Executives’ focus on rescuing the UK’s “fundamentally broken” Royal Mail Group blinded them to “unacceptable” methods used by a Post Office Limited (POL) fraud investigations team that was given free rein to prosecute and intimidate subpostmasters, two POL executives have admitted.

Those prosecutions – which saw hundreds of local subpostmasters investigated and prosecuted for theft, fraud and false accounting due to balancing errors that were actually caused by covered-up bugs in POL’s Horizon branch administration system – were ongoing for several years but a series of POL chief executives told the Post Office Horizon IT Inquiry that the prosecutions were background noise that never registered in the boardroom.

Although he was aware of the company’s ongoing fraud investigation efforts – an important function in a company that was handling $150 billion (£80 billion) in cash per year through its nearly 18,000 branches – former managing director Alan Cook said most of the fraud “is what the customers were up to, not particularly what staff were up to…. there was a lot of potential fraud to investigate”.

Cook – who joined POL in late 2006 as a growing number of subpostmasters were being prosecuted for what would turn out to be errors in the Horizon system – oversaw a tumultuous period for POL and parent company Royal Mail Group (RMG), whose financial challenges had become so severe that a 2007 Parliamentary report noted that “the spiralling losses suffered by the Post Office could not continue to be sustained”.

Efforts to right the business ultimately saw the “strategically planned closure” of 2,500 loss-making Post Office branches, with many subpostmasters receiving redundancy packages under Cook’s watch – and many others jailed or financially ruined after being hectored by fraud investigators and, in many cases, harangued into pleading guilty with promises that it would deliver better outcomes.

Cook was aware of the prosecutions but assumed that the cases – in many of which “the evidence was on the face of it quite compelling” – met evidentiary standards that convinced outside police or prosecutors to pursue the subpostmasters.

In truth, the POL investigators were empowered to lodge prosecutions themselves, often ignoring claims that Horizon was anything but infallible and selectively presenting evidence to prosecutors who legitimately believed fraud had occurred.

“If someone that is not the organisation in question is making the call to prosecute, one would go into that with a greater degree of comfort that there was probably a higher bar to be cleared before a prosecution was initiated,” Cook said, saying that he had “presumed” the police were involved in all prosecutions because the cases were described as having “gone to court.”

“I had not encountered the notion of an organisation that could make that decision on its own,” Cook explained, adding that “there was a sort of high and mighty tone” about the fraud investigators’ activities and that “it never occurred to me that the Post Office was the sole arbiter of whether or not that criminal prosecution would proceed.”

“One of my regrets is that I didn’t pick up on that earlier,” he said, adding that reports on outcomes would say things like “the postmaster pleaded guilty” – but failed to mention what, he said, “now I understand is that postmasters were being advised to plead guilty even if they thought they weren’t.”

“I don’t know whether that was a deliberate strategy by the Post Office, but that’s how it manifested itself – and it’s unacceptable.”

Too many distractions for justice

The subpostmaster prosecutions were just one of a dizzying range of issues facing a board fighting to steer the loss-making business through an ongoing climate of challenges – including a change of government, the mooted separation of RMG and POL, pressure to financially support a flailing business, and the global financial crisis.

“Those elements were actually where the board was fundamentally focused through most of the time that I was with the Post Office,” said then RMG CEO Adam Crozier, who noted that POL’s size “impacted the solvency of the group as a whole and the group’s ability to sign its accounts as a going concern.”

With RMG having only recently transitioned from being a nearly 500-year-old government agency to a private enterprise with real financial accountability, Crozier – whose tenure ran from 2003 to 2010, a period that spanned the escalation of Horizon-related problems and prosecutions – said that it quickly became clear that “in Royal Mail, everything was fundamentally broken.”

“Everyone on the board was aware that the starting position was that everything didn’t work – and therefore there was no option but total, utter transparency – because if anyone had brought a presentation saying ‘everything is fine’, they wouldn’t have been believed.”

The RMG board had been chosen to ensure clear lines of communication between POL and RMG “to enable them to have a direct line to relay any issues in POL to the rest of the board”, Crozier said.

Yet despite this effort to improve transparency, Crozier said among many POL executives there was a “sense of two different companies” and that he could not recall “anyone in the Post Office governance system…. flagging any concerns in [Horizon]” or conveying details of ongoing prosecutions.

Like Cook, Crozier said he “would have imagined that between the Post Office legal team and any external support that they may have required between them, they would have made that decision” to prosecute the subpostmasters – and admitted that he “is sad to say that at the time, I didn’t really reflect on it in the way that perhaps I should have done.”

“The passage of time has shown that conducting the case, gathering the data, and acting as the prosecution can,” Crozier said, “lead you to a position where you might not think as independently as you should do about the quality of the information.”