Bureau of the Public Debt: Areas for Improvement in Computer Controls
(Letter Report, 10/14/98, GAO/AIMD-99-2).

Pursuant to a legislative requirement, GAO reviewed the general and
application controls that support key automated financial systems
maintained and operated by the Bureau of the Public Debt (BPD).

GAO noted that: (1) overall, GAO found that BPD implemented effective
computer controls; however, GAO identified certain vulnerabilities in
general controls involving: (a) access to data and programs; (b)
physical access; (c) contingency planning; and (d) security management;
(2) GAO also identified vulnerabilities in the controls for two key BPD
financial applications maintained and operated at the BPD data center in
Parkersburg, West Virginia; (3) addressing these vulnerabilities
requires: (a) strengthening access controls by further restricting
system access rights and improving security monitoring; and (b) managing
accuracy controls more effectively by ensuring that established
procedures are followed to prevent unauthorized deletion of exception
reports; (4) in most cases, BPD has corrected or is correcting the
vulnerabilities that GAO identified; (5) GAO provided a general summary
of the vulnerabilities that existed on September 30, 1997; (6) those
that GAO verified had been fully resolved subsequent to September 30,
1997, GAO has so noted; and (7) GAO will review the status of BPD's
other corrective actions as part of its fiscal year 1998 financial
audits.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-99-2
     TITLE:  Bureau of the Public Debt: Areas for Improvement in 
             Computer Controls
      DATE:  10/14/98
   SUBJECT:  Computer security
             Debt held by public
             Federal agency accounting systems
             Financial management systems
             Data integrity
             Financial statement audits
             Internal controls
IDENTIFIER:  Parkersburg (WV)
             
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Cover
================================================================ COVER


Report to the Secretary of the Treasury

October 1998

BUREAU OF THE PUBLIC DEBT - AREAS
FOR IMPROVEMENT IN COMPUTER
CONTROLS

GAO/AIMD-99-2

Computer Controls at BPD

(919305)


Abbreviations
=============================================================== ABBREV

  BPD -
  CFO -
  FRB -
  GMRA -

Letter
=============================================================== LETTER


B-280813

October 14, 1998

The Honorable Robert E.  Rubin
The Secretary of the Treasury

Dear Mr.  Secretary: 

We recently reported on the U.S.  government's consolidated financial
statements (GAO/AIMD-98-127, March 31, 1998) and the Bureau of the
Public Debt's (BPD) Schedule of Federal Debt (GAO/AIMD-98-65,
February 27, 1998) for fiscal year 1997.  These audits were conducted
under the Chief Financial Officers (CFO) Act of 1990, as expanded by
the Government Management Reform Act of 1994 (GMRA).  Our review of
the general and application computer controls over key BPD financial
systems was performed as part of these audits.  On July 31, 1998, we
issued a "Limited Official Use" report to you detailing the results
of our review.  This version of the excerpted report for public
release provides a general summary of the vulnerabilities we
identified and the recommendations we made. 

This report discusses general and application controls that support
key automated financial systems maintained and operated by BPD. 
These systems process investments and redemptions of Treasury
securities, generate interest payments, account for the resulting
debt, and provide financial reports to the public and the federal
government. 

General controls affect the overall effectiveness and security of a
computer processing facility as opposed to being unique to any
specific computer application processed there.  They are intended to
(1) protect data, files, and programs from unauthorized access,
modification, and destruction, (2) prevent the introduction of
unauthorized changes to systems and applications software, (3) ensure
that system software development and maintenance, applications
software development and maintenance, computer operations, security,
and quality assurance functions are performed by different people,
(4) ensure recovery of computer processing operations in case of a
disaster or other unexpected interruption, and (5) ensure that an
adequate computer security planning and management program is in
place. 

Application controls are the structure, policies, and procedures that
apply to individual application systems.  These controls help to
ensure that transactions are valid; properly authorized; and
completely, promptly, and accurately processed by the computer. 

