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Witness Name: Russell Paul Hancock
Statement No: WITN 0367_1
Exhibits: WITN 0367_1/1 — WITN 0367_1/3
Dated: 21st July 2022
THE POST OFFICE HORIZON IT INQUIRY
Witness Statement of Russell Paul Hancock in the Post Office Horizon IT
Inquiry
I, RUSSELL PAUL HANCOCK OF Finsbury Dials, 20 Finsbury Street, London EC2Y
9AQ, SAY AS FOLLOWS:
1.
My name is Russell Paul Hancock. I am the Supply Chain Director at Post Office
Limited ("POL"), a role that I have held since February 2017.
Except where I indicate to the contrary, the facts and matters contained in this
witness statement are within my own knowledge. Where any information is not
within my personal knowledge, I have identified the source of my information or
the basis for my belief. The facts in this witness statement are true to the best
of my knowledge and belief.
In this statement I use the term "Postmaster" to refer to those individuals,
companies and partnerships who/which are responsible for running branches
in the Post Office network pursuant to contracts with POL, but excluding those
individuals who are directly employed by POL to work in branches that are
directly managed by POL. Depending on the context, references to “the
Postmaster" should be read as referring to or including, as appropriate, the
Postmaster's staff and/or representatives.
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4. In my role as Supply Chain Director, I am responsible for the day to day running
of the whole of POL's supply chain operations. This includes responsibility for
the cash management team (including planning cash holdings for branches,
cash forecasting and the management of the POL cash centres), as well as the
management of other stock, such as stamps, bureau (meaning foreign currency
notes) and marketing collateral.
5. This witness statement has been prepared in response to the request made by
the Inquiry pursuant to Rule 9 of the Inquiry Rules 2006, dated 17 December
2021, for the provision by POL of the same or similar information that POL
previously provided to the Inquiry at a number of "teach-in" sessions between
April and June 2021 (the "Teach-In Rule 9 Request"). Where this statement
makes any reference to policies, processes or systems that have been adopted
since those sessions, this statement reflects the position as of 8 February 2022
when this statement was first provided to the Inquiry in draft.
6. lam aware that my colleague, Alison Clark, is providing a witness statement to
the Inquiry in relation to most of the information provided in Teach-In Sessions
1 to 4. In this witness statement, I set out only the information requested by the
Inquiry in question 10 of the Annex to the Teach-In Rule 9 Request. That
question relates to the cash movement process, including the handling of
discrepancies, as explained by POL at the second teach-in session relating to
Central Accounting Processes and Practices at Post Office Ltd - How is POL
Client Data Integrated Monthly with Branch Network Data? ("Teach-In 2").
7. Where I refer to specific documents in this statement, copies of those
documents are exhibited to this statement in a series of exhibits marked (WITN
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0367_1/[X]) and identified by the Inquiry's unique reference number for that
document.
TEACH-IN SESSION 2: CENTRAL ACCOUNTING PROCESSES AND
PRACTICES AT POL. HOW IS POL CLIENT DATA INTEGRATED MONTHLY
WITH BRANCH NETWORK DATA? — 28 APRIL 2021
8. Teach-In 2 took place remotely, over video conferencing, on 28 April 2021, and
I was there in my role as Supply Chain Director and I answered the Inquiry's
questions relating to those issues. Some cash management matters
provided information in relation to the supply chain elements of stock and cash
management.
9. Amongst other issues, Teach-In 2 covered the cash movement process,
including how POL dealt with discrepancies.
Cash counting and measures in place to prevent discrepancies I
10. POL operates four cash centres, which are in London, Birmingham, Glasgow
and Belfast. On average, around £3 billion moves around the network of Post
Office branches and POL cash centres every month. Not all of this is handled
by POL, as much of the cash is simply turned over in the branches, meaning
that the cash is received at and paid out at the branches, without being sent to
a POL cash centre or otherwise being handled by POL.
