Filed on behalf of the: Defendant

Witness: P. Smith
Statement No.: First
Date Made: 16 November 2018

Claim No: HQ16X01238, HQ17X02637 & HQ17X04248

THE POST OFFICE GROUP LITIGATION

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ROYAL COURTS OF JUSTICE

BETWEEN:

ALAN BATES & OTHERS

Claimant

AND

POST OFFICE LIMITED

Defendant

WITNESS STATEMENT OF PAUL IAN MICHAEL SMITH

I, PAUL IAN MICHAEL SMITH of No.1 Future Walk, Chesterfield, 849 1PF WILL SAY as
follows:

1. I am the Operations Support Manager at the Finance Service Centre (FSC) at

Post Office Limited (Post Office).

2. I am authorised to make this statement on behalf of Post Office, the Defendant in

these proceedings, in relation to the Horizon Issues trial listed for March 2019.

3. The facts set out in this statement are within my own knowledge, or if they are
outside my knowledge, I have explained the source of my information or belief.

BACKGROUND

4. I have been with Post Office/Royal Mail since 24 June 1996. I worked for the
pensions department up until 1998 and then moved to HR and was a payroll
clerk, dealing with Post Office's employees' pay until 1999. I then moved to the
Network Business Support Centre Helpline (NBSC; the helpline), which I helped
to grow from a small entity to take over from regional helplines.

5. In 2000/2001 I left NBSC to work as a Problem Manager. As a Problem Manager

I would be dealing with problems that came through the NBSC helpline, for
example if a transaction was incorrect and a Subpostmaster could not reverse it.

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I would look at whether this was an individual incident or whether it affected more
of the Post Office estate and I would investigate it and correct the issue. There
were other stakeholders across the business who were also able to raise
problems, including Transaction Processing (Finance Service Centre or FSC) and
Client Management.

6. I became a Core Information Manager in around 2003, where I led the team that
updated the Knowledge Base for NBSC. The Knowledge Base contains articles
that relate to different categories of calls that NBSC receive and is used by the
NBSC team when attempting to help to resolve issues reported by branches.

7. In 2004 I moved to Chesterfield to become the Filing Manager, dealing with

paperwork that came in from all branches. I held this role for around 6 months
before moving to work as Lottery Manager in 2004 - 2005 where I primarily dealt
with open error items. Open items are where two sources of the same data do
not match and it is necessary to decide which one is right and make any
necessary corrections. Lottery transactions and scratch card transactions are
carried out on the Lottery terminal and Subpostmasters are required to account
for Lottery transactions on Horizon on a daily basis. I understand that my
colleague Angela Van Den Bogerd is describing the process for the sale and
accounting of lottery transactions.

8. In 2005 - 2006 I became Client Account Team Leader and my role and
responsibilities expanded significantly. I continued in this role until around 2011
when I became a Change Analyst, looking at changes coming into FSC. The
FSC is the account processing centre that provides daily services to clients,
branches, multiple partners and customers. If something was changing in the
Post Office network it usually had a direct effect on finance, so my role was to
make sure that FSC's voice was heard and finance was considered when
changes were implemented.

9. I then became the Santander Manager, which was essentially the same as my
role as Lottery Manager but with Santander as the client. In 2013 I was asked to
go back to Lottery and I worked as a Team Leader, managing a team resolving
open items and any issues that may have arisen. The team split in 2016 following
a re-organisation and I moved to manage all cheque-related transactions.

10. I became the Operations Support Manager in November 2016. This role consists
of a lot of different activities. For example, I review data and produce reporting
packs detailing current progress and backlogs against our agreed targets and
ageing of open items, I handle specific product based problems, I am involved in
change programmes and I deal with specific cases.

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11. The following areas are covered in this witness statement:

11.1 Transaction Corrections (TCs ), specifically the proportion that are disputed and
the dispute success rate; and

11.2 the suggestion at paragraph 6.66 of the Jason Coyne's report that TCs for the {D2/1/127};
{D2/1/128}
Potters Bar branch were initially made in error.

