CPAs provide an essential service for their clients, handling financial documentation, audits, and taxes to keep their finances in order. To get these tasks done, CPAs need to collect and store a large volume of sensitive financial information from their clients.
Because CPA firms collect sensitive client data, they are subject to the Federal Trade Commission’s Safeguard rules. These rules require you to take specific security measures to protect customer information that you store digitally.
Let’s take a closer look at the FTC Safeguards rule and why it’s such an important compliance requirement for CPAs.
Key Takeaways
- The FTC Safeguards rule requires financial institutions to put information security programs in place to protect sensitive customer data.
- The FTC Safeguards rule applies to any organization that conducts financial activities, which includes CPA firms.
- Failing to comply with these regulations will put your customers at risk, and could result in fines or even legal action.
- To comply, CPA firms will need to put administrative, technical, and physical safeguards in place.
- A managed IT services provider can help you implement these safeguards, in addition to providing ongoing monitoring and training to keep your organization safe.
Why Does the FTC Safeguards Rule Apply to CPA Firms?
At first, the Safeguards rule applied primarily to banks, credit unions, and other large-scale financial organizations. However, in the quarter-century since the GLBA was passed, the FTC has expanded the definition of a financial institution.
Now, the FTC defines a financial institution as a business that participates in activities that are “financial in nature.”
This means that CPA firms and tax preparers are now subject to the Safeguards rule, even though they aren’t considered financial institutions in the traditional sense.
What Does the FTC Safeguards Rule Require of CPA Firms?
The FTC Safeguards rule requires organizations to have a comprehensive cybersecurity strategy in place to protect customer data from hackers and other digital threats.
FTC Safeguards requirements for CPA firms can be broken down into three broad categories: administrative, technical, and physical security measures.
Administrative Safeguards
Security breaches often occur when organizations lack proper administrative security protocols. Many of these incidents happen accidentally, such as when an employee unintentionally exposes sensitive customer information to a third party.
Although there is no malicious intent, this can lead to significant security issues for both clients and the business.
To mitigate these risks, the GLBA (Gramm-Leach-Bliley Act) requires administrative security measures as part of the FTC Safeguards Rule. These measures are crucial for ensuring compliance and maintaining client trust.
Access Control Protocols
A key administrative safeguard is establishing access control protocols. These protocols ensure that only authorized employees can access sensitive client information.
Strong password policies and multi-factor authentication (MFA) help keep unauthorized individuals out of your systems, reducing the risk of data breaches.
Regular Cybersecurity Training
Providing regular cybersecurity training for employees is another essential safeguard. Many accountants and CPA staff may not be familiar with basic digital security practices, even though they handle sensitive client data frequently.
Regular security training helps employees understand the importance of data security and equips them to protect it.
Training for All Employees
Cybersecurity training should be provided to all employees, regardless of their role or rank in your CPA firm. Training sessions should cover relevant security threats and how to respond to them. Phishing simulations and other practical exercises can further enhance employees' preparedness in real-world scenarios.
Incident Response Plan
In addition to ongoing training, the Safeguards Rule mandates that financial organizations have a written incident response plan in place for potential cyberattacks. All employees should be trained on the plan and know how to access it in case of an emergency.
Technical Safeguards
The FTC Safeguard rule also requires CPA firms to put technical safeguards in place to protect client data.
Encryption of Client Data
One of the most critical requirements is the encryption of all customer information. This includes both encrypted storage and the use of encrypted communication channels when transmitting information. Ensuring encryption is in place protects sensitive data from unauthorized access during both storage and communication.
FTC-Compliant Software
CPA firms must also ensure that all software programs used in the business are compliant with FTC standards. This includes accounting software as well as any other business tools.
Before incorporating a new software program into your operations, verify its cybersecurity standards to ensure it aligns with your compliance requirements.
Firewalls and Antivirus Software
Configuring your network with firewalls, antivirus software, and other protective measures is crucial to keeping unwanted traffic out. These tools act as the first line of defense against potential cyber threats and help safeguard your internal systems.
Safeguards for Remote Employees
If your CPA firm employs remote workers, additional technical safeguards are necessary. Remote work, especially when done over public Wi-Fi networks, presents unique security challenges.
In these cases, you must establish policies for accessing the network remotely and define what devices are safe to use.
Ongoing Monitoring
Finally, implementing continuous monitoring of your systems is essential for identifying and mitigating potential threats in real-time. This proactive approach allows you to catch threats before they escalate into data breaches, ensuring the security of your clients' information.
Physical Safeguards
Finally, the FTC Safeguards rule requires CPA firms to have physical safeguards in place at your workspace.
At minimum, this should include security for your front entrance, whether that means hiring a security professional, requiring access codes or badges from your employees, or both.
You should also have physical safeguards in place for any servers or other hardware you have on-site.
For example, servers that contain customer data should be kept in a separate room that only qualified members of your team can access. If you keep any hard copies of your client’s data, these should also be kept in a secure location.
How Can a Managed IT Service Provider Help Your CPA Firm Comply?
Many CPA firms don’t have the time or resources to handle cybersecurity compliance challenges in-house.
This is where a managed IT service provider can help. A managed IT service provider is an organization that provides technical support to your firm on a third-party basis. We can serve as your primary IT service provider or complement your in-house team.
Here are some of the ways a managed service provider can help your CPA firm comply with the FTC Safeguards rule:
- Risk assessment: Your managed service provider (MSP) will evaluate your current systems to identify cybersecurity risks and non-compliance issues, helping you develop a stronger cybersecurity strategy.
- Information security program development: After the risk assessment, the MSP will help create an FTC-complaint information security program, including network reconfigurations, new security tools, and policies, ensuring smooth implementation.
- Employee training: The MSP will provide regular cybersecurity training, helping your team recognize threats like phishing and malware, strengthening overall security awareness.
Ongoing monitoring: The MSP offers 24/7 system monitoring to catch threats in real-time, preventing damage and helping you know when to update your security strategy.
