1 Friday, 24 February 2023 2 (10.05 am) 3 MS KENNEDY: Good morning, chair. Our witness today 4 is Mr David Smith. 5 SIR WYN WILLIAMS: Before we hear from Mr Smith, I'd 6 like to make an announcement about what 7 I anticipate is going to happen today. As you 8 will know the Prime Minister has made a request 9 that as many of us as possible observe 10 a minute's silence at 11.00 am this morning. 11 I propose to observe that minute's silence by 12 remaining silent on the screen. 13 I understand that some people may wish not 14 to observe that silence or may wish to observe 15 it in private and, accordingly, shortly before 16 11.00 we will stop the proceedings. Those who 17 wish to leave the Inquiry room are of course 18 free to do so and those who wish to join from 19 other parties of the Inquiry Team who are not in 20 the room can come into the room if they wish to 21 do so. 22 Then at 11.00 those of us who are in the 23 Inquiry room, either in person or remotely, will 24 observe the minute's silence. Following that 25 we'll have our morning break until 11.15 and 1 1 then, because this is all happening a little 2 earlier than usual, we'll probably take an early 3 lunch and aim to complete our business by about 4 3.00 by these rather different means, 5 Ms Kennedy. I hope everyone understands that. 6 If you think I'm getting too close to 11.00 7 before adjourning just stop me all right, 8 Ms Kennedy? 9 MS KENNEDY: Will do so. Thank you. Mr David 10 Smith. 11 DAVID SMITH (affirmed) 12 Questioned by MS KENNEDY 13 MS KENNEDY: Mr Smith, you've given two witness 14 statements to the Inquiry, one in respect of 15 Phase 2 and one in respect of Phase 3. Do you 16 have the first witness statement in front of 17 you? 18 A. I do indeed. 19 Q. It should run to 24 pages. If you turn to the 20 24th page, is that your signature there? 21 A. Yes, it is. 22 Q. It's dated 30 August 2022? 23 A. It is indeed. 24 Q. Have you read through it recently? 25 A. Yes, I have. 2 1 Q. Is it true to the best of your knowledge and 2 belief? 3 A. It is. 4 Q. Turning to your second statement. Do you also 5 have that there? 6 A. I do. 7 Q. That should run to 16 pages and, if you turn to 8 the 16th page, is that your signature there? 9 A. It's actually on the 17th page but it is indeed. 10 Q. It finishes on the 17th. 11 A. Yes. 12 Q. It's dated 7 February 2023. 13 A. It is. 14 Q. Have you read through this statement recently? 15 A. I have, yes. 16 Q. Is the also true to the best of your knowledge 17 and belief? 18 A. It is, yes. 19 Q. Those witness statements are now in evidence and 20 everything I ask you is supplementary and can 21 I start by saying thank you very much for coming 22 to give evidence to the Inquiry today. 23 Starting with some questions about your 24 background. Can you explain what you did before 25 you joined the Post Office. 3 1 A. I worked at British Airways -- I started 2 actually at British European Airways and worked 3 in finance, first of all as an auditor, and then 4 various roles in route accounting. I worked on 5 the privatisation of BA at one stage and I was 6 also the financial controller of British Airways 7 Helicopters. I was actually sent in there to 8 assist the managing director in selling the 9 company, and we worked through that and sold the 10 company, and one of the terms of the contract 11 was that British Airways severance terms were 12 available to me which I took and, after that, 13 I joined the Post Office. 14 Q. That was in 1987? 15 A. That's correct, yes. 16 Q. What was your first job in the Post Office? 17 A. I was chief financial accountant. It was 18 a fairly broad role, actually, because it 19 involved not just what you'd expect a financial 20 accountant to do but it also involved running 21 the factory in Chesterfield, some around 800-odd 22 people involved in the back office work 23 associated with office accounting and client 24 settlement, subpostmasters' remuneration, 25 various business processes. 4 1 Q. Then in July 1996 you were appointed as director 2 of central services group? 3 A. Yes, this was -- I retained my role as head of 4 the finance executive whilst doing that. The -- 5 it was an odd role because my -- I was charged 6 with breaking up that directorate and, 7 basically, attaching the various sections within 8 it to other parts of the organisation. So it 9 was a short-term role that lasted either six to 10 nine months and then I was -- the plan was that 11 I was going to revert full time to head of 12 finance executive. 13 Q. But what happened then? 14 A. Well, I was approached by not one but I think 15 three directors in total. I wasn't told I was 16 going to be heading up automation transformation 17 but I was asked whether I would consider it. 18 I mean, I'd spent over 25 years building 19 a career in finance so I guess I went through 20 some kind of grieving cycle. But I mean, I came 21 to terms with it, and, you know, there started 22 my long association automation projects. 23 Q. Why were you initially reluctant to take up that 24 role? 25 A. Part of the reluctance was it just wasn't -- 5 1 I mean, it was not a job I sought and my initial 2 reluctance was this was a lot to take on board. 3 As I got to accepting that this was going to 4 happen, I did, with Stuart Sweetman, challenge 5 him about where the authority came to carry out 6 this role because none of the projects, none of 7 the business activities to deliver automation 8 would report directly to me. In fact, many of 9 them reported directly to directors. So how did 10 I, where would I draw the authority from to get 11 these people to do what I needed them to do, 12 which is to work very closely together. 13 Stuart did take that away. He wasn't the 14 first to announce the outcome of that. I bumped 15 into our marketing director actually walking 16 along the street and he sort of bowed down to me 17 and said "Well, I understand now, Dave, that I'm 18 going to have to do as you tell me". 19 And fair enough to Stuart, I think I did 20 have the authority to -- in particular when 21 a big issue arose, to pull the parties together 22 very rapidly to seek a resolution. Things 23 didn't normally happen that quickly in the Post 24 Office, it might take you two or three weeks if 25 you're lucky, two or three months if you weren't 6 1 lucky, to get the right people together. 2 Q. Did you have any qualifications or experience in 3 information technology at that point? 4 A. Yeah, well starting from my university days 5 I had done some ASA/Fortran, BASIC, the -- as 6 an auditor -- I hesitate to call myself 7 a computer auditor but I did start to audit 8 through the system or through systems rather 9 than just around them, and I would review 10 system-based controls and then test them with 11 test packs and what have you. At Helicopters as 12 financial controller, systems was part of my 13 responsibility. 14 When I joined the Post Office all the major 15 systems were actually supporting the areas that 16 I controlled. So I was the business's major 17 customer of systems, which meant that I engaged 18 with the systems people on a regular places. 19 When I moved to the finance executive I led 20 an SAP project called MICA SAP(?) **, unusually 21 we delivered ahead of time within budget and the 22 benefits were somewhat greater than we'd 23 forecast in the business case. 24 So I think I'd had a fair amount of exposure 25 to systems and involvement in systems project 7 1 work. 2 Q. You said you were associated with the Horizon 3 System from then until you left in March 2010; 4 is that right? 5 A. That's right, yes. 6 Q. Just for clarity, shortly after you left, 7 another David Smith took over as managing 8 director; is that right? 9 A. Yes, there were rather a few of us and matters 10 were complicated by the fact that neither of us 11 were given a second Christian name. So I became 12 known as "David X" and he became known as 13 "David Y". But there was confusion over time. 14 We'd get each other's mail, and what have you, 15 and some of the documents I've received were in 16 fact meant for him. 17 Q. Between 1997 and 2010 you held a number of other 18 roles. In 2004 you became acting IT director 19 when Alan Barrie went to the Royal Mail? 20 A. That's correct, yes. 21 Q. Then in February 2005 you became general manager 22 of IT, which then changed to Head of Change and 23 IS; is that right? 24 A. Yes, I mean, Post Office used to go through 25 regular reorganisations and, you know, roles 8 1 would be changed, not always significantly, but 2 yeah, job titles. Essentially, I think, the 3 difference between being general manager IT and 4 Head of Change and IS was that I gained a much 5 broader range of change in the business. 6 I think it was over 1,000 changes a year we used 7 to deliver, many of them seemingly minor changes 8 but if you got them wrong could create massive 9 disruption. 10 So the change in postage stamps for example 11 was quite a significant operation and had to be 12 project managed. 13 Q. Then in 2009 you were operations director until 14 you left? 15 A. Yes, that was just three months. Not until 16 I left, no. That was a holding situation, Ric 17 Francis left Post Office Limited and Mike Young 18 joined and in the three months in between I just 19 held the ring. 20 Q. Turning then to some questions about prior to 21 the introduction of Horizon, if we could turn up 22 your first witness statement, WITN05290100, and 23 if we could turn to page 7 in that. Looking at 24 paragraph 18, you set out there the basis of the 25 cash account and described the process that 9 1 a 200-strong group of individuals in 2 Chesterfield would go through and you describe: 3 "A separate unit just to deal with pensions 4 and allowances was even larger in size and 5 a third group processing Postal Orders about 80 6 strong. There was also a unit in Edinburgh 7 mirroring the Chesterfield operation dealing 8 with Scottish branches." 9 If we scroll down to paragraph 20 you set 10 out that: 11 "Over five thousand errors per week were 12 detected. Many of these would result in the 13 issue of an error notice." 14 Did you feel that was a lot of errors at 15 that time under the paper-based approach? 16 A. It sure as hell felt like it. I guess there's 17 no -- I'd never in my working career come across 18 something that was so paper based. I think it 19 would be fair to say that the airline that 20 I joined, the use of accounting systems was 21 about 15, 20 years ahead of where the Post 22 Office was. So I'd never come across a paper 23 factory like this. I mean, I think I said it in 24 the -- further on in the statement, that there 25 was a dedicated freight train just to bring the 10 1 pensions and allowances paper into Chesterfield. 2 If you understand the cash account process, 3 if you go through what's involved in putting the 4 cash account together, you know, it's a very, 5 very complicated process and it's not 6 surprising, therefore, that you've got the level 7 of errors that we had. We tried all the while 8 to drive them down but also the counter was 9 a place of constant change. So as soon as you'd 10 dampened down errors in one area, there would be 11 a change to other products and a new source of 12 error would arise in another. 13 Q. If we could turn over the page on that statement 14 to paragraph 24, scrolling down. You say there: 15 "The five thousand plus errors mentioned ... 16 were merely the tip of the iceberg ..." 17 A. Yeah. 18 Q. Did you find that a very difficult environment 19 in which to work? 20 A. I mean, the -- what I was getting at in -- 21 I mean, when I joined, one of my objectives was 22 to take 200 posts out of Chesterfield and, you 23 know, in most processes in most businesses the 24 way to do that is either to radically reform the 25 process or to take out waste. 11 1 And, you know, a lot of these -- a lot of 2 these errors were related to conformance. So 3 for example, this freight train that came in 4 each week, the pouches were meant to be made up 5 to a particular standard. They very often 6 weren't, and we ran a trial with the Derby 7 district and the Plain English Society, 8 developed a refreshed set of instructions, just 9 to get the, you know, conformance with the 10 presentation standards that we required. 11 On the basis of the pilot in Derby, we 12 rolled it out nationally, targeting 17 posts 13 coming out just from, you know, people not 14 putting paperclips, staples, segmenting the 15 different classifications of benefits properly, 16 and so a lot of this was about that sort of 17 stuff. So my interest was to, you know, drive 18 out these areas of error and drive the resources 19 down. 20 Q. You mentioned the pensions and allowances in the 21 freight train. If we turn back over the page to 22 paragraph 21, and down -- sorry, on to the next 23 page again. You say there that that area was 24 particularly prone to fraud. 25 A. Yes. 12 1 Q. Can you explain what you mean, by that? 2 A. Well, it was -- the checks here, such was the 3 volume of paper that it was not possible to run 4 a 100 per cent check every week on -- so, 5 basically, these checks involved summation of 6 the individual vouchers to a summary docket on 7 to the cash account and, basically, we're saying 8 that, you know, the check was only done, 9 I think, every couple of years or something like 10 that. At the time I joined, there was one fraud 11 that was being settled of £400,000, and what 12 some postmasters would do was just enter 13 an erroneous number onto the cash account, one 14 that was deliberately erroneous, and effectively 15 the cash would then -- so they would be funded 16 by the false amount that they put on the cash 17 account and they would pocket the money. 18 And, again, I remember a few -- a very short 19 period of time into my service with the Post 20 Office, there was a case of a subpostmaster who 21 had fraudulently entered entries onto the cash 22 account to the tune of £85,000, and the reason 23 why it sticks is that when security went in and 24 apprehended him, he wrote a cheque out there and 25 then on the spot and it didn't bounce. 13 1 So this was the result of, you know, 2 a poorly designed process, really. I mean, in 3 a -- Horizon itself was, you know, kicked off by 4 the Benefits Agency wanting to attack fraud at 5 all sorts of different levels, mainly on their 6 side, entitlement fraud; this was sort of 7 encashment fraud involving subpostmasters. 8 Q. How prevalent was there is type of fraud, would 9 you say, or what was your impression? 10 A. I'm sorry, I would have known at the time but 11 I can't remember now. I remember those two big 12 instances because they were, you know, even in 13 those days, large sums of money but no, I can't 14 recall, I'm afraid. 15 Q. But you felt it was a real problem at the time? 16 A. Oh, it was a real problem, yeah. 17 Q. Did you expect Horizon, when it came in, to 18 catch these people out or to leave no room for 19 them to hide? 20 A. Well, had Horizon come in as it originally was 21 intended, then this would have closed that down, 22 because it would have been card driven and, you 23 know, there was no -- there would have been no 24 question of the subpostmaster creating a false 25 entry on the cash account. 14 1 As it was actually introduced when the 2 system went live, there was simply a check that 3 this was a valid book of vouchers that the 4 subpostmaster was using. It was obviously 5 subsequently replaced by a dedicated Post Office 6 card account, which closed this area down. 7 Q. You mention in your statement that you stepped 8 in on EPOSS during the process of the 9 development of the program, the Electronic Point 10 of Sale System. If we could turn up your first 11 statement that's WITN05290100, again. Then 12 page 13. Scrolling down, please, to 13 paragraph 41, you say: 14 "I was asked to describe the nature of the 15 work I carried out in relation to EPOSS design. 16 I must reiterate that I did not manage Horizon 17 and it was normally for Horizon management team 18 to manage the project issues and risks. I did, 19 however, step in on this issue." 20 Why did you step in on that issue? 21 A. Well, there was a lot of concern about what was 22 being developed. I mean, this was -- this, in 23 part, I think, came about was because of the PFI 24 deal. So there was limited to zero exposure to 25 what was actually being developed and we were -- 15 1 I mean, Darren being able to get in there and 2 access what he did access was something of 3 a surprise. I think it was considered, you 4 know, very much against expectation at the time. 5 Unfortunately, Darren's presentation doesn't 6 exist so I'm going a lot on memory here about 7 what he brought to the table. I can't say that 8 his presentation in any way calmed the concerns 9 around the -- what was being developed at all, 10 but without -- I don't think we'd even got 11 the -- I'd even seen the ATSG minutes for the 12 meeting at which he presented that feedback. 13 Q. If we could turn up POL00028324, please. This 14 is the Automation Transformation Programme and 15 we can see there that you're on the list for 16 this Automation Transformation Steering Group 17 and this is the notes of the meeting of 18 23 June 1998. If we scroll on to the second 19 page, please, we see the "Red Light issues" 20 there and you were giving a verbal update on new 21 issues. 22 If we scroll down we can see EPOSS is 23 something that's on that list and scrolling down 24 again, there's also item 4 recorded as you there 25 giving an update on the work on the EPOSS 16 1 design. 2 The Inquiry has heard a lot of evidence 3 about the EPOSS system but this was specifically 4 something that was acutely on your mind; is that 5 right? 6 A. Yes, it would have been, to have been raised in 7 this fashion, yes. 8 Q. If we could turn to POL00028484, please. This 9 is a risk register, I think, from 1997/1998, but 10 if we look at the fourth section down, 11 "Operational: non conformance to business 12 procedures in automated environment", and we can 13 see "Potential Impact for Automation" -- yes, 14 thank you very much. It says: 15 "Lost transactions 16 "Inability to operate effectively 17 "Loss of control 18 "Financial loss 19 "Increased errors." 20 It is being discussed with the strategic 21 director and you're the owner of that. What 22 does that mean that you're the owner of that, 23 you're keeping it under review? 24 A. Yes, it would. In terms of a risk register, 25 absolutely. 17 1 Q. Lost transactions is a very serious issue, isn't 2 it? 3 A. Yes, it would be, yes. 4 Q. Do you remember being particularly concerned 5 about that at this time? 6 A. I don't know, I'm sorry. I mean, the fact that 7 I had recorded there obviously says it was 8 a concern. But, I mean, I don't remember much 9 about the specifics behind that. 10 Q. Turning forward in time slightly to 18 November 11 1999, if we could turn to POL00028550, please. 12 Thank you. We can see there that this is 13 a negotiation brief written by Keith Baines for 14 David Miller, and it's sent to both David Miller 15 and to you. If we scroll over the page we can 16 see the start of that brief. The point I wanted 17 to take you to in particular is page 3 and, if 18 we scroll down to paragraph 11, it records: 19 "The third area was the reduction in errors 20 in accounting data passed from your systems into 21 TIP, and the development of appropriate 22 integrity controls for that interface. Progress 23 in this area has not been encouraging. The 24 overall area of levels has greatly exceeded the 25 0.6% target level -- by an order of magnitude or 18 1 not. Other criteria have also not been met. 2 Analysis of the causes of new incidents has not 3 met the 10 day turnaround target." 4 Going down to 12: 5 "We also have some concerns about progress 6 with the new integrity control. While Pathway 7 have been reporting satisfactory progress 8 against plans, our people on the ground perceive 9 that there has been a reversion to old ways of 10 working with the shutters being brought down. 11 We have seen no progress on development of the 12 joint processes that will be needed to manage 13 the errors trapped by the control, and on this, 14 and on the specification of interface processes, 15 we have found Pathway unwilling to engage in 16 meaningful discussions." 