As we reported in connection with our audit of the Schedule of
Federal Debt, management of BPD fairly stated that its related
internal controls, including computer controls, were effective. 
However, as discussed in this report, we found vulnerabilities
involving computer controls that we did not consider reportable
conditions,\1 but, if left uncorrected, could increase the risk of
inappropriate disclosure and modification of sensitive information,
misuse or damage of computer resources, and disruption of critical
operations.  These vulnerabilities warrant management's attention and
action.  While performing our work, we communicated our interim
findings and recommended corrective actions for each specific finding
to BPD management.  This report summarizes those findings. 


--------------------
\1 Reportable conditions involve matters coming to our attention
relating to significant deficiencies in the design or operation of
internal controls that, in the auditor's judgment, could adversely
affect an entity's ability to (1) safeguard assets against loss from
unauthorized acquisition, use, or disposition, (2) ensure the
execution of transactions in accordance with management's authority
and in accordance with laws and regulations, or (3) properly record,
process, and summarize transactions to permit the preparation of the
schedule or to maintain accountability for assets. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Overall, we found that BPD implemented effective computer controls;
however, we identified certain vulnerabilities in general controls
involving (1) access to data and programs, (2) physical access, (3)
contingency planning, and (4) security management. 

We also identified vulnerabilities in the controls for two key BPD
financial applications maintained and operated at the BPD data center
in Parkersburg, West Virginia.  Addressing these vulnerabilities
requires (1) strengthening access controls by further restricting
system access rights and improving security monitoring and (2)
managing accuracy controls more effectively by ensuring that
established procedures are followed to prevent unauthorized deletion
of exception reports. 

In most cases, BPD has corrected or is correcting the vulnerabilities
that we identified.  The following discussion provides a general
summary of the vulnerabilities that existed on September 30, 1997. 
Those that we verified had been fully resolved subsequent to
September 30, 1997, we have so noted.  We will review the status of
BPD's other corrective actions as part of our fiscal year 1998
financial audits. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Department of the Treasury is authorized by the Congress to
borrow money on the credit of the United States to fund operations of
the federal government.  The Bureau of the Public Debt is the
organizational entity within Treasury that is responsible for
prescribing the debt instruments and limiting and restricting the
amount and composition of the debt.  BPD accomplishes this by issuing
marketable Treasury bills, notes, and bonds as well as nonmarketable
securities, such as U.S.  Savings Bonds.  The bureau is also
responsible for paying interest to investors and redeeming investors'
securities.  In addition, BPD has been given the responsibility to
issue Treasury securities to trust funds for trust fund receipts not
needed for current benefits and expenses. 

During fiscal year 1997, BPD issued over $2.34 trillion in Treasury
securities to the public while redeeming about $2.31 trillion of debt
held by the public.  Most of the $2.34 trillion was raised through
more than 160 securities auctions as well as the continual sale of
savings securities at 40,000 locations throughout the country and
investments in securities by state and local governments.  Further,
there was $152 billion of net borrowings from federal entities,
primarily trust funds. 

BPD relies on a number of financial systems to process and track the
money that is borrowed and to account for the securities it issues. 
One of its primary systems is the Public Debt Accounting and
Reporting System, which is used to account for the federal debt.  BPD
also relies on various other systems to track marketable securities,
savings bonds, and securities issued to state and local government
entities and to generate interest transactions for the different
securities.  All of BPD's financial activities are processed at its
data processing center in Parkersburg, West Virginia. 

In carrying out its debt responsibilities, BPD receives assistance
from Federal Reserve Banks (FRB) located throughout the country,
which serve as Treasury's fiscal agents.  For instance, FRBs issue
Treasury securities in electronic (book entry) form upon
authorization by the Treasury and administer principal and interest
payments on these securities.  There are 12 FRBs with 25 branches
throughout the country. 

FRBs use a number of information systems to help process issuance and
redemption activities; generate interest payments; and account for
marketable Treasury securities, nonmarketable savings securities, and
savings securities stock.  Data are initially processed at FRBs and
then forwarded to BPD's Parkersburg, West Virginia, data center for
further processing. 

