Client Alert: Governor Signs Bill Sponsored by City of Dixon Aimed at Protecting Public Agencies from Payment Fraud

Today, Governor Jerry Brown signed Senate Bill (“SB”) 441, authored by Senator Lois Wolk (D-Davis), which helps minimize the potential for payment fraud by allowing public agencies to make unique identification numbers, used by a public agency to identify a vendor or contractor, confidential except when used during a public bidding or are a part of an audit involving the agency.

This past April, a sophisticated criminal scheme threatened to defraud the City of Dixon (“City”) of 1.3 million dollars. Posing as a vendor for the City, the perpetrators sent a fraudulent email to City staff requesting a change in the City’s method of payment to the vendor. The letter included the vendor’s unique identification number significantly adding to the legitimacy of the request. After learning that the vendor had not received the payment, the email and payment change request were re-examined and were suspected to be fraudulent. At that point, City staff took immediate action to stop the transfer and was successful in returning the funds to the City’s bank account.

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. Currently, there is no specific exemption in the California Public Records Act (PRA) to prevent the disclosure of vendor identification numbers. Accordingly, public agencies subject to the PRA must provide vendor numbers if requested.

The attempted fraud has brought to light the ease in obtaining vital financial information that public agencies heavily rely on a daily basis. The City’s investigation concluded that the vendor number was most likely found through an internet search and the City’s enumeration of claims. The vendor numbers are easily obtainable and found in the enumeration of claims published as part the City Council agenda packet, which is available online and upon request.

Senator Wolk, along with Churchwell White lobbyists, worked with the California Newspaper Publishers Association in finding the right balance to protect the public’s access to public records and preventing the misuse of identification information that may be used to defraud local agencies.

Sponsored by the City and supported by the League of California Cities, SB 441 seeks to reduce the risk of a public agencies falling victim to the type of fraud the City faced earlier this year. “With the Governor’s signature, another firewall is in place to protect cities, counties and small districts from being hacked and possibly losing millions of dollars” said Jack Batchelor, Mayor for the City.

As always, if you have questions on legislation or regulatory issues, please contact Randy Pollack at (916) 468-0621 randy@churchwellwhite.com or Elisabeth L. White at (916) 468-0949 elisabeth@churchwellwhite.com.