chapter 16 controlling computer-based information systems, part ii

Chapter 16

Controlling Computer-Based

Information Systems, Part II

Objectives for Chapter 16• Risks associated with electronic commerce conducted

over intranets and the Internet and the control techniques used to reduce these risks

• Exposures that arise in connection with electronic data interchange (EDI) and how these exposures can be reduced

• Exposures that threaten firms that rely on personal computers and the controls necessary to reduce risks in this environment

• The principal input, processing, and output controls that are used to ensure the integrity of computer applications

Operating System

Data Management

Systems Development

Systems Maintenance

Organizational Structure

Internet

& Intranet

EDI Trading Partners

Personal Computers

Computer Center Security

Applications

Internet

& Intranet

General Control Framework for CBIS Risks

Operating System

Data Management

Systems Development

Systems Maintenance

Organizational Structure

Internet

& Intranet

EDI Trading Partners

Personal Computers

Computer Center Security

Applications

Internet

& Intranet

General Control Framework for CBIS Risks

Internet and Intranet Risks

• Communications is a unique aspect of the computer networks:– different than processing (applications) or data

storage (databases)

• Loss, destruction, and corruption of data from two main sources:– subversive activities, both inside or outside the

firm– equipment failure

Internet and Intranet Risks from Subversive Threats

• These acts include: – unauthorized interception of a

message– gaining unauthorized access to an

organization’s network– a denial-of-service attack from a

remote location

Controlling Risks from Subversive Threats

• Firewalls - software and hardware that provide security by channeling all network connections through a control gateway

• Network level firewalls – low cost and low security access control – does not explicitly authenticate outside users– mainly for filtering out junk or improperly routed messages – hackers can easily penetrate the system

• Application level firewalls – a high level of customizable network security, but can be extremely

expensive – performs sophisticated functions such as logging or user

authentication

Dual-Homed Firewall

Controlling Risks from Subversive Threats

• Denial-of-service (DOS) attacks – Security software searches for connections

which have been half-open for a period of time.

• Encryption – Computer program transforms a clear message

into a coded (cipher) text form using an algorithm.

DOS Attack

Sender Receiver

Step 1: SYN messages

Step 2: SYN/ACK

Step 3: ACK packet code

In a DOS Attack, the sender sends hundreds of messages, receives the SYN/ACK packet, but does not response with an ACK packet. This leaves thereceiver with clogged transmission ports, and legitimate messages cannot be received.

Variations of DOS Attacks• Smurfing

– by sending pings to all members in a network to respond to the victim’s spoofed IP address causes the victim’s server to be flooded

• SYN flooding – never sending the final (ACK) part of the three-

way handshake causes the victim to keep sending the second (SYN/ACK) part until times out

• Ping of death– send an invalid packet size in the protocol packet

header ‘confuses’ the operating system

Controlling Risks from Subversive Threats

• Encryption – A computer program transforms a clear message into a coded

(ciphertext) form using an algorithm.– Encryption can be used for transmitted data and for stored

data.

Data Encryption Standard Technique

EncryptionProgram

EncryptionProgram

Ciphertext

Ciphertext

CommunicationSystem

CommunicationSystem

Key

Key

CleartextMessage

CleartextMessage

Public and Private Key Encryption

Public Key is used for encoding messages.

Message A Message B Message C Message D

Ciphertext Ciphertext Ciphertext Ciphertext

Multiple peoplemay have the public key (e.g., subordinates).

Private Key is used fordecoding messages.

Typically one person ora small number of peoplehave the private key (e.g., a supervisor).

Message A Message DMessage CMessage B

• Digital signature: electronic authentication technique that ensures that the transmitted message originated with the authorized sender and that it was not tampered with after the signature was applied

• Digital certificate: like an electronic identification card that is used in conjunction with a public key encryption system to verify the authenticity of the message sender

Controlling Risks from Subversive Threats

Text Message

Compute Digest ofMessage

Digest

Encrypt Using Sender’sPrivate Key

DigitalSignature

DigitalSignature

Encrypt UsingReceiver’s Public Key

Encrypted Message with Digital

Signature Attached

DecryptUsing Receiver’s

Private Key

DigitalSignature

Text Message

Decrypt UsingSender’s Public

Key

Compute Digest ofMessage

Digest

Digest

Compare

Digital Signature

Sender’s Location Receiver's Location

Controlling Risks from Subversive Threats

• 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 completed

Controlling Risks from Equipment Failure

• Line errors from noise on a communications. Two techniques to detect and correct such data errors:– 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• Backup control for networks

– small networks - a single workstation– medium networks - a network server– large networks - multiple servers

Vertical and Horizontal Parity

Operating System

Data Management

Systems Development

Systems Maintenance

Organizational Structure

Internet

& Intranet

EDI Trading Partners

Personal Computers

Computer Center Security

Applications

Internet

& Intranet

General Control Framework for CBIS Risks

Electronic Data Interchange (EDI) Risks

• Authorization – automated and absence of human

intervention

• Access– need to access EDI partner’s files

• Audit trail– paperless and transparent (automatic)

transactions

Electronic Data Interchange (EDI) Controls

• Authorization– use of passwords and VANs to ensure

valid partner• Access

– software to specify what can be accessed and at what level

• Audit trail– control log records the transaction’s flow

through each phase of the transaction processing

EDI System without Controls

PurchasesSystem

EDI TranslationSoftware

EDI TranslationSoftware

CommunicationsSoftware

CommunicationsSoftware

Sales OrderSystem

ApplicationSoftware

ApplicationSoftware

Direct Connection

Company A Company B (Vendor)

