Bureau of the Public Debt
Areas for Improvement in Information Security Controls Gao ID: GAO-08-625R May 27, 2008In connection with fulfilling our requirement to audit the financial statements of the U.S. government, we audited and reported on the Schedules of Federal Debt Managed by the Bureau of the Public Debt (BPD) for the fiscal years ended September 30, 2007 and 2006. As part of these audits, we performed a review of the general and application information security controls over key BPD financial systems. In our audit report on the Schedules of Federal Debt for the fiscal years ended September 30, 2007 and 2006, we concluded that BPD maintained, in all material respects, effective internal control relevant to the Schedule of Federal Debt related to financial reporting and compliance with applicable laws and regulations as of September 30, 2007, that provided reasonable assurance that misstatements, losses, or noncompliance material in relation to the Schedule of Federal Debt would be prevented or detected on a timely basis. However, we found matters involving information security controls that we do not consider to be significant deficiencies. As it relates to controls over financial reporting and compliance with applicable laws and regulations, BPD mitigated the potential effect of such control deficiencies with physical security measures, a program of monitoring user and system activity, and compensating management and reconciliation controls. Nevertheless, these matters warrant BPD management's attention and action. This report presents the control deficiencies identified during our fiscal year 2007 testing of the general and application information security controls that support key BPD automated financial systems relevant to BPD's Schedule of Federal Debt. This report also includes the results of our follow-up on the status of BPD's corrective actions to address recommendations that were contained in our prior years' audit reports and open as of September 30, 2006.
Our fiscal year 2007 audit procedures identified 10 new information security control deficiencies, all of which relate to general controls. Specifically, the control deficiencies identified were in the areas of system software, and application software development and change control. None of our findings pose significant risks to the BPD financial systems. As it relates to controls over financial reporting and compliance with applicable laws and regulations, BPD mitigated the potential effect of these control deficiencies with physical security measures and a program of monitoring user and system activity. Further, BPD has compensating management and reconciliation controls that are designed to detect potential irregularities or improprieties in financial data or transactions. During our follow-up on the status of BPD's corrective actions to address 11 open recommendations related to general information security control deficiencies identified in prior years' audits for which actions were not complete as of September 30, 2006, we found the following: (1) as of September 30, 2007, corrective action on 9 of the 11 recommendations was completed; and (2) corrective action was in progress as of September 30, 2007, on the two remaining open recommendations, one of which relates to access control and the other to application software development and change control.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-625R, Bureau of the Public Debt: Areas for Improvement in Information Security Controls
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May 27, 2008:
The Honorable Van Zeck:
Commissioner, Bureau of the Public Debt:
Subject: Bureau of the Public Debt: Areas for Improvement in
Information Security Controls:
Dear Mr. Zeck:
In connection with fulfilling our requirement to audit the financial
statements of the U.S. government,[Footnote 1] we audited and reported
on the Schedules of Federal Debt Managed by the Bureau of the Public
Debt (BPD) for the fiscal years ended September 30, 2007 and
2006.[Footnote 2] As part of these audits, we performed a review of the
general and application information security controls over key BPD
financial systems.
In our audit report on the Schedules of Federal Debt for the fiscal
years ended September 30, 2007 and 2006, we concluded that BPD
maintained, in all material respects, effective internal control
relevant to the Schedule of Federal Debt related to financial reporting
and compliance with applicable laws and regulations as of September 30,
2007, that provided reasonable assurance that misstatements, losses, or
noncompliance material in relation to the Schedule of Federal Debt
would be prevented or detected on a timely basis. However, we found
matters involving information security controls that we do not consider
to be significant deficiencies.[Footnote 3] As it relates to controls
over financial reporting and compliance with applicable laws and
regulations, BPD mitigated the potential effect of such control
deficiencies with physical security measures, a program of monitoring
user and system activity, and compensating management and
reconciliation controls. Nevertheless, these matters warrant BPD
management's attention and action.
This report presents the control deficiencies identified during our
fiscal year 2007 testing of the general and application information
security controls that support key BPD automated financial systems
relevant to BPD's Schedule of Federal Debt. This report also includes
the results of our follow-up on the status of BPD's corrective actions
to address recommendations that were contained in our prior years'
audit reports and open as of September 30, 2006. In a separately issued
Limited Official Use Only report, we communicated detailed information
regarding our findings to BPD management. We also assessed the general
and application information security controls over key BPD financial
systems that the Federal Reserve Banks (FRBs) maintain and operate on
behalf of BPD. We will issue a separate report to the Board of
Governors of the Federal Reserve System on the results from that
assessment.
