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Tue, Sep 13, 2022
Ignorance Is Bliss
How CFOs Are Responding
Our CFO cybersecurity survey has shown that Chief Financial Officers are highly confident in their companies’ abilities to ward off cyber security incidents, despite being somewhat unaware of the cyber vulnerabilities their business faces. Almost 87% of the surveyed executives expressed this confidence, yet 61% of them had suffered at least three significant cyber incidents in the previous 18 months. Moreover, they admitted to being out of the loop: 6 out of 10 were not regularly briefed by the cyber team, and nearly 4 out of 10 had never received such an update, according to the survey conducted by Kroll and studioID of Industry Dive.
The CFOs also put a price tag on the cyberattacks they had suffered in the previous 18 months: between $10 million and $25 million for about one-third of companies who suffered a significant security incident, and more than $25 million for almost 16% of the companies. It is imperative that CFOs and their finance teams up their involvement in cyber investment, from planning to prevention and response strategies. Failing to do this leaves CFOs out of the loop on cyber issues and threatens the business with significant—and, critically, unexpected—financial consequences.
The survey polled 180 CFOs, CEOs and other financial executives worldwide, all of whom are involved with quantifying the financial impact of cyberattacks at their companies and with budget oversight or planning for information security. The survey shows a sharp disconnect between the confidence that CFOs have in their organizations’ cyber security abilities, and the actual, significant damage that cyber incidents are inflicting.
CFOs are overwhelmingly confident in their companies’ abilities to detect and respond to cyber incidents, according to the survey. More than 99% of the survey respondents are confident to some extent, including 87% who are very or extremely so. Yet most of the surveyed executives—61%—said their companies suffered at least three significant cyber incidents in the previous 18 months. What’s more, only 40% of finance teams receive regular briefings or updates from the information security team, and almost 37% have never received such an update. When you consider that 66% of Chief Information Security Officers (CISOs) in the State of Incident Response 2021 report thought that their organization was vulnerable and 82% said that the average organization in their industry was vulnerable to cyberattack, it is clear that confidence among security types is much lower.
The CFO overconfidence could indicate a larger problem: a lack of understanding of cyber risk and its consequences, which often weigh heavily on budgets. While more regular briefings and a closer alignment of the finance and security teams would undoubtedly raise visibility and the knowledge level around cyber risk, there are other potential reasons for the disconnect.
Only in recent years has it become commonplace to include security risks on the board-level agenda. If organizations haven’t made this transition, cyber risk can potentially be lost as part of the broader financial risk evaluation. Furthermore, if the board itself doesn’t have enough experience to fully understand cyber risk, the severity of this risk could be overlooked. This is something that is being regulated against in the U.S., with the U.S. Securities and Exchange Commission (SEC) requiring disclosure of the cyber expertise of boards.
To bring themselves into the loop on cyber security, CFOs should participate in cyber security planning at multiple layers in the company, including advising the board and as part of the company’s risk and audit committees. CFOs should be fully involved in crisis and incident response planning for cyberattacks. They should participate in tabletop exercises where a team can walk through a simulated cyber security crisis to map out how they would respond to a real attack. CFOs should also involve themselves in company cyber risk and governance discussions to become more knowledgeable about their companies’ cyber security strengths and weaknesses, and to help ensure they are both prepared and brought in quickly if a cyber incident occurs. Ultimately, this will enable them to understand the overall investment strategy around cyber and to evaluate financial risk and possible expenditures.
Nearly four out of five of the companies represented in the survey—79%—have had at least one security incident that resulted in compromised data or financial loss in the last 18 months. And that’s counting just high-severity cyber incidents—breaches where data is compromised or financial losses are incurred—not lower-level incidents. A worrying 13% have had more than 10 such significant incidents in the last 18 months.
The top cause of significant cyber incidents was business email compromise (BEC), experienced by 65% of the organizations represented in the survey. This indicates how important employees are in defending against cyberattacks, as they will be the target of BEC.
