FDIC Information Security: Progress Made but Existing Weaknesses 
Place Data at Risk (18-JUN-03, GAO-03-630).			 
                                                                 
Effective controls over information systems are essential to	 
ensuring the protection of financial and personnel information	 
and the security and reliability of bank examination data	 
maintained bythe Federal Deposit Insurance Corporation (FDIC). As
part of GAO's 2002 financial statement audits of the three FDIC  
funds, we assessed (1) the corporation's progress in addressing  
computer security weaknesses found in GAO's 2001 audit, and (2)  
the effectiveness of FDIC's controls.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-630 					        
    ACCNO:   A07247						        
  TITLE:     FDIC Information Security: Progress Made but Existing    
Weaknesses Place Data at Risk					 
     DATE:   06/18/2003 
  SUBJECT:   Financial statement audits 			 
	     Computer networks					 
	     Information resources management			 
	     Information systems				 
	     Computer security					 
	     Internal controls					 
	     Bank Insurance Fund				 
	     FSLIC Resolution Fund				 
	     Savings Association Insurance Fund 		 

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GAO-03-630

                                       A

June 18, 2003 Let er t To the Board of Directors

Federal Deposit Insurance Corporation As part of our calendar year 2002
financial statement audits of the Federal Deposit Insurance Corporation*s
(FDIC) Bank Insurance Fund, Savings Association Insurance Fund, and FSLIC
(Federal Savings and Loan Insurance Corporation) Resolution Fund, 1 we
assessed (1) the progress FDIC has made in correcting or mitigating
computer security weaknesses reported in our calendar year 2001 audit, 2
and (2) the effectiveness of the corporation*s information system general
controls. 3 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.

This report summarizes weaknesses in information systems controls over
FDIC*s computer systems. Because of the significance of these weaknesses,
we reported information system controls as a reportable condition 4 in
FDIC*s financial statements audit report for calendar year 2002. 5 We are
also issuing a report designated for *Limited Official Use

1 U. S. General Accounting Office, Financial Audit: Federal Deposit
Insurance Corporation Fund*s 2002 and 2001 Financial Statements, GAO- 03-
543 (Washington, D. C.: Mar. 28, 2003). 2 U. S. General Accounting Office,
FDIC Information Security: Improvements Made but Weaknesses Remain, GAO-
02- 689 (Washington, D. C.: July 15, 2002). 3 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.

4 Reportable conditions involve matters coming to the auditor*s attention
that, in the auditor*s judgment, should be communicated because they
represent significant deficiencies in the design or operation of internal
control and could adversely affect FDIC*s ability to meet the control
objectives.

5 GAO- 03- 543.

Only,* which describes in more detail the computer security weaknesses
identified and offers specific recommendations for correcting them.

Results in Brief FDIC has made progress in correcting information system
control weaknesses and implementing controls since our calendar year 2001
audit.

Of the 41 weaknesses identified, FDIC has corrected 19 and is taking
action to resolve the 22 that remain. However, testing this year
identified additional weaknesses in information

system controls. Such weaknesses reduce the effectiveness of FDIC*s
controls to safeguard electronic access to critical financial and other
sensitive information. When combined with unaddressed weaknesses for the
previous year, the risk of unauthorized disclosure of critical financial
and other sensitive information, disruption of critical operations, and
loss of assets is increased. Specifically, FDIC weaknesses include not
sufficiently restricting mainframe access, adequately securing its
network, or implementing a program to fully monitor access activity. In
addition, weaknesses in other information system controls, including
physical security, application software, and service continuity, further
increase the risk to FDIC*s information systems.

The key reason for FDIC*s continuing weaknesses in information system
controls is that it has not yet fully developed and 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. FDIC
has established a security management structure, implemented security
policies and procedures, and enhanced security awareness training, but it
has not fully implemented a process for assessing and managing risk on a
continuing basis, or a comprehensive, ongoing program of testing and
evaluation to ensure that policies and controls are appropriate and
effective.

To establish an effective information system control environment, in
addition to fully addressing recommendations stemming from the 2001
review, we are making recommendations to ensure that actions are completed
to correct those weaknesses identified in this year*s audit. In response,
the acting chief information officer (CIO) stated that he has agreed to
take action intended to correct the weaknesses by December 31, 2003.

