control
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44
4.2
43
Post Office's response to section 4 - structure and content of the report
Section 4 of the Report focuses on Second Sight’s approach to the Report and correctly puts
the 150 applications to the Scheme into the context of a network of over 11,500 branches
and almost 500,000 users of the Horizon system since its introduction.
Post Office notes that in paragraph 4.7 the Report comments on the “/mpact’ on “most of the
Applicants’, although Second Sight has not made any assessment of that impact by reference
to any methodology, evidence and/or analysis. In those circumstances, it is difficult to see
how the Report reaches this view. Further, this paragraph assumes that all Applicants have
suffered problems with Horizon - for the reasons set out generally in this Reply, this is not
correct.
Further, paragraph 4.10 implies Post Office did not, until recently and where possible,
preserve documents related to cases in the Scheme which would otherwise be destroyed
under Post Office’s data retention period. Although some cases are very old and fall outside
the standard retention periods for keeping information, Post Office has gone to considerable
lengths to search its records and provide as much evidence as possible. Thousands of pages
of information have been identified, recovered and made available both to Applicants and
Second Sight.
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Post Office's response to section 5 - Scope and Definition of Horizon
51 The Section of the Report defines the Horizon system. Post Office agrees that this definition
reflects the scope of the Scheme (as described in section 1 above) which is to consider
matters “concerning Horizon and any associated issues”
5.2 As explained above, matters such as the Subpostmaster contract and other legal matters are
not within the scope of the Scheme and are outside Second Sight's professional expertise.
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61
6.2
63
Post Office's response to section 6 - The Contract between Post Office and Subpostmasters
Section 6 of the Report concerns the contract between Post Office and Subpostmasters dated
September 1994 (as revised over the years) (the Contract). It considers (1) the potential
impact of some of the terms and conditions and (2) issues relating to notification of the
Contract terms to Subpostmasters.
An assessment of the Contract is outside the scope of the Scheme which was to consider
“Horizon and associated issues’. Second Sight has no mandate to consider the Contract and
the Report contains a number of statements that are incorrect. Neither the Second Sight
Directors, nor, to the best of Post Office’s knowledge, any of the people engaged by Second
Sight to undertake work in relation to the Scheme, have either qualifications or expertise to
comment on issues such as the Contract which can only be undertaken against legal
principles. For this reason, no weight should be placed on this section of the Report as it
reflects only Second Sight's lay opinion.
To help avoid potential confusion, Post Office sets out the correct position in respect of the
Contract below.
Fairness of the Contract
64
65
6.6
Paragraph 6.7 concludes that "/rom a business perspective” the contractual provisions
referred to above (in particular Section 12 requiring the Subpostmaster to make good losses)
operate to the detriment of, and are unfair to, a Subpostmaster.
The Contract is a business to business arrangement. Save in a few very narrowly defined
areas (which are not applicable here), there is no general principle at law of whether the
Contract is ‘fair’ or not. In Post Office's experience, the terms of the Contract are broadly
similar to those used in franchising arrangements across the UK.
In any event, Subpostmasters are agents and Post Office is their principal. At law, agents owe
duties to their principals including the duty to act in good faith, to render accurate accounts
and to make good any losses they cause. Section 12 of the Contract simply reflects these
legal principles.
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6.7
The Contract reflects the basis on which Post Office and thousands of Subpostmasters have
successfully conducted business for decades and it is neither commercially nor legally unfair.
Subpostmasters’ understanding of the Contract
68
69
6.10
6.11
6.12
The Report suggests that Subpostmasters may not have reviewed or fully understood the
terms of the Contract before entering into it. As a result, the Report states, at paragraph
6.11, that Subpostmasters are unable to mitigate “risks” that they may face. Post Office
disagrees with this conclusion. In addition, this conclusion is not supported by any evidence.
The Contract that is entered into between Post Office and Subpostmasters is done so freely
and at arm's length. Ultimately, it is for the Subpostmasters to choose whether they enter
into the Contract or not.
The Report provides no evidence that Subpostmasters do not understand the Contract. If the
view being taken in the Report is from a “business perspective” (whether Post Office or a
Subpostmaster) the provisions are very clear and written in plain English.
In any event, it is a well-established legal principle that a person who agrees to a contract is
bound by its terms even if he does not have a copy of those terms, has not read them or
does not understand them. Post Office cannot be responsible for a Subpostmaster who may
not have taken the time to read the Contract.
The Report also notes that Post Office does not recommend that Subpostmasters take legal
advice. There is no obligation on Post Office to make this recommendation. It is however
open to any Subpostmaster to take legal advice on the Contract at any time. The reference
to the BFA standards at paragraph 6.10 is not applicable. The BFA recommendation is
directed to franchisees (in a similar position to Subpostmasters). The BFA does not
recommend that franchisors (in a similar position to Post Office) insist that legal advice be
taken by franchisees. If anything, the BFA’s advice supports Post Office view that
responsibility lies with the Subpostmaster to understand their contract terms and
Subpostmasters are free to seek and obtain advice if they so wish.
Notification to Subpostmasters of the Contract terms
6.13
Paragraphs 6.12 to 6.16 state that Post Office does not provide a copy of the Contract to
Subpostmasters. This appears to be based on the fact that a Subpostmaster does not recall
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6.14
6.15
receiving the Contract or cannot now produce a copy. This does not mean that the Contract
was not provided. Given the age of some of the cases in the Scheme (some going back over
10 years), it is not surprising that recollections are hazy and that some records are now not
available.
It is open to Subpostmasters to request a copy of the Contract throughout negotiations when
seeking appointment and from Post Office's Human Resource Service Centre if they have
misplaced or lost a copy. It is also Post Office's standard operating procedure to ensure that
the Subpostmasters have a full copy of the Contract no later than the day that they
commence their position.
Paragraph 6.14 highlights that it is common practice for new Subpostmasters to sign an
‘Acknowledgement of Appointment’ without a copy of the Contract. It is common practice
that a separate document will be signed rather than the full Contract. As a point of law,
terms and conditions can be incorporated into a contract by reference to another document
that is not signed. This is therefore a valid method of creating a legal relationship binding on
Subpostmasters.
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Post Office's response to section 7 - Automated Teller Machines (ATMs)
741 Section 7 of the Report raises various issues concerning the accounting in branch for ATM
transactions
7.2 The Report does not clarify which precise part of the ATM accounting process is under
consideration by Second Sight. In broad terms, the accounting process breaks down into
three elements:
a. loading - cash for the ATM is sent to the branch by Post Office and is loaded by the
Subpostmaster into the ATM. This requires the recording of the ATM cash as part of the
branch's stock.
b. cash dispensed - the amount of cash dispensed by an ATM is recorded daily on Horizon -
see further below; and
c. exceptions - rejected cash and retracted cash - see further below.
73 From the content of the Report, Post Office believes that Second Sight has focused primarily
on the processes for the recording of cash dispensed from the ATM, however other issues
are also touched on. Second Sight mischaracterises some of these processes (which have
been highlighted to Second Sight by Post Office previously) meaning this section of the
Report lacks a coherent evidence base for its claims.
74 In short, nothing in this section of the Report gives rise to any issue that could cause a loss of
cash in a branch. The Report does highlight a few areas where Applicants have claimed to
struggle with accounting for ATM transactions, but the design of the accounting process and
the safeguards put in place by Post Office mean that even a failure to account for ATM
transactions will, save in a few minor areas (highlighted below), not cause a loss to a branch.
Out of sync / Air Gap
75 The Report focuses on the situation where cash is dispensed from an ATM. The process for
accounting for dispensed cash is set out at paragraph 5.27 of the Part One Briefing. In short,
on a daily basis (or on a Monday following a weekend) the Subpostmaster prints a receipt
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76
77
78
79
7.10
from the ATM showing the amount of cash dispensed. This cash dispensed figure is then
entered into Horizon by the Subpostmaster.
Simultaneously, the amount of cash dispensed is also automatically transmitted to Bank of
lreland (BOI) by the ATM. This means that there are two parallel records kept of the cash
being dispensed by the ATM: one by the Subpostmaster on Horizon and one by BOI.
The Report notes that there are situations when these two systems can become ‘out of sync’
with one another, with one record showing more or less dispensed cash than the other
record. This could be caused by the Subpostmaster entering the wrong figure on Horizon.
What is not highlighted by the Report is that even if the amount of money dispensed by an
ATM as recorded on Horizon by the Subpostmaster is different from the amount actually
dispensed as recorded by BOI, therefore resulting in the records being ‘out of sync’, this does
not result in there being a loss to the branch. This is a pure accounting error by the branch.
There is a subsequent reconciliation of the Horizon figure against the BOI accounts. This
means that any error on the Horizon account as to the amount of cash dispensed by the
ATM would be picked up within a matter of days and corrected by way of a Transaction
Correction to the branch. The Report acknowledges this at paragraph 7.8.
As a result of this process, there is no difference in the amount of cash held on site. Indeed,
these accounting processes do not require anything to be done with the physical cash at all.
Simply because the accounts may be ‘out of sync’ for a short period does not mean that
there is a loss suffered by the branch. In summary, the Air Gap / out of sync issue cannot be
a cause of lass in branch.
Complexity of the ‘cash dispensed’ accounting process
7.44
7.12
At various points, the Report suggests that Applicants found it difficult to account for cash
being dispensed from ATMs (see paragraph 7.21).
As described above, the ATM automatically records the amount of cash dispensed. The only
part of the process that is manual is the need for the Subpostmaster to take the cash
dispensed figure from the ATM and enter it into Horizon. Second Sight has adopted the
phrase ‘Air Gap’ for this manual interaction.
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7.13
7.14
Within this accounting process, no calculation or counting is required - it is literally typing a
single figure into Horizon on a daily basis. Post Office does not accept that this process is too
complicated to follow and that any failure to follow the process is down to the Subpostmaster
or their staff.
In any event, as described above, any mistake in following this process will not cause a loss.
ATM Support
7.15
7.16
7.47
7:18
7.19
7.20
The Report notes that Applicants have alleged that the Helpline repeatedly told them that in
respect of the ‘out of sync’ error the "problem would sort itself out’.
The advice provided by the Helpline needs to be assessed on a case by case basis as there is
no evidence that there is a general issue with the advice provided. Even if the advice
provided was that an error would "sort /tse/f out’, in light of the reconciliation between
Horizon and BOI (as described above) any ‘out of sync’ problem would be corrected by a
Transaction Correction. This would prevent the build-up of any accounting shortfalls. As
explained above, there is no loss caused to a branch by an ‘out of sync’ issue as the overall
cash in branch relating to the ATM remains the same.
In terms of the suggestion made at paragraph 7.22 that Subpostmasters were “/eft to work
out for themselves’ how to carry out the ATM related accounting on their branch Horizon
system, this is incorrect.