11. In the past, the movement of cash was more frequently from POL to the
branches, as branches had a greater need for cash for things such as pension
and benefits payments. Now, most branches are "cash surplus", rather than
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“cash deficit", in that they take in more cash than they hand out. This is, at least
in part, because pensions and benefits are now increasingly paid by bank
transfer, not cash. The usual flow of cash at present, therefore, is from the
branches to the POL cash centres.
The cash counting process varies (or, at least, has varied historically) between
the various cash centres. In relation to cash that is received at the cash centres
from the branches:
a. In England & Wales, the issuing bank for currency is the Bank of England
and the Bank of England's rules apply in relation to fitness and
authentication standards. Therefore, in the London and Birmingham
cash centres, the process for cash counting follows the Bank of
England's rules. These rules require all notes to be authenticated to
ensure that they are not forgeries and that they meet the necessary
fitness/quality standards before they are recirculated. In accordance with
these rules, all cash is processed through a desktop method whereby
each pouch is cut open under camera and the separate bundles of cash
within each pouch are individually counted through a desktop note
counter. Then, the total cash in each pouch is amalgamated and
reconciled against the amount expected from the particular branch or in
that pouch through a high-speed note machine. That machine also
authenticates the notes to Bank of England note standard quality.
b. The Bank of England also has some authority over the cash centre in
Glasgow, such as auditing security standards. However, the issuing
banks in Scotland are high street banks, namely the Bank of Scotland,
the Royal Bank of Scotland and Clydesdale Bank. The Bank of England
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rule in relation to the use of a high-speed note machine therefore does
not apply to Scottish-issued notes. Prior to 2012, therefore, the Glasgow
cash centre followed the same desktop method of opening the cash
pouch(es) under camera that I have described for London and
Birmingham, but the reconciliation and amalgamation was then
undertaken manually, again under camera. In 2012, the Glasgow cash
centre was automated and moved fully into line with the process used in
London and Birmingham through the introduction of a high-speed note
machine for the amalgamation and reconciliation processes.
In the Belfast cash centre, all cash counting is also subject to the same
initial desktop process of opening the pouches and counting the cash
under camera. However, the Bank of England's stipulation that a high-
speed note machine must be used does not apply. Instead, POL passes
the processed notes to the Bank of Ireland, which is the issuing bank in
Northern Ireland, for them to authenticate and amalgamate. This is more
efficient than for POL to buy and maintain its own equipment, given the
lower volumes of cash that are processed in Belfast.
13. The process in the Glasgow cash centre was aligned with that in Birmingham
and London because the volume of notes being processed in Glasgow justified
the change and to take advantage of the following benefits:
a.
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In England and Wales, POL can obtain balance sheet relief for any cash
that it holds and that has been counted and verified in accordance with
the Bank of England rules. Effectively, the cash held by POL is treated
as being held on the Bank of England's balance sheet, rather than
POL's. Until very recently, POL had a similar relationship with
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14,
15.
16.
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Clydesdale Bank. By aligning the process in Glasgow to that in the
London and Birmingham cash centres, POL could also claim similar
balance sheet relief in relation to the cash that it held at the Glasgow
cash centre.
b. There were also operational benefits. With the process in Glasgow being
aligned to the same standards as the England cash centres, cash from
the England could be counted in Glasgow. This could help support cash
counting in the north of England and in circumstances where, for
example, a note machine in Birmingham was broken.
However, far lower volumes of notes are processed in the Belfast cash centre
and the balance sheet relief is not available. POL has therefore continued to
run its Northern Ireland operations in line with the Northern Irish rules.
At each of the cash centres, once the cash has been counted, the amount in
the pouch(es) from each branch is reconciled against the amount that was
expected. If there is a discrepancy during the count, it is always double-
checked. Cash processing colleagues can check discrepancies up to £20,
anything from £20 up to (and including) £99 needs a team leader and
discrepancies above £100 need to be checked by a manager.
