Post Office Horizon System: Legal fees of £3m and 2 years of legal action – 3 key lessons learned

By Allan Watton on

For almost a decade, the Post Office has been embroiled in a battle with subpostmasters over its core IT system, known as Horizon. It has resulted in the Post Office serving legal action, which has resulted in job losses, jail terms and bankruptcies for the subpostmasters.

Accusations are being made against the Post Office about heavy-handed actions of this state-run institution. In turn, it has accused a number of subpostmasters of false accounting. But after a reported £3m of taxpayer money has been spent by the Post Office on legal fees over two years, are we any closer to knowing the truth behind the controversy of the Post Office Horizon system?

At the heart of the matter is the aforementioned Horizon IT system. It was developed for the Post Office from 1996 by ICL (since taken over by Fujitsu) and it is reportedly the bane of many a subpostmaster’s life.

Post Office Horizon System – The Evolution of a £1bn Headache

On one side of the argument there are the subpostmasters who claim that Horizon system errors are the cause of all of their problems. On the other side of the argument, we have the Post Office which claims this is simply not true as, while there may have been some minor issues with the software, the Post Office states there is no system-wide problem.

The human cost of the controversy is really serious; people have not only lost their jobs, their homes and their freedom, but in one reported case, lost their life to suicide. So, what is going on at the Post Office?

In 1995 the Post Office trialled a new IT system in a few branches. Its original purpose was to automate the processing of benefit payments to minimise the possibility of fraud.

In 1996, after a lengthy competitive procurement process, a division of ICL won the contract to fully develop and roll out a system for all Post Office branches. This was what would become Horizon, costing the taxpayer £1bn to develop and implement.

Thirteen years later, according to an article in Computer Weekly, the system had left in its wake a catalogue of destruction and “stories of subpostmasters who had received heavy fines and even jail terms for alleged false accounting, which they blamed on the Horizon accounting system. The Post Office denies these claims”.

Sometime later, a BBC article revealed:

More than 100 say they were wrongly prosecuted or made to repay money after computers made non-existent shortfalls.”

The article went on to explain that as subpostmasters were not directly employed by the Post Office, they were responsible for balancing the books themselves through the Horizon system. Though a review found there were some bugs in the system, there was no evidence of systemic issues. In summary, the Post Office did not consider the matter a technical one.

A vocal minority of subpostmasters have claimed for years that they were wrongly accused of theft after their Post Office computers apparently notified them of shortages that sometimes amounted to tens of thousands of pounds.

They were forced to pay in the missing amounts themselves, lost their contracts and in some cases went to jail.”

The problem, as later reported in AccountingWEB, was that Horizon would report a shortfall in cash to the subpostmaster, but even if they didn’t believe there was a shortfall, they would:

(a) either have to suck it up and pay the monies into the system out of their own pocket (though as these shortfalls could have been many thousands of pounds, this may not have been an option), or

(b) assume it was just a system hiccup and it would right itself in a day or two.

However, by considering the latter they could be accepting they had a shortfall that needed to be paid back, and when the system did not correct itself the subpostmaster would be on the hook for not only the outstanding balance, but also for falsely concealing that there was a shortfall. When interviewed under caution, a number of subpostmasters appear to have admitted their concerns, but did little about it. As a result, they would be later charged with theft or a charge of ‘false accounting’.

As a result of an initial investigation, Paula Vennells, Post Office CEO, said that “the review raised questions about the training and support ‘offered to some subpostmasters and we are determined to address these issues”, adding that “in many of these cases improvements had already been made.” This was not exactly the admission of responsibility that subpostmasters were looking for.

Subsequently, a new investigation was initiated with forensic accounting firm Second Sight. Their report was leaked to the BBC.

The report – which is confidential – described the Horizon system as, in some cases, “not fit for purpose” [in some branches]. “The system had, according to the report, not been tracking money from lottery terminals, tax disc sales or cash machines – and the initial Post Office Ltd investigation had not looked for the cause of the errors, instead, accusing the subpostmasters of theft.”

