Tuesday, November 5, 2019

The Post Office's Journey Into Disaster: oversight/accountability pt 1

I realise this blog post will be of interest to perhaps seven or eight people, but hopefully those people will be of sufficient influence to make it worthwhile. If you're a casual reader, I challenge you to get through it. A mince pie to all who do:

Accountability and oversight

The government has a problem. It has allowed the Post Office (of which it is the sole owner) to find itself mired in a multimillion-pound litigation at the High Court, and become the subject of a long-running investigation by the Criminal Cases Review Commission.

If the Post Office loses the claim against it at the High Court, it will face a damages bill which could run into hundreds of millions of pounds. This could stop the Post Office from being a going concern. Which will then become a bigger problem for the government.

Jo Hamilton
Ministers consistently deflect attention from this looming potential disaster by telling journalists the Post Office is a private limited company making its own operational decisions. This is horseshit.

Jo Hamilton is a former Subpostmaster from South Warnborough in Hampshire who was prosecuted for theft by the Post Office in 2006, despite a Post Office internal memo stating there was no evidence of theft. She pleaded guilty to false accounting (a condition of dropping the theft charge) and was spared prison by spending her life savings (and remortgaging) to make good the discrepancy alleged to have arisen at her branch.

Jo featured in the 2015 Panorama episode (filmed shortly after the above memo came to light) and her case is lodged with the Criminal Cases Review Commission which deals with miscarriages of justice. Jo has been waiting for some time for any indication she might get redress. The CCRC has been investigating for four years now, and the High Court case (Jo is one of the 550+ claimants) has been rumbling on since 2016.

David Hamilton
Jo is in her sixties, working as a cleaner. Her husband David is in his seventies, grafting in all weathers as a landscape gardener. I've seen what the cold does to his fingers. It's not good. The Hamiltons have no retirement fund. Time is running out for many of the claimants in this case. So what has the government been doing to bring this long-running situation to a conclusion?

In a letter dated 1 Aug 2019, the Minister for Postal Services, Kelly Tolhurst, told Jo's MP:

"Post Office Limited is handling the defence of this group litigation. While publicly owned, Post Office Limited operates as an independent, commercial business and the matters encompassed by this litigation fall under its operational responsibility. However I would like to reassure you that I take this matter very seriously and I am monitoring it closely.... I believe that the courts are the right place to hear and resolve what are long-standing issues between some Postmasters and the Post Office Limited so that postmasters with claims can obtain a remedy if the court finds there is validity to those claims."

This final sentence, stating that the courts are the "right place" to resolve what has happened to Jo, is a line which echoes the Post Office's statement that the litigation “offers the best opportunity for the matters in dispute to be heard and resolved.”

From reading the above, you'd think the government and Post Office, out of the kindness of their hearts, trotted along to the High Court and asked the judiciary to look into the claimants' issues.

Instead the government has done nothing to help abandoned Subpostmasters, and the Post Office has been dragged kicking and screaming to court where it has deployed a series of viciously aggressive litigation tactics in the hope the claimants' case would collapse and/or run out of money.

If this blog post achieves anything, it should nail the lie that the Post Office is solely responsible for handling the Horizon scandal. It is not.

Successive governments have been well appraised of what has been going on. They had multiple opportunities (and reading the documentation below - requirements) to intervene in a way which might have been meaningful to the claimants, yet they failed to do so.

I appreciate the last thing any ambitious government minister would want to do is kick a hornet's nest (especially over a story like this, which has failed to get much media traction over 20 years), but you would think someone might consider sticking their necks out.

How did it come to this?

As well as selling stamps, checking your passport photo and paying out your benefits, over the last 20 years the Post Office has had a nice sideline in allegedly destroying the lives of many of its Subpostmasters.

Former Subpostmaster Alan Bates was raising the alarm about this in 2004. Over the last decade, several dozen backbench MPs raised the alarm in parliament, led by James (now Lord) Arbuthnot. The government and the Post Office went through the motions of looking into the issue, but a Post Office-funded complaint scheme collapsed in acrimony.

Earlier this year I buttonholed the Postal Services Minister and two senior civil servants about the government's oversight of the Post Office. After the encounter I concluded the government would be mad not to be scrutinising the Post Office, but I wasn't really any the wiser as to how.

