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Witness Name: David Smith
Statement No: WITN05460100
Dated: 23 February 2024
POST OFFICE HORIZON IT INQUIRY
FIRST WITNESS STATEMENT OF DAVID SMITH
I, David Smith, will say as follows:
1. I am providing this statement following receipt of a letter from the Post Office
Horizon IT Inquiry dated 28 November 2023, which made a request for
information pursuant to Rule 9 of the Inquiry Rules 2006 — Request number
1, regarding matters falling within Phase 6 of the Inquiry: Governance.
2. I have followed the news in relation to the Horizon issues and understand the
importance of the Inquiry. Whilst it cannot change what the Sub-Postmasters
(‘SPMs’) went through, I hope that it will assist in bringing them some peace
and a better understanding around what happened and I am pleased to be
able to participate. This statement is written to the best of my recollection
and with my deepest sympathies to everyone who was and continues to be
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affected by the Horizon IT issues and the related legal action taken against
them. I only held the role of Managing Director for 7 months and
subsequently left the Royal Mail Group (‘the Group’) in 2011. Inevitably my
recollection of this short period in office has been limited by the passage of
time but I have done my best to answer the Inquiry’s questions to the best of
my knowledge.
. I can confirm that I have had legal assistance in producing this statement
from Ashfords LLP. When seeking to obtain legal assistance, I was initially
assisted by Post Office Limited to confirm the availability of insurance
coverage to cover the associated legal costs.
Background
4.
I graduated from Kent University with a degree in Accounting and Economics
and qualified as a Chartered Accountant with The Institute of Chartered
Accountants in England and Wales in 1989. By the time I joined the Post
Office Limited (‘POL’) in 2010, I had around 25 years of experience in
finance and general management across various sectors. My career history
leading up to joining the POL was as follows:
e October 1986 — May 1990: Audit Senior at Spicer and Oppenheim
(Deloitte Touche)
e June 1990 — April 1994: Mercury Communications (Cable and Wireless
PLC) UK Start up Utility
o 1990 —- 1992: Management Accountant
o 1992 — 1994: Financial Planning & Analysis Manager
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e May 1994 — October 1999: Birmingham Cable (Telewest PLC) (£100m
Business)
o 1994 — 1996: Financial Controller
co 1996 — 1999: Finance Director
e May 1999 - October 2001: RS Components UK (Electrocomponents PLC)
(£400m Business)
o 1990 — 2000: Finance Director
o 2000 — 2001: Head of Business Development
e August 2002 — 2010: Royal Mail Group PLC (£9bn business)
o 2002: Finance Director Business Sales and Solution
o 2003 — 2006: Finance Director Parcelforce
o 2007 — 2009: Managing Director Parcelforce
o 2010: Managing Director (“MD”) POL
5. I took the role of MD at POL from April 2010 and left towards the end of that
same year, although I cannot recall the precise date. My time as MD of POL
was around 7 months in total. As a main Board director, I also held a number
of subsidiary directorships on behalf of the Group and when I left POL, I
moved back to the Group to become Chief Customer Officer. Paula Vennells
took over as MD after I left, although I remained a director at POL for around
a further 7 months, until July 2011 when I also left my role as Chief Customer
Officer at the Group.
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6. Having left, I became Chief Executive Officer (‘CEO’) of City Link, a
subsidiary of Rentokil Initial PLC and remained in this role until December
2014. During the following year and a half I carried out various short-term
consulting assignments at F22 Consulting until June 2016, when I became
CEO at Bellrock Property and Facilities Management until June 2022. From
October 2022 to March 2023, I was Interim Managing Director at Serco
Environmental Services. Starting in July 2023, I became CEO at Lifetime
Training, a UK market-leader as an apprenticeship training provider and I
remain in this role to date.
Role as Managing Director at Post Office Limited
7. As noted above, I commenced my role as MD of POL in April 2010 and
remained in the role until around the end of the same year.
8. In terms of my appointment, I can recall that I was interviewed by Donald
Brydon, Chair of the Group at the time, as well as a Government Shareholder
Executive, although I cannot recall their name. It was a full external process,
following which I was appointed.
9. At the time, POL was one of the Uk’s largest retailers with around 12,000
branches, 8,000 employees and circa 11,500 SPMs. As MD, I was
responsible for the overall running of the business and I had full Profit and
Loss accountability. At that time POL was approximately a £900m turnover
business. During my time as MD, I still reported to the CEO of Group, Moya
Greene.
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10. My priorities at the time were to steer POL through the 2010 general election
and start work on the privatisation of the Post Office, helping to establish a
strategy for separation. The financial position of POL was poor, which was
exacerbated by the banking crisis in Ireland given that all of our financial
services were linked to Irish banking. My primary goal was to steer the
business through this difficult time and stabilise its financial position,
including obtaining a financial settlement with the government and support
for the State Aid claim through the European Union.
1
. The Board was responsible for the roll-out of the upgrade of ‘Horizon’ to
‘Horizon Online’ and therefore this was ultimately my responsibility. I feel it
important to point out that, in light of the major issues facing the business
outlined above, my primary focus was on keeping the business afloat in a
financially precarious time and, as a result of this, and the fact that the roll-
out was already well underway, Horizon Online was a lower priority.
