Information Security: Continued Progress Needed to Strengthen	 
Controls at the Internal Revenue Service (23-MAR-06, GAO-06-328).
                                                                 
The Internal Revenue Service (IRS) has a demanding responsibility
in collecting taxes, processing tax returns, and enforcing the	 
nation's tax laws. It relies extensively on computerized systems 
to support its financial and mission-related operations.	 
Effective information security controls are essential for	 
ensuring that information is adequately protected from		 
inadvertent or deliberate misuse, disruption, or destruction. As 
part of its audit of IRS's fiscal year 2005 financial statements,
GAO assessed (1) the status of IRS's actions to correct or	 
mitigate previously reported information security weaknesses at  
two sites and (2) whether controls over key financial and tax	 
processing systems located at the facilities are effective in	 
ensuring the confidentiality, integrity, and availability of	 
financial and sensitive taxpayer data.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-328 					        
    ACCNO:   A49717						        
  TITLE:     Information Security: Continued Progress Needed to       
Strengthen Controls at the Internal Revenue Service		 
     DATE:   03/23/2006 
  SUBJECT:   Computer security					 
	     Computer security policies 			 
	     Financial management systems			 
	     Information security				 
	     Information security management			 
	     Information security regulations			 
	     Internal controls					 
	     Security assessments				 
	     Tax administration 				 
	     Tax administration systems 			 
	     Tax information confidentiality			 
	     Corrective action					 

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GAO-06-328

     

     * Report to the Commissioner of Internal Revenue
          * March 2006
     * INFORMATION SECURITY
          * Continued Progress Needed to Strengthen Controls at the Internal
            Revenue Service
     * Contents
          * Results in Brief
          * Background
          * Objectives, Scope, and Methodology
          * IRS Has Made Progress in Correcting Previously Reported
            Weaknesses
          * Significant Weaknesses Place Financial and Taxpayer Data at Risk
               * Electronic Access Controls Were Inadequate
                    * Network Management
                    * User Accounts and Passwords
                    * User Rights and File Permissions
                    * Logging and Monitoring of Security-Relevant Events
               * Other Information System Controls Were Not Sufficient
                    * Physical Security
                    * Patch Management
                    * System Change Controls
               * Information Security Program Is Not Yet Fully Implemented
                    * Risk Assessments
                    * Policies and Procedures
                    * Security Plans
                    * Security Awareness and Training
                    * Tests and Evaluations of Control Effectiveness
                    * Remedial Actions
                    * Incident Handling
                    * Continuity of Operations
          * Conclusions
          * Recommendations for Executive Action
          * Agency Comments
     * Comments from the Commissioner of Internal Revenue
     * GAO Contacts and Staff Acknowledgments
     * PDF6-Ordering Information.pdf
          * Order by Mail or Phone

Report to the Commissioner of Internal Revenue

March 2006

INFORMATION SECURITY

Continued Progress Needed to Strengthen Controls at the Internal Revenue
Service

Contents

Figures

March 23, 2006Letter

The Honorable Mark W. Everson Commissioner of Internal Revenue

Dear Commissioner Everson:

The Internal Revenue Service (IRS) has a demanding responsibility in
collecting taxes, processing tax returns, and enforcing the nation's tax
laws. It relies extensively on computerized systems to support its
financial and mission-related operations. Effective information system
controls are essential to ensuring that information is adequately
protected from inadvertent or deliberate misuse, fraudulent use, improper
disclosure, or destruction. These controls also affect the
confidentiality, integrity, and availability of financial and taxpayer
information.

As part of our audit of the IRS's fiscal year 2005 financial statements,1
we assessed the effectiveness of its information security controls2 over
key financial systems, data, and interconnected networks at two of IRS's
critical data processing sites that support the processing, storage, and
transmission of sensitive financial and taxpayer data.

This report describes (1) the status of IRS's actions to correct or
mitigate previously reported information security weaknesses at the sites
and (2) whether controls over key financial and tax processing systems are
effective in ensuring the confidentiality, integrity, and availability of
financial and sensitive taxpayer data.

This report provides a general summary of the vulnerabilities identified
and our recommendations to help strengthen and improve IRS's information
security program. We are also issuing a separate report for limited
distribution that contains sensitive information. It describes in more
detail the information security weaknesses that we identified and our
specific recommendations for correcting them.

Results in Brief

IRS has made progress in implementing more effective information security
controls over key financial and tax processing systems that are located at
two critical data processing sites, and has corrected or mitigated 41 of
the 81 specific technical weaknesses that we reported as unresolved at the
time of our last review at those selected sites. Actions have been taken
to address weaknesses related to electronic access, physical access, and
software change controls, among others. For example, IRS has implemented
controls to protect mainframe system files that contain embedded user
accounts and passwords.

Nevertheless, significant control weaknesses continue to threaten the
confidentiality, integrity, and availability of key financial and tax
processing systems and information. In addition to the remaining 40
previously reported specific technical weaknesses, for which IRS had not
completed actions at the time of our review, other newly identified
information security control weaknesses exist. IRS has not implemented
effective electronic controls to prevent, limit, or detect unauthorized
access to computing resources from its internal network. For example, IRS
was not adequately managing its network, user accounts and passwords, and
user privileges, and it was not adequately logging and monitoring
security-relevant events. In addition, IRS faces risks to its key
financial and tax-processing systems due to weaknesses in physical
security, patch management, and system change controls. As a result,
sensitive data and computing resources are at increased risk of
unauthorized use, modification, loss, and disclosure, possibly without
detection.

