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To: Baroness Neville-Rolfe
From: Laura Thompson, Shareholder Executive (cro }
Date: 2 June 2015
Subject: Post Office Horizon mediation scheme
Purpose: Further briefing on the Post Office Horizon IT system and associated
mediation scheme, and seeking your views on handling this matter in the future.
Recommendation:
A) That you note the briefing on the scheme to date and likely next steps
B) That you agree that Government should maintain distance from this matter
and resist calls for further independent investigation
C) That you agree that officials rather than Ministers should respond to future
correspondence from the Justice for Subpostmasters Alliance (JFSA)
Timing: We would welcome your steer on handling JFSA correspondence this week
in order to meet drafting deadlines.
Background
1. In 2012 a small number of (mostly former) subpostmasters, under the banner of
the “Justice for Subpostmasters Alliance” (JFSA) and with support from some
MPs led by then-MP James Arbuthnot, claimed POL’s Horizon IT system had
caused accounting losses which they had had to make good, and in some cases
for which they had been prosecuted (usually for either false accounting or theft).
2. POL commissioned an independent firm of forensic accountants, Second Sight,
to examine the system for evidence of systemic flaws which could cause
accounting discrepancies. Their initial report (in June 2013) found no evidence
of systemic flaws in Horizon that could cause the issues raised. The report did
find that in some cases POL could have provided more training and support to
subpostmasters, and POL have since made changes to address this. POL also
established a mediation scheme and invited current and former subpostmasters
to come forward with cases, which would be reinvestigated and then mediated if
appropriate. More details on the scheme and its operation are in Annex A.
3. In total, 136 applicants were accepted to the mediation scheme. To put this in
context, POL estimate that 68,000 users currently use Horizon each day across
all its 11,700 branches, and that nearly half a million people have used Horizon
since it was rolled out in 2000. The vast majority of subpostmasters are using
Horizon effectively every day.
4. The independent investigators, Second Sight, began their investigations in
2012, producing their initial report in June 2013 and their final report in April
2015. They have also undertaken separate investigations into each of the 136
cases in the scheme. There has therefore been over two years of independent
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scrutiny and in that time no evidence of systemic flaws in Horizon has been
found.
Rather, the investigations found that the main reason for losses in the majority of
cases was “errors made at the counter” by the subpostmaster or their staff.
While the details of individual cases are confidential, we understand that there
cases range from, at one end, examples where POL could and should have
provided more support to the subpostmaster in preventing errors being made, to
the other end, where there has been clear fraud or dishonesty from the
subpostmaster or their staff. Where POL identify areas for improvement on their
part, they are committed to implementing them.
However, JFSA are not satisfied with this outcome and continue to campaign
vocally with support of a number of MPs. Having initially claimed there were
flaws in the system, they are now attacking the terms of the contract between
Post Office and subpostmasters, and Post Office’s approach to prosecutions.
The head of JFSA, a former subpostmaster called Alan Bates, has written
seeking a meeting and his letter (attached at Annex B) gives a flavour of JFSA’s
arguments. They accuse POL of secrecy and cover-up, and of attempting to
“gag” Second Sight. However POL’s position is that Second Sight were no
longer operating independently but were captured by JFSA, breaking the terms
of their contract, openly criticising Post Office in public and on social media, and
presenting skewed and unsubstantiated views as fact in their reports.
Recommendation
7.
Despite JFSA’s complaints and calls for a new investigation, it is our strong
recommendation that Government should maintain the position that this is not a
matter for Government, and increase our distance from this matter. We consider
that attempts to prolong this matter do damage to POL’s brand and cost POL
significant amounts of money in funding Second Sight and operating the
mediation scheme. We also recommend that Government should resist any calls
for further investigation — the matter has been comprehensively investigated
over several years and the complaints of JFSA have borne no fruit.
