As counsel to numerous professional firms and associations I am asked frequently about cyber risk.  As technology advances we have more and more information stored in electronic devices and in the so called “cloud.” Cyber risk is of particular concern for professionals like CPAs and attorneys because they have confidential client information like Social Security Numbers and financial information. There is no prohibition to maintaining our data electronically and particularly in the cloud, however, we must be aware of the risks and take reasonable precautions to protect our data and particularly our clients’ confidential information.  As professionals we must remember that our clients trust us and we have to make sure that trust is not misplaced.

Clients have an increased expectation that we are available 24/7 and that we have all their information at our fingertips to answer their questions and respond to their concerns. Therefore, we are more and more dependent on technology and storing more and more information, which is available remotely. This makes our data subject to increased cyber risk.  The first question is, are we prepared for the risk? Generally, the answer is that firms are
not.  They are not fully aware of the risk and are not prepared for it.  The second question is, are we prepared to respond to a breach of our data?  Again, generally, the answer is that firms are not.

Any size firm is subject to cyber risk.  The statistics are alarming.  Identity theft and security breaches are on the rise.  The cost to respond to a breach has been reported up to $204 per record with an average cost of $2.4 million per breach.  The cost to respond to a cyber-breach can be staggering.  The damage from a cyber-breach can be tremendous. Ignoring just the financial cost of responding, there may also be bad publicity, loss of productivity, and loss of reputation.

Now, I generally don’t use text messaging for work but where are those messages stored and how safe are they? 
When we are using technology we need to evaluate the risk and what if any safeguards are in place.  I just assume Verizon has those text messages secured on their end but what about my phone? If my phone is stolen everything that I have texted and not deleted is open for reading.  But do I have access to wipe the phone’s memory remotely? 
These are questions we need to know about all our devices.  Do we have an inventory of all the devices that are subject to cyber risk?  (Every server, desktop, laptop, iPad, cell phone etc.)  And not just company owned devices, but also personal devices that have access to company data.  Do we have an inventory of the types of data on each device? (Documents, emails, contact information, texts etc.)  Do we have an inventory of what data of each type on each device?  Without all this information, we can’t fully appreciate the cyber risks involved.

Of course, there is insurance available to help with some of the risk.  From a professional firm’s standpoint, insurance is about spreading or lessening risk.  There are several types of policies available and I suggest any firm consult with their insurance broker about the type of insurance that might work best for them. Fortunately, this type of insurance is not expensive, because although incidents are on the rise, there is a relatively low incident rate.  Unfortunately, as touched on above, the losses can be extremely high, so be careful that your policy will cover the full extent of the loss.

 The reality is that professional firms need to spend time addressing their cyber risk.  They need to catalog their data and determine action plans to prevent the loss of data and to respond to any loss. I recommend you address these issues immediately in consultation with your computer experts, your insurance broker, and your attorney.

Since posting this blog, the following exchange took place in LinkedIn which you may find helpful:

Jeffrey - it is far less costly and much more effective to implement appropriate (i.e., cost vs countermeasures; reduction of risk to an acceptable level) information system security policies, procedures and countermeasures than purchase insurance policies. Properly implemented, an adequate IS security program will obviate the need of additional insurance and go much further to prove prudent managerial action (for litigation). This is not just a technical issue as most incidents involve human behavior (both authorized insiders as well as non-authorized  outsiders). Also - there is a slight (but very important) differences in implementing risk mitigation for information system incidents versus disaster recovery planning. The IS security profession has been around for several decades and some very well-regarded professional certification systems are now key (e.g., CISSP, GIAC). There are even a couple LinkedIn groups for this.

My Response
Thanks for the additional information.  I completely agree that appropriate information system security policies, procedures and countermeasures must be implemented.  But I'm not sure there is an acceptable risk level.  This is particularly true for associations and depends upon what confidential information an organization or company maintains.  That is why I think everything should be assessed and considered.

Further comment
If there is no acceptable level of risk, no firm has enough resources nor are there enough countermeasures available.   Here is synopsis of information system controls viewed to be critical:

My Response
That is an excellent list! Thank you for sharing it.  I think we agree on this.  My point is that there is no one level of risk that is acceptable across the board and each company must assess the risk.  There are far too many variables.   Even if a company does everything listed, there remains a risk. For some companies I believe that risk is too great to not purchase insurance but that is why a complete assessment is needed.  From everything I have read on the subject the data cannot be completely protected if it is to be accessible and usable.  At that point, what confidential information is contained in the data will certainly be a factor.  Lawyers and CPAs whom I represent maintain social security numbers and a lot of other extremely confidential information.  A data breach would be extremely expensive and the firm should decide ahead of time
what risk they will take and whether they will insure it. 
Unfortunately, Many companies do not know the risks and take no
comprehensive action.