A key reason for the information security weaknesses in IRS's financial
and tax processing systems was that the agency had not yet fully
implemented its information security program. IRS has developed the
framework for an effective information security program, with written
policies and procedures that designate responsibility for implementation
throughout the agency, and risk assessments that identify potential
threats and recommended actions for reducing vulnerabilities. It has also
established an incident handling program with defined procedures for
detecting, responding to, and reporting security incidents. However, it
has not fully implemented other key elements. For example, it has not
(1) consistently implemented its policies and procedures, (2) completed
system security plans, (3) trained employees with significant security
responsibilities, (4) adequately tested and evaluated systems to ensure
compliance with policies and procedures, (5) completed remedial action
plans, and (6) installed key hardware and equipment at its disaster
recovery site. Until IRS fully implements a comprehensive agencywide
information security program, its facilities, computing resources, and the
information that is processed, stored, and transmitted on its systems will
remain vulnerable.

We are making recommendations to the Commissioner of Internal Revenue to
take several actions to fully implement a comprehensive agencywide
information security program.

In providing written comments on a draft of this report, the Commissioner
of Internal Revenue acknowledged that IRS needs to continue to implement a
comprehensive agencywide security program, and agreed to implement the
five recommendations in this report. He said that efforts are under way to
remedy weaknesses and will continue until all recommendations have been
addressed.

Background

Information security is an important consideration for any organization
that depends on information systems and computer networks to carry out its
mission or business. The same speed and accessibility that create the
enormous benefits of the computer age can, if not properly controlled,
allow individuals and groups with malicious intent to intrude into
inadequately protected systems and use this access to obtain sensitive
information, commit fraud, disrupt operations, or launch attacks against
other computer networks and systems.

Protecting computer systems that support critical operations and
infrastructures is important due to the concern about attacks from
individuals and groups, including terrorists. These concerns are well
founded for a number of reasons, including the ease of obtaining and using
hacking tools, the steady advance in the sophistication and effectiveness
of attack technology, and the warnings of new and more destructive attacks
to come.

Computer-supported federal operations are likewise at risk. Our previous
reports, and those of agency inspectors general, describe persistent
information security weaknesses that place a variety of critical federal
operations, including those at IRS, at risk of disruption, fraud, and
inappropriate disclosure. We have designated information security as a
governmentwide high-risk area since 19973-a designation that remains
today.4

In December 2002, Congress enacted the Federal Information Security
Management Act of 2002 (FISMA) to strengthen security of information and
systems within federal agencies.5 FISMA requires each agency to develop,
document, and implement an agencywide information security program to
provide information security for the information and systems that support
the operations and assets of the agency.

In its role as the nation's tax collector, IRS has a demanding
responsibility in collecting taxes, processing tax returns, and enforcing
the nation's tax laws. In fiscal year 2005, IRS collected about $2.3
trillion in tax payments, processed hundreds of millions of tax and
information returns, and paid about $267 billion in refunds to taxpayers.
IRS is a large and complex organization, with a unique mission that adds
operational challenges for management. It employs tens of thousands of
people in 10 service center campuses, three computing centers, and
numerous other field offices throughout the United States. Because of the
nature of its mission, IRS also collects and maintains a significant
amount of personal and financial data on each American taxpayer. The
confidentiality of this sensitive information must be protected;
otherwise, taxpayers could be exposed to loss of privacy and to financial
loss and damages resulting from identity theft or other financial crimes.

The Commissioner of Internal Revenue has overall responsibility for
ensuring the confidentiality, availability, and integrity of information
and information systems supporting the agency and its operations. The
Chief of Mission Assurance and Security Services is responsible for
developing policies and procedures regarding information technology
security; providing assurance services to improve physical, data, and
personnel security; conducting independent testing; and ensuring security
is integrated into its modernization activities. To help accomplish these
goals, IRS has developed and published information security policies,
guidelines, standards, and procedures in the Internal Revenue Manual, Law
Enforcement Manual, and other documents.

Objectives, Scope, and Methodology

The objectives of our review were to determine (1) the status of IRS's
actions to correct or mitigate previously reported weaknesses at two sites
and (2) whether controls over key financial and tax processing systems
located at the sites are effective in ensuring the confidentiality,
integrity, and availability of financial and sensitive taxpayer data. We
concentrated our evaluation primarily on threats emanating from internal
sources on IRS's computer networks. Our evaluation was based on (1) our
Federal Information System Controls Audit Manual, which contains guidance
for reviewing information system controls that affect the confidentiality,
integrity, and availability of computerized data; (2) FISMA, which sets
key elements that are required for an effective information security
program; and (3) previous reports from the Treasury Inspector General for
Tax Administration (TIGTA).

Specifically, we evaluated information security controls that are intended
to

o prevent, limit, and detect electronic access to computer resources
(data, programs, and systems), thereby protecting these resources against
unauthorized disclosure, modification, and use;

o provide physical protection of computer facilities and resources from
espionage, sabotage, damage, and theft;

o prevent the exploitation of vulnerabilities;

o prevent the introduction of unauthorized changes to application or
system software; and

o ensure that work responsibilities for computer functions are segregated
so that one individual does not perform or control all key aspects of
computer-related operations and, thereby, have the ability to conduct
unauthorized actions or gain unauthorized access to assets or records
without detection by another individual performing assigned
responsibilities.

In addition, we evaluated IRS's information security program. Such a
program includes assessing risk; developing and implementing policies,
procedures, and security plans; providing security awareness and training;
testing and evaluating control effectiveness; planning, implementing,
evaluating, and documenting remedial action to address information
security deficiencies; detecting, reporting, and responding to security
incidents; and ensuring continuity of operations.