TCS-VOLUME DISPUTED AND SUCCESS RATE

12. TCs are issued by Post Office in order to correct accounting errors in branch
accounts.

13. TCs are issued by FSC. I understand from Post Office's solicitors that the
processes by which FSC determines whether a TC is required is outside the
scope of the Horizon Issues Trial. Broadly, it involves FSC comparing data
entered onto Horizon by branch staff with data received from other sources and
resolving any discrepancies between them.

14. FSC is divided into distinct teams that are responsible for accounts relating to
specific products. Each team is responsible for ensuring that all discrepancies
within their given accounts are identified and processed correctly, which includes
the issue of TCs or processing of under/overpayments. Although each team have
their own responsibilities, there is interaction between teams to reach a final
resolution on any discrepancy. The level of interaction depends on the team,
some will have daily interaction and others less so. The Bulk Cheques &
Moneygram team and the Automated Payments team will have regular
interaction, for example, as under and overpayments are recovered and
processed.

15. Subpostmasters are able to query or challenge any TC by contacting the person
who issued the TC (whose details are provided with the TC). This can be done
within the Horizon system (by selecting a "seek evidence" option where offered
when processing a TC on a branch terminal) and by calling the person who sent
the TC and by calling the NBSC. Disputes are decided on their merits, having
regard to the available evidence. If the dispute is successful, a compensating TC
is issued. Again, I understand that this is outside the scope of the Horizon Issues
trial.

16. Post Office introduced a case management system that records each individual
challenge to a TC in September 2018. Individual challenges to TCs were not
recorded prior to this and therefore it is not possible to state what proportion of
TCs have been challenged historically (or what proportion of the challenges were

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successful) definitively. However, I have spoken to various Team Leaders within

the business in order to gain a sense of proportion of TCs that have been
challenged in their departments historically and what proportion of those
challenges were successful (i.e. leading to a change in the TC before eventually
being accepted or a compensating TC being issued). The following sections of
this witness statement are based on information provided to me by the Team
Leaders identified in the headings or when no Team Leader is identified from
information within my own knowledge.

CASH, BUREAU & PERSONAL BANKING TEAM - Sarah Parkes and Gillian
Hoyland

Supply Chain (Cash/Bureau)

17. The Supply Chain (Cash I Bureau, i.e. Foreign Currency) at Post Office have
issued the following amounts of TCs:

Time period Cash or Shortages Surpluses

Bureau
01.01.2018 - Cash Average per week Average per week
13.11.18 480 488 (based on 47
weeks)
01.01.2018 - Bureau Average per week Average per 14
28.09.18 54 week (based on 40
weeks)

18. To date this year there have been 680 disputes (of which 8 relate to a surplus)
and 40 of those were upheld. I understand that the disputes tend to relate to
alleged shortages in pouches received by branches and they are dealt with at the
Cash Centre as opposed to FSC.

Personal Banking

19. TCs issued by the Personal Banking Team are rarely disputed. This is because
they run a report in Horice 1 to determine whether a surplus is evident (i.e. if the
cash physically counted is more than the amount that appears on Horizon or vice
versa) before issuing a TC.

CAMELOT, DEBIT CARD & ATM TEAM -Andrea Green

1 Horice is an management information system that allows read only reporting access to the Horizon database
to see what transactions branches are carrying out during the day.

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20. The Camelot, Debit Card & ATM team had the following number of TCs disputed
and issued the following number of compensating TCs in the 2017 Financial Year:

TCs issued in Number of TCs Number of TCs Number of

relation to issued disputed compensating TCs
BOIATM 919 5 0
BOI Retracts 4174 Estimated 1500 Estimated 500
Lottery 24139 Estimated 1500 Estimated 500
Debit cards 3110 0 0
Robbery 291 0 0
Emergency 322 0 0
suspense
Travellers 40 0 0
Cheques

21. I understand from my colleague Andrea Green that estimated figures have been
provided for both BOI Retracts and Lottery because they do not hold exact figures
but that she has consulted with various experienced team members.

