You might wonder, “Why would a hacker target my small firm when they could go after a big bank?” The answer lies in the data you hold. Cybercriminals view accounting firms as “honey pots.” Large banks have fortress-like security budgets, but small to midsize CPA firms often have valuable data protected by weaker defenses.

To defend your firm, you must understand what you are fighting. The threats today are sophisticated, automated and relentless. Here is what the landscape looks like for a New Jersey CPA.

Phishing and Social Engineering

This is the most common way hackers get in. It does not require advanced coding skills; it just requires tricking a human. Phishing involves sending fraudulent emails that appear to come from a legitimate source, such as a client, a software provider (like QuickBooks) or the IRS. Here are the various kinds:

• Email impersonation: A staff member might receive an email that looks exactly like it came from a long-time client asking to change their direct deposit information for a tax refund.
• W-2 scams: During tax season, scammers often impersonate a CEO or CFO, emailing the payroll department or external CPA to request a list of all employee W-2s. If the CPA replies with the file, the scammers file fraudulent returns immediately.
• IRS-themed phishing: These emails claim a tax return was rejected or an audit is pending, urging the recipient to click a malicious link to “resolve the issue.”

Ransomware Attacks

Ransomware is the nightmare scenario for any accounting firm. In these attacks, malicious software locks your computers and encrypts your files. You cannot access your tax software, your client lists or your email. The hackers then demand a payment (ransom) to unlock the files. These factors need to be considered:

• They target small firms. Hackers know that during tax season you cannot afford downtime. They time these attacks for maximum panic, often in March or April.
• There are consequences. Beyond the ransom cost, you face business downtime, permanent data loss if backups fail and severe reputation damage.
• Regulatory repercussions exist. A ransomware attack is often considered a data breach, which triggers legal reporting requirements.

Cloud Security Risks

Using cloud tools like Xero, QuickBooks Online or cloud-based tax prep software is standard practice now. However, the cloud is only as secure as the settings you configure. Consider these realities:

• Vulnerabilities: If you use weak passwords or fail to update your software, the cloud becomes vulnerable.
• Third-party exposure: You are entrusting data to third-party vendors. If they get hacked, your data may be exposed.
• Misconfiguration: Simply checking the wrong box in a permission setting can inadvertently expose client files to the public internet.

Data Privacy Obligations

When a breach occurs, the problem isn’t just IT — it becomes legal. New Jersey CPAs must navigate a complex web of state and federal regulations. Ignorance of these laws is not a valid defense. New Jersey has strict consumer protection laws that apply to any business operating in the state:

• New Jersey Identity Theft Prevention Act: New Jersey law allows consumers to place security freezes on their credit reports and requires businesses to securely destroy records containing personal information when no longer needed, such as by shredding or digital wiping.
• Breach notification: Under the New Jersey Consumer Fraud Act, if you experience a breach that exposes personal information (like a name combined with an SSN), you must notify the affected clients. You also must notify the New Jersey State Police. Failure to report promptly can result in significant fines.
• Safeguarding PII: You are legally required to implement reasonable measures to protect personally identifiable information (PII).

IRS and Federal Requirements

The federal government is increasingly aggressive about data security for tax professionals. The following spell out the requirements:

• IRS Publication 4557: This document, “Safeguarding Taxpayer Data,” is essential reading. It outlines key recommendations for tax professionals to secure their offices and computers.
• FTC Safeguards Rule: The Federal Trade Commission (FTC) recently updated its Safeguards Rule. If your firm engages in certain financial activities (which many tax preparers do), you are classified as a “financial institution” under the law. This requires you to have a written information security plan (WISP).
• GLBA relevance: The Gramm-Leach-Bliley Act (GLBA) mandates that financial institutions explain their information-sharing practices to their customers and safeguard sensitive data.

Beyond the law, you have a duty to the profession. The American Institute of CPAs (AICPA) has clear standards:

• Confidentiality: The AICPA Code of Professional Conduct requires members to protect client information. A cyber breach due to negligence can be viewed as a violation of these ethical standards.
• Due care:. You are expected to exercise due care in the performance of professional services, which now includes ensuring the security of the digital tools you use.

Risk Management Strategies for CPA Firms

Knowing the risks is the first step. Mitigating them is the second. You do not need a million-dollar budget to secure your firm. Here are practical, actionable strategies.

• Implement strong cybersecurity controls. Technology is your first line of defense:

• Multifactor authentication (MFA): This is non-negotiable. You must enable MFA on email, tax software and cloud storage. MFA requires a second form of verification (like a code sent to your phone) to log in. It stops 99% of credential-based attacks.
• Secure VPNs: If you or your staff work remotely, never connect to public Wi-Fi without a virtual private network (VPN). A VPN creates an encrypted tunnel for your data.
• Updates: Enable automatic updates for your operating systems and software. Hackers exploit known holes in old software; updates patch these holes.
  
  

• Secure client communications. Email is inherently unsecure. It is like sending a postcard; anyone along the delivery route can read it. These need to be implemented:

• Create client portals. Stop emailing tax returns and W-2s as attachments. Use a secure client portal (like those offered by ShareFile, SmartVault or TaxDome) where clients must log in to retrieve documents.
• Use encrypted email. If you must use email for sensitive info, use an encryption service that requires the recipient to authenticate before reading the message.

   

• Manage vendor and cloud risk management. You are responsible for the vendors you choose. Remember to do the following:

• Evaluate providers. Before buying software, ask about its security. Do they have SOC 2 certification? Do they encrypt data at rest and in transit?
• Have a disaster recovery plan. Ensure your cloud vendor has a backup plan. If their server goes down on April 14, what is the contingency plan?

Incident Response Preparedness

Assume you will be breached. How will you react?

• The plan: Every CPA firm needs a Written Information Security Plan (WISP). This document details exactly who to call (IT support, legal counsel, insurance, breach coaches) if an attack happens.
• Key elements: Your plan should cover detection (how do we know?), containment (pull the plug!), recovery (restore backups) and communication (notify clients/IRS).
• Cyber insurance: General liability insurance rarely covers cyberattacks. You need a dedicated cyber liability insurance policy to cover legal fees, ransom payments and forensic investigations.

The Future of Cyber Risk for CPAs

The landscape is not static. As technology evolves, so do the threats:

• AI-driven attacks: Hackers are now using artificial intelligence to write perfect phishing emails without typos or grammar errors, making them harder to spot. Deepfake technology is also being used to mimic the voices of CEOs or clients in phone scams.
• Regulatory scrutiny: Expect the IRS and state boards to get tougher. We are moving toward a world where cybersecurity compliance will be checked just as rigorously as tax compliance.
• Advisory opportunities: Clients are scared, too. There is a growing expectation for CPAs to not only secure their own data but to offer guidance to business clients on financial controls and data protection.

Cybersecurity and data privacy are no longer just “IT problems” — they are core components of running a CPA practice in New Jersey. The digital tools that make your work efficient also require you to be vigilant.

By understanding the threat landscape, adhering to New Jersey and federal privacy laws, and implementing the risk management strategies outlined above, you can build a fortress around your firm. Take proactive steps today to protect your livelihood, your reputation and your clients.