Computer Controls and Security

1. Computer Controls and Security Anup Kumar Saha

2. Learning Objectives • Identify and explain the four principles of systems reliability and the three criteria used to evaluate whether the principles have been achieved. • Identify and explain the controls that apply to more than one principle of reliability. • Identify and explain the controls that help explain that a system is available to users when needed. Anup Kumar Saha

3. Learning Objectives • Identify and explain the security controls that prevent unauthorized access to information, software, and other system resources. • Identify and explain the controls that help ensure that a system can be properly maintained, while still providing for system availability, security, and integrity. • Identify and explain the integrity controls that help ensure that system processing is complete, accurate, timely, and authorized. Anup Kumar Saha

4. Introduction • During his fifth month at Northwest Industries, Jason Scott is assigned to audit Seattle Paper Products (SPP). • Jason’s task is to review randomly selected payable transactions, track down all supporting documents, and verify that all transactions have been properly authorized. Anup Kumar Saha

5. Introduction • Jason is satisfied that many of the transactions are valid and accurate. • However, some transactions involve the purchase of services from Pacific Electric. • These transactions were processed on the basis of vendor invoices approved by management. • Five of these invoices bear the initials “JLC.” Anup Kumar Saha

6. Introduction • JLC is Jack Carlton, the general supervisor. • Carlton denies initialing the invoices, and claims he has never heard of Pacific Electric. • What questions does Jason have? • Is Carlton telling the truth? • If Carlton is not telling the truth, what is he up to? Anup Kumar Saha

7. Introduction • If Pacific Electric is a fictitious company, how could SPP’s control systems allow its invoices to be processed and approved for payment? • This chapter discusses the many different types of controls that companies use to ensure the integrity of their AIS. Anup Kumar Saha

8. Learning Objective 1 • Identify the four principles of systems reliability and the three criteria used to evaluate whether or not the principles have been achieved. Anup Kumar Saha

9. The Four Principles of a Reliable System • Availability of the system when needed. • Security of the system against unauthorized physical and logical access. • Maintainability of the system as required without affecting its availability, security, and integrity. • Integrity of the system to ensure that processing is complete, accurate, timely, and authorized. Anup Kumar Saha

10. The Criteria Used To Evaluate Reliability Principles • For each of the four principles of reliability, three criteria are used to evaluate whether or not the principle has been achieved. • The entity has defined, documented, and communicated performance objectives, policies, and standards that achieve each of the four principles. • The entity uses procedures, people, software, data, and infrastructure to achieve each principle in accordance with established policies and standards. • The entity monitors the system and takes action to achieve compliance with the objectives, policies, and standards for each principle. Anup Kumar Saha

11. Learning Objective 2 • Identify and explain the controls that apply to more than one principle of reliability. Anup Kumar Saha

12. Controls Related to More Than One Reliability Principle • Strategic Planning & Budgeting • Developing a Systems Reliability Plan • Documentation Anup Kumar Saha

13. Controls Related to More Than One Reliability Principle • Documentation may be classified into three basic categories: • Administrative documentation: Describes the standards and procedures for data processing. • Systems documentation: Describes each application system and its key processing functions. • Operating documentation: Describes what is needed to run a program. Anup Kumar Saha

14. Learning Objective 3 • Identify and explain the controls that help explain that a system is available to users when needed. Anup Kumar Saha

15. Availability • Availability • Minimizing Systems Downtime • Preventive maintenance • UPS • Fault tolerance • Disaster Recovery Plan • Minimize the extent of disruption, damage, and loss • Temporarily establish an alternative means of processing information • Resume normal operations as soon as possible Anup Kumar Saha

16. Availability Disaster Recovery, continued • Train and familiarize personnel with emergency operations • Priorities for the recovery process • Insurance • Backup data and program files • Electronic vaulting • Grandfather-father-son concept • Rollback procedures • Specific assignments • Backup computer and telecommunication facilities • Periodic testing and revision • Complete documentation Anup Kumar Saha

17. Learning Objective 4 • Identify and explain the security controls that prevent unauthorized access to information, software, and other system resources. Anup Kumar Saha