In providing written comments on a draft of this report, FDIC*s Chief
Financial Officer 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 nation*s banking system. The Financial Institutions
Reform,

Recovery, and Enforcement Act of 1989 sought 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 institutional failures. The act also
created the FSLIC Resolution Fund to complete 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 $3.3 trillion for about 9,400
institutions. Together the three funds have about $49.5 billion in assets.
FDIC had a budget of about $1.2 billion for calendar year 2002 to support
its activities in managing the three funds. For that year, it processed
more than 2.6 million financial transactions.

FDIC relies extensively on computerized systems to support its financial
operations and store the sensitive information it collects. Its local and
wide area networks interconnect these systems. 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 uses other systems that maintain personnel information for its
employees, examination data for financial institutions, and legal
information on closed institutions. At the time of our review, about 7,000
individuals were authorized to use FDIC*s systems. FDIC*s acting CIO is
the corporation*s key official for computer security.

Objectives, Scope, and The objectives of our review were to assess (1) the
progress FDIC had

made in correcting or mitigating weaknesses reported in our calendar year
Methodology

2001 financial statement audit 6 and (2) the effectiveness of information
system general controls. These information system 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 corporation*s financial information. Our evaluation was based on
(1) our Federal Information System Controls Audit Manual, which contains
guidance for reviewing information system controls that

affect the integrity, confidentiality, and availability of computerized
data; and (2) our May 1998 report on security management best practices 7
at leading organizations, which identifies key elements of an effective
information security program.

Specifically, we evaluated information system controls intended to 
protect data and software 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 pertinent FDIC security
policies and procedures, and conducted tests and observations of controls
in operation. In addition, we reviewed corrective actions taken by FDIC to
address vulnerabilities identified in our calendar year 2001 audit. 6 GAO-
02- 689.

7 U. S. General Accounting Office, Information Security Management:
Learning from Leading Organizations, GAO/ AIMD- 98- 68 (Washington, D. C.
May 1998).

We performed our review at FDIC*s headquarters in Washington, D. C.; its
computer facility in Arlington, Virginia; and FDIC*s Dallas regional
office, from October 2002 through March 2003. Our review was performed in
accordance with U. S. generally accepted government auditing standards.

FDIC Has Made FDIC has made progress in correcting previously identified
computer

security weaknesses. Of the 41 weaknesses identified in our calendar year
Progress in Correcting

2001 audit, 8 FDIC has corrected 19 and is taking action intended to
resolve Weaknesses and

the 22 that remain. FDIC has addressed key access control, application
Implementing Controls

software, system software, and service continuity weaknesses previously
identified. Specifically, FDIC

 limited access to certain critical programs, software, and data; 
reduced the number of users with physical access to computer facilities; 
enhanced its review procedures of system software changes;  strengthened
its procedures for reviewing changes to application

software;  expanded tests of its disaster recovery plan; and  defined
the roles and responsibilities of its information security officers. In
addition to responding to previously identified weaknesses, FDIC
established several other computer controls to enhance its information
security. For example, it enhanced procedures to periodically review user

access privileges to computer programs and data to ensure that access is
granted only to those who need it to perform their jobs. Likewise, FDIC
strengthened its physical security controls by establishing criteria for
granting access to computer center operations, and developed procedures
for periodically reviewing access to ensure that it remained appropriate.

Further, FDIC enhanced its system software change control process by
developing procedures requiring technical reviews of all system software
modifications prior to their implementation. In addition, it established a
8 GAO- 02- 689.

process to periodically review application software to ensure that only
authorized computer program changes were being made. FDIC also improved
its disaster recovery capabilities by establishing an alternate backup
site to support its computer network and related system platforms, and by
conducting periodic unannounced walk- through tests of its disaster

recovery plan. The following sections summarize the results of our review.
Our *Limited Official Use Only* report details specific weaknesses in
information systems controls that we identified, provides our
recommendations for correcting each weakness, and indicates FDIC*s planned
actions or those already taken for each weakness. An evaluation of the
adequacy of this action plan will be part of our future work at FDIC.

Weaknesses Continue Although FDIC established many policies, procedures,
and controls to to Place Financial and

protect its computing resources, the corporation did not always
effectively implement them to ensure the confidentiality, integrity, and
availability of Sensitive Data at Risk

financial and sensitive data processed by its computers and networks. In
addition to the previously reported weaknesses that remain not fully
addressed, 29 new information security weaknesses were identified during
this review.