12.When I joined POL I knew very little, if anything, about its role in respect of
prosecutions. However, I am almost certain that when I joined I had a briefing
from the head of each department to inform me about what they did and how
they worked. Sue Crichton (Company Secretary) was Head of Legal at the
time and therefore she would have given me an outline of the role of the
Legal Department and I assume that this briefing would have covered the
criminal enforcement work but I am unable to recall any specific details.
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13.As MD, I had oversight of all of the departments including Legal, IT, Problem
Management and the Security/Investigation department. However, they were
all headed up individually and I did not manage any of them directly or have
any involvement in day-to-day activity or departmental decisions. My
responsibility was to make sure that the teams were adequately resourced
and carrying out their duties in line with the agreed departmental
responsibilities.
14.All of the heads of department would give monthly Board reports, providing
an update on their department. For example, in Legal’s monthly report, they
would provide an update on outstanding cases. My knowledge and
involvement in the investigation and prosecution of SPMs was limited to
these reports and having a general oversight of the department, with the
primary responsibility for prosecutions lying with the head of department. I
have not been provided with any of the Legal Board Reports for the time that
I was MD and I am unable to recall any details but anything major or any
specific problems would have been reported up to the Board. I only held the
role of MD for around 7 months and during this time, no material changes
were made to the involvement of the Board in legal matters.
15.1 cannot recall any changes to policies, guidelines or practices followed by
POL in respect of criminal prosecutions or civil proceedings, including
investigating alleged offences and the process of disclosing documents. I
had no involvement in the establishment of the practices and policies that
POL adopted in respect of suspending or terminating SPM’s contracts. All of
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the mechanisms were already in place when I arrived and did not change
during my short time in the role. From what I can recall, as a subsidiary of the
Group, most of the policies and procedures of POL were derived from and
identical to those used by the Group.
16.Where any changes to policies, guidelines or practices were required, a
specialist in that area would draft them and present them to the Board, who
would review and adopt them. For example, I can recall that Health and
Safety and GDPR policies were reviewed annually by the Board.
17.1 had no involvement in the conduct of audits of SPM’s branch accounts.
Horizon
18.When I first arrived in April 2010, the Post Office was rolling out a new
generation of the Horizon system. Within my first week, it was clear that the
new system was causing problems at branches where it had already been
rolled out as there were issues with freezing of accounts which meant that
individual branches could not trade. I can recall that I was asked by the
Operating and IT Teams to escalate the problems we were having to Senior
Fujitsu team, to see if they could expedite a fix. I can remember holding a
discussion, where I asked Fujitsu to sort out the issue otherwise we would
have to roll back to the old system. I cannot remember the details but the
specific issue which I had been asked to raise was quickly resolved and we
then continued with the roll out to the new Platform. The report of Rod Ismay
(POL00107129 - discussed further below) later addressed the issue of
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freezing of accounts, in light of concerns about accounts integrity when
transactions were cut off mid-flow. The report states “transaction alerts were
in place and revised operational instructions have now been issued to enable
branches to complete or to cancel the accounting entries dependent on
whether they physically completed the cash transaction with the customer.”
(P.8 of the report). In light of this report, I do not recall being concerned that
the freezing of accounts was causing or contributing to a lack of integrity to
the Horizon IT system as, in my mind, it had been resolved.
19.Later on, in around June or July 2010, I remember that some questions were
raised regarding Horizon, in light of a parliamentary question from Ms Patel
(Member of Parliament) and a Channel 4 news report which was looking into
the losses that SPMs were experiencing. I believe that the Board were asked
by the Department of Business, Innovation and Skills (“BIS”) (now known as
the Department for Business and Trade) to pull together answers to these
questions and conversations were subsequently held between management
Board members — Mike Young, Mike Moores, Paula Vennells and myself —
on looking into whether the system was robust. I believe that Sue Crichton
and other senior management would have been involved in these
conversations as well.
20.1 cannot recall precisely what happened next but I can remember that we
asked for confirmation as to why we were being told that the system was
robust. This resulted in a report being written which I understand has been
named ‘the Ismay Report’ by the Inquiry. I have discussed the report in
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further detail below but had the report given any sense that there was a
problem, we would have done a deeper dive into the system. However, it was
unequivocal in telling us that the system was robust and providing reasons
as to why.
POL corporate structure and governance
21.My role as MD and company director at POL was no different to any other
CEO or director role. I had a fiduciary responsibility to the stakeholders to
manage the business in proper financial and regulatory terms and to produce
and execute a strategic plan which supported the aims of the shareholders.
22.Underneath these overriding duties, I had a responsibility for allocation of
budget and resources and making sure that the right control systems were in
place for risk management and finance. These were all in place when I
arrived and I do not think that I changed anything material about the
governance of the business when I was there.
23. The Inquiry have asked me to set out my understanding, at the time I joined
POL, of what risks and/or compliance issues could arise from POL
prosecuting SPMs for theft and false accounting and pursing civil litigation
against them to recover alleged shortfalls in branch accounts. I do not recall
now exactly what my understanding of the risks and/or compliance issues
was at the time but I have attempted to set out below an explanation of what I
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believe my understanding would have been and what my thoughts are on it
now.
