Post Office Horizon inquiry: Alan Cook and Adam Crozier give evidence

Adam Alexander Crozier.

It is, yes.

They are indeed.

1995, well I started there in 1988, yes, all the way through to 1999. Yes, I think that's what I said, 88 to 99. Sorry, but the last four years as a joint chief exec. Correct.

Correct.

Can we move on in the summary. There were a range of separate businesses within Royal Mail and they were separated out in different ways, some of them being subsidiaries of Royal Mail and others not. Is that right? Yes. Post Office Limited was one of those entities and that was a separate legal entity. That's correct. And that was Post Office Limited. Yes. Post Office Limited had its own board. It did. It had its own chairman. It did. In your tenure they were Michael Hodgkinson, from whom we heard yesterday, and then from 2009 Donald Bryden. That's right. I think that means that Mr. Bryden from 2009 was chairman of both Royal Mail Holdings PLC and Post Office Limited. Yes, he was. The Post Office had its own managing director or CEO, the title changed. That's correct. In your tenure that was David Mills, from whom we hear next week, and then from 2006 Alan Cook, from whom we have just heard. Yes. That person, the MD or the CEO, sat on both the Royal Mail Holdings PLC and the Royal Mail management board. Yes. The Post Office Limited had its own risk and compliance committee. That's right.

Yes, under its delegated powers of authority of the business units within the group.

Yes, it did. It was the only one with its own governance setup.

I think it goes right back to when the 2000 Act, the Post Act, where the government set up the company and it had two very different objectives for Royal Mail. It was to be modernized and be a commercial company in a market that was to be opened up to competition, and on the Post Office side it was to try and become a sustainable public service. So two very different objectives. And that separate governance ran right through to them also having their own direct relationship with the shareholder and within the shareholder executive a different team within that team.

I did indeed. And it's partly why both the chairman and the CEO of the Post Office also sat on the Holdings board. The chairman of Royal Mail sat on the Post Office board, and the other piece of glue was the company secretary who sat on both. But what it did mean through those delegated authorities was that the Post Office largely was able to go about its business without reference to the Royal Mail board other than on two really key things: one was on funding which fundamentally impacted on the solvency of the whole group, and secondly on certain major multi-year contracts where it took it beyond its delegated authority limits. And I think it later will come on to the fact that the Fujitsu contract was one of those.

Not at the time, no. I certainly thought that all the correct checks and balances were in place, both in terms of internal and external audit, in terms of internal and external legal advice. There was the POL risk committee, the POL exec committee, and the POL board. And through all those checks and balances, I think there was some confidence that things were working. And certainly no one in that chain at any stage expressed any concerns about the conduct in the area you've just mentioned.

Of course. Well, of course there was the structure I just mentioned of all the checks and balances, which I won't go through again. But the checks and balances you mentioned were within the Post Office. But on top, I'm talking about the checks and balances in you learning about things that they didn't want to tell you about. Well, first of all, there were constant one-to-one meetings with the CEO of the Post Office. Just stopping you there, Mr. Crozier, does that place a high burden on the managing director or CEO of Post Office Limited to be open and transparent with Royal Mail Holdings and in particular with you? So both myself and the board, yes, absolutely. There was constant, the whole company because of what we inherited effectively on the Royal Mail side, a broken company that hadn't been invested in for a decade, hadn't hit its quality of service, was the least modernized postal company in Europe. What that meant was on the Royal Mail side, there was no option other than to be fundamentally transparent in the fact that most of what we inherited wasn't working, and that encouraged a lot of transparency. And we set up a properly functioning internal audit unit, which was of course one of the ways that we could also find out what was happening elsewhere in the group, and we strengthened that. We created a whole risk agenda in the business where we got from the ground up people to let everyone know what their key risks were. They looked at that risk register. That risk register was debated at...

I don't believe so, and I don't believe I recall seeing it on the Post Office register.

Yes. I.e., conducting an activity which is unusual for a company, would you agree? Yes. An activity that of itself carries unusual risks. Indeed. And would you agree that that unusual activity would require a different type of supervision and oversight because it brings the company into contact with the criminal justice system? Yes. And that's why there were lots of checks and balances around the internal and external legal advice. What do you mean by that? Well, we had lots of external lawyers involved with the company. We also had prosecutions on the Royal Mail side as I'm sure you know, and there were multiple interactions, much more straightforward things with police and crime prosecution services. What external lawyers are you referring to that gave comforts in the prosecution of subpostmasters? I don't recall which ones the Post Office used at the time, I'm sorry. Did you think at the time that prosecutions of subpostmasters were conducted by external lawyers? I believe they had a big role in that, yes. And by conducted, do you mean the person standing up in court, either the barrister or an employed barrister or a solicitor with rights of audience, or do you mean conducted the whole thing? I'm not sure.

Yes, through a function called... well, we had a whistleblowing operation and we also had a survey called 'Have Your Say' which was entirely anonymous and allowed people to give us whatever feedback they thought would be helpful.

The 'Have Your Say' results, initially they were done annually, we then moved to doing them every month. A section, excuse me, every month. And those were reviewed by the business units, by the management team, by the audit committee, and indeed by the board. In each of those three cases within Royal Mail rather than Post Office doing it? Well, I think they did their own when it was reviewed by their business unit, so I'm assuming that they did that with theirs. I'm not sure, I genuinely can't recall whether 'Have Your Say' for the Post Office obviously covered all the people who worked for the Post Office as personnel. That would include the people in the Crown offices. They often talked about doing a separate one for the agents or the subpostmasters, but I'm not sure if they ever did that or not. I genuinely can't recall. But I've taken from your evidence there that that was a Post Office run function. Yes, it was. And the results of it were looked at and analyzed by the Post Office correct. And then on to the Post Office board. I'm looking for something that jumped from the agents, as you called them, the subpostmasters, to you and your board. Was there a facility to do that without going through either of those mechanisms that the Post Office managed? I don't believe there was, no.