On installation of an ATM, training on operating the ATM is provided by Wincor. When a Post
Office branch which already has an ATM transfers to a new Subpostmaster, ATM training is
provided by Post Office as part of its standard training package. Each branch is also provided
with a Bank of Ireland ATM Operator Manual on how to use the ATM which includes
descriptions of how to load cash into an ATM, how to obtain the ATM totals receipts and how
to use the ATM's cash management menu.
Also, each branch is provided with ‘Accounting Instructions for Bank of Ireland ATMs’ which
explains how activity on an ATM should subsequently be recorded by the Subpostmaster on
Horizon.
If this is not sufficient or issues emerge, additional support can be accessed via the Network
Business Support Centre (NBSC). If NBSC is unable to resolve the branch query/issue then
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7.21
7.22
further telephone support is provided by the Branch Support Team who will also assess
whether additional on-site support and or training is required. If so, the Branch Support
Team will arrange such support or training for the branch.
The suggestion at paragraph 7.23 that some Applicants would not have been aware of their
repeated errors, and therefore would not have sought help from Post Office, is not supported
by evidence. It would have been obvious to any Subpostmaster receiving multiple
Transaction Corrections related to ATM accounting that they were making mistakes and that
further support should be sought.
Again, however, it must be borne in mind that the Report does not explain how these
accounting errors would actually cause a loss of physical cash from an ATM. In Post Office's
view, and for the reasons stated above, they cannot.
Accuracy of ATM figures
7.23
At paragraph 7.8, the Report suggests that the data produced by an ATM is vulnerable to
“error and fraud’. Post Office notes that no case in the Scheme has presented any evidence
to support Second Sight's view. In any event, there are further safeguards in place to detect
either of the above:
a. First, a Subpostmaster should check whether the cash-dispensed figure input by them
on Horizon matches the cash-dispensed figure on the ATM receipt that they will have
retained in branch. This will eliminate any human error or fraud through the incorrect
entry of figures into Horizon by branch staff.
b. Secondly, each bank in the LINK ATM network would be checking the cash dispensed
values for each ATM against the amounts drawn from an individual customer
account. This ensures that every withdrawal from an ATM can be traced back to
withdrawal from a customer's account. The aggregate of these individual withdrawals
will match the total cash dispensed figure generated by the ATM. The Report
acknowledges that this is a “reliable control’ (see paragraph 7.33).
c. If the above two safeguards show the cash dispensed figure to be correct but there
still is a loss of physical cash from an ATM, then a Subpostmaster can call on Post
Office for assistance including where appropriate on-site support. The Report claims
that Post Office does not investigate ATM-related discrepancies. Second Sight's
misunderstanding in this regard may have arisen because no case in the Scheme gave
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rise to a need for such an investigation. In the majority of cases, the alleged ATM
losses were shown to be accounting issues arising from, typically, the cash dispensed
figure not being correctly inputted into Horizon.
7.24
In paragraph 7.11, the Report says that Second Sight has seen “examples” where the printed
ATM-generated figures are false. As noted by the Report this was not however the cash
dispensed figure mentioned above and was attributable to the Subpostmaster making
repeated mistakes in operating the ATM. Ultimately, however, this erroneous figure was
immaterial and did not affect the branch's accounts. No evidence has been presented to
support the Report's view at paragraph 7.12 that the cash-dispensed figure can be
corrupted.
Power and telecommunication issues
7.25
7.26
7.27
7.28
Paragraph 7.24 of the Report states that many Applicants have commented on the impact of
power and telecommunications failures on the ATM. The Report acknowledges that, even
when they have identified dates of power or telecommunications failures, Applicants cannot
show that they caused specific deficiencies in their branches.
Despite this, the Report speculates that the need to re-boot the ATM by either the
Subpostmaster or BO! could “introduce a possible risk of data loss or corruption”. This
comment is not supported by any evidence either from a specific Applicant's case or general
evidence that such a problem may exist.
Although the Report states that Second Sight have “not been able’ to conduct tests on Post
Office's ATMs to establish this point, it is noted that Second Sight has never asked Post Office
if it could conduct such tests during the three years since its appointment.
Post Office remains confident that data cannot be corrupted by power or telecommunications
failure as suggested in the Report.
Fraud on ATMs
7.29 The Report suggests that ATMs could be subject to fraud / theft that cause a loss of cash.
Post Office accepts that ATMs are at risk of being subject to third party fraud. However, it is
not aware of any form of fraud that creates a loss to Subpostmasters, provided they follow
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the correct accounting procedures. Losses caused by these frauds fall on Post Office, BO! or
customers, not Subpostmasters.
7.30 The Report specifically raises the idea of malware being used to steal cash from an ATM, in
particular, the possibility of self-deleting malware that is said to leave no footprint. The
Report presents no evidence to support this allegation and no case in the Scheme indicates
that this type of fraud may have occurred. It should be noted that the only access to the
software of the ATM is through the ports on its rear. The rear of the ATM is in a locked and
secured enclosure. Therefore any attempt to introduce malware would first require someone
to physically gain access to the rear of the ATM. This would damage the enclosure allowing
the malware / fraud to be identified
7.31 Post Office's view remains that this is not an issue that causes loss to Subpostmasters.
Conclusion
7.32. Overall, provided a Subpostmaster follows the appropriate procedures they will not be liable
for any ATM loss due to an ‘out of sync’ problem or retract fraud. Post Office does not agree
that the instructions and support in relation to ATMs are inadequate. No evidence is provided
to support this position nor do the large number of ATMs across the Post Office network that
are operated without concern appear to have been considered. This would support the
position that the operating practices for ATMs are clear, understood and work in practice.
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Post Office's response to section 8 - Motor Vehicle Licences
81 Section 8 of the Report considers the issuing of Motor Vehicle Licences (MVL). The Report
itself notes that only a small number of Applicants reported problems concerning processing
MVLs. It is not therefore clear that this can be considered a system-wide issue of general
application.
8.2 Paragraph 8.1 describes a problem encountered (by what Post Office believes to be a single
Applicant) when form V11C (the form used by customers to renew their MVL tax discs) was
misprinted with the incorrect barcode. Form V11C is not produced by Post Office but by the
Driver and Vehicle Licensing Agency (DVLA) and therefore this was an external error.
83 If there is an error with a barcode, the issue raised will relate to the tax banding. This issue
could benefit or disadvantage a customer. However, Horizon would invite payment at the
level requested by the barcode. Provided that payment was taken for the amount requested
by Horizon the branch would not suffer a loss as there is no loss or gain from the transaction
from the branch's and Post Office's perspective. Whilst this issue is clearly not desirable (and
Post Office would offer all possible assistance to the customer to correct any error on the
DVLA issued V11C form), this issue does not impact on branch accounting
84 This appears to be a one off incident, caused by a barcode that was created by the DVLA.
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94
9.2
93
94
95
Post Office's response to section 9 - Foreign Currency Transactions
Section 9 of the Report discusses, and makes a number of assertions about, Post Office's
“system for transacting foreign currency transactions’ and reaches the conclusion that the
accounting processes for foreign exchange transactions were “fundamentally flawed’.
The allegations are made in relation to the Forde Money Changer (FMC) Machine which was
used in branches until early 2004 to conduct foreign currency transactions. As far as Post
Office is aware, of the Applicants that have referred to issues encountered with Foreign
Currency transactions, only one relates to a time period when the transactions would have
taken place on the FMC machine. This section of the Report does not therefore apply to
anyone other than that single Applicant.
For the avoidance of doubt however, Post Office rejects the notion that the FMC was flawed.
First, the Report does not explain what the ‘flaw’ is, nor does it explain how it would have
impacted on Subpostmasters.
It appears the Report is alleging that because (until early 2004) Horizon did not record
individual foreign currency transactions, but only bulk weekly totals, this meant that Post.
Office was at fault for any losses. Alternatively, it appears to say that because Post Office
‘devalued’ currency on its books there was not a real loss.
In both cases, this is incorrect. Any loss of foreign currency was not an accounting loss. No
matter how the currency is valued or recorded, if physical notes of currency are missing from
a branch, this will cause a real loss to Post Office.
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10.1
Post Office's response to section 10 - National Lottery
Section 10 concerns National Lottery transactions which are described in more detail at
paragraph 5.35 of the Part One Briefing. In particular, the Report highlights alleged problems
that Subpostmasters may have in relation to (1) scratchcards and their activation and (2)
sales continuing outside of Post Office hours of Lottery products in a connected retail shop
resulting on the Horizon and Camelot terminals being ‘out of sync’
Activation of Scratchcards
10.2
10.3
10.4
10.5
Paragraph 10.4 states, correctly, that before February 2012 any Lottery scratchcards
received by a branch had to be manually ‘activated’ on a Camelot terminal and then remitted
in to Horizon. This process is described in more detail at paragraph 5.42 of the Part One
Briefing.
Paragraph 10.3 of the Report describes how a branch could become ‘out of sync’. This means
that the activation of scratchcards on the Camelot terminal did not reflect those remitted in
to Horizon. This would result in either a surplus or a deficiency of scratchcard stock in the
branch accounts. To remedy this error, Post Office and Camelot conducted daily
reconciliations of the data on the Camelot terminal and on Horizon. Where there was a
discrepancy, a Transaction Correction would be issued to the branch.
Any errors that occurred through the failure to activate or remit? in scratchcards were errors
that occurred in branch owing to a failure by a Subpostmaster to follow the correct
procedure.
However, the effect of not remitting in scratchcards into Horizon will not in itself create a loss.
The physical scratchcard stock will still be in the branch as it must have been delivered to the
branch for it to be activated on the Lottery terminal. The Transaction Correction only
2 Branches send or receive cash and stock (to and from Post Office central processing centres. This movement of cash and
stock is called a ‘remittance’ (and is often referred to as ‘remming in’ or ‘remming out’)
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increases the amount of scratchcards shown in the branch accounts to reflect the amount
actually on hand
10.6 If the scratchcards have been sold but not remitted into Horizon, the branch would show a
negative stock value for scratchcards (as each sale reduces the stock line in the accounts
even if this goes below zero). The subsequent Transaction Correction will therefore increase
the scratchcard holdings, cancelling out the negative figure and bringing the accounts back
into balance.
10.7 The opposite effect will happen if scratchcards have not been activated on the Lottery
terminal but remitted into Horizon.
10.8 In summary, it is clear that this issue is caused by errors in branch for which Subpostmasters
are responsible but that in any event this issue cannot be a source of actual losses.
Support
10.9 At paragraph 10.8 the Report states that the problems encountered by the Applicants (prior
to procedural improvements described at paragraph 5.43 of the Part One Briefing) were
exacerbated by the Helpline which was not able to offer assistance. Post Office is not aware
of the specific calls or incidents to which the Report is referring that are alleged to
demonstrate a general failure to provide adequate advice.
10.10 This is an issue that will need to be considered on a case by case basis depending on the
advice provided to an individual Applicant in a specific instance. However, as noted above, the
reconciliation process conducted by Post Office means that any error would be corrected in
due course.