Reinvestigation would be neither value for money nor in the public interest:
e There is no evidence of systemic flaws in Horizon; any issues that individual
subpostmasters have faced are contractual disputes between two
independent businesses (POL and agent). This point has stood firm after
over two years’ worth of close independent scrutiny.
e There is no evidence that any of POL’s prosecutions against
subpostmasters for either false accounting or theft are unsafe. POL has a
duty to disclose any new material that comes to light that could support a
subpostmaster’s defence, and none has emerged. All legal avenues remain
open to query a conviction, including through the Criminal Cases Review
Commission which is currently considering some applications for review
from subpostmasters. Both BIS and POL have been asked (and have
agreed) to preserve data by the CCRC, and will continue to work with the
CCRC should they investigate.
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e It is important to note that the National Federation of Subpostmasters
(NFSP), which is the recognised representative organisation for
subpostmasters, does not support JFSA’s arguments. The NFSP general
secretary, George Thomson, has said publicly that he considers JFSA
members to be “trying it on” and that their complaints are doing damage to
subpostmasters’ businesses.
e We understand that many subpostmasters who entered the mediation
scheme did so with the (unrealistic) expectation of large compensation
payouts from Post Office at the end. It is possible that JFSA are attempting
to prolong the scheme and broaden its scope in an attempt to find a
“smoking gun” to claim large payouts from Post Office.
8. To date, POL have generally sought to address JFSA’s concerns where
possible, and throughout the process have maintained the confidentiality of all
members of the scheme, even where individuals have waived their own
anonymity and spoken to the press, or where documents have been leaked by
JFSA. There has been some media attention on this matter, mostly BBC’s The
One Show and local news programmes. Subject to taking legal advice, POL are
now in favour of taking a more robust approach to handling JFSA, given that it is
clear JFSA wish to derail the mediation scheme and prevent the final cases from
being mediated.
9. We consider that a more robust and proactive approach from POL, together with
a more detached stance from Government, would be the right approach to
attempt to minimise negative press and ensure the scheme can complete its
work and close as swiftly as possible. This should ensure that individuals with
cases in the scheme can have a chance for resolution, while limiting brand
damage and costs to POL. Are you content with this approach?
BBC Panorama and Next Steps
10. POL have been informed that BBC Panorama are making a programme on this
matter with journalist John Sweeney, to be broadcast on 22 June. The
programme is likely to feature around 5 cases of former subpostmasters, all of
whom have criminal convictions relating to this matter, and have already made
their cases public.
11. POL will provide an interviewee for the show, likely to be Angela van den
Bogerd, their Head of Partnerships, who also appeared in front of the BIS Select
Committee on this matter back in February 2015. POL are taking legal advice on
whether they can put forward a more robust defence than normal including
breaking confidentiality to argue their case, or using anonymised examples of
cases in the scheme. They have offered both on- and off-record briefings to the
BBC and are preparing their handling strategy for interest in the programme,
both before, during and after broadcast. We will provide further advice on this.
12. We will need to be prepared for media interest directed at Government. As this
is an operational matter for Post Office, we recommend initially passing all
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queries to Post Office’s press office. If a line is called for, we recommend a
reactive-only BIS spokesperson quote (which we will provide nearer the time).
13. We recommend that correspondence from JFSA is handled at official level, on
the basis that they are not a recognised organisation and that continued direct
engagement with Ministers will serve to prolong their campaign. We propose to
send the response (attached at Annex C) from our team. If you would prefer to
reply personally we can adapt the response to come from you, or (preferably) we
can prepare a short response from you politely declining the offer of the meeting
and leave officials to respond on the other points. Are you content for officials
to respond to Mr Bates?
14. There may be Parliamentary interest in this matter — in the last Parliament BIS
Select Committee held a one-off evidence session on this matter and then wrote
to the previous Secretary of State with a few recommendations, predominantly
asking Government to receive a copy of Second Sight’s report and for
Parliament to be kept informed. We are yet to see whether the group of MPs
with an interest in this matter will pick up again now James Arbuthnot is no
longer leading it - we understand that Kevan Jones MP (North Durham, Lab) is
taking over his lead. It is possible that the Panorama programme in particular
will prompt questions or debates, and Mr Jones may seek a meeting with you. It
is also worth noting that POL has offered to meet any MP with a constituent in
the scheme to discuss their individual case confidentially — to date only two MPs
have taken up this offer.
