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entitled 'FDIC Information Security: Improvements Made but Weaknesses 
Remain' which was released on July 15, 2002.



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United States General Accounting Office:



GAO: Report to the Board of Directors, Federal Deposit Insurance 

Corporation:



July 2002:



FDIC information security:



Improvements Made but Weaknesses Remain:



GAO-02-689:



Contents:



Letter:



Results in Brief:



Background:



Objective, Scope, and Methodology:



Security Improvements Made, but System Vulnerabilities Remain:



Access to Data and Programs Was Not Adequately Controlled:



Other Information System Controls Were Ineffective:



Progress Made, but Full Implementation of Computer Security Management 

Program Not Yet Achieved:



Conclusions:



Recommendations for Executive Action:



Agency Comments:



Appendixes:



Appendix I: Comments from the Federal Deposit Insurance Corporation:



Appendix II: GAO Contact and Staff Acknowledgements:



GAO Contact:



Acknowledgments:



Letter:



July 15, 2002:



To the Board of Directors

Federal Deposit Insurance Corporation:



We reviewed information systems general controls[Footnote 1] in 

connection with our calendar year 2001 financial statement audits of 

the Federal Deposit Insurance Corporationís (FDIC) Bank Insurance Fund, 

Savings Association Insurance Fund, and FSLIC (Federal Savings and Loan 

Insurance Corporation) Resolution Fund.[Footnote 2] Effective 

information system controls are essential to ensuring that financial 

information is adequately protected from inadvertent or deliberate 

misuse, fraudulent use, improper disclosure, or destruction. Such 

controls also affect the security and reliability of nonfinancial 

information, such as personnel and bank examination information 

maintained by FDIC. Our evaluation included a follow-up review of the 

information security weaknesses identified at FDIC in our financial 

statement audits for calendar year 2000.[Footnote 3]



This report summarizes weaknesses in information systems controls over 

FDICís computer systems. We are also issuing a report designated for 

ďLimited Official Use Only,Ē which describes in more detail the 

computer security weaknesses identified and offers specific 

recommendations for correcting them.



Results in Brief:



FDIC made progress in correcting the information security weaknesses 

previously identified and has taken other steps to improve security. 

For example, it has limited access to critical information, tested 

disaster recovery plans, and established a security awareness program. 

Nevertheless, we identified new weaknesses in its information systems 

controls that affect the corporationís ability to safeguard electronic 

access to critical financial and other sensitive information. These 

weaknesses place critical FDIC financial and sensitive personnel and 

bank examination information at risk of unauthorized disclosure, 

critical financial operations at risk of disruption, and assets at risk 

of loss.



FDIC did not adequately limit access to data and programs by 

controlling mainframe access authority, providing sufficient network 

security, or establishing a comprehensive program to monitor access 

activities. Further, other information systems control weaknesses were 

identified that could hinder FDICís ability to provide adequate 

physical security for its computer facility, appropriate segregation of 

computer functions, effective control of system software changes, or 

ensure continuity of operations.



As we have previously reported, the primary reason for FDICís 

information system control weaknesses was that the corporation had not 

yet fully implemented a comprehensive corporate program to manage 

computer security. An effective program would include assessing risks, 

establishing appropriate policies and related controls, raising 

awareness of prevailing risks and mitigating controls, and evaluating 

the effectiveness of established controls. While FDIC has implemented a 

security awareness program, updated its security policies and guidance, 

and taken other actions to improve security management, it has not 

fully addressed all key elements of a computer security management 

program. These elements include (1) clearly defined roles and 

responsibilities for its corporate information security managers and 

guidance for coordinating and collaborating with central security, (2) 

an ongoing risk assessment process to determine computer security 

needs, (3) technical security standards for all computer platforms, and 

(4) an ongoing program of tests and evaluations to ensure that policies 

and controls are appropriate and effective.



To improve information system controls over FDIC financial operations, 

we are recommending that FDIC correct the security weaknesses 

identified and take additional actions to fully implement an effective 

corporate computer security management program. The acting chief 

information officer (CIO) stated that she has agreed to correct the 

identified weaknesses and act to fully implement such a program. The 

acting CIOís comprehensive corrective action plan to address each 

weakness will, she said, be completed by December 31 of this year. We 

will evaluate the effectiveness of these corrective actions during our 

2002 financial statement audits.



In providing written comments on a draft of this report, the Acting 

Chief Financial Officer of FDIC agreed with our recommendations. He 

reported that FDIC plans to address the identified weaknesses and that 

significant progress has already been made.



Background:



Congress created FDIC in 1933 to restore and maintain public confidence 

in the nationís banking system. In 1989 the Financial Institutions 

Reform, Recovery, and Enforcement Act was enacted to reform, 

recapitalize, and consolidate the federal deposit insurance system. It 

created the Bank Insurance Fund and the Savings Association Insurance 

Fund, which are responsible for protecting insured bank and thrift 

depositors, respectively, from loss due to institution failures. The 

act also created the FSLIC Resolution Fund to finalize the affairs of 

the former FSLIC and liquidate the assets and liabilities transferred 

from the former Resolution Trust Corporation. It also designated FDIC 

as the administrator of these funds. As part of this function FDIC has 

an examination and supervision program to monitor the safety of 

deposits held in member institutions.