The Shaikh down

Just before summer I was approached by a reader of this website, Eleanor Shaikh, who asked if she could do some background research into the government's oversight of the Post Office, with a view to sharing it on this blog.

Eleanor sent me an extraordinary document, packed with references, and gave me her blessing to check, re-order, re-phrase and publish it as appropriate. All errors below are therefore mine, but the credit for this work belongs solely to her.

Let's start at brass tacks. What is the Post Office?

The Post Office is a legal entity called Post Office Limited. It is wholly-owned by the government. It was created on 2 April 2012 as it demerged from Royal Mail Group. A “Special Share” was allocated to and is currently held by the Secretary of State at what is now the department for Business, Energy and Industrial Strategy (BEIS).

BEIS describes the Post Office as one of its Partner Organisations, specifically a Public Corporation, defined as such because it derives: “more than 50 per cent of [its] production costs from the sale of goods, services or regulatory activities.” (p19 3.37 - 3.38 BEIS Accounting Officer System Statement) 

Oversight of the Post Office is provided by an outfit called United Kingdom Government Investments, a government-owned company staffed by civil servants and controlled by the Treasury. (p13 UKGI annual report 2018/9)

UKGI calls itself “the government's centre of excellence in corporate finance and corporate governance”. According to the Post Office annual report 2017/8, UKGI monitors the Post Office for “compliance” and “performance” and appoints non-executive directors to the Post Office board. 

As well as being a Partner Organisation of BEIS the Post Office is designated an official government Arm’s Length Body (ALB). ALBs are defined by the Treasury as “central government bodies that carry out discrete functions on behalf of departments, but which are controlled or owned by them. They include executive agencies, non-departmental public bodies (NDPBs) and government-owned companies.” (HM Treasury's Managing Public Money, 2015, quoted on p12 of a National Audit Office document Departments’ oversight of arm’s-length bodies)

Despite UKGI stating it is acting "as shareholder for, and leading the establishment of, UK government’s arm’s length bodies”, the NAO document above traces ultimate responsibility for ALBs to the Cabinet Office, stating it is the Cabinet Office which:

"oversees the public bodies landscape... It relies on departments to follow its guidelines and to establish appropriate and robust ‘sponsorship’ arrangements for ALBs. The Cabinet Office also owns the process for reviewing ALBs."  (p16, fig 2)

This structural connection to the Cabinet Office is interesting, not least because Paula Vennells, former chief executive of the Post Office was appointed as a non-executive director of the Cabinet Office earlier this year.

Ms Vennells' tenure at the Post Office spanned critical years of the Horizon controversy, yet she has consistently refused to be held to account for her actions during that period. Now she is a non-executive director of the very government department with ultimate responsibility for the oversight of the Post Office. 

Interestingly, when the blogger Tim McCormack asked the National Audit Office to investigate the Post Office over its various failings, the NAO replied (see below) saying it can't, specifically: "there has been no change to our access rights that would permit us to undertake an investigation into matters concerning Post Office Limited."
NAO letter to Tim McCormack

Executive power

The current Secretary of State for BEIS is Andrea Leadsom. She holds the Post Office special share on behalf of the government. Ultimate responsibility for the Post Office lies with her. But how is her power exercised?

A 2014 Civil Service document, Introduction to Sponsorship, maps the line of accountability within government departments from an ALB to the Secretary of State, or 'Sponsor Department'. The term ‘sponsorship’ is used to refer to the link between departments and their ALBs. ‘Sponsor’ refers to the Secretary of State or Accounting Officer (AO) acting on his/her behalf. Page 14 of Introduction to Sponsorship notes:

“On behalf of the Secretary of State, acting through the senior sponsor, the department must exercise meaningful and commensurate oversight of ALB strategy, financial management, performance and risk management.”

It adds: “the Secretary of State is ultimately accountable to Parliament for the overall effectiveness and efficiency of each ALB of which their department is responsible.”