To evaluate IRS's information security controls and program, we identified
and reviewed pertinent IRS information security policies and procedures,
guidance, security plans, relevant reports, and other documents, and we
tested the effectiveness of these controls at two of IRS's critical data
processing sites. Specifically, our tests focused on three critical
applications, as well as three general support systems6 located at the two
sites. We also discussed with key security representatives and management
officials whether information security controls were in place, adequately
designed, and operating effectively.

We performed our review at the two previously mentioned IRS sites in
accordance with generally accepted government auditing standards from June
through November 2005. We discussed the results of our review with IRS
officials.

IRS Has Made Progress in Correcting Previously Reported Weaknesses

IRS has made progress toward implementing more effective information
security controls over key financial and tax processing systems that are
located at two critical data processing sites, and has corrected or
mitigated 41 of the 81 specific technical weaknesses that we reported as
unresolved at the time of our last reviews at the selected sites.7 Actions
have been taken to address weaknesses related to electronic access,
physical access, and software change controls, among others. For example,
IRS has

o implemented controls to protect mainframe system files that contain
embedded user accounts and passwords;

o improved the security of authentication data for network devices, such
as routers and switches;

o securely configured certain vulnerable network services to help prevent
unauthorized access;

o implemented procedures for periodically reviewing employee access to
sensitive areas; and

o ensured that its software change control process includes the submission
of documented test plans.

Additionally, IRS addressed critical mainframe weaknesses. In 2005, we
reported8 that IRS had not implemented effective electronic access
controls over its mainframe computing environment to logically separate
its taxpayer data from the Financial Crimes Enforcement Network's Bank
Secrecy Act data, which include information related to financial crimes,
terrorist financing, money laundering, and other illicit activities. These
two types of data have different security requirements, and, accordingly,
we made specific recommendations to correct these access control
weaknesses. Since our last report, IRS has taken action to mitigate these
weaknesses.

Although IRS has taken steps to strengthen its information security
controls, it had not completed actions to correct or mitigate the
remaining 40 previously reported technical weaknesses as illustrated in
figure 1.

Figure 1: Status of Previously Reported Weaknesses at Selected IRS Sites

These weaknesses include routinely permitting unencrypted protocols for
remote log-on capability; not taking sufficient measures to prevent
attackers from accessing information, copying sensitive files, and
introducing malicious code via CD-ROM drives; inadequately restricting
access to certain accounts with powerful rights over the system's
operating system; and configuring servers without ensuring sufficient
audit trails. Failure to resolve these issues will leave sensitive IRS
computing resources and data vulnerable to unauthorized access,
manipulation, and destruction.

In addition, last year we made three recommendations related to improving
IRS's information security program. These recommendations included
ensuring that established security policies and procedures are
consistently followed and implemented, ensuring that employees with
significant information security responsibilities are provided with the
sufficient training and understand their role in implementing
security-related policies and controls, and implementing an ongoing
process of testing and evaluating systems to ensure compliance with
established policies and procedures. IRS agreed to implement these
recommendations and is in the process of doing so.

Significant Weaknesses Place Financial and Taxpayer Data at Risk

Although IRS has made progress in implementing information security for
its financial and tax processing systems and information by addressing
many of its previously identified security weaknesses, significant
weaknesses in electronic access and other information security controls
continue to threaten the confidentiality, integrity, and availability of
those systems and information. A primary reason for these weaknesses is
that IRS has not yet fully implemented its information security program.
As a result, weaknesses in controls over its key financial and tax
processing systems could impair IRS's ability to perform vital functions
and increase the risk of unauthorized disclosure, modification, or
destruction of taxpayer data.

Electronic Access Controls Were Inadequate

A basic management objective for any organization is to protect the
resources that support its critical operations from unauthorized access.
Organizations accomplish this objective by designing and implementing
controls that are intended to prevent, limit, and detect unauthorized
access to computing resources, programs, and information. Electronic
access controls include those related to network management, user accounts
and passwords, user rights and file permissions, and logging and
monitoring of security-relevant events. Inadequate controls over
electronic processes diminish the reliability of computerized information,
and they increase the risk of unauthorized disclosure, modification, and
destruction of sensitive information and of disruption of service.

IRS's electronic access controls were inadequate. Serious weaknesses
existed in network management, user accounts and passwords, user rights
and file permissions, and logging and monitoring of security-relevant
events.

Network Management

Networks are collections of interconnected computer systems and devices
that allow individuals to share resources, such as computer programs and
information. Because sensitive programs and information are stored on or
transmitted along networks, effectively securing networks is essential to
protecting computing resources and data from unauthorized access,
manipulation, and use. Organizations secure their networks, in part, by
installing and configuring network devices that permit authorized network
service requests, deny unauthorized requests, and limit the services that
are available on the network. Devices used to secure networks include (1)
firewalls that prevent unauthorized access to the network, (2) routers
that filter and forward data along the network, (3) switches that forward
information among segments of a network, and (4) servers that host
applications and data. Network services consist of protocols for
transmitting data between network devices. Insecurely configured network
services and devices can make a system vulnerable to internal or external
threats, such as denial-of-service attacks.9 Because networks often
include both external and internal access points for electronic
information assets, failure to secure these assets increases the risk of
unauthorized modification of sensitive information and systems, or
disruption of service.

IRS did not consistently configure network services and devices securely
to prevent unauthorized access to and ensure the integrity of computer
systems operating on its networks. For example, it did not sufficiently
prevent the use of vulnerable remote services on servers. In addition,
IRS's network management traffic was not segregated from normal user
traffic, and IRS continued to rely on unencrypted protocols for remote
management of certain devices. As a result, the agency is at increased
risk of system compromise, such as unauthorized access to and manipulation
of sensitive system data, disruption of services, and denial of service.