The weaknesses identified included instances in which FDIC did not
adequately restrict mainframe access, secure its network, or establish a
complete program to monitor access activities. In addition, new weaknesses
in other information system controls, including physical security,
application software, and service continuity, further increase the risk to
FDIC*s information systems. Collectively they place the corporation*s
systems at risk of unauthorized access, which could lead to unauthorized
disclosure, disruption of critical operations, and loss of assets.

Mainframe Access Was Not A basic management control objective for any
organization is to protect

Adequately Restricted data supporting its critical operations from
unauthorized access, which

could lead to improper modification, 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. Effective mainframe access controls
should be designed to

restrict access to computer programs and data, and prevent and detect
unauthorized access. 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, instances remained in which the
access granted specific users was still not appropriate. A key weakness in
FDIC*s controls was that it did not adequately limit user access, as
described below.

 Nineteen users had access to production control software that would
allow them to modify software outside the formal configuration control
process. This risk was further heightened because FDIC was not maintaining
audit logs of software changes. Without such logs, unauthorized software
changes could be made to critical financial and sensitive systems,
possibly without detection. This software was especially vulnerable
because it could allow an unauthorized user to bypass security controls.
Further, an excessive number of users had access to 14 of 19 production
job control systems we reviewed, allowing them to obtain exact details of
production programs and data, which could then be used to gather
information to circumvent controls.

 An excessive number of users had access that allowed them to read user
identifications (IDs) and passwords used to transfer data among FDIC
production computer systems. With these IDs and passwords, the users could
gain unauthorized access to financial and sensitive corporation
information, possibly without detection.  FDIC did not adequately
restrict users from viewing sensitive

information. For example, about 70 users had unrestricted read access to
all information that the corporation printed from its mainframe computer.
This included information on bank examinations, payroll and personnel
data, legal reports, vendor payments, and security monitoring

information. One reason for FDIC*s user access vulnerabilities was that
the corporation, while making progress, still had not fully established a
process for reviewing the appropriateness of individual access privileges.
Specifically, FDIC*s process did not include a comprehensive method for
identifying and reviewing all access granted to any one user. Such reviews
would have allowed FDIC to identify and correct inappropriate access.

In response, FDIC said that it has since taken steps to restrict access to
sensitive resources. Further, the corporation stated that it has improved
its audit logging of user access activities, enhanced its process for
identifying and reviewing access granted, and further reduced access to
the minimum necessary for users to perform their job functions. Network
Security Improved,

Network security controls are key to ensuring that only authorized but
Some Weaknesses individuals gain access to sensitive and critical agency
data. Effective

Continue network security controls should be established to authenticate
local and

remote users. 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 system software is adequately configured
to prevent users from bypassing network access controls or causing network
failures.

Since our last audit, FDIC took major steps to secure its network through
enhancements to its firewall and establishment of procedures to review
contractor network connections; further, it recently implemented actions

to review the effectiveness of network security controls. Nonetheless,
weaknesses in the way the corporation configured its network servers,
managed certain user IDs and passwords, and provided network services have
not yet been corrected.

 One system was using a default vendor account with broad access that
would allow the user to read, copy, modify, or delete sensitive network
configuration files. Information on default vendor accounts is available
in vendor- supplied manuals, which are readily available to hackers. With
this ability, a malicious user or intruder could seriously disable or
disrupt network operations by taking control of key segments of the
network or by gaining unauthorized access to critical applications and
data.

 A network service was not configured to restrict access to sensitive
network resources. As a result, anyone* including contractors* with access
to the FDIC network could obtain copies or modify configuration files
containing control information such as access control lists and user
passwords. With the ability to read, copy, or modify these files, an
intruder could disable or disrupt network operations by taking control of
sensitive and critical network resources.

 A key network server was not adequately configured to restrict access.
As a result, anyone* again, including contractors* with connectivity to
the FDIC network could copy or modify files containing sensitive network
information. With this level of access, an unauthorized user could control
key segments of the network.

Further, FDIC did not adequately secure its network against known
vulnerabilities or minimize the operational impact of a potential failure
in a critical network device. Failure to address known vulnerabilities
increases the risk of system compromise, such as unauthorized access to
and manipulation of sensitive system data, disruption of services, and
denial of service.