24.As a Crown Office, POL dealt with public money and therefore had a
responsibility to protect the public purse. This included making sure that all
of the monies were properly accounted for and protected with one of the
most obvious risks being money stolen from tills. In order to discharge this
responsibility, the organisation needed to have a system of checks and
balances in place, such as daily and weekly balance checks and internal
audits. These systems were already well established long before my arrival.
So too, was the practice of prosecuting those who had demonstrably been
shown to have stolen from the organisation or shown to have falsified
accounts. I cannot recall thinking that any risk or compliance issues arose
from POL undertaking this role, but with the benefit of hindsight, and in light
of the wrongful prosecutions, I can see the inherent risks in the prosecutions
taking place ‘in house’ and not by an independent enforcement authority.
25.The below summarises what my views were on the responsibilities of a
Board of Directors in the operation of a company solely owned by HM
Government, in respect of:
a. oversight of criminal prosecutions brought in the name of the company;
b. oversight of civil litigation brought by or against the company;
c. oversight of the company’s IT;
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d. oversight of any accounting system the company used to collate
individual transactions, cash or stock declarations etc. used for the
purposes of preparing management and statutory accounts; and
e. oversight of the company’s compliance with the Race Relations Act
1978 and/or Equality Act 2010.
Oversight of criminal prosecutions brought in the name of the company and
oversight of civil litigation brought by or against the company
26. My views on ‘a’ and ‘b’ above are the same and are as follows: it was the
responsibility of the Board of Directors to make sure that we were identifying
potential risks to the business of loss of assets. This included having a
robust set of investigation processes and procedures to include taking
reasonable and proportionate legal action where the investigation justified
such action being taken. The Board would receive monthly reports from the
Legal Team and had a responsibility to ensure that any issues raised in
those reports by the Head of Legal were addressed and that the team was
appropriately resourced. Head of Legal, Sue Crichton, had responsibility for
the day-to-day running and oversight of civil and criminal prosecutions.
Oversight of the company’s IT
27.At the time, Mike Young was the director responsible for operation of the
back office, including IT. Under him there was an IT director, Lesley Sewell.
As with all departments, the IT team would produce monthly reports to the
Board, providing an update on the day-to-day functions of the systems, any
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data changes and activities of development of the system. The Board had a
responsibility to fund, install and maintain appropriate IT systems to run the
Post Office. There would have been an annual technology strategy which
would say where IT investments were needed in the business and which
would be signed off by the Board. Mike Young would then report back to the
Board the progress on new installations and upgrades, as well as general IT
progress. As with all departments, the Board would receive monthly reports
from IT and any major issues would be reported up to the Board, with the day-
to-day oversight lying with Mike Young. The Board had a responsibility to
respond to any issues identified in these reports and ensure that the team
was adequately resourced.
Oversight of any accounting system the company used to collate individual
transactions, cash or stock declarations etc. used for the purposes of
preparing management and statutory accounts
28.1 cannot recall having any involvement in this aspect as the physical system
was managed by an IT function. Use of the accounting system was managed
by Mike Moores (Financial Director) and the finance team. Operational use
of the Horizon system would have been managed by Paula Vennells, (Chief
Operating Officer), whilst maintenance of the IT estate more generally was
managed by Mike Young and the IT Team. However, as with our oversight of
IT, the Board had a responsibility to fund, install and maintain appropriate
systems and controls to allow the team to carry out their role. The Board
would also receive monthly reports which gave them a general oversight of
the accounting system so that they could respond to any issues raised and
ensure that the team was appropriately resourced.
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Oversight of the company’s compliance with the Race Relations Act 1978
and/or Equality Act 2010
29.At the time, the Human Resources director was Debbie Moore and therefore
I think that this would have been her responsibility. As with all departments,
the Board would review the team’s monthly reports and had a responsibility
to ensure that any issues raised in those reports were addressed and that
the team was appropriately resourced. The Board would establish policies,
procedures and a reporting structure and appropriate training to ensure that
the business discharged its legal responsibilities under the Act. I believe
that these were closely linked to, if not identical to, the Group.
30. The Inquiry have asked me to summarise the corporate structure of POL and
the Group when I joined POL as director. I cannot recall much detail as it
was very complicated but in simple terms, POL was a subsidiary of the
Group and all of the POL subsidiaries reported up into POL.
31. The Group, as a matrix organisation, had a Public Limited Company Board
with a Chair, a number of Non-Executives, a Group CEO, Group Chief
Finance Officer, Company Secretary and Group Functional Leads, such as
Human Resources and a set of Divisional Managing Directors, including Post
Office and the international subsidiary, ‘GLS’.
32. There was a separate POL Board, generally Chaired by the Group
Chairman. It too, had a non-executive member, and I believe the Group CEO
and CFO, plus the Post Office MD, Post Office FD and COO.
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33. Both Boards would meet typically monthly, and all meetings were minuted.
The leadership style at both meetings was very similar and typical in my
experience of a Corporate Board with a suitable balance of debate,
challenge and opportunity for people from different standpoints to provide
input.
34.The Group had sub-committees in place as you might expect around other
matters, such as Treasury, Audit, Remuneration, Nominations and Health
and Safety. POL as part of the Group would input as appropriate to those
sub committees, and I believe also had its own Audit Committee. Their
meetings were less frequent as directed by the main Board but I would
expect from memory that they would have met at least quarterly.