17 So at this point in time, data integrity is 18 a real concern and there is a worry, isn't 19 there, that Pathway aren't giving you the access 20 that you wanted? 21 A. Absolutely, yes. 22 Q. I'm not going to turn up the Second 23 Supplementary Agreement but it's fair to say the 24 target level in terms of errors was 0.6 target 25 level that's recorded there. 19 1 A. Yes. 2 Q. But, at this stage, errors were exceeding that? 3 A. Yes, one of the, I think, Rule 10 documents 4 I was given does actually contain the actual 5 percentage levels week by week and, I mean, many 6 orders of magnitude greater than 0.6. 7 Q. If we could turn up POL00028545, please. This 8 is a speaking brief for you on 24 November 1999, 9 and it sets out: 10 "[The] Purpose was agreed between Dave 11 Miller and Richard Christou as: To agree 12 a programme of work to be completed by 13 3 December 1999 which will provide POCL with 14 further information to enable us to decide 15 whether or not to exercise the right to suspend 16 rollout." 17 Do you remember this meeting or this -- the 18 reason for this speaking brief, other than 19 what's set out there? 20 A. I mean, I don't remember it but the brief is in 21 front of me and that's what I will have spoken 22 to. 23 Q. If we turn down to paragraph 2 or number 2, it 24 says: 25 "All criteria in the 2nd supplementary 20 1 agreement to be met by 14 January ... The only 2 change to be the exclusion of the period to date 3 from the 0.6% criterion for the accounting 4 integrity incidents." 5 So again, you're flagging that that is of 6 real concern to the Post Office at that time -- 7 A. Yes. 8 Q. -- is that right? 9 A. Absolutely. It was -- it had still got some way 10 to go in terms of proving that Fujitsu were 11 getting on top of it. 12 Q. If we turn to POL00028440, this is the internal 13 audit. If we turn to page 2, this is November 14 to December 1999. Scrolling down we can see 15 your name there. If we turn over the page to 16 page 5, please, and scrolling down, we can see 17 there the conclusions of that audit, which in 18 short was that their opinion was that: 19 "... the procedures for identifying problems 20 and reporting performance was good. We have 21 recorded in the detailed audit findings the 22 issues identified during our visits and can 23 confirm that all issues reported by Post Offices 24 and Transaction Processing ... had been formally 25 recorded as problems." 21 1 I believe this -- when it talks about "our 2 conclusions", this is Chris Paynter and Ian 3 Johnson; is that right? 4 A. It was certainly Chris Paynter, because I think 5 his name is on the report. 6 Q. If we could turn over the page again to page 7, 7 and scrolling down we see here again that: 8 "The volume of errors generated by Horizon 9 offices was a cause for concern. Initially 10 horizon offices generated twice as many errors 11 as manual offices." 12 That must have been very difficult for you 13 given how you felt there were already so many 14 issues on the paper-based system and this seems 15 to be making it worse. Do you remember finding 16 this frustrating at the time? 17 A. Not particularly, no. I think there was a poor 18 understanding of the soft change elements of 19 introducing a completely different system. 20 There's a document, a research services document 21 that introduces something called a coping curve, 22 which demonstrates that, over time, performance 23 in branches returned to pre-Horizon introduction 24 levels. I think that should have been better 25 understood, that we would go through that 22 1 learning curve when the system was introduced. 2 But, I mean, at the time we weren't aware of 3 that. 4 I mean, at this stage, handling the errors, 5 you know, was not my personal responsibility. 6 Therefore, I wouldn't have had the same level of 7 concern if I was still running the factory. If 8 I had been running the factory, I would have 9 been very, very concerned about that ahead of 10 a national rollout because that would have 11 swamped the unit. But, as I say, I think there 12 could have been a better understanding of, you 13 know, how this process of introduction of people 14 becoming as familiar with a new system as they 15 were with the old system, how that transition 16 worked and the journey that people went through. 17 Q. Did you know about an EPOSS Task Force Report 18 written within Pathway around summer of 2000? 19 A. No, I don't recall it, no. 20 Q. Do you recall being told that there had been 21 a decision that the EPOS System wouldn't be 22 rewritten but it would be fixed. Do you recall 23 being told anything about that? 24 A. No, I don't recall that. I mean, I do recall -- 25 I can refer you back to the -- what I recall of 23 1 the Darren Bosco report. I mean, one of the 2 things he specifically addressed is that, you 3 know, the inherent weaknesses in what had been 4 designed, you know, couldn't be -- you could put 5 plaster over them but, if you really wanted to 6 put something different in place, then you had 7 to start again. 8 Q. When it came to rollout of the system, your view 9 was that Horizon was fit for purpose and that 10 was partly because of the rigorous testing 11 process that took place? 12 A. It was, yes. 13 Q. Did you have any concerns, at the rollout stage, 14 lurking in your mind that you felt there were 15 things that you should look out for? 16 A. Um, we went through a very, very extensive 17 process of trying to pick out from the live 18 trial the things that needed to be fixed and 19 it's fair to say there were things that were 20 required to be fixed that went beyond the issues 21 that have been surfaced in this Inquiry. 22 We put in place quite a comprehensive set of 23 measures. In the business at the time, there 24 was a complete disbelief that rollout could 25 actually happen. 24 1 It went relatively smoothly. Not to say, 2 I mean, you know, when you look at the number of 3 offices, the number of people concerned, even if 4 you are hitting, you know, 90 per cent 5 satisfaction, that's still a lot of people who, 6 you know, have got issues with the way you're 7 doing things and, to the extent that we could, 8 we tried to address those issues but, I mean, we 9 did -- the process did make, in terms of the 10 reaction of the network to it, significant 11 strides from what was, you know, a pretty poor 12 performance, I think, in the live trial. 13 I mean, 50 per cent of people satisfied with the 14 way you've done it is a bad result in anybody's 15 book. 16 Q. Do you remember -- fast forwarding in time, do 17 you remember the IMPACT Programme that had its 18 inception, I think, in 2003 and was completed in 19 2005? 20 A. Yes, I do. 21 Q. Were you involved in that programme? 22 A. Yes, involved at various stages because I think 23 it had -- its birth was really work that we did 24 as part of the Transformation Management Team. 25 The original case for original Horizon, it was 25 1 the least worst option business case. I mean, 2 it was not a business case you take to a bank 3 expecting to get funding. So one of the things 4 that I was asked to do was to look at the 5 proposition of automation and understand how we 6 could get value out of automating post offices. 7 And there was a programme called Era that 8 emerged out of that, a lot of work was put into 9 that, and the IMPACT Programme was an element of 10 that. It was driven -- it was enabled, if you 11 like, by automating the products by, you know, 12 bringing into the modern world things like the 13 issue of driving licences, and stuff like that, 14 so that you were capturing transactions often 15 driven by tokens and stuff like that. And this 16 enabled this radical change in the IMPACT 17 Programme to happen. 18 So from that very early stage it was 19 developed and we developed a roadmap of how 20 the -- how automation was going to happen, 21 through these releases, S50 to S90, and some of 22 that was driven by -- the order of some of those 23 things was driven by contractual matters. 24 So as part of the Benefits Agency 25 withdrawing from Legacy Horizon, it was set down 26 1 that there would be a Post Office card account. 2 It was also part of that that we were -- we had 3 to meet the target for the introduction of PIN 4 pads and stuff like that so there were some 5 fixed points around which the rest of it had to 6 work, so IMPACT was positioned at S80. 7 Q. Was part of the objective of the IMPACT 8 Programme cost saving, making things simpler 9 and -- 10 A. I think with all -- I think it was a better 11 system, because what the old system was doing 12 was settling with clients, based on summarised 13 numbers on cash accounts. What lay behind 14 IMPACT, if you like, was it was based upon where 15 you passed a stream of transactions to clients, 16 and settled on the value of those transactions. 17 Yes, it did, I think, you know, drive some 18 numbers down but the real value in all the 19 automation that happened was very often derived 20 by the people who owned the products. 21 Remember most of what was transacted across 22 the post office counter were products that 23 didn't belong to the Post Office. You know, the 24 exception to that was postal orders. So a lot 25 of benefits were derived by Government agencies, 27 1 for example, being able to streamline their own 2 back office process, as a result of now 3 getting -- instead of getting, you know, 4 a lorryload of paper, getting an electronic 5 stream of data. 6 Q. Did you hear the evidence of Susan Harding who 7 gave evidence -- 8 A. No, I didn't, no. 9 Q. Was she someone who ultimately reported to you, 10 do you remember her? 11 A. Yes, Sue was the programme management for 12 IMPACT, yes. 13 Q. She told the Inquiry that the decision to remove 14 the suspense account function came from above 15 her. Was that your decision or was that the 16 IMPACT Programme Delivery Board? Who would that 17 have been? 18 A. I don't recall making that decision. That's not 19 to say I wasn't involved in it but I don't 20 particularly recall it. 21 Q. Do you recall who would have made that decision 22 or who would have been at that level? 23 A. I think the process ownership would have been 24 whoever was running transaction processing at 25 the time. They would be the process owner here. 28 1 As -- in charge of project management, we 2 didn't make up the requirements. The 3 requirements came from the sponsor. So in this 4 case, with IMPACT, the sponsoring unit would 5 have been Transaction Processing. Just as with, 6 if we changed the method of handling TV Licences 7 or something like that, then -- I have to be 8 careful, we may have lost TV Licences by then, 9 but say road tax, it would be driven by the 10 account team, who were acting on behalf of the 11 DVLA. They would drive the requirements. They 12 would decide what was delivered. Our job was to 13 deliver it. 14 Q. So the policy decisions made in the IMPACT 15 Programme weren't your responsibility or didn't 16 come from -- 17 A. No, they weren't, no. They would lie with the 18 business unit. Now, that's not to say we 19 wouldn't be involved in the decision making by 20 that Policy Unit. 21 Q. If we could bring up POL00029293, please. This 22 is a major incident report dated 24 August 2004 23 and we can see it's a document generated by 24 Fujitsu, and it relates to the S60 release. If 25 we scroll down, please, your name is not on the 29 1 list of -- for distribution. But we can see 2 there the external distribution is "Post Office 3 Limited Library plus reviewers". If we turn 4 over the page and scroll down, we can see this 5 was sent to someone called Dave Hulbert? 6 A. Yes. 7 Q. Who is Dave Hulbert? 8 A. Dave Hulbert worked in the service management 9 team and he, I believe, was responsible for 10 managing the service from Fujitsu. Back in the 11 early days there was a piece of work done by 12 PA Consulting which created the framework for 13 the set-up of service management in Post Office 14 and that unit was embedded in the Operations 15 Directorate. So we, in my area, would deliver 16 the project but once it was delivered, once it 17 was rolled out, control of what happened passed 18 to service management and they would deal with 19 day-to-day incidents. 20 If there was an incident that affected 21 the -- a large number of post offices, then we 22 would normally be called in to provide support 23 and very often would take over managing that 24 incident. But in -- 25 Q. At that high a level, though? 30 1 A. At that high a level, this incident would have 2 been managed by Dave and that team. 3 Q. Well, if we turn to page 5 and scroll down, 4 please. The scope of this document is: 5 "The scope of this report covers the 6 failures of Fujitsu services to Deliver AP 7 client data to a number of AP clients, those of 8 which do not receive files on all 7 days of the 9 week between the period 10th July-15th July 04 10 ... 11 "It also covers the failure to produce 12 automated APS reconciliation reporting 13 accurately in the form of daily CTS file 14 produced, between 10th July 04-29th July 04. It 15 should be noted that whilst the automated 16 process was non-operational manual reporting was 17 being covered daily." 18 If we look down at the "Management Summary", 19 midway through the first paragraph, it states: 20 "It was suggested that this file was 21 considerably less ... than would have been 22 normally expected. The approximate value of 23 transactions being reduced by up to 24 [300 million]." 25 If we turn over to page 6 and we scroll 31 1 down, we can see a "Detailed explanation of the 2 incident". If we look at the headline figures 3 at the bottom, we can see that: 4 "There were 581,481 transactions in the pass 5 through files that were not processed. These 6 include Reverse/Reversal pairs that should not 7 be sent to clients. 8 "There are 578,091 transactions not placed 9 into client transmission files." 10 Over the page: 11 "These transactions had a value of 12 [22 million]." 13 Is this the type of thing that would have 14 been escalated to your team? 15 A. I don't recall it having been so. I do recall 16 the incident, but I don't recall my team being 17 asked provide assistance in sorting this matter. 18 Q. When you say you recall the incident, how did 19 you come to hear about it? 20 A. Well, because it was -- I mean, clearly -- 21 I mean, we weren't passing customer data. Bear 22 in mind what's behind this is someone paying 23 their gas bill or their electricity bill. If 24 the data doesn't get through to the utility 25 company, that person's bill is not settled and 32 1 they get a red letter. So this was something of 2 a -- it was an embarrassing incident. 3 Q. Did it give you cause for concern in the system 4 itself? 5 A. Well, of course it did because, you know, it had 6 such a significant impact. But, you know, we 7 didn't step in on every single incident; only 8 where the small team of architects that was 9 nested within my department were required to 10 give specialist advice, and I don't recall them 11 being asked on this particular occasion. 12 Q. Would this type of issue ever be raised or 13 escalated to board level? 14 A. Oh, undoubtedly this would have been reported 15 through to board level. I mean, there was 16 a process of Directorate reporting in to the 17 board and I can't imagine that the Ops 18 Directorate wouldn't have included this in that 19 report. But I would have expected it, in any 20 case, to have been raised by the Ops Director 21 with the Managing Director anyway, in the normal 22 course of things. 23 Q. If we could turn up POL00021485, these are the 24 minutes of a board minute held on 13 October 25 2004. I can't see this incident having been 33 1 reported in this meeting but you're quite sure 2 it would have been at some point? 3 A. Well, this is -- when I -- sorry, when I said 4 previously the board, this would be the 5 executive management team of Post Office 6 Limited, okay? I don't recall -- I mean, 7 I attended for this one item at this board 8 meeting as acting IT director. I didn't have 9 a seat on this board so I can't really address 10 the process at that board. I mean, I think the 11 board -- I think the board only met three or 12 four times a year anyway and I don't think it 13 dealt with operational issues. It dealt with 14 more -- things at a more strategic level. 15 Q. So those kind of incidents wouldn't have made 16 their way -- the operational, if you -- 17 A. As I say, I didn't attend that meeting on 18 a regular basis so I am not really familiar with 19 the process at that board meeting. There will 20 be others who would be. 21 Q. This particular board meeting, as you've said, 22 you did attend, and that was -- if we turn to 23 page 10, and scrolling down, this was to present 24 the Horizon Next Generation business case? 25 A. Yes. 34 1 Q. Do you want to explain what that was? 2 A. I think this was -- can you remind me of the 3 date of that meeting again, sorry. 4 Q. Yes, this is 13 October 2004. 5 A. Yeah, this would have been funding, I think, to 6 carry out the initial stages of the work. 7 I think anything over £1 million had to go to 8 the group to get approval and, as such, it would 9 pass through the Post Office Board. I don't 10 think this would have been the final business 11 case asking for approval for the project proper, 12 which I forget the exact number but it was 13 around 125 million. It certainly wasn't that 14 case, but it was -- the money, if you like, to 15 do the initial stages of the project. 16 Q. That was because the current Fujitsu contract 17 was going to expire in 2010 and it was going to 18 be the work your proposal for the work -- 19 A. Yeah, well, what triggered the whole thing was 20 I think the account manager in Fujitsu at the 21 time was a guy called Ian Lamb and he had 22 a regular -- I mean, the account manager would 23 have a regular meeting with the IT director and 24 he walked into Alan's office one day and he drew 25 on a flip chart the cost curve of the Legacy 35 1 Horizon and then a cost cover for this idea they 2 had to replace the existing infrastructure, and 3 it showed a very, very big cost gain. And that 4 triggered off the work that became, eventually, 5 Horizon Online. That was the origins of this. 6 And yes, it, you know, given the lead time 7 on a system of this stage, then it did -- it 8 only made sense if you were talking about 9 a contract extension, because it would have 10 taken us pretty close to the expiry date of the 11 existing contract, 2010, before the system was 12 implemented. 13 Q. If we could turn up RMG00000044, this would have 14 been the business case that you wrote on 15 1 September, so around this time, so 16 1 September 2004. 17 A. Yes, and this again is acting -- asking for the 18 money to -- for the initial stages of the 19 project. Not for -- at this stage, we're not 20 getting approval for the 125 million, which, 21 I mean, I think, if I remember it correctly, not 22 even the group board could actually approve it. 23 It had to go to Government to get authority. 24 Q. If we turn to page 2 and scroll down, this sets 25 out a summary, your summary of why do it and it 36 1 says: 2 "Horizon NG significantly reduces the cost 3 of IT. Compared to a 'do nothing' baseline (no 4 branch hardware refresh and consequent 5 increasing maintenance costs), Horizon Next 6 Generation is estimated to deliver ongoing cash 7 savings of £25m+ over the life of the proposed 8 extended contract to 2015." 9 So part of the business case was the saving 10 of costs; is that right? 11 A. Absolutely, and one of the things that we 12 achieved in the revised contract was the Legacy 13 contract had cost escalators which increased 14 significantly the cost of the system each year. 15 So by -- I don't think we -- there were no cost 16 increases allowed but we really drove down how 17 much Fujitsu could increase the cost of the 18 contract year by year, and I think there was 19 another -- eventually in the business case there 20 was another 25 million per annum claimed for 21 avoiding those cost increases through the new 22 contract. So it was a very, very substantial 23 cost case. 24 MS KENNEDY: Chair, I'm mindful of the time. 25 I think it's 10.59. I think you're on mute, 37 1 sorry, Chair. 