Out of hours sales
10.11 Paragraph 10.2 of the Report describes an alleged problem relating to the synchronising of
sales that take place outside the hours when the Horizon system is operating at the Post
Office counter. Sales of Lottery products (as described at paragraph 5.39 of the Part One
Briefing) may continue while a connected retail shop is open but the Post Office counter is
closed. However, the branch needs to ensure that any cash taken for any ‘out of hours’ sales
is transferred from the retail shop to the branch cash holdings the following day.
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10.12 The value of the ‘out of hours’ sales (and any other sales) will be automatically sent to Horizon
each day by way of a Transaction Acknowledgement which will increase the cash position in
the branch's accounts. The amount of cash to be transferred from the retail side to the Post
Office side is easily identified as the figure is displayed on the Transaction Acknowledgement.
If a Subpostmaster does not transfer the physical cash from the retail side into the branch
for these sales, this will produce a cash shortage in the branch’s accounts. The
Subpostmaster will be liable for this cash shortage at the end of the trading period.
10.13 Paragraph 10.9 of the Report highlights an alleged ‘complication’ occurring on the final
Wednesday evening of the monthly trading period for those branches operating Lottery
terminals. This is a reference to the trading period reconciliation completed on a monthly
basis. Rather than process the reconciliation on a Wednesday evening as they would
normally do, Subpostmasters with Lottery terminals have first to accept the Transaction
Acknowledgement sent overnight and complete the reconciliation as a matter of priority the
following morning. The Report states that advice on this process was not always provided by
the Helpline.
10.14 Post Office has not seen any evidence to support this assertion and has provided Second Sight
with call logs relating to individual Applicants’ cases. However, no specific calls are
referenced to support this statement.
10.15 In fact, branches operating a Lottery Terminal needed to make daily cash declarations (see
paragraph 8.2 of the Part One Briefing) like all other branches. As Lottery sales data is sent
overnight, Lottery branches are instructed to conduct their cash declarations and end of
trading period balances (see paragraph 7.45 of the Part One Briefing) first thing in the
morning after the Lottery data was received. This was not therefore a complication but an
adjusted daily process for branches with Lottery terminals.
10.16 In practice, some branches chose not to follow ‘next day’ guidance and may have conducted
balances several days later. However, Post Office operational instructions have always
provided for next day accounting.
10.17 In summary, any loss arising from ‘out of hours’ issues highlighted in the Report will arise as a
result of an error in the branch (for which a Subpostmaster is liable)
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Conclusion
10.18 Procedures have evolved to assist Subpostmasters and reduce the number of Transaction
Corrections that are necessary in relation to scratchcards, especially in relation to their
activation. However, the ‘out of sync’ effect created by either incorrect activation or non-
activation of scratchcards, or not correctly recording the out of hours’ sales, are errors that
arise within a branch. It is recognised that this error by branch staff can, in extreme cases,
lead to a high number of Transaction Corrections being issued to a branch which, in turn, can
cause confusion. However, this is easily resolved by running a separate Lottery stock unit so
that Lottery issues do not affect general branch accounting. In any event, the errors were
not caused by either Post Office or Horizon and therefore any liability appropriately remains
with the Subpostmaster if it arises.
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Post Office's response to section 11 - Training, Support and Supervision
11.1. Section 11 principally considers the training on Horizon and branch accounting provided to
Subpostmasters by Post Office. Currently, training for Subpostmasters consists of a mixture
of classroom training and in-branch training. Further training is available upon request and
there is a well-developed support network including the NBSC, managerial support and Field
Support Advisors. This training and support is described in more detail at section 4 of the
Part One Briefing.
11.2 Paragraph 11.2 of the Report comments that the training was adequate in relation to
‘business as usual’ transaction processing but was weak in relation to the end of day, end of
week and end of trading period balancing. In addition, the Report states that there was no
consideration given to dealing with discrepancies, how to identify the root causes of problems
and how to deal with Transaction Corrections.
11.3. These views appear to be based entirely on the anecdotal information provided by Applicants
in their CQRs. As noted in the introduction to this Reply, these assertions remain largely
untested. Post Office has not been asked to provide any training materials for review nor has
the Report established any industry standard or contractual benchmark against which to
judge Post Office's performance. The limited analysis used to support the Report's conclusion
is considered below and shown to be incorrect.
11.4 Given that the Report has presented no evidence or analysis that shows that Post Office's
standard training is defective, Post Office stands by its training practices as being appropriate
and effective. Post Office considers that the training and support that is provided is fit for
purpose and adequate to meet the needs of Subpostmasters. This is proven by the
thousands of Subpostmasters who are successfully operating Horizon daily, having received
the training from Post Office.
11.5. There may of course be specific cases where training and support has not been provided to
Post Office's usual standards (which is not impossible given the thousands of Subpostmasters
trained and supported by Post Office over the years) but these situations will be considered
‘on a case by case basis and are not reflective of any general issue.
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Move to Horizon
11.6 At paragraphs 11.3 and 11.4, the Report finds that many Applicants found that discrepancies
11.7
began to occur when they moved to Horizon. The conclusion reached in the Report is that
this was due to a lack of understanding of how the system was due to operate and be used,
meaning they were insufficiently trained, had not been able to train their staff properly or
there were issues with the new screen-based processes.
Post Office does not agree with this conclusion and it appears to be unsupported by any
evidence that fewer mistakes were made prior to the introduction of Horizon. Transaction
records are not available for the pre-Horizon period and it is not possible to test the
conclusion which is put forward. It therefore appears that the Report has accepted
Applicants’ anecdotal recollections of events without testing these for any corroborating
evidence.
ATMs, Lottery transactions, MVL foreign currency or other specialist products
11.8 At paragraph 11.6 the Report highlights that Applicants considered that the Post Office
Trainers and Line Managers were weak in relation to dealing with ATMs; Lottery
transactions; Motor Vehicle Licences; Foreign Currency and other products.
11.9 There is a lack of evidence to support these alleged comments from Applicants. Owing to
document retention policies, training records for a number of Applicants are no longer
available. There also appears to be no contemporaneous evidence that Applicants were not
provided with adequate support by Trainers or Line Managers whether in relation to ATMs,
Lottery transactions, MVL, foreign currency or other specialist products. If there was a lack
of understanding in relation to these aspects, Post Office would expect the Subpostmasters
to request further training or otherwise seek assistance through NBSC.
Training Needs Analysis
11.10 Training support is provided through various means including the NBSC and managerial
support. In addition, training materials are provided on a regular basis and further training
can be requested by Subpostmasters.
11.11 The Report, at paragraphs 11.7 and 11.8 suggests that it is ineffective to rely on
Subpostmasters to identify on-going training needs in their branches and that further
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training was delivered in accordance with user demand rather than being determined by a
Training Needs Analysis. There are a number of factors that can affect a branch's
performance and the need for training e.g. changes in an Applicant's assistants, changes in
the way a Subpostmaster may operate his/her business, seasonal pressures, changes to the
connected retail business etc. None of these factors will be known to Post Office but they will
all be known to the Subpostmaster. Post Office therefore considers that it is most effective
for each Subpostmaster to be tasked with seeking further training rather than it being
proposed by Post Office.
11.12 Nonetheless, when Subpostmasters complete their training there are follow up reviews at
one, three and six monthly intervals. In addition to confirming that the business is operating
as it should be, there is an analysis of the Subpostmasters understanding. If there are any
gaps, these are highlighted and further training can be provided. After this stage, there is a
reasonable assumption that the Subpostmaster will be reasonably competent, with the
support network highlighted above, to operate Horizon. Subpostmasters are operating a
commercial business and can request additional assistance and training when required.
Training assistants
11.13
11.14
41.15
11.16
As is made clear within the Contract (at section 15, paragraph 7) it is a Subpostmaster's
responsibility to train his/her staff. Nevertheless, the Report criticises Post Office at
paragraph 11.7 for not operating a “quality control function” to ensure that branch staff are
properly trained by Subpaostmasters.
The Report seeks to impose on Post Office a responsibility which it does not have under the
Contract or generally.
Any failure by a Subpostmaster to train their staff adequately could be the reason for the
losses or increase in discrepancies. However, any resulting losses would be a result of the
Subpostmaster's error and he would be liable for them (under section 12, clause 12 of the
Contract).
In any event, Post Office could not operate the quality control function proposed by the
Report. Each Subpostmaster, as an independent business person, is free to employ
whomever they wish as assistants (subject to registering them with Post Office) and to give
their employees whatever tasks they wish.
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11.17 Furthermore, Post Office cannot monitor the performance of individual assistants it does not
engage or employ; only Subpostmasters can do this.
11.18 Post Office agrees that a “quality control function’ should be applied to assistants. However,
this should be undertaken by Subpostmasters and not Post Office. Indeed, in a number of
cases, losses appear to have stemmed from Applicants’ failures to exercise any ‘quality
controls’ over the actions of their staff.
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Post Office's response to section 12 - The Helpline
12.1. Section 12 concerns the assistance provided by the Helpline to the Applicants. Post Office
operates a number of helplines including the Horizon Help Desk and Finance Services Centre.
It is presumed that the Report is referring to the NBSC. More detail on the Helpline can be
found at paragraph 4.2 of the Part One Briefing.
12.2 The following criticisms of the Helpline are made in the Report:
a. difficulty contacting the Helpline owing to limited availability;
b unhelpful, script based responses; and
c. contradictory advice that revokes previous advice.
12.3 This section of the Report repeats the assertions made by Applicants. Those allegations
appear untested and the Report reaches no conclusion save to say that “many of the
shortfalls were, on the balance of probabilities, attributable to errors made at the counter’
and whilst it may not be what Applicants expected, “.. Post Office's Chesterfield-based
Helpline staff cannot be expected to determine from afar how every discrepancy has arisen in
every branch.
Difficulty contacting the Helpline owing to limited availability
12.4 Post Office has previously acknowledged that as changes were made to standard operating
practices over the years there have been periods where the Helpline could be difficult to
contact. Changes were made, especially at the end of trading periods, and the hours for
which the Helpline was available were extended.
12.5 The opening times for the Helpline are currently from 06:00 to 23:00 on Monday to Saturday
and 07:00 to 17:00 on Sunday and Bank Holidays. Post Office monitors the number of calls
made to the Helpline and response times so that it can adapt the Helpline opening hours and
resources to meet the needs of Subpostmasters.
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Unhelpful, script based responses
12.6 The Helpline does not use scripts. The operators, many of whom are very experienced with
Horizon, listen to the query and then, using ‘categorisations’ in Remedy (the contact
management system), the Post Office Knowledge Base is accessed, where there are articles
relating to that category of call. The operator then selects the relevant article according to
the issue raised by the caller and relays the information to them. If the Knowledge Base
does not provide the relevant information there is a second tier of advisors to whom the
enquiry can be escalated.