15. We are happy to provide further briefing, either oral or written, on this matter.
Annexes:
A. Background information
B. Letter from Alan Bates, JFSA
C. Proposed official-level response to JFSA letter
Copied to: Ministers’ offices, SpAds, Permanent Secretary, Mark Russell, Anthony
Odgers, ShEx Post Office team, Aileen Boughen, Ashley Rogers, Claire French
Advice received from:
Finance SpAds Press Legal Analysts
No [TBC] [TBC] No No
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ANNEX A: POST OFFICE HORIZON AND MEDIATION SCHEME: SUMMARY
The Horizon IT system
e Horizon is the name of POL’s electronic point of sale (EPOS) system used
across all Post Office branches (i.e. Crown branches and sub post offices) to
process and record transactions. Supplied by Fujitsu Services Limited, it was
rolled-out in 2000 and has been in operation ever since (subject to various
upgrades and fixes, as standard for a large IT system).
e Unrelated to the issues below, POL are currently tendering for a new IT system
to replace Horizon, which after 15 years is becoming increasingly obsolete.
Horizon is due to switch off by March 2017.
Initial complaints
¢ In early 2012, a number of concerns were raised with Post Office by a group of
MPs led by then-MP James Arbuthnot and a small number of (mostly former)
subpostmasters — the Justice for Subpostmasters Alliance (JFSA).
¢ Post Office appointed an independent firm of forensic accountants, Second
Sight, to conduct an investigation into the claims that there were systemic issues
with the Horizon system that could cause these accounting errors. As part of
this, Second Sight also looked at some of the specific cases raised by the JFSA.
Interim report and mediation scheme
e After a year’s investigation, it was agreed that Second Sight would produce an
Interim Report for POL and applicants, which they did in July 2013. The report
found that there was no evidence of system-wide (systemic) problems with
Horizon, but that in some cases there may have been other factors involved,
including a lack of training and support from Post Office.
e On the basis of Second Sight’s Interim Report (which was shortly thereafter
leaked), Post Office agreed to establish a “Complaint Review and Mediation
Scheme” to consider individual cases and ascertain what had happened, as well
as other initiatives including improvements to training and engagement.
e The mediation scheme was open to applications from any current or former user
of Horizon over a 12 week period between August and November 2013, and was
publicised widely by Post Office and by JFSA. There were 136 applications to
the scheme. A working group, chaired by independent former Court of Appeal
judge Sir Anthony Hooper, was established to manage the scheme and decide
on how cases should progress.
e Individuals who had their case accepted into the scheme were entitled to apply
for funding from Post Office to appoint an independent professional advisor to
assist in compiling their case. Applicants had their case re-investigated by Post
Office and then investigated independently by Second Sight. On the basis of
these investigations, the working group would agree whether a case should
progress to mediation. Mediation was conducted by independent mediators and
overseen by the Centre for Effective Dispute Resolution (CDER).
Termination of Working Group and Second Sight contract
« In March 2015 Post Office completed all of its own re-investigations into each of
the cases in the scheme. Having done so, and recognising the amount of time
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the scheme had been running (which was significantly longer than any party had
anticipated), Post Office decided to put forward all remaining cases for
mediation (except those where the applicant had been subject to a court ruling —
those cases were considered on a case-by-case basis).
e Asaresult of that decision, Post Office closed the Working Group which had
previously served to decide how cases should progress.
e Post Office also gave notice to Second Sight to terminate their contract. Post
Office agreed that Second Sight would be able to complete their final report and
would continue to fund Second Sight to complete the individual investigation
reports for each of the remaining cases in the scheme.
« Post Office envisaged that through these changes, cases would be able to
progress to mediation much more swiftly, with the intention of completing all
mediations before the end of the year (2015).