I think it was two, which were both in between David Mills leaving at the end of 2005 and Alan Cook arriving in March or April 2006. And partly only because those two meetings were very strongly about the latest negotiations with government around the subsidy to ensure that we were able to sign the company off as a going concern. You say in your statement, no need to turn it up, as paragraph 27, that you attended those meetings because they were in relation to matters of shared interest. Yes. And so why was it that you attended two board meetings of the Post Office board in your seven and a bit years as CEO? For a number of different reasons. Number one, when I arrived, the CEO of the Post Office was David Mills, who reported directly to Alan Leighton, the chair of Royal Mail, so I was not involved in the running of the Post Office, that was a direct line relationship. And when it switched to Alan Cook, Alan had a slightly more normal dual reporting which was to obviously the board of the Post Office and the chairman of the Post Office on one hand, and then to me with regards to how Post Office interfaced with the Royal Mail group, for instance funding or the commercial relationship between the two companies. And I was advised by the company secretary that the shareholder and the board wanted the two things kept separate and therefore I shouldn't be on that board.

Yes, there were. Because what we were trying to do was a very big people and cultural transformation, and certainly on the Royal Mail side a huge technology revolution in terms of putting in sorting machines and tracking and tracing for parcels and what have you. Very unusually, we had our group HR director on the board of Royal Mail and the group technology director on the board of Royal Mail, and obviously those also had tentacles into the Post Office in terms of people and technology. Equally, Alan Leighton, who was chair of Royal Mail, was also on the Post Office board, and the company secretary, Jonathan Evans, was company secretary on the Royal Mail board and attended all the Post Office boards as well. So the principal links between the two were through Mr. Leighton and Mr. Evans. Correct.

Yes.

Yes, the Royal Mail Holdings board received minutes from each of the operating companies. They were included in the board pack.

Uh, no, I don't think we did. I think, thinking in particular of the audit and risk committee, at the audit and risk committee, I think if there was a poor audit that went to the Royal Mail auditing committee meeting for further looking and work, I'm not sure if they always received the minutes of the risk committee.

I definitely did not.

It was, and it didn't just impact the post office, but obviously because of its scale, it impacted the solvency of the group as a whole and the group's ability to sign its accounts as a going concern.

It was, yes, because it's a solvency of the post office issue, which in turn affects the accounting and potential viability of Raw Mail group.

That's correct. And say for picking things like this, which are about Horizon and network resilience up by chance, were you entirely reliant on the information pushed up the line to you, whether from the MD or CEO of the post office or from the company secretary? Yes, or if anything was brought to my attention by the group technology director. And how would that occur? The IT director in the post office would have reported to the CEO of the post office. That was a sorry, it's management speak, but a hardline relationship. Yes, but the group technology director, who was largely focused on driving through this automation and modernization of Raw Mill, was also there for advice and help to the post office technology team if required. And so if, as we now know to be the case, there were, putting it neutrally, issues with the Horizon technology, would you have expected the system that the post office IT structure would have pushed those issues up for your attention and for the Royal Mail group board's attention through the group IT director route? Well, first of all, I don't recall the post office IT team ever doing that. That's the first thing to say. Second of all, I would have expected them to raise it with the post office executive team first of all. That was the reporting lines they were running and controlling the post office, and they had responsibility for Horizon. If they needed some technical expertise, yes, I would have expected them to speak to the group technology director. But if there were any real issues, that was why both the CEO of post office and chairman of post office were on the group board, was to enable them to have a direct line to relay any issues in post office to the rest of the board.

I think it was, if I may expand a little, I think it was a reflection trying to help in the sense of what could have gone wrong here. I should stress at the time, actually it made perfect sense to me because the two companies had been set up with such a different objective, one in an entirely commercial market, one really trying to become a sustainable public sector public service, and one that needed to modernize at enormous speed as it opened up to competition, and the other one that absolutely had difficult issues in terms of managing the size of the network but largely through the same business if you like as it had previously had, albeit with less government revenue and more financial services revenue. I think the issue looking back that I could see that was unhelpful was actually one in the way which it impacted on the two attitudes or cultures of the two companies, which is that in Royal Mail, because everything as I said earlier was fundamentally broken, everyone on the board was aware of that. The starting position was everything didn't work, and therefore there was no option but total utter transparency, because if anyone had brought a presentation saying everything's fine, they wouldn't have been believed. So it was all about getting everything out on the table, transparently dealing with it, and trying to make progress. I worry with the benefit of hindsight that because post office didn't have that same burning bridge, for want of a better phrase, that that same transparency didn't allow information to flow up through that governance system on its own, and that potentially the separation of the two aided and abetted people not getting at that information.

I think just because internally it was very clear that people worked for the post office or the rest of the group, I think it just generated that sense of two different companies. And I think the structure, again with benefit of hindsight, I think it didn't allow for the easy flow of information.

As far as I recall, I don't remember anyone in the post office governance system, whether that's the board, the risk committee, the exec team, the general counsel, the legal teams, most importantly the operations and IT teams who own Horizon, I don't remember any of those people flagging up any concerns in that system. I don't know whether they flagged it internally, but it never reached the Holdings board.