Results in Brief:
Our fiscal year 2007 audit procedures identified 10 new information
security control deficiencies, all of which relate to general controls.
Specifically, the control deficiencies identified were in the areas of
system software, and application software development and change
control. In the Limited Official Use Only report, we made 11
recommendations to address these control deficiencies.
None of our findings pose significant risks to the BPD financial
systems. As it relates to controls over financial reporting and
compliance with applicable laws and regulations, BPD mitigated the
potential effect of these control deficiencies with physical security
measures and a program of monitoring user and system activity. Further,
BPD has compensating management and reconciliation controls that are
designed to detect potential irregularities or improprieties in
financial data or transactions.
During our follow-up on the status of BPD's corrective actions to
address 11 open recommendations related to general information security
control deficiencies identified in prior years' audits for which
actions were not complete as of September 30, 2006, we found the
following:
* As of September 30, 2007, corrective action on 9 of the 11
recommendations was completed.
* Corrective action was in progress as of September 30, 2007, on the
two remaining open recommendations, one of which relates to access
control and the other to application software development and change
control.
BPD provided comments on the detailed findings and recommendations in
the separately issued Limited Official Use Only report. In those
comments, the Commissioner of the Bureau of Public Debt stated that of
the 12 findings, which include 2 from prior years, 8 have been
completely resolved, and corrective actions for the remaining 4 are in
progress. The Commissioner also stated that BPD intends to implement
corrective actions for the remaining findings by September 2008.
Background:
The Department of the Treasury (Treasury) is authorized by Congress to
borrow money on the credit of the United States to fund federal
operations. Treasury is responsible for prescribing the debt
instruments and otherwise limiting and restricting the amount and
composition of the debt. BPD, an organizational entity within the
Fiscal Service of the Treasury, is responsible for issuing and
redeeming debt instruments, paying interest to investors, and
accounting for the resulting debt. In addition, BPD has been given the
responsibility for issuing Treasury securities to trust funds for trust
fund receipts not needed for current benefits and expenses.
As of September 30, 2007 and 2006, federal debt managed by BPD totaled
about $9.0 trillion and $8.5 trillion, respectively, for moneys
borrowed to fund the government's operations. These balances consisted
of approximately (1) $5.1 trillion and $4.8 trillion of debt held by
the public as of September 30, 2007 and 2006, respectively, and (2)
$3.9 trillion and $3.7 trillion of intragovernmental debt holdings as
of September 30, 2007 and 2006, respectively. Total interest expense on
federal debt managed by BPD for fiscal years 2007 and 2006 was about
$433 billion and $404 billion, respectively.
BPD relies on a number of interconnected financial systems and
electronic data to process and track the money that is borrowed and to
account for the securities it issues. Many of the FRBs provide fiscal
agent services on behalf of BPD, which primarily consist of issuing,
servicing, and redeeming Treasury securities held by the public and
handling the related transfers of funds. FRBs use a number of financial
systems to process debt-related transactions. Detailed data initially
processed at the FRBs are summarized and then forwarded electronically
to BPD's data center for matching, verification, and posting to the
general ledger.
Objectives, Scope, and Methodology:
Our objectives were to evaluate the general and application information
security controls over key financial management systems maintained and
operated by BPD relevant to the Schedule of Federal Debt and to
determine the status of corrective actions taken in response to the
recommendations in our prior years' reports for which actions were not
complete as of September 30, 2006. We use a risk-based, rotation
approach for testing general information security controls. Each
general information security control area is subjected to a review,
including testing, at least every 3 years. The general information
security control areas we review are defined in the Federal Information
System Controls Audit Manual[Footnote 4]. Areas considered to be of
higher risk are subject to more frequent review. Each key application
is subjected to a review every year.
To evaluate general and application information security controls, we
identified and reviewed BPD's information system general and
application information security control policies and procedures,
observed controls in operation, conducted tests of controls, and held
discussions with officials at the BPD data center to determine whether
controls were adequately designed, implemented, and operating
effectively.
The scope of our work for fiscal year 2007 as it relates to general
information security controls included following up on open
recommendations from our prior years' reports and reviewing access
control, system software, and application software development and
change control. In addition, we performed security diagnostics and
vulnerability assessment testing of BPD's internal and external
information system environment.
