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Be very wary of emails requesting transfers of funds from hacked accounts.

We've recently seen two phishing scams that have resulted in fraudulent client fund transfers. While the amounts are typically not large (under $50,000), in both cases there were multiple transfers. The losses are different but the claims are essentially identical.

Each of our insureds received an email requesting transfer of funds, and in both cases the email requested that monies be wire transferred from their accounts to a Wells Fargo account. These fraudulent emails included significant identifiable personal details and signatures on faked transfer forms. Signatures were verified against signatures from other valid transfers and determined to be authentic -- so they thought.

In one case the bank asked for a phone number to verify the transfer as the transfer form was slightly hard to read (red flag). An email was sent to the hacked account requesting a cell number to verify the transfer. In an email response the sender asked if they could call the bank to verify, and this was allowed as the caller had the correct banking information, social security number and other personal identifying information details to convince the bank to move forward and transfer the funds.

Both of our insureds' clients have been asked to be made whole, and we are in the process of determining the liability associated with each claim.

With one of these claims, the bank clearly has some liability as it did not follow proper protocol and allowed a deviation of standards by accepting a “call in” as opposed to the “bank calling out.”

(Side note: both of these clients are longstanding, very profitable accounts, and our insureds are trying to mitigate damages to maintain the relationship.)

OK, now that you have read the claim summary what’s next? Your office needs to take steps to reduce your liability while protecting and safeguarding your clients’ bank accounts.

Here are several steps that you should incorporate into your due diligence internal controls:

1. Email requests must be verified by a second means of verification. In many cases a text message to a cell phone can insure some protection. The theory is that hacked email accounts are usually done from a far (Russia, China, West Africa), and the hackers would not be in possession of the cell phone. Additionally, the text message could include a request for an additional identification password that may not be known by hackers (for example, frequently we see questions like name of their dog or name of their high school). Also often emails have been hacked weeks before the owner becomes aware, and the hacker waits to gather information to be used fraudulently. On the other hand if your cell phone is missing for more than four hours you start to panic and take steps to prevent misuse.

2. Be suspicious and examine emails closely, looking for ‘red flags’ such as misspelled words, forms that appear to be scanned and are slightly illegible, salutations that are not consistent with other email correspondence. In some cases a word seems out of place or used incorrectly. In other cases our insureds received numerous follow-up emails asking for details on when exactly when the transfer was completed which showed a level of desperation.

3. Include internal protocol procedures stipulating that your employees to have a second person review and sign off. If possible include the key person in the office that has the relationship with the client, as they may have more personal knowledge of the client and sense a fraudulent request.

4. For larger transfers, elevate the due diligence, requiring absolute second live verification before transfer of funds.

5. Consider adding language to the engagement letter that states you will make every effort to verify transfers, and in cases where you are unable to verify the validity of the transfer you will refuse until satisfied that it is an authentic request.

By incorporating these preventative measures, you could thwart criminal fraud and you are building your defense should the fraud occur.

As an insurance agent we deal with applications every single day, yet, when I have to fill one out, I have the same reaction as my insured’s, “I hate applications”.

However there are times when an application is a good thing, like a cyber-application.

The cyber application is designed to ask risk management questions that hopefully provide some insight on cyber exposures.

For example: How often do you change passwords?

The majority of answers is anywhere from 90 days to once a year by most applicants.

So what is the best answer? Monthly

We all get careless with passwords and we are never sure if they have fallen into the wrongs hands.

Changing passwords monthly insures a better risk management landscape it also makes employees responsible for managing their passwords and not used as afterthought.

The main reason for not changing passwords is “I have so many” and “I can never remember them” however in reality this is more consistent with passwords that you may only use once in a while. To help safeguard your business network, passwords should be used every time you log on. One common error when choosing passwords is the employee uses the same login as their personal bank account or Amazon account.

This now puts the business at risk when any other of their personal accounts are hacked and the hacker goes phishing for other easy computer systems connected to that individual.

Let’s look at a recent case of password hacking. Employee Alice, Facebook account was taken over without her knowledge and they used this information to gain access to her Amazon account where her credit card information was stored. Alice’s G-mail account was the next hacking opportunity using personal information they were able guess her password using a combination of personal information and birth date.

Alice had several work e-mails in her personal account so they now went after her work e-mail, the first password used on her employer system was her Gmail account password and instantly they are now in the company’s server.

Hackers know that people re-use or use one password for many applications (log-ins). With Alice’s work e-mail account accessible a series of e-mails were sent pretending to be Alice to capture additional confidential information. Think about a co-worker sending e-mail requesting information that appears to be a legitimate e-mail, most of us would respond. In this case human resources was sent e-mail asking for her personal banking information, explaining that her direct deposit account was hacked and she need to change the account prior to the next pay period.

Fortunately there was no theft of funds and the HR person called Alice and the jig was up. However that was not the end of the story for Alice’s company. The company was concerned that their data may have been compromised and brought in an outside forensic IT company to ascertain any data breaches. Calls were also made to their attorney to review if this was a reportable event to state regulatory agencies.

All company passwords were changed and remote access from outside employees was shut off. It was several long days before the business was back to normal. Although the company escaped any real threat, there were still significant costs incurred not including lost employee time and production.

