Director Bartfields Forensic Accountants
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Post Office rebuffs Horizon forensic report

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20th Apr 2015
Director Bartfields Forensic Accountants
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The Post Office Horizon accounting scandal is back in the news. David Winch looks back over the case.

There have been over 150 cases in which sub-postmasters have been accused of dishonesty in relation to cash shortfalls but have claimed that the Post Office software system, known as Horizon, is the culprit.

Typically what happens is that Horizon flags up an apparent shortfall in cash.  Under their contracts sub-postmasters are required to make good any cash shortfalls.  But what if the sub-postmaster does not believe any shortfall has really occurred?

One seemingly attractive option is for the sub-postmaster to accept the cash figure shown on the Horizon system in the hope that there has simply been a hiccup which will resolve itself in a few days or that the error has been caused by cash in transit or some other temporary issue.

But by accepting that they have cash which actually they do not, sub-postmasters can end up in hot water.  A shortfall has been concealed which they would be obliged to make good if it were revealed.

If the issue does not resolve itself the sub-postmaster finds himself continually making false statements concerning his cash on hand.

When Post Office internal auditors make a spot check they will discover a dishonest sub-postmaster and a cash shortfall.  Typically the sub-postmaster will be formally interviewed under caution, he will admit making false returns on the system and will face prosecution.

In these circumstances sub-postmasters and mistresses may be prosecuted for theft of the apparently missing cash, but without proof of the actual theft of money. In the light of any admission of making false returns, the outcome may be a guilty plea to an alternative charge of ‘false accounting’.

But the sub-postmasters understandably complain that this scenario involves an injustice and a failure to investigate alleged problems with the Horizon system.  They complain that, not unlike a Wild West sheriff in a Hollywood movie, the Post Office are inclined to “shoot first and  ask questions afterwards.

After considerable pressure the Post Office appointed independent forensic accountants, Second Sight, to carry out an investigation.  The organisation also set up working party and arrangements for mediation in disputed cases.

But friction developed between the forensic accountants, Second Sight, and the client.  The accountants claimed that the Post Office withheld relevant documents. 

The Post Office then terminated the accountants’ contract and disbanded the working party. Second Sight nonetheless produced a confidential report, but the Post Office did not accept the conclusions.

In extracts from the report published by BBC reporter Nick Wallis, the forensic accountants concluded: “For the Horizon System to be considered fully ‘fit for purpose’ for all users, it would, in our opinion, need to accurately record and process, with a high degere of error repellency, the full range of products and services offered by Post Office, whilst providing a clear transactional audit trail allowing easy investigation of any problems and errors that arise. The cases that we have reviewed demonstrate that this design objective has not always been achieved.” 

The Post Office denies any suggestion it improperly withheld information from the accountants or that serious deficiencies exist in the Horizon system.  The Post Office published a report on the situation on its website and said there “has been an exhaustive and informative process which has confirmed that there are no system-wide problems with our computer system and associated processes” and that they “will now look to resolve the final outstanding cases as quickly as possible”.

Nevertheless a self-help organisation set up by the sub-postmasters, the Justice for Sub-postmasters Alliance, remains dissatisfied and an enquiry by the Parliamentary Select Committee for Business, Innovation & Skills resulted in a letter to the Secretary of State last month referring to a “lamentable lack of information provided to Second Sight”  and urging the government to become “actively engaged in investigating these concerns” and to take steps to ensure that relevant documents are not destroyed.

It does seem that the Post Office were initially willing to appoint independent forensic accountants but then were uncomfortable with the direction in which those accountants’ investigations were going and the conclusions they were reaching.  If they were expecting a whitewash they were disappointed.

David Winch is a forensic accountant and expert witness specialising in crime and proceeds of crime, and is a frequent contributor to AccountingWEB. He also leads AccountingWEB's Money laundering and crime discussion group.

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By DMGbus
21st Apr 2015 08:59

Small operators / large operators

Presumably the instances of prosecution involve small operators, for example single subpostoffice businesses.    As such they would most likely lack the financial resource to adequately defend themselves.

 

Now, I wonder what would happen if a public company (eg. national chain of newsagents) received such demands from  the Post Office in relation to it's operation of subpostoffice counters - would they just accept that Horizon is perfect and flawless so any alleged shortfalls must be deducted off bottom line profits?   I think not.    Presumably any such instances / negotiations (if they exist) would be kept quiet and free from public knowledge.

My concerns are are follows

If the issue is genuine it will affect large operators as well as small operatorsLarge operators would most likely not accept bearing the cost of unproven shortfalls just because an allegedly discredited software product states that there are shortfallsIs it possible that the Post Office has entered into secret unpublished agreements (under confidentiality agreements) with large operators that it would not do with smaller operators?

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By JC
22nd Apr 2015 13:12

Basic first steps to check if computer problem …

Data is the key starting point - and being able to replicate the discrepancy/problem! Once you have this there can be no argument

Can someone explain why forensic accountants were used rather than computer specialists

Simple questions

What steps were taken to isolate the problem(s) at the time they occurred? In many cases these were not one-off incidents and all transactions for the branches in question should have been replicated into a test system so that they could be investigated

This fundamental approach would have provided copies of the actual offending data at the time these issues were raised and could be used for future testing to determine where any problems arose

In fact whilst Second Sight were conducting their 2 year audit did any PO branches encounter these problems? If they did then why did the auditors not insist on isolating the data from the offending branch (perhaps they did - so what were the results?) and running it through a test system to see if they could emulate the discrepancy

Once the test system can reproduce the problem then that is half the battle – all one subsequently needs to do is track down if/where the issues occur

Frankly any half competent computer person could have come up with a way of isolating the problem

After all it is only a glorified EPos system and a small PO will not be putting through thousands of transactions a day, although even if they did that should not be a problem

http://www.computerweekly.com/news/2240175402/Post-Office-admits-that-Horizon-system-needs-more-investigation

 

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David Winch
By David Winch
22nd Apr 2015 14:19

It is difficult to understand how it has come about that these issues - which have been known about for many years now - have not been resolved one way or another.

For reasons which I describe in the article to some extent the focus has been on admitted misdeclarations by sub-postmasters rather than on the initial causes of the apparent cash shortfalls.

I do not have any inside information on what work Second Sight undertook but I understand that they have expertise not just in accountancy but also in IT matters.

Further information may become available in due course.

David

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