FDIC insures deposits in excess of $3.2 trillion for about 10,000 

institutions. Together the three funds have about $49 billion in 

assets. FDIC had a budget of about $1.2 billion for calendar year 2001 

to support its activities in managing the three funds. For that year, 

it processed more than 2.7 million financial transactions.



FDIC relies extensively on computerized systems to support its 

financial operations and store the sensitive information it collects. 

These systems are interconnected by FDICís local and wide area 

networks. To support its financial management functions, it relies on 

several financial systems to process and track financial transactions 

that include premiums paid by its member institutions and disbursements 

made to support operations. In addition, FDIC supports other systems 

that maintain personnel information on its employees, examination data 

on selected financial institutions, and legal information on closed 

institutions. At the time of our review, there were about 5,400 

authorized users on FDICís systems.



Objective, Scope, and Methodology:



Our objective was to evaluate the effectiveness of information systems 

general controls over the financial systems maintained and operated by 

FDIC during our 2001 financial statement audits.[Footnote 4] These 

information systems controls also affect the security and reliability 

of other sensitive data, including personnel, legal, and bank 

examination information maintained on the same computer systems as the 

corporationís financial information.



Specifically, we evaluated information systems controls intended to:



* protect data and application programs from unauthorized access;



* prevent the introduction of unauthorized changes to application and 

system software;



* provide segregation of duties involving application programming, 

system programming, computer operations, information security, and 

quality assurance;



* ensure recovery of computer processing operations in case of disaster 

or other unexpected interruption; and:



* ensure an adequate information security management program.



To evaluate these controls, we identified and reviewed FDICís policies 

and procedures, conducted tests and observations of controls in 

operation, and held discussions with FDIC staff to determine whether 

information systems controls were in place, adequately designed, and 

operating effectively. In addition, we reviewed corrective actions 

taken by FDIC to address vulnerabilities identified in our calendar 

year 2000 audit. Our evaluation was based on (1) our Federal 

Information System Controls Audit Manual, which contains guidance for 

reviewing information systems controls that affect the integrity, 

confidentiality, and availability of computerized data; and (2) our May 

1998 report[Footnote 5] on security management best practices at 

leading organizations, which identifies key elements of an effective 

information security program.



We performed our work at FDIC from October 2001 through April 2002. Our 

work was performed in accordance with generally accepted government 

auditing standards.



Security Improvements Made, but System Vulnerabilities Remain:



In our audit of FDICís calendar year 2001 financial 

statements,[Footnote 6] we found that FDIC made progress in correcting 

previously identified weaknesses. For instance, in our 2000 financial 

statement audits,[Footnote 7] we determined that FDIC had not 

adequately limited access of authorized users, restricted physical 

access to computer facilities, performed comprehensive tests of the 

disaster recovery plan, implemented a computer security incident 

response process, established a security awareness program, developed 

security plans, and performed independent security reviews. These 

weaknesses placed critical corporation operations, such as financial 

management, personnel, and other operations, at greater risk of misuse 

and disruption.



Except for actions still needed to fully implement a computer security 

management program, which are discussed later in this report, FDIC made 

progress in addressing our previously reported computer security 

weaknesses. For example, in our 2001 audits, we found that FDIC has:



* limited access of its system programmers and security staff to 

certain critical resources;



* developed corporate access authorization procedures;



* restricted modem connections and use of generic log on IDs to its 

network;



* improved physical security to its computer center by limiting access 

through the adjoining FDIC hotel;



* developed and performed tests of its computer center disaster 

recovery plans, including its network and designated remote facilities, 

to provide backup support for the corporationís network and other 

operations;



* established a computer security awareness program for its employees 

and contractors;



* developed security plans for its general support systems and 

applications; and:



* implemented a requirement and process for independent security 

reviews to be performed at least every 3 years.



In addition to correcting previously identified weaknesses, FDIC 

initiated other steps to improve computer security. These efforts 

included 

(1) reviews of system software, (2) improvements in physical security, 

including the use of guard service to provide security surveillance to 

its computer rooms, (3) completed management authorizations for major 

financial applications and general support systems, and (4) assessments 

of the sensitivity of corporate data to determine the level of security 

needed to protect it.



However, we found additional control weaknesses in FDICís information 

systems in connection with our calendar year 2001 financial statement 

audits. Specifically, FDIC has not adequately limited access to data 

and programs by controlling mainframe access authority, providing 

sufficient network security, or establishing a comprehensive program to 

monitor access activities. Other information system control weaknesses 

were also identified that could likewise hinder FDICís ability to 

provide adequate physical security for its computer facility, 

appropriate segregation of computer functions, effective control of 

system software changes, or ensure continuity of operations. 

Consequently, financial, and personnel programs and data maintained by 

FDIC are at risk of inadvertent or deliberate misuse, fraudulent use, 

and unauthorized alteration or destruction, which may occur without 

detection.



The following sections summarize the results of our review. A separate 

report designated for ďLimited Official Use OnlyĒ details specific 

weaknesses in information systems controls that we identified, provides 

our recommendations for correcting each weakness, and indicates FDICís 

planned actions or those already taken for each weakness. An evaluation 

of the adequacy of this action plan will be part of our planned work at 

FDIC.