2 SIR WYN WILLIAMS: Right. Just so that we're 3 coordinated, I'm two minutes behind you but that 4 doesn't matter. We'll go by the clock in the 5 room. So we'll now stop hearing evidence and 6 anybody who wishes to leave, please do so and 7 anybody who wishes to join us, please do so. 8 Then in a few seconds -- I don't think we 9 need to be completely synced with 11.00 10 throughout the country, I'll announce that we'll 11 observe a minute's silence, all right? 12 Is there any more movement taking place or 13 is everybody settled down? 14 MS KENNEDY: I think everybody is settled. 15 SIR WYN WILLIAMS: Right. Well, then we will 16 commence our minute's silence now. 17 Thank you, everyone. We'll now adjourn 18 until 11.15. 19 MS KENNEDY: Thank you, Chair. 20 (11.00 am) 21 (A short break) 22 (11.15 am) 23 MS KENNEDY: Hello, Chair. 24 SIR WYN WILLIAMS: Hello there. 25 MS KENNEDY: Mr Smith, before the break we were 38 1 discussing Next Generation Horizon, which became 2 Horizon Online. If we could pull up 3 FUJ00098040. This is a slide show done by you 4 in September 2010. Can you just tell us a bit 5 about how you came to prepare this? 6 A. Yes, when I finished with the Post Office, 7 senior people in Fujitsu felt it was -- would be 8 advantageous if they engaged me to do some 9 consultancy work. I am not sure that was 10 entirely welcomed by the account team who 11 were -- Gavin and his boss were fairly new 12 brooms in Fujitsu, but the account team kind of 13 welcomed my involvement because there'd been 14 such a change in personnel that they'd lost all 15 the history of what had gone on and so what they 16 asked me to do was to write the story of 17 Horizon, you know, as best as I can remember it. 18 And this is what I produced. 19 Q. If we turn to page 71 of this document, 20 throughout this slide show, as you say, you set 21 out the various releases. This is the section 22 where you deal with what became Horizon Online; 23 is that right? 24 A. That's right, yes. Yes, and this is Ian Lamb 25 approaching Alan Barrie, as I think I referred 39 1 to before the break. Yeah. 2 Q. If we turn over on to page 73, it sets out on 3 the slide there some of the issues we were also 4 discussing before the break of getting the Post 5 Office on board with this and the fact that it 6 was a very large project that would take up 7 a lot of time and money. 8 If we could then turn to page 77, you 9 describe there how: 10 "Getting to an acceptable proposal from 11 Fujitsu was a long and arduous process." 12 Can you describe what you meant by that? 13 A. Well, as this slide describes, we use the 14 Gartner organisation to work through what the 15 service or what was being proposed should cost, 16 both in terms of development cost but also in 17 terms of annual running costs. And Fujitsu came 18 up with a proposition -- and, you know, to add 19 balance, I think it wasn't just Fujitsu's fault, 20 I think our own architects, I think they 21 designed the system that it would have been 22 ideal for us to have had instead of Legacy 23 Horizon. 24 And it didn't meet the Gartner levels in 25 terms of development costs and it had this 40 1 upward curve with ongoing operating costs, with 2 the year-on-year escalations. So there was 3 a gap between Fujitsu's initial proposal and the 4 guideline, if you like, that we'd used within 5 the group to say "We won't do this 6 competitively, we'll go down a non-competitive 7 route". 8 It eventually came to the point that my 9 colleague Ian O'Driscoll and I sat with Clive 10 Morgan and Liam Foley from Fujitsu and told them 11 "We are walking away from Fujitsu. We will go 12 and do this in a different way". That resulted 13 in a changed approach from Fujitsu and, 14 particularly taking on board the fact that all 15 the major developments -- I mean, there were no 16 more clients left to re-engineer the products so 17 a system that was designed to support that 18 intensive period of change that we'd gone 19 through was no longer required. 20 And we also put on the table some 21 requirements in terms of how things might evolve 22 in the future and this involved breaking the 23 contract down into a number of different areas 24 which could be competed separately. So we were 25 trying to move Fujitsu into a space where they 41 1 would be the systems integrator but not 2 necessarily the provider of all the services. 3 And, I mean, this was taken on board by 4 Fujitsu and they came up with a proposal that 5 met the goals, underpinned by the Gartner work, 6 which had been embedded not only in Post 7 Office's business plan but also aided and 8 abetted by McKinseys in the group plans. And it 9 was on that basis that we contracted. 10 Q. You mentioned that the initial proposal from 11 Fujitsu was what, on the basis of what you would 12 have ideally had rather than Legacy Horizon. 13 Were you not surprised by that, given it was 14 Fujitsu who were handling Legacy Horizon? 15 A. Um, well, this was not so much about the 16 functionality of the system. This was about -- 17 so for example, one of the things in the 18 proposal was to use one of the data centres as 19 the test environment and that was, you know, 20 pretty radical but also expensive sort of stuff. 21 Now, it would have been -- I mean, there was 22 an issue that emerged in 2004 where, because the 23 volume testing had to be a result of testing and 24 modelling, a design implementation fault was not 25 picked up. Now, if you were using one of the 42 1 data centres as your test environment, that 2 would have been identified. So there was a lot 3 of learning, if you like, from things that had 4 gone less well during Legacy Horizon that were 5 built into this proposal. 6 A better way of working up requirements and 7 turning those into design, that sort of stuff, 8 which would all have been appropriate to what 9 happened during the lifetime of Legacy Horizon 10 with the -- you know, this constant period of 11 change but was less appropriate to a period 12 where we expected change to be a much more -- on 13 a much more modest level. 14 Q. You mentioned you then took the proposal to the 15 Post Office Board. If we turn to page 88, this 16 slide records what your memory in 2010 was of 17 that process and the questions that were in your 18 mind at the time. Is there anything in addition 19 to what's on the slide that you want to tell the 20 Inquiry? 21 A. No, I think that summarises the position as 22 I understood it. 23 Q. Was part of the problem the last bullet point on 24 the slide, "What's the alternative?" 25 A. Well, the alternative would have been -- you 43 1 know, one of the things I think that was 2 a concern at the time of going to competition, 3 was the sheer amount of management effort that 4 were required in the business to go through to 5 get there, plus then working with a new 6 supplier. 7 Now, there were -- I think there were some 8 arrangements in the contract that if we changed 9 the supplier, that resources could -- and 10 knowledge could be moved across from Fujitsu. 11 But I mean, that was seen as -- taking the whole 12 thing and shifting it elsewhere was seen as 13 a step too far. 14 Q. Easier to stay with what you know? 15 A. Easier to stay with what we know but, as I say, 16 the -- what we came to in the end was something 17 which did allow breaking out, so for instance 18 data centres, and competing those in the 19 marketplace, and then requiring Fujitsu to 20 manage the process of phasing out their data 21 centres and integrating a new supplier into the 22 overall service. 23 And that was seen, I think, at the time, as 24 being a more manageable way forward than taking 25 the whole thing and replacing it in one go. 44 1 Q. If we could turn to page 94 of the slide show. 2 This records the stage at the holding board 3 approval and the first bullet point records that 4 the Post Office was technically bankrupt at that 5 stage. How did that fact impact on you doing 6 your job? 7 A. Well, it was a bit of a road block at the time 8 because I think, as it says here, the directors 9 of the business would have been criminally 10 liable if they had approved a major project like 11 this with a business that was technically 12 bankrupt. 13 I mean, it was a -- you know, it was 14 something that was overcome eventually but 15 I think it built in a delay of a number of 16 months before we could actually move forward. 17 So there was an element of frustration having 18 got to a proposition that we, you know, we could 19 support, not being able to move forward as 20 quickly as we might have been able to. 21 Q. That document can come down, please. If we 22 could turn to POL00070492, please. This is 23 an email chain from 22 November 2005. Your name 24 is mentioned here. We're going to go through it 25 in a moment in detail in relation to attending 45 1 a meeting concerning Lee Castleton. 2 If we could turn up your second witness 3 statement, please, which is WITN05290200, and 4 page 11, please. Looking at paragraph 28, it 5 says: 6 "It was towards the end of 2004 ... when 7 completely out of the blue I received 8 a telephone call from Mandy Talbot [who was in 9 that email chain we looked at a moment ago]. 10 She explained that she worked for the Group 11 Solicitors team and had recently been assigned 12 to POL cases. She was dealing with a civil case 13 referred to as Cleveleys which the Post Office 14 was on its way to losing. She was most 15 concerned that this would create a precedent 16 which could be used in future cases. She wanted 17 to know if I could suggest a way to retrieve the 18 situation." 19 So is this your introduction to Mandy 20 Talbot, the Cleveleys case? 21 A. It was indeed, yes. 22 Q. What was the Cleveleys case? The Inquiry has 23 heard about it before but what do you remember 24 of it? 25 A. Well, I guess the -- I'm aware Mandy was an -- 46 1 was that an expert had been appointed jointly, 2 I believe, by the Post Office and the defendant. 3 It had basically said that Horizon could 4 have caused this problem and what I remember was 5 that Mandy was really, really concerned that 6 this would create a precedent and could 7 I suggest a way we could get out of this hole? 8 I mean, the only thing I could suggest to her 9 was to access the audit file for the branch and 10 to test the proposition that Horizon was to 11 blame. 12 Q. Scrolling down in your witness statement, 13 I think you say that. You say: 14 "The only way to counter this, in my view, 15 was to demonstrate that Horizon had not created 16 the discrepancy and the only way to do that was 17 the audit file." 18 A. Yeah, I mean, the only way that basically 19 I believe would produce incontrovertible proof 20 that it wasn't Horizon or, I might add, had 21 Horizon caused the problem it would also surface 22 that Horizon had caused it. 23 Q. But a moment ago you said the audit file was the 24 only thing you could think of? 25 A. Without going into the details of the case, yes. 47 1 Q. But wouldn't this have been a good time to go 2 into the details of the case and to do a proper 3 review on the integrity of Horizon? 4 A. It wasn't -- I mean, it wasn't part of my brief 5 to do so. 6 Q. What do you mean by your "brief"? 7 A. Well, I was there as a project manager to 8 deliver projects, not to get involved in the 9 whole process of, you know, dealing with 10 subpostmasters. 11 Q. But you just told the Inquiry a moment ago that 12 you got a call from Mandy Talbot asking if you 13 could get her or the team out of a hole; is that 14 not becoming involved? 15 A. Yes, but, I mean, it was -- you know, the audit 16 file was -- and the processes around it -- was 17 something that was specified in the original 18 Horizon, I believe, by the security team. So it 19 was there. I was simply pointing her in the 20 direction of what already existed. 21 Q. At that time, did you think the audit file was 22 the start and end of the matter, in terms of the 23 integrity of the system? 24 A. Well, yes, I believe it would actually -- you 25 know, if there was a suggestion that the system 48 1 had introduced an error, accessing the audit 2 file -- the audit file was a record of what the 3 subpostmaster had asked or the subpostmaster or 4 the office staff had asked the system to do. It 5 wasn't an audit of what Horizon had done, and so 6 it was possible, against that audit file, to 7 test what Horizon had done to see if it was 8 actually in accordance with the subpostmasters 9 instructions. 10 Q. Did you think, "I remember there was a problem 11 with the EPOSS system during the design of 12 Legacy Horizon, might there be an error 13 introduced in something like that?" 14 A. No, I didn't, no. 15 Q. If we could return to the email thread at 16 POL00070492, please. 17 Could you have an overview of who each of 18 these individuals, Mandy Talbot, Tom Beezer and 19 Stephen Dilley, are, please? 20 A. Can you repeat the names again, one by one? 21 Q. They should be in front of you: Mandy Talbot? 22 A. Mandy was from the Group Solicitors department. 23 Q. Tom Beezer? 24 A. I can't recall, I'm afraid. 25 Q. Or Stephen Dilley? 49 1 A. Can't recall. 2 Q. If we scroll down to the bottom of that page, we 3 can see the initial email is from Tom Beezer and 4 it says: 5 "Mandy 6 "I have called and left a message. I will 7 try again this afternoon. 8 "The points I wanted to discuss are (in 9 short form): 10 "1) a full set of papers is being prepared 11 for you. 12 "2) I suggest that you, Stephen Dilley and 13 me have a con' call at your convenience to 14 discuss and plan the next steps in this matter. 15 "3) an updated spreadsheet is being prepared 16 listing all Horizon related cases. From my end 17 you are aware of Blakey and Patel. We can 18 discuss the level of information you require on 19 each or all of the Horizon related matters when 20 we speak. 21 "4) I have put out to the team the message 22 that there are to be no proceedings issued 23 relating to a Horizon based claim without your 24 knowledge and 'ok'." 25 There's a spreadsheet mentioned there. At 50 1 this stage the Post Office is already preparing 2 a spreadsheet of Horizon-based cases; is that 3 right? 4 A. Yes, one of the -- so resulting from Cleveleys, 5 there were a series of meetings, I believe, with 6 interested parties and one of the issues that 7 surfaced was that there was not one place where 8 all cases, both criminal and civil, were 9 consolidated. Partially due to the fact that 10 the civil cases, I think, were dealt with by the 11 Retail Line, without the involvement of 12 security, but also the fact that the 13 organisation of the Post Office, through various 14 iterations, was regionally based. So there 15 wasn't even a sort of consolidated view from the 16 regional teams. 17 So I think this is -- I wasn't included in 18 this particular conversation but I think the -- 19 this is an attempt to pull all of this activity 20 together in one consolidated statement. 21 Q. Were you aware of that spreadsheet at the time? 22 A. Um, I think there's a reference in the earlier 23 letter to it being tabled at the meeting so 24 I would have been at that meeting. 25 Q. If we scroll up to that, the top email again, 51 1 please, and it says the third paragraph: 2 "I'm attending a meeting with David Smith, 3 Tony Utting and Clare on Friday to discuss this 4 case but also to plan a way forward so this type 5 of problem does not occur again." 6 What do you think "this type of problem" 7 means? What's being referred to there. 8 A. Well, it's getting into a situation where we're 9 going to lose a case and I mean the 10 recommendation at the time was to access -- you 11 know, where we got into proceedings and Horizon 12 was claimed to be the fault of the problem, was 13 access the audit file. 14 The immediate issue was that security had, 15 I think it was the right to access the audit 16 file 100 times in a financial year. They were 17 currently using all of those opportunities. 18 They were only resourced to deal with 100 19 accesses of the data. If you extended this to 20 civil cases it needed more resource to process 21 the data. I mean, this could be -- for some 22 unknown reason, £1 million for 100 accesses was 23 numbers that are floating around in my head. 24 I don't know if that's what's right but, for 25 some reason, that's what's there. 52 1 And I think as part of the Rule 10 documents 2 that I received, there's an email there from 3 Tony Utting, who was from the security 4 department, where he had put together 5 a proposition in terms of increasing the 6 resource within security to enable them to 7 handle the additional accesses of the audit 8 files, were the funding to come forward. 9 Q. But, again, coming back to the type of problem, 10 you said the problem was losing the case, not 11 getting to the -- 12 A. Well, the problem was how you established -- how 13 do you establish -- so against -- it was 14 Horizon: how you established a watertight case 15 that it wasn't Horizon. 16 Q. How you establish a watertight case? 17 A. Yes. 18 Q. That was your concern at the time? 19 A. That was Mandy's concern at the time and that 20 was -- as I say, it was not an answer that I had 21 come up with because the security team, before 22 Horizon was implemented, had specified this 23 audit file facility so that they could, when 24 they were prosecuting subpostmasters, they could 25 demonstrate that Horizon wasn't to blame for the 53 1 discrepancy between the system and the physical 2 cash balance. 3 Q. But the idea of checking the audit file came 4 from you, didn't it, when you spoke to Mandy 5 Talbot? 6 A. My -- extending it from beyond the -- sorry, the 7 criminal cases to the civil cases. 8 Q. What do you remember about this meeting, if 9 anything -- 10 A. Nothing. 11 Q. -- about Lee Castleton? 12 A. No, nothing. 13 Q. Do you remember the case at the time at all? 14 A. I remember a couple of phone calls from Mandy. 15 I remember her basically saying that they'd 16 accessed data and that Castleton's solicitors 17 had disappeared left field but believed that 18 they had seen the data and they recommend that 19 he -- that he settled. And then, when the case 20 was actually found in our favour, Mandy was 21 somewhat ecstatic, I think, was the right word 22 because, particularly in the judge's summing-up, 23 I think he used some words that we, I guess, you 24 know, we would have wished him to write about 25 the integrity of Horizon. 54 1 I mean, I did receive in the Rule 10 2 document, a very extensive bundle of documents, 3 and I went through all of them, and 4 I absolutely, you know, underpinned my 5 recollection that I wasn't involved in any way 6 in the detail of this because I'm not included 7 in any of that correspondence, other than, 8 I think, this letter. 9 Q. Were you pleased about the judgments in the 10 Castleton case? 11 A. Well, obviously, I was pleased that, you know, 12 we had won the case. But, I mean -- yes. But, 13 I mean, I wasn't "Yippee" pleased. I mean, you 14 don't want to deal with these cases at all. 15 Q. Did you feel the Castleton case shut down for 16 a while any suggestion that there was an issue 17 with the integrity of Horizon? 18 A. Well, I think it shut Mandy down for a while, 19 phoning me about the issue because I think she 20 felt that she had a way forward in dealing with 21 these cases. It was when, you know, the 22 interest in the media, you know, started to 23 surface that I got re-involved, although I don't 24 think it was Mandy that got me re-involved. 25 My recollection is that it was the PR team, 55 1 which again was a group function, started to get 2 concerned about the reputational damage that was 3 being caused by the stuff that was appearing in 4 the media. 5 Q. So it was the public relations team that then -- 6 A. That's my recollection, yes. 7 Q. That document can come down, thank you. 8 If we could turn up FUJ00080526, please. 9 This is a document prepared in October 2009 by 10 a Mr Gareth Jenkins. If we turn to your second 11 witness statement, WITN05290200, and we look 12 they bottom of that page, you set out that you 13 can't be sure but you believe this document was 14 produced as a follow-up to your telephone 15 conversation that you had with Gareth Jenkins; 16 is that right? 17 A. Yeah, yeah. 18 Q. How did that conversation come about? 