In relation to any confirmed surplus/deficit:
a. POL sends any surplus back to the branch.
b. Ifthe reconciliation shows a deficit of less than £10, POL will simply bear
that loss. If the deficit is greater than £10 then the cash centre will write
to the branch and give them the details of the discrepancy. The
discrepancy (either a surplus or deficit) will also appear on Horizon, to
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which the branch staff have access. The branch then has two weeks to
investigate the discrepancy and to respond to the cash centre as to
whether they have found anything in branch that can highlight why a
deficit was found (for example, a corresponding surplus). The branch
staff can also attend the relevant cash centre, if they wish, to review the
footage, either individually or through representation by the National
Federation of SubPostmasters ("NFSP"). The footage of the cash
counting is retained at the relevant cash centre for three months, in case
a branch wishes to dispute a count. POL is in the process of updating
this process to allow branches to review the footage of the first-stage
cash count (where the cash pouch is opened, the contents checked and
the discrepancy is identified) remotely. Following a live pilot with a
selection of branches over the course of summer 2021, the intention is
that this process will be rolled out across the network of branches later
this year. In addition, POL has started to invite branch staff into its cash
centre and CVIT operations, so that they can see the processes for
themselves.
If the discrepancy is agreed, the branch and the cash centre will then
agree how to resolve the discrepancy. The process for doing so falls
outside of my responsibility.
17. If a challenge is unsuccessful, the Postmaster can appeal the adverse finding
to a panel constituted of members of the NFSP and POL staff. This panel was
put in place in 2005. With effect from 2016, this process changed to allow for
appeals to be made to the Supply Chain Head of Cash Management instead.
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18.
19.
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Since 2016, the Head of Cash Management has only had to adjudicate on one
occasion and, on that occasion, found in favour of the branch.
As explained above, all cash centres ordinarily go through a two-pass process
to count the cash received. The first level of validation is at the desktop counter
(under camera) with a second level of validation being undertaken by the high-
speed note machine. However, there may be occasions where POL would run
a "single pass process". In London, Birmingham and Glasgow, that would mean
that the desktop count element was removed, and notes were just counted and
authenticated through the high-speed note machines.
Single pass processes like this are extremely common amongst other
wholesale cash counting operations. In fact, the vast majority of cash
processing in cash centres supporting high street banks is done this way.
However, at POL, the cash centres would only use a single pass process in
circumstances where the volume of cash being received at that cash centre is
unusually high or where staffing levels at the cash centre are temporarily low
(for example during periods of high absence or where industrial action causes
staff shortages). In these circumstances, there is a risk that cash would not be
processed quickly enough if it is counted using POL's normal two-stage
process. This could hamper the business, and so a single-pass process
(consistent with those used by many other wholesale cash counting operations)
may be used. The single pass process improves productivity. Where a single
pass process is used, any surplus identified is returned to the relevant branch
and any shortfall is borne by POL.
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The cash collection/distribution process
20. All cash that moves between the POL cash centres and the branches is tracked
and is under continuous camera surveillance from its collection in branch, to
entering and being on the cash-carrying vehicle, to being opened in a POL cash
centre for processing. Likewise, when cash is delivered from a POL cash centre
to a branch, the cash is tracked and is under continuous camera surveillance.
21. POLuses a company called G+D (who are a leading player in the provision of
cash centre infrastructure services) to provide the cash warehouse
management system and software. Their products and services allow POL to
track the cash deposits from the cash centre to the point where the cash is
handed over in branch (and in the reverse, where a branch returns cash to the
cash centre). This means that there is a full audit trail of this process.
22. _Inrelation to cash being collected from a branch and being delivered to a POL
cash centre, the process involves the following steps:
a. The branch prepares the cash into pouches, which will show up on
Horizon as "Cash in Pouches";
b. Amember of POL's Cash and Valuables in Transit ("CVIT") team attends
the branch to collect the cash;
c. The CVIT personnel presents their ID and the CVIT Authorised
Collectors Card ("CVIT ACC Card") to the appropriate branch staff
member. The CVIT ACC Card is a security card, issued to POL by the
Security Industry Authority (the "SIA"). The SIA issues a new series of
CVIT ACC Cards to POL every six months. Each CVIT ACC Card has a
unique barcode, coming within a barcode range that is unique to POL.