According to IRS officials, the agency took actions to mitigate the
network traffic management weakness subsequent to our site visits.

User Accounts and Passwords

A computer system must be able to identify and differentiate among users
so that activities on the system can be linked to specific individuals.
When an organization assigns unique user accounts to specific users, the
system distinguishes one user from another-a process called
identification. The system must also establish the validity of a user's
claimed identity though some means of authentication, such as a password,
that is known only to its owner. The combination of identification and
authentication-such as user account/password combinations-provides the
basis for establishing individual accountability and for controlling
access to the system. Accordingly, agencies (1) establish password
parameters, such as number of characters, type of characters, and the
frequency with which users should change their passwords, in order to
strengthen the effectiveness of passwords for authenticating the identity
of users; (2) require encryption for passwords to prevent their disclosure
to unauthorized individuals; and (3) implement procedures to control the
use of user accounts. IRS policy identifies and prescribes minimum
requirements for creating and managing passwords, such as minimum password
length.

IRS did not adequately control user accounts and passwords to ensure that
only authorized individuals were granted access to its systems. Although
IRS has a policy in place addressing password expiration and complexity,
it has not always implemented these requirements. For example, the agency
did not always implement the use of complex passwords on its Windows
servers. It also set the password expiration on a Windows server to a
value inconsistent with its policy, and did not adequately control the
storage of passwords on its systems. For example, instead of using
encryption, IRS stored clear text passwords in readable form at one of the
sites. Further, it had not implemented procedures to control user accounts
by not adequately limiting the number of superuser accounts for over half
of the UNIX servers reviewed. These practices increase the risk that
individuals might gain unauthorized access to critical resources without
attribution.

User Rights and File Permissions

The concept of "least privilege" is a basic underlying principle for
securing computer systems and data. It means that users are granted only
those access rights and permissions that they need to perform their
official duties. To restrict legitimate users' access to only those
programs and files that they need to do their work, organizations
establish access rights and permissions. "User rights" are allowable
actions that can be assigned to users or to groups of users. File and
directory permissions are rules that are associated with a particular file
or directory and regulate which users can access them and the extent of
that access. To avoid unintentionally giving users unnecessary access to
sensitive files and directories, an organization must give careful
consideration to its assignment of rights and permissions. IRS policy
states that users should only be given the minimum level of permissions
needed to perform job duties.

IRS permitted excessive access to key financial systems, granting rights
and permissions that allowed more access than users needed to perform
their jobs. For example, IRS granted administrators of certain Windows
servers a user right that could allow them to add false entries into the
security log. In addition, it granted all users on one Windows server
"read" access to a certain registry setting that would allow users to
remotely read sensitive system settings. Further, IRS granted mainframe
users privileges that were not needed to perform assigned job duties. For
example, all mainframe users were granted a powerful privilege that would
allow users to read, execute, modify, delete, or create new datasets
without restriction. Inappropriate access to sensitive files and
directories provides opportunities for individuals to circumvent security
controls to deliberately or inadvertently read, modify, or delete critical
or sensitive information.

Logging and Monitoring of Security-Relevant Events

To establish individual accountability, monitor compliance with security
policies, and investigate security violations, it is crucial to determine
what, when, and by whom specific actions have been taken on a system.
Organizations accomplish this by implementing system or security software
that provides an audit trail, or logs of system activity, that they can
use to determine the source of a transaction or attempted transaction and
to monitor users' activities. The way in which organizations configure
system or security software determines the nature and extent of
information that can be provided by the audit trail. To be effective,
organizations should configure their software to collect and maintain
audit trails that are sufficient to track security-relevant events. IRS
policy states that audit logs must be generated for use in monitoring
security-related events on all multiuser systems, and that these logs must
be periodically reviewed. Further, National Institute of Standards and
Technology (NIST) guidance states that organizations should deploy
centralized logging servers and configure devices to send duplicates of
their log entries to the centralized servers.

IRS was not adequately logging and monitoring security-relevant events.
For example, two Windows servers at one site were not configured to log
successful and failed attempts to access directory services. In addition,
neither of the sites visited had implemented centralized logging and
monitoring of logs for any of the UNIX servers reviewed. Further, at one
site, although IRS was logging system developer activity10 in the
production environment, they were not monitoring the logs. As a result,
the agency is at increased risk that unauthorized or inappropriate system
activity may not be detected.

Other Information System Controls Were Not Sufficient

In addition to electronic access controls, other important controls should
be in place to ensure the confidentiality, integrity, and availability of
an organization's data. These controls include policies, procedures, and
control techniques to physically secure computer resources, prevent
exploitation of vulnerabilities, and prevent unauthorized changes to
system software. Weaknesses in these areas increase the risk of
unauthorized use, disclosure, modification, or loss of IRS's information
systems and information.

Physical Security

Physical security controls are important for protecting computer
facilities and resources from espionage, sabotage, damage, and theft.
These controls restrict physical access to computer resources, usually by
limiting access to the buildings and rooms in which the resources are
housed and by periodically reviewing the access granted, in order to
ensure that access continues to be appropriate. Examples of physical
security controls include perimeter fencing, surveillance cameras,
security guards, and locks. The agency has developed and documented
policies that identify minimum physical protection measures for facilities
used to process, transmit, or store sensitive but unclassified information
in support of critical operations and missions. For example, one such IRS
policy requires that a facility risk assessment should be performed at
least once every 5 years. Inadequate physical security could lead to loss
of life and property, disruption of functions and services, and
unauthorized disclosure of documents and information.