19 A. I think the witness statement goes on to explain 20 that. 21 Q. Yes, shall we turn over to the next page. 22 A. Yes. Basically, I was -- via Finance, I was 23 asked to meet with partners of Ernst & Young, 24 who were the group auditors and, basically, in 25 preparation for that meeting, I wanted to make 56 1 sure that, you know, my understanding of certain 2 facts were -- was correct. I didn't want to 3 tell Ernst & Young something that wasn't right. 4 And so it covered two -- now, what I recall 5 at the time was that one of the things that was 6 being said by a number of subpostmasters was 7 that the circumstances in which Horizon was 8 creating these false balances was thorough power 9 interruptions, whether it be through storms or 10 the grid failing or a power surge. 11 I think it's fair to say that the original 12 design of Horizon was -- the choice of the 13 Escher Riposte product was very much driven by 14 its ability to recover from such circumstances. 15 The other was around the audit file and the 16 security around the audit file. I mean, I won't 17 go into detail but there were a lot of security 18 procedures around that audit file which meant 19 that when someone accessed it, it was possible 20 to see that you were the only person that 21 accessed it. No one had been in before and had 22 interfered with it. 23 So that was the reason why I spoke to 24 Gareth, and -- 25 Q. How did you come to be in touch with Mr Jenkins 57 1 in particular? 2 A. I think I did it through the account team. So 3 it would have been through -- I think Suzie 4 Kirkham's name is mentioned on the document, and 5 I would have said to Suzie "Look, I've got this 6 meeting coming up with Ernst & Young, can you 7 put me in contact with someone who can address 8 these issues for me?" 9 Q. She gave you the name Gareth -- 10 A. I think Gareth phoned me. I think Gareth phoned 11 me. So she triggered Gareth contacting me to go 12 through this. 13 Q. Did you understand him as being the expert at 14 this time? 15 A. I understood him as being an expert. I mean, 16 his name used to crop up quite frequently when 17 we were dealing with stuff. So he was well 18 known yes, and, he was -- he wasn't the only 19 expert but his name was pretty prominent. 20 Q. Just looking at your witness statement again, at 21 that paragraph 2 and the bit that's on the 22 screen now, it says: 23 "The subpostmasters had no hard evidence 24 that Horizon had produced false balances but 25 there were suggestions that power interruptions 58 1 might have been the cause." 2 A. Yeah. 3 Q. What hard evidence, in your mind, could the 4 subpostmasters have produced to show that there 5 was an issue with the Horizon at this stage? 6 A. It's a great question. It would have been, 7 I think -- it -- I'll try to answer this without 8 getting into too much detail, but it's possible 9 on Horizon to -- at the start of the day you get 10 a till. You log on to the system, it's you -- 11 it identifies all the transactions until you log 12 off to you and to that till. At the end of the 13 day's session, you count up the cash. If 14 somehow the cash is out of balance, that will be 15 flagged up. 16 Now, not all branches did this. But from 17 that, you could spot a difference, you know, in 18 a lot of offices the -- I mean, I worked on the 19 counter on a number of occasions during 20 industrial disputes and I remember doing that, 21 going through that process and ending up with 22 very significant differences. You know, I cried 23 help and the branch manager or assistant branch 24 manager would come along and they would go 25 through a checklist of obvious things that 59 1 I might not have done and in both those cases, 2 actually they immediately resolved the problem. 3 But you might go through that checklist and 4 then you might conclude "Well, I can't spot 5 an obvious error", and, at that stage, you might 6 pick up the phone to the helpdesk to trigger 7 off -- you know, to trigger off a help -- you 8 know, "This has happened, I don't think it was 9 me, I think it was the system". 10 Q. What hard evidence would you have at that stage 11 that it was the system? 12 A. Well, you wouldn't. All you'd have is 13 an unexplained difference. 14 Q. So then you would be in the hands of the Post 15 Office? 16 A. You would then be in the hands of the call 17 handlers and they would go through -- I mean, 18 there are various levels of -- various levels 19 involved in phoning up. So the first level 20 would probably work through scripts. 21 Eventually, you'd get to a more technical desk 22 who would look into it and indeed in the Horizon 23 Issues trial there's a story of how some of 24 those calls eventually got to the people who 25 understood how the system worked and 60 1 investigated the detail. 2 Q. But you accept, on the basis of the Horizon 3 System in front of the subpostmaster, sometimes 4 there would be no hard evidence available to 5 them? 6 A. There would be no hard evidence available to 7 them, no. 8 Q. If we could turn back up FUJ00080526, please. 9 So turning back to this report, you said that 10 Mr Jenkins phoned you. How long did that 11 conversation last? 12 A. It wouldn't have been a short one because, with 13 respect to technical architects, they didn't 14 always speak in, you know, everyday language, so 15 I would have had to do a fair bit of testing of 16 understanding. So I can't imagine we 17 discovered -- sorry, that we covered this area 18 in a short conversation. It would have -- 19 I mean, I didn't run a stopwatch on it, 20 obviously, but it would have taken at least 21 an hour, I would have thought, to go over this 22 sort of material. 23 Q. Do you recall whether you found Mr Jenkins 24 particularly difficult to understand or do you 25 have any recollection? 61 1 A. No, no more so than any other technical 2 architect. I mean, one of the problems with 3 this whole area is the use of abbreviations and, 4 you know, which can be deeply layered. So he 5 was no more difficult to understand than any 6 other person. 7 Q. If we could turn to page 5 of this document, it 8 sets out the "Purpose". It says: 9 "This document is submitted to Post Office 10 for information purposes only and without 11 prejudice." 12 What do you understand "without prejudice" 13 to mean in this context. 14 A. I think I would have read that heading at the 15 top of the page. It was basically for my use 16 and internal use only and we weren't to -- 17 I mean, I think it quite explicitly says 18 elsewhere that we shouldn't -- we shouldn't use 19 this document in any court cases. 20 Q. So it was just for your understanding? 21 A. It was -- that's -- yes, it was -- that was why 22 I made, you know, made the contact with Fujitsu: 23 to have this call in the first place. 24 Q. If we turn over on to page 6, please. There's 25 a section entitled "Horizon Data Integrity". It 62 1 says, in the first paragraph: 2 "The Horizon system is designed to store all 3 data locally on the counter's hard disk. Once 4 the data has been successfully stored there it 5 is then replicated (copied) to the hard disks of 6 any other counters in the branch (and in the 7 case of a single-counter branch to the 8 additional external storage on the single 9 counter). Data is also passed on from the 10 gateway counter to the Horizon data centre using 11 similar mechanisms." 12 Did you know this before you had this 13 conversation with Mr Jenkins -- 14 A. Oh, yes, I knew this because this was -- I think 15 this goes back to one of the reasons why the 16 Escher Riposte product was chosen by Fujitsu. 17 In those days, dial-up telephone networks 18 weren't terribly reliable. So in designing the 19 system, it was important that when there was 20 an interruption in a transaction, that it was 21 recoverable. I mean, this reflected the -- this 22 reflected, you know, some of the important 23 elements of the Riposte design. I mean, I met 24 with Escher on a number of occasions as part of 25 a user group, and they were boy silly on the 63 1 contents of that particular paragraph. 2 Q. The third paragraph then goes on to read: 3 "Every record that is written to the 4 transaction log has a unique incrementing 5 sequence number. This means it is possible to 6 detect if any transitions records have been 7 lost." 8 Did you understand that before you received 9 this report? 10 A. Yes, I did. 11 Q. Scrolling down again, it says: 12 "While a customer session is in progress, 13 details of the transactions for that customer 14 session are normally held in that computer's 15 memory until the customer session (often known 16 as the 'stack') is settled. At that point all 17 details of the transactions (including any 18 methods of payment used) are written to the 19 local hard disk and replicated (as described 20 above). It should be noted that double entry 21 bookkeeping is used when recording all financial 22 transactions, ie for every sale of goods or 23 services, there is a corresponding entry to 24 cover the method of payment that has been used. 25 When a 'stack' is secured it is reason in such 64 1 a way that either all the data is written into 2 the local hard disk or none of it is written. 3 The concept of 'atomic writes' is also taken 4 into account when data is replicated to other 5 systems (ie other counters, external storage or 6 data centre)." 7 Scrolling down to the bottom, it states: 8 "Any failures to write to a hard disk (after 9 appropriate retries) will result in the counter 10 failing and needing to be restarted and so will 11 be immediately visible to the user. 12 "Whenever data is retrieved for audit 13 enquiries a number of checks are carried out: 14 "1. The audit files have not been tampered 15 with (ie the Seals on the audit files are 16 correct). 17 "2. The individual transactions have their 18 CRCs checked to ensure they have not been 19 corrupted. 20 "3. A check is made that no records are 21 missing. Each record generated by a counter has 22 an incremental sequence number and a check is 23 made that there are no gaps in the sequencing." 24 Reading this did you then proceed on the 25 assumption that, "Well, if the audit file says 65 1 something, then we can rely on the audit file 2 and it's correct?" 3 A. That was my belief, yes. 4 Q. Did you understand that to be the key issue with 5 data integrity in Horizon and the answer to the 6 Post Office's problems? 7 A. I believed it was -- I believed that this was 8 a way of investigating a claim that Horizon that 9 caused a misbalance -- or a wrong balance in the 10 cash balance for the branch. 11 Q. Did you say to Mr Jenkins on the phone call 12 "What about before it gets to the audit stage? 13 Is there a way of telling that there's a bug or 14 an error or something that otherwise has 15 corrupted the data?" 16 A. No, I didn't. I was asking him to take me 17 through the way in which the system recovered 18 transactions when there'd been interruption to 19 the service. 20 Q. But it is entitled "Horizon data integrity"? 21 A. Well, that was his title. That wasn't my title 22 and I said in my written statement that 23 I understood data integrity to be a wider issue 24 than the topics covered in this document. 25 Q. But if it is a wider issue, then why not ask him 66 1 to address it and explain what other issues -- 2 A. Because I had one specific area of information 3 that I wanted to validate my understanding of it 4 before I met with Ernst & Young. I wasn't 5 carrying out an investigation into data 6 integrity. 7 Q. With the benefit of hindsight, do you think you 8 should have? 9 A. Do I think I should have? I think that -- it's 10 very difficult to answer that question without 11 taking all the stuff that I know, so for 12 example, having read the Horizon Issues trial 13 and clearly when you take the totality of what 14 was discovered, there more ought to have been 15 done than was done. 16 Q. Should more have been done by you at this time? 17 A. Well -- ha -- I read about, I would say I read 18 about the issues that had arisen in the Horizon 19 Issues trial for the first time in that Horizon 20 Issues -- in Justice Fraser's judgment. 21 Q. Who was it in the Post Office or Fujitsu who 22 could have done more at this time? 23 A. Well, I mean, the visibility of these -- you 24 know, the specific issues would have been within 25 service management. The issues were all dealt 67 1 with in different ways. I mean, there are 2 a number of those issues where the resolution of 3 the issue was quite quick. I mean, a lot of the 4 differences that were created were clearly -- 5 were investigated and corrected. So if you've 6 got a bunch of issues coming up that are 7 identified and corrected, I mean, there would 8 have been no question on those issues of 9 a subpostmaster being taken to court over them. 10 And the evidence is there in abundance in 11 Justice Fraser's write-up of those issues. 12 He -- there's -- in the technical appendix, 13 there's constant reference to transaction 14 corrections being raised. But, yes, taking -- 15 if I'd have had that stuff laid out in front of 16 me, I'd have felt inclined to do something, to, 17 you know, have a root and branch review of 18 what's going on here. 19 Q. Do you remember the names of any of those people 20 in that team who would have had that oversight? 21 A. Um -- I remember one or two names of the people 22 in the service management team. What I'd be 23 less certain of is what their particular roles 24 were and there was, in the service management 25 team, I think, varying over time who was heading 68 1 it, a difference in the level of, you know, some 2 people believed that, you know, this was for the 3 supplier to manage and it was for the supplier 4 to get on with it, and you didn't spend a lot of 5 time, you know, second-guessing them. 6 Q. Or picking over the data? 7 A. Yes, that's right. This was for the supplier to 8 do and not for -- it's the linkages here, 9 I think. What's missing in all of this is 10 whether those people in service management, or 11 indeed with Fujitsu, would have drawn a line 12 from these incidents to postmasters appearing in 13 a court. 14 Q. But you felt unable to draw that line, is what 15 you are telling us, on the basis of what you 16 knew? 17 A. What I'm saying on the basis of what I knew, 18 I mean, I didn't know about a lot of this stuff 19 that was going on. It wasn't, you know, 20 these -- some of these involved multiple post 21 offices, some involved only one or two post 22 offices, and these weren't the kind of issues 23 that would come across my desk. 24 If it had come across my desk then I would 25 have felt inclined to, you know, to ask some 69 1 serious questions about what was going on, 2 and -- but whether I'd have made the immediate 3 contact -- sorry, the immediate connection with 4 subpostmasters appearing in court is a different 5 issue. 6 Q. You don't view Lee Castleton's case, for 7 example, as coming across your desk? 8 A. It did but bear in mind that the process, 9 actually -- I mean, to quote the judge himself, 10 "The integrity of Horizon is beyond question". 11 Q. If we could turn back for a moment to Horizon 12 Online. We're now in March 2010. If we could 13 turn up FUJ00094472, please. These are the 14 "Notes of Horizon Next Generation Joint 15 Progress/Release Board meeting", and we can see 16 there the programme manager is Mark Burley, who 17 we heard from a couple of days ago. He reported 18 in to you; is that right? 19 A. That's correct, yes. 20 Q. Did you work well together? 21 A. I think so. I don't know what he said. 22 Q. Did you work closely with him on this? 23 A. He was one of a number of reports -- I mean, 24 Mark -- there'd probably be -- during a week, 25 Mark and I would have two or three conversations 70 1 about the progress, quite apart from more formal 2 situations when we would meet and discuss it. 3 I tried not to sit on his shoulder and 4 second-guess his moves. Also, I was, at this 5 stage, probably about 10, 12 working days away 6 from retiring. 7 Q. If we turn to page 3. If we scroll down first, 8 actually, on that page, we can see you were on 9 the distribution list. 10 A. Mm-hm. 11 Q. If we turn to page 3 and scroll down, and down 12 again, please. At the bottom of that page it 13 records "Actions and Points" arising from the 14 previous meeting. One of the issues there 15 recorded is: 16 "Trial Report/Final Balance issue: PN to 17 check if the proposed workaround is acceptable 18 ..." 19 Then it says: 20 "[Post Office] have requested this to be 21 a Hot Fix as it is required before we migrate 22 any further branches." 23 Would you have been across this level of 24 detail or is that something you would have left 25 to Mr Burley? 71 1 A. I think I did get involved in this. Again, the 2 Rule 10 disclosure of documents, I think buried 3 in there, was a document that referred to my 4 involvement and I was concerned -- I mean, 5 I think this was reporting two conflicting 6 numbers and I was concerned -- and I think it 7 was me that drove this activity. I was 8 concerned about the potential implications of 9 that in terms of data integrity and I think 10 there are references in there to legal teams 11 being involved. 12 Q. If we could take that document down, please, and 13 pull up POL00002268, please. This is an email 14 thread from February 2010 and it's between, we 15 can see there, Andrew Winn, Hayley Fowell, Dave 16 Hulbert, who we have discussed before, you, 17 Jacqueline Whitham and Ann, and it's about the 18 media coverage of Horizon. Is this the PR team 19 or is this -- I know Andy Winn is in branch 20 improvement and liaison but are you being 21 brought in again? 22 A. The only name I recognise on that, apart from my 23 own, is Dave Hulbert's. So I can't recall where 24 these people worked but it could be that it was 25 the PR team. I don't know, is the answer. 72 1 Q. If we scroll over to page 2, please. This is 2 an email from Hayley Fowell to you, Michele 3 Graves and Dave Hulbert, saying: 4 "Media Inquiry -- Horizon. 5 "We've had a media Inquiry from a Retail 6 Newsagent magazine; they have been talking to 7 a subpostmaster who said that his branch was 8 closed in [September] 2008 because of financial 9 irregularities which he claims are the fault of 10 Horizon. 11 "I am providing our stock line which states 12 the system is robust but in case we get more 13 questions on this please can you advise if you 14 have any record of an investigation for this 15 individual and any relevant details ..." 16 Why were you sent this email directly? 17 A. I don't know, because, you know, I wouldn't have 18 had the information that Hayley was looking for. 19 Q. You said a moment ago you don't remember these 20 people. You have no idea who Hayley Fowell was? 21 A. No, I don't recall. I don't recall the name or 22 Michele Graves. 23 Q. Was that because you were becoming a bit of 24 a point person for these media enquiries and 25 assisting with setting out that the system was 73 1 robust? 2 A. I think that there were people -- if I go back 3 to Mandy's contact with me, and likewise with 4 the PR team, I think these people who were 5 dealing with these issues were having difficulty 6 getting the attention of senior people and 7 I suspect that the PR team had had some contact 8 with Mandy and it's for that reason that they 9 actually came to me. But I wouldn't have 10 records of investigation for individuals. 11 I mean, that was not part of my role. 12 Q. Why do you think they were having trouble 13 getting hold of senior people? Did they tell 14 you that or was that a guess? 15 A. With the Mandy stuff, I'm going back I don't 16 know how many years and, in all honesty, I can't 17 be certain, but I -- my memory is telling me 18 that she used words to that effect. 19 Q. Why would it have been that senior management 20 wouldn't have wanted to know about this? 21 A. Well, I can only guess. But, I mean, again, 22 I don't have, never had, visibility of all the 23 action that Post Office took against all 24 subpostmasters but I guess if all that action 25 was successful, why would you change anything? 74 1 Q. In the email Ms Fowell says: 2 "I'm providing our stock line ..." 3 Was there a stock line at this stage that 4 the system was robust? 5 A. If there was, I wasn't aware of that line and 6 I certainly wasn't aware of putting that line 7 together. 