Alleged contradictory advice
12.7 No evidence is presented in the Report to support the view that contradictory advice has been
given by the Helpline.
General
12.8 All calls to the Helpline are recorded by the Helpline operators in the NBSC call logs. The logs
describe briefly the nature of the question and the answer given, if appropriate. The Report
states that there is insufficient evidence within the call logs that have been provided to them
to conclude what advice was provided. However, Post Office considers that if calls were not
being answered or addressed appropriately then either the matters would be escalated
(which would be noted) or there would be repeated calls about the issue that the
Subpostmaster was facing. There would be evidence that the advice had not resolved the
problem or the Applicant was not happy with the advice. The absence of such evidence
suggests that the calls had generally been resolved satisfactorily whilst accepting that there
may have been individual calls where an Applicant was not content with the advice provided.
12.9 At paragraph 12.2, the Report states that a frequent comment by the Helpline was that
matters would resolve themselves. It is likely that this was reference by the Helpline to a
Transaction Correction potentially being generated following a surplus or deficiency and that
would resolve the issue.
12.10 Through its own investigations, Post Office has found no evidence to support the allegations
that the Helpline would often merely comment that matters would resolve themselves or be
dismissive of any enquiry. In addition to the initial advice from the Helpline, if matters could
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not be resolved they could be escalated to a higher level of support. Support could have
been provided by Field Support Advisors or managerial support if it had been requested.
Post Office is not aware of any wider systemic problems where this support was not being
provided.
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Post Office's response to section 13 - Limitations in the Transactional ‘Audit Trail’
13.1. Section 13 of the Report considers what it generically refers to as “/imitations in audit trails”
The Report is concerned that Subpostmasters are not able to investigate the root cause of
errors (even where they admit it is caused by their own, or an in-branch, error) owing to a
lack of access to necessary transaction data
13.2. The Report considers three situations:
a data that is not available on the day of the transaction under investigation;
b. data that is available but after 42 / 60 days is no longer available; and
c data that is not available after suspension
13.3 In general, Post Office considers this section is premised on a misunderstanding of the nature
of the information needed by branches to investigate losses.
13.4 If, at the end of a day, a branch produces a cash declaration that shows a discrepancy, then
the branch will have access to a range of reports on different products and transactions to
investigate the possible causes for the discrepancy (including a complete line by line listing of
all transactions that day). This also applies at the end of the trading period as a trading
period is either 4 or 5 weeks (28 or 35 days) and the above reports and data have always
been available in branch for a minimum of 42 days.
13.5 Ifa Transaction Correction is sent to the branch, the information needed to verify the
Correction will not be the Horizon data (Post Office has this data and takes this into account
when generating the Transaction Correction). The information is likely to be in the paper
records held at the branch.
Data that is not available even from the day of transaction
13.6 Paragraphs 13.4 to 13.8 of the Report raise the issue that some information is not available
to Subpostmasters even on the day that a transaction takes place. The example provided in
the Report is where an aggregate amount or volume is provided for Debit or Credit Card
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transactions. An aggregate amount for the number of transactions was provided at the end
of each day rather than a breakdown of the individual transactions. As a result, the Report
states that Subpostmasters are not able to identify the individual transaction that may have
caused a balancing error. The Report considers that this would prevent a Subpostmaster
from mitigating their loss or remedying the error by contacting the customer. This position
was allegedly different prior to the introduction of Horizon when paper records were kept
and could be reviewed.
13.7 Post Office does not understand this line of enquiry. Debit and credit card information has
never been retained on Horizon in branch - indeed doing so would be a breach of Payment
Card Industry standards (and Horizon is PCI accredited). However, as mentioned above,
branches have always had access to line by line transaction data each day and this data
records the method of payment (e.g. cash, cheque or card).
Data that is available but after 42 days is no longer available (this was extended to 60 days)
13.8 On the original Horizon system, line by line transaction data was available in branch for 42
days after a transaction occurred. On Horizon Online (since 2010), this data is available for
60 days.
13.9 The Report considers that with data only being available for a limited period of time, it may
not be available to support a challenge by a Subpostmaster to a Transaction Correction that
may be issued after the date that data can be retrieved (i.e. beyond 42 or 60 days). The
Report states that this restricts Subpostmasters’ ability to challenge Transaction Corrections.
13.10 What the Report does not take into consideration is that Subpostmasters may challenge a
Transaction Correction without transaction data. Transaction Corrections are also often
preceded by an enquiry and so even if the Transaction Correction is beyond 42/60 days then
an enquiry may well have been received within the period enabling the matter to be
investigated within the 42/60 day period. There is a wide range of evidence that can be
provided to review or challenge a Transaction Correction. Often it is very product-specific
and not a general view across all data entries. Typically, the necessary data is kept in branch
records rather than on Horizon. These hardcopy documents should be retained beyond the
period that data is available through Horizon and is used by Subpostmasters to challenge or
review a Transaction Correction.
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13.11 For example, if a branch wishes to contest a Transaction Correction relating to ATM
transactions (see section 8 above), the information needed is on the paper ‘Totals Receipt’
printed daily by the ATM which shows how much cash has been dispensed by the ATM and
other important information. This receipt must be retained in branch. No access to Horizon
data is needed as all the necessary information is on the ‘Totals Receipt’
13.12 Post Office is confident that it will be able to show that sufficient information is available to
Subpostmasters in relation to any specific product, transaction or process.
Data that is not available after suspension
13.13 Paragraph 13.15 of the Report highlights that some Applicants were, following their
suspension, refused access to data and their own records that may have been seized upon
audit. As a result they say that they were unable to defend themselves from any claim made
by Post Office for the recovery of monies.
13.14 Whilst Post Office is aware that some Applicants have raised the issue that their own records
were removed and not returned to them, there is no evidence produced or referenced by the
Report to support the position that this has prejudiced an Applicant in any way.
13.15 As to other branch records, these are the property of Post Office. In the event of a
Subpostmaster being suspended, Post Office may take away some branch records for
investigation
Giro Transactions
13.16 A connected issue that is considered at paragraph 20.4 of the Report is the process relating to
Giro Transactions (under the heading ‘other counter-errors that benefit customers at the
expense of the Subpostmaster’). Giro Transactions are, in essence, deposits of cash into a
customer's bank account. Previously, this involved a two-part paying in slip with one copy
retained by the customer and the other accepted by the branch and then despatched to the
processing bank (Santander) with the last Royal Mail collection of the day. At the end of the
day, the branch copy could be cross-referenced to the entry made on Horizon to check for
any errors by the branch in keying in the wrong figure into Horizon. This process changed to
a chip and pin system using a swipe card at the request of the processing bank (Santander)
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that ran the Giro banking service. Following the change, no paying in slip would be presented
by the customer.
13.17 The Report states that owing to the change in this process there is nothing to allow the
Subpostmaster to check whether or not the cash deposit entries on Horizon reflected the
amount of cash deposited and this increases the risk to Subpostmasters. This is incorrect.
13.18 In terms of the accuracy of the accounting entries for the deposit, historically, with paying-in
slips, there was a risk that the deposit value on Horizon (as manually keyed in) and the actual
amount deposited to the customer's account (as per the paying in slip) could differ and
generate a discrepancy. Hence the need for the end of day cross-check. Under the chip and
pin system, there is less likely be an accounting error as the amount entered into Horizon by
the Subpostmaster is confirmed on the chip and pin pad by the customer. Therefore the
amount deposited to the customer's account is always the same as the amount on Horizon.
The move to chip and pin has therefore eliminated the risk of an accounting discrepancy.
13.19 However, if a branch takes more or less cash than the recorded value of the deposit, then that
is a cash handling error for which the branch is responsible. Even with a paying-in slip, there
was no guarantee that the amount of physical cash handed over by a customer was accurate.
The paying-in slip only evidences what the customer intends to deposit (assuming it is
completed correctly); it does not evidence the amount of physical cash handed over (which
could still have been mistakenly counted). The only check that can be conducted to ensure
the correct amount of physical cash is taken from a customer is a manual cash count at the
point of the transaction. This manual cash count is needed whether the deposit is by paying
in slip or chip and pin card. Any discrepancy arising from a cash counting error therefore lies
solely on the branch.
13.20 This is the same process used by all high street banks which have also moved away from
paying in slips to card based deposits.
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Post Office's response to section 14 - Transactions not entered by Subpostmaster or their Staff
14.1 Section 14 of the Report considers, at paragraphs 14.1-14.3 transactions that have not been
entered by the Subpostmaster or their staff such as where there is an ‘automated
transactional reversal’. This appears to be the same underlying issue as raised in section 15 -
see that section for Post Office's reply.
14.2 Paragraphs 14.4 and 14.6 allege that there may be/have been a facility in Bracknell where
Post Office can edit transactions without the knowledge of Subpostmasters. This is rejected
in the strongest possible terms. The Subpostmaster who alleges to have witnessed this was
a member of the NFSP and was on an escorted visit of a Fujitsu site. He saw a room with
Horizon terminals but these were test terminals, not connected to the main Horizon network.
What he saw was the manipulation of test data in a test environment. This then appears to
have been confused with what cannot, in fact, happen. Post Office has provided Second Sight
with a witness statement from the senior member of staff who escorted the Subpostmaster
on the visit, who has confirmed the above.
143. Forclarity, neither Post Office nor Fujitsu can edit the transactions as recorded by branches.
Robust safeguards are in place to ensure the integrity of the data sent by branch terminals to
the Post Office data centre - these are set out in detail at section 22 below. Although some
Applicants have suggested that they have seen mysterious transactions that they cannot
explain, multiple explanations have been found to show how these transactions can, in fact,
straightforwardly be explained (e.g. a miskeying error, attached to the wrong stock unit,
logged in using someone else's ID, etc.).
14.4 At paragraph 14.10, the Report refers to two Post Office / Fujitsu documents that relate to a
‘Receipts / Payments’ issue that affected a small number of branches that were the pilot
branches for Horizon Online in 2010. This issue was disclosed to Second Sight back in 2013
and was considered in Second Sight's Interim Report. These documents inaccurately refer to
Post Office “a/tering’ transaction data in order to correct an error in branches.
14.5 It has always been possible for Post Office to correct errors in and/or update a branch's
accounts. This is most commonly done by way of a transaction correction. However, it could
also be by way of a balancing transaction or transaction acknowledgement. In the case of
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the ‘Receipts / Payments’ issue, the error in one branch was corrected by use of a balancing
transaction, whilst Post Office absorbed the losses affecting the other branches.
14.6 All of these processes for correcting / updating a branch's accounts have similar features. All
of them involve inputting a new transaction into the branch's records (not editing or
removing any previous transactions) and all are shown transparently in the branch
transaction records available to Subpostmasters (as well as in the master ARQ data).
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15.1
15.2
15.3
15.4
15.5
15.6
15.7
Post Office's response to section 15 - Transaction Reversals
Section 15 of the Report considers the issue of Transaction Reversals.