Although IRS has implemented physical security controls, certain
weaknesses reduce the effectiveness of these controls in protecting and
controlling physical access to assets at the two sites we reviewed. For
example, guards at one site did not always examine IRS-issued photo
identification to verify employees' identities as they entered the
facility. Failure to check IRS-issued photo identification increases the
risk that unauthorized individuals could gain entrance to the facility.
However, following our notification of this issue, agency officials took
immediate action during our visit to ensure that the security guards
always verified each employee's identity against official IRS photo
identification.

In addition, IRS has not fully implemented a procedure for periodically
reviewing employee access to sensitive areas. Although steps have been
taken to implement such a procedure, access to sensitive areas was not
being limited to individuals with an ongoing need for that access. Site
officials acknowledged this problem and stated that efforts are under way
to correct it.

Further, although IRS policy requires that a facility risk assessment be
performed at least once every 5 years, one site's most recent facility
risk assessment was conducted about 5 years ago, and agency officials
confirmed that an updated assessment was not planned or under way. The
lack of a current facility risk assessment hinders IRS's ability to
determine the effectiveness and appropriateness of existing safeguards and
security guidelines.

Patch Management

Patch management is a critical process that can help alleviate many of the
challenges of securing computing systems.11 As vulnerabilities in a system
are discovered, attackers may attempt to exploit them, possibly causing
significant damage. Malicious acts can range from defacing Web sites to
taking control of entire systems and thereby being able to read, modify,
or delete sensitive information; disrupt operations; or launch attacks
against other organizations' systems. After a vulnerability is validated,
the software vendor may develop and test a patch or workaround. Incident
response groups and software vendors issue information updates on the
vulnerability and the availability of patches. IRS's patch management
policy assigns organizational responsibilities for the patch management
process-including the application of countermeasures to mitigate system
vulnerabilities if patch testing fails-and requires that patches be kept
up to date or that officials otherwise apply for a waiver.

IRS did not consistently install software patches in a timely manner. For
example, IRS's installation of critical or high-priority patches through
the configuration management process for Windows systems was not timely.
Further, several patches-some that had been issued in 2001-had not been
applied to certain UNIX servers that we reviewed in 2005. Because IRS had
not yet installed the latest patches, servers used for processing
financial information and taxpayer data were vulnerable to
denial-of-service attacks and to execution of arbitrary code that will
allow administrative privileges.

System Change Controls

It is important to ensure that only authorized and fully tested systems
are placed in operation. To ensure that changes to systems are necessary,
work as intended, and do not result in the loss of data or program
integrity, such changes should be documented, authorized, tested, and
independently reviewed. In addition, according to IRS policy, a security
goal of configuration management is to know what changes occur and how
they will affect system security.

IRS did not consistently document changes to critical mainframe system
files. Changes to key file directories-which could contain program files
that can override security controls-were not always logged. Without proper
documentation of changes to critical system files, IRS is unable to
effectively detect unusual or unauthorized modifications to its systems.
This increases the risk that undocumented changes could be made,
jeopardizing the security of sensitive information and increasing the
likelihood of disruptions to system operations.

Information Security Program Is Not Yet Fully Implemented

A key reason for the information security weaknesses in IRS's financial
and tax processing systems was that although the agency has developed and
documented policies and procedures, it has not yet fully implemented its
information security program to help ensure that effective controls were
established and maintained.

FISMA12 requires agencies to develop, document, and implement an
information security program that includes

o periodic assessments of the risk and the magnitude of harm that could
result from the unauthorized access, use, disclosure, disruption,
modification, or destruction of information and information systems;

o policies and procedures that (1) are based on risk assessments,
(2) cost-effectively reduce risks, (3) ensure that information security is
addressed throughout the life cycle of each system, and (4) ensure
compliance with applicable requirements;

o plans for providing adequate information security for networks,
facilities, and systems;

o security awareness training to inform personnel-including contractors
and other users of information systems-of information security risks and
of their responsibilities in complying with agency policies and
procedures;

o at least annual testing and evaluation of the effectiveness of
information security policies, procedures, and practices relating to
management, operational, and technical controls of every major information
system that is identified in the agencies' inventories;

o a process for planning, implementing, evaluating, and documenting
remedial action to address any deficiencies in their information security
policies, procedures, or practices;

o procedures for detecting, reporting, and responding to security
incidents; and

o plans and procedures to ensure continuity of operations for information
systems that support the operations and assets of the agency.

IRS has made important progress in developing a framework for its
information security program. IRS's policy on information technology
security requires each of these FISMA elements, and the agency has
initiatives under way in each of these areas. Specifically, IRS has
established

o a methodology for its general support system certification and
accreditation process, including guidance on conducting risk assessments
and security test and evaluations, and developing security plans;

o the office of Mission Assurance and Security Services for developing
policies and procedures regarding information technology security;

o a policy describing requirements for its security awareness and training
program;

o a working group to develop and execute an approach to managing the
remedial action tracking and implementation process;

o the Computer Security Incident Response Center for detecting and
responding to intrusions and misuse; and

o business resumption plans that address continuity of operations for
certain systems.

However, we identified instances in which the information security program
had not been fully or consistently implemented for IRS's information
systems. In discussions during our review, agency officials recognized
that more work is needed to continue to improve their information security
program.

Risk Assessments

Identifying and assessing information security risks are essential steps
in determining what controls are required. Moreover, by increasing
awareness of risks, these assessments can generate support for the
policies and controls that are adopted in order to help ensure that these
policies and controls operate as intended. Office of Management and Budget
(OMB) Circular A-130, appendix III, prescribes that risk be reassessed
when significant changes are made to computerized systems-or at least
every 3 years. Consistent with NIST guidance, IRS requires its risk
assessment process to detail the residual risk assessed, potential
threats, and recommended corrective actions for reducing or eliminating
the vulnerabilities identified.