I think for me, I'm not a lawyer obviously, but it's clear to me that central to all of this is the issue of disclosure. I noted more recently the judgments of the appeals court, and clearly there were some material deficiencies with the disclosure process. That seems very clear.

I'm not sure I mentioned anything about the structure specifically with regards to that question. It's this sentence here that's on the screen: 'It's now clear to me that this structure did not help vital information regarding the conduct of criminal proceedings reaching me.' What about the structure prevented information about criminal proceedings reaching you or the board? I think I was meaning more with regards to Horizon than the proceedings themselves.

That was the purpose of ensuring that the chief executive, the chairman, and the company secretary of post office were on the Royal Mail Holdings board, as I understand it. That was a decision before I arrived. Of course, we built up a strong internal audit function which was able to go anywhere in the company, and their audit plan was checked by the Holdings board, the audit committee, and the exec team. And also there was external audit who similarly were involved right across the company and again had the ability to go anywhere and look at anything. And I met regularly and privately with internal audit and external audit and was able to check privately whether there were any concerns that they had.

External? I was meaning external in terms of Ernst Young as in financial auditor. Sorry, no, any form of audit of the Horizon system? No, I don't think I am.

I don't believe so, no.

I don't recall.

Yes, it would.

That's correct, yes.

Yes, they do.

Yes, it would.

Yes.

Yes, either from the external auditors, the financial community both within post office or the group chief financial officer, or the internal audit team. If they had any concerns, I would have expected them, if it occurred within post office, to report that to the post office board but also to the Holdings board and the audit committee. Yes.

Generally speaking, that would be led by the CFO but supported by the chief executive. Yes.

Under our structure, that was as I've explained before. That was a separate reporting function into the Holdings board. Obviously the financial numbers were collated by the group chief financial officer. Yes.

Generally speaking, they changed over a period of time as I think I say in my statement. I was initially responsible for Parcelforce and Raw Mill Logistics, which were two businesses at that time, also involved in GLS or the parcel side. And I was responsible for trying to help modernize the letters business. I had marketing, finance, and group technology, which as I said before was very focused on the huge job we had to do to modernize the Raw Mail letters business in terms of sorting machines, automating machines, tracking and trace capability, so that we could build a parcels business that would allow the business to compete in the future.

Between 2000 and the end of 2005 when David Mills left, no. From 2006 when Alan Cook took over from David, as I said earlier, he had a dual reporting into me on group issues with regards to things like funding and budgets and the commercial relationship between the post office and Raw Mail, which of course was huge, but also a direct reporting line into the chairman of the post office and the post office board, as you would imagine. After 2006, and other than in relation to Mr. Cook, did any of the people within the post office senior executive team report to you? No, I don't think so, no.

I believe they reported into Jonathan Evans.

I'm not sure I recall, to be honest.

That would have been the post office CFO.

That would have come from the group CFO, which was Marissa Kone and in the latter years Ian Duncan.

That was Jonathan Evans, company secretary.

Jonathan Evans, the company secretary.

Would have reported into the chief executive of the post office. Any line, whether direct or dotted, back to Raw Mill Holdings? Dotted for skilled advice, for want of a better phrase, to the group technology director. But that's in respect of advice, as you said before. They reported to the chief executive of the post office, so the function stayed within post office. Yeah.

I was not. No.

Yes, I am. Well, sorry, throughout the whole of your period? My period, yes. I was not aware of that. No.

In part, yes. But also they would be doing that at the behest of the post office team who owned Horizon and any issues deriving out of that. Well, they might be their clients, essentially. Yes, post office limited might be their clients. Yes, sorry. Yes, I'm talking about responsibility for the conduct and work of the lawyers. That fell, if I'm right, to Royal Mail group to manage and oversee. My understanding at the time was that that was also under the supervision of the company secretary at the post office in conjunction with the Royal Mail. That they used, I thought, a mix of post office legal team augmented by Royal Mail legal team and outside legal people as well. That was my understanding.