The overall effectiveness of the BPD computer controls depends on the
controls implemented by BPD's Assistant Commissioner for the Office
of Information Technology.  This person serves as Chief Information
Officer and is responsible for overseeing the development,
implementation, and operation of information processing systems. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Our objectives were to evaluate and test the effectiveness of the
controls over key financial management systems maintained and
operated by BPD.  Specifically, we evaluated general controls
intended to

  -- protect data, files, and programs from unauthorized access,
     modification, and destruction;

  -- prevent the introduction of unauthorized changes to systems and
     applications software;

  -- ensure that system software development and maintenance,
     applications software development and maintenance, computer
     operations, security, and quality assurance are performed by
     different people;

  -- ensure recovery of computer processing operations in case of a
     disaster or other unexpected interruption; and

  -- ensure that an adequate computer security planning and
     management program is in place. 

To evaluate the general controls, we identified and reviewed BPD's
information system general control policies and procedures, conducted
tests and observations of controls in operation, and held discussions
with officials at the BPD data center to determine whether general
controls were in place, adequately designed, and operating
effectively.  In addition, we attempted to obtain access to sensitive
data and programs.  These attempts, referred to as penetration
testing, were performed with the knowledge and cooperation of BPD
officials. 

To evaluate certain application controls, we tested two key BPD
financial applications maintained and operated at the data center. 
Specifically, we evaluated application controls intended to ensure
that

  -- access privileges establish individual accountability and proper
     segregation of duties, limit the processing privileges of
     individuals, and 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; and

  -- files and reports generated by the application (1) represent
     transactions that actually occur and (2) accurately reflect the
     results of processing, and reports are controlled and
     distributed to the authorized users. 

To assist in our evaluation and testing of general and application
controls, we contracted with an independent public accounting firm. 
We determined the scope of our contractor's audit work, monitored its
progress, and reviewed related working papers to ensure that the
resulting findings were adequately supported. 

During the course of our work, we communicated interim findings and
recommended corrective actions to BPD officials who informed us of
the steps they planned to take or had taken to address the
vulnerabilities we identified.  We performed follow-up work to assess
the status of any corrective actions taken as of September 30, 1997. 
The results of the follow-up work were also communicated to BPD. 

We performed our work at the BPD data center in Parkersburg, West
Virginia, from March 1997 through January 1998 in accordance with
generally accepted government auditing standards.  We requested oral
comments on a draft of this report from the Secretary of the Treasury
or his designee.  On August 31, 1998, the Commissioner of the Bureau
of the Public Debt provided us with oral comments, which are
discussed in the "Agency Comments" section. 


   AREAS FOR IMPROVEMENT IN
   GENERAL COMPUTER CONTROLS
------------------------------------------------------------ Letter :4

Our review of general controls over BPD's financial systems did not
identify any weaknesses that placed BPD's financial information at
significant risk of being accessed, compromised, or destroyed. 
However, we found certain vulnerabilities that warrant management's
attention and action.  Specifically, we found that BPD could improve
its general controls by (1) strengthening logical access controls
over the use of powerful system capabilities that can be used to
access data and programs, (2) strengthening physical controls to
further restrict and prevent unauthorized access, and (3) enhancing
its service continuity and contingency plans.  BPD could also improve
its oversight and monitoring of computer security by ensuring that
known security violations are investigated and resolved. 


      ACCESS TO DATA AND PROGRAMS
---------------------------------------------------------- Letter :4.1

A key control used by organizations to protect and control access to
information maintained in their systems is the use of logical access
controls.  Logical access controls consist of safeguards, such as
passwords, user IDs, and security software programs, that prevent
unauthorized users from gaining access to computing resources and
restrict the access of legitimate users to the specific systems,
programs, and files that they need to conduct their work. 

BPD did not adequately control powerful system capabilities to
prevent unauthorized changes to data and programs that could
adversely affect the integrity and availability of the on-line
systems environment.  We also identified vulnerabilities in certain
controls that detect unauthorized access to BPD's systems. 


      PHYSICAL ACCESS
---------------------------------------------------------- Letter :4.2

Another key control for safeguarding financial data and computer
resources from internal and external threats is physical access
controls, such as locks, guards, fences, and surveillance equipment. 
Our review at the data center found physical access control
vulnerabilities could allow access to sensitive areas within the BPD
data center by employees whose jobs did not warrant such access. 