35. Once it became clear that the Government intended to separate Royal Mail
and Post Office it became necessary to put in place a clear line between the
two organisations. I remember for example that the then CEO of the Group,
Moya Greene stepped off the POL Board, and that we started to recruit an
independent Chair, Alice Perkins, who joined just after I left the Group.
36.In terms of the operations of the POL Board, I believe that they met formally
monthly, and the Executive Team would have most likely met weekly. The
monthly meetings followed a strong set formula and agenda which would be
signed off by a combination of The Chairman (Donald Brydon), other Board
members and myself. There was also a rolling agenda to look at all parts of
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the business across the year. So for example, we would inspect the Sales
performance and plan maybe twice a year.
37.As referenced above, the monthly POL Board meetings would include an
update from the different departments, as well as each of the Board
members. Dependent on what was going on at the time, we would then have
a deep dive into specific subjects that were tabled. We spent a lot of time
discussing business strategy because we needed a new strategic plan to
take to Government. This included discussions around the general financial
position of the Post Office Group that at the time was financially weak and
we needed a new settlement with the Government. We also spent a lot of
time on working through the implications of the separation of POL and the
Group.
38.The Executive Team of POL met less formally in weekly meetings which
discussed the day-to-day and weekly operations of the business. These
would discuss upcoming issues that we needed to prepare for, any
operational challenges and general updates in each director’s respective
area. The general purpose of these meetings was to communicate what was
happening on a week-to-week basis and check in if anybody needed any
help.
39.The weekly meetings were much more operational and would not have been
attended by the Chair, Group CEO or non-executives. Attendees would have
generally been my first report team including individuals such as Mike
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Moores, Paula Vennells, Sue Crichton, Mike Young and Debbie Moore, as
well as myself.
40.In terms of reporting, each department produced their own report which
would measure their Key Performance Indicators and would look at the
Change Agenda that they were managing and identify any areas of risk and
concern or opportunities that they wanted to flag. There would be a standard
finance report each month and a standard ‘change programme pack’ that we
would go through on a monthly basis. I think that there was also a general
KPI pack, as well, giving the headlines of the operating metrics of the
business. I cannot remember if this was a separate pack or included as part
of reports. Sitting alongside this, investment cases were typically presented
to the Board for any new investments that people wanted to get approval for.
There would also be standard items such as minutes from the previous
meetings and action points.
41.If a member of the Executive Team did not attend POL Board meetings, then
they would still provide a report and sometimes send a substitute. It a
substitute could not attend, then the Board would report back to them after
the meeting just as you would expect in any other company.
42.POL was a subsidiary company and therefore I would also report to the
Group on a monthly basis and sat on the Group Board where we would have
a standing item to talk about POL for part of the session and provide an
update on whatever was relevant.
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43.The POL Board had differing levels of IT expertise, depending on their role
and responsibilities, but central to that, Mike Young and Lesley Sewell were
subject matter experts and had day-to-day responsibility for IT. The rest of us
were not experts in the systems but were obviously aware of their importance
from an operation and strategic perspective.
44.The Inquiry have asked me to set out to what extent, if at all, the POL Board
discussed the Horizon IT system and the bringing of prosecutions or civil
proceedings against SPMs, whilst I was MD. Without the Board meeting
minutes I cannot answer definitively but it is my recollection that these issues
would have been discussed by the Board. The monthly report from IT would
have talked about the Horizon system upgrade roll out and the monthly
report from Legal would have talked about prosecutions and civil
proceedings. Separately, we had questions raised through the Summer of
2010 following the Channel 4 programme and Parliamentary Questions
about the Horizon system that we were talking about. Beyond this general
overview, I cannot recall exactly what was discussed.
45.1 do not know and cannot comment to what extent, if at all, other teams,
groups or departments within Post Office Limited discussed these matters.
46.It was my opinion at the time that the corporate structure of POL and the
Group was adequate to fulfil its responsibilities. It was also my view that
POL’s overview of these responsibilities was adequate.
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47.As far as I can recall, there was no material change to the governance
structure during my time. We were starting to prepare for the separation of
the Group and so we were starting to think about how we would have to work
differently with the shareholder executive and BIS because the interests of
the Group and POL were no longer aligned. Towards the end of my time as a
director we did commence the recruitment of an independent Chair, which
was established during July 2011 in contemplation of separation. However, it
was a significant amount of time after I left that the separation took place.
48.In terms of how the Government maintained oversight of POL, I can recall
that we reported to the Government Shareholder Executive, providing regular
updates on performance and finance etc. although I cannot recall the exact
nature of the reports. As discussed above, I had periodic meetings with the
minister (Ed Davey) where we would discuss a range of things, but the vast
majority of these meetings concerned the strategic plan around privatisation,
refinancing, state aid and the Irish banking crisis. I would also have had
regular dialogue with the Civil Service Team at the Department of BIS,
supporting the minister through a series of regular phone calls and email
correspondence.
49.At the time, I thought that the oversight was good and the Government were
very supportive. There was a challenge in that, following the election, we had
the first coalition Government in years and both sides of the Government had
different agendas for what they wanted to do with the business meaning that
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there were some challenges in terms of understanding what the direction of
travel would be. Therefore, a lot of my time was spent discussing what we
wanted the Post Office to be and how we would fund it effectively. The
Government also recognised the potential conflict of interests between the
Group and POL and were supportive in the establishment of an independent
Chair.
