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Focus of the Chapter

Sarbanes-Oxley compliance regarding the
security and control of operating systems,
communication networks, electronic data
exchange, and PC-based accounting

Lesson Objectives
After studying this chapter, you should:
Be able to identify the principal threats to the
operating system and the control techniques used to
minimize the possibility of actual exposures.
Be familiar with the principal risks associated with
commerce conducted over intranets and the Internet
and understand the control techniques used to reduce
these risks.
Be familiar with the risks associated with personal
computing systems.
Recognize the unique exposures that arise in
connection with electronic data interchange (EDI) and
understand how these exposures can be reduced.


What Is An Operating System (O/S)?

The operating system is the computers
control program. It allows users and their
applications to share and access common
computer resources, such as processors,
main memory, databases, and printers.
Examples of O/S: Google Chromium O/S,
Linux, Microsoft Windows

An operating system (OS) is

software that manages computer
hardware and software resources
and provides common services
for computer programs.

The operating system is an

essential component of the
system software in a computer
system. Application programs
usually require an operating
system to function.

Three Main Tasks Of Operating Systems

translates high-level languages into the
machine-level language
allocates computer resources to user
manages the tasks of job scheduling and

Reqts For Effective O/S Performance

Five fundamental control objectives of the O/S

The operating system must:

Protect itself from users. Protect against tampering
by users
Protect users from each other. Prevent users from
tampering with the programs of other users
Protect users from themselves. Safeguard users
applications from accidental corruption
Be protected against itself. Safeguard its own
programs from accidental corruption
Be protected from its environment. Protect itself
from power failures and other disasters

Operating Systems Security

Log-On Procedure
~ first line of defense user IDs and passwords

Access Token
~ contains key information about the user

Access Control List

~ defines access privileges of users

Discretionary Access Control

~ allows user to grant access to another user

Threats to O/S Integrity

Accidental threats
~ Hardware failure; errors in user application

Intentional threats
~ Attempt to access user data
~ Destructive progams

Operating Systems Controls

Access privileges
Password control
Malicious or destructive programs
System audit trail

Access Privileges
Audit objective: Verify that access privileges are
consistent with separation of incompatible functions and
organization policies
Audit procedures: Review or verify
policies for separating incompatible functions
a sample of user privileges, especially access to data
and programs
security clearance checks of privileged employees
formal acknowledgements to maintain confidentiality
of data
users log-on times

Access Privileges

Password Control
Audit objective: Ensure adequacy and effectiveness
of password policies for controlling access to the
operating system
Audit procedures: Review or verify
passwords required for all users
password instructions for new users
passwords changed regularly
password file for weak passwords
encryption of password file
password standards
account lockout policies

Windows Startup / Login

One Time Password (OTP)

Malicious or Destructive Programs

Audit objective: Verify effectiveness of procedures
to protect against programs such as viruses, worms,
back doors, logic bombs, and Trojan horses
Audit procedures: Review or verify
training of operations personnel concerning
destructive programs
testing of new software prior to being implemented
currency of antiviral software and frequency of

A COMPUTER VIRUS is a malware program that, when executed,

replicates by inserting copies of itself (possibly modified) into
other computer programs, data files, or the boot sector of the
hard drive; when this replication succeeds, the affected areas are
then said to be "infected.

ClamWin antivirus software

running in Wine on Ubuntu Linux

A COMPUTER WORM is a standalone malware computer program that

replicates itself in order to spread to other computers. Often, it uses a
computer network to spread itself, relying on security failures on the target
computer to access it.
Unlike a computer virus, it does not need to attach itself to an existing
program. Worms almost always cause at least some harm to the network, even
if only by consuming bandwidth, whereas viruses almost always corrupt or
modify files on a targeted computer

Hex dump of the Blaster worm,

showing a message left for
Microsoft CEO Bill Gates by the
worm's programmer.

A TROJAN HORSE, or Trojan, in computing is generally a non-self-replicating

type of malware program containing malicious code that, when executed,
carries out actions determined by the nature of the Trojan, typically causing
loss or theft of data, and possible system harm. The term is derived from the
Ancient Greek story of the large wooden horse used to trick defenders of Troy
into taking warriors concealed in the horse into their city in ancient Anatolia.

