Cloud based accounting systems like Quickbooks Online, FreshBooks, Xero and others are becoming popular with the entrepreneur and small business owner, but are there potential security problems? Do you really want to trust your most critical financial data to an outside company that hosts the information in the “cloud”. The “cloud” referring to storing the information on secure servers accessible by an Internet connection.
Today’s online or cloud-based accounting systems have come a long way, but in light of the recent hacking events from major companies like Sony, Ashley Madison, Internal Revenue Service and the Pentagon, do you really think your financial information stored in the “cloud” is safe? There is a saying in the website security industry, “It’s not about if your company will ever get hacked, but when.” Now, that is a scary thought, and I would caution any small business owner to stay away from the trendy cloud-based accounting systems and stick with traditional desktop accounting software.
Is desktop accounting software safer than cloud-based accounting software?
There are trade-offs. With desktop accounting software you have more control over your data. The data are usually controlled by one or a few key people, which can become a security issue. Desktop systems and network servers are vulnerable to malware and viruses that can easily compromise them. Cloud-based accounting systems have better security, but no provider can provide 100% security against hackers.
Nevertheless, things are changing and more and more businesses are moving toward web-based accounting systems, despite the security risks. Why is this? The benefits are notable including a simplified graphical interface, access from anywhere with an Internet connection, integration with related cloud-based applications, integration with banking websites, better backup solutions, faster troubleshooting, and convenient access to upgrades.
This new approach to decentralize accounting systems can help businesses overcome the limitations of spreadsheets, and static accounting systems that infrequently get upgraded. The efficiencies of cloud-based accounting software include the ability for staff to work from virtually anywhere and the convenience to create and access reports remotely.
Are cloud-based accounting systems better than desktop-based systems?
Web based accounting systems are not as full-featured as their desktop counterparts. Most are fine at handling the basic accounting tasks, but fall short on complex areas such as detailed fixed assets and advanced inventory management. Web based accounting systems are also geared towards the online world and the mobile user who wants to access the system with iPhones, iPads and other mobile devices. For those that need the convenience of cloud-based accounting systems, you should definitely consider FreshBooks. PC Magazine has a useful article, Best Choice in Cloud-Based Accounting Services.
In my opinion, you should wait a few more years as cloud-based accounting systems evolve with higher security and better data encryption. Healthcare providers are required to protect patient health information under HIPAA Compliance Federal Regulations with secure storage and data encryption. To my knowledge, none of the cloud-based accounting systems offer HIPAA compliance and only a few cloud storage companies offer this. You can read more about HIPAA compliance and cloud storage here.
On traditional systems, security is also an issue when individuals are responsible for securing the data and protecting the network. These too can be hacked. Security is said to be better with cloud-based accounting systems with the chances of human error become less likely, but they aren’t necessarily safer. Technology will be one of the key factors for cloud-based accounting systems in the future. One day, there will be a time for entrepreneurs and small businesses to move on from desktop accounting systems for the potential offered by cloud-based solutions, but the time is not yet.
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Noel B. Lorenzana
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10 thoughts on “Cloud Based Accounting Systems Security Problems”
Advantages often punted for Cloud:
Nonsense. Ongoing subscriptions will end up costing you a lot more than one off software costs. The current desktop version of QB works with vista all the way up to windows 10. That pretty good mileage for one very good small business package. The only reason Cloud is being rammed down your throat is money not philanthropy.
2. Data security
Biggest con of all. How hard is to back up your data on a USB or external hard drive for the cost of a couple of bucks. And seriously what big business would use Cloud accounting. There is no data security with the cloud. The biggest mistake people make is to think they are secure on the internet. You not and never will be.
3. Remote access. Really? who actually wants to remote access their Accounting systems. Is your life that devoid of things to do. BTW can easily be handled with existing free software in windows. Most businesses I deal with only need remote access when the payroll officer goes on leave over say Christmas Holidays. 2 simple free options. Remote access, free and built into windows or if using QB or similar, take the copy of the file with you!
The disadvantages of Cloud on the other hand, are endless.
Thank you for your insightful comment John! As you well pointed out, the advantages are few and the disadvantages are many. The marketing push to have users move to the cloud is overwhelming. I hope this trend stops. With the current infiltrations of “ransom ware” affecting organizations like hospitals using traditional computer systems, it’s clear that data security has never been more important.
As a IT literate CPA I have still yet to think of one good reason for myself or client’s to use the Cloud aka a server in Malaysia. It really is all hype. Read the so called advantages on any cloud accounting web site. Every single one can be addressed better, simpler and cheaper with existing desktop software. It’s like they list advantages but don’t actually say they are better than what you currently have. Buy our new car. It has 4 wheels, wow, I’m in!! Which brings me to the real selling point (and really the only one they have). Setup. They selling the illusion that all you have to do is login and hey presto you are now an Accountant. Nothing else to worry about. Such nonsense. Then as correctly pointed out there are the myriad of other issues starting with a good internet connection and ending with data security and I don’t just mean hacking. What about complete server failure and all your data is lost. read the fine print. There are xero guarantees for your data. if it’s lost, tough. The mind boggles at the garbage Accountants are going to have to deal with this when this nonsense really takes off. At the moment I can get a client’s backup, load it on our system and do a thorough analysis of the data and instantly export to Excel or Access if necessary. I suspect with Cloud the assumption is everything is correct! That would be a first, what a joke. This is going to cost small businesses more in ongoing subscription fees and Accounting fees. On a a final note how many small Mom and Pops businesses need to login to their accounts remotely. That’s the biggest laugh of all. I have hundreds of small business clients and I can’t think of one.
Thank you for your great comment Michael! The only clear winner in this move towards the “cloud” are the service providers who are trying to move customers away from the traditional one time purchase model to the SaaS (software as a service) subscription model… the latter being much more profitable for them. As you pointed out, the marketing for cloud accounting solutions is based on selling an illusion. No self respecting accountant would ever promote a cloud solution to their business clients. Let’s hope the popularity of cloud accounting solutions is just a fad.
I’m currently approaching the end of my maths and finance degree and have learnt a lot about cloud systems and completely agree with this! I’d certainly avoid them. Especially after the recent hacking scandal!
Thank you for your comment Cassandra!
Honestly. I had to read it twice and im glad I learnt quite a few things. Its not my niche but still always good to learn something new.
Thank you for your comment!
So many good articles here, I think your site noelblorenzana.com can quickly go viral. Keep up the quality posts.
Thank you for your comment!