Access to Data and Programs Was Not Adequately Controlled:



A basic management control objective for any organization is to protect 

data supporting its critical operations from unauthorized access, which 

could lead to improper modifications, disclosure, or deletion. 

Organizations can protect this critical information by granting 

employees the authority to read or modify only those programs and data 

that they need to perform their duties and by periodically reviewing 

access granted to ensure that it is appropriate. In addition, effective 

network security controls should be established to authenticate local 

and remote users and include a program to monitor the access activities 

of the network and mainframe systems.



Although progress was made in limiting access, FDICís information 

systems controls were not adequately protecting financial and sensitive 

information. Specifically, FDIC had not appropriately limited mainframe 

access authority, sufficiently secured its network, or established a 

comprehensive program to monitor access activities. These weaknesses 

place the corporationís information systems at risk of unauthorized 

access, which could lead to the improper disclosure, modification, or 

deletion of sensitive information and the disruption of critical 

operations.



Mainframe Access Authority Was Not Appropriately Limited for All Users:



Effective mainframe access controls should be designed to prevent, 

limit, and detect access to computer programs and data. These controls 

include access rights and permissions, system software controls, and 

software library management.



While FDIC restricted access to many users who previously had broad 

access to critical programs, software, and data, we identified 

instances in which the corporation had not sufficiently restricted 

access to legitimate users. A key weakness in FDICís controls was that 

its data center did not sufficiently restrict user access, as described 

below.



* Hundreds of users had access privileges that allowed them to modify 

financial software and read, modify, or copy financial data. This risk 

was further heightened because the corporation was not actively 

monitoring the access activities of these users.



* Many users had unnecessary access to powerful commands. About 55 

users had access to a specific transaction command that could be used 

to circumvent the security of sensitive FDIC information, including its 

bank examination files. These users included 26 help-desk employees and 

14 database staff, users who do not need this access to perform their 

daily job functions.



* About 15 users outside of the system programming function had access 

privileges to one sensitive system software library that is allowed to 

perform system functions that can be used to circumvent all security 

controls. Such access increases the risk that users can bypass security 

controls to alter or delete any computer data or programs on the 

system. Typically such access privileges are limited to system 

programmers.



* About 30 users had access to powerful operator commands that could be 

used to circumvent system security or compromise the operational 

integrity of the system. Prior to the completion of our work, the 

acting CIO told us that this access privilege had been removed for 

these users.



One reason for FDICís user access vulnerabilities was that not all 

access authority granted based on job responsibility was being 

collectively reviewed. Instead, individual access privileges were 

reviewed by data owners but only to determine the appropriateness of 

each userís access to a data ownerís resource. As a result, there was 

no comprehensive review to determine the appropriateness of all access 

granted to any one user. Such reviews would have allowed FDIC to 

identify and correct inappropriate access.



FDIC said that it was reviewing staff access and would limit this 

access to that required to carry out job responsibilities. Further, the 

corporation plans to develop and implement procedures to 

comprehensively review all access granted and ensure that access 

remains appropriate.



Network Security Not Sufficient:



Network security controls are key to ensuring that only authorized 

individuals gain access to sensitive and critical agency data. These 

controls include a variety of tools such as user passwords, intended to 

authenticate authorized users who access the network from local and 

remote locations. In addition, network controls provide safeguards to 

ensure that the system software is adequately configured to prevent 

users from bypassing network access controls or causing network 

failures.



The risks introduced by the weaknesses we identified in access controls 

were compounded by network security weaknesses. While FDIC had taken 

major steps to secure its network through the installation of a 

firewall and other security measures, weaknesses in the way the 

corporation configured its network servers, managed user IDs and 

passwords, provided network services, and secured its network 

connectivity were nonetheless still present. As a result, financial 

information processed on the network is at increased risk that 

unauthorized modification or disclosure could occur without detection. 

Because of FDICís interconnected environment, these network control 

weaknesses also increase the risk of unauthorized access to financial 

and sensitive information (such as bank examination, personnel, and 

financial management information) maintained on the FDIC mainframe 

computer. For example:



* One system had default accounts that were not removed during 

installation of remote access software. Information on default settings 

and passwords is available in vendor-supplied manuals, which are 

available to hackers. Other systems had dormant accounts that could be 

used by hackers with a lower risk of detection.



* The network had system software configuration weaknesses that could 

allow users to bypass access controls and gain unauthorized access to 

FDICís networks or cause network system failures. For instance, certain 

network system configuration settings allowed unauthorized users to 

connect to the network without entering a valid user ID and password 

combination. This could allow unauthorized individuals to obtain access 

to system information describing the network environment, including 

user IDs and password information.



* Potentially dangerous services were available on several network 

systems. Because of the availability of these services, a greater risk 

exists that an unauthorized user could exploit them to gain high-level 

access to the system and applications, obtain information about the 

system, or deny system services.



Further, FDIC did not have a process in place to actively review the 

network connections maintained by its contractors to ensure that only 

authorized network access paths were being used. Such network security 

weaknesses increase the risk that those with malicious intent could 

misuse, improperly disclose, or destroy financial and other sensitive 

information.



