HR Block 2010 Annual Report Download - page 25

marketing purposes. Although we have established security procedures to protect against identity theft, breaches
of our clients’ privacy may occur. To the extent the measures we have taken prove to be insufficient or inadequate,
we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties
or damages and harm to our brand and reputation.
In addition, changes in these federal and state regulatory requirements could result in more stringent
requirements and could result in a need to change business practices, including how information is disclosed.
Establishing systems and processes to achieve compliance with these new requirements may increase costs
and/or limit our ability to pursue certain business opportunities.
We are subject to operational risk and risks associated with our controls and procedures, which may
result in incurring financial and reputational losses.
There is a risk of loss resulting from inadequate or failed processes or systems, theft or fraud. These can occur in
many forms including, among others, errors, business interruptions arising from natural disasters or other events,
inadequate design and development of products and services, inappropriate behavior of or misconduct by our
employees or those contracted to perform services for us, and vendors that do not perform in accordance with
their contractual agreements. These events could potentially result in financial losses or other damages. We utilize
internally developed processes, internal and external information and technological systems to manage our
operations. We are exposed to risk of loss resulting from breaches in the security or other failures of these
processes and systems. Our ability to recover or replace our major operational systems and processes could have a
significant impact on our core business operations and increase our risk of loss due to disruptions of normal
operating processes and procedures that may occur while re-establishing or implementing information and
transaction systems and processes. As our businesses are seasonal, our systems must be capable of processing
high volumes during peak season. Therefore, service interruptions resulting from system failures could negatively
impact our ability to serve our customers, which in turn could damage our brand and reputation, or adversely
impact our profitability.
We also face the risk that the design of our controls and procedures may prove to be inadequate or that our
controls and procedures may be circumvented, thereby causing delays in detection of errors or inaccuracies in
data and information. It is possible that any lapses in the effective operations of controls and procedures could
materially affect earnings or harm our reputation. Lapses or deficiencies in internal control over financial
reporting could also be material to us.
TAX SERVICES
Government initiatives that simplify tax return preparation could reduce the need for our services as a
third-party tax return preparer. In addition, changes in government regulations or processes regarding
the preparation and filing of tax returns may increase our operating costs or reduce our revenues.
Many taxpayers seek assistance from paid tax return preparers such as us because of the level of complexity
involved in the tax return preparation and filing process. From time to time, government officials propose
measures seeking to simplify the preparation and filing of tax returns or to provide additional assistance with
respect to preparing and filing such tax returns. The adoption of any measures that significantly simplify tax return
preparation or otherwise reduce the need for a third-party tax return preparer could reduce demand for our
services, causing our revenues or results of operations to decline.
Governmental regulations and processes affect how we provide services to our clients. Changes in these
regulations and processes may require us to make corresponding changes to our client service systems and
procedures. The degree and timing of changes in governmental regulations and processes may impair our ability to
serve our clients in an effective and cost-efficient manner or reduce demand for our services, causing our revenues
or results of operations to decline.
Federal and state legislators and regulators have increasingly taken an active role in regulating financial
products such as RALs. In addition, we are dependent on third-party financial institutions to provide
certain of these financial products to our clients and these institutions could cease or significantly reduce
the offering of such products. These trends or potential developments could impede our ability to
facilitate these financial products, reduce demand for our services and harm our business.
Changes in government regulation related to RALs could prohibit or limit the offering of RALs to our clients or our
ability to purchase participation interests. In addition, third-party financial institutions currently originating RALs
and similar products could decide to cease or significantly limit such offerings and related collection practices.
Changes in IRS practices, including limitations on the availability of the IRS debt indicator, could impair our ability
to limit our bad debt exposure. Changes in any of these, as well as possible litigation related to financial products
offered through our distribution channels, may cause our revenues or profitability to decline. See discussion of
RAL litigation in Item 3, “Legal Proceedings.” In addition to the loss of revenues and income directly attributable to
H&R BLOCK 2010 Form 10K 9