How Tax and Accounting Firms Can Stay Within Privacy Laws

Tax and accounting firms handle a wealth of sensitive client data, making compliance with privacy laws a legal necessity and a critical aspect of maintaining trust and reputation.

If you’re in the business of crunching numbers, you know how vital it is to stay one step ahead of the game when it comes to safeguarding your clients’ information.

Let’s break it down and make it easier for you to navigate the complexities of privacy regulations.

Privacy Laws Relevant to Tax and Accounting Firms

Regulations to protect personal data are like a patchwork quilt. While each piece is unique, they provide a unified method for keeping personal data safe.

As a tax professional, you’re not just number-crunching; you are handling sensitive material. Here are the major players on the block.

1. General Data Protection Regulation (GDPR)

GDPR is the governing law for data protection and privacy in the European Union. It enlists stringent laws for the protection of personal data. Even if your office is across the Atlantic, as long as you handle EU clients, GDPR is relevant.

2. California Consumer Privacy Act (CCPA)

Focused on consumer rights in California, CCPA mandates transparency and control over data usage, including the right to know, delete, and opt out of the sale of their information. It’s a wake-up call for anyone working with clients in the Golden State.

3. Gramm-Leach-Bliley Act (GLBA)

The GLBA was introduced to protect US consumers’ financial data. Therefore, financial institutions based in the U.S., including tax firms, must safeguard nonpublic personal information, according to the GLBA. The Safeguards Rule of the Gramm-Leach-Bliley Act (GLBA) requires financial institutions to have a written information security plan (WISP).

4. HIPAA

HIPAA (Health Insurance Portability and Accountability Act) was introduced to safeguard US citizens’ personal health information (PHI).

If your firm handles tax information related to medical expenses or insurance, HIPAA may apply, requiring stringent protections for health-related data.

A. Follow Data Minimization To Protect Client’s Confidentiality

Data minimization is a core principle of privacy laws, emphasizing collecting and retaining only the information necessary for specific purposes. “Less is more” isn’t just a saying; it’s a golden rule regarding data minimization. Tax and accounting firms can adopt these practices to enhance client confidentiality:

1. Conduct Data Inventories

Go through your data collection process with a fine-tooth comb. What data, really, do you need to get the job done? Don’t store anything except that. Automated data mapping tools can help you simplify this task.

2. Limit Access

Not everyone in your business needs access to information that would have wide implications if mishandled. Role-based access controls let you make sure just the right people handle sensitive data.

3. Secure Disposal

Shredding hard copies and digital wiping aren’t luxuries; they’re necessities. Any improperly disposed documents can cause massive legal headaches for your company.

4. Regular Updates

Keep your data retention policies as fresh as your morning coffee. Legal requirements and client agreements change–so should your practices.

By minimizing data, you reduce the chances of being breached. It’s like cleaning out your closet—but for compliance. A clutter-free approach ensures you’re in the clear when auditors come knocking.

B. Use Data Encryption To Protect Sensitive Data

Encryption is the process of converting your data into a form that is incomprehensible to any malicious hacker trying to get access. With cybercriminals constantly evolving, encryption is now not just a safety net – it’s your first line of defense. Here’s how encryption secures your clients’ sensitive data:

Data in Transit: Imagine your data as a letter—encryption is the envelope that keeps it private in the mail. Whether you email tax forms or share files through cloud storage, encryption ensures the data remains confidential.

Data at Rest: Not only in transmission, encryption also encodes data while at rest, i.e., stored in a device. This ensures even if the hacker breaks into your network, the data is still secure.

Alignment with Compliance Regulations: Encryption is mandatory for many forms of privacy law, be it GDPR or GLBA. Failure to do so can result in huge penalties.

C. Implement a Privacy Impact Assessment (PIA)

Think of a PIA as a health check for your data processes. This states what personally identifiable information (PII) is collected and explains how that information is maintained, protected, and shared.

Here’s how to get it right.

• Scope: What are we doing? Who is participating in what capacity? Get some details nailed down first, and then start moving ahead.
• Data Mapping: You must follow the data – where it comes from, how we process it, and where it is stored.
• Risk Assessment: You must keep your eyes open for red flags from breaches to unauthorized access.
• Mitigation Strategies: Develop actionable steps to address identified risks, such as improving encryption or updating policies.
• Documentation and Review: Don’t just keep notes; review them periodically. Risks change, and so should your strategies for dealing with them.

PIAs are beneficial and act as a mark of care and diligence that clients welcome.

D. Ensure A Proper Client Communication

Let’s face it: clients want to know their data is safe. Transparent communication isn’t just polite- it’s essential. Here’s how to get it right:

• Privacy Notices: Be open and up-front about things. Tell clients exactly how their data will be used, stored, and protected.
• Consent Forms: Get the go-ahead before gathering or processing data in any way.
• Data Breach Notifications: If something goes wrong, don’t hide it. Tell clients immediately and explain what steps you are taking to fix it.
• Education and Awareness: Provide clients with information on their rights and the precautions you take to protect them. An educated client is a satisfied client – and a satisfied client stays put.

E. Buy A Cyber Insurance

Even the best-laid plans for tackling cyber risk can sometimes hit a snag. This is where cyber insurance comes into play. It’s like your fallback position. Here is how cyber insurance can help you.

• Data Breach Insurance: Be it the costs of investigations or litigation, this has got you covered.
• Business Interruption: Time off is costly. Cyber insurance will keep that from happening to you financially.
• Regulatory Fines: Privacy laws don’t mess around. Insurance can soften the blow of hefty penalties.
• Access to Experts: Cyber incidents are no time for DIY solutions. Insurance connects you with pros who know their stuff.

Cyber insurance can help you keep your company afloat during a major cybersecurity event. However, choosing the best cyber insurance provider and policy is also important. Conduct thorough research before you choose the right provider for your business.

Compliance Is a Continuous Commitment

Adhering to privacy laws is not a one-time event – it’s a marathon. It involves embracing robust data minimization principles, using encryption, conducting PIAs, opting for cyber insurance, and building a culture of open communication. Moreover, staying aware of emerging regulations will prepare you for whatever comes your way.

Ace Cloud Hosting offers risk and compliance services to help you stay ahead of all major data regulations and prevent non-compliance. Book a free consultation with our security experts today.