I think they should be, in my version they're upright. Thank you. If we can go back to page one, please. Right, sorry, you're going to have to tilt your head to the side. Okay. Right. Can you see that these are minutes of an audit and risk committee of the 11th of November 2003? I can, yes. Can you see that you were in attendance? Yes, I do. I think you're the third person down in attendance. And then if we go please to page five, please, and scroll down, please. And scroll down, please. Thank you. Security report. Yes. The security report was received, so that's a document that's tabled for the meeting. And in particular, the following was noted: Royal Mail personnel-related crime cost the business approximately 26 million per year in 2002/3. The company had prosecuted 324 people, cautioned 108 others, recommended 47 cases to the procurator fiscal, and taken legal action in a further 43 cases. These were noted as minimum figures since there may also be cases where local action is taken to deal with offenders. This is relatively early in your tenure, is that right? You took up your post in April 2003 and this is November 2003. I think it was February 2003 I started, sorry. So eight or so months after you took up post. And so from this point onwards, you would have known that the company was prosecuting a vast number of people each year. Yes, but it refers to Royal Mail personnel. We wouldn't have described subpostmasters as Royal Mail personnel. So I obviously don't recall this particular meeting, it's a very long time ago, but I think by the description here, I would say that was very much focused on Royal Mail personnel, both full-time and casual workers. So you think this figure here does not include any prosecutions of post office employees? I don't think so, I don't. Or subpostmasters? I don't believe so. Now, why was that not reported to the group? I don't know. Can you assist? A big pardon? Can you assist? Sorry, I don't know. Why would you want to? Why was it necessary to be told about the number of people that Royal Mail were prosecuting, but not of the post office? Because at this time we were having a lot of problems in Royal Mail, both in terms of theft of things like credit cards out of the post, which was obviously severely denting confidence in the post and indeed of the companies that used it. There was a lot of mail. One of the reasons we were failing quality of service targets was a lot of mail wasn't being delivered, it was either being dumped or hoarded. So a whole host of reasons as to why there was a real issue in terms of what we used to call it was a program run by ourselves, very much monitored by Postcomm and Postwatch, called Mail Integrity, which was all about the integrity of the mail itself. In any event, through this route you would have known about Royal Mail's prosecutorial activities. Yes, indeed, yes. And would you get regular updates of the number of people prosecuted in a year, the amount of loss estimated by the criminal activities of Royal Mail group employees or other individuals, and the amount recovered? I'm not sure to use the word regular, but there were updates in terms of prosecution investigations and prosecution of staff that reached obviously came to the fore around the time of the Channel 4 Dispatches program, which was in April 2004, which was obviously a very big and not good event for the company, which highlighted through secret camera filming all sorts of very bad practices going on in delivery offices and mail centers. Would you agree? I think you did agree before lunch that prosecuting before the criminal court is an unusual activity for a company to undertake. It is, although I believed and I think I'm right, but I'm not a lawyer and I'm not the expert, but I think because the ones on the Royal Mail side were, I hesitate to use the word, more straightforward in terms of theft and various other things like hoarding or dumping, that those were very often done in conjunction with the police and other authorities. And so you're saying that these prosecutions that you're reading about here you understood to be independently prosecuted rather than prosecuted by Royal Mail? A mix, I think. In any event, for the proportion that were prosecuted by Royal Mail, would you agree that that activity requires a special kind of supervision and oversight? Yes, much more expert than I would claim to have. Would you agree that it requires particular care where the company is the alleged victim of the crime, where the company investigates whether it's the victim of the crime and then decides whether to prosecute? Yes. A phrase that's been described in the past as judge, jury, and executioner. Right. What special supervision and oversight of such an activity would you say was required? I would have thought the supervision of the experts, both internal and external, qualified lawyers, legal advice, the general counsel, the company secretary, and of course any audit people looking at any of the issues that arose. What about things like ensuring there's a separation of functions? As I said, the legal process is not my area of expertise. What about things such as the independence of decision makers? Yes, I would have thought so. Yes. What about things such as intrusive supervision and regular audits and reviews of the way in which the company is conducting its prosecutorial functions? Yes. What about special attention being paid to who you're recruiting to investigate alleged crimes against the mail? Yes, I would have thought so. I assumed that all of the people in the teams were proper qualified lawyers. Is the truth of the matter that you in your position did not have any developed understanding of the extent to which Royal Mail prosecuted or the way in which the things that I've just mentioned were or were not carried into effect? No, I as I've said earlier, I'm not a lawyer and I would not claim that that is my area of expertise. No. Can we look please at RMG 708, please? This is the following year. You can see that it's the 24th of May 2004 and it's a minute of the audit and risk committee of Royal Mail Holdings. You are shown in attendance, third down. Yes. Can we go to page six, please? Under the heading 'Protecting Royal Mail assets', Mr. Wilson, director of security, attended for this item. Committee noted that Royal Mail was inherently vulnerable as a business to tax on its assets, whether through fraud or other events. The committee noted the key activity of the business in protecting Royal Mail's assets and pipelines, including increased focus on fraud investigations, protection of information, the level of prosecution. Separate discussions have taken place and action plans have been developed to address the issues highlighted recently in Dispatches, which you mentioned a moment ago. Company had made 299 prosecutions last year. John Neil asked if the policy on prosecutions was clear on what level of resources would be required to improve the prosecution rate. Mr. Wilson did not feel that an increase in resource was necessary or likely to be effective. The company had identified a problem in recruiting people in cities where criminal activity was at higher levels. This is a discussion about protecting Royal Mail assets and prosecutions. Yes. And again, there's a note of the number of prosecutions made in the previous year. Again, in your view, does this relate and only relate to Royal Mail prosecutions and not include within the figure post office? I think so, yes. And again, why were the post office prosecutions and the conduct of those not being sent up to the Royal Mail board, which you've said already, but also to this audit and risk committee? Well, the headline says 'Protecting Royal Mail assets', so not knowing what the conversation was at a previous meeting, but it could be that this is a follow-up to the Dispatches thing. One of the things we did post-Dispatches was manage to get agreement from the government to allow us to check the criminal records of anyone that was joining Royal Mail, because we had an issue with bringing people in who were there to do us harm, particularly on the casual side. And I should stress, by the way, that makes it sound like there were lots of people at Royal Mail who were bad people. Actually, there were lots of wonderful people in that organization, and the vast vast majority were terrific people. But clearly we had a problem here, and we had to ensure that those people who were joining the organization were ones that we had done the proper checks on, as a way of cutting down on the level of crime that was being committed on the company and indeed therefore the citizens of the UK. And my question was, why have we seen discussion in the main board and in this committee of the numbers of prosecutions you say brought by Royal Mail, and about prosecutorial policy here being referenced to the committee, but on your account none of this relates to the post office? No. Why was that not considered by either the committee or the main board of Royal Mail? I don't know. Because we had gone through that very difficult and bad experience in Royal Mail. I think this was part of, I guess, what I mentioned earlier about there being very transparent up about the issues that we were trying to deal with on the letter side of the business. So this would have been brought forward by the letters team to try and create that understanding of what we were dealing with. Clearly for whatever reason, and I don't recall why, that same drive obviously wasn't there from the post office team. Can we look thirdly? We've looked at the board, we've looked at the committee. Can I look at a third potential source of oversight, the management board, please? RMG 31, please. And if we just blow up the top part, thank you. This is the Royal Mail management board, which sat essentially underneath the Royal Mail Holdings plc main board, as I've called it. Is that right? That's correct. Yes. It's for Tuesday the 20th of January 2004. The minute, and you are present and you're shown as a person present because you are a member of this board. Correct. And could we look please at page five and scroll down to 'Prosecution policy'? RMM 