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That barcode range changes every six months when the SIA issues a
new series of cards. When a cash delivery/collection needs to be made,
POL issues a CVIT ACC Card to the CVIT personnel. When that CVIT
ACC Card is presented by the CVIT personnel at a branch, the branch
staff scan the barcode into Horizon and if the barcode is within the POL
barcode range, then Horizon will show that that CVIT personnel is
authorised to receive the cash. In this way, the CVIT ACC Card provides
an added layer of security to identify the CVIT personnel. Once this
identification verification has been completed, the cash pouches are
scanned and handed to the CVIT personnel and the branch staff get a
receipt for the value of the cash being returned to POL. The cash now
appears on Horizon as “Inbound Cash";
The cash is then taken to the vehicle in cases that each contain up to
being the insurance limit for cash in a case);
The cash is then emptied into a metal safe in the vehicle under camera
and is tracked and kept under video surveillance all the way to the local
cash depot. No one has access to the metal safe until it arrives at the
cash depot;
The cash pouches are taken out and scanned and the pouches are
counted under camera to perform a reconciliation of the cash on the
vehicle against the cash expected to be on the vehicle;
Any cash that then needs to go back to a cash centre is placed into a
“level 2 container", which is then scanned onto a truck and kept under
video surveillance as it drives to the nearest cash centre; and
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h. The container is receipted on arrival at the cash centre and is off-loaded
from the truck. It is broken down into the pouches and those pouches
are re-counted and reconciled in accordance with the processes for the
London, Birmingham, Glasgow and Belfast cash centres, above.
Counterfeit notes
23.
24,
25.
POL sets out clear steps that branch staff should undertake to identify
counterfeit notes. Those steps help branch staff identify counterfeits using the
key features of genuine notes, such as being made of polymer material, having
unique features such as watermarks and so forth. Branch staff are also
provided with guidance, including industry and Bank of England guides, to
assist them with recognising counterfeit or out-of-circulation notes (both sterling
and bureau), although that training is outside the scope of my responsibility.
Prior to 2019, if a branch accepted a counterfeit note, but then discovered it
ahead of it being sent to the POL cash centre, the loss would have been borne
by POL (provided that the counterfeit was taken by the branch in error).
However, branches bore any losses resulting from their acceptance of
counterfeit notes that were sent to, and subsequently identified as counterfeits
by, POL at a cash centre.
This system has been reformed so that, since 2019, POL now bears the burden
of all losses resulting from counterfeit notes, provided that the branch has acted
in good faith and undertaken the necessary checks on the security features of
the note. I would estimate that about 90% of the time, POL does not pass any
loss back to the branch. However, there are occasions where the branch has
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failed to undertake reasonable checks, in which case POL might pass the loss
back to the branch, if it has satisfied itself that it would be appropriate to do so.
26. POL has sought to improve the support given to branch staff in relation to
counterfeits by (i) introducing improved training and guidance; and (ii) making
information on both sterling and foreign bank note standards available through
the Horizon help pages and Branch Hub (an online platform that enables branch
staff who use the platform to conduct certain activities in support of the running
of their branches) since March 2021.
Cash delivery/collection on Horizon
27. Since 2005, the following process has applied in relation to how/when cash
delivery appears on a Horizon terminal:
a. For inbound cash into a branch: cash appears on the Horizon terminal
once the cash pouch and the CVIT ACC card are scanned. The cash is
then populated into the branch's cash account.
b. All the cash that has been delivered and scanned will automatically be
credited on Horizon to the branch's overall cash holdings. If some of that
cash is for an ATM, the branch must make a physical entry on the
Horizon terminal to move the cash and designate it as ATM cash. In
practice, this does not always happen. This can lead to issues with POL's
planning for the correct level of cash holding for that particular branch.