Alice was able to notify all her credit cards and banking relationships and re-establish her social media accounts. Hundreds of fake e-mails were sent posing as herself to friends and family and several months later she is still monitoring all of her accounts closely.

The moral of the story, employers need to carefully monitor passwords. Passwords should have all of the following attributes:*

• At least 10 characters long

• A mix of lower case, upper case, and non-alphabetic characters and numbers

• No words found in the dictionary (English or a foreign language)

• No more than two consecutive characters

• No common names, terms

• No simple pattern

In conclusion: changing passwords every 30 days helps mitigate potential access. Establishing rules against employees using work passwords for personal use is strictly prohibited. Training employees to protect and secure passwords is one way to try and avoid hacking incidents. So when the cyber applications asks the question how often do you change passwords, and the first answer is 30 days, consider reflecting on the answer from a risk prospective position.

*Taken form the Cyber and Data Security Handbook written by Eric Hess, July of 2015 for NAPLIA

With an increase in Cyber exposures and cyber claims against CPA firms, CPAs need to be aware of the strategies to minimize these risks and ensure that the strategies are legal. There are both national and international laws governing the ways in which firms combat cyber exposures. The article below explains the added exposures that may result from not knowing the laws. 

http://www.forbes.com/sites/jodywestby/2012/11/29/caution-active-response-to-cyber-attacks-has-high-risk 

The Computer Crime and Security Institute has estimated that as many as 43% of US businesses experience some level of cyber security incident.  The cost of a cyber incident to your firm can be calculated in claims and lost wages.  In addition, with more than 46 states having State Security Breach Laws, client notification costs can be significant ($5 - $10 per client).

What can't be measured is the cost to your brand.  According to Ponemon Institute 2010 global costs of a data breach, the value of brand and reputation can decline 17% - 31% after a breach.  In addition, it can take over a year for an organization to recover it's corporate image.

Having a formal security breach plan in place can assist you in informing your clients the steps you have taken to protect their data in the event of a loss.

For more information download our White Paper on Information Security & Cyber Liability: Essential Steps to Protecting your Firm

When evaluating the potential cost of a data breach we have previously referenced the direct first party costs incurred by a firm as $5 to $50 per client.

Further information provided by the Ponemon Institute estimate this cost to likely be closer to $214 per record.  The Ponemon Institute conducts independent research on privacy, data protection and information security policy. 

Their research estimates direct costs of $73 per record.  Direct costs may include forensic, notification, call center, credit monitoring, victim assistance, legal defense costs, and breach consulting.

However, they further consider the indirect costs of diminished customer trust as approximately $141 per record.  This creates a total potential cost for a data breach of approximately $214 per record, not factoring any potential Errors & Omissions claims related to to the breach. 

According to a recent report by the Georgia Tech Information Security Center, Emerging Cyber Threats Report 2012, Cyber threats against personal information [data] continues to evolve.  We will see advances in the sophistication and implementation of attacks in the near future.

As a professional who maintains personally identifiable information (PII) of your clients it is essential to be aware of these new and emerging threats, and take possible steps to safeguard your data.

Some of the areas cited in the report include:

• Mobile Phones / browsers. 

There are currently four billion mobile phones in use around the world and mobile Internet is expected to outpace desktop Internet usage by 2014 (http://www.digitalbuzzblog.com/2011-mobile-statistics-stats-facts-marketing-infographic/ ).  Characteristics of mobile browsers create a new platform to introduce threats to data, as well as, potentially bypass existing firewalls and other security measures.

•  Botnets

Botnets have been around for a long time but they continue to evolve.  PII is big business and this means increasingly sophisticated processes to access information.  Botnets have gone from targeting small pieces of data to creating complex demographic models that can potentially be sold into legitimate markets.

• Online Information

We live in the digital world and more business and personal interaction is transacted online than ever before.  Marketers continue to expand the way our personal information is utilized to “control” our online experiences.  In addition, attackers are now capitalizing on search engine optimization (SEO) to increase rankings and, therefore, credibility.

• Technology Advances

Advances in technology that enhance the way we conduct business also increase our potential exposure.  Cloud computing creates new exposures that were previously addressed through physical servers.  However, human error, education, and weak passwords continue to create the most vulnerability.

You can read the whole report here.  It is not necessarily possible to understand all of the exposures created through enhancements in technology.  However, broader education creates awareness to avoid potential disasters.

If you have not already, download NAPLIA’s recent White Paper on Information Security: Essential Steps to Protecting your Practice.

According to a recent newsletter from Willis, data production is growing at an exponential rate (currently compound annual 60%) and that claims for data theft worldwide jumped 56% last year.  

In our experience, questions regarding insurance coverage for data security and identity theft are increasing daily.  Professional liability policies are intended to cover errors or omission in the delivery of professional services.  The question that often arises is, if data is lost or stolen outside the office (i.e. theft of a laptop computer) is there a connection to the delivery of professional services?

In addition, first-party expenses often triggered by state security breach laws are generally not covered under a professional liability policy.  This is the direct cost of client notification and credit monitoring that can run between $5 - $50 per client.

Download NAPLIA's White Paper on Information Security & Cyber Liability to learn more about essential steps to protecting your firm.