Lecture Accounting information systems: Chapter 11 - Richardson, Chang, Smith

Chapter 11 - Information security and computer fraud. After reading this chapter, you should be able to: Describe the risks related to information security and systems integrity, understand the concepts of encryption and authentication, describe computer fraud and misuse of AIS and corresponding risk-mitigation techniques, define vulnerabilities, and explain how to manage and assess vulnerabilities.

Information Security and Computer

Fraud

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• LO#1 Describe the risks related to information

security and systems integrity.

and authentication.

AIS and corresponding risk-mitigation

techniques.

manage and assess vulnerabilities.

Integrity and Information Security

• Since 2003, information security management has been ranked as

the top one technology issue for CPAs

• According to AICPA, information security management is “an

integrated, systematic approach that coordinates people, policies,

standards, processes, and controls used to safeguard critical

systems and information from internal and external security threats.”

• The goal of information security management is to protect the

confidentiality, integrity and availability (CIA) of a firm’s information

– Confidentiality – information is not accessible to unauthorized individuals or

processes

– Integrity – information is accurate and complete

– Availability – information and systems are accessible on demand

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Encryption and Authentication

Encryption is a preventive control providing confidentiality and privacy for data

transmission and storage

There are two algorithmic schemes that encode plaintext into non-readable form or

cyphertext:

• Symmetric-key encryption

– fast and suitable for encrypting large data sets

– both the sender and the receiver use the same key to encrypt and decrypt

messages

– managing one key for each pair of users is not cost-effective given the large

number of users among the firms

• Asymmetric-key encryption

– slow and is not appropriate for encrypting large data sets

– since each user has a pair of two keys, the public key and the private key,

asymmetric-key encryption solves the problems in key distribution and key

management

– A common name for asymmetric-key encryption is public-key encryption or

two-key encryption.

Authentication is a process that establishes the origin of information or determines the

identity of a user, process, or device

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Encryption and Authentication

Combination of two methods:

asymmetric-key encryption method to

authenticate each other.

generates a symmetric key (called

session key because it is valid for a

certain timeframe only) to be used by

both parties.

to distribute the session key (For

example, the sender uses the receiver’s public key to encrypt the session key

and sends it to the receiver The

receiver uses his/her own private key to decrypt to get the session key.)

use the session key to transmit

confidential data/information This is

because using symmetric key for

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Digital Signature

A digital signature is a message digest (MD) of a document (or data

file) that is encrypted using the document creator’s private key

• Digital signatures can:

– Ensure data integrity

– Prevent repudiation of Transactions

• Asymmetric-key Encryption Key Factors:

– Certificate Authority (CA)

– digital certificate

– public key infrastructure (PKI)

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Digital Signature Process

Process:

1. Both the sender (A) and receiver (B) use asymmetric-key encryption method

to authenticate each other

2. A makes a copy of the document and uses SHA-256 to hash the copy and

get an MD.

3. A encrypts the MD using A’s private key to get A’s digital signature

4. A uses B’s public key to encrypt the original document and A’s digital

signature (for confidentiality).

5. A sends the encrypted package to B.

6. B receives the package and decrypts it using B’s private key B now has the document and A’s digital signature

7. B decrypts A’s digital signature using A’s public key to get the sent-over MD

B also authenticates that A is the document creator (to assure

nonrepudiation)

8. B makes a copy of the received document and uses SHA-256 to hash the

copy and get a calculated MD.

9. If the sent-over MD is the same as the calculated MD, B ensures data

integrity (no changes made to the document)

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Computer Fraud and Abuse

The International Professional Practices Framework (the IIA’s IPPF) of the Institute of Internal Auditors (IIA) defines fraud as: “Any illegal act

characterized by deceit, concealment, or violation of trust These acts

are not dependent upon the threat of violence or physical force.

According to the fraud triangle, three conditions exist for a fraud to be

perpetrated.

• Incentive: provides a reason to commit fraud

• Opportunity: for fraud to be perpetrated

• Rationalize: the individuals committing the fraud possess an

attitude that enables them to rationalize the fraud

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Computer Fraud Risk Assessment

Global Technology Audit Guides (GTAG®)

Common computer frauds:

• The theft, misuse, or misappropriation of assets by altering computer-readable records and files

• The theft, misuse, or misappropriation of assets by altering the logic of computer

software

• The theft or illegal use of computer-readable information

• The theft, corruption, illegal copying, or intentional destruction of computer software

• The theft, misuse, or misappropriation of computer hardware

Risk Assessment Steps:

• Identifying relevant IT fraud risk factors

• Identifying potential IT fraud schemes and prioritizing them based on likelihood and

impact

• Mapping existing controls to potential fraud schemes and identifying gaps

• Testing operating effectiveness of fraud prevention and detection controls

• Assessing the likelihood and business impact of a control failure and/or a fraud incident

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Computer Fraud Schemes

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Requirements

Definition

Phase

195 illegitimate drivers’ licenses are created and sold by a police communications officer who accidentally discovers she can create them

- Lack of authentication and role-based access control requirements.