There is a possibility that BEC is magnified across our sample, because finance teams are particularly susceptible to BEC attacks, making it the most likely type of attack for them to experience firsthand. Finance team susceptibility to BEC attacks is due to them regularly receiving instructions to pay invoices or make company transactions, a common BEC scenario.
How many security incidents resulted in a compromise of data or financial impact at your organization over the past 18 months?
What type of incident led to compromise(s)?
Typically, fraudsters will send a phishing email from what appears to be a known source making a legitimate request—to wire money somewhere, for example. The victim is convinced that the request is legitimate and initiates the wire transfer to the cyber-attacker. In a variation of the scam, payment instructions are received from a third party that has been compromised, so the payment itself looks legitimate.
“79% of companies have had at least one security incident that resulted in compromised data or financial loss in the last 18 months”.
From the attacker’s point of view, BEC is a relatively easy scam with a high success rate. High-worth transaction requests are not unusual for the finance team. The scam also has a low barrier of entry as an attack method because no sophisticated coding or malware is necessary. Also, multiple transactions can build up quickly, adding to the potential value for scammers.
BEC is difficult to defend against because it is based on social engineering. While there are technical defenses that can be deployed, such as flagging external incoming emails and multifactor authentication, the most effective security precaution is building awareness of these types of scams among your workforce and providing mechanisms for flagging suspicious emails.
To defend against BEC, employees should be well educated on this type of scam and how to avoid it:
Be careful with the information you share online or on social media, and don’t click on unsolicited requests to update or verify account information.
Look up the company’s phone number—don’t use one provided by a potential scammer— and call to determine if a request is legitimate.
Carefully examine the email address, URL and spelling, never open email attachments from an unknown sender and treat urgent requests with suspicion.
Set up multifactor authentication where allowed, making it harder for attackers to gain access to an account, even if credentials are stolen.
Next on the list of top causes of significant cyber incidents were attacks arising from a vendor—also known as supply chain attacks—cited by 62% of the survey respondents, and publicly exposed databases, cited by 53%. Insider threats were the source of compromises for 41%.
Despite intense media coverage, organizations seemed to experience ransomware attacks less. Only 33% indicated ransomware as the cause of incidents in the last 18 months, the least of any cyber threat cited.
Companies suffer damage from cyberattacks across a wide spectrum of impact areas.
The survey identified the top financial impact coming from cyber and privacy counsel, followed by vendor costs related to forensic investigations. Next on the list were crisis communications, customer notification and credit monitoring costs, followed by insurance premium increases and ransom payment and negotiation costs as the fifth-most-cited impact.
And even though ransomware wasn’t high on the list of incident causes, CFOs still reported ransom payment and negotiation as one of the highest financial impact drivers.
Other tangible financial impacts cited from cyberattacks include strengthening cyber security following an incident, capital spending for hardware and software, borrowing costs, regulatory penalties, and loss of revenue. Intangible costs cited by the survey were impairment of brand, intellectual property or goodwill; loss of customers; and reputational damage.
Which of the following best captures the total financial impact of all security incidents in the last 18 months?
The survey shows that the cost of cyberattacks is significant, both in the dollar amount of damages and in their impact on company valuations. For organizations that had a security incident resulting in a compromise of data or financial impact in the past 18 months, nearly 9 out of 10 of them experienced a financial impact of more than $1 million, and more than 7 out of 10 of the executives say their companies suffered a loss of valuation of 5% or more following their largest cyber security incident in the last 18 months.
Cyber insurance is sometimes presented as a solution to cyber incident risk, but it should not be viewed as a catch-all. Many policies don’t cover all impacts from a cyber incident, and cyber insurance premiums and deductibles have increased exponentially. A well-rounded security strategy would include one or more carefully crafted cyber insurance policies as well as robust investments into technical controls and awareness training.
The survey offers some insights into what CFOs plan to spend on IT security in the coming fiscal year. Nearly half of the executives in the survey—45%—will increase their IT budget for information security by more than 10%. Gartner reports that financial services organizations spend 10–15% of their total IT budget on cyber security, which indicates that CFOs need to spend much more than they have perhaps forecasted. For outsourced cyber security services, nearly half of the respondents will increase their spending by more than 10%.
