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The Post Office sign | AccountingWEB | Auditors facing ‘awkward questions’ as Post Office scandal escalates

Auditors facing ‘awkward questions’ as Post Office scandal escalates


ITV’s drama about the wrongful prosecution of hundreds of Post Office staff has prompted the accounting world to question the role of the auditors in the scandal, as national anger about the miscarriage of justice intensifies. 

10th Jan 2024
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Former Post Office chief executive Paula Vennells announced this week she is to hand back her CBE amid fallout from Mr Bates vs The Post Office, which aired on January 1, as ministers attempt to fast-track plans to compensate and exonerate victims.

More than 700 innocent sub-postmasters were prosecuted, and many went to jail for false accounting and theft based on data from faulty Horizon software, built by Fujitsu, between 1999 and 2015.

Lawyers acting for hundreds of victims said more than 100 people had come forward seeking legal advice since the broadcast of the four-part drama, while the Metropolitan Police is now investigating the Post Office over potential fraud offences.

Where were the auditors?

Software testing consultant James Christie has written extensively on the failings of the Post Office and Fujitsu, with no senior figures held to account despite many wrongful imprisonments and the financial ruin of hundreds of sub-postmaster staff.

With a public inquiry ongoing, he said there are “several awkward questions the external auditors should answer”.

EY audited the Royal Mail from 1986 onward, covering the period where the Horizon software was developed and implemented. The Big Four firm continued auditing Royal Mail until 2018, throughout the period in which data from the faulty Horizon IT software was used as evidence to send innocent Post Office staff to jail.

“There are many valid explanations for why we might not know what is happening in a complex system, but a failure to ask pertinent questions is not a good reason,” he said.

The AccountingWEB Any Answers community has also questioned the decisions taken throughout by the auditors, who are likely to face a reckoning given the mounting fury over a lack of accountability.

In several interviews with AccountingWEB, industry experts described a range of errors that could have fuelled the debacle, with leading accountant and past ICAEW president Julia Penny noting “one of the biggest problems was unconscious bias”, and particularly regarding automation.

She noted in ISA 220, paragraph A35 of the application guidance describes the tendency to favour output generated from automated systems, “even when human reasoning or contradictory information raises questions as to whether such output is reliable or fit for purpose”.

“Essentially the root of the issue seemed to be that the system was believed, despite indications that it wasn’t correct,” she said.

“In addition to this, culture must clearly have been a part of this, as it would appear that throughout the Post Office nobody was questioning the findings, or if they were, they were being dismissed as wrong,” she said.

‘Understandable fury’

Steve Collings FCCA, director at Leavitt Walmsley Associates Limited, said he has been following the case closely and is “astonished” that the auditors dismissed the pleas of the staff and assumed they were responsible.

“Part of their remit should have been to think that surely several hundred [sub-postmasters] cannot be stealing money to that extent,” he said.

“Questions should have been asked as to whether this was to do with the systems in place – which clearly they were,” he said. They should not have simply said that the staff were stealing money and that was that. Reports on the Horizon system found that the system had flaws, but this seemed to have been brushed under the carpet.”

He said the fact the case was spiralling into one of the biggest miscarriages of justice in British history also undermined the role of internal audit.

“Given that some of these innocent individuals spent time in prison, ended their lives and caused untold amounts of stress, it is no wonder that the country is absolutely furious,” he said.

Lack of probing

A lack of expertise in assessing the risks of a system handling such large volumes of transactions is also evident, added Leo Smigel, personal finance expert and the founder of Analyzing Alpha.

“Outside auditors who check the books are important because they look at everything with a fair and neutral point of view,” he said. “When issues first came up about money not adding up after putting in the new computer system, the auditors should have taken a close look at what the Post Office was saying.”

Rather than pinning the blame on low-level workers, the auditors should have investigated further to find the real cause, Smigel said.

“A good audit would have checked the software itself for bugs or problems, and made sure the numbers and reports were right. Missing money that big is a huge red flag that needs careful checking before blaming anyone.”

Why audit really matters

Andrew Gosselin CPA, a former senior strategy consultant for a global, multi-billion-dollar software company, and a senior editor at The Calculator Site, said the fiasco should hammer home that “what auditors do really matters”.

“With the Post Office mess, money went missing out of nowhere once a new computer went in,” he said. “Auditors should have looked hard into why this was and checked if the system really worked right.”

Given the job of outside auditors in a case like this is to provide an objective, unbiased look at the financial reports and controls, they “should have paid close attention” to ensure the financial details were right and if the newly implemented system “could really report finances properly”.