Transaction Reversals are where part of a basket of transactions is reversed because the
basket is interrupted before completion (typically due to a power or communication failure).
The Report states that when a Transaction Reversal happens, Horizon records the reversal
against the user ID of the Subpostmaster or a member of staff. The Report states that this
is misleading because the reversal is ‘automatic’. This interpretation is incorrect.
As far as Post Office is aware, this issue has only been raised as part of a Spot Review
conducted by Second Sight whilst preparing its Interim Report. The Subpostmaster who
raised the issue which was subject of the Spot Review decided not to make an Application to
the Scheme and no other Applicant has raised this issue.
As detailed in Post Office's response to the Spot Review (full details of which are confidential
in order to protect the privacy of the Subpostmaster whom it concerned), the reversals were
caused by the Subpostmaster cancelling a number of transactions that they were conducting
for a customer. The user's System ID is shown as the person making the reversal because
they initiated the reversal process.
The extracts taken from the report by Helen Rose (as quoted at paragraph 15.3) are taken
out of context. The report was addressing concerns that reversals were not being clearly
shown on the particular data being reviewed (i.e. the ARQ and credence data being the main
transaction data used by Post Office). However, this data is available on other records that
can be extracted from Horizon. The report makes clear that this is not an issue with Horizon
itself or its data but the way that the data it produced was presented within one particular
data log. It does not suggest that there was any entry being made that was not initiated
within the branch by the Subpostmaster or their staff.
This section raises no issue that could be the cause of losses in a branch.
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Post Office's response to section 16 - Cash and Stock Remittances (Rems) in and out of the branch
16.1
16.2
16.3
16.4
16.5
16.6
Section 16 of the Report focuses on the remittance of cash and stock to and from branches.
Paragraphs 7.16 to 7.29 of the Part One Briefing describe the remittance process
On occasion, issues can arise such as cash pouches not being received or there being less or
more cash within the pouch than stated. This will result in a Transaction Correction being
raised.
If the cash centre remits a cash pouch to a branch and it is not received this will not result in
a loss to the branch. The cash centre will investigate why the pouch has not arrived and
ultimately bear the loss. The cash pouch is scanned upon receipt by the branch and therefore
it is only at this stage that the cash is registered on Horizon as being held in branch. From
this point, any loss of cash is the responsibility of the branch and the Subpostmaster. There
may be some occasions when the pouch barcode will not scan. In such circumstances the
pouch is entered as received manually by keying in the barcode number.
If there is more cash within the pouch than stated, the branch should report this within 24
hours of receipt. This will result in a surplus to the branch and a Transaction Correction is
issued to correct the balance on Horizon
In circumstances where the pouch contains less cash than expected, the matter should be
reported by the Subpostmaster within 24 hours of receipt. The issue is investigated by the
Post Office cash centre. If the cash centre accepts that the pouch contains less cash due ta
their error, they will bear the loss (if any). A Transaction Correction is issued to the branch to
correct the balance on Horizon.
Where the cash centre does not accept that it is their error, the Subpostmaster is invited to
review the security cameras that monitor the loading of cash into the pouch at the cash
centre. If the Subpostmaster wishes to continue to challenge the amount received they can
do so through the FSC in the same way that a Transaction Correction is challenged. If less
cash is held on Horizon, a Transaction Correction would be issued.
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16.7. Asimilar process is applied when cash is remitted to the cash centre from the branch. The
amount of cash sent within the pouch is recorded. If this sum is more or less than
anticipated when received by the cash centre the issue is investigated. The Subpostmaster
has the opportunity to view security cameras that monitor the movement of the pouch and
can choose to accept the shortfall/surplus or place the loss/gain into the Suspense Account
and investigate the matter further.
16.8 Paragraph 16.4 deals specifically with the instances where foreign currency has been
accidentally sent to the wrong branch. The Report speculates that this could result in a
Subpostmaster being responsible for a delivery that was never received
16.9 The same process outlined above applies to foreign currency. If a pouch is not received by a
branch it will not be scanned into Horizon and there will be no increase in cash holdings. If
the pouch is not received there is no loss to the branch.
16.10 Where the pouch is taken to a different branch in error it can be rejected and will be returned
to the cash centre. If an alternative branch accepts the pouch it will be scanned into Horizon
and increase the foreign currency held at that branch. Transaction Corrections will be issued
to correct any discrepancies that may have been created but overall there would be no loss
to either the branch that received the foreign currency or the branch that accepted it.
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Post Office's response to section 17 - Missing Cheques
17.1 Section 17 of the Report discusses the process of remitting cheques from branches to Post
Office's cheque processing provider. It considers the situations where cheques go missing and
do not reach the cheque processor or cannot be processed by the customer's bank.
17.2. To assist Applicants, Post Office has set out below the cheque remittance process and the
process followed when cheques go missing or bounce.
17.3. In summary, it is inevitable that cheques will occasionally go missing at some stage in their
processing. However, as stated in paragraph 17.9, provided that the Subpostmaster follows
the correct procedure for processing the cheques in branch, this will not result in a loss to
them. The cost of a lost or bounced cheque is only passed to a Subpostmaster where there
is clear evidence that the Subpostmaster has failed to follow proper acceptance or remittance
processes and Post Office has exhausted all other possibilities of recovering the missing
cheque. This is done in accordance with clause 12, section 12 of the Contract under which
the Subpostmaster is liable for any losses caused by carelessness, negligence or error.
Process in branch
17.4 Most Post Office branches are entitled to accept cheques from customers as the method of
payment for a range of designated transactions. The cheque should be scrutinised by branch
staff to make sure it is not a forgery and the reverse of the cheque needs to be date
stamped, initialled and the relevant transaction details recorded. This will enable
identification of the specific product and/or customer in the event of an error. There may be
no customer details recorded on Horizon against the cheque transaction, hence the need to
endorse the cheque with those details
17.5 The method of payment (MOP) by way of cheque should be recorded on Horizon. When
recording a MOP as by cheque, the customer's cheque is automatically recorded on Horizon
as a part of the branch stock.
17.6 All cheques taken should be despatched from the branch via the final Royal Mail collection of
the day (except Fridays). The branch process for remitting cheques is as follows:
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a. Subpostmaster produces a cheque listing report from Horizon (which shows the value
of each cheque accepted that day - or more accurately since the cheque listing was
last cut off which should happen every day - see step e. below).
b. Subpostmaster verifies that the cheques held in the till match (volume and value)
against the cheque listing report.
c The total cheque value is then marked on Horizon as being remitted to POL (known
as ‘remmed out’)
d. A further cheque listing report is then produced. This will show the cheques being
‘remmed’ out as a negative value and the report will now total zero.
e. The cheque listing report is ‘cut off. This effectively draws a line under the day's
cheque payments and any further cheques taken after the cut off point will be logged
against the next day's trading. The branch cheque stock will now show as zero.
f. A Batch Control Voucher (BCV) is manually completed to show number of cheques,
value and despatching branch. The cheques are attached to the BCV. The cheques
are then despatched for processing in the relevant envelope via Royal Mail to the
cheque processor.
g. Horizon cheque listings and remittance slips are retained in branch.
FSC process
17.7 The POLSAP finance system at the FSC is automatically updated each night from Horizon (for
the values of cheques remmed out from branches). The cheque team in FSC is able to view
this data the day after the transactions and will see the outward remittances recorded.
17.8 Similarly, an electronic file will be received overnight by FSC from the cheque processor via an
automatic upload into POLSAP which shows the actual cheques received from each branch.
FSC can then compare the values recorded by the branch as despatched against the values
recorded by the cheque processor as received.
17.9 Approximately 1,000 entries will remain unmatched each day (i.e. there is a discrepancy
between the cheques received by the cheque processor and the information sent via Horizon
by Subpostmasters about cheque remittances) and could be an indication of missing cheques.
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Many cases are resolved quickly (e.g. late delivery by Royal Mail or the Subpostmaster missed
the collection or forgot to put a cheque in a pouch). There will be around 100 cases per
month where it becomes apparent that a cheque has actually gone ‘missing’.
Investigating lost cheques
17.10 It is acknowledged that a cheque loss could occur at the branch, in the Royal Mail pipeline or
at the cheque processor. Post Office's policy is that a branch will only bear the cost of a lost
cheque if the branch has not followed proper procedures. If the root cause of a lost cheque
is unknown or attributed to some other cause outside the branch, Post Office will absorb this
loss and not pass it on to the Subpostmaster.
17.11 In the vast majority of cases, Post Office either mitigates the loss caused by a lost cheque or
absorbs the loss itself. Only a very small number of missing cheque cases result in
Transaction Corrections being issued to a branch.
17.12 The process for investigating missing cheques is as follows:
a The transaction to which a missing cheque relates is (if possible) identified from the
information inputted into Horizon by the Subpostmaster.
b. Branches will be contacted when the missing cheque case is set up to see if the
cheque can be found in branch or if they are aware of which customer presented the
cheque which has subsequently gone missing.
[a If the branch cannot find the lost cheque, a variety of techniques (depending on
product/information available) are employed to identify the customer and their
address from the transaction data.
d. The customer is then contacted to request a replacement cheque. If a replacement
cheque is provided then the loss to Post Office is avoided.
e. If a replacement cheque is not forthcoming, the relevant client organisation (i.e. the
product supplier, say Bank of Ireland, Environment Agency, etc.) is informed that the
payment for that particular transaction has not been received and the transaction is
reversed where possible. By reversing the transaction the loss to Post Office is
avoided.
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f. Alternatively, if Post Office is unable to identify the customer details, the relevant
client organisation may be asked to try to contact the customer directly for payment.
By payment being made direct from the customer to the client, the loss to Post Office
is avoided.
g. If the transaction related to the missing cheque cannot be identified or if the
transaction is identifiable but payment cannot be recovered from the customer or the
client and the transaction cannot be reversed, Post Office will absorb the loss of the
cheque provided discussions with the branch and a review of transactional data does
not reveal a breach of the operational processes.
17.13 There are two typical scenarios where Subpostmasters have failed to follow operational
processes and will be held liable for missing cheques:
a Cheques have been accepted by the Subpostmaster for a non-cheque acceptable
product. Post Office's client determines the method of payment they will accept for
the product or service they are selling through the Post Office and this is detailed in
the operational instructions to branches. Typically, where the service/product is cash
or instantaneous, then cheques are not acceptable (e.g. foreign exchange sales)
because if these cheques are then not honoured, the service/cash has already been
provided/taken place and cannot be stopped or recovered.
b. The method of payment has not been correctly recorded on Horizon with the cheque
as the MOP and it subsequently proves impossible to associate any transactions with
the missing cheque. Such an instance will typically be illustrated by branches
recording multiple/all transactions through ‘Fast Cash’ and then introducing a bulk
cheque value to Horizon via a ‘Cash/Cheque Adjustment’ at the end of the day prior to
remitting out. Again, this may frustrate Post Office's usual loss mitigation steps
described above.