In response to our findings, FDICís acting CIO said that the 

corporation had developed and implemented policies and procedures to 

periodically review (1) user accounts on all servers to ensure that 

they are required and appropriately used, (2) system configuration 

settings for vulnerabilities, and (3) services used on the network to 

ensure that only those that are needed are maintained. She further said 

that FDIC had taken steps to tighten network security for its 

contractor connections and was in the process of reviewing all new 

contractor connections to the network to ensure appropriate access.



Program to Monitor Access Activities Not Complete:



The risks created by these access control problems were heightened 

because FDIC did not fully establish a comprehensive program to monitor 

user access. A monitoring program is essential to ensuring that 

unauthorized attempts to access critical program and data are detected 

and investigated. Such a program would include routinely reviewing user 

access activity and investigating failed attempts to access sensitive 

data and resources, as well as unusual and suspicious patterns of 

successful access to sensitive data and resources. Such a program is 

critical to ensuring that improper access to sensitive information is 

detected.



To effectively monitor user access, it is critical that logs of user 

activity be maintained for all critical system processing activities. 

This includes collecting and monitoring access activities on all 

critical systems, including mainframes, network servers, and routers. 

Because the volume of security information is likely to be too large to 

review routinely, the most effective monitoring techniques selectively 

target specific actions. These efforts should include provisions to 

identify unusual activities, such as changes to sensitive system files 

that were not made by system programmers, or updates to security files 

that were not made by security staff. A comprehensive monitoring 

program should, further, include an intrusion-detection system to 

automatically log unusual activity, provide necessary alerts, and 

terminate sessions when necessary.



While FDIC logged access activity for many of its systems and developed 

programs to target unusual or suspicious activities, it did not take 

sufficient steps to ensure that it was recording or monitoring the 

access activities of all key systems, including the following:



* Special system services on the FDIC mainframe were not being logged 

because the audit trail that records the access activity was not 

enabled. As a consequence, adverse access events may not be detected 

that could potentially disrupt system operations or result in 

information system being unavailable to the corporation.



* Logging was not enabled to monitor successful or unsuccessful 

attempts to access sensitive router and switch configuration files on 

the network. Unauthorized access to these resources could enable an 

intruder or unauthorized user to read or modify configuration files 

containing security settings such as router passwords, user names, or 

access control listings. With the ability to read or write to these 

files, a malicious user could seriously disable or disrupt network 

operations by taking control of the routers and switches.



While FDIC has installed and implemented a network-based intrusion-

detection system to monitor for unusual or suspicious access 

activities, it has not yet configured the host-based system parameters 

so that notifications (such as e-mail and/or pager) are sent to the 

computer security incident response team. FDIC is in the process of 

testing the host-based system to determine the most appropriate 

parameter configuration. Without full implementation of such a system 

and more effective logging and monitoring of system access activities, 

FDIC reduces its ability to identify and investigate unusual or 

suspicious access to its financial and sensitive information.



According to the acting CIO, the corporation has implemented security 

reporting for its test environment. In addition, it established 

procedures to provide for system logging and review of these logs for 

unusual or suspicious activities. Further, FDIC plans to have its 

intrusion-detection system fully implemented by July 31 of this year.



Other Information System Controls Were Ineffective:



In addition to the information system access controls discussed, other 

important controls should be in place to ensure the integrity and 

reliability of an organizationís data. These controls include policies, 

procedures, and control techniques to physically protect computer 

resources and restrict access to sensitive information, provide 

appropriate segregation of duties of computer personnel, prevent 

unauthorized changes to system software, and ensure the continuation of 

computer processing operations in case of disaster. FDIC had weaknesses 

in each of these areas.



Physical Security Controls Insufficient:



Physical security controls are important for protecting computer 

facilities and resources from espionage, sabotage, damage, and theft. 

These controls involve restricting physical access to computer 

resources, usually by limiting access to the buildings and rooms in 

which they are housed and periodically reviewing access granted to 

ensure that it continues to be appropriate based on criteria 

established for granting such access. At FDIC, physical access control 

measures (such as guards, badges, and alarms, used alone or in 

combination) are vital to safeguarding critical financial and sensitive 

personnel and banking information and computer operations from internal 

and external threats.



Although FDIC took measures to improve its physical perimeter security 

and access to its computer rooms, its process for granting and 

reviewing physical access to the computer center is not adequately 

controlled. For example, there were instances in which records of 

access granted to staff were not available. Further, staff who no 

longer required access to the computer center still retained such 

access. This included personnel who (1) had transferred out of computer 

operations, (2) no longer worked for FDIC, or (3) never or rarely 

visited the computer room. FDIC has neither established criteria for 

granting physical access to its computer center, nor developed 

procedures to periodically review staff access to determine continued 

need. Without adequate criteria and periodic review, FDIC increases the 

risk of unauthorized access to the corporationís systems and disruption 

of services.



At our request, FDIC reviewed its list of staff with access to the 

computer center, reducing the number of authorized staff from 270 to 

227. Specifically, it determined that it had no record of access 

granted to 18 staff, and that access was no longer needed by 25 

individuals.



