2. STRUCTURING THE IT FUNCTION  Centralized data processing (as opposed to DDP)  Database administrator  Data processing manager/dept.  Data control  Data preparation/conversion  Computer operations  Data library 2

3. STRUCTURING THE IT FUNCTION  Segregation of incompatible IT functions  Systems development & maintenance  Participants End users IS professionals Auditors Other stakeholders 3

4. STRUCTURING THE IT FUNCTION  Segregation of incompatible IT functions  Objectives:  Segregate transaction authorization from transaction processing  Segregate record keeping from asset custody  Divide transaction processing steps among individuals to force collusion to perpetrate fraud  Separating systems development from computer operations 4

5. STRUCTURING THE IT FUNCTION  Segregation of incompatible IT functions  Separating DBA from other functions  DBA is responsible for several critical tasks: Database security Creating database schema and user views Assigning database access authority to users Monitoring database usage Planning for future changes 5

6. STRUCTURING THE IT FUNCTION  Segregation of incompatible IT functions  Alternative 1: segregate systems analysis from programming  Two types of control problems from this approach: Inadequate documentation Is a chronic problem. Why? Not interesting Lack of documentation provides job security Assistance: Use of CASE tools Potential for fraud Example: Salami slicing, trap doors 6

7. STRUCTURING THE IT FUNCTION  Segregation of incompatible IT functions  Segregate data library from operations  Physical security of off-line data files  Implications of modern systems on use of data library: Real-time/online vs. batch processing Volume of tape files is insufficient to justify full-time librarian Alternative: rotate on ad hoc basis Custody of on site data backups Custody of original commercial software and licenses 7

8. STRUCTURING THE IT FUNCTION  Segregation of incompatible IT functions Audit procedures:  Obtain and review security policy  Verify policy is communicated  Review relevant documentation (org. chart, mission statement, key job descriptions)  Review systems documentation and maintenance records (using a sample)  Verify whether maintenance programmers are also original design programmers  Observe segregation policies in practice  Review operations room access log  Review user rights and privileges 8

9. Computing Models Centralized Processing Client Server Processing thin or fat clients 2 to n tiered Distributed Computing using idle processing time Distributed Database Computing replicated or divided 9

10. STRUCTURING THE IT FUNCTION  The distributed model  Risks associated with DDP  Inefficient use of resources Mismanagement of resources by end users Hardware and software incompatibility Redundant tasks  Destruction of audit trails  Inadequate segregation of duties  Hiring qualified professionals Increased potential for errors Programming errors and system failures  Lack of standards 10

11. STRUCTURING THE IT FUNCTION  The distributed model  Advantages of DDP  Cost reduction End user data entry vs. data control group Application complexity reduced Development and maintenance costs reduced  Improved cost control responsibility IT critical to success then managers must control the technologies  Improved user satisfaction Increased morale and productivity  Backup flexibility Excess capacity for DRP 11

12. STRUCTURING THE IT FUNCTION  Controlling the DDP environment  Audit objectives:  Conduct a risk assessment  Verify the distributed IT units employ entity-wide standards of performance that promotes compatibility among hardware, operating software, applications, and data 12

13. STRUCTURING THE IT FUNCTION  Controlling the DDP environment  Audit procedures:  Verify corporate policies and standards are communicated  Review current organization chart, mission statement, key job descriptions to determine if any incompatible duties exist  Verify compensating controls are in place where incompatible duties do exist  Review systems documentation  Verify access controls are properly established 13

14. THE COMPUTER CENTER  Computer center controls  Physical location  Avoid human-made and natural hazards  Example: Chicago Board of Trade  Construction  Ideally: single-story, underground utilities, windowless, use of filters  If multi-storied building, use top floor (away from traffic flows, and potential flooding in a basement)  Access  Physical: Locked doors, cameras  Manual: Access log of visitors 14

15. THE COMPUTER CENTER  Computer center controls 15  Air conditioning  Especially mainframes  Amount of heat even from a group of PCs  Fire suppression  Automatic: usually sprinklers  Gas, such as halon, that will smother fire by removing oxygen can also kill anybody trapped there  Sprinklers and certain chemicals can destroy the computers and equipment  Manual methods  Power supply  Need for clean power, at a acceptable level  Uninterrupted power supply

16. THE COMPUTER CENTER  Computer center controls Audit objectives  Verify physical security controls are reasonable  Verify insurance coverage is adequate  Verify operator documentation is adequate in case of failure Audit procedures  Tests of physical construction  Tests of fire detection  Tests of access control  Tests of backup power supply  Tests for insurance coverage  Tests of operator documentation controls 16

17. PC SYSTEMS  Control environment for PCs  Controls  Risk assessment  Inherent weaknesses  Weak access control  Inadequate segregation of duties  Multilevel password control – multifaceted access control  Risk of physical loss  Laptops, etc. can “walk off”  Risk of data loss  Easy for multiple users to access data  End user can steal, destroy, manipulate  Inadequate backup procedures Local backups on appropriate medium Dual hard drives on PC External/removable hard drive on PC 17

18. PC SYSTEMS  Control environment for PCs  Risk associated with virus infection  Policy of obtaining software  Policy for use of anti-virus software  Verify no unauthorized software on PCs  Risk of improper SDLC procedures  Use of commercial software  Formal software selection procedures 18