17.14 Where a Subpostmaster is held liable for a missing cheque, a Transaction Correction will be
sent to the branch reversing the remittance of the cheque by the branch. This will return the
value of the ‘missing’ cheque to the branch's cheque stock. If the branch cannot obtain a
replacement cheque from the customer, there will be a cheque shortage at the end of the
trading period that the Subpostmaster will need to make good.
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Bounced cheques
17.15 Paragraph 17.4 makes reference to specific complaints by Applicants (rather than it being a
common theme amongst Applicants) that they were liable for cheques that bounced. As
described above, the branch accounts treat cheques like a stock item. So long as the branch
accurately records the receipt of cheques from customers and the remittance of cheques to
Post Office, then the branch is not concerned with the banking of any cheques. The banking
of cheques and recovery of payment from customer's bank is conducted by FSC. Post Office
absorbs the credit risk posed by accepting payment by cheque and should a cheque bounce,
Post Office will absorb the resulting loss.
17.16 The only exception to this rule is where the branch has failed to follow operational
procedures. This may have included not completing the transaction details in accordance
with a cheque guarantee card (until these ceased in 2011) or taking payment for a product
where payment by cheque is not permitted.
Transaction Corrections for missing or bounced cheques
17.17 Paragraph 17.8 makes reference to Applicants not being able to mitigate their losses as the
Transaction Correction for a missing or bounced cheque has been sent to them too long after
they accepted the cheque. Transaction Corrections may be delayed on occasions but this is
not the fault of Post Office. In some instances Post Office is dependent on a response from a
third party (such as the customer's bank) before the Transaction Correction can be issued.
This may have resulted in some delay but, as stated above, if the correct process is followed
then Subpostmasters will not be liable for any lost or bounced cheques.
17.18 Typically, however, if there is an issue with a cheque, that issue will be raised with the branch
through other channels. In most cases, the branch will be aware of the issue long before the
Transaction Correction is submitted.
Evolving practices
17.19 At paragraph 17.5, the Report suggests that Subpostmaster practices have “evolved’ because
Post Office has not expanded the range of products for which cheques should be acceptable.
This causes Subpostmasters to break Post Office procedures and makes them liable for
missing or bounced cheques. This idea is based on the flawed assumption that Post Office’s
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cheque practices should ‘evolve’ to suit individual branch practices. In fact, Post Office’s
cheque practices have remained consistent. It is simply that some Subpostmasters decide
not to follow the correct procedures in certain circumstances. Where they take that risk, they
are responsible for any resulting losses.
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Post Office's response to section 18 - Pensions and Allowances
18.1 Section 18 of the Report concerns the risk of fraud taking place in relation to Pensions and
Allowances (P&A) transactions. In particular, the Report states that Subpostmasters could be
innocent victims of this type of fraud but still liable for the resulting losses in their branches.
18.2 For the reasons set out below, P&A fraud by branch staff can be easily detected by a
Subpostmaster before any loss occurs so long as he/she is carrying out proper end of day
checks on P&A transactions. Subpostmasters are therefore liable for any losses in their
branch caused by PSA fraud as this loss arises due to their failure to conduct adequate
checks.
Benefit payment methods
18.3. There are various methods by which benefits can be received by customers.
P&A books
18.4 P&A books were provided by the Department of Work and Pensions (DWP) to customers
entitled to benefits. A nominated Post Office branch was set out on the cover of each P&A
book, together with the customer's name and address. Within each book were (usually) 20
dockets, vouchers or foils (referred to in this Reply as ‘vouchers’) stating the FAD code of the
nominated Post Office branch, voucher number and amount to be paid. The vouchers were
presented to the branch staff, processed through Horizon and then cash paid to the
customer. The vouchers were despatched each week by each branch to the Paid Order Unit
(which in effect is the DWP) in Lisahally, Northern Ireland.
18.5 P&A books ceased to be used in circa 2005 and were replaced by the Post Office Card
Account.
Post Office Card Account (POCA)
18.6 POCA is a limited service bank account that only allows benefits to be deposited into the
account by DWP and cash to be withdrawn. Withdrawals are conducted by the customer
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taking his POCA card into a Post Office and withdrawing in cash either some or all of the
benefits within his account.
Green Giros
18.7 Customers who lose their POCA cards or customers who are on temporary benefits may be
sent ‘Green Giros’ by the DWP.
18.8 These are cheques (also known as DWP cheques) which set out the payment amount and can
be cashed in the usual way. These cheques are date stamped and retained by Post Office
after paying the customer. They have historically been accounted for and despatched by
each branch weekly to Alliance & Leicester. They are now sent to Santander (both banks are
referred to in this note as Santander for ease of reference). Green Giros should not be
confused with Giro Payments which are an entirely different product.
P&A fraud
18.9 P&A fraud encompasses a number of different types of fraud, some of which are historical
due to the change in payment methods over time.
‘Overclaim’ fraud
18.10 For each benefit payment to a customer recorded on Horizon, the branch should take from
the customer the associated P&A voucher or cheque and remit each week all vouchers to the
DWP and all Green Giro cheques to Santander. An ‘overclaim’ occurs when the branch
records a benefit payment on Horizon but does not remit the associated voucher or cheque.
Without the voucher/cheque, Post Office cannot recover the payment from DWP/Santander.
This places a loss on Post Office which is then passed to the branch by way of a Transaction
Correction.
18.11 ‘Overclaims’ are relatively easy to identify as the branch must record the remittance of
vouchers or cheques out of the branch on Horizon and therefore it is possible to identify any
missing weekly remittance.
18.12 A fraud can be committed by recording fake benefit pay-outs on Horizon, which lowers the
amount of cash recorded as being in the branch (as Horizon assumes the cash has been
passed to the customer). This causes a short term surplus (until the missing voucher/cheque
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is discovered and a Transaction Correction is sent through) which can be used to cover other
losses or removed from the branch at the end of trading period (assuming that there are no
other offsetting losses).
Reintroduction fraud
18.13 Reintroduction fraud is a more sophisticated version of ‘overclaim’ fraud whereby the false
benefit pay-outs are disguised by the submission of duplicate paperwork.
18.14 In reintroduction fraud, a legitimate benefit pay-out is recorded on Horizon with cash being
paid to a customer but with the corresponding voucher/cheque not being date-stamped or
remitted out to DWP/Santander. At a later date (typically the following week), the same
benefit pay-out is recorded again on Horizon. This time, however, no cash is paid to a
customer (as the customer is not present) but the previous voucher/cheque is date-stamped
at the later date and remitted to DWP/Santander.
18.15 For example, in week 1 there would appear to be an ‘overclaim’ (amount claimed but no
corresponding voucher or cheque). The amount would be claimed again in week 2 by
submitting the cheque or voucher from week 1 (by this time date-stamped). The fraud is
premised on DWP/Santander not spotting the missing voucher or cheque in week 1 or the
reintroduced voucher/cheque in week 2. However, in practice, each voucher/cheque has a
unique reference number which allows duplicate paperwork to be identified.
18.16 Each of these frauds has taken place both before the introduction of Horizon and when
Horizon was in operation in Post Office branches. This is not a Horizon related issue. It is
also largely an historic issue as most benefit payments are now through POCAs (which are
not susceptible to the above frauds) although some Green Giro Cheques are still processed in
branches.
Fraud prevention in branch
18.17 It should be noted that ‘overclaims’ and ‘reintroductions’ will not cause a loss to a branch.
They generate a cash surplus which, as long as the cash has not been removed from the
branch, will off-set any later Transaction Correction.
18.18 It was possible historically - and remains open to a Subpostmaster now - to carry out
immediate checks for P&A fraud as a Subpostmaster will have access to: (i) each week's
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batch of cheques/vouchers and (ii) that week's records of P&A transactions as recorded on
Horizon. It is therefore possible for a Subpostmaster to easily confirm that the value of the
cheques and vouchers being remitted each week match the value of benefit pay-outs
recorded on Horizon. This would reveal any ‘overclaims’ or ‘reintroductions’.
18.19 For this reason, Post Office does not consider that a Subpostmaster could be the innocent
victim of PSA fraud. If a Subpostmaster does not follow the proper process for remitting out
P&A documents, and thereby fails to stop any ‘overclaims’ or ‘reintroductions’ at source, they
are liable for any resulting losses (if in fact any occur)
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19.4
19.2
19.3
19.4
19.5
Post Office's response to section 19 - Surpluses
Section 19 of the Report considers Post Office's approach towards the surpluses that may be
generated within branches.
As stated at paragraph 19.1, the contract between Post Office and Subpostmasters allows
surpluses to be withdrawn provided that any subsequent charge is made good immediately.
This means that Subpostmasters may retain surpluses that may be generated. The Report
confirms, correctly, that Post Office views both surpluses and deficits as discrepancies.
However, the Report arrives at the incorrect conclusion that Post Office is not as concerned
with surpluses as they are with deficits.
Whenever Post Office discovers a discrepancy that can be attributed to an error in branch,
whether it is a surplus or a deficit, it will generate a Transaction Correction to correct the
branch's accounts.
Where discrepancies occur in branch (say at the end of a trading period where there is a
shortage or a surplus of stock or cash), it is for the Subpostmaster to dispute the
discrepancy. This is done by contacting the NBSC. As there are more challenges to deficit
discrepancies (and debit Transaction Corrections), Post Office spends more time investigating
deficits than surpluses.
The system processes six million transactions every working day. Post Office only investigates
a discrepancy in branch if the Subpostmaster requests assistance - it does not investigate
every discrepancy identified in a branch's accounts for the following reasons:
a. first, most discrepancies are fairly small and so do not warrant a full investigation
unless the Subpostmaster raises an issue.
b. secondly, the sheer volume of discrepancies would make investigating them all
unworkable.
c. thirdly, where a discrepancy arises in branch (i.e. the cash on hand does not match
the cash figure on Horizon) an investigation will require close involvement of the
Subpostmaster and their staff as only they will know how the branch has transacted
its business. It would be inappropriate for Post Office to impose an investigation on a
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branch where the Subpostmaster is not raising any complaint and is prepared to bear
the loss / surplus
19.6 The Report's conclusion that Post Office is not concerned with surpluses is therefore not
correct. In any event, it is noted that this topic does not give rise to any general issue that
indicates Post Office or Horizon is responsible for losses caused in branches.
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Post Office's response to section 20 - Counter-errors that benefit customers at the expense of the
Subpostmaster
20.1 Section 20 of the Report considers occasions when customers may benefit from certain errors
in branch to the detriment of Subpostmasters. This section does not give rise to any general
issue but rather appears to be the amalgamation of a series of discrete points.
20.2 Paragraph 20.1 of the Report highlights that mistakes can occur when a counter clerk presses
the ‘deposit’ icon rather than the adjacent ‘withdrawal’ icon. This error by a Subpostmaster
or their staff would have the effect of doubling the size of the error (as the branch will record
the receipt of money into the branch in the accounts which increases the recorded cash
position but will have also handed over cash to the customer thereby lowering the amount of
cash in the branch).