0494, which is the title of the paper. The management board received a paper which updated the board on current levels of legal expenditure and seeking endorsement for a change in priorities and consider which activities might be ceased or reduced without significant risk to the business in order to facilitate the further headcount reductions. The board noted the balance between further headcount reductions in legal services and increasing external legal costs was being carefully managed. It endorsed the prioritization of the resource used in criminal prosecutions by the company. The company's public position of having a strict policy towards offenders wouldn't be altered by this. Mr. Evans would investigate the possibility of increasing police and CPS involvement and report back to the board on the outcome of these investigations. And then two action points are noted. Would you say this is again about and only about Royal Mail prosecutions? I believe so, yes, for two reasons. You will have noticed on a lot of, well hopefully all of the minutes that you see, we had a policy of asking the team responsible to come to a meeting to present things. You'll notice from the front page that you put up, there's no one from the post office in. Go back to page one, please. And if we scroll down, we'll see the others attending, which is I think where they would appear. Yes, if they were there. Yes, thank you. Yes. And you're making the point that there's no post office there. There's no post office there. And if you look at David Mills, who was the chief executive post office, attendance, he didn't join till quite a bit after that topic. And I don't think there's any way we would have taken that topic if it involved the post office without him there and without any representative of the post office there. And does that again, that can come down, thank you. To the best of my memory, does that again reflect the fact that just like the main board, just like the audit and risk committee, the management board did not oversee or supervise in any way the conduct of prosecutions by post office limited? No, even though such prosecutions were being conducted by Royal Mail lawyers? Yes, on behalf of the post office. And again, I should say that's not my memory, but I obviously completely take what you're saying as read. Why was it the case that this prosecutorial activity of the post office was not the subject of any scrutiny in or by the three mechanisms that we've just looked at: board, risk committee, or management board? I'm assuming that's because the post office, if you remember, I think there was a question which is somewhere in my statement around who set the agendas for the meetings. I think, as I mentioned earlier, at Royal Mail we were really pushing things forward and trying to improve things and deal with things very openly and transparently. If post office at that stage would be asked through the chairman or the chief executive if they wanted any items raised at the Holdings board, and they would put those forward. Obviously Mr. Leighton was also on the post office board itself. And I guess that would be because they didn't volunteer this issue as being one that they wanted to be discussed in that forum. At the management board, that was really about where the two companies came together in a sort of trading and commercial agreement, as I said earlier. Would another way of describing it be that you let them get on with it? I wouldn't have put it that way, but I understand why you might take that reference. Do you ever remember receiving reports about the conduct of prosecutions by Royal Mail lawyers on behalf of the post office? No, I don't. Do you think, looking back with hindsight, this is an activity that ought to have been the subject of oversight and supervision by one or more of the three boards or committees that I've just mentioned? With the benefit of hindsight, yes, I do. To what extent is that issue that we've identified the product of the structural difficulties that you identified in paragraph 11 of your witness statement? As I said, looking back with hindsight, I think that was one of my concerns that in this structure it allowed things to potentially appear in the cracks, for want of a better phrase, because I can't think of a better one right now. What information ought the Royal Mail board, its management board, or its risk committee to have received from post office limited about the conduct of prosecutions? Probably similar to what we've seen on letters, which is an explanation of what was going on. And to what degree? We've seen that in one of the minutes that the board was exercising some control, was either turning the dialogue up or turning it down on the extent to which an active prosecution policy should be pursued. Would that be a function of Royal Mail group board over the post office that it ought to have performed? Again, I think the level of awareness of this because of the lack of communication from the post office was probably very low. Where does the responsibility for the lack of communication from the post office fall? I think you would have to say with the post office chief executive and chairman. That assumes, by the way, sorry, beg your pardon. Yes, I think we're about to say the same thing. That assumes that they knew. Exactly. And I'm obviously I don't know whether they did or not. My assumption is that they didn't, but I guess that's one of the roles of the inquiry is to figure that out. As well as responsibility potentially resting with Royal Mail for designing a structure in which none of its systems of oversight picked up that this prosecutorial activity was even going on on your account. I think it is a matter of real regret that all of those checks and balances, the governance systems in both companies failed, as well as internal audit, external audit, all the checks and balances that were in place failed to surface this issue out of the post office to a wider set of people. What was the level of your contact with Royal Mail's general counsel? Mostly through the company secretary, but from time to time separately. Did you ever explore with the general counsel how he or she had involvement in the prosecutorial activities of the post office? I did not. No. Did you ever explore with such general counsel how they ensured adequate resources were available to ensure effective oversight of the post office's own legal and regulatory obligations? It was quite a regular question at most audit committees to the various teams in legal and internal audit: 'Have you got enough people to do the job that you need to do?' That would be a question that would be regularly asked. What steps, if any, did the Royal Mail board or you take to ensure that the role of general counsel was effectively discharged so as to ensure compliance by the post office with its legal obligations so far as prosecutions are concerned? I think that because he reported to the company secretary, I think his role would have been reviewed by the company secretary in terms of performance. And so the answer, I think, is for you personally, none, but that's because it was Mr. Evans's responsibility. That's correct. You tell us in your witness statement, no need to turn it up, it's paragraph 43, that you trusted the managing director/CEO of the post office and the chair to raise any significant systemic or reputational issues relevant to the post office that would have had an impact on the group, either at the Royal Mail management board meetings or the main board meetings. Is that right? Yes. But when you say you trusted, do you mean that you assumed that they would? Not just that. I mean, obviously I assumed as good people in senior positions, very qualified for their roles, that they would volunteer those issues. But as you can tell in many places of my statement, I made it very clear that our style of management from the board down was to go looking for problems. We were fixing things across the business. I clearly wish we had known about this, because I think when I look at collectively what we were tackling, I'm sure we would have done if we were aware of it. And unfortunately, which is a huge regret, we weren't. And so you and your board and your management board, you tell us, actively sought out problematic areas. Yes. And not only was this one not found, those within post office did not escalate it to you or your board. They did not. How would you define an issue that had 'significant systemic or reputational issues relevant to the post office'? What was the threshold that needed to be crossed in order for an issue to be escalated to you? I think something that would genuinely impact the performance of the company that would also have an impact on the group itself, whether that was financially or reputationally. How was that made clear or communicated to the post office executive team so that they would know, for example, the issues with which we're dealing, whether they fell on the escalate or do not escalate side of the line? I don't think there would have been many board meetings without the chairman and the non-executive directors and the executive in the space of myself saying that we needed to try to get to the bottom of all the issues. It all started with inheriting a company in severe trouble, and we asked people at all times to be open, transparent, and for bad news to travel very fast. We went looking for that. If I take an example which is in my statement, in the letters business, myself and the chairman would meet with thousands of frontline delivery office managers on a regular basis. We would get them to tell us everything that they felt was wrong with the business, issues they needed fixing. We'd go away, we'd come back the next time, we'd tell them what we'd done in terms of fixing that, and we'd ask them what we needed to tackle next. So all of those issues were about just trying to make progress on a company that was starting from a very, very terrible position. Were you relying on the judgment and discretion of the CEO and the chair within the post office to raise matters which they thought ought to be before the board? Yes. Do you know what steps they