Application information security control reviews were performed on six
key BPD applications to determine whether the applications are designed
to provide reasonable assurance that:
* access privileges (1) establish individual accountability and proper
segregation of duties, (2) limit the processing privileges of
individuals, and (3) prevent and detect inappropriate or unauthorized
activities;
* data are authorized, converted to an automated form, and entered into
the application accurately, completely, and promptly;
* data are properly processed by the computer and files are updated
correctly;
* erroneous data are captured, reported, investigated, and corrected;
and:
* files and reports generated by the application represent transactions
that actually occur and accurately reflect the results of processing,
and reports are controlled and distributed only to authorized users.
We also reviewed the application information security control audit
documentation from the work performed by the Treasury Office of
Inspector General's contractor on another key BPD application.
Because the FRBs are integral to the operations of BPD, we assessed the
general information security controls over financial systems that the
FRBs maintain and operate relevant to the Schedule of Federal Debt. We
also evaluated application information security controls over six key
financial applications maintained and operated by the FRBs.
The evaluation and testing of certain information security controls,
including the follow-up on the status of BPD corrective actions to
address open recommendations in our fiscal year 2006 report, were
performed by the independent public accounting (IPA) firm of Cotton and
Company, LLP. We agreed on the scope of the audit work, monitored the
IPA firm's progress, and reviewed the related audit documentation to
determine that the findings were adequately supported.
During the course of our work, we communicated our findings to BPD
management, who informed us that BPD has taken or plans to take
corrective action to address the control deficiencies identified. We
plan to follow up on these matters during our audit of the fiscal year
2008 Schedule of Federal Debt.
We performed our work at the BPD data center from March 2007 through
October 2007. Our work was performed in accordance with U.S. generally
accepted government auditing standards. As noted above, we obtained
agency comments on the detailed findings and recommendations in a draft
of the separately issued Limited Official Use Only report. BPD's
comments are summarized in the Agency Comments section of this report.
Assessment of BPD's Information Security Controls:
General information security controls are the structure, policies, and
procedures that apply to an entity's overall computer operations.
General information security controls establish the environment in
which application systems and controls operate. They include an
entitywide security management program, access controls, system
software controls, application software development and change
controls, segregation of duties, and service continuity. An effective
general information security control environment helps (1) ensure that
an adequate entitywide security management program is in place; (2)
protect data, files, and programs from unauthorized access,
modification, disclosure, and destruction; (3) limit and monitor access
to programs and files that control computer hardware and secure
applications; (4) prevent the introduction of unauthorized changes to
systems and applications software; (5) prevent any one individual from
controlling key aspects of computer-related operations; and (6) ensure
the recovery of computer processing operations in the event of a
disaster or other unexpected interruption.
Our fiscal year 2007 testing identified opportunities to strengthen
certain information security controls that support key BPD automated
financial systems relevant to BPD's Schedule of Federal Debt.
Specifically, our audit procedures identified 10 new general
information security control deficiencies. This included three control
deficiencies related to system software and seven control deficiencies
related to application software development and change control.
System software coordinates and helps control the input, processing,
output, and data storage associated with all of the applications that
run on a system. System software includes operating system software,
system utilities, file maintenance software, security software, data
communications systems, and data management systems. Controls over
access to and modifications of system software are essential to protect
the overall integrity and reliability of information systems.
Application software development and change controls help ensure that
only authorized programs and authorized modifications are implemented.
This is accomplished by instituting policies, procedures, and
techniques to provide reasonable assurance that all programs and
program modifications are properly authorized, tested, and approved and
that access to and distribution of programs is carefully controlled.
Without proper application software development and change controls,
there is a risk that security features could be inadvertently or
deliberately omitted or "turned off" or that processing irregularities
or malicious code could be introduced.
In a separately issued Limited Official Use Only report, we
communicated detailed information regarding our findings to BPD
management and made 11 detailed recommendations.
During our follow-up on the status of BPD's corrective actions to
address 11 open recommendations related to information security control
deficiencies identified in prior years' audits for which actions were
not complete as of September 30, 2006, we found the following:
* As of September 30, 2007, corrective action on 9 of the 11
recommendations was completed.
* Corrective action was in progress as of September 30, 2007, on the
two remaining open recommendations, one of which relates to access
control and the other to application software development and change
control. As such, we are reaffirming our two previous recommendations.
None of our findings pose significant risks to the BPD financial
systems. As it relates to controls over financial reporting and
compliance with applicable laws and regulations, BPD mitigated the
potential effect of these control deficiencies with physical security
measures and a program of monitoring user and system activity. Further,
BPD has compensating management and reconciliation controls that are
designed to detect potential irregularities or improprieties in
financial data or transactions. Nevertheless, these findings warrant
management's attention and action to limit the risk of unauthorized
access, disclosure, loss, or impairment; modification of sensitive data
and programs; and disruption of critical operations.