According to the acting CIO, the corporation has revised its computer 

center access procedures to include criteria for granting and retaining 

access to the center, and established other procedures to provide 

access to information on employee reassignments and other actions that 

could affect the need for access to the computer center. Further, she 

said, the corporation has developed reports on employee access 

activities to further assist it in monitoring physical access to the 

computer center.



Computer Duties Largely but Not Always Properly Segregated:



Another fundamental technique for safeguarding programs and data is to 

segregate the duties and responsibilities of computer personnel to 

reduce the risk that errors or fraud will occur and go undetected. 

Incompatible duties that should be separated include application and 

system programming, production control, database administration, 

computer operations, and data security. Once policies and job 

descriptions supporting the principles of segregation of duties have 

been developed, it is important to ensure that adequate supervision is 

provided or mitigating controls established to provide the necessary 

monitoring and oversight to ensure that employees perform only those 

tasks that have been authorized for their job functions.



Although computer duties are generally properly segregated at FDIC, we 

identified instances in which duties were not adequately segregated. 

For example, 24 application developers were authorized to make 

modifications to financial programs and data that were in production. 

Typically, developer access is limited to program code in the 

development environment. While it may be appropriate at times to grant 

developers access to both production programs and data, it should only 

be done when mitigating controls have been established. However, the 

corporation had not established mitigating controls, such as logging 

and monitoring system access activities of the developers to ensure 

that they were performing only authorized actions.



Similarly, FDIC assigned two staff members to monitor and review the 

access activities on its production platforms; they were also 

authorized to make changes to programs and data that they were 

responsible for reviewing. Yet, FDIC did not provide supervisory 

oversight or establish other mitigating controls to ensure that these 

staff members performed only authorized functions. Because adequate 

mitigating controls had not been established in either instance, the 

risk is increased that FDIC financial or other sensitive information 

could be inadvertently or intentionally modified, or unauthorized 

transactions processed.



FDIC plans to enhance its system monitoring of developers by targeting 

logging and monitoring activities to sensitive production data and 

programs by December 31 of this year. Further, FDIC will augment its 

monitoring and review of access to its production environment by 

designating a security person to independently review these activities.



Development and Changes to System Software Not Completely Controlled:



A standard information systems control practice is to ensure that only 

authorized and fully tested system software or related modifications 

are placed in operation. To ensure that newly developed system software 

or changes are needed, work as intended, and do not result in the loss 

of data and program integrity, the system software or changes should be 

documented, authorized, tested, and independently reviewed.



Strong security practices provide that a structured approach be used to 

control the development, review, and approval of system software 

exits.[Footnote 8] This process includes requirements for documenting 

the purpose of the exit, performing a technical review of the software, 

and approving the implementation of this software. System software 

exits are used to provide installations with additional processing 

capabilities. These exits increase the risk of integrity exposures, 

since the code is usually implemented with authorized privileges that 

allow it to bypass security and gain access to financial programs or 

data.



However, we identified weaknesses in the system software development 

and change control process at FDIC. System software exits developed by 

FDIC were not adequately controlled. None of the nine locally developed 

system software exits maintained by FDIC were documented to reflect 

their purpose. Further, there was no documented evidence of review by 

technical management or formal approval for these exits. FDIC did not 

develop procedures for documenting, reviewing, or approving locally 

developed system software exits. Without a formally documented review 

and approval process, an increased risk exists that the exit will not 

work as intended, and could result in the loss of data or program 

integrity.



In addition, although FDIC established a process for system software 

change control and used an automated system to document changes, it did 

not establish procedures for performing and approving tests of system 

software changes or develop minimum documentation requirements for 

tests performed. In a sample of 20 system software changes reviewed, 

none had documentation of the tests performed or evidence that tests 

performed had been approved. As a result, the risk increases that 

unauthorized or not adequately tested system software could be placed 

into operation.



FDICís acting CIO said that the corporation would develop a process for 

documenting, reviewing, and approving locally developed system software 

exits. Further, the corporation plans to revise its requirements for 

documenting system software changes, provide specific requirements for 

testing these changes, and establish a process, by August 31 of this 

year to ensure compliance.



Service Continuity Planning Incomplete:



An organization must take steps to ensure that it is adequately 

prepared to cope with the loss of operational capability due to 

earthquake, fire, accident, sabotage, or any other disruption. An 

essential element in preparing for such catastrophes is an up-to-date, 

detailed, and fully tested service continuity plan covering all key 

computer operations, and including plans for business continuity. Such 

a plan is critical for helping to ensure that information system 

operations and data, such as financial processing and related records, 

can be promptly restored in the event of a disaster. To ensure that it 

is complete and fully understood by all key staff, the service 

continuity plan should be tested, to include surprise tests, and the 

test plans and results documented to provide a basis for improvement. 

In addition, backup sites should be reviewed and selected on the basis 

of their ability to provide assurance that an organization will be able 

to maintain continuity of operations.



While FDIC has updated and conducted tests of its service continuity 

plan, improvements are still needed in some areas. Service continuity 

weaknesses include the following:



* The lack of unannounced tests or walk-throughs of its service 

continuity plan. Instead, all tests have been planned, with 

participants fully aware of the disaster recovery scenario. In an 

actual disaster, of course, there is usually little or no warning.