18. Developing a Security Plan • Developing and continuously updating a comprehensive security plan is one of the most important controls a company can identify. • What questions need to be asked? • Who needs access to what information? • When do they need it? • On which systems does the information reside? Anup Kumar Saha

19. Segregation of Duties Withinthe Systems Function • In a highly integrated AIS, procedures that used to be performed by separate individuals are combined. • Any person who has unrestricted access to the computer, its programs, and live data could have the opportunity to both perpetrate and conceal fraud. • To combat this threat, organizations must implement compensating control procedures. Anup Kumar Saha

20. Segregation of Duties Withinthe Systems Function • Authority and responsibility must be clearly divided among the following functions: • Systems administration • Network management • Security management • Change management • Users • Systems analysis • Programming • Computer operations • Information system library • Data control Anup Kumar Saha

21. Segregation of Duties Withinthe Systems Function • It is important that different people perform these functions. • Allowing a person to perform two or more of them exposes the company to the possibility of fraud. Anup Kumar Saha

22. Physical Access Controls • How can physical access security be achieved? • Place computer equipment in locked rooms and restrict access to authorized personnel • Have only one or two entrances to the computer room • Require proper employee ID • Require that visitors sign a log • Use a security alarm system • Restrict access to private secured telephone lines and terminals or PCs. • Install locks on PCs. • Restrict access of off-line programs, data and equipment • Locate hardware and other critical system components away from hazardous materials. • Install fire and smoke detectors and fire extinguishers that don not damage computer equipment Anup Kumar Saha

23. Logical Access Controls • Users should be allowed access only to the data they are authorized to use and then only to perform specific authorized functions. • What are some logical access controls? • passwords • physical possession identification • biometric identification • compatibility tests Anup Kumar Saha

24. Protection of PCs and Client/Server Networks • Many of the policies and procedures for mainframe control are applicable to PCs and networks. • The following controls are also important: • Train users in PC-related control concepts. • Restrict access by using locks and keys on PCs. • Establish policies and procedures. Anup Kumar Saha

25. Protection of PCs and Client/Server Networks • Portable PCs should not be stored in cars. • Keep sensitive data in the most secure environment possible. • Install software that automatically shuts down a terminal after its been idle for a certain amount of time. • Back up hard disks regularly. • Encrypt or password protect files. • Build protective walls around operating systems. • Ensure that PCs are booted up within a secure system. • Use multilevel password controls to limit employee access to incompatible data. • Use specialists to detect holes in the network. Anup Kumar Saha

26. Internet and e-Commerce Controls • Why caution should be exercised when conducting business on the Internet. • the large and global base of people that depend on the Internet • the variability in quality, compatibility, completeness, and stability of network products and services Anup Kumar Saha

27. Internet and e-Commerce Controls • access of messages by others • security flaws in Web sites • attraction of hackers to the Internet • What controls can be used to secure Internet activity? • passwords • encryption technology • routing verification procedures Anup Kumar Saha

28. Internet and e-Commerce Controls • Another control is installing a firewall, hardware and software that control communications between a company’s internal network (trusted network) and an external network. • The firewall is a barrier between the networks that does not allow information to flow into and out of the trusted network. • Electronic envelopes can protect e-mail messages Anup Kumar Saha

29. Learning Objective 5 • Identify and explain the controls that help ensure that a system can be properly maintained, while still providing for system availability, security, and integrity. Anup Kumar Saha

30. Maintainability • Two categories of controls help ensure the maintainability of a system: • Project development and acquisition controls • Change management controls Anup Kumar Saha

31. Project Development and Acquisition Controls • Project development and acquisition controls include: • Strategic Master Plan • Project Controls • Data Processing Schedule • System Performance Measurements • Postimplementation Review Anup Kumar Saha

32. Change Management Controls • Change management controls include: • Periodically review all systems for needed changes • Require all requests to be submitted in standardized format • Log and review requests form authorized users for changes and additions to systems • Assess the impact of requested changes on system reliability objectives, policies and standards Anup Kumar Saha