Knowledge of Horizon
50.When I commenced employment at POL, the only knowledge that I had of
the Horizon IT System was that it was the main operating system of the
business. I was not aware of any bugs, errors or defects within Horizon, that
there was a lack of integrity within Horizon, or of any complaints in respect of
the same.
5
.I do not believe that I had any training on the Horizon IT System as this was
not needed because I was not operating it on a counter.
52.When the integrity of the Horizon IT System was challenged, questions were
raised with Fujitsu and later on, I requested a report to look into these
challenges (the Ismay report). I have discussed this report in more detail
below. These questions were not personally raised by me to Fujtisu but I
cannot recall who did have direct contact with them. I also went out and
about in the business and saw the system first-hand and became more
aware of its functionality.
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53. The Inquiry have provided me with document POL00041564 — Rebecca
Thomson's article published in Computer Weekly on 11 May 2009. I cannot
remember whether I read it before the Inquiry provided it to me although it
was written before I joined POL and I do not recall being briefed on this
article specifically when I joined the business. It is my recollection that I was
aware of the existence of a Computer Weekly article by Summer 2010 which
was when I had taken steps to ask questions about Horizon within the
business.
Horizon Online
54.1 have considered document FUJ00174292 — email from Gavin Bounds to
Gilbert Roger on 9 April 2010 and POL00001615 — Forward one2eleven
Programme document for 9 April to 15 April 2010.
55.When I joined POL, it had already started the extensive rollout of the next
generation of the Horizon IT System. This is reflected in document
POL00001615 with p.3 confirming that “the Horizon Online pilot continues to
run at 614 branches, but further branch migrations remain suspended due to
the series of live service interruptions which have occurred since 26 March.”
56.1 cannot recall having seen the email dated 9 April 2010 (FUJ00174292)
before. Upon review, it is reflecting on a call that I had with the Fujitsu senior
team in my first couple of weeks to facilitate the fixes to the screen freeze
issues which were identified within the Horizon IT system. This was the
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extent of my direct involvement with the management or oversight of the pilot
and roll out of Horizon Online.
57.In terms of the acceptance process for Horizon Online, there was a
programme set up to roll it out which had started before I joined. I recall that
there was an acceptance criteria for ‘go’ and ‘no go’ which the Project team
had set up. This would have been brought to the Management/Executive
Board to discuss and we would have agreed as a team what steps were
needed to fix it in order for us to say yes, you can now roll it out further. The
acceptance was a team decision, instead of any individual making the
decision.
58.At the time I joined, I was not satisfied that Horizon Online was an adequate
system because it was having issues with freezing and needed to be fixed.
Once these issues were fixed and it had gone through extensive trials in the
pilot phases and we were happy that it demonstrated that it did what we
wanted it to do, we were satisfied that it was an adequate system. I did not
directly set any of the criteria or do any of the testing.
Concerns raised by SPMs, MPs and journalists
59.All concerns raised by SPMs, MPs and journalists would be received, and
dealt with, by our Executive Correspondence Team. Anything that would
have come from an MP or a Stakeholder, which was addressed to me, would
be managed by that team. This includes the letter dated 5 June 2010 from
Mrs Stubbs (POL00004669). The Executive Correspondence Team would
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deal with the specifics of any questions and raise relevant enquiries of the
business to answer them. They would then draft a response, obtain sign off
from a stakeholder and send it to me if I needed to sign the letter.
60.1 did not have any involvement in the day-to-day running of the legal cases
61.
and any complaints which were of a legal nature would have been handled
by the Executive Correspondence Team, through the Legal Team. I may
have subsequently heard about them in the monthly Board report if they were
material.
We would often get letters from local MPs worried about Post Offices in their
constituencies closing and from local stakeholders worried because we were
in the middle of a strategic review. Therefore, it was not unusual to have a
letter coming in from an MP saying that they were worried. I cannot
remember the numbers but I think that we would have received a few letters
a day from various stakeholders including MPs. This was higher than in other
sectors and industries that I had worked in, but the public focus upon the
Post Office was amplified and different to anywhere else I had worked due to
community responsibility and involvement. I can recall seeing letters from all
manner of people in public office, including David Cameron. Generally these
were letters about ‘save our Post Office’ or asking for extra services. From
memory, I do not recall seeing any relating to the Horizon IT System
specifically and I do not recall seeing any in respect of criminal or civil
litigation. Again, all of this correspondence, would be dealt with by the
Executive Correspondence Team.
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62. Our policy in respect of complaints was generally to reply to everybody who
wrote to us but each case was individual and had to be treated as such. We
did not have a cookie cutter template which said the answer that we would
provide.
Concerns raised by Pamela Stubbs
63.In respect of the concerns raised by Pamela Stubbs, I have reviewed the
following documents:
i. POL00004669 (letter from Pamela Stubbs dated 5 June 2010);
ii. POL00004866 (letter from Simon Smith to Pamela Stubbs dated 8
June 2010);
iii POL00106847 (bundle regarding Barkham Post Office date 18
February 2011).