In response to our findings, FDIC*s acting CIO said that the corporation
had taken steps to improve network security. Specifically, he said that
FDIC had removed the vendor default account, reconfigured network
resources to restrict access, and installed software patches to secure
against known vulnerabilities.

Program to Fully Monitor A program to monitor access activities is
essential to ensuring that

Access Activities Not unauthorized attempts to access critical programs
and data are detected Complete

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.

To effectively monitor user access, it is critical that logs of user
activity be maintained for all critical processing activities. This
includes collecting and monitoring activities on all critical systems,
including mainframes, network servers, and routers. A comprehensive
monitoring program should include an intrusion- detection system to
automatically log unusual activity, provide necessary alerts, and
terminate access.

While FDIC has made progress in developing systems to identify
unauthorized or suspicious access activities for both its mainframe and
network systems, it still has not completed a program to fully monitor
such

activities. As a result, reports designed to provide security staff with
information on network access activities, including information on unusual
or suspicious access, were not available due to technical problems in
producing them. Consequently, security staff and administrators did not

have the information they needed to effectively monitor the network for
unauthorized or inappropriate access.

Further, FDIC was not monitoring the access of certain employees and
contractors with access that allowed them to modify specific sensitive
system software libraries that can perform functions that circumvent all
security controls. While these users were granted these access privileges,
FDIC did not maintain audit logs of access to ensure that only authorized

modifications were made to these libraries. As a result, these users could
make unauthorized modifications to financial data, programs, or system
files, possibly without detection. According to the acting CIO, the
corporation has taken action to improve its program to monitor access
activities. This includes developing and implementing new reports for
monitoring network access and initiating action to fully implement its
intrusion- detection system.

Other Information System In addition to information system access
controls, other important controls

Controls Were Also necessary to ensure the confidentiality, integrity, and
availability of an

Ineffective organization*s system and data were ineffective at FDIC. These
controls

include policies, procedures, and techniques that physically secure
dataprocessing facilities and resources, prevent unauthorized changes to
application software, and effectively ensure the continuation of computer
processing service if an unexpected interruption occurs. Although FDIC has
implemented numerous information system controls, remaining weaknesses in
these areas increase the risk of unauthorized disclosure, disruption of
critical operations, and loss of assets.

Compliance with Physical Physical security controls should be designed to
prevent vandalism and

Security Policies Inadequate sabotage, theft, accidental or deliberate
alteration or destruction of

information or property, and unauthorized access to computing resources.
These controls involve restricting physical access to computer resources,
usually by limiting access to the buildings and rooms in which these
resources are housed, and periodically reviewing access granted to ensure
that it continues to be appropriate based on criteria established for
granting such access.

FDIC has taken several actions to strengthen its physical security,
including reducing the number of staff who have access to those areas
where computer resources are housed. However, while it has established
policies for granting access to its computer facilities and procedures for

periodically reviewing the continued need for such access, it has not yet
developed a process to ensure compliance with these policies and
procedures. For example, while FDIC*s policy provides that contractor
access may only be granted for up to 6 months, 24 of 126 contractors had
access to FDIC*s computer center for periods exceeding 6 months, some for
several years. Without a process to ensure compliance with established
policies and procedures, FDIC cannot ensure that physical access to
critical computer resources is adequately controlled.

In response to our finding, the acting CIO, has since established
additional controls to ensure compliance with its physical access policies
relating to length of time access may be granted and maintenance of
authorized access request forms. Further, FDIC recently filled a position
whose duties specifically include providing daily compliance, monitoring,
and oversight to ensure that physical access policies and procedures are
properly followed.

Application Change Control Not Standard application software change
control practices prescribe that only

Sufficient authorized, fully tested, and reviewed changes should be placed
in operation. Further, these practices provide a process for reviewing all

software modifications made. This should include reviews of changes made
to software used to link applications to computer data and programs needed
to support their operations.

While FDIC has implemented a procedure to review application software
changes for evidence of unauthorized code, fraud, or other inappropriate
actions, the procedure does not include a review of other types of
changes, such as those made to software used to facilitate access to
software files

and data. As a result, unauthorized changes could be made that alter
computer program logic.

In response, FDIC has expanded its application software change process to
include reviews of other software modifications, including those that
facilitate access to files and data.