A Trojan often acts as a backdoor,

contacting a controller which can
then have unauthorized access to
the affected computer

System Audit Trail Controls

Audit objective: Ensure that the established system
audit trail is adequate for preventing and detecting
abuses, reconstructing key events that precede systems
failures, and planning resource allocation.
Audit procedures: Review or verify
how long audit trails have been in place
archived log files for key indicators
monitoring and reporting of security violations

Audit trails can be used to support security

objectives in three ways:
(1)detecting unauthorized access to the
(2)facilitating the reconstruction of events,
(3)promoting personal accountability
Two types of audit logs:
Keystroke monitoring
Event monitoring


An INTRANET is a private network that is
contained within an enterprise. It may consist of
many interlinked local area networks and also
use leased lines in the wide area network.
The INTERNET is a global system of
interconnected computer networks that use the
standard Internet protocol suite (TCP/IP) to link
several billion devices worldwide.

Intranet Risks
Intercepting network messages

~ sniffing: interception of user IDs, passwords,

confidential e-mails, and financial data files

Accessing corporate databases

~ connections to central databases increase the risk

that data will be accessible by employees

Privileged employees

~ override privileges may allow unauthorized access

to mission-critical data

Reluctance to prosecute

~ fear of negative publicity leads to such reluctance

but encourages criminal behavior

Internet Risks
IP spoofing: masquerading to gain access to a Web
server and/or to perpetrate an unlawful act without
revealing ones identity
Denial of service (DOS) attacks: assaulting a Web
server to prevent it from servicing users particularly
devastating to business entities that cannot receive
and process business transactions

Other malicious programs: viruses, worms, logic

bombs, and Trojan horses pose a threat to both
Internet and Intranet users

Three Common Types of DOS Attacks

SYN Flood when the three-way handshake needed
to establish an Internet connection occurs, the final
acknowledgement is not sent by the DOS attacker,
thereby tying-up the receiving server while it waits.
Smurf the DOS attacker uses numerous
intermediary computer to flood the target computer
with test messages, pings.
Distributed DOS (DDOS) can take the form of
Smurf or SYN attacks, but distinguished by the vast
number of zombie computers hi-jacked to launch
the attacks.


Step 1: SYN messages
Step 2: SYN/ACK

Step 3: ACK packet code

In a Denial of Service (DOS) Attack SYN Flood, the sender sends

hundreds of messages, receives the SYN/ACK packet, but does not
response with an ACK packet. This leaves the receiver with clogged
transmission ports, and legitimate messages cannot be received.

SMURF Attack

Ping Test

Distributed Denial of Service Attack

Controlling Risks

Deep packet inspection
Digital signature / digital certificate
Message control techniques

Firewalls provide security by channeling all
network connections through a control gateway.
Network level firewalls

~ Low cost and low security access control

~ Do not explicitly authenticate outside users
~ Filter junk or improperly routed messages
~ Experienced hackers can easily penetrate the system

Application level firewalls

~ Customizable network security, but expensive

~ Sophisticated functions such as logging or user

Windows Firewall

Dual-Homed Firewall

Computer program transforms a clear message
into a coded (cipher) text form using an algorithm.


Encryption (cont.)
The conversion of data into a secret code for storage and
The sender uses an encryption algorithm to convert the original
cleartext message into a coded ciphertext.
The receiver decodes / decrypts the ciphertext back into cleartext.
Encryption algorithms use keys
~ Typically 56 to 128 bits in length
~ The more bits in the key the stronger the encryption method.

Two general approaches to encryption are private key and public

key encryption.

Controlling DOS Atttacks

Controlling for three common forms of DOS attacks:
Smurf attacksorganizations can program firewalls to ignore an
attacking site, once identified
SYN flood attackstwo tactics to defeat this DOS attack
~ Get Internet hosts to use firewalls that block invalid IP addresses
~ Use security software that scan for half-open connections
DDos attacksmany organizations use Intrusion Prevention
Systems (IPS) that employ deep packet inspection (DPI)
~ IPS works with a firewall filter that removes malicious packets
from the flow before they can affect servers and networks
~ DPI searches for protocol non-compliance and employs
predefined criteria to decide if a packet can proceed to its

Digital Signature / Certificate

Digital signature electronic authentication
technique to ensure that
~ transmitted message originated with the
authorized sender
~ message was not tampered with after the
signature was applied

Digital certificate like an electronic

identification card used with a public key
encryption system
~ Verifies the authenticity of the message sender