Parliamentary interest
« The mediation scheme is independent of Government. However there has been
some Parliamentary interest in this matter.
e In July 2013 Jo Swinson (then Minister for Postal Affairs) gave an oral statement
to the Commons setting out the detail of Post Office’s mediation scheme which
was announced that day.
e In December 2014, then-MP James Arbuthnot called a Westminster Hall Debate
on the scheme, where he set out that he and some fellow MPs had lost
confidence in the scheme.
e In February 2015 the BIS Select Committee held a one-off evidence session on
the matter. It heard evidence from Post Office, Second Sight, JFSA, NFSP, and
the Communication Workers Union (CWU). Government was not invited to give
evidence. The then-Chair wrote to BIS at the end of March 2015 with a small
number of recommendations, mostly involving BIS receiving a copy of Second
Sight’s report, ensuring that information was preserved, and keeping Parliament
informed. BIS wrote back to the Committee accepting most of the
recommendations before Parliament was prorogued.
« In March 2015 when Post Office announced changes to the scheme, a bid for an
Urgent Question was made and was refused. However James Arbuthnot was
successful in raising the matter at Prime Minister's Questions that day, where
the PM recognised his concerns and committed BIS to write to Mr Arbuthnot.
Media interest
e This matter has received some coverage in print, mostly occasional stories
leading on a particular individual's case study. The Daily Mail has recently
increased the amount of coverage it gives Post Office issues.
© One journalist in particular, Nick Wallis, has campaigned against Post Office on
this issue for several years now — he has featured on the BBC’s The One Show
and other local news programmes (e.g. BBC Inside Out).
e POL leads on handling media interest and has been proactive in contacting
outlets to offer quotes, correct factual inaccuracies, and in many instances to
ask journalists to present a more balanced argument (including through
lawyers).
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ANNEX C: DRAFT LETTER FROM OFFICIALS TO ALAN BATES (JFSA)
Dear Mr Bates
Thank you for your letter of 19 May to Anna Soubry regarding the Post Office
Horizon mediation scheme and requesting a meeting. Your letter has been passed
to Baroness Neville-Rolfe who is the Minister responsible for the Post Office. As I
hope you will appreciate, the Minister receives a large number of letters every day
and is unable to respond to each one personally. I have been asked to reply.
Since Post Office commissioned Second Sight to undertake an independent
investigation of the Horizon system in 2012, there has been over two years’ worth of
scrutiny of the system and two independent reports from Second Sight, in 2013 and
2015. Both reports demonstrate that there is no evidence of systemic flaws within
the Horizon system which could cause the accounting discrepancies reported. This
is welcome news as it demonstrates that the system used by over 68,000 users
every day in 11,500 branches across the country is operating correctly.
Nevertheless, recognising that there were a number of issues to address from
Second Sight’s initial investigation, the Post Office established the mediation
scheme to enable current and former subpostmasters to bring forward their cases
and seek to resolve any issues. As you are aware, the mediation scheme
established in connection with the Post Office’s Horizon system is independent of
Government. Cases in the scheme relate to contractual disputes between two
independent parties — Post Office Limited and individual subpostmasters — and it
would not be appropriate for Government to intervene in these matters.
It is disappointing to hear that JFSA is suggesting that its members withdraw from
the scheme. The mediation process is run by the independent Centre for Effective
Dispute Resolution (CEDR) in line with established best practice, and each
applicant is entitled to an independent advisor (funded by Post Office) and a case
review from Second Sight, which should reassure applicants that the process is
independently run and transparent. The Government encourages all parties involved
in the scheme to continue to work together to ensure that those applicants with
cases remaining in the scheme can progress to mediation swiftly.
Regarding your concerns about the preservation of data relating to the scheme,
Post Office have confirmed publicly that they will not destroy documentation relating
to the scheme, including information provided to (and returned by) Second Sight. All
parties involved in the mediation scheme are bound by confidentiality agreements
including the requirement to store information appropriately and dispose of it when it
is no longer needed, or return it to the information owner.
As I hope you will understand, the Minister’s diary is very busy and she is unable to
accept every invitation to meet that she receives. I would encourage JFSA and its
members to continue to work with the Post Office to ensure the remaining applicants
in the scheme can progress to mediation.
Yours sincerely etc.