20.3 Post Office agrees that this error may occur but this would clearly be an error within the
branch, not a systemic problem with Horizon. In these circumstances the Subpostmaster
would be liable for the error and any loss that has been created in accordance with section
12, clause 12 of the Subpostmaster contract.
20.4 Paragraphs 20.2 and 20.3 are a repetition of the issue raised in section 22 - on which point,
see Post Office's comments on that section.
20.5 Paragraphs 20.4 - 20.7 are a repetition of the issue raised at paragraph 13.1 - on which
point, see Post Office's comments on that section.
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Post Office's response to section 21 - Error and fraud repellency and Horizon’s ‘fitness for purpose’
21.1 Section 21 of the Report considers whether Horizon is sufficiently error and fraud repellent.
It raises 4 issues:
a Has Post Office sufficiently upgraded and developed Horizon over time?
b. Does Horizon accurately record transactions processed in branches?
c. ls Horizon resistant to power and telecommunications failures?
d. Should Horizon work for every single user no matter their competence?
Developing Horizon
21.2 The Report states that Post Office has not sufficiently upgraded and developed Horizon over
the years so that there is a situation where “errors and fraud that could, in our view, have
been designed out of the system’ did not happen. As a result, the Report alleges that
Subpostmasters have been liable for losses that could have been avoided.
21.3 This conclusion is unsupported by any evidence and is incorrect.
21.4 The Report contains no analysis of the development of Horizon over the years. It is unclear
on what basis the Report considers Horizon to be under-developed when there has been no
consideration of Post Office's processes for reviewing and improving Horizon or of the
upgrades that have been implemented.
21.5 Post Office in fact has a number of processes in place for regularly reviewing and improving
Horizon. These include:
a. Incident and Problem Management processes. Both of these processes ensure that
where a branch reports an issue it is investigated and resolved. Where several
instances of the same issue occur, then a problem record is created and the root
cause of the issue is identified and fixed (i.e. to avoid further instances). The
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resolution of problems can sometimes be minor amendments to processes or can
result in a change to the software code via the next release of upgraded software.
Operational reviews with Fujitsu. These take place on a monthly basis across a
number of different specialist teams in both Post Office and Fujitsu. The purpose is to
monitor and review past performance, addressing any issues as required and to
prepare for known changes or upcoming events.
Operational reviews with the NFSP. These have been in place for over 10 years and
have operated on either a monthly or quarterly basis across that period. It has
involved the NFSP Executives meeting with senior representatives from Post Office's
IT Service, Network and FSC teams. A number of operational issues are raised via
these meetings and actions are taken to resolve and improve either Horizon or
associated processes. Other systems are also discussed as and when relevant, e.g.
ATMs.
Continuous Service Improvement. This is a standard process that Post Office's IT
Services operates with all of its suppliers. Post Office considers that Fujitsu are
particularly good in this area and have, over a number of years, developed and
introduced a number of improvements. This has included Fujitsu, by their own
initiative, providing additional funds to be used by Post Office for improvements to
Horizon. Fujitsu were not contractually obliged to do this. The approach agreed with
Fujitsu was to use NFSP's input to drive the improvement initiatives. This process
and the tri-party working, including NFSP members’ active involvement in conducting
demonstrations and tests, resulted in improvements directly driven by the NFSP and
funded by Fujitsu.
21.6 Ultimately, the Report appears to agree with Post Office's position in that it states at
paragraph 22.22 that "a number of enhancements have been made to Horizon following
experience and feedback’. Whilst specific examples are not provided in the Report as
evidence, this shows that Post Office is engaged in evolving its systems to improve user
experience.
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Accuracy of capturing transactions
21.7 At paragraph 21.23 the Report states that, in Second Sight’s opinion, for Horizon to be “fit for
purpose’ for all users it needs to record and process the wide range of products and services
offered by Post Office and enable Subpostmasters to investigate any cause of issues that may
arise. The Report concludes that from the cases reviewed, although no specific examples are
provided, that although the core software of the system works, it may not provide an ideal
user experience for less IT literate users.
21.8 Horizon is capable of capturing all information and processing all transactions if used properly.
No system errors have been highlighted in the Report. Further, no examples or explanations
are provided to suggest that Horizon, if operated in accordance with standard operating
procedure, would not accurately capture transaction data.
21.9 In fact, of the cases that have been fully reviewed so far, not one has presented any evidence
whatsoever that Horizon did not accurately record the transactions processed by Applicants
or their staff.
21.10 Horizon is designed to ensure the accuracy of transaction data submitted from branches.
Safeguards are in place to ensure that no transactions are lost, altered or improperly added
to a branch's accounts:
a. Encryption. Transmission of transaction data between Horizon terminals and the Post
Office data centre is encrypted.
b. Netto Nil. Baskets must net to nil before transmission. This means that the total
value of the basket is nil and therefore the correct amount of payments, goods and
services has been transacted - as the value of goods and service should always
balance with the payment (whether to or from the customer). Baskets that do not net
to nil will be rejected by the Horizon terminal before transmission to the Post Office
data centre.
c. No partial baskets. Baskets of transactions are either recorded in full or discarded in
full - no partial baskets can be recorded.
d. No missing baskets. All baskets are given sequential numbers (called Journal
Sequence Numbers’ or JSNs) when sent from a Horizon terminal. This allows
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Horizon to run a check for missing baskets by looking for missing JSNs (which triggers
a recovery process) or additional baskets that would cause duplicate numbers (which
would trigger an exception error report to Post Office / Fujitsu).
e. Secure data store. Transaction data is stored on a secure audit server. All
transaction data is digitally sealed - these seals would show evidence of tampering if
anyone, either inadvertently, intentionally or maliciously, tried to change the data
within a sealed record.
21.11 In summary, Post Office remains confident that Horizon accurately records transaction data
and the Report presents no evidence to change this conclusion.
Power and telecommunications failures
21.12 Despite the assertions made in this section of the Report, Post Office maintains that Horizon is
capable of handling power and telecommunications problems. There is no evidence to
suggest that either of these events would cause losses in branches where the recovery
process has been correctly followed by branch staff. There is also no evidence that the
recovery system may, as suggested in paragraph 21.8, “not always have performed as it was
meant to after a reboot” or to support the conclusion made in paragraph 21.15. There is,
however, evidence of branch staff failing to follow the recovery process properly. This would
cause discrepancies in a branch's accounts and could be a cause of losses. It is, however, the
result of human error by Applicants or their staff.
21.13 In Post Office branches, Subpostmasters are responsible for power supplies and the cabled
telecommunications line (see paragraph 5.6 in the Part One Briefing Report). Interruptions
in power supplies and telecommunication lines are a risk faced by all IT systems. There are,
however, recovery systems built into Horizon to prevent losses occurring where there is a
power or telecommunication failure. The following is a description of the recovery process:
a. Following a failure to contact the Data Centre and complete a transaction, the system
would automatically carry out a retry and attempt to save the basket to the Data
Centre again.
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Following the failure of the second attempt, a message displays to the User informing
them that there was a failure to contact the Data Centre and asking them if they wish
to Retry or Cancel. It is recommended that Users only ‘Retry’ a maximum of twice.
When the User selects ‘Cancel’ this results in a Forced Log Out. This means:
i. Horizon would cancel those transactions that could be cancelled.
ii, Horizon would then print out 3 copies of a Disconnected Session Receipt (one
for the customer, one for branch records and one to attach to the till to aid
with recovery).
iii. The receipt would show transactions that are either recovered or cancelled.
Those products considered recoverable must be settled with the customer in
accordance with the Disconnection Receipt.
iv. If a transaction is cancellable then stock should be retained by the branch.
v. Horizon would then log out the active user.
The Subpostmaster should then make sure that, in accordance with the Disconnect
Receipt, the Customer is provided with any funds due to be returned to them in
accordance with the Disconnect Receipt.
The system would then display the Log On screen. The User may then attempt to
Log On again.
As part of the Log On process, the system checks the identity of the last Basket
successfully saved at the Data Centre and compares it with the identity of the last
Basket successfully processed by the counter. If the last basket saved in the Data
Centre has a higher number than that considered to be the last successful basket
processed by the counter, the recovery process at the counter would then repeat the
process that the counter had carried out at the point of failure.
A Recovery receipt would have been printed reflecting these transactions
A message is displayed to the user confirming that the recovery is complete. They
then return to the Home screen. Depending on the transactions being conducted at
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the time, the user may be asked a series of questions to complete the recovery
process.
21.14 At paragraph 21.5 onwards, Second Sight has raised a single challenge to the recovery
process. It says that it believes that sometimes key messages are not displayed on the
Horizon screen during the recovery process. Unfortunately, Second Sight has presented no
evidence to support this allegation. This situation has also not been raised in any case seen
by Post Office. Until such time as Second Sight is able to substantiate this speculation, Post
Office maintains that the recovery process is robust.
21.15 Paragraph 21.8 states that Second Sight's Interim Report also reached this same conclusion
in respect of the recovery process. This is incorrect as the Interim Report, when considering
the recovery process, stated (at paragraph 1.13 of Appendix 1) that “the Horizon system did
operate in accordance with its design’. \t is noted that Second Sight did question the speed of
the recovery process in its Interim Report but it is only in its latest Report that it now
questions the reliability of the recovery process. As mentioned above, Second Sight has not
presented any evidence to substantiate its views, making it impossible for Post Office to
understand how or why Second Sight has changed its position.
Fitness for all users
21.16 At paragraph 21.25, the Report notes that there are some people who are unsuited from the
outset to using a computerised branch. How this relates to the question of whether Horizon
is fit for purpose is unclear.
21.17 Horizon is operated by thousands of Subpostmasters, the majority of whom have not had any
issue with the system or its effectiveness. Whilst a small number may find the operation of
the system difficult, this does not mean that the Horizon system is at fault. The subjective
experience of a few people is not evidence that an IT system is objectively not fit for purpose.
21.18 For such an assessment to be carried out, the Report would need to identify some form of
industry benchmark against which to judge Horizon. Also, the phrase ‘fitness for purpose’
has a specific legal meaning and is therefore a subject on which Second Sight has no
expertise to offer an opinion. The Report does not establish or seek to articulate any legal or
industry benchmark and so its findings are unsupported by evidence or any robust analysis.
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21.19 Post Office maintains that the fact that almost 500,000 users have used Horizon since its
inception and only 150 have raised a complaint to the Scheme shows that it is fit for
purpose.
21.20 Post Office rejects the assertion made at 21.31 that it does not improve its processes. The
Branch Support Programme was established to consider what more could be provided to
improve the effectiveness of the support that Post Office provides to Subpostmasters and
operators in the running of their Post Office branches from an operational and engagement
perspective. This work is continuing and involves:
. reviewing the life cycle of the Subpostmaster and all touch paints with the business;
. taking input from owners, users and recipients of Post Office policies and processes;
. designing policies and processes that deliver improved ways of working with the
Subpostmaster network in a cost effective and engaging way; and
° implementing improvements as soon as possible.
