HR Block 2013 Annual Report Download - page 18

H&R Block 2013 Form 10-K 11
A security breach involving confidential client information may adversely affect our offer of online
services, our reputation and financial performance.
We offer a range of services to our clients online, including digital and assisted tax services and banking services
provided by HRB Bank, and we store a large amount of personal client data on our servers. A significant requirement
of providing online financial transactions is the secure transmission of confidential information over public networks.
We and our vendors use commercially available security technologies to protect confidential transactions and personal
information. The systems we use rely on encryption and authentication technology to provide secure transmission of
confidential information. However, advances in computer capabilities, new discoveries in the field of cryptography or
other developments could result in a compromise or breach of the algorithms used to protect client data. Errors in the
storage, use or transmission of personal information may result in a breach of client data. If we, or another provider of
financial services through the internet, were to suffer damage from a security breach, public acceptance and use of our
online services could suffer.
In addition, our clients may access our online tax services from their computers and mobile devices, install and use
our H&R Block At Home® tax preparation software on their computers, and access online banking services from their
computers and mobile devices. Because our business model relies on our clients' use of their own personal computers,
mobile devices and the internet, computer viruses and other attacks on our clients' personal computer systems and
mobile devices could create losses for our clients even without any breach in the security of our systems, and could
thereby harm our business and our reputation. We also rely on our franchisees to maintain secure systems.
A major breach of our security measures or those of our franchisees or third parties that execute transactions or hold
and manage personal information may have serious negative consequences for our businesses, including reduced client
demand for our services and products, harm to our reputation and brands, possible fines, penalties and damages, further
regulation and oversight by U.S. federal, state or foreign governmental agencies, and loss of our ability to provide
financial transaction services or accept and process client credit card orders or tax returns. From time to time, we detect,
or receive notices from clients or public or private agencies that they have detected, vulnerabilities in our servers, our
software or third-party software components that are distributed with our services and products. The existence of
vulnerabilities, even if they do not result in a security breach, may harm client confidence and require substantial
resources to address, and we may not be able to discover or remediate such security vulnerabilities before they are
exploited. Although we have commercially available network and application security, internal control measures, and
physical security procedures to safeguard our systems, there can be no assurance that a security breach, intrusion, loss
or theft of personal information will not occur.
Any security breach could impair our ability to grow and maintain profitability and, possibly, our ability to continue
delivering our services and products through the internet. Although we, with the help of third party service providers,
intend to continue to implement security technology and establish operational procedures to prevent security breaches,
there can be no assurance that these measures will be successful, which could harm our business, reputation with clients
and future financial results and require us to expend significant resources to address these matters, including notification
under data privacy regulations.
An interruption in our information systems, or those of our franchisees or a third party on which we
rely, or an interruption in the internet could have a material adverse effect on our business and our
consolidated financial position, results of operations and cash flows.
We rely heavily upon communications and information systems and the internet to conduct our business. Our systems
and operations are potentially vulnerable to damage or interruption from network failure, hardware failure, software
failure, power or telecommunications failures, computer viruses and worms, negative disruptions to the operation of
the internet, penetration of our network by hackers or other unauthorized users and natural disasters. Any failure or
interruption in our information systems, or information systems of our franchisees or a third party on which we rely,
or an interruption in the internet or other critical business capability could negatively impact our core business operations
and increase our risk of loss. As our businesses are seasonal, our systems must be capable of processing high volumes
during peak season. Therefore, service interruptions resulting from system or internet failures could negatively impact
our ability to serve our clients, which in turn could have a material adverse effect on our business and our consolidated
financial position, results of operations and cash flows.