8 Q. So it didn't come from you? 9 A. It didn't come from -- neither was -- I believed 10 that Fujitsu were involved in supporting 11 certainly the security team and probably in 12 civil cases, the conduct of the case. I can't 13 recall ever being consulted about Fujitsu's 14 involvement in it. It probably would have 15 fallen under the bailiwick of service management 16 anyway but I was never consulted on, and never 17 asked, actually, to participate in supporting 18 the teams in those actions. 19 Q. But would you have agreed with that position at 20 the time, that the system was robust and that's 21 the position the Post Office took? 22 A. If I go back to my airline days, I was involved 23 in a piece of work around automated ticketing, 24 and there was a debate about whether it was 25 necessary to still keep a paper copy of the 75 1 ticket that's printed or whether we could rely 2 on the electronic facsimile of that ticket. And 3 the project consulted widely. There were 4 a number of QCs involved in that consultation, 5 and include -- and IT experts from outside the 6 business. 7 And in that debate, someone asked the 8 question: could anybody ever stand up in a court 9 of law and say that automated record could not 10 be corrupted? Could you ever say it could never 11 happen? And could anyone ever really stand up 12 and say it could never happen that Horizon could 13 get it wrong or that the back office checking 14 systems could ever beat it? 15 So I would have -- I would qualify that by 16 saying, you know, I had belief that the back 17 office checks were robust and would pick up any 18 errors and, as I say, that's evidenced, I think, 19 in the very detailed accounts that Justice 20 Fraser gave of the investigation of the bugs, 21 defects and issues that were found. 22 Q. So, in short, at this stage, you would have said 23 yes, that is correct, this is -- 24 A. Yes, in very broad terms. I've said the whole 25 thing end to end, gave you -- that it would 76 1 be -- you know, the system was robust, it had 2 inbuilt checks and balances that should prevent 3 Horizon creating a false balance that resulted 4 in a subpostmaster being prosecuted. 5 Q. If we could go back over on to the first page up 6 the chain and scrolling down a bit, there's 7 a bit of discussion about this case. You don't 8 respond on this email to say "Well, hold on 9 a minute, maybe we should look at X, Y or Z or 10 give Fujitsu a call and see if there's anything 11 to this"? 12 A. No, because I wouldn't have been handling the -- 13 it would have been -- for anyone to respond to 14 that, in terms of the detail of photographs 15 being done, it would have fallen within Dave 16 Hulbert's area of responsibility because, you 17 know, issues with the day-to-day service were 18 for service management to manage. 19 Q. If we scroll up again, just to the last email in 20 the chain. It states there that: 21 "We are due to restart our former agent debt 22 recovery process. I just wanted to check the 23 recent communications to ensure there was 24 nothing there to suggest we should not do this." 25 Is that how you understood the Post Office's 77 1 approach to be: even when there was a dispute, 2 you'd go ahead and you start the debt recovery 3 process? 4 A. I really don't -- I don't understand this. So 5 I don't understand why the process needed 6 restarting. I just don't understand it. And as 7 I say, I wouldn't have been involved anyway. 8 I think this would have -- if anyone in that 9 email would have been involved in that it would 10 have been Dave Hulbert. 11 Q. If we could turn up FUJ00092754, please. Sorry 12 to jump around about, this is back in the 13 chronology, 27 January, this is another "Note of 14 the Horizon Next Generation Joint 15 Progress/Release Board Meeting". So on the one 16 hand you have the discussion of Horizon Online 17 going on and, on the other, you're also involved 18 in discussions regarding the integrity of Legacy 19 Horizon. These two threads of things are coming 20 up around the same time, quite close to when you 21 retire; isn't that right? 22 A. That's correct, yes. 23 Q. If we go over the page to page 3 and scroll 24 down, at 140.09 it states: 25 "The delay in the commencement of Volume 78 1 testing means that we will not be able to 2 perform a significant amount of testing before 3 commencing the Medium Volume Pilot. Hence we 4 need a significant amount of data to be 5 collected from the Live Branches and Data 6 Centre." 7 Do you remember whether there was less 8 testing at this stage than was initially 9 anticipated or planned? 10 A. That's what the minute says. 11 Q. You go off the minute, you don't remember 12 anything to the contrary? 13 A. Well, the important reference here is "LF". LF, 14 I believe, was Lee Farman, who is a technical 15 director of a company called Acutest, and he was 16 a testing specialist, and he basically is saying 17 here, the statement that closes the issue, that 18 he believed that the level of testing was 19 adequate "for now". Now, I guess one would have 20 to ask Lee what he meant "for now". 21 I suspect it was adequate for the purposes 22 of a pilot, and I would read into that that you 23 would expect some follow-up before there was 24 a rollout to ensure -- to test check again 25 whether the level of testing was adequate to 79 1 roll out. 2 Q. If we could then turn up FUJ00097159, please. 3 This is from the same day. It's a "Horizon Next 4 Generation Release Authorisation AG3 -- Joint 5 Board", and you were there as Head of Change and 6 IS? 7 A. Yes, I was, yes. 8 Q. Was the priority at this stage to secure or to 9 accept the Horizon Online system? 10 A. This was release authorisation not acceptance. 11 Q. I see. 12 A. So this is about the process of -- so the way 13 these processes work, contractual acceptance is, 14 you know, it's set out contractually and you 15 pass or fail the test and, at the end of it, you 16 either accept or you don't. You can accept 17 a product but the release authorisation process 18 can say "No, it's not fit to go into the network 19 in its current state". 20 And there was an example of this for 21 instance with CSR+ when, actually, in this 22 instance, it was Fujitsu Services or ICL 23 Pathway, as it then was, service management team 24 who said "No, we are missing some key control 25 reports and, therefore, the release cannot go in 80 1 to live operation". But actually contractual 2 acceptance had already been achieved. 3 Q. If we could turn forward in time to FUJ00092875, 4 please, and if we could turn to page 3 this is 5 an email from Alan D'Alvarez, who the Inquiry 6 heard from yesterday, on Wednesday, 3 February. 7 You're not copied into this email chain, 8 I believe it's an internal Fujitsu one. But if 9 we scroll down we can see that there are two 10 issues that require fixing, prior to being able 11 to enter into a medium volume pilot. 12 It states that: 13 "The decision has been taken to deploy HNG-X 14 to a further 10 branches with the migration 15 button being pressed tomorrow for migration to 16 complete [on] Friday ..." 17 There are two issues outstanding at that 18 stage, there's the branch trading statement 19 issue and the counter pauses in live. What's 20 recorded at paragraph 4 is: 21 "We had a meeting with Post Office this 22 evening which Mark Burley led from the Post 23 Office side. Post Office are desperate for 24 a date to start planning/rescheduling medium 25 volume pilot. They accepted our position that 81 1 we were not able to give this today. I expect 2 that Mark will be keeping Dave Smith briefed and 3 my reading is that if we are not in a position 4 to give a target date by [close of play] 5 tomorrow it is likely to result in an escalation 6 to Mike Young." 7 At this stage, were you and your colleagues 8 at the Post Office "desperate" for a start date 9 or a date to start planning the medium volume 10 pilot? 11 A. That's what the document says. 12 Q. But this wasn't written by you. 13 A. No, but this would be reflecting, I think, what 14 was coming across from Mark and his team and 15 I've no reason to disbelieve it. 16 Q. Do you remember at this time it being quite 17 stressful, trying to get everything ready for 18 HNG-X being fully rolled out? 19 A. I think I had a degree of unease about the way 20 things -- the way things were progressing. 21 There was pressure from -- I think from within 22 the business to get on with it because, clearly, 23 whilst we were rolling this thing out, other big 24 things couldn't happen in the branch network. 25 So, I mean, matters were already being 82 1 considerably delayed and so I think there was 2 a degree of pressure to crack on with it but, 3 I mean, I don't think that pressure would have 4 extended to, you know, doing silly things, 5 moving ahead when there were, you know, serious 6 issues that, you know, would dictate that you 7 shouldn't -- this is not a sensible thing to be 8 doing. 9 So there would have been pressure to get on 10 with it, crack on with it but there would have 11 also been a degree of caution. I think it is -- 12 I mean, I think there are number of areas where 13 it's reflected in some of those JSB minutes that 14 issues had to be cleared or at least the 15 business had to agree that there was a suitable 16 workaround to a particular issue before we moved 17 forward. 18 Q. You described pressure internally. Were you 19 being quite forthright, the Post Office, with 20 Fujitsu about timescales and needing to push on 21 but not do something silly? 22 A. Well, that would have been Mark who would have 23 done that. I would imagine, yes, he would have 24 done, yeah. 25 Q. If we turn over to POL00032999, please. This is 83 1 the acceptance report for HNG-X Acceptance 2 Gateway 3 and if we scroll down, this is 3 something that you were sent, we can see your 4 name on the distribution list. Do you remember 5 receiving this document? 6 A. No, I don't, but, I mean, I think the documents 7 that have been disclosed to me as part of this 8 process are probably less than 5 per cent of the 9 total documents that I would have received so 10 recalling individual documents is beyond this 11 aged memory. 12 Q. If we turn to page 9, please. The introduction 13 sets out that: 14 "This document comprise the HNG-X Acceptance 15 Report to the HNG-X Acceptance Board for the 16 assessment of the progression through Acceptance 17 Gateway 3 ... Readiness for Pilot." 18 If we scroll down, we can see that it sets 19 out clearly what the purpose of the Acceptance 20 Board is, which is: 21 "'To agree the Acceptance status of the 22 relevant Release ... and provide the 23 recommendation to the "Joint Release 24 Authorisation Board".' The proposed options 25 that this board can select from are described in 84 1 appendix D." 2 I think you say in your statement that you 3 thought that anything that would have affected 4 acceptance would be closed in this report. 5 A. Yes. 6 Q. Is that right? 7 A. Yes. 8 Q. There's one thing that you highlight at the 9 bottom of page 9, if we scroll down again. It 10 states: 11 "It should be noted that there are also 12 defects that are not linked to POL Requirements 13 and which are not the subject of Acceptance 14 Incidents. A separate assessment of the status 15 and significance of these has been undertaken 16 and will be available for consideration at the 17 Release Authorisation Board." 18 Do you remember what kind of defects those 19 may have been? 20 A. No, I don't, but I seem to think, in going 21 through the documents that I received, there 22 were some -- buried in another document, there 23 were some references to what -- you know, what 24 issues had actually come up under this heading. 25 So there was -- I think, the reason why 85 1 I alluded to it in my witness statement, I was 2 asked a question generally about was there other 3 stuff that should be taken into account and 4 I pointed to this, and I think there was -- and 5 I can't recall the document but there was 6 evidence in other documents that such evidence 7 had been brought forward. 8 I'd no reason to believe at the time that 9 that wasn't complete. I obviously can't talk to 10 what subsequently happened after I left. 11 Q. If we could then turn up FUJ00094393, please. 12 This is "RMGA HNG-X Counter Application Review", 13 and this one is dated 25 February 2010. Do you 14 remember this document? 15 A. I don't recall it from the time. But I do 16 remember it now because it had been supplied to 17 me and I've worked thorough it in some detail. 18 Q. This was, as far as you can recollect, the 19 version that was supplied to you? 20 A. I don't recall whether I saw this issue in this 21 level of detail at the time. I think this 22 relates to the Derby -- 23 Q. Yeah. 24 A. -- the Derby issue. I would have known about 25 the Derby issue because Mark would have brought 86 1 it to me. I can't say whether I did or whether 2 I didn't receive that detailed document. 3 Q. Did you ask for this report to be done? 4 A. Again, I can't recall. No, this is an internal 5 Fujitsu document and it doesn't -- I don't think 6 it sort of points to Post Office specifically 7 having asked for it. On the other hand, I would 8 have expected Mark to want this level of detail 9 in explanation about what caused the incident. 10 Q. This was what was sent to you? 11 A. I don't -- I can't confirm or otherwise whether 12 I received it. 13 Q. At the time, did you understand this report to 14 have been undertaken by independent experts or 15 Fujitsu employees? 16 A. Well, as I say, I can't recall the document, 17 so ... (the witness laughed) 18 Q. If we scroll down we can see, as you've already 19 said, the background to this paper and the 20 reason why it was written. And it's to do with 21 the Derby issue, which you've described, which 22 is to do with transactions and banking 23 transactions. Did you consider this to be 24 a serious problem at the time? 25 A. I was aware of the incident, yes. It was 87 1 a serious incident, and it was taken very 2 seriously at the time. 3 Q. Was it -- sorry. Go on. You finish. 4 A. I mean, I think, having read this report -- 5 I mean, I think, if I've understood it, and I've 6 had no one to bounce my understanding off, and 7 usually my process in looking at technical 8 issues was to bounce it off people so 9 I'd interpret it correctly, but under Legacy 10 Horizon, when you used "fast cash", you also 11 pressed "settle". With Horizon Online, both 12 those keys were still available but you only, in 13 this example, had -- the person operating this 14 transaction should have only pressed "fast 15 cash". They pressed "settle", which shouldn't 16 have been active and was active. 17 This would have caused me to ask questions 18 about the approach to negative testing, because 19 where you take something where the process was 20 press both, and you change it to where you only 21 press one, but the other key is still there, you 22 would have -- I mean, negative testing is a very 23 difficult area because you've got to sort of 24 work through all the combination of things that 25 people might throw at the system that you 88 1 wouldn't expect, in the normal course of things, 2 to hit it. 3 But when I read this, that appeared to me to 4 be pretty fundamental: that such an obvious test 5 had been missed. And I think this document, or 6 a document related to it -- in fairness to 7 Fujitsu, it does actually record that -- it does 8 ask the question about whether the approach to 9 negative testing was as it ought to have been. 10 Q. At this time, do you remember whether the Post 11 Office was stressing to Fujitsu the importance 12 of data integrity so that postmasters could be 13 prosecuted? Was that something that would have 14 been communicated? 15 A. Don't think that -- I don't think that 16 necessarily would have been top of mind at all. 17 Certainly not in the programme team. 18 Q. Rather, just data integrity -- 19 A. It was just about data integrity. It was just 20 about getting the system right. 21 Q. There's another version of this report. If we 22 could turn up FUJ00093031. I appreciate you say 23 you don't remember receiving this report. 24 A. Mm, mm. 25 Q. So you don't know the way in which it played in 89 1 your mind, but I'll take you to one paragraph. 2 So you can see there the date is 9 February. My 3 understanding from the documents is that you 4 weren't sent this. If we scroll down to the 5 bottom paragraph, this doesn't appear in the 6 later version that was sent on to the Post 7 Office, but it says: 8 "The net effect would be that the Post 9 Office and the branch records would not match. 10 Where this happens, the Post Office investigates 11 the branch and postmaster with a view to 12 retraining or even uncovering fraud. It would 13 seriously undermine Post Office credibility and 14 possibly historic cases if it could be shown 15 that a discrepancy could be caused by a system 16 error rather than a postmaster/clerk action. 17 "Most importantly, the central database, as 18 the system of record, would be called into 19 question." 20 Does it surprise you to see that comment 21 there in that report? 22 A. I think, in the circumstances of the fault that 23 arose, you couldn't disagree with that 24 statement. 25 Q. Okay. So -- 90 1 A. I mean, it shows an understanding, I think, in 2 Fujitsu, of the relevance of data integrity to 3 actions taken against subpostmasters. But 4 totally appropriate, because you've got -- 5 you've got duplicate baskets being settled. 6 Q. Thank you. 7 MS KENNEDY: Chair, I believe we initially discussed 8 taking an earlier lunch. This might be 9 a convenient moment if we were to stop at 12.30. 10 SIR WYN WILLIAMS: That's fine. If we have our 11 usual hour, that still gives us sufficient time 12 this afternoon? 13 MS KENNEDY: Yes, I won't be very long at all. 14 SIR WYN WILLIAMS: Right. Then yes, that's what 15 we'll do. We'll break now until 1.30. 16 MS KENNEDY: Thank you. 17 (12.30 pm) 18 (The Short Adjournment) 19 (1.30 pm) 20 MS KENNEDY: Good afternoon, Chair. 21 SIR WYN WILLIAMS: Good afternoon. 22 MS KENNEDY: Could we please pull up POL00054371, 23 please. This is an email thread with the 24 subject "Horizon disputed cases". If we turn 25 over to the third page and scroll down, please, 91 1 to the bottom, we can see the start of this 2 email chain between a Jason Collins, Graham 3 Brander and Andy Hayward. You're not copied 4 into that, Mr Smith. If we just scroll over, 5 just so we can see the end of that email, but it 6 says: 7 "Andy called me and asked whether you guys, 8 (Graham, if FIU have any cases in dispute/new 9 issues that could affect your case) could put 10 together some stats on these cases where the 11 accused's defence was/is that the Horizon data 12 is unreliable for any amount of reasons given by 13 the accused. 14 "This should be sent to Iain within the next 15 few days. Iain will need as much information as 16 possible." 17 If we scroll up we can see a further email, 18 again at the top of that page, talking about two 19 cases, West Byfleet and Orford Road. Scrolling 20 up again a little bit -- but, again, you're not 21 copied into that email -- but if we control up 22 further, we can see you start being copied in on 23 this email thread about people essentially using 24 or saying that the Horizon data used in their 25 cases isn't right. Do you remember being copied 92 1 in to this email threat? 2 A. Not particularly, no, I don't. 3 Q. Do you know why, again, you would have been 4 copied into this -- 5 A. It was Mandy who was copying me in, so I was 6 kind of Mandy's go-to person when she had things 7 like this crossing her desk. My advice, if 8 I had been asked, it would have been exactly the 9 same: use the audit file. 10 Q. It seems as though that email comes from Andy 11 Hayward and it looks as though he's the one who 12 is has copied you -- 13 A. Oh, that's right, yeah. 14 Q. Do you know who he was? 15 A. No, I can't recall, no. 16 Q. You don't know whether he was someone in Mandy's 17 team? 18 A. No. I mean, I recognise some of the others Rod 19 Ismay ran transaction processing; Sue Lowther 20 was the head of information security; and John 21 Scott was head of security. 22 Q. If we scroll up further, please. This email 23 says: 24 "As was discussed on the conference call and 25 taking into account Rob's comments ..." 