22. In terms of the BOI Retracts (i.e. when a customer fails to take cash from an ATM
such that it is retracted back), I understand from speaking to my colleague Andrea
Green that the retract process is complicated and branches sometimes struggle
with the intricacies of failed transactions, which leads to a high number of
disputes as the Subpostmasters are requesting clarification. The majority of
compensating TCs issued to branches relate to debit TCs issued by FSC for
surpluses not declared within seven days but branches provide detail that it was
declared outside of this range.

AGENT ACCOUNTING TEAM - Dawn Phillips

Santander Manual Deposits

23. In relation to Santander Manual Deposits, Post Office received the following
number of disputes in the 2016/17 Financial Year:

Errors Disputes Disputes Disputes not Other -

received from received from upheld upheld cancelled
Santander branch

19,491 2,890 2,222 650 18

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CLIENT SETTLEMENT TEAM - Jacqueline Whitham

DVLA

24. Jacqueline has explained to me that TCs are very rare in this team. During the
past year the team have only issued four and none of them have been disputed.

ACCOUNTS PAYABLE (AP) AND APOP TEAM- Carol King

Drop and Go

25. Drop and Go and Postal Orders mostly issue credits, around 50 a week or less,
and it is very rare that they receive any disputes from branches.

Postal Orders

26. The team usually issue around ten to fifteen postal orders TCs a week. Disputes
are very rare and none have been upheld.

BULK CHEQUES & MONEYGRAM TEAM - Tracy Mather

Moneygram

27. MoneyGram receive one or two disputes a month but they are rarely, if ever,
accepted.

Cheques

28. There have been no successful disputes around TCs for cheques due to the
investigation work performed by team members using associated systems such
as POLSAP, Credence or BancTec to investigate issues before issuing TCs.

29. During the 2018/19 financial year 112 TCs were issued for unpaid cheques, one
was disputed and the dispute was unsuccessful. TCs for unpaid cheques are
only issued where branches have not conformed to the correct process, i.e. taking
a cheque as a method of payment for products where cheques are not
acceptable, such as Postal Orders.

PARAGRAPH 6.66 OF THE CLAIMANTS' EXPERT REPORT

{D2/1/127};
30. I have been shown paragraph 6.66 of a report by Jason Coyne in which he refers {D2/1/128}
to two TCs of £810,000 in reference to {POL-0031763} and he suggests that they
might have been made in error. This is not correct. Two TCs were required in
this instance because the method of payment used was cheque.

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31. The TCs to the value of £810,000 are directly linked and relate to a Bank Of
Ireland (801) Post Office Savings Account deposit processed on 24 August 2012.
The Potters Bar branch sent a cheque to the processing centre for £90,000 but
mistakenly mis-keyed this in Horizon, making it £900,000 instead of £90,000.
This caused an overpayment to the client (801) and an issue with the method of
payment value, as a cheque would be entered for £900,000 when it would have
been written for £90,000.

32. The error made by the branch created a shortfall of £810,000 (£900,000 would be
deposited in the customer's account by 801 but the customer only gave the
branch a cheque for £90,000). This generated the £810,000 debit TC to the
branch.

33. Post Office recovered the funds from the bank that were deposited in error and
they were returned to the accounts payable team via settlement. This was then
sent at the same time as a £810,000 credit TC, leaving the branch without a loss
and the customer with the correct funds. This negated the impact on the
customer and Post Office and the debit and credit transaction correction reduced
the value of the transaction processed to the right auditable level.

STATEMENT OF TRUTH

I believe that the facts stated in this witness statement are true.

Signed: ········~························
Name: .......:?.~. . .~'iY.\.l:ili ..,............................... .
Date: .............1.~.\.\\\\t............................................ .

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