21.21 The focus of the programme is predominately how the business supports the agency network
and the policies and processes that impact on the Subpostmaster. However, where the
issues are the same for the Crown network then these are also included within the scope of
this programme.
21.22 Post Office therefore does look to improve its processes as any prudent business does.
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Post Office's response to section 22 - One-sided transactions
22.1 Section 22 of the Report comments on what it calls ‘one-sided transactions’. These are
transactions that the Report states have not fully completed all the constituent parts of the
transaction. This is either because: (i) there has been a charge to the customer for goods or
services but they do not receive the goods/service; or alternatively (ii) a transaction is
processed but the customer's bank account is not charged for the purchase.
22.2 The Report speculates that these situations could, somehow, give rise to a loss toa
Subpostmaster. However, no evidence has been presented by Second Sight that there is a
general issue with Horizon or Post Office's processes that could give rise to the above
scenario.
Safeguards
22.3. The Report suggests at paragraph 22.2 that one cause for a ‘one sided transaction’ is owing
to a telecommunications failure. Post Office accepts that telecommunications issues can give
rise to ‘one-sided transactions’. This is an inevitable risk of transacting business across the
internet and affects all retailers and banks. Also, like all retailers and banks, Horizon has
recovery processes in place to rectify any ‘one sided transaction’ errors. These safeguards
are specific to particular products so it is not possible to explain them all in one document.
22.4 Communication failures can have two broad impacts. The main impact would be the type of
interruption that is addressed by recovery prompts that are referred to in section 21 of this
Reply.
22.5 The other impact (which would affect the customer, not the Subpostmaster) would be where
a debit card payment was interrupted after the bank had ring-fenced the customer funds for
the payment but before the counter confirmed that the transaction was complete. This can
lead to a situation where although there is no issue for the branch accounts, the customer is
no longer able to draw down on funds in their bank account because they remain ring-
fenced for the original attempted transaction. Banks have routine processes to clear down
ring-fences within a couple of days or on an accelerated basis by specific enquiry. This would
not affect branch accounts but could, of course, lead to customer complaints to their banks.
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No risk to branches
22.6
227
228
22.9
22.10
From a branch's perspective no discrepancy will arise from a ‘one-sided transaction’ as the
branch accounts are based on the information received by Horizon and not on the
information held by a third party client.
If a transaction is recorded as completed on Horizon, then the accounts will also have
recorded a corresponding payment from the customer or the handing over of cash or stock
to the customer.
If Horizon records the transaction as failed, then the transaction will not complete on Horizon
and no payment, to or from the customer, will be recorded. Likewise, as Horizon records the
transaction as failed, the branch staff should not hand over any cash or stock to a customer.
Regardless of whether the client's IT systems record a completed transaction or not, the effect
of the above is that the branch accounts will be in balance. The fact that there may be a
discrepancy between Horizon and the third party client's records does not, as described
above, change the branch's accounting position.
For this reason, the statement at paragraph 22.11 about Post Office's Suspense Account is
inaccurate. The safeguards described above ensure that any sums held in the Post Office
central Suspense Account are investigated as fully as possible. In any event, the releases to
profit should be considered within the overall context of Post Office performing around 2.5
bn transactions per annum, with a combined value in the order of £60bn. The amount of
unresolved credits that end up in Post Office’s P&L is therefore less than 0.001% of all
transactions (by value) undertaken by branches.
Branch awareness of this issue
22.11
22.12
At paragraphs 22.3-22.7 the Report states that the only way a ‘one-sided transaction’ would
be discovered is if the customer was to notify the branch. The Report goes on to suggest
that where the customer has benefited from the transaction (i.e. they have received goods
which they did not pay for) they would not be aware or would not say anything. Therefore,
the Subpostmaster would only be aware of the error if the customer disclosed it.
For the reasons stated above, this view is incorrect and, in any event, irrelevant as a branch
will never be liable for an error caused by a ‘one sided transaction’
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Conclusion
22.13 In summary, whilst the Report fails to prove that this is an issue of general application, Post
Office has demonstrated that a ‘one-sided transaction’ cannot give rise to a loss to
Subpostmasters.
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23.1
23.2
23.3
23.4
23.5
23.6
23.7
Post Office's response to section 23 - Hardware issues
Section 23 of the Report makes some general comments and observations about Horizon
terminals and other associated branch hardware.
Post Office accepts that hardware problems can arise and that equipment is replaced from
time to time. However, this is very dependent on the circumstances of an individual case and
does not give rise to a general issue.
Further, the Report does not attempt to undertake any form of statistical analysis or industry
benchmarking. In this area, it would be common to see an assessment of ‘mean time
between failures’ as a way of judging performance.
In any event, as described in section 21 of this Reply, there is a recovery process in place to
manage hardware failures.
Paragraph 23.1 of the Report highlights that some Horizon equipment is more than 10 years
ald. Whilst this may be correct, there is nothing to show that the age of the equipment is a
cause of any losses.
At paragraph 23.2 the Report states that there is little routine hardware maintenance. This is
correct but equipment is replaced as and when needed and this is industry standard practice.
Paragraph 23.4 states that many Applicants believe that faulty equipment could be
responsible for the lasses suffered. However, the Report acknowledges that Second Sight
“have been unable to come to a reliable, evidenced based view on this matter’, and no
evidence has been put forward to support the allegation that hardware issues have caused
losses in branches.
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241
24.2
243
244
Post Office's response to section 24 - Post Office Audit Procedures
Section 24 of the Report comments on Post Office’s procedures for auditing branches.
The Report says at paragraph 24.1 that Applicants have alleged that they were not provided
with copies of audit reports, although it does acknowledge, at paragraph 24.2, that Post
Office's current practice is to provide each Subpostmaster with a copy of any audit report.
The practice of providing a copy of the audit report has always been in place.
Post Office is not aware of Applicants not being provided with copies of audit reports when
requested. However, Post Office cannot categorically say that this has never happened in an
individual case. Nevertheless, the lack of access to an audit report is not a cause of losses in
a branch and would not exonerate a Subpostmaster from their contractual responsibility to
make good losses caused in their branch that were revealed by an audit.
At paragraph 24.3 onwards, the Report repeats the concerns of Applicants about the scope
and conduct of Post Office audits. However, it does not offer any opinion or analysis of those
concerns. For its part, Post Office has found no evidence in any of the cases reviewed to
substantiate allegations that its auditors acted improperly.
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Post Office's response to section 25 - Post Office Investigations
25.1 Section 25 of the Report provides Second Sight's opinion on the process that is undertaken by
Post Office when it investigates branch activity, including potentially criminal conduct.
25.2 This topic is outside the scope of the Scheme (which is to consider "Horizon and associated
issues’) and is also outside the scope of Second Sight's expertise as forensic accountants. In
addition, much of this section of the Report is based on generalised and anecdotal assertion
which is unsubstantiated. Post Office therefore disputes the findings Second Sight makes in
this section of the Report on both counts.
25.3. Nevertheless, Post Office needs to address some specific inaccuracies which Second Sight
advance in this section of the Report concerning the criminal offence of false accounting.
Post Office denies Second Sight’s assertion that the focus of Post Office investigators is to
secure an admission of false accounting and not to consider the root cause of any losses.
This is incorrect - Post Office investigators’ first task is to establish what has happened in the
branch and its approach to each investigation will, by necessity, be influenced by the
particular circumstances of the individual case.
25.4 That task will be frustrated when the branch accounts have been deliberately falsified, which
is an act which precedes any Post Office investigation. By falsifying the accounts (whether
through the inflation of cash on hand or otherwise) Subpostmasters or their assistants
prevent Post Office from being able to identify the transactions that may have caused
discrepancies and losses. The first step in identifying a genuine error is to determine the
days on which the cash position in the accounts is different from the cash on hand. Where
the cash on hand figure has been falsely stated, this is not possible.
25.5 The false accounting therefore hides any genuine errors from Post Office. It hides it at the
time the losses occur and it remains the case now that Post Office is not able to identify
which transactions may have caused the losses. The Report is therefore entirely incorrect in
its evaluation of how Post Office approaches prosecutions. It is the Subpostmaster's (or their
assistant's) false accounting that prevents Post Office from investigating the underlying
losses, not the attitude of Post Office investigators.
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25.6 — It is important to understand that Subpostmasters are not prosecuted by Post Office for
incurring losses in branch. Post Office may, however, bring a prosecution where it suspects a
criminal offence (such as deliberate false accounting) has been committed.
25.7 Where the Post Office discovers evidence of criminal wrongdoing, it may exercise the right to
bring a private criminal prosecution which is available to all companies and individuals in
England and Wales. In deciding whether a case is suitable for prosecution, Post Office
considers (among other factors) whether it meets the tests set out in the Code for Crown
Prosecutors. That Code requires Post Office to be satisfied that there is sufficient evidence
for a realistic prospect of conviction and that the prosecution is in the public interest. The
Code is issued by the Director of Public Prosecutions and followed by Crown Prosecutors.
Like the CPS, Post Office keeps cases under continuous review all the way up to and during
any trial, and when Post Office does decide to prosecute, its conduct of the prosecution is
scrutinised by defence lawyers and ultimately by the Courts themselves.
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26.1
26.2
263
26.4
26.5
26.6
26.7
Conclusion
Investigating each Reported Issue, and responding to the challenges put to Post Office by
Second Sight has reinforced Post Office's confidence that there are no systemic flaws in
Horizon. This was the position adopted by Second Sight in its Interim Report and it is the
reason that Post Office was determined to address each Applicant's concerns on a one-to-one
basis rather than through an open-ended, general investigation. This approach has now
resolved a number of complaints.
Where the facts of a specific case indicate genuine grievances, for example that the support
provided in a particular instance fell short of the desired standards, those issues are being
discussed with Applicants and a number of complaints have been resolved.
However, many cases are based on allegations which, following investigation, are not
supported by the evidence.
Post Office announced last month that it will now put forward for mediation all cases
remaining in the Scheme except those that have been subject to a previous court ruling.
This will accelerate the conclusion of the Scheme in the interests of Applicants and ensure
that commitments made to Applicants at the outset are met. The mediation process will
continue to be overseen by the Centre for Effective Dispute Resolution
For those Applicants who have been the subject of court rulings, two important points need to
be drawn out. Firstly, we will continue to consider each of these cases carefully, on a case by
case basis, even though mediation cannot overturn a court's ruling.
Secondly, as a prosecutor, Post Office has a continuing duty after a prosecution has concluded
to disclose immediately any information that subsequently comes to light which might
undermine its prosecution case or support the case of the defendant.
The Post Office acknowledges this has been a long and difficult process but has gone to great
lengths to address each and every complaint and remains determined to resolve them where
possible.
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