64. I cannot recall reading the letter from Pamela Stubbs to me dated 5 June
2010 (POL00004669) prior to having received it from the Inquiry and it
appears to have been answered by Simon Smith, part of the Executive
Correspondence Team (POL00004866). This reaffirms my recollection that I
did not deal with these matters but that they were dealt with by the Executive
Correspondence Team.
65. I cannot recall and the documents do not assist me in knowing, what
investigation took place. I am therefore unable to comment on whether Ms
Stubb’s case was handled differently to usual.
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66. The Executive Correspondence Team were set up to answer all complaints
and they would have enquired with the relevant departments to understand
the issue and draft a response. If appropriate, the answer might appear on
my desk to cast an eye over but this did not always happen. I do not know if
it happened in this case and cannot recall having seen either letter prior to
receiving them from the Inquiry.
67. I had very limited involvement in dealing with individual complaints and in
this case, the letter is not signed by me which means it is unlikely that I
would have had any involvement. It is fairly standard in large businesses for
a team to be set up to deal with correspondence to the MD.
68. I do not recall this complaint and therefore have no knowledge of the issues
raised within it relating to shortages caused by the Horizon IT System.
Concerns raised by Priti Patel MP.
69.1 have reviewed document POL00001762 (letter to Priti Patel MP on 20 July
2010). The letter is signed by me and states the following:
“there has been no evidence found that shows that the Horizon system has
caused accounting errors. I am satisfied that there is no evidence to doubt the
integrity of the Horizon system and that it is robust and fit for purpose.”
70.1 have not seen any information to assist me in relation to the work
undertaken in order to provide this letter. It is likely that either myself or a
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71.
72.
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member of the Executive Correspondence Team would have approached the
Legal Team, the IT Team and the Operational Team to ask for their opinions
and rationale as to why our stance was that the Horizon IT System was
robust and why we are certain of this view. This is a letter from an MP raising
serious concerns and would have been something which I took very
seriously. I am confident that I would not have written my response without
being satisfied at the time with what we were saying, and based on the
provision of relevant information. I appreciate that this is an incomplete
answer, noting too that this was sent before the review by Rod Ismay. I
appreciate that the Inquiry may be concerned as to how I was able to make
those representations prior to that review being carried out. I would like to
assist the Inquiry further, but in order to do so, I would need to see further
information, including relevant Board level reporting and minutes,
correspondence within the Executive Correspondence Team,
correspondence between the Executive Correspondence Team and the
Board (including myself) and any other relevant information.
Channel 4
I have reviewed my email to Mike Young and others on 21 July 2010 at p.3 of
POL00120481.
Leading up to this email, various questions were being raised in respect of
the Horizon IT System, including a Parliamentary Question from Priti Patel.
We were also made aware that Channel 4 would be running a news item on
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the same issue. I have not seen any minutes around this subject matter and
so cannot be certain on the detail, but I recall that the questions caused us
as a Board to talk through concerns and agree what we should do in
response to them.
73.My email is addressed to Mike Young (Head of IT), Sue Huggins
(Operational lead) and Mike Moores (Finance Director) and it looks from the
email like we met and chatted to work our way through our responses. Due to
the passage of time, I cannot say why these particular questions laid out in
my email were asked, but they are likely to be a combination of what I was
asking, what the team was asking and the Parliamentary questions. In brief,
these questions ask why were we confident that Horizon was robust. These
questions are not an attempt to set up a formal internal investigation into
Horizon but were designed to stress test why our stance was the way it was
in terms of our defence of the robustness of the system and, from there,
judge if we needed to go further in our investigations.
74.1 believe that after this email and the general conversations around these
questions, the Board needed somebody to carry out the review and I asked
Mike Moores to take the lead. Mike and I agreed that Rod Ismay would be a
good person to carry out the exercise which he did, resulting in him
producing a report back to the Board (POL00107129). I cannot recall the
specifics as to why Rod Ismay was selected but he was a senior member of
the team, being one level down from the Board, had been in the business for
many years and had extensive knowledge of Horizon as a Department Head,
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responsible for the running the accounting for Horizon. He was also an
auditor by training and well-respected in his role.
75. There was a strong desire from all parties to produce an answer quickly and
an internal review was the first step to achieving this. Had this report given
any suggestion that there needed to be an independent review, I am
confident that we would have requested one, but the report was unequivocal
in saying that the Horizon IT system was robust and providing reasons as to
why. There was no suggestion that it could be tampered with or that there
were any aspects of it which suggested fault and needed further
investigation.
76.In respect of the above, I feel it important to add that my recollection is very
limited due to the passage of time. I would have expected that there were
formal parliamentary questions which, in the normal course of events, would
have been relayed to us by BIS. I would also expect that there would be
internal correspondence within the Executive Correspondence Team,
between the team and the Board of Directors including myself, as well as
correspondence between them and relevant parts of the business where they
have sought information in order to respond to correspondence received.
However, I have not had sight of any of this correspondence or any related
Board minutes. Should any additional documents in respect of these subject
matters be forthcoming, I would be happy to review and assist further where I
can.
Receipts and Payments Mismatch Bug
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77.1 have reviewed document FUJ00081584 (Receipts/Payments Mismatch
issue notes). I did not work directly with any of the individuals listed in this
note. This document is undated and so I am unsure as to whether it was
produced during my time. However, I cannot recall being aware of the bug
described in this note.
