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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