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From: Callard, Richard - UKGI[/O=HMT/OU=EXCHANGE ADMINISTRATIVE GROUP
(FYDIBOHF23SPDLT)/CN=RECIPIENTS/CN=6988FBA346C64632AA2C6DDACEAC7D18-
CALLARD, RICHARD (RC]
Sent: Thur 07/07/2016 8:50:07 AM (UTC)
To: King lain (Finance
Ce: Adetimilehin, Olutobi - UK
UKGIE
‘ussell, Mark - UKG!
Subject: Post Office and fraud case
Attachment: ARC update
lain
Further to our conversation yesterday, I am writing to notify you of a fraud that is being investigated by Post Office at
the moment. Whilst this is not at the moment material (c£800k), it has led to a delay in the signing of the accounts
(by around two weeks most likely) and has raised issues within the business regarding escalation procedures. I do not
consider that we need to inform ministers at the moment, given the size of the issue and the fact that the business
has been operationally doing the right thing at the local level, it is the escalation to senior management that seems to
have failed. However, POL have undertaken to inform me immediately if the quantum of the issue increases, or if the
delay in the accounts signing if further extended. I have attached an email from the CFO to the POL ARC, and have
summarised the relevant points below.
¢ As you know you can deposit funds in to your (non-Post Office) bank account at post offices
e Along with other cash transactions, around £70bn of cash passes through the network each year
e¢ = The attached email explains the fraud, but it’s important to note that POL had picked this issue up previously,
had terminated the subpostmaster involved, and had called in the police who made arrests. Unfortunately
there was not enough evidence to prosecute.
¢ POL put in place measures to pick up future cases of fraud, and prevented and recovered monies when it was
attempted again. So the issue appeared to have been dealt with.
e However, very recently it reoccurred in another area where special measures were not in place.
e This issue had not been escalated to senior management (possibly because local reps thought they had dealt
with it successfully), and therefore only came to light as the accounts were about to be signed. This has led to
a delay in the signing of the accounts.
e Frustratingly for POL, the head of security who knew about this issue had a conversation with their auditors
some months ago specifically about fraud within the network, but did not mention this particular issue.
e — This is therefore an issue of lack of escalation, not fully disclosing it to the auditors and a delay to the
accounts.
e POL are looking to improve systems nationwide now to prevent a repeat of this. They are also looking to give
a firm steer to the business that these issues should be escalated through the channels that already exist.
e E&Y’s fraud team are investigating this issue and are expecting it to take 1-2 weeks. POL think this is an
isolated incident because cash reconciliations have not picked up this problem elsewhere (noting that those
reconciliations did pick up the problem in this case)
e¢ As noted in the attached email, should this issue increase in size, or lead to a further delay in the accounts,
the CFO will let us know. We will then consider whether it is necessary to inform ministers, but we do not
consider that it its necessary at the moment because a) investigations are under way, b) it is not particularly
material, and c) POL’s systems had picked up the issue and the relevant authorities had been informed.
I would appreciate if any onward circulation of this email and its attachment could be kept very tight.
Kind regards
Richard
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Richard Callard I Executive Director
UK Government Investments
1 Victoria Street I London I SW1H OET