* The lack of a business continuity plan for all its facilities. While 

FDIC has implemented a plan for its Washington, D.C., facility, it has 

yet to implement similar plans for its suburban computer center and 

eight regional offices.



* The potential unavailability of one of FDICís designated computer 

backup facilities. This facility is in an area that could have limited 

accessibility in an event like September 11, 2001.



FDIC plans to develop and implement procedures for performing 

unannounced walk-throughs of its disaster recovery plan by September 

30, 2002, and conduct and complete tests of its business recovery plans 

by December 31, 2002. Further, FDIC has moved all disaster recovery 

hardware and software from Washington, D.C., to a regional office.



Progress Made, but Full Implementation of Computer Security Management 

Program Not Yet Achieved:



A key reason for FDICís continuing weaknesses in information systems 

controls is that it has not yet fully developed and implemented a 

comprehensive security management program to ensure that effective 

controls are established and maintained, and that computer security 

receives adequate attention. Our May 1998 study of security management 

best practices[Footnote 9] determined that a comprehensive computer 

security management program is essential to ensuring that information 

system controls work effectively on a continuing basis. Specifically, 

an effective computer security management program includes:



* establishing a central security management structure with clearly 

delineated security roles and responsibilities;



* performing periodic risk assessments;



* establishing appropriate policies, procedures, and technical 

standards;



* raising security awareness; and:



* establishing an ongoing program of tests and evaluations of the 

effectiveness of policies and controls.



FDIC has taken action related to each of the key elements described 

above, including the implementation of a comprehensive security 

awareness program for all its employees. However, aside from security 

awareness, the steps taken to address the other key elements of a 

comprehensive computer security management program were not sufficient 

to ensure continuing success.



The first key element of effective computer security management is the 

establishment of a central security group with clearly defined roles 

and responsibilities. This provides overall security policy and 

guidance, along with the oversight to ensure compliance with 

established policies and procedures; further, it reviews the 

effectiveness of the security environment. The central security group 

often is supplemented by individual security staff designated to assist 

in the implementation and management of the organizations security 

program. To ensure the effectiveness of the security program, clearly 

defined roles and responsibilities for all security staff should be 

established, and coordination responsibilities between individual 

security staff and central security should be developed.



While FDIC has established a central security function and is in the 

process of designating information security managers for each of its 

divisions, it has not clearly defined these managersí roles and 

responsibilities. Further, FDIC has not established guidance to ensure 

that these managers coordinate and collaborate with the central 

security function in addressing security related issues. Without a 

formally defined and coordinated program, FDICís computer security 

program risks fragmentation and the lack of a corporate focus, which is 

needed to adequately secure its highly interconnected computer 

environment.



The second key aspect of computer security management is periodic risk 

assessment. Regular risk assessments assist management in making 

decisions on necessary controls by helping to ensure that security 

resources are effectively distributed to minimize potential loss. And, 

by increasing awareness of risks, these assessments generate support 

for the adopted policies and controls, which help ensure that the 

policies and controls operate as intended. Further, the Office of 

Management and Budget Circular A-130, appendix III, prescribes that 

risk be assessed when significant changes are made to the system or at 

least every 3 years.



FDIC has not yet fully implemented a risk assessment process. While it 

requires a risk-based approach to security management, to date it has 

focused on conducting independent security reviews of its key 

applications and general support systems. However, these reviews do not 

address certain key elements for managing risk, such as identifying, 

analyzing, and understanding the threats to the computer environment; 

determining business impact when risks are exploited; and mitigating 

risks in a cost-effective manner. Also, FDIC has not developed a 

complete framework for assessing risk when significant changes are made 

to a facility or its computer systems. During the past year, FDIC 

replaced its mainframe hardware and upgraded its mainframe operating 

system. Either of the changes could have introduced new vulnerabilities 

into FDICís computer system thus warranting a need for a risk 

assessment.



A third key element of effective security management is having 

established policies, procedures, and technical standards governing a 

complete computer security program. Such policies and procedures should 

integrate all security aspects of an organizationís interconnected 

environment, including local area network, wide area network, and 

mainframe security. In addition, technical security standards are 

needed to provide a consistent control framework for each computer 

environment. The integration of network and mainframe security is 

particularly important as computer systems become more interconnected.



FDIC has completed security plans for its general support systems and 

major financial applications. It has also developed and implemented 

overall security policies and procedures for its computer environment. 

While it has established technical security standards for several of 

its network platforms and its mainframe security software, it has not 

developed technical security standards for implementing network routers 

and maintaining operating system integrity on its mainframe system. 

Such standards would not only help ensure that appropriate computer 

controls are established consistently for these systems, but would also 

facilitate periodic reviews of the controls.



A fourth key area of security management is promoting security 

awareness. Computer attacks and security breakdowns often occur because 

computer users fail to take appropriate security measures. For this 

reason, it is vital that employees who use computer systems in their 

day-to-day operations be aware of the importance and sensitivity of the 

information they handle, as well as the business and legal reasons for 

maintaining confidentiality and integrity. In accepting responsibility 

for security, employees should, for example, devise effective 

passwords, change them frequently, and protect them from disclosure. In 

addition, employees should help maintain physical security over their 

assigned areas.