The Ismay Report
78.I have reviewed document POL00088957 (email chain on 2 August 2010)
and POL00107129 (the Ismay report dated 2 August 2010).
79.As noted above, the report was requested in response to the concerns raised
around the robustness of the Horizon IT System, including a Parliamentary
Question raised by Priti Patel. It was not intended to be a full investigation
into Horizon, but to answer the questions being put to POL about the Horizon
issues.
80.1 do not recall who gave Rod Ismay the direct instructions but it is likely that
he would have spoken to both our Finance Director, Mike Moores and myself
about it and we would have provided the context of why it was needed. I
would have said that the Board felt uncomfortable that we were saying the
Horizon IT System was robust in light of the complaints raised and that we
wanted him to provide a paper on whether the system was robust or whether
there were any issues that should concern us.
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81.A formal terms of reference was not provided but the email dated 21 July
2010 at 19:04, contained in document POL00120481, lists the questions that
the report was asked to cover.
82. It is not clear from what is presented if more formal instructions were laid out
and signed off. With the benefit of hindsight a better defined set of terms may
have been useful, but it is clear from what is presented that the key issues
are questioned and would have covered those issues being asked at the
time. I also believe that I spoke with Rod Ismay to further explain the context
for the request for him to carry out a review. I cannot say for definite but I
expect that I asked him to produce an answer for Parliament and to provide a
response to the Channel 4 news item and therefore I wanted to get
something which would quickly but effectively confirm what our position was
and if it was incorrect. At no time did I or the Board steer Rod to a specific
answer to any of the questions in the report.
83. The report is unequivocal in saying that the Horizon system is robust and
that any accounting errors are attributable to user error. It states “We remain
Satisfied that this money was missing due to theft in the branch — we do not
believe the account balances against which the audits were conducted were
corrupt.” It also says that “the integrity of Horizon is founded on its tamper
proof legs...”. This is something that I had been told many times i.e. that
nobody could get into the system to tamper it.
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84.1 cannot recall how we used the report once we received it and whether we
circulated the entire report to respond to the questions or drafted responses
based on the report.
85.1 have not received any meeting minutes and am unable to recall any briefing
that we received with the report or meetings to discuss the same. However, I
believe that the Board sat down with Rod and went through the report in fine
detail. The report is addressed to the entire Senior Management Team
across the business for their input and comments upon the document. As
such, it would have been reasonable for the Board to assume that all
material elements had been reviewed and that any dissenting views were
captured.
86.At the time, I do not think that we thought that there was any merit in
commissioning a further report by an IT expert or a forensic accountant or
similar to test the reliability of Horizon as the report was clear-cut in its
position. There was nothing in it which suggested we should investigate
Fujitsu or Horizon further. Following the report, the case of Seema Misra put
the Horizon IT System to the test at trial and the expert evidence was tested
by the defence. This gave the same result that the Horizon IT System was
robust and I do not think that the issue was raised materially again during my
time.
87.1 have read Rod Ismay’s statement dated 13 January 2023 (WITN04630100)
and note that he says that he was asked to summarise existing conclusions.
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This is simply not my recollection and I do not believe that this is inferred by
the email correspondence which sets out the basis upon which I requested
the review to be carried out (POL00120481). I also disagree with the
comments that he made during the course of his live evidence to the effect
that I was only seeking one side of the story.
Rv Misra
88.1 have reviewed POL00169170 (email from Rod Ismay to Jarnail Singh and
others on 22 October 2010). Within this email chain there is an email from
me dated 21 October 2010 at 15:17 to Rod Ismay, Mike Moores, Mike Young
and Paula Vennells saying “Brilliant news. Well done. Please pass on my
thanks to the team.” This email was sent in response to Jarnail Singh
reporting back on the case of Seema Misra, that she was found Guilty of theft
after a lengthy trial. It was intended to be a congratulatory email to the team,
knowing that they had worked hard on the case.
89. However, knowing what I do now, it is evident that my email would have
caused Seema Misra and her family, substantial distress to read and I would
like to apologise for that. My comment of ‘brilliant news’ was in relation to me
thinking that it was brilliant news that, in my mind, Horizon had been proved
to be robust following the testing of the expert evidence in the trial. Even if
this had been a correct conviction, I would absolutely never think that it was
‘brilliant news’ for a pregnant woman to go to prison and I am hugely
apologetic that my email can be read as such. Regardless of the result, I
would have thanked the team for their work on the case. However, seeing
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this email in the light of what I know now, I understand the anger and the
upset that it will have caused and sincerely apologise for that.
90.1 had no involvement in building or running the Misra prosecution although it
was reported through Sue Crichton’s team to the Board on a regular basis
and so I was aware of it. I can recall that it was seen as significant following
the Channel 4 news item, because it was the first time that the robustness of
Horizon would be put to the test in Court, with expert evidence involved.
9
. The case ran parallel to a time when the Board were preoccupied with
sorting out the refinancing of the Group and securing a £1.5bn investment
from government and supporting in the subsequent State Aid approval
process. Therefore, although we were aware of the case, at Board level we
were not heavily focused on it as our attention was on keeping the business
running.