IRS generally identified and assessed information security risks. The six
risk assessments that we reviewed were current and documented residual
risk assessed, potential threats, and recommended corrective actions for
reducing or eliminating the vulnerabilities identified.

Policies and Procedures

Another key element of an effective information security program is to
develop and implement risk-based policies, procedures, and technical
standards that govern security over an agency's computing environment. If
properly implemented, policies and procedures should help reduce the risk
that could come from unauthorized access or disruption of services.
Technical security standards provide consistent implementing guidance for
each computing environment. Establishing and documenting security policies
is important because they are the primary mechanism by which management
communicates its views and requirements; these policies also serve as the
basis for adopting specific procedures and technical controls. In
addition, agencies need to take the actions necessary to effectively
implement or execute these procedures and controls. Otherwise, agency
systems and information will not receive the protection that should be
provided by the security policies and controls.

IRS has developed information security policies, standards, and guidelines
that generally provide appropriate guidance to personnel responsible for
securing IRS information systems and data. Yet, we noted instances where
policies and procedures were inconsistent with federal guidance,
incomplete, and not consistently implemented. For example, IRS's policies
and procedures did not always include minimum security requirements as
outlined in NIST or National Security Agency (NSA) guidance. To
illustrate, password standards, such as password age and password history,
set in IRS policies are less stringent than those strongly encouraged by
NIST guidance, and specific requirements for certain systems, such as use
of superuser accounts and configuration of registry keys, do not meet the
guidance issued by NSA. In addition, IRS's methodology for the
certification and accreditation of their general support systems is
incomplete, with several key sections of it missing information or left
completely blank. Further, we continue to report that IRS has not
consistently implemented policies and procedures contained in the Law
Enforcement Manual and Internal Revenue Manual pertaining to network
management, user accounts and passwords, user rights and file permissions,
and other information system controls. Without effectively updating these
policies to establish appropriate minimum security requirements, ensuring
that policies and procedures are complete, and implementing them, IRS has
less assurance that their systems and information are sufficiently
protected.

Security Plans

The objective of system security planning is to improve the protection of
information technology resources. A system security plan provides an
overview of the system's security requirements and describes the controls
that are in place-or planned-to meet those requirements. OMB Circular
A-130 requires that agencies develop and implement system security plans
for major applications and for general support systems, and that these
plans address policies and procedures for providing management,
operational, and technical controls. Further, NIST guidelines state that
when nonmajor applications are bundled with a general support system, the
security requirements for each of the nonmajor applications should be
included in the general support system's security plan. IRS policy
requires that security plans be developed and provides guidance on
developing security plans. According to both IRS and NIST guidance, plans
should include elements such as security controls currently in place or
planned, the individual responsible for the security of the system, a
description of the system and its interconnected environment, and rules of
behavior.

The six security plans we reviewed generally included elements such as
security controls currently in place or planned, the individual
responsible for the security of the system, a description of the system
and its interconnected environment, and rules of behavior. However, we
identified instances where plans were incomplete. Of the three security
plans for general support systems with nonmajor applications that we
reviewed, none addressed specific controls for the nonmajor applications
nor assigned specific accountability for those controls. TIGTA identified
similar issues,13 and noted that business unit owners of nonmajor
applications may rely too heavily on the general support system controls
to protect sensitive data. Without complete security plans, IRS cannot
ensure that appropriate controls are in place to protect its systems and
critical information.

Security Awareness and Training

Another important element of an information security program involves
promoting awareness and providing required training so that users
understand the system security risks and their role in implementing
related policies and controls to mitigate those risks. Computer intrusions
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 resources in their day-to-day operations be made aware of
the importance and sensitivity of the information they handle, as well as
the business and legal reasons for maintaining its confidentiality,
integrity, and availability. FISMA mandates that all federal employees and
contractors who use agency information systems be provided with
information security awareness training. Further, FISMA requires agency
chief information officers (CIO) to ensure that personnel with significant
information security responsibilities get specialized training. OMB and
NIST also require agencies to implement system-specific security training.

IRS has developed and implemented several methods for notifying employees
and contractors of their security-related roles and responsibilities.
These methods include specifying security roles and responsibilities in
various policy manuals available to employees and contractors, providing
security awareness training during new hire orientations, distributing
security awareness bulletins and brochures, and creating information
security poster boards. As reported by TIGTA in its 2005 FISMA report,
security awareness training was provided to all IRS employees and
contractors.

Despite the agency's efforts in providing security awareness training, it
did not always provide specialized training to individuals with
significant information security responsibilities. In its fiscal year 2005
FISMA submission, IRS reported it has 2,737 employees with significant
information technology security responsibilities, yet only 300 (11
percent) of those employees received specialized training (see fig. 2).

Figure 2: Status of Specialized Training for IRS Employees with
Significant Security Responsibilities

IRS did not always provide specialized training for its contractor
personnel with information security responsibilities. For example, it did
not provide Computer Security Incident Response Center contractors with
specialized training. IRS has taken some key steps to address this area,
including establishing a working group to improve its training program.
Without sufficiently trained security personnel, security lapses are more
likely to occur and could contribute to further information security
weaknesses.

Tests and Evaluations of Control Effectiveness

Another key element of an information security program is the testing and
evaluation of systems to ensure that they are in compliance with security
policies and that those policies and controls are both appropriate and
effective. This type of oversight is a fundamental element because it
demonstrates management's commitment to the security program, reminds
employees of their roles and responsibilities, and identifies and
mitigates areas of noncompliance and ineffectiveness. Although control
tests and evaluations may encourage compliance with security policies, the
full benefits are not achieved unless the results improve the security
program. Analyzing the results of security reviews provides security
specialists and business managers with a means of identifying new problem
areas, reassessing the appropriateness of existing controls, and
identifying the need for new controls. FISMA requires that the frequency
of tests and evaluations be based on risks, but occur no less than
annually. Furthermore, IRS policy requires periodic testing and evaluation
of the effectiveness of information security policies and procedures.