Service Continuity Incomplete Service continuity controls should be
designed to ensure that when unexpected events occur, critical operations
continue without interruption or are promptly resumed, and critical and
sensitive data are protected. An essential element is up- to- date,
detailed, and fully tested service and business continuity plans. To be
effective, these plans should be understood by all key staff and to
include surprise testing.

FDIC has acted to enhance its service continuity program. For example, it
(1) updated and conducted tests of its service continuity plan, (2)
completed business continuity plans for all its facilities and conducted
tests of these plans, and (3) established an alternate backup site to
support its network and other computing resources. However, FDIC has not
yet performed unannounced testing of its business continuity plan. Such
tests are more realistic than announced tests and more accurately measure
the readiness of staff for emergency situations. Further, FDIC had not
ensured that the emergency personnel lists included in its business
continuity plan are current. We identified 66 FDIC employees whose names
were in the emergency personnel list but who had separated from FDIC,
including 13 staff listed as key emergency team members. Without current
emergency personnel lists, FDIC risks not being able to restore its
critical business operations in a timely manner. FDIC has since
established new procedures to ensure that emergency personnel lists remain
current.

FDIC officials said that they would incorporate unannounced testing of the
business continuity plan into the 2003 operating plan, and would conduct
these unannounced tests by December 31 of this year. Computer Security

The primary reason for FDIC*s continuing weaknesses in information Program
Enhanced,

system controls is that it has not yet fully developed and implemented a
comprehensive corporate program to manage computer security. As but Full

described in our May 1998 study of security management best practices, 9 a
Implementation Not

comprehensive computer security management program requires the Yet
Achieved

following five elements, all essential to ensuring that information system
controls work effectively on a continuing basis:

 a central security management structure with clearly defined roles and
responsibilities;

 appropriate policies, procedures, and technical standards;  security
awareness;  periodic risk assessment; and

9 GAO/ AIMD- 98- 68.

 an ongoing program of testing and evaluation of the effectiveness of
policies and controls.

We previously recommended to FDIC that it fully develop and implement a
comprehensive security management program that includes each of these
elements. 10 FDIC has made progress in implementing a security

management program. Specifically, it (1) established a central security
management structure; (2) implemented security policies, procedures, and
technical standards; and (3) enhanced security awareness training.
However, the steps taken to address periodic risk assessment and ongoing

testing and evaluation of policies and controls have not yet been
sufficient to ensure continuing success.

Central security management structure. FDIC has established a central
security function and has appointed information security managers for each
of its divisions, with defined roles and responsibilities. Further, it has
provided guidance to ensure that security managers coordinate with the
central security function on security- related issues. It has also
developed the support of divisional senior management for the central
security function.

Appropriate policies, procedures, and technical standards. FDIC has
updated its security policies and procedures to cover all aspects of the
organization*s interconnected environment and all computing platforms. It
has also established technical security standards for its mainframe and
network systems and security software.

Security awareness. Computer attacks and security breakdowns often occur
because computer users fail to take appropriate security measures. FDIC
has enhanced its security awareness program, which all employees

and contractors are required to complete annually. It has also developed
specialized security awareness training to address the specific needs of
its security managers.

Periodic risk assessment. Regular 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 helps ensure that the policies and

10 GAO- 02- 689.

controls operate as intended. Further, Office of Management and Budget
Circular A- 130, appendix III, prescribes that risk be assessed when
significant changes are made to the system but at least every 3 years.

FDIC has not fully developed a framework for assessing and managing risk
on a continuing basis. While it has taken some action, including
developing a framework of assessing risk when significant changes are made
to computer systems and providing tools for its security managers to use
in conducting risk assessments, it has not developed a process for
conducting these assessments. Our study of risk assessment best practices
11 found that a process for performing such assessments should specify (1)
how the assessments should be initiated and conducted, (2) who should
participate, (3) how disagreements should be resolved, (4) what approvals
are needed, and (5) how these assessments should be documented and
maintained. In

response, FDIC*s acting CIO said that the corporation is taking steps to
develop risk assessment guidance.