Took to motivate or encourage their staff towards openness and accountability and transparency in your period of office. I think Sir Mike Hodgkinson set up the risk committee there and chaired it himself. I think he tried to install the right attitudes. Obviously I wasn't in any of those meetings, I wasn't in the board meeting other than on the two occasions I think that we spoke about earlier, so I was never seeing that firsthand.

I'm not sure if you might correct me and say I used the word fundamental, but certainly I thought there was a real difference, a real difference.

Not obvious in that sense. But I think the Post Office internally always thought of themselves as a different organization, the public service, the face of government, and felt that was very different from the space that Royal Mail was increasingly inhabiting. So I think there was a difference in outlook, there was a difference in the objective of the two companies. And as I said earlier, I think all the separation things which in many ways made sense in terms of those different futures, I think also probably exacerbated some of those feelings of 'we're different'.

Well I'm very sorry to hear that. I certainly encouraged the complete opposite. I wanted people to be open, we encouraged people to be open. It's actually partly why we created 'Have You Say' – it was anonymous – and I regret if that was the case within Post Office. But there were also other ways anonymously to get information to people if people were concerned. There was also whistleblowing too. But I think 'Have You Say' was another way of doing that, so there was more than one route to be able to do that.

Yes, I did.

I would find that surprising.

He certainly always gave the impression of someone who was very much in control of his brief. His particular area of expertise was in financial services, including his previous role, and obviously that was given the amount of government revenue that had been lost both through the loss of benefits payments and the forthcoming loss of the Post Office Card Account. Financial services was one of the few ways that the Post Office could fill that revenue gap, and so he was brought in specifically with that skill. I do know that he spent – I remember him always saying how much time he spent with subpostmasters, with the NFSP, and he never gave the impression to either myself or indeed the board, in fairness, of being anything other than in control of that brief.

He did, yes.

Well, as you know, the Company Secretary has a slightly different role in the sense of not being part of a management team; effectively they report to the board and to the chairman in a more independent way. Jonathan also had a huge history with the company, and so he played that sort of role of understanding the history of both sides of the business, and was trusted by everyone on the board, whether that was the Holdings board or indeed the Post Office board.

I think it was to ensure there was more glue there across the two. Again, that's something that had been decided quite a while before I arrived, but was there and in place when I arrived and seemed to work very well.

Yes, he was.

I genuinely don't know, partly because the decision had been made quite some time before I arrived. I'm sorry.

When I say I recall, I now recall because I've read all this stuff. When I arrived it was just the system that the Post Office used.

No, it would be quite unusual for someone to arrive and people to take them back eight years, five years, whatever. So no.

No.

No.

No, you don't mean that when they decided to no longer pay benefits through the Post Office? I was aware of that, because obviously that was a dramatic loss of revenue for the Post Office, which actually caused a lot of the initial subsidies to be required from the government.

That was entirely linked to the fact that this was coming from the Department for Work and Pensions, which was their role, not surprisingly, to get value for money in terms of the public purse. Effectively, the cost of providing a benefits payment to a particular individual through the Post Office – I don't remember the exact figures, but roughly speaking might be a pound, and if it was done directly into the bank account it might be a matter of five or six pence. So from a spending taxpayers' money wisely point of view, that was a change that they felt they had to make. So in that sense, the government was both causing the difficulty of taking a lot of money away from the Post Office and the subpostmasters, but then was also trying to solve the problem in another part of the field by providing a subsidy to help allow the company to continue to trade.

As it was told to me, it was all about the cost benefit analysis for them and the use of public money.