Although IRS had conducted system tests and evaluations for the three
systems we reviewed, its tests did not identify key security
vulnerabilities. For example:

o At one of the IRS sites we visited, one system's security test and
evaluation report did not identify any vulnerabilities. However, during
our review, we identified several vulnerabilities, including unpatched
software.

o At the same site, IRS did not detect control deficiencies during its
test and evaluation of the mainframe. For example, IRS was not using
standardized naming conventions for its datasets and was not logging
changes to software on the mainframe. These weaknesses could have been
detected and corrected using the results of effective security tests and
evaluations.

In addition, in its 2005 FISMA report, TIGTA reported that security tests
and evaluations for major applications did not comply with NIST standards.
Tests did not include all system components, such as encryption,
telecommunication links, and user account management. Without appropriate
tests and evaluations, IRS cannot be assured that employees and
contractors are complying with established policies or that policies and
controls are appropriate and working as intended.

Remedial Actions

Remedial action plans are a key component described in FISMA. They assist
agencies in identifying, assessing, prioritizing, and monitoring the
progress in correcting security weaknesses that are found in information
systems. According to OMB Circular A-123, agencies should take timely and
effective action to correct deficiencies that they have identified through
a variety of information sources. To accomplish this, remedial action
plans should be developed for each deficiency, and progress should be
tracked for each. IRS policy also requires a process for ensuring remedial
action to address any significant deficiencies.

According to TIGTA, IRS has made noteworthy progress in the area of
tracking remedial actions. In its 2005 FISMA report, TIGTA reported that
it was able to verify that IRS's remedial action plans included weaknesses
from various reviews and were tailored to specific applications.

Although IRS had developed remedial plans to address information security
weaknesses identified through previous reviews, the plans we reviewed were
incomplete. All four remedial plans were missing certain key elements. For
example, none of the four plans specified the funds required to correct
identified weaknesses. In addition, three of the plans did not identify
scheduled completion dates for correcting or mitigating identified
weaknesses. Further, the fourth plan was outdated because it included
scheduled completion dates that had already passed. For example,
weaknesses that were still considered "open" in June 2005 had scheduled
completion dates of April 2005. IRS officials explained that the remedial
plans were a "work in progress," since the documents were not due to be
submitted to OMB until September 2005. However, OMB requires at least
quarterly updates of agency remedial plans; therefore, the plan should
have been updated during the time of our review. Without complete and
current remedial action plans, the agency may not be able to prioritize
and monitor progress in correcting security weaknesses.

Incident Handling

Even strong controls may not block all intrusions and misuse, but
organizations can reduce the risks associated with such events if they
promptly take steps to detect and respond to them before significant
damage can be done. In addition, accounting for and analyzing security
problems and incidents are effective ways for organizations to gain a
better understanding of threats to their information and of the costs of
their security-related problems. Such analyses can pinpoint
vulnerabilities that need to be eliminated so that they will not be
exploited again. Problem and incident reports can provide valuable input
for risk assessments, can help in prioritizing security improvement
efforts, and can be used to illustrate risks and related trends for senior
management.

IRS has implemented an incident handling program and established the
Computer Security Incident Response Center in 2001. The center's mission
is to detect, react, and respond to computer security incidents targeting
the IRS enterprise information infrastructure. It provides assistance and
guidance in both cyber and physical incident response and uses a
centralized approach to incident handling across IRS. The agency has also
defined procedures for detecting, responding to, and reporting computer
and network security incidents, and has created several detailed incident
detection and response procedures outlining the roles and responsibilities
of center personnel and event analysis. In 2005, TIGTA reported14 that the
center was effective at preventing, detecting, and responding to computer
security incidents, but it recommended further improvements in reporting
and documenting remedial actions related to incidents.

Continuity of Operations

Continuity of operations controls, which includes disaster recovery
planning, should be designed to ensure that when unexpected events occur,
key operations continue without interruption or are promptly resumed, and
that critical and sensitive data are protected. These controls include
environmental controls and procedures designed to protect information
resources and minimize the risk of unplanned interruptions, along with a
plan to recover critical operations should interruptions occur. If
continuity of operations controls are inadequate, even a relatively minor
interruption could result in significant adverse nationwide impact on IRS
operations. IRS requires that continuity of operations, or business
resumption, plans be included as part of its certification and
accreditation process.

Shortcomings in IRS's ability to recover from disruptions due to
unexpected events continue to exist. In 2004, we reported that non-IRS
staff at an IRS site were not trained to restore operations in the event
IRS staff were not available. In addition, in 2005, we reported that the
disaster recovery plans we reviewed at an IRS site did not include
disaster recovery procedures for its UNIX and Windows systems. Also, the
site's business resumption plans did not include UNIX and Windows systems.
Although IRS has various initiatives under way to improve continuity of
operations, these and other shortcomings still exist. Specifically, IRS
has not procured and installed UNIX-based hardware and equipment for
processing applications and data at its disaster recovery hot-site-an
alternate processing location that can be used in case of an emergency.
Further, in 2005, the agency reported that they had tested contingency
plans for only 36 percent of its systems. Until the agency completes
actions to address these weaknesses, it is at risk of not being able to
appropriately recover in a timely manner from certain service disruptions.