Digital Signature

Security Alert - Digital Certificate

Message Control Techniques

Message sequence numbering sequence number
used to detect missing messages
Message transaction log listing of all incoming and
outgoing messages to detect the efforts of hackers

Request-response technique random control

messages are sent from the sender to ensure messages
are received
Call-back devices receiver calls the sender back at a
pre-authorized phone number before transmission is

Audit Procedures SUBVERSIVE

Review firewall effectiveness in terms of
flexibility, proxy services, filtering, segregation
of systems, audit tools, and probing for
Review data encryption security procedures
Verify encryption by testing
Review message transaction logs
Test procedures for preventing unauthorized

Equipment Failure
Line errors are data errors from communications
Two techniques to detect and correct such data
errors are:
echo check - the receiver returns the
message to the sender
parity checks - an extra bit is added onto
each byte of data similar to check digits

Vertical and Horizontal Parity using Odd Parity

Audit Procedures Eqpt Failure

Using a sample of messages from the
transaction log:
examine them for garbled contents caused
by line noise
verify that all corrupted messages were
successfully retransmitted



EDI (electronic data interchange) uses
computer-to-computer communications
technologies to automate B2B purchases.
(B2B -> business-to-business or e-biz)
~ EDI is an inter-organization endeavor.
~ The information systems of the trading partners
automatically process the transaction.
~ Transaction information is transmitted in a
standardized format.

What is EDI? (cont.)

EDI (Electronic Data Interchange) is the
transfer of data from one computer system to
another by standardized message formatting,
without the need for human intervention. EDI
permits multiple companies -- possibly in different
countries -- to exchange documents electronically.


Manual vs. EDI Method

Benefits of EDI


or elimination of data entry

of errors
of paper
of paper processing and postage
of inventories (via JIT systems)

EDI Risks & Control

Authorization automated and
absence of human
need to access EDI
partners files
Audit Trail

paperless and

use of passwords and value
added networks (VAN) to
ensure valid partner
software to specify what
can be accessed and at
what level
control log records the
transactions flow through
each phase of the
transaction processing

EDI System
Control Log
Audit Trail

Audit Objectives - EDI

Transactions are authorized, validated, and
in compliance with the trading partner
No unauthorized organizations can gain
access to database
Authorized trading partners have access
only to approved data.
Adequate controls are in place to ensure a
complete audit trail.

Audit Procedures - EDI

Tests of Authorization and Validation Controls
~ Review procedures for verifying trading partner
identification codes
~ Review agreements with VAN
~ Review trading partner files

Tests of Access Controls

~ Verify limited access to vendor and customer files

~ Verify limited access of vendors to database
~ Test EDI controls by simulation

Tests of Audit Trail Controls

~ Verify existence of transaction logs

~ Review a sample of transactions



PC operating systems
PC systems risks & controls
~ In general:
o Relatively simple to operate and program
o Controlled and operated by end users
o Interactive data processing vs. batch
o Commercial applications vs. custom
o Often used to access data on mainframe or network
o Allows users to develop their own applications

~ Operating Systems:
o Are located on the PC (decentralized)
o O/S family dictates applications (e.g., Windows)



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

PC Accounting System Modules


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

Audit objectives PC systems

Verify controls are in place to protect data, programs, and computers
from unauthorized access, manipulation, destruction, and theft

Verify that adequate supervision and operating procedures exist to

compensate for lack of segregation between the duties of users,
programmers, and operators
Verify that backup procedures are in place to prevent data and
program loss due to system failures, errors
Verify that systems selection and acquisition procedures produce
applications that are high quality, and protected from unauthorized

Verify the system is free from viruses and adequately protected to

minimize the risk of becoming infected with a virus or similar object

Audit procedures PC systems

Verify that microcomputers and their files are physically
Verify from organizational charts, job descriptions, and
observation that the programmers of applications
performing financially significant functions do not also
operate those systems.
Confirm that reports of processed transactions, listings of
updated accounts, and control totals are prepared,
distributed, and reconciled by appropriate management
at regular and timely intervals.

Audit procedures PC systems


Determine that multilevel password control or multifaceted

access control is used to limit access to data and
applications, where applicable.
Verify that the drives are removed and stored in a secure
location when not in use, where applicable.

Verify that backup procedures are being followed.

Verify that application source code is physically secured
(such as in a locked safe) and that only the compiled
version is stored on the microcomputer.
Review systems selection and acquisition controls
Review virus control techniques.