93 1 Were you on this conference call, do you 2 remember a conference call? 3 A. I can't recall it, no. It doesn't mean I wasn't 4 in it but I just don't recall it. 5 Q. "... to confirm that what we are looking at is 6 a 'general' due diligence exercise on the 7 integrity of Horizon, to confirm our belief in 8 the robustness of the system and thus rebut any 9 challenges." 10 That suggests that at this stage the 11 position of at least the people on this email 12 thread is that there is no problem with Horizon 13 but we just need to check and find a way of 14 making sure that we can justify that that's the 15 case; is that how you read that? 16 A. Yeah, yeah. 17 Q. Does that reflect the wider attitude you 18 experienced in Post Office at this time? 19 A. Um ... I can't say that -- I mean, by "wider 20 Post Office" I think you're going into areas 21 like the Network team. 22 Q. Just your -- I mean, even within your team? 23 A. Within the team, I believe that there would have 24 been a belief that the system was robust, 25 notwithstanding what I said about you could 94 1 never say never. 2 Q. If we scroll up again, this email thread to the 3 first page, and down a little bit, this is again 4 an email from Dave King to the thread, and it 5 says: 6 "As discussed, I can confirm that we are in 7 no way questioning/investigating the financial 8 integrity of Horizon, or of the accounting 9 system as a whole." 10 There's almost a defensiveness to that, 11 isn't there, that someone could ever question 12 the systems? 13 A. Um ... I think there are several ways you could 14 read that. I mean, that may be defensive in the 15 sense that some other party was not happy that 16 information security were delving into this 17 area. So this should just be clarifying, "No, 18 we're not about that, we're about this". But 19 the answer is, you know, I don't know, I'm just 20 speculating in giving that answer. 21 Q. Do you think at this stage this would have been 22 a good time to do that proper analysis? 23 A. My belief right at the time, and I don't know 24 whether we'll come on to the slide set that 25 safety I produced, that it did need -- the way 95 1 the issue was boiling up, it did need something 2 to happen, something different to happen. Not 3 least of which, at the senior level in the 4 business, people to get a hold of this issue. 5 I mean, this is what the PR team were contacting 6 me for. You know, we need to get a grip of this 7 thing and deal with it before it actually 8 bubbles up out of control. 9 Q. Shall we go to that slide deck that you prepared 10 which is at POL00090575. 11 So this is the first slide of a slide deck. 12 A. Yes. 13 Q. Do you want to tell us what this slide deck is 14 and why you made it. 15 A. So there are two reasons why I created the slide 16 deck. The first was that -- and I can't be sure 17 who but I think it was probably the PR team had 18 called a meeting/meetings to discuss this issue, 19 and I was due to go on annual leave and I was 20 asked to jot down some thoughts on the subject. 21 So that was why. 22 The other thing I used this slide deck for 23 was to -- I would have kept my boss informed of 24 what was going on, both -- I mean, going back to 25 the original Cleveleys issue, it would have at 96 1 least briefed them on it. My boss, Mike Young, 2 also had as his reports, service management and 3 also security. So he would be well placed to 4 take a wider view than just my view. 5 So for those two purposes, as I say, 6 I created this just before I went on annual 7 leave. 8 What I meant with this -- well, part of this 9 was about accessing the audit file in all cases. 10 The other part came about, I was invited to 11 support the chairman of the Welsh Postal Board 12 who'd been summoned to meet with an MP -- MPs to 13 discuss the case of Mr Bates. 14 Up to this point, I'd assumed that, you 15 know, what -- the noise that was being created 16 around subpostmasters who were claiming that 17 their balance had been distorted by Horizon and 18 had been prosecuted. What I heard in that 19 session with the MP was something different and 20 it seemed to me that there were these cases 21 bubbling around in the media, and I, for one, 22 you know, guilty of assuming that they were all 23 about that, and in Mr Bates' case it was 24 somewhat different. 25 I mean, at the heart of it it was still 97 1 Horizon but if you're going to deal with these 2 issues, then you need to know what you're 3 dealing with. So that's what I was really 4 driving at in -- the people who I sent this to 5 I'd been discussing this with on the telephone 6 or face to face. So I was literally summarising 7 my thoughts in the deck. 8 Q. A moment ago you said at the meeting with the 9 MPs you got a somewhat different picture. Could 10 you -- 11 A. Well, it was -- as I recall it, it wasn't about 12 Mr Bates being prosecuted because of 13 a difference between his cash balance, physical 14 cash balance on the system. I think Mr Bates' 15 contract was terminated because, he would argue, 16 because of events that were caused by the 17 Horizon System and that was a different take on 18 it. 19 Q. Looking at this first slide, it says: 20 "I'm strongly of the opinion that in order 21 to win the argument ..." 22 What's the argument there? 23 A. Well, the argument is that Horizon is causing 24 misbalances and resulting in subpostmasters 25 being prosecuted. 98 1 Q. "... we have to focus on what actually happened 2 and not allow others to conduct the debate 3 around speculation about what might have 4 happened." 5 And "what actually happened", you mean -- 6 A. Is the audit file, yeah. 7 Q. Just the audit file? 8 A. It's the only way, going back in history, that 9 you can test this idea that Horizon caused the 10 misbalance. If Horizon introduced a false 11 transaction, for the sake of argument, that 12 would be revealed by examining the audit file. 13 Q. But it didn't occur to you at the time that 14 there could be something other than the audit 15 file that might show a problem with the system? 16 A. Not really, no. In the context of this debate, 17 no. 18 Q. What do you mean by "no?" As in, you didn't 19 think that -- you thought the audit -- 20 A. I believe the only way of going back to actually 21 prove it, would be the audit file. Remember, 22 the proposition is that Horizon caused the 23 problem, so how do I prove that Horizon didn't 24 cause the problem? And that would be via the 25 audit file. Now, if the subpostmaster had 99 1 made -- introduced errors into the system, 2 entered in the wrong amounts or something like 3 that, there were other means by which that would 4 come to the surface but, I mean, that wasn't 5 being said. 6 Q. Or a bug or an error? 7 A. Um -- 8 Q. How would that come to the surface? 9 A. Well, the Horizon audit, again, would -- had one 10 of those been missed, not picked up and not 11 corrected, then that would come through from 12 examining the audit file. 13 Q. If we could turn over the page, you set out the 14 history of Horizon and you chart through 15 a variety of cases, two of which are the main 16 ones we've already discussed, which are 17 Cleveleys and -- if we turn over the page again, 18 and again, and again, one more time -- 19 Castleton. Those were the two main cases where 20 Horizon's integrity had been called into 21 question, which is what you've recorded here? 22 A. No, those were the two cases that Mandy Talbot 23 corresponded with me on. Yeah. 24 Q. So you've limited it to what you knew about -- 25 A. I limited it to what I knew about it because 100 1 Cleveleys I was asked for some advice, which 2 I gave, and then Mandy -- Castleton, I think, 3 was the first test, as far as Mandy was 4 concerned, after Cleveleys and that's why it was 5 so important. I think that's why she continued 6 to correspond with me. After that, you know, 7 there was radio silence. 8 Q. If we could turn over to the next page please 9 you say there: 10 "Castleton 'killed' the noise until Computer 11 Weekly ran an article in 2009." 12 A. Yeah. 13 Q. What do you mean by "killed the noise"? 14 A. Well, I didn't hear any more about it, about 15 this issue in general, I think, until 2009. 16 That's when it really became quite a hot topic. 17 Q. The way you've drafted that suggests that it's 18 not just in terms of your own knowledge; it's 19 generally. It says, "Castleton 'killed' the 20 noise"; it doesn't say, "I didn't hear about 21 anything until the Computer Weekly article"? 22 A. No, I didn't, no. 23 Q. Does that not suggest that this is the totality 24 of the cases that Post Office knew about -- 25 A. I don't think anybody would have understood that 101 1 at the time. 2 Q. Okay. If we could turn over the page to 3 page 10, please, you've summarised what you 4 understand the Horizon integrity to be, and the 5 mechanisms. Was this drawn from your 6 conversation with Gareth Jenkins -- 7 A. It was indeed, yes. 8 Q. -- and that document we discussed earlier? 9 A. Yes, it was and, indeed, I think I probably -- 10 I think the attached PDF document -- 11 Q. Would have been that -- 12 A. -- would have been that document, yes. 13 Q. -- document we looked at earlier? 14 A. Yes. 15 Q. If we could turn over one more page to page 11. 16 You posit some explanations as to why these 17 cases are arising. 1 "Subpostmaster has had 18 hands in the till"; 2 "Assistants have had hands 19 in the till"; 3 "Accounting error". Is that the 20 order in which you thought was most likely? 21 A. No, there was no particular order. 22 Q. There was no assumption that a subpostmaster 23 would have -- 24 A. No, no assumption, no. 25 Q. -- had their hands in the till? 102 1 A. No, I think, from my point of view, had the 2 audit file been applied, it simply said Horizon 3 was not the explanation. That didn't say, that 4 didn't automatically imply guilt on behalf of 5 the subpostmaster. 6 Q. If we could turn over to the last page, please, 7 page 12. You say: 8 "Of the cases I am aware of ..." 9 Then we've already discussed Mr Bates' case. 10 A. Yes. 11 Q. You say in your last bullet point: 12 "Details of the cases do bear looking at." 13 A. It's back to the point made on the front slide 14 that, because of what I experienced in 15 supporting the Chairman of the Welsh Postal 16 Board, we really needed to understand what 17 the -- what each individual was claiming and 18 what was the basis of that claim. 19 Q. To what end were you looking at that? 20 A. I think from the point of view that, I guess, 21 prompted by the PR team, you know, we had to 22 start pushing out some kind of answers. So 23 making sure that we're answering the questions 24 that are being put, not just assuming that this 25 was about prosecutions. 103 1 Q. If we could take that document down, please, and 2 this is the last document I'm going to take you 3 to. It's FUJ00094958, please. This is turning 4 back to Horizon Online, and if we could scroll 5 down, please, we can see there that this is 6 an email from you -- to scroll up a slight bit 7 again, please -- on the 26 March, which 8 I believe was your last day at the Post Office, 9 or close to it? 10 A. I finished on 31 March, so this was a Friday. 11 Clearly looking at the time, I wrote this on the 12 train going home. 13 Q. You write this email to Gavin Bounds. Remind us 14 who Gavin was? 15 A. He was the account manager for the Post 16 Office -- well, the Royal Mail account I think 17 they would probably term it. 18 Q. It says: 19 "Gavin, 20 "I want to follow up our earlier telecon 21 rather more formally. 22 "Whilst we don't yet have a root cause of 23 today's issue given recent events it is 24 difficult not to suspect that it might be 25 related to the introduction of a change. Quite 104 1 simply there have been too many incidents where 2 poor execution of change has caused a problem in 3 live." 4 What did you mean by "problem in live"? 5 A. This was -- I mean, I think we're in pilot at 6 the time, so this would have been an incident 7 happening in a branch office and, I mean, 8 I can't remember the specific incidents but it 9 could have been loss of service, it could have 10 been problems with transactions. I don't know. 11 But this is problems experienced in the branch. 12 Q. It goes on to say: 13 "The situation demands that Fujitsu take 14 action that is game changing whether that be 15 increased rigour, an injection of differby [sic] 16 skills or change in mindset. 17 "I also have to be concerned that we seem to 18 be ahead of you and finding out for ourselves 19 that there has been an incident in live rather 20 than hearing from you. We have been here before 21 and I will take a lot of convincing that this 22 not symptomatic of a reactive mindset. Again, 23 we need to see action that is game changing to 24 a proactive style of management. 25 "The wider POL business and major 105 1 stakeholders have been incredibly patient thus 2 far. I believe we are now on the cusp of losing 3 them and if we do then experience tells us that 4 we could well end up on the front page of the 5 Daily Mail. That will do damage to the 6 reputation of both our businesses." 7 Were you angry when you wrote this email? 8 A. No, because I would have calmed down. I would 9 probably have been angry when I had the phone 10 call but my general approach to these things, if 11 I felt angry, to do nothing, and then to record 12 it in writing later. 13 I mean, I am very uneasy about the nature of 14 the issues that were arising but also, there was 15 a sense of déjà vu and this reference to mindset 16 was really a reference back to 2004, when we did 17 appear on the front page of a national newspaper 18 and which resulted in me writing a mail to 19 Fujitsu on Christmas Eve about the reactive 20 nature of their service management, which was 21 not my area. I stepped outside of contract, 22 I stepped outside of the law, I said, "You may 23 have contractual acceptance but you ain't 24 getting the money until you do a number of 25 things", and one of those was -- well, both of 106 1 them were involved in independent review. 2 One was an independent review of some 3 architectural issues. I meant external 4 independent review but there was no way, in 5 terms of the architect, that Fujitsu would agree 6 to that. 7 The other was in terms of their service 8 management organisation where they did bring in 9 a third party and that third-party report was 10 quite damning in terms of the stuff that had 11 been going on. 12 Now, the story as far as service management 13 after that was much better. I'd previously, 14 earlier on in the year, as a result of a number 15 of incidents, spoken to Ian Lamb about the 16 mindset in service management. I left it at 17 that and he came back and said, "Okay, we 18 understand", and they went out and recruited 19 back to Fujitsu a guy called Dave Baldwin who 20 worked there before and Dave came in with 21 a completely different mindset. 22 There was a lot of investment and we got 23 a very different experience in terms of managing 24 the service. You almost felt that Fujitsu were 25 ahead of the game, in control of the situation, 107 1 rather than the situation controlling them. 2 Dave moved on to be the account manager. He 3 was replaced by Naomi, I forget her surname, but 4 she was cut in the same mould as Dave. She was 5 in turn replaced by Wendy Warham, who had 6 a different style but very much lived the 7 philosophy that no matter how good it is, it can 8 be better. 9 Then we got to this stage and, all of 10 a sudden, it felt quite, quite different. Now 11 I can't recall exactly what the meeting was, but 12 I went to a -- I think it was probably the Joint 13 Release Authorisation Board meeting, and the 14 performance of service management in that 15 meeting was lamentable. I mean, never mind 16 being behind the ball, they weren't on the 17 pitch, so much so that a guy called Graham Welsh 18 who worked in that -- and is referred to in 19 emails and documents I've been seeing -- he 20 phoned me up afterwards to try to reassure me 21 that on the ground things were rather better. 22 And this is what I was getting at there, you're 23 now being driven by events instead of you having 24 control of them. 25 I think, within Fujitsu -- I think within 108 1 Fujitsu that there was some feeling along those 2 lines, as well. In the -- I can't remember 3 which document it was, but I think I had 74 4 Rule 10 documents to trawl through, and there's 5 a document -- there's an email there where Alan 6 D'Alvarez is asking Fujitsu to inject senior 7 person to deal with problems. And I guess 8 that's one of the things that I was driving at 9 here, you know, this needs some bolstering of 10 effort, this needs something really different, 11 plus you need to get -- you know, we shouldn't 12 be hearing from the branches first -- the first 13 we hear of an incident shouldn't be from the 14 branch; it should be from Fujitsu Services. 15 So I was very worried about the way things 16 were going at that stage. 17 Q. You mentioned your last day was 31 March. 18 A. Yes. 19 Q. Did you feel like you had unfinished business on 20 Horizon Online when you left the Post Office? 21 A. Yeah. In fact, I wrote another email that day 22 that had been -- there'd been another incident 23 overnight, which, again, it implies the sort of 24 unease I had about stuff. There had been an ice 25 storm in Northern Ireland. Now, ice storms 109 1 don't normally happen in our part of the world. 2 They usually happen in northeast America and it 3 would have been easy to dismiss what happened as 4 down to, you know, once in 100 hundred years 5 weather situation. 6 What happened was power lines were brought 7 down. I mean, these things can actually not 8 just bring the power lines down but they can 9 bring the pylons down with them, as well. And 10 the system had -- so there's back-up generators 11 and the system hadn't failed over to the back-up 12 generations properly and this caused 13 a disruption to service in the branches. 14 And again, I found myself writing to Gavin 15 on my last day saying, "How can this happen? 16 You know, the system as specified should fail 17 over cleanly. What's going on here?" 18 So I was -- I left very worried about the 19 way things were going but, I mean, I had to hand 20 over to someone else to deal with it. 21 Q. You mentioned that you were subsequently engaged 22 by Fujitsu as a consultant? 23 A. Yeah. 24 Q. How did that come about? 25 A. I don't know the background from the -- I mean, 110 1 Fujitsu approached me and, by this time, it was 2 time to start thinking about what happened after 3 2015. If you're going to go to -- if you're 4 going to go to competitive tender, and I think 5 things were quite clear at the time that on this 6 occasion we'd have to go to competitive tender. 7 You needed to kick the process off around then. 8 You needed to do your strategy work first of 9 all and then you needed to put that into an ITT, 10 go through the process of selecting a supplier 11 and start working with them. So I mean that's 12 where -- that's very much where, you know, my 13 head was. 14 MS KENNEDY: Thank you very much, Mr Smith. I have 15 no more questions for you. I think Mr Stein has 16 some and some of the other Core Participants, as 17 well. 18 Questioned by MR STEIN 19 SIR WYN WILLIAMS: All right Mr Stein, first, yes. 20 MR STEIN: Mr Smith, I've just got one area I want 21 to ask you about. I represent a large number of 22 subpostmasters and mistresses that have been 23 affected by this scandal, so you'll understand 24 from my questions that point of view. Now 25 you've been taken by Counsel to the Inquiry 111 1 Ms Kennedy to documentation that reveals your 2 point of view in 2010 at the time when you're, 3 I think, just moving on. 4 A. Mm-hm. 5 Q. Okay. You'll recall the question she's asked 6 you, which was asking about whether, when you 7 wrote a particular email, you were angry and you 8 described the fact that you try not to write 9 emails when hot -- 10 A. Yeah. 11 Q. -- but deal with them slightly later. Do you 12 recall that email? 