For example, the branch might be showing as holding more cash than it
actually holds (and so it might not be sent any/as much cash as it needs)
or its ATM cash levels might be recorded as lower than they actually are
(and so it might be sent cash for the ATM that it doesn't actually need).
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28.
29.
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The process, in terms of Horizon, for cash collections is set out above.
Both in relation to cash being received by a branch and cash being returned by
a branch to a cash centre, the cash figure being received / returned will sit in
the background of Horizon until the pouches and CVIT ACC cards are scanned.
This allows the branch staff to see the amount of cash coming in and POL to
understand the amount of cash expected to be collected from the branch.
Treatment of cash stock
30.
31,
32.
All cash (including coin, notes and bureau) is treated in the same way from a
planning and accounting perspective. The branch will receive a “planned order"
message in Horizon up to 48 hours before its scheduled CVIT
delivery/collection. This message indicates the amount of cash that the system
proposes will be sent to/collected from the branch. The Postmaster and/or their
staff can adjust this figure in Branch Hub or by contacting the POL Cash
Management Team in Bristol. Coin volumes are not included on the planned
order message.
On occasion, POL needs to send cash to branches in an emergency and there
is not a convenient CVIT vehicle nearby/available to make the delivery. In those
circumstances, POL will utilise Royal Mail Special Delivery. This is a tracked
and insured mode of delivery that allows POL to send up to £7,500 in cash to
branches in separate £2,500 pouches. If a branch receives cash this way, the
branch staff must scan the accompanying barcode in order to enable the cash
figures to be loaded into Horizon.
By comparison, for stock, branches order the stock that they require through
the Horizon terminal. That stock is then despatched to the branch either through
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33.
34.
35.
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POL’s own CVIT network (for value items, such as stamps and biometric
passports) or Royal Mail (for transactional/non-value stock such as posters,
PPE, printer cartridges, pouches and marketing collateral). Stock is currently
not auto-populated into Horizon in the same way as cash. When stock arrives
in a branch, the branch staff have to physically count it into the branch and
make a manual entry onto Horizon. Guidance is provided to Postmasters and
branch staff in relation to the management of stock, for example in the “Guide
to Managing Stamps" (WITN 0367_1/1).
POL requires branches to complete a daily cash declaration on each of their
branch stock units (being the physical till that branch staff use to serve
customers), indicating the cash volumes the branch is holding. Branches
declare cash by denomination each day by 19:00 and POL uses this declared
figure for planning cash requirements. Horizon also returns a total generated
figure of cash in branch, based on cash transactions, cash deliveries, and cash
collection. This gives a total of all cash in the branch, although this is not broken
down into products (such as ATM notes, branch notes or coin).
If POL does not receive a cash declaration from a branch then it will use the
Horizon-returned generated cash figure for planning. This is less than ideal
because the generated cash figure may be inflated by the amounts of coin,
unusable notes, ATM notes and any Cash in Pouches.
POL also overlays additional cash needs for issues such as winter fuel
payments. Where a branch is aware of things occurring outside of the branch
that could impact its cash needs (such as a local ATM going offline that will
drive footfall into the branch), POL encourages the branch to contact it so that
it can help to adjust the branch's cash holdings.
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36. As set out in paragraphs 12 to 17, all cash received by a POL cash centre from
a branch undergoes a thorough reconciliation process as against the branch
records.
37. POL undertakes regular audit checks of branches and, with very few
exceptions, the cash balance in branch at audit matches the amount held within
Horizon. This is because, provided that the daily cash declarations are being
undertaken by the branch correctly, the cash holding for that branch as
recorded on Horizon will be updated accurately on a 24-hour cycle.