“Good oversight is key for catching difficulties early and making sure finances are tracked right,” he told AccountingWEB.

There are lessons for auditors to learn from the saga, added Keith Donovan, business advisor and founder of Startup Stumbles.

“When potential fraud appears, like the missing money after the new computer system, they should dig into the details,” he said. “In my experience, auditors are at their best when collaborating closely with internal teams. That back-and-forth helps auditors identify risks, evaluate controls, and recommend solutions.”

No scrutiny of the system

“The more I think about this Post Office case, the more concerned I am about how the auditors handled it,” said Branson Knowles, head of US digital banking at Top Mobile Banks.

“Any time you see discrepancies crop up right after a big system change that should be a major red flag to auditors that something might be off or, worse, that fraud could be happening,” he said.

Questions over the missing money should have been asked immediately, he said, with a focus on specific transactions that were not adding up, and whether the new system could be at fault.

“At the end of the day, the auditors had a responsibility to figure out why money was disappearing and if any vulnerabilities were being exploited,” he said.

“All in all, this case really makes it seem like they weren't doing thorough enough audits when things started looking off.”

More than 3,500 post office operators were targeted by prosecutors over 16 years with wrongful allegations of theft, fraud and false accounting.

Despite being aware of faults with Horizon, the Post Office continued to push for legal action, with hundreds of individuals prosecuted, whilst many were financially ruined. At least four suicides have been linked to the travesty.

Replies (54)

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Replying to AndrewV12:
By C Graham
12th Jan 2024 14:03

it happens all the time - less so on such a disgusting scale where it affects people like this but look at the CEO of John Lewis - effectively asset stripped the company and wiped off the value - then leaves with her Damehood intact - out of the door taking a nice pension and final payment. Same with Martin Bashir - BBC - takes the big pension and leaves without any accountability to wrongdoings. They may be different situations but the constant reward for failure is the current trend.

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Small Dog's RAT Return
By Oldmanwetmix
14th Jan 2024 09:05

Just a thought as we go about our day jobs as accountants reflecting on this scandal. Next time there is a request from a fellow accountant for handover information that a client has paid us to produce, we will of course make sure that everything has been sent on that should be, such as base costs of properties, overlap profits (very topical these days), capital losses, etc. My past experience of handovers has been very patchy, from downright obstructive (we deleted it because of GDPR) to couldn't be more helpful and the start of a great relationship with another accountant.

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John Toon
By John Toon
15th Jan 2024 13:11

Ah, the joys of applying a retrospective lens to a historical issue, when all the facts are starting to be known. Unless I'm mistaken (and happy to proven so) I don't recall any comments on here from accountants representing post masters saying what are the auditors doing.

I'm not going to say the auditors are without fault - it's impossible to say without in depth knowledge and seeing the files but to suggest, as one "expert" has, that auditors should be debugging software for errors is laughable. Plenty of accounts software has bugs - I can remember some fun times with Sage 50 and Pegasus back in the day but it wasn't possible, often, to find out about bugs for this kind of mainstream software let alone something entirely bespoke.

It should also be pointed out that one audit firm (PwC) wrote a damning report about the Horizon software, not in their role as auditors, which was completely ignored and we can't say if the auditors at the time ever had sight of it.

Perhaps if the general accountancy market was held in better standing by clients some of the post masters who admitted fault might have stood up to the PO and employed a forensic accountant or two to defend their position? My understanding of the issue, from the time, was some basic duel running could demonstrate the problems Horizon was manufacturing. Alas, many did not, probably not helped by poor legal advice that admitting fault would avoid a custodial sentence...

I wonder how many accountants who acted for convicted post masters are going to take their portion of the blame if that's what we're looking to dish out?!?

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By Mr J Andrews
15th Jan 2024 13:32

The failure to ask pertinent questions , I would say , is down to nothing less than repeated lying , bullying and blackmail. A tough combination for any auditor to get around. Rotten to the core from the top down , at least the Christian approach of initial penance has been demonstrated by Vennells handing back her gong. { Or was this to avoid yet further public humiliation by King Charles getting involved ? }
Seeing the T.V. role of Stephen Bradshaw [ POL invesigator ] and his squirming at the current Enquiry - particularly his admission to being ''not technically minded'' - reminded me of certain Inland Revenue accounts investigation interviews some 40 odd years ago. How many innocent and gullible taxpayers , I wonder, were coerced into making settlement offers rather than face possible further wrath .............
Miscarriages of justice will continue whilst the bias is getting the money in at whatever cost.

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