BILL ANALYSIS Ó SB 441 Page 1 Date of Hearing: June 28, 2016 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair SB 441 (Wolk) - As Amended June 22, 2016 SENATE VOTE: Not Relevant SUBJECT: California Public Records Act: exemptions KEY ISSUE: Should the public records act be amended to exempt identification numbers or other unique codes that a public agency uses to identify a vendor or contractor, so as to protect against fraudulent uses of those numbers or codes? SYNOPSIS This bill would amend the California Public Records Act (CPRA) to exempt from disclosure the unique identification numbers or alphanumeric codes that a public agency uses to identify a public contractor or vendor for billing, payment, or other internal administrative purposes. The bill, as amended in the Assembly, is a response to an e-mail scam perpetrated against the City of Dixon. That scam resulted in the diversion of city payments of up to $1.3 million from the intended contractor's bank account into an account established in another bank by the scammers. According to an investigation of the incident, the city received an email containing the logo of the contractor SB 441 Page 2 that had performed work. The e-mail purported to provide the city with new payment instructions. A subsequent investigation showed that the message was sent from an e-mail address that was quite similar to an e-mail address of the actual contractor. The city assumed the message was legitimate and directed its next payment as instructed, only to discover that the contractor never received payment and had never sent an e-mail with instructions to change the payment method. The city assumed the e-mail was legitimate, in part, because it contained the unique identification code that the city used to identify the contractor for remitting and tracking payments. It is unclear whether or not the scammers obtained the identification number from a public records request, but that was surely a possibility. This bill, therefore, would amend the CPRA to specify that a public agency is not required to disclose any identification number, alphanumeric character, or other unique code that the agency uses to identify a vendor or contractor. Recent amendments, taken by the author to address concerns raised by the California Newspaper Publishers Association, would specify that the exemption would not apply if the code is used in a public bidding or an audit involving the public agency. This seems a very reasonable compromise that balances the competing interests of public access to government records with the need to protect public agencies against fraud. While the public certainly has an interest in knowing the identity of vendors and contractors that receive public funds, and the amount of those contracts, there is no significant interest in knowing the otherwise random numbers or alphanumeric codes that the agency uses for internal administrative purposes. Because this bill was amended in the Assembly to address a different topic, the Senate votes are irrelevant. The bill is sponsored by the City of Dixon and supported by the League of California Cities. There is no opposition to this bill. SUMMARY: Exempts from disclosure under the CPRA any unique identification number or code that a public agency uses to identify a vendor or contractor, except as specified. Specifically, this bill: SB 441 Page 3 1)Provides that nothing in the CPRA requires the disclosure of an identification number, alphanumeric character, or other unique identifying code that a public agency uses to identify a vendor or contractor, or an affiliate of a vendor or contractor, unless the identification number, alphanumeric character, or other unique identifying code is used in a public bidding or an audit involving the public agency. 2)Finds and declares, as required by the California Constitution, that this limitation on the public's right of access to public records is necessary to protect the public interest by balancing the right of the public to access relevant information about contractors, vendors, and their affiliates used by public agencies, while at the same time preventing the misuse of identification information that may be used to defraud local agencies. EXISTING LAW provides, under the California Public Records Act (CPRA), that all public records shall be open to inspection at all times during the business hours of any state or local public agency and that every person has a right to inspect or copy any public record, unless the public record is expressly exempted from disclosure or the public interest in disclosing the public record is clearly outweighed by the public interest in not disclosing the public record. (Government Code Section 6250 et seq.) FISCAL EFFECT: As currently in print this bill is keyed fiscal. COMMENTS: According to the author, this bill, as amended in the Assembly, is a response to an e-mail scam perpetrated against the City of Dixon. That incident resulted in payments of up to SB 441 Page 4 $1.3 million in public funds being diverted from an intended contractor's bank account into an account established in a different bank by the scammers. Like most people and entities, public or private, the City of Dixon increasingly pays its bills electronically through an "Automated Clearing House" (ACH). According to an independent investigation, the city received an email containing the logo of the contractor that had performed work for the city. The e-mail purported to inform the city that ACH payments should go to another account maintained by the contractor and provided the city with new payment instructions and account numbers. A subsequent investigation showed that the message was sent from an e-mail address that was quite similar to e-mail address of the actual contractor. The city assumed that the message was legitimate and directed its next ACH payment as instructed, only to discover that the contractor never received payment and had never sent an e-mail with instructions to change the payment method. The city assumed the e-mail was legitimate, in part, because it contained the unique identification code that the city used to identify the contractor for billing and other internal administrative purposes. It is unclear whether or not the scammers obtained the identification number from a public records request, but that was surely a possibility. The author hopes that this bill will reduce the opportunity for such fraudulent diversions. According to the author and supporters, the use of such identification numbers in conjunction with an ACH payment system allows public agencies to quickly identify and effectively track and remit payments. Unfortunately, these numbers are found in the enumeration of claims published in a city council agenda packet. These packets are in turn available upon request, yet there is no exemption in the CPRA that would permit withholding or redacting these numbers from a public records request. This bill, therefore, would amend the CPRA to specify that a public agency is not required to disclose any identification number, alphanumeric character, or other unique code that the agency uses to identify a vendor or contractor. SB 441 Page 5 Recent amendments, taken by the author to address concerns raised the California Newspaper Publishers Association, would specify that the exemption would not apply if the code is used in a public bidding or an audit involving the public agency. That is, the number would only be withheld from a public records request where the number is otherwise only created by the public agency and used for strictly internal purposes. This seems to be a reasonable compromise that balances the competing interests of public access to government records and information, while at the same time protecting public agencies against fraud. While the public certainly has an interest in knowing the identity of vendors and contractors that receive public funds, there is no significant interest in knowing the otherwise random numbers or alphanumeric codes that the agency uses for internal administrative purposes. Arguments in Support: According to the sponsor, the City of Dixon, vendor identification numbers are "unique identifiers created and used by public agencies statewide to provide a uniform system to quickly identify vendors and effectively track and remit payments. [Yet currently] there is no specific exemption in the [CPRA] to prevent the disclosure of vendor identification numbers." The City of Dixon believes that SB 441 appropriately "seeks to reduce the risk of a public agency falling victim to the type of fraud that the City faced earlier this year. The fraud attempt underscores how easy it is for criminals to obtain information meant for internal use and utilize it to carry out similar scams against public entities." The City of Dixon concludes that "SB 441 balances the public's right to government transparency with the duty to protect public funds." The League of California Cities writes that "this measure addresses concerns arising from documented attempts to defraud local agencies and appropriately considers the public interest served by not disclosing unique vendor identification numbers. SB 441 Page 6 Unique vendor numbers serve only to allow city staff to correctly and efficiently issue and track payments. Under this measure, public disclosure of vendors and amounts paid will still be available," but at the same time "the measure will help deter and prevent attempts to defraud local agencies." REGISTERED SUPPORT / OPPOSITION: Support City of Dixon (sponsor) League of California Cities Opposition None on file Analysis Prepared by:Thomas Clark / JUD. / (916) 319-2334 SB 441 Page 7