It's not just about oversight. BEIS is required to actively involve itself in the affairs of the Post Office, as the 2015 cross-government briefing Companies in Government states:

“Departments are expected to play an active role in the governance, financial management, risk management and performance monitoring of ALBs and are responsible for managing the relationship with an ALB on behalf of the Minister and the AO." (p32)

Another National Audit Office document reminds us:

"The Minister in charge... has a duty in Parliament to account, and to be held to account for all the policies, decisions and actions of the department including its arms’-length bodies." (Comptroller and Auditor General, Accountability to Parliament for taxpayers’ money, (session 2015-2016 HC849 National Audit Office Feb 2016’p12, point 1.3) italics added)


That said, the Secretary of State can discharge his/her responsibilities through the senior sponsor, or departmental AO, who in turn is responsible for overseeing that the ALB AO manages public money appropriately, as the guide Introduction to Sponsorship notes: "intervening where necessary if an ALB is drifting off track." (p11)

Everybody say AO

Alex Chisholm has been BEIS’s Principal Accounting Officer (AO) since he succeeded Sir Martin Donnelly in 2016. Mr Chisholm is also the BEIS Permanent Secretary, appointed by the Treasury. His role as AO includes “responsibility for regularity and priority of the public finances… for keeping proper records and safeguarding assets”

As AO for BEIS, Alex Chisholm’s responsibilities extend to being the Accounting Officer for the Post Office, either directly or through the Post Office chief executive. His powers, according to The Accounting Officer’s Survival Guide are extensive:

"...the principle accounting officer always has powers of influence through his or her position. Both principal accounting officers and arm’s length body accounting officers should appreciate that this intrinsic power exists and may be used. In extremis, and depending on the scale of the issue, the principal accounting officer may even need to replace the leadership of the arm’s length body." (p7, point 35)


It is essentially up to the AO to use his/her own discretion to ascertain when it may be appropriate to intervene in the activities of an ALB and to personally judge the level of any such intervention if necessary:

"All sponsors must strike a balance between control and allowing the sponsored body to operate independently day-to-day. Control is necessary because it is the department that is ultimately accountable to Parliament for the use of public funds by their sponsored ALBs… Another reason for control is that ALBs can pose risks to their sponsoring department, whether they be financial, legal, reputational or otherwise." (BEIS Accounting Officer System Statement 2018, p14, point 3)

Explicitly, as per the Accounting Officer's Survival Guide: "It is the accounting officer’s job to spot when issues are sufficiently tricky or significant to merit his or her intervention." (p10, point 55)

Next time the government says that it cannot or should not intervene in the operational affairs of the Post Office, point them to the documents above.

When the Post Office tried to pull a fast one

The executive line of accountability through the AO between the Post Office and BEIS was exercised earlier this year when Alex Chisholm found the Post Office was using government grant money intended for transformation and business investment to fund its legal fight against the Subpostmasters in the High Court. 

In a letter dated 3 January Mr Chisholm told Post Office chief executive Paula Vennells she must not to use any government money given to the Post Office for transformation and business investment to pay litigation costs. 

Mr Chisholm’s letter contained the reminder "As Principle Accounting Officer I am personally responsible for ensuring the department has a high standard of governance and exercises effective controls over the management of resources, including those of its partner organisations". 

Ms Vennells ended up handing £2.3m back to the government. I am indebted to Tony Collins and Tim McCormack for getting this information into the public domain. Ms Vennells, as we know, was rewarded with her non-exec gig at the Cabinet Office and a CBE. 

Sounds like Mr Chisholm is watching the Post Office like a hawk, right? But how thoroughly was BEIS’s Accounting Officer monitoring the Post Office in the years leading up to the current litigation, when the Post Office was merrily suspending, sacking and prosecuting so many Subpostmasters? And who was checking on the AO's oversight?

An Accident of History

Scattered across documents currently in the public domain are intimations that in the complex landscape of ALBs all is not as it should be, and that the Treasury needs to tighten its oversight of AOs.

Starting with AOs, the National Audit Office says: "HM Treasury has not asserted its own key role in setting the overall framework for AO accountability and providing clarity about expectations on AOs". (Accountability to Parliament for taxpayers’ money, p9 point 12)

It adds: 
"departmental accounting officers must take firmer ownership of the whole systems of accountability for which they are responsible, particularly where responsibilities are delegated, devolved or shared." (ibid, p10 point 16)

With regard to ALBs, the House of Commons Committee of Public Accounts 2016/7 report, Departments’ oversight of arm’s-length bodies notes the regulation and oversight of ALBs is "not particularly clear across government", "very messy" and to some degree "an accident of history." (p8, point 5)

It urges the Cabinet Office to "use its position at the centre of government to ensure that departments improve the way they manage their business through arm’s length bodies." (p3 para 2) and adds: "unclear lines of accountability between departments and arm’s length bodies mean that it is not clear who to hold to account. Members of the public interacting with an arm’s-length body should be able to find out easily what the chain of command is from arm’s-length bodies through to departments." (p5 point 2)

At the end of Departments’ oversight of arm’s-length bodies the question is raised as to "whether the fashion for arm’s-length bodies went too far. Perhaps what we need to do is look very closely at what we are left with and see whether they need to be brought closer to Government so that the risks are reduced." (p22 Q46)

Wait. There's more.