FDIC has established a comprehensive security awareness program for all 

employees. Specifically, it developed a computer-based security 

awareness program that all employees were required to complete 

annually. FDIC has also established procedures to monitor compliance 

with this requirement.



The final key area of an overall computer security management program 

is an ongoing program of tests and evaluations of the effectiveness of 

policies and controls. Such a program includes processes for (1) 

monitoring compliance with established information system control 

policies and procedures, (2) testing the effectiveness of information 

system controls, and (3) improving information system controls based on 

the results of these activities.



While FDIC established an independent security program to review 

compliance with application and general support system security plans 

on a 3-year cycle, it has not established a program to routinely 

monitor and test the effectiveness of information systems controls. 

Such a program would allow FDIC to ensure that policies remain 

appropriate and that controls accomplish their intended purpose.



Monitoring is key. Weaknesses discussed in this report could have been 

identified and corrected if the corporation had been monitoring 

compliance with established procedures. For example, if FDIC had a 

process to review all access authority granted to each user to ensure 

that the access was limited to that needed to complete job 

responsibilities, it would have been able to discover and limit the 

inappropriate access authority granted to hundreds of users, as 

discussed in this report.



A program to regularly test information systems controls would also 

have allowed FDIC to detect additional network security weaknesses. For 

example, using network analysis software designed to detect network 

vulnerabilities, we identified user accounts and services that could 

provide hackers with information to exploit the network and launch an 

attack on FDIC systems. Corporation staff could have identified this 

exposure using similar network analysis software already available to 

them.



In response, FDICís acting CIO said that the corporation would develop 

policies and procedures to define the roles and responsibilities of its 

information security managers. These procedures would include 

requirements for coordinating security activities with the central 

security function. In addition, the corporation is updating its risk 

management directive to address the need to perform periodic risk 

assessments and to conduct these assessments when significant changes 

occur. FDIC also intends to develop and implement technical security 

standards for its mainframe operating system and network routers. In 

addition, it expects to develop and implement an ongoing security 

oversight program to include provisions for monitoring compliance with 

established procedures and testing the effectiveness of the 

corporationís controls. All of these initiatives are expected to be 

completed no later than December 31 of this year.



Conclusions:



While FDIC has made progress in correcting previously identified 

computer security weaknesses, additional ones have been identified in 

its information systems control environment. Specifically, FDIC had not 

appropriately limited user access authority, sufficiently secured its 

network, or established a program to monitor access activity. Also, 

FDIC was not adequately providing physical security, segregating 

computer duties, controlling system software, or ensuring that all 

aspects of its service continuity needs were addressed. Such weaknesses 

place sensitive FDIC information at risk of disclosure, financial 

operations at risk of disruption, and assets at risk of loss.



A primary reason for FDICís information systems control problems is 

that it has not yet fully implemented a comprehensive program to manage 

computer security. While FDIC has clearly taken steps in many of these 

areas, more remains to be done. A comprehensive program for computer 

security management is essential for achieving an effective information 

system general control environment. Effective implementation of such a 

program provides for (1) periodically assessing risks; (2) implementing 

effective controls for restricting access based on job requirements and 

proactively reviewing access activities; (3) communicating the 

established policies and controls to those who are responsible for 

their implementation; and, perhaps most important, (4) evaluating the 

effectiveness of policies and controls to ensure that they remain 

appropriate and accomplish their intended purpose.



Recommendations for Executive Action:



To establish an effective information systems control environment, we 

recommend that you instruct the acting CIO, as the corporationís key 

official responsible for computer security, to ensure that the 

following actions are completed.



* Correct the information systems control weaknesses related to access 

authority, network security, access monitoring, physical access, 

segregation of duties, system software, service continuity, and 

security management. These specific weaknesses are described in a 

separate report designated for ďLimited Official Use Only,Ē also issued 

today.



* Fully develop and implement a computer security management program. 

Specifically, this would include (1) establishing clearly defined roles 

and responsibilities for FDICís information security managers and 

guidance for coordinating and collaborating with central security, (2) 

developing a program for performing periodic risk assessments to 

determine computer security needs, (3) developing and implementing 

technical security standards for all computer platforms, and (4) 

establishing an ongoing program of tests and evaluations to ensure that 

policies and controls are appropriate and effective.



In addition, we recommend that you instruct the acting CIO to report 

periodically to you, or your designee, on progress in implementing 

FDICís corrective action plans.



Agency Comments:



In providing written comments on a draft of this report, the Acting 

Chief Financial Officer of FDIC agreed with our recommendations. His 

comments are reprinted in appendix I of this report. He reported that 

significant progress has already been made in addressing the weaknesses 

identified. Specifically, FDIC plans to correct the information systems 

control weaknesses related to access authority, network security access 

monitoring, physical access, segregation of duties, systems software, 

service continuity, and security management by December 31, 2002.



We are sending copies of this report to the Chairman and Ranking 

Minority Member of the Senate Committee on Banking, Housing, and Urban 

Affairs; the Chairman and Ranking Minority Member of the House 

Committee on Financial Services; the members of the FDIC Audit 

Committee; officials in FDICís divisions of information resources 

management, administration, and finance; and the FDIC inspector 

general. We will also make copies available to others upon request. In 

addition, the report will be available at no charge on the GAO Web site 

at http://www.gao.gov.