No, I don't. When was that? That carried on for many, many years? Okay, well I'm not aware. No, okay, long before my time, I assume.

No.

No.

No. As I arrived, the system had effectively been rolled out, and people were, as far as I was aware, just dealing with that as the system the company had used. Organizations in my experience have a habit of, once they're up and running with something, there's a tendency just to get on with things and not look back. Horizon was relatively well established by 2003, yes, and was working as far as I was aware.

No.

Jonathan did not. And part of my briefing when I arrived at the company was meeting Dave Miller, and I do not believe he mentioned it at all.

Yes, I would. It was a business critical system, yes.

I don't recall exactly, but I would naturally assume that it will have been part of the internal audit plan.

Well, the internal audit plan would all be approved and come to the management board and the audit committee and the board for debate.

I genuinely can't remember, sorry.

Yes.

Well, it's a financial accounting system. They have those skills and abilities. That's what good audit teams do. They know how to get under the skin of projects like that and to understand how the mechanics of the system worked. If they were concerned about anything like that, they would have the ability to call in further expertise in any particular area and then to bring forward a report. And as I said earlier, we encouraged – you will have noticed on some of the papers certainly I know the ones that were sent to me that the internal audit reports were pretty brutal, and we asked them to be that way because we wanted to understand the worst of what we were dealing with.

Yes, thank you.

As far as I recall, they did not. Could I just mention one more point if I may? Yes, of course. Just in case I misunderstood an earlier question: you asked me about external audit of the Horizon system. Obviously the external auditors were constantly testing when they were reviewing the accounts and the numbers at the half year and the full year that the system was working as it should work.

Sorry, just a word. No particular meaning. I just meant in the sense that obviously they would be checking the quality of earnings, the quality of the numbers in the work that they were doing for half year and full year orders.

Well, they would be looking at the numbers and the quality of the numbers and the consistency of the numbers that they were looking at, so I assume there would be crosschecking all of that all of the time.

I would have thought so. Again, I'm a layman on this, but I would have thought so.

Nothing was shown to me to suggest that they had a concern about the quality of the numbers.

I don't recall.

No, and the operations team – whether that was David Miller, Rick Fancis or Paul Lenel – they attended lots of different meetings, but I do not recall them doing that.

I am now aware of that, yes.

I would have expected them in the first instance to draw them to the attention of the Post Office executive team and board, and absolutely yes, if they were serious and systematic, to the management team and the Holdings board, yes.

Well, to simplify: I would have expected them to tell the Post Office chief executive, and then expected the Post Office chief executive to tell the board and myself very quickly and simultaneously.

Only from what the inquiry has sent me in terms of some of the responses sent by Alan Cook to various parties. I think you're referring to some internal Post Office emails which refer to what I've just said as being 'our stock line'. Yeah.

I certainly never heard that statement. But I never heard anyone say that it wasn't.

No. Sorry.

It wasn't an issue that was being flagged up by anyone in that sort of chain of checks and balances that I outlined earlier.

It would indeed, and it would also be entirely wrong.

I think it finally came through after I left, sometime later in 2010, I believe.

I think there were three occasions when that became an enormous debate. Probably one of the biggest was around 2006 with the real – because at that point they'd announced that the Post Office Card Account was also going, so in terms of looking forward on a going concern basis, there was yet more revenue going to disappear from the Post Office. That required, I think, part of the agreement then was a particular subsidy – I can't remember the exact number – but it also meant a reduction in the number of post offices by around two and a half thousand, I think. So from a Post Office point of view, for almost every subpostmaster, an issue was the declining income and the closures of the Post Office. And I think for MPs, for select committees, for government, that sort of almost took over the whole agenda for the Post Office. And at roughly the same time there was a thing called the Hooper Review, which was an independent government review which they adopted, which came up with four things: one, that Royal Mail should be allowed private capital; two, that the Post Office should stay in public ownership; three, there should be a change in regulator; and four, government should look to try and take care of the Post Office pension. The code for outside capital was actually a request from the shareholder to try to look to see if Royal Mail could be sold in part and in hold to another European player or private equity.

Most certainly.

It would, in part because that shareholder was also responsible for the investment by way of the subsidy. Indeed.

Yes.

The conversations that we had with the Shareholder Executive as the Royal Mail management team were mostly around the financial performance of the company, how far we were getting with our modernization program, relationships with the unions, and of course questions of ownership. I've mentioned one around the potential sale of or in part of Royal Mail. There was another large debate where myself and Alan Leighton and the board wanted to try to turn Royal Mail into in a John Lewis partnership – we wanted 20% of the company to be owned by our people, and I include in that subpostmasters. We valued the subpostmasters – Alan as an ex-retailer understood the importance of frontline managers – and we wanted the subpostmasters actually to have an ownership of the Post Office. So we discussed things like that. But obviously we discussed funding at the same time. The Post Office had very regular meetings with the Shareholder Executive, but a separate team within that, and that was the constant day-to-day on Post Office business, closure programs, revenue, all of those things. So there were parallel conversations going on.

No doubt some, but probably not all. And the some would have been Jonathan Evans, I think. And so there were, as you've described it, essentially two parallel routes back to government. Correct, yes.

That's right, yes.

Well, the times I can remember them attending were to be honest with things I've mentioned which were around potential ownership changes, were around the solvency debate and the subsidies that always had to be – I mean, another degree of separation was that that had to be very carefully done from a Royal Mail point of view; those had to be commercial loans at competitive rates. Just cutting through it, Mr Crozier, were they entitled to attend? They were absolutely entitled to attend, yes. But rarely did, save for those really big topics of funding, solvency and ownership. And that was their choice? That was their choice, yeah.