PurchasesSystem

EDI TranslationSoftware

EDI TranslationSoftware

CommunicationsSoftware

CommunicationsSoftware

OtherMailbox

OtherMailbox

CompanyA’s mailbox

CompanyB’s mailbox

Sales OrderSystem

ApplicationSoftware

ApplicationSoftware

VAN

Company A Company B (Vendor)

Transaction Log

Transaction Log

Audit trail oftransactions betweentrading partners

EDI System with Controls

Use of VAN to enforce use of passwords and valid partners

Software limits vendor’s (Company B) access to company A’s database

Operating System

Data Management

Systems Development

Systems Maintenance

Organizational Structure

Internet

& Intranet

EDI Trading Partners

Personal Computers

Computer Center Security

Applications

Internet

& Intranet

General Control Framework for CBIS Risks

Personal Computer (PC) Controls• PCs…

– are relatively simple to use– are frequently controlled and used by end users– usually employ interactive (v. batch) data

processing– typically run commercial software applications– allow users to develop their own applications

• PCs, in contrast to servers and mainframes, have weak operating systems. – makes them easy to use – but results in minimal security and weak

controls

Access Risks in the PC Environment

• PCs typically weak in controlling access data files

• Techniques to prevent theft or tampering of data:– data encryption - must decode even if

stolen– disk locks - software or

physical locks to prevent booting from A:\

Inadequate Segregation of Duties

• In PC environments, employees often have access to multiple applications that process incompatible transactions.

• Controls: – increased supervision– detailed management reports– more frequent independent verification

PC Backup Controls

• PC end-users often fail to appreciate the importance of backup procedures until it is too late.

• Back up mechanisms:– tape--high capacity (3.2gb, inexpensive)– CD--about 650mb (>450 floppies)– dual internal hard drives (high capacity)– dual external hard drives (>12 gb)– USB memory attachments (portable, >64 mb)

Inadequate Systems Development and Maintenance Procedures in PCs

• Commercial software should be used when possible for accounting applications, and these systems should be purchased from a reputable vendor.

• Formal software selection procedures should be practiced by firms of all sizes.

Operating System

Data Management

Systems Development

Systems Maintenance

Organizational Structure

Internet

& Intranet

EDI Trading Partners

Personal Computers

Computer Center Security

Applications

Internet

& Intranet

General Control Framework for CBIS Risks

Application Controls

• Narrowly focused exposures within a specific system, for example: – accounts payable– cash disbursements– fixed asset accounting– payroll– sales order processing– cash receipts– general ledger

Application Controls

• Risks within specific applications

• Can affect manual procedures (e.g., entering data) or embedded procedures

• Convenient to look at in terms of:– input stage– processing stage– output stage

PROCESSINGINPUT OUTPUT

Application Controls Input

• Goal of input controls - inputted data are valid, accurate, and complete

• Source document controls– use prenumbered source documents – auditing missing source documents

• Data coding controls– transcription errors– check digits

GIGO

Application Controls Input

• Batch controls - used to reconcile the output produced by the system with the input originally entered into the system

• Based on different types of batch totals:– total number of records– total dollar value– hash totals - sum of non-financial numbers

Application Controls Input

• Validation controls - intended to detect errors in transaction data before the data are processed– field interrogation - data in individual fields; for example, missing

data, data type, range – record interrogation - interrelationship of data in fields of a record– file interrogation - the correct file; for example, internal and

external labels compared, version, dates

Application Controls Input

• Input error correction techniques– immediate correction

during data entry– error file creation– batch rejection

Application Controls Input

• Generalized data input systems (GDIS) - centralized procedures to manage the data input for all of the organization’s TPSs

• Five major components:– generalized validation module - standard

validation routines common to different applications

– validated data file– error file– error reports– transaction log

GDIS

Application Controls Processing

• Run-to-run controls - use batch figures to monitor the batch as it moves from one programmed procedure (run) to another

• Operator intervention controls - used to limit human involvement in certain actions in order to reduce error

• Audit trail controls - numerous logs used so that every transaction can be traced through each stage of processing from its economic source to its presentation in financial statements

Transaction Log to Preserve the Audit Trail

Application Controls Output

• Goal of output controls is to ensure that system output is not lost, misdirected, or corrupted, and that privacy is not violated.

• In the following flowchart, there are exposures at every stage.

OutputReport

OutputReport

OutputReport

OutputReport

Output Run(Spooling)

Output File

PrintRun

OutputReport

Bursting

AbortedOutput

Waste

DataControl

ReportDistri-bution

EndUser

FileSTAGES IN THE OUTPUT PROCESS

Application Controls Output

• Batch systems output: spooling creates a file as an intermediate step in the printing process that is a risk

• Report distribution: for sensitive reports, the following are available:– use of secure mailboxes in which to place reports– require the user to sign for reports in person– deliver the reports to the user

Application Controls Output

• End user controls: end users need to inspect reports and report any inaccurately produced reports– Highly sensitive reports should be shredded after

their use.

• Controlling real-time system output: the primary output threat is the interception, disruption, destruction, or corruption of the output message as it passes along the communications link