The BBC’s article on the report also said that training on the system was not good enough, that “equipment was outdated”, and that “power cuts and communication problems made things worse”. The lead investigator for Second Sight claimed that “there were about 12,000 communication failures every year, with software defects at 76 branches and old and unreliable hardware.” If accurate, this certainly calls into question the cases against many of the subpostmasters.

However, in the same BBC article, the Post Office seems to be sticking to its guns stating: “Although we will not comment on the contents of any confidential documents, after two years of investigation it remains the case that there is absolutely no evidence of any systemic issues with the computer system which is used by over 78,000 people across our 11,500 branches and which successfully processes over six million transactions every day.”

At the same time, a number of subpostmasters, under the banner of the Justice for Subpostmasters Alliance (JFSA), initiated a group legal action in the High Court. The first of these cases is due to be heard this month (November 2018).

The key essences of the case are that numerous subpostmasters claim they are in jail for a crime they didn’t commit, a Post Office that states its accused IT system could not possibly be the cause of the subpostmaster’s hardship, a leaked independent report that indicates fundamental problems exist with the system despite the claims of the Post Office, and the start of legal cases to throw new light on the subject.

So, the question is, could this genuinely be a case of pilfering by subpostmasters, or is this a case of bully-boy tactics meted out in a heavy-handed fashion by an institution unwilling to recognise the failings of their billion pound system?

Lessons We Can All Learn from the Ongoing Row Between Subpostmasters and the Post Office

The Post Office could be seen to be in an invidious PR position. If it is correct and so many subpostmasters were falsifying their accounts, then this will compromise the public’s view of the security of their monies with the institution. Yet, if the subpostmasters who are languishing in prison, or whose lives have otherwise been devastated by the Post Office’s approach, are in that situation due to a technical problem with the systems they were using, what will this institution do to both recognise that the failings were of their own making and compensate the subpostmasters? Worse still, there are no mitigating factors for the poor individual who took their own life.

Until the judgment in the court case has been given, we can only focus on the ways the Post Office could have proceeded to provide better certainty in the first place:

Lesson #1: Rapid Analysis

Horizon has been around for over 20 years. It was initially rolled out in phases, as it should have been, so its impact could be tested before full integration into all post offices. However, when issues started to come to light, it seems that rather than initiate a full independent investigation into the issues the subpostmasters were claiming existed, threats of legal action were meted out and then the Post Office acted upon these threats. Was there some assumption of guilt? Was this an issue that was exacerbated by an inconclusive initial investigation years later? These questions are a challenge to answer from the outside, but it seems that not enough was done quickly by the Post Office to fully assess the situation. There is little public evidence to analyse what exactly was going on with Horizon to determine the validity, or otherwise, of the subpostmaster’s arguments.

Lesson #2: Independent Governance

Once major issues with the Post Office Horizon system were highlighted or suspected, the first thing that could, or should, have been initiated was ongoing independent oversight into the matter. Therefore, if fraud had been the cause then this could have been identified with greater clarity. Moreover, if the problem was not fraud, then the evidence could have pointed the investigation in another direction, avoiding years of trauma for potentially innocent subpostmasters.

Lesson #3: Full Disclosure

There have also been claims that when forensic accounting firm Second Sight were instructed by the Post Office, they were not provided with all the information they should have been in order to make a quicker assessment of the issues at hand. In the previously mentioned AccountingWEB article it stated: “But friction developed between the forensic accountants, Second Sight, and the client. The accountants claimed that the Post Office withheld relevant documents.” The article goes on to say: “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.”

It seems the findings reported by Second Sight have been rejected by the Post Office and their prosecutions of subpostmasters continued. Overall, it seems there are question marks over the Post Office’s willingness to follow through with a more transparent independent investigation.

We will keep an eye on the court cases brought by the JFSA against the Post Office to see what new information comes to light and will share this with you. As lessons learned go, rapid response, independent analysis, and full disclosure will certainly be a good start, should you find your organisation in a similar situation.

Photo credit: iStock, fiorigianluigi

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Additional sources:

Horizon IT High Court case could have a “material” effect on Post Office accounts