13 A. Yeah. 14 Q. I can take you to it if you wish. 15 A. Yeah. 16 Q. So at that particular juncture, what you seemed 17 to be saying is this: that you'd realised that 18 there was a problem, the third party report has 19 been damning -- your words -- you've got Dave 20 Baldwin and other people coming in and you 21 regard their quality as being better, reactive 22 and looking at it in more detail; is that fair? 23 A. Yes, I think so. 24 Q. Right. Now, you know by this point, because of 25 what's been going on in the press and you know 112 1 from your involvement in the Post Office, that 2 people had been prosecuted by the Post Office, 3 yes? 4 A. Mm-hm. 5 Q. Now, at this particular juncture, on leaving the 6 Post Office at that time, do you think to 7 yourself, well, some of these subpostmasters and 8 mistresses have been prosecuted and imprisoned 9 in the past under a regime that you, in fact, 10 regarded, it seems, as being inadequate? 11 A. The period I've just described in terms of the 12 service management was -- so in 2004, what 13 happened, we moved from a system that was -- you 14 might have loosely described it as a batch 15 system, where if there was a failure in 16 Fujitsu's central infrastructure, it would have 17 little to no effect, immediate impact, on the 18 branches -- to the online world of banking. 19 So when there was a problem with the 20 infrastructure, it would impact the branches in 21 a big way. It was that transition that Fujitsu 22 didn't make at that point in time. They didn't 23 make the -- I suppose, in my view, it's about 24 technical people not seeing boxes and wires but 25 seeing customers in branches and, you know, 113 1 counter clerks, subpostmasters, trying to serve 2 them. 3 So Fujitsu didn't change the mindset. You 4 know, this is happening here and now. People 5 are being impacted here and now, as opposed to 6 in a batch world where the impact on people was 7 perhaps more delayed. 8 And, secondly -- and, I mean, what we found 9 subsequently as a result of the review that 10 I asked Fujitsu to undertake, was that certain 11 tools and techniques that ought to have been 12 implemented as a result of moving into the 13 online world hadn't been put in place and, in 14 fact, I think Fujitsu invested over £1 million 15 in those tools and techniques, and I recall 16 actually being -- taking a trip to Bracknell and 17 spending a day going through and being shown how 18 those tools and techniques helped Fujitsu manage 19 the service. 20 So I would say, at the beginning of the 21 process, Fujitsu services management was way, 22 way short of industry standards. But 12 months 23 later, it had caught up and what I was observing 24 was fit for purpose. 25 Q. What we're talking about is, by the time you get 114 1 to the juncture where you're leaving, you're 2 writing these emails when you're trying not to 3 write them when you're hot tempered -- 4 A. Yeah. 5 Q. -- you're dissatisfied with what you have learnt 6 about the system, yes? 7 A. Yeah. 8 Q. You, in your own mind, believe that it's been 9 inadequate, it's been insufficiently insightful 10 into the basic nature of problems, yes? 11 A. What -- there's two things that I feel at this 12 stage. One is I'm uneasy about the sorts of 13 problems we're getting. They're problems that, 14 when you look at them, you say that really 15 oughtn't to have happened, yes? And the second 16 point is about the way in which Fujitsu as 17 an organisation appears to be reacting to the 18 issues as they arise. The fact that we're 19 hearing from the office that the service is 20 down, not from Fujitsu picking up the phone and 21 telling us the service is down. 22 Q. Right, so let's pinpoint this. 2010, the time 23 when you're about to move on, you've got this in 24 your head, problems that shouldn't be arising 25 and, secondly, you're learning about it from the 115 1 offices, rather than Fujitsu. 2 A. Yeah. 3 Q. Okay, these two big problems, yes? 4 A. Yes. 5 Q. Now, at that time, just when you're about to 6 move on, you also know in your mind that people 7 have been prosecuted and prosecuted before the 8 criminal courts or chased for debts before the 9 County Courts, and some people have gone to 10 prison. You also know that fact as well, don't 11 you? 12 A. Yes. 13 Q. Right. Now, with the information that you've 14 got in your head, which was the problems that 15 were unexpected and, secondly, you're learning 16 from the wrong part of the system about issues, 17 with that, did you by any chance go to the legal 18 department at POL and say, "There may be a big 19 problem here in relation to historic cases, I'm 20 not satisfied with what's been going on, and we 21 need to look into those past cases"? Did you do 22 that, Mr Smith? 23 A. No, I didn't. Why would I take something about 24 a new system that was only just being introduced 25 and reflect that back to things that had 116 1 happened -- you know, quite different system? 2 Q. You didn't think the two -- 3 A. No, they were two completely different systems. 4 Two completely different systems. Now, I did -- 5 and in the Rule 10 bundle, I think this was 6 around one of the incidents -- I think I did get 7 involved with -- certainly, Fujitsu's legal 8 people were involved on whether this had 9 an implication in terms of any prosecution that 10 might arise. But that was looking forward, not 11 looking backwards. Linking what's happening 12 Horizon Online to what happened in Legacy 13 Horizon, I don't think you'd do that, would you? 14 Q. Didn't occur to you, Mr Smith? 15 A. No, of course it wouldn't. 16 MR STEIN: Thank you. 17 Questioned by MS PAGE 18 MS PAGE: Thank you, I'm also representing a number 19 of the subpostmasters in this case, Flora Page. 20 The first thing I want to ask you about is 21 going right back, if I may, and if I could have 22 a document brought up, it's POL00092888. This 23 document, I hope, is one you've had a chance to 24 have a look at but I know you've seen a lot of 25 documents. It's apparently an account by 117 1 a subpostmaster who was experiencing 2 difficulties with Horizon and it seems to have 3 been in 2001 because that's the date stamp we 4 see at the top. 5 If we scroll a bit further down and if we 6 just stay there. If we zoom in a little bit on 7 what's in the lower part of the screens we'll 8 see your name is mentioned. 9 A. Ah. A Dave Smith. 10 Q. A Dave Smith. That's why I wanted to ask you. 11 A. I mean, generally speaking, the discipline we'd 12 operate is for me not to contact subpostmasters 13 direct. At times almost impossible to, because 14 we, as senior managers, we used to address 15 meetings of subpostmasters on a regular basis. 16 The idea is that if a lot of managers got 17 involved in solving out subpostmasters' issues, 18 they weren't passing through service management. 19 Service management, therefore, didn't get 20 a complete overview of -- 21 Q. That's fine, if what you're saying is this 22 wasn't you. 23 A. No, I don't think this was me, no. 24 Q. You don't have any memory of this? 25 A. I got a lot of correspondence for Dave Smith 118 1 that didn't relate to me. 2 Q. That's absolutely fine. I just wanted to be 3 clear whether you had any memory of having 4 actually dealt with the subpostmaster 5 experiencing Horizon difficulties? 6 A. No. 7 Q. No. All right. Well, then let's then move on 8 a little and what I'd like to ask about is the 9 process that was part of the IMPACT Programme 10 which removed lines from the -- removed the 11 suspense lines, as you put it, from the 12 automated cash accounts. You put that in your 13 statement and I just want to understand that 14 that's what you -- is that the way that you 15 would describe the removal of the facility to 16 put money in the suspense account? 17 A. I think if I recall my witness statement, 18 I think I will have referred to that in terms of 19 the implementation of Legacy Horizon, and I used 20 to visit offices that -- where the systems had 21 been implemented and one of the complaints -- 22 I mean balancing was the thing that always came 23 up and in particular on balancing the back 24 office printing, which was, you know, a big 25 cause of the problem. 119 1 The other thing that came up was the fact 2 that certain moves that the people in 3 branches -- and I include both our own branches 4 in that -- could take to deal with the 5 discrepancy was to bury it for later 6 investigation. And what I was referring to in 7 my witness report was the fact that the -- with 8 Legacy Horizon, some of those avenues were 9 closed down to people in branches. 10 Q. As part of the IMPACT Programme? 11 A. As part of -- no, as part of Legacy Horizon. 12 I don't think -- if you could point me to the -- 13 Q. Well, there are two bits of your witness 14 statement which deal with this, so perhaps we 15 can bring it up. 16 A. Yeah, if you could, that would be helpful. 17 Thank you. 18 Q. I'm just trying to find the reference but I hope 19 somebody else might have it. 20 MS KENNEDY: I think it's WITN05290200. 21 MS PAGE: That's very helpful. Thank you. It's 22 paragraph 17 and paragraph 29 of the areas which 23 deal with this. I think it must have been 29 24 that refers to the suspense lines in automated 25 cash accounts. 120 1 I tell you what I think's going on here, 2 we're probably looking at the wrong witness 3 statement. I'm sorry. 4 MS KENNEDY: That's completely my fault. It's 5 WITN05290100. 6 MS PAGE: Yes, that's the one. Thank you. 7 So if you want to cast your eyes over 8 paragraph 29 there. 9 A. Yes, this refers to Legacy Horizon not -- 10 Q. So it's certainly -- I'm not talking Horizon 11 Online, we're both talking about Legacy Horizon. 12 A. It's Legacy Horizon, yes. 13 Q. The Inquiry has heard evidence to suggest that 14 these facilities were taken away as part of the 15 IMPACT Programme? 16 A. The IMPACT Programme, yes, IMPACT Programme 17 did -- I mean, IMPACT Programme changed 18 radically the way that branch accounting was 19 carried out. I'm not hugely familiar with the 20 detail of that. The fact that I was able to 21 recount rather more detail on Legacy Horizon 22 was -- I spent, I think, the best part of 23 six weeks when I first joined the Post Office 24 being a cash account, being the supporting 25 documents, and it kind of cemented in the brain. 121 1 Also, when I was going around, I remember 2 going to Colchester branch -- a Crown Office -- 3 and the branch manager and the assistant branch 4 manager spending an hour berating me about the 5 fact that they couldn't tuck these things away 6 for later investigation but I really had no 7 insight into -- 8 Q. Just to pick you up on that, because that's new 9 for us. So on a visit, a person running 10 a branch said to you and was berating you, that 11 they couldn't put things in the suspense 12 account? 13 A. Yes, and my response was "And you're not 14 supposed to because you weren't supposed to 15 before. You weren't following the instructions, 16 you weren't meant to use the manual system in 17 that way". The thing with manual systems is 18 they're much easier to manipulate than automated 19 systems, which are much more rigid. 20 Q. Well, that's the way the things were under the 21 manual system. Then we have Horizon in its 22 original iteration before the IMPACT Programme, 23 in which people were still able to use the 24 suspense account to -- 25 A. They were indeed, yes. 122 1 Q. -- park discrepancies. 2 A. Yes. 3 Q. Then the programme introduces the requirement 4 to, if there is a discrepancy, not to put it in 5 a suspense account but to make it good 6 immediately? 7 A. Yeah. 8 Q. Yes? There's some documents around that and 9 I don't necessarily need to take you to them but 10 there is one point from one of those documents 11 that I would like to put to you, just to sort of 12 solidify this point, if I may. 13 It's POL00038878. If we can go, please, to 14 page 22. Now, if we zoom in on that middle 15 section and the bottom part of it, it says here, 16 and this is just -- as I say, I don't expect you 17 to have seen this before but it's to put this in 18 a context for you. What it says is, part of 19 this IMPACT Programme: 20 "The analysis has also identified 21 requirements to more tightly control and police 22 the use of the suspense account within the 23 branch accounts, only a limited subset of the 24 existing suspense account products will be 25 retained. The contractual requirements for 123 1 agents to make good unknown errors in branch 2 accounts will be used instead." 3 Yes? 4 A. Yeah. 5 Q. Now, what I want to look at, then, is this: 6 given the history of AI376 and what we know 7 about that and what we know about the fact that 8 0.6 per cent was the target and so, therefore, 9 even if hitting the target, there would still be 10 some errors, would this not have been recognised 11 as unfair, that unknown errors had to be made 12 good, no matter what? 13 A. Well, there's a lot tied up in that question. 14 First of all, the 0.6 per cent. Unfortunately, 15 I've seen a lot of documents, I've got 16 a trolley-load behind me -- how 0.6 per cent was 17 arrived it is not at all clear from the 18 documents but I did trawl through them all and 19 the point about the integrity check, it was -- 20 so what TP were doing, they were taking the cash 21 accounts as committed by the subpostmasters and 22 then taking the stream of transactional 23 information and deriving a cash account and the 24 two should correspond. 25 But the system process to harvest the 124 1 transaction information was not working 2 properly. There were gaps in it and Fujitsu, to 3 be honest -- I mean, a lot of these integrity 4 controls should have been in the design from the 5 outset. I remember a conversation -- it's 6 almost -- a conversation at the time with Ruth 7 Holleran, the business assurance manager, saying 8 it's almost as if they didn't realise it was 9 an accounting system. 10 So the idea of this check was to trap faults 11 in that harvesting process. Now, if you go into 12 the third agreement, I forget the exact title of 13 it -- 14 Q. Supplemental. 15 A. -- the Third Supplemental, and you go deep into 16 the detailed terms of it there's this wonderful 17 statement "An inaccurate cash account is not 18 an inaccurate cash account (non-data error)", 19 and if you drill down into what that means, is 20 that in a limited number of circumstances, there 21 are cash accounts -- the cash account committed 22 by the office -- which are wrong, and it does 23 list the number of circumstances from which 24 those can arise. 25 Now, clearly, those shouldn't count in 125 1 targetry terms against Fujitsu. And I can't 2 prove this because there is not a complete audit 3 trail but I believe that may indeed be part of 4 what the 0.6 allowance was for: faults that were 5 not Fujitsu's fault. 6 The second point buried in there around 7 situations where Fujitsu have identified a fault 8 but haven't been able to implement the fix. As 9 a result of that, there's a sort of a side 10 agreement that says, "But you can supply the 11 correct information manually". And again, quite 12 clearly, it -- I mean, that would still come up 13 in the comparison of the derived cash account 14 and the cash account as a fault, but it's quite 15 clear that that shouldn't count as part of 16 Fujitsu missing the target because they have 17 corrected it -- corrected the derived stream, 18 albeit manually. 19 So I think the 0.6 per cent was not 20 a relaxation of the target. I think there's 21 plenty of stuff deep in that Third Supplemental 22 Agreement which suggests that these were let 23 for -- 24 Now, this point here, is something 25 completely different. This is about preventing 126 1 offices from using the suspense account for 2 reasons that it shouldn't be used. 3 Q. Well, let's just go back to what you were saying 4 about the various agreements. What they 5 certainly do is recognise there's the 6 possibility of unknown errors arising, don't 7 they? 8 A. Clearly, with the term "incorrect cash accounts 9 which are not data error", it not only accepts 10 that there can be errors in the cash account but 11 it actually lists down the reasons why those 12 occur. 13 Q. So given that, wasn't it more fair to allow 14 postmasters a place to put discrepancies if they 15 thought they were unknown, if they couldn't 16 understand why they were being caused? 17 A. Well, at that time in Legacy Horizon, they did 18 have a place to put them, which was the suspense 19 account. It wasn't until IMPACT came along that 20 that was -- that area started to be closed down. 21 Q. Okay. Well, in those circumstances, do you 22 think it would have been fair and appropriate to 23 do a proper investigation of what was going on 24 with the usage of suspense accounts, how much 25 money was going into them, whether it had grown 127 1 or decreased since Legacy Horizon was 2 introduced, et cetera, before introducing the 3 removal of the suspense account facility? 4 A. Well, I -- you know, that wasn't -- I mean the 5 people driving these requirements were the 6 people from TP and from the Network, that wasn't 7 my -- you know, this is a reflection of the 8 requirements that were handed -- 9 Q. Do you think it would have been fair? 10 A. Um ... I think, you know, I think when you've -- 11 when you want to get rid of something, then you 12 should understand the implications, both 13 positive and negative, of the actions that 14 you're taking. And, I mean, one of the things 15 that often, I think, happens with system 16 developments is that, you know, this change is 17 introduced because it will reduce this level 18 of -- pool of error over here, and then 19 implement and then suddenly you find this level 20 of error has appeared over here as 21 a consequence. 22 So, yes, as good practice, you would think 23 through the changes that you are making and make 24 sure that you fully understand all the 25 implications of them. 128 1 Q. Did it perhaps suit Post Office to remove the 2 sums from the suspense accounts in this way, 3 because that, in fact, removes an indicator that 4 Horizon may have been generating unknown errors? 5 A. Sorry, can you repeat that again, just make sure 6 I've got -- 7 Q. Well, if money is going into the suspense 8 account it rather highlights, doesn't it, that 9 postmasters are saying there's unknown errors 10 here? 11 A. Yes. 12 Q. If that money is no longer going into the 13 suspense account, you've no longer got that 14 indicator? 15 A. Yeah, but you would still expect that if there 16 was an unexplained error, that the subpostmaster 17 would pick up the phone to the helpline and to 18 pursue it through that route. 19 Q. But then it gets buried, doesn't it, in the 20 helpline and you haven't got to be a big stark 21 figure saying, "Here it is in the suspense 22 accounts"? 23 A. Um, well, I mean, even if the -- as I understand 24 it, and I'm not hugely familiar with the 25 processes within TP at the time, but I think 129 1 even if the subpostmaster has to make it good, 2 there was a process for registering the fact 3 that the subpostmaster didn't agree with the 4 fact that they'd had to bring it to account 5 themselves. 6 Q. Can I just turn to one more small issue before 7 I finish, and it's relating to the slides that 8 evidence already had a look at, and it's 9 POL00090575, page 6. What I'm just going to 10 focus in on, if I may, is the two sort of 11 sections in the middle there: 12 "Believe Castleton's solicitor examined 13 audit trail and concluded that there was no 14 substance to Castleton's claim and advised him 15 to settle. 16 "Castleton sacked solicitor and proceeds." 17 Now, in actual fact, and fairly obviously, 18 you can't have known what advice he received 19 from his solicitor, can you? 20 A. No, no. 21 Q. What I'm interested in is how you came to 22 believe this, where did this come from, this 23 idea that he had been advised because his 24 solicitor thought there was no substance in his 25 claim? 130 1 A. Mandy Talbot. 2 Q. So Mandy passed on to you what she thought 3 Mr Castleton's solicitor had advised him of? 4 A. Yes. 5 Q. Did that strike you as unprofessional at all? 6 A. I can't add to that. I mean, I wouldn't know. 7 I'm not a solicitor or a barrister and, you 8 know, I don't know your professional standards. 9 Q. Did she mention, for example, that, in fact, 10 Mr Castleton was now acting for himself? 11 A. Oh, yes, I was aware of that. I was aware that 12 he -- you know, his solicitor went and that he 13 conducted matters himself thereafter, yes. 14 Q. Was there any suggestion or thought, do you 15 think, from her, when she'd relayed this 16 information to you, that Mr Castleton may have 17 run out of money because of the Post Office's -- 18 A. I don't recall that. I don't recall that. But 19 that doesn't mean, you know, she didn't say 20 that. I mean, we're talking about some years 21 ago. So I don't remember every word in every 22 conversation. That's what I recall, and 23 I wouldn't have got that from any other source, 24 than from Mandy. 