Resignation
92.In around November / December 2010, it became clear to me that the
direction that the government wanted to take the POL in was not the same as
the direction that I wanted to take it in. At this same time, I had the
opportunity to move back to the Group as Chief Customer Officer which was
a promotion and so I took that opportunity. I was still director of the POL
Board for 6 or 7 months following but handed over the day-to-day running to
Paula Vennells.
General
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93.Although my time within POL was brief, I have spent a lot of time reflecting
on it and whether there is anything that I would have handled differently. I
think that this is something that everybody has thought about and it is
impossible not to feel a huge sense of regret and remorse, regardless of
ones own involvement.
94.When concerns were brought to light around the Horizon IT System, I
requested a review which was carried out by Rod Ismay which was
unequivocal in its answer. We were never provided with any suggestion that
the Horizon IT System could be tampered with and always reassured of the
opposite. Had we known that this was not true, we would have approached
things differently. Knowing what I do now, I should have asked for an
external, independent review to take place even if that meant not being able
to respond quickly to news reports or questions about Horizon. At the time
we were repeatedly given reassurance that the system was robust.
95. In the period I was there, it was a time when there was growing concern
around the separation of the business, coupled with a banking crisis which
had the potential to bring down the Group. These were incredibly weighty
matters and my priorities at the time were on the survival of the business.
Because of this, maybe the Board were not as focused as we could and
should have been on the Horizon issues.
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96. Looking back, I think that there was an institutional bias to not interrogate
further what was being said by SPMs and the public about Horizon. At the
time, the Board took comfort from knowing that there were systems and
processes in place for the management of cash and stock. Looking back,
there were potential opportunities missed at the time of the Ismay report to
dig deeper, or to consider an external investigation. However, if the
fundamental position of Fujitsu remained that is was tamper proof, the
Investigation Teams were not raising any issues identified during
investigations, and Legal were not raising any issues regarding the safety of
taking legal action, it is not clear to me that during my short time, the Board
would have necessarily acted any differently at that time.
97.1 had no involvement in prosecutions and therefore do not feel that I am able
to comment on the approach to prosecutions or related disclosure. However,
it is important for any public organisation to demonstrate that the public
purse is safe and I think from that angle, I would have expected the Post
Office to use its powers to prosecute where there was robust evidence of
theft or false accounting provided that the prosecutions proceeded in
accordance with a robust enforcement policy and any other relevant legal
framework or guidance. I cannot comment on disclosure as I did not have
any involvement in any of the cases.
98. Having reviewed the documents provided to me by the Inquiry and having
followed the news around the Horizon IT System, my overarching view is
threefold: firstly, that for my short time, there were many other priorities
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critical to the survival of the business which I think meant that POL was not
as focused on Horizon as it could have been; secondly, that we did instigate
a review to stress test the organisation’s position regarding the reliability of
Horizon but that review was insufficient and it meant that the Board did not
reach the correct conclusion; thirdly and most importantly, that I hold a huge
sadness that this happened. I am fully aware of just how long Campaign for
Justice has been going on for and I can only look on with huge regret that it
took so long to uncover and then begin to right the suffering caused.
Statement of Truth
99.1 believe the content of this statement to be true.
Dated: 23" February 2024
Index to First Witness Statement of David Smith
No URN Document Description I Control Number
1. I POL00107129 I Memo from Rod Ismay to I POL-0105437
Dave Smith Mike Moores
and Mike Young Re
Horizon - Response to
challenges regarding
system integrity
2. POL00041564 Bankruptcy, prosecution I POL-0038046
and disrupted livelihoods -
Postmasters tell their
story; reported by
Rebecca Thomson -
Article
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FUJ00174292
Email chain from Gavin
Bounds to Duncan Tait,
RE: Post Office
POINQ0180473F
POL00001615
Weekly Highlight Report -
Forward one2eleven
Programme - F1-000 - By
Sue Whalley, Dave Smith
& Neil Ennis
VIS00002629
POL00004669
Letter from Mrs P J
(Pamela) Stubbs to Mr
Smith (Post Office Ltd)
re: Horizon Issues and
Shortfalls
VIS00005737
POL00004866
Letter from Simon Smith
to Mrs P J Stubbs RE:
Response to letter dated
5 June
VIS00005934
POL00106847
Email chain between
Security - Fraud Team
personnel concerning
investigation into SPM
Stubbs - Barkham Office
POL-0105155
POL00001762
Letter from David Smith
(POL Managing Director)
to Priti Patel MP,
responding to
Parliamentary Question
re Horizon
VIS00002776
POL00120481
Email chain from Mark
Burley to Mike Young,
Sue Huggins cc Nick
Beal and others re: RE:
Urgent channel 4 horizon
issue
POL-0126172
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10.
FUJ00081584
Receipts/Payments
Mismatch issue notes
POINQ0087755F
11.
POL00088957
Email from John Breeden
to Angela Van-Den-
Bogerd cc: Sue Huggins,
Tracy Marshall and Lin
Norbury RE: Horizon
Integrity final report
POL-0080918
12.
WITN04630100
Statement of Rod Ismay
dated 13 January 2023
WITN04630100
13.
POL00169170
Email from Rod Ismay to
Jarnail A Singh, Mandy
Talbot, Hugh Flemington
and others re Regina v
Seema Misra - Trial
result
POL-0167423
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