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Forensic Accounting

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Evaluate the obligation Flayton Electronics has to its customers to protect their private data. Flayton Electronics does have a moral and legal obligation to its customers to protect their private data. Section 5 of the Federal Trade Commission Act, prohibits deceptive and unfair trade practices. Under the FTC Act, businesses must handle consumer information in a way that is consistent with their promises to their customers such as what they say in their online privacy policy, and avoid data security practices that create an unreasonable risk of harm to consumer data. Other federal laws may affect a company’s data security requirements, including the Health Insurance Portability and Accountability Act (HIPAA), which applied to health data; the Family Educational Rights and Privacy Act (FERPA), which apply to student records; and the Driver’s Privacy Protection Act (DPPA), which applies to information maintained by state departments of motor vehicles. As concerns over identity theft and data security have increased, many states have passed laws or regulations to protect their citizens. In addition to complying with federal laws, businesses should look to state laws to make sure they are in compliance (Kappler 2007). The Federal Trade Commission Act has tried to develop a single basic standard for data security that strikes the balance between providing concrete guidance, and allowing flexibility for different businesses’ needs. The standard is straightforward: Companies must maintain reasonable procedures to protect sensitive information. Whether your security practices are reasonable will depend on the nature and size of your business, the types of information you have, the security tools available to you based on your resources, and the risks you are likely to face (Kappler 2007).
If you were the CEO, develop the communication strategy you would take to notify the customers of the potential security breach.
As a CEO I would follow the strategy my organization has put in place for potential breach. Due to the possibility of lawsuits, I would alert the customers right away and make sure my company remains prudent as suggested by law enforcement. However, either procedure can turn good or bad for the company. Alerting all customers opens the potential for dishonest customers to stage being a victim of a financial crime when they are not. Thorough investigations require law enforcement agents to have an unlimited surplus of funds, ensuring the investigators can go complete the investigation. For example, the regulations, developed by OCR, require health care providers and other HIPAA covered entities to promptly notify affected individuals of a breach, as well as the HHS Secretary and the media in cases where a breach affects more than 500 individuals. Breaches affecting fewer than 500 individuals will be reported to the HHS Secretary on an annual basis. The regulations also require business associates of covered entities to notify the covered entity of breaches at or by the business associate. “This new federal law ensures that covered entities and business associates are accountable to the Department and to individuals for proper safeguarding of the private information entrusted to their care. These protections will be a cornerstone of maintaining consumer trust as we move forward with meaningful use of electronic health records and electronic exchange of health information,” said Robinsue Frohboese, Acting Director and Principal Deputy Director of OCR. The regulations were developed after considering public comment received in response to an April 2009 request for information and after close consultation with the Federal Trade Commission (FTC), which has issued companion breach notification regulations that apply to vendors of personal health records and certain others not covered by HIPAA (HHS.GOV). Consequently, there are no way of ever absolutely pinpointing customers who were victims of identity theft information was stolen through the company‘s faulty technology. Identity thieves are experts at bypassing all of the modern technologies. More often than not, information is leaked through a series seemingly innocent conversation.
Determine the extent to which Flayton Electronics’ brand was damaged by the security breach.
Flayton Electronics brand did suffer damages but the actual extent of the damages cannot be calculated, since the real victims are yet to be identified, and the stolen information can be used at any point and time. Flayton should find the best compromise way to communicate to its customers and public statements must be not only accurate, but sincere, contrite, and honest. CEO Brett Flayton should develop a brand restoration strategy by notifying the affected customers rapidly, set up toll-free information hotlines, and offer credit-monitoring services. Also, Flayton needs people on hand with the digital expertise to match with cyber criminals to come up with the new effective data security systems. To handle any kind of cyber situation or criminal that might occur in the future, Flayton should reduce the risk for future thefts by closing any data transaction loopholes and testing the new ones which are set in place (Pisello, 2011).
To prepare for such security breach, an organization must be able to respond to any threats of breach that threatens their critical data because an unforeseen security breach can have devastating consequences for an organization, such as data corruption, identity theft, brand damage and loss of business. For Flayton Electronics to reduce unnecessary business disruptions, they need to be ready to quickly respond to and manage unanticipated security incidents. Lack of experienced and reliable staff and a proper incident response plan can prolong the incident and impact to the business, possibly exposing you to additional liability. A fast response to a potential data breach can reduce damages and improve recovery time and lower cost.
Recommend procedures that Flayton Electronics should take to prevent future security breaches. Flayton’s CEO must develop a brand-restoration strategy. The company should, as first, notify the victims promptly, setup toll-free information hotlines, and offer credit-monitoring services. Subsequently, they must surpass these fundamental bases with a broad range of perks to keep customers loyal: Offer discounts and sales, meet with critics of the company, and develop and promote new web pages that out-line reforms in the firm’s policies and practices. Communication will also need to be developed to demonstrate responsiveness to developments or else risk that the words of company executives will be perceived as just corporate lip service. Tone is very important. Public statements must be not only accurate, but sincere, contrite, and honest. Flayton’s will also have to address the influence of blogs, viral videos, and other social media. Such user-generated content, unfiltered by traditional journalists and accessible by anyone using an online search engine, is often a mode of recruiting lawsuit plaintiffs and airing personal grievances. Finally, Brett and his team will need patience in spades. The problem will not go away when the headlines do. Mitigating the effects on brand and reputation will take, I estimate, three to five years. Flayton’s has a long road ahead (Lee, 2010). Work Cited:
Kranacher, M., Riley, R. A., & Wells, J.T. (2011). Forensic Accounting and Fraud Examination. Hoboken, NJ: Courier Westford.
Burke Kappler is an attorney in the FTC s Bureau of Consumer Protection who specializes in data security investigations and enforcement. October 2007. Retrieve from: http://business.ftc.gov/documents/art08-protecting-personal-information-know-why ( james.lee@choicepoint.com) is the senior vice president and chief public and consumer affairs officer at ChoicePoint, based in Alpharetta, Georgia. Retrieve from https://365.rsaconference.com/servlet/JiveServlet/previewBody/1872-102-1-2358/BUS_201_HBR_Case.pdf http://www.hhs.gov/ocr/privacy/hipaa/understanding/coveredentities/breachnotificationifr.html http://www.securitymanagement.com/article/there-business-case-it-security

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