Assessment of FRB Information Security Controls:
Because the FRBs are integral to the operations of BPD, we assessed the
general and application information security controls over key
financial systems maintained and operated by the FRBs on behalf of BPD.
We will issue a separate report to the Board of Governors of the
Federal Reserve System on the results from that assessment.
Conclusion:
BPD has made significant progress in addressing open information
security control recommendations from our prior years' audits and is
taking corrective action to address the two remaining unresolved
control deficiencies. We therefore reaffirm our two recommendations
related to these open control deficiencies.
Our fiscal year 2007 audit identified 10 new information security
control deficiencies, all of which relate to general controls. For
these identified control deficiencies, we are making 11
recommendations. BPD informed us that it has taken or plans to take
corrective action to address all the control deficiencies we
identified. We plan to follow up on the status of BPD's actions to
address the identified control deficiencies as part of our fiscal year
2008 Schedule of Federal Debt audit.
Recommendation for Executive Action:
We recommend that the Commissioner of the Bureau of the Public Debt
direct the appropriate BPD officials to implement the 11 new detailed
recommendations set forth in the separately issued Limited Official Use
Only version of this report.
Agency Comments:
BPD provided comments on the detailed findings and recommendations in
the Limited Official Use Only version. In those comments, the
Commissioner of the Bureau of the Public Debt stated that of the 12
findings, which include 2 from prior years, 8 have been completely
resolved, and corrective actions for the remaining 4 are in progress.
The Commissioner also stated that BPD intends to implement corrective
actions for the remaining findings by September 2008. We plan to follow
up on these matters during our audit of the fiscal year 2008 Schedule
of Federal Debt.
In the separately issued Limited Official Use Only report, we noted
that the head of a federal agency is required by 31 U.S.C. 720 to
submit a written statement on actions taken on our recommendations to
the Senate Committee on Homeland Security and Governmental Affairs and
to the House Committee on Oversight and Government Reform not later
than 60 days after the date of the Limited Official Use Only report. A
written statement must also be sent to the House and Senate Committees
on Appropriations with the agency's first request for appropriations
made more than 60 days after the date of that report. In the Limited
Official Use Only report, we also requested a copy of your responses.
We are sending copies of this report to the Chairmen and Ranking
Members of the Senate Committee on Homeland Security and Governmental
Affairs; the Subcommittee on Financial Services and General Government,
Senate Committee on Appropriations; the Subcommittee on Federal
Financial Management, Government Information, Federal Services, and
International Security, Senate Committee on Homeland Security and
Governmental Affairs; the House Committee on Oversight and Government
Reform; the Subcommittee on Financial Services and General Government,
House Committee on Appropriations; and the Subcommittee on Government
Management, Organization, and Procurement, House Committee on Oversight
and Government Reform. We are also sending copies of this report to the
Secretary of the Treasury, the Acting Inspector General of the
Department of the Treasury, and the Director of the Office of
Management and Budget. Copies will also be made available to others
upon request. In addition, the report will be available at no charge on
GAO's Web site at [hyperlink, http://www.gao.gov].
If you have any questions regarding this report, please contact me at
(202) 512-3406 or engelg@gao.gov. Other key contributors to this
assignment were Jeffrey L. Knott and Dawn B. Simpson, Assistant
Directors; Dean D. Carpenter; Mary T. Marshall; and Zsaroq R. Powe.
Sincerely yours,
Signed by:
Gary T. Engel:
Director:
Financial Management and Assurance:
[End of section]
Footnotes:
[1] 1 U.S.C. § 331(e).
[2] AO, Financial Audit: Bureau of the Public Debt's Fiscal Years 2007
and 2006 Schedules of Federal Debt, GAO-08-168 (Washington, D.C.: Nov.
7, 2007).
[3] A significant deficiency is a control deficiency, or combination of
control deficiencies, that adversely affects the entity's ability to
initiate, authorize, record, process, or report financial data reliably
in accordance with U.S. generally accepted accounting principles such
that there is more than a remote likelihood that a misstatement of the
entity's financial statements that is more than inconsequential will
not be prevented or detected. A control deficiency exists when the
design or operation of a control does not allow management or employees
in the normal course of performing their assigned functions to prevent
or detect misstatements on a timely basis.
[4] GAO, Federal Information System Controls Audit Manual, GAO/AIMD-
12.19.6 (Washington, D.C.: Jan. 1999).
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