33. Change Management Controls, continued • Categorize and rank all changes using established priorities • Implement procedures to handle urgent matters • Communicate all changes to management • Require IT management to review, monitor, and approve all changes to software, hardware and personnel responsibilities • Assign specific responsibilities to those involved in the change and monitor their work. Anup Kumar Saha

34. Change Management Controls, continued • Control system access rights to avoid unauthorized systems and data access • Make sure all changes go through the appropriate steps • Test all changes • Make sure there is a plan for backing our of any changes in the event they don’t work properly • Implement a quality assurance function • Update all documentation and procedures when change is implemented Anup Kumar Saha

35. Learning Objective 6 • Identify and explain the integrity controls that help ensure that system processing is complete, accurate, timely, and authorized. Anup Kumar Saha

36. Integrity • A company designs general controlsto ensure that its overall computer system is stable and well managed. • Application controls prevent, detect and correct errors in transactions as they flow through the various stages of a specific data processing program. Anup Kumar Saha

37. Integrity: Source Data Controls Companies must establish control procedures to ensure that all source documents are authorized, accurate , complete and properly accounted for, and entered into the system or sent ot their intended destination in a timely manner. Source data controls include: Anup Kumar Saha

38. Integrity: Source Data Controls • Forms design • Prenumbered forms sequence test • Turnaround documents • Cancellation and storage of documents • Authorization and segregation of duties • Visual scanning • Check digit verification • Key verification Anup Kumar Saha

39. Integrity:Input Validation Routines Input validation routines are programs the check the integrity of input data. They include: • Sequence check • Field check • Sign check • Validity check • Capacity check • Limit check • Range check • Reasonableness test • Redundant data check Anup Kumar Saha

40. Integrity: On-line Data Entry Controls The goal of on-line data entry control is to ensure the integrity of transaction data entered from on-line terminals and PCs by minimizing errors and omissions. They include: Anup Kumar Saha

41. Integrity: On-line Data Entry Controls • Field, limit, range, reasonableness, sign, validity, redundant data checks • User ID numbers • Compatibility tests • Automatic entry of transaction data, where possible • Prompting • Preformatting • Completeness check • Closed-lop verification • Transaction log • Error messages • Retain data for legal purposes Anup Kumar Saha

42. Integrity: Data Processing and Storage Controls Controls to help preserve the integrity of data processing and stored data: • Policies and procedures • Data control function • Reconciliation procedure • External data reconciliation • Exception reporting Anup Kumar Saha

43. Integrity: Data Processing and Storage Controls, continued • Data currency checks • Default values • Data matching • File labels • Write protection mechanisms • Database protection mechanisms • Data conversion controls • Data security Anup Kumar Saha

44. Output Controls • The data control functions should review all output for reasonableness and proper format and should reconcile corresponding output and input control totals. • Data control is also responsible for distributing computer output to the appropriate user departments. Anup Kumar Saha

45. Output Controls • Users are responsible for carefully reviewing the completeness and accuracy of all computer output that they receive. • A shredder can be used to destroy highly confidential data. Anup Kumar Saha

46. Data Transmission Controls • To reduce the risk of data transmission failures, companies should monitor the network. • How can data transmission errors be minimized? • using data encryption (cryptography) • implementing routing verification procedures • adding parity • using message acknowledgment techniques Anup Kumar Saha

47. Data Transmission Controls Data Transmission Controls take on added importance in organizations that utilize electronic data interchange (EDI) or electronic funds transfer (EFT). Anup Kumar Saha

48. Data Transmission Controls • In these types of environments, sound internal control is achieved using the following control procedures: • Physical access to network facilities should be strictly controlled. • Electronic identification should be required for all authorized network terminals. • Strict logical access control procedures are essential, with passwords and dial-in phone numbers changed on a regular basis. Anup Kumar Saha

49. Data Transmission Controls Control procedures, continued • Encryption should be used to secure stored data as well as data being transmitted. • Details of all transactions should be recorded in a log that is periodically reviewed. Anup Kumar Saha

50. Case Conclusion • Were Jason and his supervisor able to identify the source of the fictitious invoices? No. • They asked the police to identify the owner of the Pacific Electric bank account. What did the police discover? Patricia Simpson, a data entry clerk at SPP, was the owner of the account. Anup Kumar Saha