Approximately what percentage of the overall IT budget was dedicated to information security in the last fiscal year?
With regards to the next fiscal year, the percentage of the overall IT budget dedicated to information security will…
Currently, 75% of respondents outsource between 10% and 50% of their information security budget.
For many companies, the pandemic hit cyber security budgets hard, as security became too difficult and costly to handle in-house. Outsourced CISOs and virtual CISO advisory services can help develop strategies for preventing, detecting and mitigating cyber threats, either as an ongoing service or an interim service until a permanent CISO can be hired.
CFOs need to keep in mind that outsourcing does not absolve them of responsibility for cyber security. The CFO has a responsibility to understand the cybersecurity strategy—outsourced or in-house—because of the financial investment involved and the potential impact of an incident on company value and financial health.
Of the 180 CFOs, CEOs and other financial executives surveyed – all of whom were involved with quantifying the financial impact of cyber attacks at their companies and with budget oversight or planning for information security – nearly 60% were from North America, 20% from EMEA and 20% from APAC.
The U.S. Securities and Exchange Commission has proposed rules for publicly traded companies that would amplify CFOs’ role in cyber security. These rules would require reporting of cyber incidents and updates on previous incidents, reporting on policies and procedures to identify and manage cyber risks, reporting boards of directors’ oversight of cyber risk, management’s assessing and managing of cyber risk, and annual reporting on the board’s cyber expertise. The SEC’s focus on cyber security reflects how important this issue has become for shareholders and customers—it is one that CFOs need to pay particular attention to.
CFOs can turn the SEC requirements and other regulators’ requirements on cyber into more effective management of cyber risk by:
As the CISO role increasingly becomes more distinct from the CIO and IT department, a natural alignment should begin to form between the CISO and the CFO. With both concerned about risk, they can work together from both a strategy and investment perspective, as well as find a rhythm for how their combined response would work in an incident. Simulating incidents ahead of time builds the “muscle memory” of incident response, avoiding bureaucracy that could slow operations or risk further damage.
As part of an incident response plan, the CFO should know whom to call, what emergency funds they have available, and what legal steps they need to take when an incident occurs. For example, if a ransomware payment is necessary, it will lead to significant financial, legal and risk considerations for the business that should be well thought-out ahead of time. There are also practical questions to consider, such as the need for a cryptocurrency account or third-party engagement.
CFOs can help CISOs navigate the financial risks of cyber while meeting key business metrics such as profit margin and operational efficiency. Part of the CFO’s cyber responsibilities lie in measuring the financial impact of potential and actual cyber incidents. Besides the costs of money or stolen data, response, restoration and recovery costs need to be considered, as well as the funds needed to improve cyber resilience for the future. There are also further losses to incorporate around reputation, customer attrition and company value.
With the tactical response underway, the CFO can keep an eye on wider business goals, with a sense of what “good” looks like in terms of the financial overhead of an incident response.
As cyber security takes on more importance for a company—impacting operations, revenue and costs, reputation, and company value—so does the financial risk of cyberattacks. Judging by the survey results, CFOs are out of the loop when it comes to cyber planning. To engage, they need to participate at multiple levels, from tabletop exercises for simulated cyberattacks to close coordination with CISOs in advising and participating in audit and risk committees at the board level. Cyber risks and their consequences are ever evolving, and CFOs’ understanding of them must be as well.
At a time when cyberattacks are rife and continue to cause millions of dollars in costs while shaving off company value, failing to become involved in cyber security would be a misstep by the CFO, one that needs to be rectified fast.
studioID of Industry Dive, in partnership with Kroll, surveyed senior finance executives to determine how cybersecurity is impacting finance at their organization. More specifically, we asked 180 finance leaders across industries about their confidence in their organization’s ability to detect and respond to cyber incidents, how many cyber incidents they’ve encountered, and the impacts, both tangible and intangible, of these incidents on their organization.
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