      CONTINGENCY PLANNING
---------------------------------------------------------- Letter :4.3

An organization's ability to respond to and maintain service after an
emergency can be significantly affected by how well it has planned
for such contingencies and tested those plans.  An organizational
contingency plan describes how an organization will deal with a full
range of emergencies, from electrical power failures to catastrophic
events, such as earthquakes, floods, and fires.  The plan specifies
the organization's emergency response, backup operations, and
postdisaster recovery procedures to ensure the availability of
critical resources and facilitate the continuity of operations.  It
also identifies essential business functions and prioritizes
resources in order of criticality.  To be most effective, a
contingency plan should be periodically tested, and employees should
be trained in and familiar with its use. 

In reviewing BPD's service continuity and contingency planning, we
found vulnerabilities related to the close proximity of off-site
storage, currentness and completeness of contingency plan testing,
and adequacy of the backup power supply. 


      SECURITY MANAGEMENT
---------------------------------------------------------- Letter :4.4

In addition to establishing controls and preparing emergency response
plans, an effective computer security management program requires
that the organization be actively involved in planning and overseeing
computer security activities.  Such management involvement should
include assigning explicit security responsibilities, regularly
assessing risks, establishing and communicating security policies and
procedures based on risks, and monitoring and periodically reviewing
security controls. 

In reviewing general controls, we found security management
vulnerabilities related to (1) "conflict of interest" issues in the
reporting and follow-up of security violations and (2) verifying that
background checks have been performed before granting employees
access to systems. 

We also noted additional security management vulnerabilities related
to the development of BPD-specific security policies and oversight of
the security violation follow-up process.  However, we verified that
corrective actions resolving these vulnerabilities had been completed
by BPD subsequent to September 30, 1997. 


   APPLICATION CONTROLS CAN BE
   STRENGTHENED
------------------------------------------------------------ Letter :5

In addition to testing general controls, we tested application
controls for two key BPD financial applications maintained and
operated at the BPD data center.  We identified the following areas
where improvements could be made:  (1) strengthening access controls
by further restricting system access rights and improving security
monitoring and (2) managing accuracy controls more effectively by
ensuring that established procedures are followed to prevent the
unauthorized deletion of exception reports. 


      ACCESS CONTROLS
---------------------------------------------------------- Letter :5.1

Like general access controls, access controls for specific
applications should be established to ensure individual
accountability and proper segregation of duties, limit the processing
privileges of individuals, and prevent and detect inappropriate or
unauthorized activities.  For the applications reviewed, we found
that BPD granted greater access rights to users than required for
their jobs, maintained inadequate documentation of access
authorizations granted to users, and did not adequately monitor user
activities relating to the applications. 


      ACCURACY CONTROLS
---------------------------------------------------------- Letter :5.2

Accuracy controls are one of the processing controls used to ensure
that data are valid and correctly processed.  For one application, we
determined that the automated controls for identifying and correcting
exceptions need improvement.  Specifically, established procedures
were not followed to prevent inappropriate use of a powerful software
utility to delete exception reports from production databases.  The
deletion of exception conditions may cause inaccuracies in the
application's reporting. 


   FRBS' COMPUTER CONTROLS CAN BE
   IMPROVED
------------------------------------------------------------ Letter :6

Because FRBs are integral to the operations of BPD, we also assessed
general controls over BPD financial systems operated at FRBs and
application controls for four key BPD financial applications
maintained and operated by FRBs.  Overall, we found these controls
were effective.  However, we found several vulnerabilities in general
and application controls that require FRB management's attention and
action.  These include vulnerabilities in general controls involving
(1) access to systems, programs, and data, including unauthorized
external access and (2) service continuity and contingency planning. 
We also found vulnerabilities in access controls over two of the
applications.  During our review, we communicated our interim
findings and recommended corrective actions for each specific finding
to FRB management, and, in most cases, FRBs have acted or are acting
to resolve the vulnerabilities that we identified.  We will review
the status of FRBs' other corrective actions as part of our fiscal
year 1998 financial audits.  Further, we are providing a separate
report to the Board of Governors of the Federal Reserve System that
summarizes the details of the control vulnerabilities at FRBs. 


