Hacking and internal data theft are disastrous for any kind of business. When personal and financial data are involved, data breach ramifications and costs are dramatically amplified. Poor IT security within your accounting system can lead to additional penalties. Let’s look at how.
There are Hidden Costs of IT Security Breach
Part of the costs and consequences of an accounting data breach relating to legal compliance. One example is simply in how a data breach affects your tax process. All organizations are beholden to tax requirements. If your accounting data is stolen or altered this will likely affect your reporting efficiency. Also, failure to provide the accurate tax amounts and requirements will incur repercussions from the IRS. These range from fines to other penalties for your organization. You may also experience delays as you’re audited. However, this is just the tip of the proverbial iceberg.
Your customers’ data is also too. In addition to having to pay for damages and legal backlash from customers, this data loss mars your business reputation and credibility. Customers may end their business relationship with you and go with competitors. Prospects may also turn away. All of this also negatively reflects individual business against others in your industry.
Different industries have more robust regulations regarding data security. Falling short of these pushes prospective customers to your competition while opening you to additional repercussions. Let’s look at two example industries.
Government Contractors
Government contractors’ accounting systems are required to be Defense Contract Audit Agency (DCAA) compliant, ensuring high-level security. A data breach can indicate that the contractor is not working with DCAA compliant software. Or this can indicate that internal controls are not up to standard. This all puts government and taxpayer funds at risk and may lead to breaches of security clearance. All of these are unacceptable and put the contractor at risk of losing their government project entirely. This makes it harder to get more federal contracts because agencies will not want to risk data breaches or potential fraud.
Nonprofits
For nonprofits, a financial data breach could jeopardize tax exemption status. If accounting data is missing or inaccurate, this may affect the annual return accounting required by the government.
When an accounting data breach is severe enough, it damages donor relations. Patrons may become hesitant to support the cause of fear of financial data theft. This may give others a false impression that your nonprofit is poorly managed or untrustworthy. Either way, nonprofits lose valuable time and resources recovering from data breach. They may have to dip into reserves set aside for the mission in order to recover.
No matter the industry, accounting data theft and loss discredit the organization. You immediately seem either incompetent, unsafe, or unprepared for the rigors of business. Patrons and customers will turn towards competition who seems more secure. Why would they take the risk? The burden then falls on the organization to rebuild credibility and trust after the breach. Not to mention money and resources. Many times recovering from financial data IT breach is just not possible.
Business Failure
Companies worth millions have failed because of security breaches. This includes external data theft and internal data breaches, or sabotage. This loss represents a major blow to your business objectives, cash flow, and IT integrity. If you’re a larger company or a nonprofit, investors and sponsors alike may also be affected and likely withdraw support.
The financial costs of trying to recover, coupled with the chaos of reorganizing, might be too much to recover from. Even if your business survives, an accounting system breach is a costly proposition that affects you for months, maybe years. Learn how to protect your financial data with our free 2020 Guide to Financial Security.
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