- Lack of segregation of duties

System

Design Phase

- A special function to expedite handling of cases allows two caseworkers to pocket $32,000 in kickbacks.

- An employee realizes there is no computerized control in his firm’s system, so he entered and profited from $20 million in fake health insurance claims.

- Insufficient attention to security details in automated workflow processes

- Lack of consideration for security vulnerabilities posed by authorized system access

System

Implementatio

n Phase

- An 18-year old former Web developer uses backdoors he inserted into his code to access his former firm’s network, spam its

customers, alter its applications, and ultimately put the firm out of business.

- Lack of code reviews

System

Deployment

Phase

- A computer technician uses his unrestricted access to customers’

systems to plant a virus on their networks that brings the customers’ systems to a halt.

- A software engineer did not document or backup his source code intentionally, and then deleted the only copy of the source code once the system is in production.

- Lack of enforcement of documentation practices and back-up procedures

- Unrestricted access to all customers’ systems

System

Maintenance

Phase

- A foreign currency trader covers up losses of $691 million over a five-year period by making unauthorized changes to the source code

- A logic bomb sits undetected for six months before finally performing a mass deletion of data on a telecommunications firm.

- Lack of code reviews

- End-user access to source code

- Ineffective back-up processes

Computer Fraud Prevention and

Detection

A fraud prevention program starts with a fraud

risk assessment across the entire firm, taking into

consideration the firm’s critical business divisions, processes, and accounts, performed by the

management.

A fraud detection program should include an

evaluation by internal auditors on the effectiveness

of business processes, along with an analysis of

transaction-level data to obtain evidence on the

effectiveness of internal controls and to identify

indicators of fraud risk or actual fraudulent

Vulnerability Assessment and

Management

Types of vulnerabilities within a Physical IT Environment

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Threats Vulnerabilities

Physical intrusion External parties entering facilities without permission and/or providing access

information Unauthorized hardware changes Natural disasters No regular review of a policy that identifies how IT equipments are protected against

environmental threats Inadequate or outdated measures for environmental threats Excessive heat or humidity Humidity alarm not in place

Outdated devices not providing information on temperature and humidity levels

Water seepage in a data center Server room located in the basement

Clogged water drain Electrical disruptions or

black-outs

Insufficient backup power supply

No voltage stabilizer

Examples of Vulnerabilities within an Information System

Threats Vulnerabilities

System intrusion (e.g.,

spyware, malware, etc.)

Software not patched immediately Open ports on a main server without router access Outdated intrusion detection/prevention system Logical access control failure

Work performed not aligned with business requirements Poor choice of password

Failure to terminate unused accounts in a timely manner Interruption of a system

Improper system configuration and customization Poor service level agreements (SLAs) monitoring on service providers

Vulnerability Assessment and

Management

Examples of Vulnerabilities within the Processes of

IT Operations

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engineering attempts Unintentional

disclosure of sensitive

information by

employee

Inappropriate data classification rule Poor user access management allows some users to retrieve sensitive information not pertaining to their roles and

responsibilities Intentional destruction

of information

Not requiring approval prior to deleting sensitive data Poor employee morale

Writable disk drive containing data which shall not be deleted such as transaction logs

Inappropriate end-user

computing

Ineffective training as to the proper use of computer End-user computing policy has not been reviewed Poor firewall rules allowing users to access illegitimate websites

An Overall Framework for Vulnerability

Assessment and Management

Prerequisites:

1. Determine the main objectives of its vulnerability management, as the firm’s resource for managing vulnerabilities is limited.

2. assign roles and responsibility for vulnerability management.

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An Overall Framework for Vulnerability

Assessment and Management

Main components:

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VULNERABILITY ASSESSMENT VULNERABILITY MANAGEMENT

IT Asset

Inventory

Vulnerability Assessment

Risk Response Plan

Monitoring

Threat

Identification

Vulnerability

Prioritization

Policy and Requirements

Ongoing Assessment Vulnerability

Identification

Control Implementation

Continuous

Improvement

Availability, Disaster Recovery and Business

Continuity

support is making sure the data is available at all times or, at a minimum, in the moment it is

needed.

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Availability, Disaster Recovery and Business

Continuity

threaten a firm’s operations, outlining the procedures that ensure the firm’s

smooth resuming of operations in the case this event occurs.

to keep a firm running during a period of interruption of normal operations

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