If you have any questions regarding this report, please contact me at 

(202) 512-3317 or David W. Irvin, assistant director, at (214) 777-

5716. We can also be reached by e-mail at daceyr@gao.gov and 

irvind@gao.gov, respectively. Key contributors to this report are 

listed in appendix II.



Robert F. Dacey

Director, Information Security Issues:



Signed by Robert F. Dacey:



FOOTNOTES



[1] Information system general controls affect the overall 

effectiveness and security of computer operations as opposed to being 

unique to any specific computer application. They include security 

management, operating procedures, software security features, and 

physical protection designed to ensure that access to data is 

appropriately restricted, that only authorized changes to computer 

programs are made, that computer security duties are segregated, and 

that backup and recovery plans are adequate to ensure the continuity of 

essential operations.



[2] U.S. General Accounting Office, Financial Audit: Federal Deposit 

Insurance Corporationís 2001 and 2000 Financial Statements, GAO-02-633 

(Washington, D.C.: May 21, 2002).



[3] U.S. General Accounting Office, Financial Audit: Federal Deposit 

Insurance Corporationís 2000 and 1999 Financial Statements, GAO-01-635 

(Washington, D.C.: May 9, 2001).



[4] GAO-02-633.



[5] U.S. General Accounting Office, Information Security Management: 

Learning From Leading Organizations, GAO/AIMD-98-68 (Washington, D.C.: 

May 1998).



[6] GAO-02-633.



[7] GAO-01-635.



[8] A system software exit is a software program that provides an 

entity with flexibility to customize processing, but it also can be 

used to bypass security controls.



[9] GAO/AIMD-98-68.



[End of section]



Appendix I Comments from the Federal Deposit Insurance Corporation:



FDIC Federal Deposit Insurance Corporation:

801 17th Street NW, Washington, D.C. 20434:



Office of the Director, Division of Finance & Acting Chief Financial 

Officer:



June 17, 2002:



Mr. Joel C. Willemssen, Managing Director Information Technology 
Issues:

U.S. General Accounting Office:

441 G Street, NW:

Washington, D.C. 20548:



Dear Mr. Willemssen:



Thank you for the opportunity to the draft report entitled, FDIC 

Information Security Improvements Made But Weaknesses Remain, dated 
June 

5, 2002. While recognizing that FDIC has made progress in correcting 
the 

information security weaknesses previously identified and has taken 
other 

steps to improve security, the General Accounting Office (GAO) did not 

identify internal control matters in five areas: corporate-wide 
security 

program, access controls, segregation of duties, service continuity, 
and 

systems software. We appreciate the detailed information technology 
audit 

work completed by the GAO team. We believe that it will help us as we 

continue our efforts to improve the FDICís information security 
program. 



Overall, the FDIC agrees with the results represented in the referenced 

draft reports. Specifically, in response to the recommendations for 

executive action, the FDIC will, by December 31, 2002, correct the 

information systems control weaknesses related to access authority, 
network 

security access monitoring, physical access, segregation of duties, 
systems 

software, service continuity, and security management. Specific 
corrective 

actions to be taken were provided separately. 



The corrective actions include:



(1) establishing clearly defined roles and responsibilities for FDICís 

information security managers and guidance for coordinating and 

collaborating with central security. 



(2) developing a program for performing periodic risk assessments to 

determine computer security needs. 



(3) developing and implementing technical security standards for all 

computer platforms. 



(4) establishing an ongoing program of tests and evaluations to ensure 

that policies and controls are appropriate and effective.



In addition, the Chief Information Officer and the Director of Internal 

Control Management will periodically report to the Chief Operating 
Office 

on the progress made on implementing corrective action plans. 



We are pleased to report that significant progress has already been 
made 

in addressing the weaknesses identified in the draft reports. Further, 
we 

understand that through substantial resources and strong executive 

involvement, a sustained effort is needed to address both well 
documented 

security risks and the multitude of new vulnerabilities posed by the 

rapidly changing technology industry. To that end, the FDIC remains 

committed to establishing and improving every aspect of our corporate-
wide 

security program. As we progress through our 2002 corrective action 
plans, 

we look forward to continuing our productive dialogue with the GAO.



If you have questions relating to the management responses, please 
contact 

Vijay G. Deshpande, Director, Office of Internal Control Management, at 

202-736-3014. 



Sincerely,



Fred Selby, Director of Finance & Acting Chief Financial Officer:



Signed by Fred Selby:



cc: Carol Heindel, Vijay Deshpande, James D. Collins:



[End of section]



Appendix II GAO Contact and Staff Acknowledgments:



GAO Contact:



David W. Irvin, (214) 777-5716:



Acknowledgments:



In addition to the person named above, Edward Alexander, Gerald Barnes, 

Nicole Carpenter, Lon Chin, West Coile, Debra Conner, Kristi Dorsey, 

Denise Fitzpatrick, Edward Glagola, Brian Howe, Jeffrey Knott, Harold 

Lewis, Suzanne Lightman, Duc Ngo, Tracy Pierson, Rosanna Villa, and 

Charles Vrabel made key contributions to this report.



[End of Section]



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