19. FIGURE 2.8 – Password Policy Proper Dissemination – Promote it, use it during employee training or orientation, and find ways to continue to raise awareness within the organization. Proper Length: Use at least 8 characters. The more characters, the more difficult to guess or crack. Eight characters is an effective length to prevent guessing, if combined with below. Proper Strength: Use alphabet (letters), numbers (at least 1), and special characters (at least 1). The more non-alpha, the harder to guess or crack. Make them case sensitive and mix upper and lower case. A “Strong” password for any critical access or key user. Password CANNOT contain a real word in the content. Proper Access Levels or Complexity: Use multiple levels of access requiring multiple passwords. Use a password matrix of data to grant read-only, read/write, or no access per data field per user. Use biometrics {such as fingerprints, voice prints}. Use supplemental access devices, such as smart cards, or beeper passwords in conjunction with remote logins. Use user-defined procedures. Proper Timely Changes: At regular intervals, make employees change their passwords. Proper Protection: Prohibit the sharing of passwords or “post-its” with passwords located near one’s computer. Proper Deletion: Require the immediate deletion of accounts for terminated employees, to prevent an employee from being able to perpetrate adverse activities.

20. SYSTEM-WIDE CONTROLS  E-mail risks  Spoofing  Spamming  Hoax virus warnings  Flaming  Malicious attachments (e.g., viruses)  Phishing  Pharming 20

21. SYSTEM-WIDE CONTROLS  Malicious objects risk  Virus  Worm  Logic bomb  Back door / trap door  Trojan horse  Potential control procedures  Audit objective  Audit procedures 21

22. Types of Computer Crime Hacking Theft of Intellectual Property Theft of PII Phishing and Pharming Identity Theft Cyberstalking Viruses

23. Email Image Spams Botnets infect up to 10% of all computers Image spams allow emails to avoid filters Popular spam – enticing readers to buy a cheap stock in a pump and dump

24. The Italian Job Infected more than 10,000 web pages on popular websites including travel agents, hotels, charities and government departments. Most are in Italy, but also Spain and US. Eastern European based using a $500 kit. Downloads keylogger to steal identities.

25. SYSTEM-WIDE CONTROLS  Controlling electronic audit trails  Keystroke monitoring (keystroke log)  Event monitoring (key events log)  Audit trail objectives  Detecting unauthorized access  Reconstructing events  Personal accountability  Implementing an audit trail  Transaction logs 25

26. 26 Data Capture KeyKatcher  Records chat, e-mail, internet & more  Is easier to use than parental control software  Identifies internet addresses  Uses no system resources  Works on all PC operating systems  Undetectable by software www.lakeshoretechnology.com

27. SYSTEM-WIDE CONTROLS  Disaster recovery planning  Critical applications identified and ranked  Create a disaster recovery team with responsibilities 27

28. SYSTEM-WIDE CONTROLS  Disaster recovery planning  Site backup  “Hot site” – Recovery Operations Center  “Cold site” – empty shell  Mutual aid pact  Internally provided backup  Other options 28

29. Disaster Recovery Plan 1. Critical Applications – Rank critical applications so an orderly and effective restoration of computer systems is possible. 2. Create Disaster Recovery Team – Select team members, write job descriptions, describe recovery process in terms of who does what. 3. Site Backup – a backup site facility including appropriate furniture, housing, computers, and telecommunications. Another valid option is a mutual aid pact where a similar business or branch of same company swap availability when needed. 4. Hardware Backup – Some vendors provide computers with their site – known as a hot site or Recovery Operations Center. Some do not provide hardware – known as a cold site. When not available, make sure plan accommodates compatible hardware (e.g., ability to lease computers). 5. System Software Backup – Some hot sites provide the operating system. If not included in the site plan, make sure copies are available at the backup site. 6. Application Software Backup – Make sure copies of critical applications are available at the backup site 7. Data Backup – One key strategy in backups is to store copies of data backups away from the business campus, preferably several miles away or at the backup site. Another key is to test the restore function of data backups before a crisis. 8. Supplies – A modicum inventory of supplies should be at the backup site or be able to be delivered quickly. 9. Documentation – An adequate set of copies of user and system documentation. 10. TEST! – The most important element of an effective Disaster Recovery Plan is to test it before a crisis occurs, and to test it periodically (e.g., once a year).

30. SYSTEM-WIDE CONTROLS  Disaster recovery planning  Audit objectives  Verify management’s DRP is adequate  Audit procedures  Verify a second-site backup is adequate  Review the critical application list for completeness  Verify backups of application software are stored off-site  Verify that critical data files are backed up and readily accessible to DRP team  Verify resources of supplies, documents, and documentation are backed up and stored off-site  Verify that members listed on the team roster are current employees and that they are aware of their responsibilities 30

31. SYSTEM-WIDE CONTROLS  Fault tolerance  Definition  44% of IS down-time attributable to system failures!  Controls  Redundant systems or parts RAID  UPS  Multiprocessors  Audit objective  To ensure the organization is employing an appropriate level of fault tolerance  Audit procedures  Verify proper level of RAID devices  Review procedures for recovery from system failure  Verify boot disks are secured 31

32. 32

33. Client Server Systems 33

34. Firewalls 34

35. Demilitarized Zone 35