Training to branches in relation to cash counting
38. Training on cash accounting and effective management of cash in branch is
provided and made available to Postmasters and/or their staff through a variety
of sources:
a. Training on weekly accounting, monthly accounting, and general cash
management (including best practice to undertake daily cash
declarations and end of day activities) is provided through classroom
training courses. Delegates practice, under supervision from the
Classroom Trainer, production of cash declarations and balances.
b. Guidance is also available on these topics in the "Operational Training
Guide" (sections 11, 12, 14 and 10 respectively) (WITN 0367_1/2). New
Postmasters and/ or their staff are given a copy of the Operational
Training Guide when they attend the classroom sessions. The
Operational Training Guide is also available, along with other documents
referred to during the classroom training session, on Branch Hub. In
addition, following the judgment in relation to the historic issues, POL
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has also devised and implemented the Postmaster Support Guide. This
sets out the particular ways in which the various POL teams (including
my team) can support Postmasters and/or their staff in running their
branch and contains information regarding daily procedures, including
cash remittances and declarations. "Postmaster Support Guide" (as at
April 2021), (WITN 0367_1/3).
Work aids are also available regarding the delivery of remittances (both
cash and stock) into the branch, and there is an additional work aid
available regarding investigating cash discrepancies in branch.
Existing Postmasters and/or their staff can access Horizon Help via the
Horizon terminal in branch and/or Branch Hub. Horizon Help sets out
relevant guidance and support on cash-related topics or indeed any
other operational topic.
39. Postmasters and/or their staff are provided with any updates to operational
procedures via a weekly Branch Focus update published on our One website
and also available on each Horizon terminal.
40. -POLa
Iso now provides additional support to all new Postmasters and/or new
branch staff. With effect from September 2021, new branch staff can speak to
a dedicated member of the cash management team during their first 2 months
who is able to talk them through any issues or questions that they have in
relation to cash matters. If the branch staff raise queries through this channel
that are better answered by another team within POL, the cash management
team will do what they can to put the branch in contact with the appropriate
POL team.
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Statement of truth
I believe the content of this statement to be true.
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Witness Name: Russell Paul Hancock
Statement No: WITN 0367_1
Exhibits: WITN 0367_1/1 — WITN 0367_1/3
Dated: 21st July 2022
THE POST OFFICE
HORIZON IT INQUIRY
WITNESS STATEMENT OF RUSSELL
PAUL HANCOCK
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Ref: 9100/31048180
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THE POST OFFICE HORIZON IT INQUIRY
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Index to the exhibits to the Witness Statement of Russell Paul Hancock
No.
Exhibit Number
Document
Description
Control Number
URN
WITN 0367_1/1
Guide to
Managing
Stamps
POL-0023189
POL00028012
WITN 0367_1/2
Operational
Training
Guide
POL-0024557
POL00028029
WITN 0367_1/2
Operational
Training
Guide
POL-0024558
POL00028030
WITN 0367_1/2
Operational
Training
Guide
POL-0024559
POL00028031
WITN 0367_1/2
Operational
Training
Guide
POL-0024560
POL00028032
WITN 0367_1/2
Operational
Training
Guide
POL-0024561
POL00028033
WITN 0367_1/2
Operational
Training
Guide
POL-0024562
POL00028034
WITN 0367_1/2
Operational
Training
Guide
POL-0024563
POL00028035
WITN 0367_1/2
Operational
Training
Guide
POL-0024564
POL00028036
WITN 0367_1/2
Operational
Training
Guide
POL-0024565
POL00028037
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WITN 0367_1/2
Operational
Training
Guide
POL-0024566
POL00028038
WITN 0367_1/2
Operational
Training
Guide
POL-0024567
POL00028039
WITN 0367_1/2
Operational
Training
Guide
POL-0024568
POL00028040
WITN 0367_1/2
Operational
Training
Guide
POL-0024569
POL00028041
WITN 0367_1/2
Operational
Training
Guide
POL-0024570
POL00028042
WITN 0367_1/2
Operational
Training
Guide
POL-0024571
POL00028043
WITN 0367_1/3
Postmaster
Support Guide
(as at April
2021)
POL-0023098
POL00027921
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