   OTHER CONTROLS
------------------------------------------------------------ Letter :7

BPD implemented other controls that reduce the risk that the computer
control vulnerabilities identified in this report could result in
material losses or misstatements in the financial statements
occurring and not being detected promptly.  For instance, we
determined that the assignment of duties for issuing and redeeming
securities provides adequate segregation between FRB and BPD
personnel, and that reconciliations of their independent records are
performed daily.  In addition, although the organizational placement
of the security branch function could create "conflict of interest"
situations, we found that discussion of security issues at periodic
Executive Board meetings provides an opportunity for management to
identify any potential instances of conflicts of interest. 


   CONCLUSIONS
------------------------------------------------------------ Letter :8

Overall, the BPD and FRB general and application controls, combined
with other effective features of their control environment, such as
the clear separation of duties for issuing and redeeming securities,
resulted in our opinion that management of BPD fairly stated that its
related internal controls, including computer controls, were
effective.  As evidenced by our work on the financial audit of the
Bureau of the Public Debt's Fiscal Year 1997 Schedule of Federal
Debt, we determined that the financial information presented on the
schedule was materially correct.  In addition, these controls have
reduced BPD's susceptibility to inadvertent or deliberate misuse,
fraudulent use, alteration, or destruction of financial data by users
and others gaining access to the systems.  However, left uncorrected,
the vulnerabilities included in this report could increase the risk
of inappropriate disclosure and modification of sensitive
information, misuse or damage of computer resources, and disruption
of critical operations and thus warrant management's attention and
action. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :9

To improve areas of vulnerability in general controls and application
controls over BPD's financial systems cited in our July 31, 1998,
"Limited Official Use" version of this report, we recommended in that
report that you direct the Commissioner of the Bureau of the Public
Debt to take the following actions. 

  -- Correct each individual vulnerability we identified and
     communicated to BPD during our testing and summarized in the
     "Limited Official Use" report.  Assign responsibility and
     accountability for correcting each vulnerability to designated
     individuals.  These individuals should report regularly to the
     Commissioner on the status of all vulnerabilities, including
     actions taken to correct them. 

  -- Work with FRBs to implement corrective actions to improve the
     computer control vulnerabilities related to BPD systems
     supported by FRBs that we identified and communicated to FRBs
     during our testing. 


   AGENCY COMMENTS
----------------------------------------------------------- Letter :10

BPD agreed with our findings and recommendations.  The Commissioner
of the Bureau of the Public Debt indicated that he was pleased that
the review of BPD's general controls over financial systems did not
identify any reportable conditions.\2 Further, he stated that in most
cases, BPD has corrected or is already taking actions to resolve the
vulnerabilities identified in this report. 


--------------------
\2 See footnote 1 for the definition of reportable conditions. 


--------------------------------------------------------- Letter :10.1

We are sending copies of this report to the Commissioner of the
Bureau of the Public Debt; the Director of the Office of Management
and Budget; the Chairmen and Ranking Minority Members of the Senate
Committee on Appropriations and its Subcommittee on Treasury, General
Government, and Civil Service, Senate Committee on Finance, Senate
Committee on Governmental Affairs, Senate Committee on the Budget,
House Committee on Appropriations and its Subcommittee on Treasury,
Postal Service, and General Government, House Committee on Ways and
Means, House Committee on Government Reform and Oversight and its
Subcommittee on Government Management, Information and Technology,
House Committee on the Budget; and other interested congressional
committees.  Copies will be made available to others upon request. 

Should you or members of your staff have any questions concerning
this report, please contact me at (202) 512-3406.  Major contributors
to this report are listed in appendix I. 

Sincerely yours,

Gary T.  Engel
Associate Director
Governmentwide Accounting and
 Financial Management Issues


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I


   ACCOUNTING AND INFORMATION
   MANAGEMENT DIVISION,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:1

J.  Lawrence Malenich, Assistant Director
Barbara S.  Oliver, Audit Manager
Gregory C.  Wilshusen, Assistant Director--Technical Advisor

*** End of document. ***