25 MS PAGE: Thank you. Those are my questions. 131 1 Questioned by MR MOLONEY 2 MR MOLONEY: Mr Smith, my name is Mr Moloney and 3 I represent a number of subpostmasters. 4 I have really just one issue to ask you 5 about if I may. Do you remember Ms Kennedy 6 asking you this morning about the counter 7 application integrity report to do with 8 transactions being recorded twice? 9 A. The Derby incident, yes. 10 Q. Yes. I hope I recount your evidence correctly 11 but you said you couldn't remember receiving 12 this report; is that right? 13 A. No, I couldn't -- I don't remember seeing that 14 report but I was aware of the Derby incident. 15 Q. Forgive me for this but may I just take you to 16 one document to show that you did receive it. 17 A. Okay, yes. 18 Q. It's a document that was disclosed to Core 19 Participants yesterday, and it's FUJ -- yes, 20 I didn't even need to read it out, thank you 21 very much, it's on the screen now. 22 It's FUJ00142176, and we see that this is 23 an email from Alan D'Alvarez on 10 March 2010 24 and it's to you, and also copied are Mike Wood 25 and Gavin Bounds. 132 1 A. Mm-hm. 2 Q. It's: 3 "David, 4 "Please find attached the report from the 5 review undertaken as a result of transactions 6 being recorded twice." 7 That's: 8 "[Regards] 9 "Alan D'Alvarez." 10 A. Yes. 11 Q. Okay. Does this -- and it may not, but just in 12 order to be clear, out of an abundance of 13 caution, does this assist your memory in 14 relation to this report at all? 15 A. No, it doesn't but I think I, you know, in 16 response to Ms Kennedy's questions, I said to 17 you this did concern me because at the root of 18 this incident was something which, in my 19 opinion, others may disagree, ought to have been 20 covered in negative testing, ie there was 21 a Legacy Horizon process that required the 22 transaction being settled by using both the 23 "Fast Cash" key and the "Settle" key, and that 24 was changed under Horizon Online to just using 25 the "Fast Cash" key, even though the "Settle" 133 1 key was still there. 2 And that, to me, is sort of a classic case 3 of something that, you know, we've changed here 4 a process, the two keys are still there, you 5 should test to make sure that the process 6 filters out someone incorrectly pressing the 7 "Settle" key after "Fast Cash". 8 Q. Thank you, Mr Smith. Can I just press you 9 slightly on that in this way: you obviously were 10 concerned about this. 11 A. Mm. 12 Q. This was something important, it wasn't a minor 13 issue, it's something that had to be dealt 14 with -- 15 A. Mm. 16 Q. -- and you will see that this is a report from 17 the review that was undertaken as a result of 18 transactions being recorded twice? 19 A. Mm-hm. 20 Q. Given your concern about this, did you 21 understand that this was a review that would be 22 independent of those people who were making 23 decisions about this or was it something that 24 had been made by a review, essentially conducted 25 by the people who were responsible for this in 134 1 any event? 2 A. I can't recall who the people were who carried 3 out the event but I think there's a full 4 description in the report of the steps taken to 5 correct the error and I think that, you know, in 6 all honesty, that's the most important thing. 7 We've identified the root cause, we've gone in, 8 we've fixed it, we've re-tested it and we've 9 proven that the error couldn't occur again. 10 That's what I'd be looking for in that report. 11 I mean, I wouldn't have thought that this 12 particular issue in itself would have called for 13 a fully independent view. Had a report been 14 produced that didn't satisfactorily outline root 15 cause, correction and what have you, then one 16 might say "Look, I need someone, a fresh pair of 17 eyes, to come and look at this incident". 18 Q. Thank you. Just on that now, obviously you were 19 concerned with issues of integrity, and the 20 subject line of this email is "Review of system 21 integrity", as we can see on the screen. Can 22 you recall whether, given the ongoing concerns 23 about integrity during Horizon Legacy and in 24 Horizon Online and, of course, with the recent 25 adverse publicity -- or recent to then, in 2010, 135 1 with the Computer Weekly article in 2009, and so 2 on -- whether, from your recollection, around 3 this time POL -- Post Office Limited -- or 4 Fujitsu ever considered input from an external 5 third-party expert? 6 A. The email that Ms Kennedy pulled up earlier -- 7 Q. From Ms Lowther? 8 A. -- where I wrote to Gavin Bounds, I did make the 9 point there that, you know, I think I said in, 10 you know, why wouldn't I ask for an independent 11 external report if I don't hear of actions from 12 Fujitsu that are going to change the game that 13 we're experiencing here. 14 Q. Yes. 15 A. So, I mean, I was very close. I mean, this 16 asking for an independent report is not a card 17 you play every day but I had played it three 18 times previously during my tenure. And, 19 generally speaking within Fujitsu -- with 20 a technical issue, you wouldn't get them getting 21 a third party coming in but what you would get 22 is people from the very top of the organisation 23 with no current connection to the Fujitsu 24 account, brought in as a team to examine what 25 was going on. 136 1 And that sort of thing was taken very, very 2 seriously in Fujitsu. I think they have a term 3 "red light issue", and it would mean that also 4 any recommendations in that report would get 5 a high priority in terms of being met, 6 particularly when it came to resources. So 7 that's what I was -- you know, if you don't show 8 me that you've got some actions here to, you 9 know, significantly change what's going on, then 10 I need you to do this. 11 Q. Just from your recollection again, if I may, as 12 the last question, did anyone within POL ever 13 suggest to you that a forensic review of Horizon 14 was needed? Away from those emails that we've 15 seen, did anyone ever suggest that to you? 16 A. No. 17 MR MOLONEY: All right. Thank you very much, 18 Mr Smith. 19 Questioned by MR WHITTAM 20 MR WHITTAM: Mr Smith, Richard Whittam on behalf of 21 Fujitsu. 22 Do you accept that any system as complex as 23 Horizon was bound to have some level of bugs, 24 errors and defects? 25 A. Absolutely, absolutely. 137 1 Q. Their detection could probably fall into three 2 categories: those that were detected, so found; 3 those that were at any particular point in time 4 undetected; and those that might be introduced 5 at a later stage by way of an update, a fix or 6 something like that. 7 A. Yes. 8 Q. That was therefore something to look for, those 9 that might be introduced by bugs -- sorry, fixes 10 to pre-existing bugs? 11 A. Yes. 12 Q. I'd just like to return to your second statement 13 please if we may, WITN05290200, page 5, please. 14 We can see there paragraph 12: 15 "The ultimate decision whether to release 16 new software into the network was a business 17 decision. This was taken at a Release 18 Authorisation Board which I normally chaired, 19 although very much in a non-voting capacity, my 20 role being to lead the meeting through the 21 process. The Fujitsu release would be just one 22 input as invariably other systems changes would 23 be involved and business as usual departments 24 would also have deliverables that required 25 'green' [light] status for the release to be 138 1 approved. The practice was to hold rehearsal 2 meetings in advance of the decision point and 3 thus surface early any potential no-go issues. 4 This would include the progress with testing of 5 Horizon." 6 If we went to, please, another document 7 POL00030283, thank you, and we can see that's a 8 "Release Note -- Deferred PEAKs List" with 9 a reference number CS/REN/032, and we can see 10 this is 13 October 2005. The "S80 Release 11 Note -- deferred PEAKs List -- Counter", details 12 what it is and the abstract: 13 "This document details those PEAKs that are 14 outstanding at S80." 15 Although it's a Fujitsu document, we can see 16 that its external distribution, included Marc 17 Reardon and Jamie Dixon, who were people at the 18 Post Office, weren't they? 19 A. Yeah, yeah. 20 Q. If we just go through, please, to page 5 of the 21 document. The "Introduction": 22 "This document is an addendum to the S80 23 Release Note detailing those PEAKs, which remain 24 outstanding once S80 has been implemented. This 25 document only includes PEAKs that impact on the 139 1 counter. Data Centre PinICLs are detailed 2 within a document", and it gives the reference 3 number. 4 It then describes the PEAKs as either being 5 PEAKs which were outstanding at S60, S70 or S75 6 and had previously been targeted at S80 or 7 raised in S80 testing and agreed to be deferred. 8 We can see, if we just go to the next page, 9 so we can just follow the document through, 10 please, there was no table of PEAKs deferred 11 from previous releases. But if we can, please, 12 just go to page 7, we can see there that this is 13 the table of PEAKs identified during the S80 14 testing. First one listed there, I won't read 15 the number out, but we can see it's a stock unit 16 trial balance report differing from the layout 17 specified in that it's missing a blank line, and 18 that was the first one to give it some context. 19 If we could go through to page 13, please. 20 Thank you. 21 The first one listed there has a number, 22 PC0116293. It relates to an imbalance warning 23 clearing automatically: 24 "If there is an imbalance in an SU then 25 a warning is displayed at rollover. This 140 1 warning has a 'Continue' button and should not 2 be cleared until the clerk presses the button, 3 but it actually clears by itself. So if you're 4 not looking at the screen you may miss seeing 5 this message." 6 The analysis and proposal is that it's not 7 a new problem at S80 and the problem of SU 8 imbalance is not a regular occurrence. Also, 9 the message tablet, that's displayed for the 10 duration of time it takes to print the report, 11 it's thought at this time was low, and it's 12 going to be dealt with at a future release. 13 I'm not going to go through the other 14 entries in it but what was your attitude towards 15 a document like that when you were considering 16 release? 17 A. So as far as -- so if we go to these two 18 different processes. The acceptance and, by 19 contractual definition, low severity errors are 20 not an issue for acceptance. Medium severity, 21 usually there is a maximum number of medium 22 severity faults that can be tolerated. The 23 usual practice with all medium severity faults 24 was that there would be a workaround. So it 25 would be possible to work round the problems 141 1 created by the fault until such time as the 2 fault was fixed. And then high severity faults, 3 which prevented -- 4 Now, high/medium/low is reference to 5 business impact, and the view of low items 6 was -- I mean, I think the first one you 7 referred to was a missing blank line on 8 a report. 9 Q. Absolutely. 10 A. And those would be treated as low. Very often 11 they weren't fixed at all. Some were. And they 12 wouldn't -- low items would not feature in 13 acceptance, and they wouldn't feature in release 14 authorisation. Release authorisation, you would 15 get a full list of the medium items with the 16 appropriate workaround. And that applied not 17 just to Horizon, but it would apply to any other 18 systems that were involved, or indeed the 19 readiness of a business unit. You could have 20 a high severity business unit fault. 21 Q. Would you, at any stage, follow up whether any 22 fix had been put in place? 23 A. I wouldn't have done personally, no. 24 Q. Why not? 25 A. Because it was -- I mean, there were hundreds of 142 1 these things. And I mean, many of them, like 2 the first one, which were of no consequence at 3 all, these things would be handed over to 4 service management, and the Service Management 5 Team would -- so at the point of rolling out the 6 solution into the network, control would pass 7 from my area, project programme management, 8 effectively, to service management for them to 9 follow up. 10 Q. So somebody within the Post Office, once things 11 like this were drawn to their attention, would 12 be monitoring them, checking them, following 13 them up? 14 A. They would have them on their radar screen and 15 decide whether they were worth following up or 16 not. I mean, sometimes some of these things 17 were brought through my process as part of 18 change control, and one of our challenges, very 19 much, was almost a business case challenge. So 20 what's the benefit of actually fixing this? 21 Because very often there was -- as with, you 22 know, reinsert a blank line -- it's very 23 difficult to prove that there was any benefit 24 from making the change at all. 25 Q. The issue you've told us about in relation to 143 1 Mandy Talbot and her concern that all Post 2 Office, civil and criminal litigation might 3 collapse if things weren't resolved, was brought 4 to your attention in November, the following 5 month of the same year. Did that trigger any 6 concern about whether any fixes had actually 7 been put in place, and there was any system 8 within the Post Office to check? 9 A. No, because the -- you know, what Mandy brought 10 to me was the question where what was happening 11 in the court -- as I understand it, the expert 12 the jointly appointed expert was saying this 13 could have happened, changed the position of the 14 Post Office. It's now incumbent upon the Post 15 Office to prove that that event didn't happen, 16 and that was the question that I was addressing. 17 And as it happened, there was an existing 18 process in place which was used in criminal 19 cases via the security team, which I referred, 20 in effect, Mandy to. 21 And she took that forward. I think she 22 convened meetings. I didn't personally take 23 part in those meetings. Keith Baines, my 24 commercial manager, did. Because the action for 25 my area would have been to put in place the 144 1 commercial arrangements with Fujitsu to make 2 more opportunities to access the database 3 available. 4 MR WHITTAM: Thank you. 5 Sir, may I just have one moment? 6 I'm grateful, sir. That's all I ask. 7 MS KENNEDY: Chair, I think that completes the 8 questions from the Core Participants. 9 Oh, Chair, you're muted again. 10 Questioned by SIR WYN WILLIAMS 11 SIR WYN WILLIAMS: I was anxious for there not to be 12 extraneous noise, so I keep muting myself. 13 Mr Smith, just following what Mr Whittam was 14 asking you about what in effect, I think, he was 15 talking about was the Cleveleys case, yes? 16 A. Yes. 17 SIR WYN WILLIAMS: You deal with that, and I don't 18 want to bring it up, but you deal with that at 19 paragraphs 28, 29, 30, 31 and 32 of your second 20 witness statement. All right? You set out your 21 understanding of what was going on. I read it 22 carefully and, if I've missed it, I'm sure 23 Ms Kennedy or someone else will contradict me, 24 but I can't find in those paragraphs 25 a recognition of the possibility that what the 145 1 joint expert reported to the board was actually 2 correct. All right? It's all about how do we 3 deal with knocking down his thesis, so to speak. 4 I'm just wondering whether it's fair of me 5 to have gained the impression that in 2004, when 6 this was unfolding, the Post Office simply would 7 not accept that Horizon could have caused the 8 shortfall but, further, did nothing 9 independently to assess whether in fact that was 10 possible. 11 A. The report that the independent expert produced 12 was, in my view, deficient. This Inquiry has 13 taken a great deal of -- put a great deal of 14 effort, in terms of making sure it gets the 15 right people to produce the evidence. The 16 expert didn't do that in doing his research. 17 I think, on the Fujitsu side, he spoke to 18 someone from the helpdesk. You'd expect, in 19 asking questions about whether the Horizon 20 System could create problems in the balance, for 21 him to talk to someone like a Gareth Jenkins, 22 and he didn't do that. 23 Equally, on the Post Office side, the people 24 he spoke to were at a fairly -- were at a level 25 where I wouldn't have expected them to be able 146 1 to provide the kind of inputs he would have 2 needed to make the judgement that he came to. 3 SIR WYN WILLIAMS: So that I can be clear, are you 4 saying that you personally read the expert 5 report and reached the conclusion that it was 6 flawed in material -- 7 A. Yes. Because the expert didn't speak to -- 8 didn't speak to the people with the kind of 9 knowledge necessary for him to come to the 10 conclusion that he reached. 11 SIR WYN WILLIAMS: Was that viewpoint put to the 12 judge who determined the case? Because, as 13 I understand it, the Post Office lost the case. 14 A. I think it -- at the time I was involved, it had 15 already gone past that. 16 SIR WYN WILLIAMS: Sorry, as I've understood your 17 witness statement, you were being asked to come 18 up with suggestions as to how you could counter 19 the expert report. At the stage I think you 20 were consulted, or that's the impression 21 I gained from -- 22 A. I think it was more general that -- sorry for 23 interrupting, sir. I think it was more general 24 than that, the question that was asked. It was 25 "Is there anything we can do, given this 147 1 position?" And, as I've said, the only thing 2 that I think we could do in that situation was 3 to call for the audit file. 4 In this particular case with Cleveleys, 5 because I think it dated back to 2001, the 6 retention period for the audit file was -- 7 I forget the number of years, but it wasn't the 8 seven years that it was subsequently changed to. 9 So the audit file was no longer available. 10 SIR WYN WILLIAMS: All right. Rather than try and 11 work out the detail, which may not be 12 productive, am I right in gaining the 13 impression, then, that your view of the expert 14 evidence produced in that case was that it was 15 inadequate, and therefore could be ignored, 16 going forward, provided certain other evidence 17 like the audit file was produced? 18 A. Yes. I mean the -- bearing in mind that the 19 expert witness in this case was the Post 20 Office's expert witness, because the Post 21 Office, at a very junior level, and the defence, 22 agreed a joint appointment of this witness. So 23 I think, for the Post Office having agreed the 24 appointment of the expert witness, to then sort 25 of say well, the expert witness got it all 148 1 wrong, I don't think is a very credible position 2 for the Post Office to take. 3 SIR WYN WILLIAMS: Well, no doubt by examining the 4 file we can discover whether that's a wholly 5 accurate characterisation of what occurred. 6 Do you know, Mr Smith, that an expert 7 witness, whether appointed under the direction 8 of the court or by the agreement of the parties, 9 has a primary duty to the court? 10 A. Not particularly, no, sir. 11 SIR WYN WILLIAMS: You didn't know that? 12 A. No. 13 SIR WYN WILLIAMS: Right. Good. But you would have 14 expected that the solicitor of the Post Office 15 would have known? 16 A. Absolutely. 17 SIR WYN WILLIAMS: All right. Yes. Thank you very 18 much. 19 Well, thanks very much for coming this 20 afternoon and this morning to answer all these 21 questions. I think that probably sees an end to 22 it now, since I usually have the last word. 23 MS KENNEDY: Yes. 24 SIR WYN WILLIAMS: Unusually, Ms Kennedy, we are 25 sitting on Monday, are we not? 149 1 MS KENNEDY: We are, yes. We have Mr Stephen 2 Grayston on Monday. 3 SIR WYN WILLIAMS: So I'll see you at 10.00 on 4 Monday. Thank you. 5 (2.48 pm) 6 (The hearing adjourned until 10.00 am 7 on Monday morning) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 150 I N D E X DAVID SMITH (affirmed) ...............................2 Questioned by MS KENNEDY ......................2 Questioned by MR STEIN ......................111 Questioned by MS PAGE .......................117 Questioned by MR MOLONEY ....................132 Questioned by MR WHITTAM ....................137 Questioned by SIR WYN WILLIAMS ..............145 151