Written to address the debate on the relationship between government and its ALBs back in 2010, the Institute for Government sets out a 10 point programme of embedding sustained  accountability in its document Read Before Burning: Arm’s Length Government For A New Administration sets out a 10 point programme of embedding sustained accountability for ALBs, noting:

"ALBs remain the one part of government without any routine process of independent reviews, meaning that inquiries typically take place only after things have gone badly wrong." (p11, par 5)

and: "one key question here is the need to more fundamentally consider how ministers and Parliament can execute their scrutiny functions in relation to ALBs." (p6, par 2)

Read Before Burning's 2012 blockbusting sequel - It Takes Two: How To Create Effective Relationships Between Government and Arm’s-Length Bodies continues the theme: "we identified a range of problems between government and its arm’s-length bodies - a lack of clarity on roles and responsibilities, underinvestment in sponsorship as a function, problems of turnover on both sides of the relationship, lack of induction - as well as more specific areas of tension over the degree of independence of ALBs." (p6 par 4)

Finally, the 2014/5 Public Administration Select Committee report Who’s Accountable? Relationships Between Government And Arm’s Length Bodies acknowledges: "Accountability for arm’s length bodies is confused, overlapping and neglected, with blurred boundaries and responsibilities." (p10, point 13)

But it goes on to offer a solution:

"Accountability arrangements are set out in documents known as ‘framework agreements’ or ‘framework documents’ and in ‘Accountability System Statements’ or ‘Statements of Accounting Officers’ responsibilities’. This is a formal agreement which ought to exist between all Departments and their ALBs, to be regularly updated and publicly available." (p17, point 27)

The function and importance of such agreements are also referred to in many of the above documents, as well as HM Treasury's Managing Public Money (2013, updated 2016) which devotes a 17 page annex to the drawing up of Framework Agreements.

In the annex, the authors are clear:

"Sponsors will be involved in agreeing an appropriate Framework Document with an ALB, detailing the overriding principles of governance and the relationship with the sponsoring department." (p16, point 3.1)

And, significant to an analysis of the BEIS/PO Ltd relationship: "it should detail the circumstances of, and rights upon, intervention." (p34)

So where is the Framework Agreement/Document/System Statement which details the relationship between government and the Post Office?

Reader, it doesn't exist.

Despite the problems of accountability and oversight of ALBs being specifically highlighted since at least 2010, despite a solution being posited by the Public Administration Select Committee, despite a seventeen page how-to document written by the Treasury, and despite clear evidence the Post Office went rogue in its treatment of Subpostmasters (finally acknowledged in a 180,000 word High Court judgment handed down in March this year), no one in government or the civil service has yet written a framework agreement which might get the Post Office back under control.
Eleanor Shaikh, pictured shortly after a successful deep dive
 into yet another tranche of tedious documentation.

We know this because Eleanor Shaikh, after doing all the above research, went looking for the Post Office's framework agreement, and couldn't find it.

After entering a request under the Freedom of Information Act, she was fobbed off on 15 May this year with the Post Office's Articles of Association and Entrustment Letter. Eleanor persisted, and on 15 June, BEIS admitted that:

"there is currently no Memorandum of Understanding, Framework Document or Accountability Systems Statement which exists between this Department and the Post Office. I am sorry this was not made clear in our previous replies."

Maybe Eleanor's requests have prompted the great minds at BEIS to start knocking something together, because in the same letter she was told "we are working towards putting one in place."

About time, lads. About time...

Part 2 of this admittedly niche appraisal of the failures of oversight and accountability affecting the Post Office will follow shortly. In it, Eleanor's research gets all up close and personal with the repeated failures of the government in its duty to investigate several red flags about the Horizon computer system which were thrown up over the last decade.

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