Testing and evaluation. A program that assesses the effectiveness of
policies and controls includes processes for monitoring compliance with
established information system control policies and procedures and testing
the effectiveness of those controls. During the past year, FDIC has taken
steps to establish such a program of testing and evaluation. Specifically,
it has established a self- assessment program to evaluate information
system controls and has implemented a program to monitor compliance with
established policies and procedures that includes performing periodic

reviews of system settings and tests of user passwords. Nonetheless,
FDIC*s program does not cover all critical evaluation areas. Missing is an
ongoing program that targets the key control areas of physical and logical
access, segregation of duties, system and application software, and
service continuity. In response, FDIC*s acting CIO said that the

corporation is taking steps to establish an oversight program to cover its
control environment that will include steps to assess areas such as access
controls, segregation of duties, system and application software, and
service continuity. Further, FDIC plans to address each of these areas as
part of its evolving self- assessment process. Until a comprehensive
program to monitor and test each of these control areas is in place, FDIC
will not have the oversight needed to ensure that many of the same type of

11 U. S. General Accounting Office, Information Security Risk Assessment:
Practices of Leading Organizations, GAO/ AIMD- 00- 33 (Washington, D. C.:
Nov. 1, 1999).

information system control weaknesses previously identified are not
repeated.

An effective ongoing comprehensive program to monitor compliance with
established procedures can be used to identify and correct information
security weaknesses, such as those discussed in this report. For example,
a comprehensive process to review all access authority granted to each
user to ensure that access was limited to that needed to complete job
responsibilities could identify inappropriate access authority granted to

users. A comprehensive program to regularly test information system
controls can be used to detect network security weaknesses. For example,
our technical reviews of network servers identified default system
passwords in use that are readily known to hackers and could be used by
them to gain the access needed to exploit the network and launch an attack
on FDIC

systems. Appropriate technical reviews of the network servers and routers
can identify these types of exposures.

Conclusions FDIC has made progress in correcting information system
control weaknesses and implementing controls, including limiting and
reducing

access, altering software change procedures, expanding testing of disaster
recovery plans, and defining the roles and responsibilities of information
security officers. Nonetheless, continuing and newly identified security
weaknesses exist. FDIC has not adequately restricted mainframe access,
sufficiently secured its network, or completed a program for fully
monitoring access activity. Weaknesses in physical security, application
software, and service continuity increase the level of risk. The effect of
these weaknesses* including prior and current year* further increases the
risk of unauthorized disclosure of critical financial and sensitive
personnel and bank examination information, disruption of critical
financial operations, and loss of assets. Implementation of FDIC*s plan to
correct these weaknesses is essential to establish an effective
information system control environment.

The primary reason for FDIC*s continuing weaknesses in information system
controls is that it has not yet been able to fully develop and implement a
comprehensive program to manage computer security. While it has made
progress in the past year in establishing key elements of this program*
including a security management structure, security policies and
procedures, and promoting security awareness* its systems will remain at

heightened risk until FDIC establishes a process for assessing and
managing risks on a continuing basis and fully implements a comprehensive,
ongoing program of testing and evaluation to ensure policies and controls
are appropriate and effective. Until FDIC takes steps to correct or
mitigate its information system control weaknesses and fully implements a
computer security management program, FDIC will have limited assurance
that its financial and sensitive information are adequately protected from
inadvertent or deliberate misuse, fraudulent use, improper disclosure, or
destruction.

Recommendations for To establish an effective information system control
environment, in

Executive Action addition to completing actions to resolve prior year
weaknesses that remain open, we recommend that the Chairman instruct the
acting CIO, as

the corporation*s key official for computer security, to ensure that the
following actions are completed.

 Correcting the 29 information system control weaknesses related to
mainframe access, network security, access monitoring, physical access,
application software, and service continuity identified in our

current (calendar year 2002) audit. We are also issuing a report
designated for *Limited Official Use Only,* which describes in more detail
the computer security weaknesses identified and offers specific
recommendations for correcting them.

 Fully develop and implement a computer security management program.
Specifically, this would include (1) developing and implementing a process
for performing risk assessments and (2) establishing an effective ongoing
program of tests and evaluations to ensure that policies and controls are
appropriate and effective.

Agency Comments In providing written comments on a draft of this report,
FDIC*s Chief Financial Officer (CFO) agreed with our recommendations. His
comments

are reprinted in appendix I of this report. Specifically, FDIC plans to
correct the information systems control weaknesses identified and fully
develop and implement a computer security management program by

December 31, 2003. According to the CFO, significant progress has already
been made in addressing the identified weaknesses.