During my time, they did not do that, nor did they have a representative on the board during my time. No.

I don't know. You'd have to ask them.

I would, indeed. Not assuming that they were on the take or some of them were on the take? No. I think some of the language I've heard over the last few weeks is deplorable.

No. I have racked my brain on that and I genuinely don't remember that coming to the board.

I don't know the detail of it. From the sounds of it, I would have agreed with you. It was a form of requiring them to pay for all losses attributed to their branch by a computer without the facility for them to query or even to investigate how that loss had occurred.

I'm not sure it's fair or right for me to speculate on something as important as this. All I can see from what I remember at the time was that it did not get up to the area that I've mentioned earlier. Looking back with hindsight now, clearly at a certain level in the Post Office it went no further.

Yes, it did.

I mentioned in my statement, you know, I can genuinely say it's one of the toughest jobs I've ever done from a terrible starting point. And the degree of difficulty in making change in Royal Mail – I do look back and wonder, as we talked about extensively earlier, whether the structure exacerbated the problems, for want of a better word. I can see that there was a lack of transparency now in the Post Office. I had assumed they were making the same strides that we were in the rest of the company. And what I don't understand now is why people – it seems like a perfectly normal thing for me to do is if you were worried about the performance or you thought there were issues, why you wouldn't get someone from the outside in to look at that and give you a genuine, open, independent view of what the problem was. And I can see that those were the things. And whilst I used to like to look back on my time as being very hard but we made a lot of progress, clearly it's impossible to do that now without feeling that it is, in large part, tainted by this, for obvious reasons.

Yes.

I think so, yes. And one of the reasons for that was that nobody from Post Office was present at the meeting when they were discussed. It was also because they were referred to as 'Royal Mail personnel' if I remember, and that's not how subpostmasters would be referred to at the time of those meetings about which those minutes were prepared.

I thought it was Post Office.

I don't recall. I'm not sure I'd be able to disagree, no.

Well, I assume the client would have been – those minutes refer to Royal Mail. So just to make sure I understand the question: if you're asking me who was responsible for the Post Office, obviously the Post Office was the client, right? Where they were sourcing that legal help from, I had always assumed it was partly internal, partly through a bit of Royal Mail resource, and obviously external resource too, as far as I can recall.

Yes. Insolvency was an issue from before I joined and during the time I was there, yes.

Yes, I believe so, yes. Anyone who read the annual reports saw the press, indeed, yes.

Yes.

Yes, it would. But that would have to be faced into if there was a problem there, because frankly the issues we were facing on Royal Mail in terms of cost and investment were far greater than that would have been. So it would have had to have been faced into. And the Post Office, as actually in fairness the government showed, was not something that the government was ever prepared to allow to truly fail. It was more a question of what was appropriate in terms of the revenue that was genuinely there versus the desire to obviously allow the Post Office to continue its really valued role as part of the social fabric of the UK, particularly for certain segments of the population.

I'm not sure I do agree with that, if I'm being honest. I wasn't aware that Horizon had had this very difficult birth, for want of a better phrase. But all IT systems constantly need improving and fixing, and the company in full mode was trying to fix everything. And I do like to think – I know this is incredibly easy to say now, I hasten to add – that if we had been aware there was a real issue that needed fixing, I think collectively people would have figured out a way to tackle that. And I think that case would have had to be made by the government because in the end it would have been more important to get it right. So I still believe, whatever the difficulties, if people genuinely felt there were problems, they should have said something.

I certainly wish they had.

I think that's obviously entirely wrong. I would have expected, and I thought and would have expected, that when people raised issues these would be openly and fairly looked at. I know from the evidence I've been sent that people sent letters which the Post Office team replied to. I always assume – because I do it myself – I wouldn't send or sign a letter that I didn't believe in, so I assume that people would check those things out properly, and I assumed that they would handle those professionally and openly, and ensure that any issues that were raised were investigated properly.

I assume it was through the financial team. Was it accounted for as profit? I don't know.

Yes, it is.

I'm not an accounting expert, so I wouldn't know exactly how you would account for different payments.

I do, yes.

It is right, so.

I suppose it depends what it's replacing. I don't know. Shouldn't it be on the balance sheet because in theory it's creating the opposite side to the loss? I assume so, yes, that's where it should be, yeah.

Yes, yes.

I would agree, yes, because that's a way of looking at and tracking the money that was being paid, paying for the expensive costs of taking people to court or to the cleaners.

Uh, they would have been taken in the round, I expect, at both the Post Office and the Royal Mail, because – sorry, forgive me. From tracing you, because this period of time we're talking about, which Mr Beer has emphasized, was a period of time for the Post Office at RMG where the business was financially in trouble. Indeed, it was a period of time whereby Post Office branches and numbers of them were being cut, yes, yes. And so the question of these costs, costs being put in these accounts, would have been under some scrutiny, wouldn't they?

Uh, yes, they would. There was reference to them in some of the papers that were sent through, yes.

Yes.

Well, I don't know if it was, so it's difficult for me. If it was, it would be wrong and dishonest, wouldn't it? On the face of it, yes, but I don't know how that was treated.

When was this? This was later on, after your time. He was after the very sorts of accounts that I've been describing. Right. Do you know why he wasn't given those accounts?

I understand. So you're right. Where were those accounts kept, Mr Crozier? The accounts that relate to profit and loss and balance sheets – where were they kept? Were they kept at Chesterfield?

Well, obviously all the information was also held at the head office.

No.

I need to look back, I don't know. I'm sure it's absolutely available in all the annual reports.

Yes, it probably is, yes.