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; members of the FDIC Audit Committee; officials in FDIC*s
divisions of information resources management, administration, and
finance; and the FDIC inspector general. We will also make copies
available to others parties upon request. In addition, this 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.

Sincerely yours, Robert F. Dacey Director, Information Security Issues

Appendi xes Comments from the Federal Deposit

Appendi I x Insurance Corporation

Appendi I I x 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,

Angela Bell, Nicole Carpenter, Lon Chin, Debra Conner, Anh Dang, Kristi
Dorsey, Denise Fitzpatrick, David Hayes, Jeffrey Knott, Harold Lewis, Duc
Ngo, Eugene Stevens, Rosanna Villa, Charles Vrabel, and Chris Warweg made
key contributions to this report.

(310187)

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Report to the Board of Directors, Federal Deposit Insurance Corporation

June 2003 FDIC INFORMATION SECURITY Progress Made but Existing Weaknesses
Place Data at Risk

GAO- 03- 630

Letter 1 Results in Brief 2 Background 3 Objectives, Scope, and
Methodology 4 FDIC Has Made Progress in Correcting Weaknesses and

Implementing Controls 5 Weaknesses Continue to Place Financial and
Sensitive

Data at Risk 6 Computer Security Program Enhanced, but Full Implementation
Not

Yet Achieved 12 Conclusions 15 Recommendations for Executive Action 16
Agency Comments 16

Appendixes

Appendix I: Comments from the Federal Deposit Insurance Corporation 18

Appendix II: GAO Contact and Staff Acknowledgments 20 GAO Contact 20
Acknowledgments 20

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a

GAO United States General Accounting Office

FDIC has made progress in correcting information system controls since
GAO*s 2001 review. Of the 41 weaknesses identified that year, FDIC has
corrected or has specific action plans to correct all of them (see
figure). GAO*s 2002 audit nonetheless identified 29 new computer security
weaknesses. These weaknesses reduce the effectiveness of FDIC*s controls

to safeguard critical financial and other sensitive information.

Breakdown and Status of Weaknesses Found, by Year of Review

Based on our review, mainframe access was not sufficiently restricted,
network security was inadequate, and a program to fully monitor access
activities was not implemented. Additionally, weaknesses in areas
including physical security, application software, and service continuity
further increased the risk to FDIC*s computing environment.

The primary reason for these continuing weaknesses is that FDIC has not
yet completed development and implementation of a comprehensive program to
manage computer security across the organization. FDIC has, among other
things, established a security management structure, but still has not
fully implemented a process for assessing and managing risk on a
continuing basis or an ongoing program of testing and evaluating controls.
The corporation*s acting chief information officer has agreed to complete
actions intended to address GAO*s outstanding recommendations by December
31 of this year. Effective controls over information systems are essential
to ensuring

the protection of financial and personnel information and the security and
reliability of bank examination data maintained by the Federal Deposit
Insurance

Corporation (FDIC). As part of GAO*s 2002 financial statement audits of
the three FDIC funds, we assessed (1) the corporation*s progress in
addressing computer security weaknesses found in GAO*s 2001 audit, and (2)
the effectiveness of FDIC*s controls.

In order to establish an effective information system control environment,
in addition to fully addressing the recommendations

stemming from the 2001 review, GAO recommends that the Chairman instruct
the acting chief information officer to ensure that actions are completed
to correct the weaknesses identified during

GAO*s 2002 review. In commenting on a draft of this report FDIC agreed
with our recommendations. FDIC plans to address the identified weaknesses
and stated that significant progress has already been made.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 630. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Robert Dacey at (202) 512- 3317 or daceyr@ gao. gov.
Highlights of GAO- 03- 630, a report to the

Board of Directors, Federal Deposit Insurance Corporation

June 2003

FDIC INFORMATION SECURITY

Progress Made but Existing Weaknesses Place Data at Risk

Page i GAO- 03- 630 FDIC Information Security

Contents

Page 1 GAO- 03- 630 FDIC Information Security United States General
Accounting Office

Washington, D. C. 20548 Page 1 GAO- 03- 630 FDIC Information Security

A

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Appendix I

Appendix I Comments from the Federal Deposit Insurance Corporation Page 19
GAO- 03- 630 FDIC Information Security

Page 20 GAO- 03- 630 FDIC Information Security

Appendix II

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