Conclusions

IRS has made progress in correcting or mitigating previously reported
weaknesses and in implementing controls over key financial and tax
processing systems. However, information security weaknesses-both old and
new-continue to impair its ability to ensure the confidentiality,
integrity, and availability of financial and other sensitive data. A key
reason for these weaknesses is that IRS has not yet fully implemented
critical elements of its information security program, although it has
developed a solid framework. Until IRS fully implements a comprehensive
agencywide information security program that includes enhanced policies,
procedures, plans, training, and continuity of operations, its facilities
and computing resources and the information that is processed, stored, and
transmitted on its systems will remain vulnerable.

Recommendations for Executive Action

To help establish effective information security over key financial
systems, data, and interconnected networks, we recommend that you take the
following five actions to implement an information security program:

o enhance policies and procedures related to password age and
configuration settings to comply with federal guidelines;

o review system security plans to ensure that they appropriately address
nonmajor applications;

o ensure contractors with significant information security
responsibilities are provided with sufficient specialized training;

o ensure that remedial action plans are complete and up to date; and

o continue to enhance continuity of operations capabilities by

o training non-IRS staff to restore operations,

o updating disaster recovery plans to include disaster recovery procedures
for UNIX and Windows systems,

o updating business resumption plans to include UNIX and Windows systems,
and

o installing UNIX-based hardware and equipment for processing applications
and data at IRS's disaster recovery hot-site.

We are also making recommendations in a separate report with limited
distribution. These recommendations consist of actions to be taken to
correct the specific information security weaknesses we identified that
are related to network management, user accounts and passwords, user
rights and file permissions, audit and monitoring of security-related
events, physical security, and patch management at the two sites we
visited.

Agency Comments

In providing written comments (reprinted in app. I) on a draft of this
report, the Commissioner of Internal Revenue acknowledged that IRS needs
to continue to implement a comprehensive agencywide security program, and
agreed to implement the five recommendations in this report. He said that
efforts are under way to remedy weaknesses and will continue until all
recommendations have been addressed.

The Commissioner also said that IRS is taking an agencywide approach to
address the root cause of the weaknesses we identified. He also stated
that many weaknesses have been corrected and additional controls have been
implemented. Further, he said that IRS is continuing its aggressive
initiative to complete required security activities at each of the
computing centers. These activities include the development of security
plans, security documentation, and security testing.

This report contains recommendations to you. As you know, 31 U.S.C. 720
requires the head of a federal agency to submit a written statement of the
actions taken on our recommendations to the Senate Committee on Homeland
Security and Governmental Affairs and to the House Committee on Government
Reform not later than 60 days from the date of the report and to the House
and Senate Committees on Appropriations with the agency's first request
for appropriations made more than 60 days after the date of this report.
Because agency personnel serve as the primary source of information on the
status of recommendations, GAO requests that the agency also provide it
with a copy of your agency's statement of action to serve as preliminary
information on the status of open recommendations.

We are sending copies of this report to interested congressional
committees and the Secretary of the Treasury. We will also make copies
available to others 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 Gregory
Wilshusen at (202) 512-6244 or Keith Rhodes at (202) 512-6412. We can also
be reached by e-mail at [email protected] and [email protected] . Contact
points for our Offices of Congressional Relations and Public Affairs may
be found on the last page of this report. Key contributors to this report
are listed in appendix II.

Sincerely yours,

Gregory C. Wilshusen Director, Information Security Issues

Keith A. Rhodes Chief Technologist

Comments from the Commissioner of Internal Revenue Appendix I

GAO Contacts and Staff Acknowledgments Appendix II

Gregory C. Wilshusen, (202) 512-6244 Keith A. Rhodes, (202) 512-6412

In addition to the persons named above, Edward Alexander Jr., Gerald
Barnes, Bruce Cain, Mark Canter, Nicole Carpenter, Jason Carroll, Lon
Chin, Kirk Daubenspeck, Neil Doherty, Patrick Dugan, Denise Fitzpatrick,
Edward Glagola Jr., Nancy Glover, David Hayes, Franklin Jackson, Myong Suk
Kim, Jeffrey Knott, Mary Marshall, Leena Mathew, Kevin Metcalfe, Duc Ngo,
Tracy Pierson, Henry Sutanto, and Chris Warweg made key contributions to
this report.

(310558)

www.gao.gov/cgi-bin/getrpt? GAO-06-328 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Gregory C. Wilshusen at (202) 512-6244 or
[email protected].

Highlights of GAO-06-328 , a report to the Commissioner of Internal
Revenue

March 2006

INFORMATION SECURITY

Continued Progress Needed to Strengthen Controls at the Internal Revenue
Service

The Internal Revenue Service (IRS) has a demanding responsibility in
collecting taxes, processing tax returns, and enforcing the nation's tax
laws. It relies extensively on computerized systems to support its
financial and mission-related operations. Effective information security
controls are essential for ensuring that information is adequately
protected from inadvertent or deliberate misuse, disruption, or
destruction.

As part of its audit of IRS's fiscal year 2005 financial statements, GAO
assessed (1) the status of IRS's actions to correct or mitigate previously
reported information security weaknesses at two sites and (2) whether
controls over key financial and tax processing systems located at the
facilities are effective in ensuring the confidentiality, integrity, and
availability of financial and sensitive taxpayer data.

What GAO Recommends

GAO recommends that the IRS Commissioner take several actions to fully
implement an information security program. In commenting on a draft of
this report, IRS concurred with our recommendations.

IRS has made progress in correcting or mitigating previously reported
information security weaknesses and in implementing controls over key
financial and tax processing systems that are located at two of its
critical data processing sites. It has corrected or mitigated 41 of the 81
specific technical weaknesses that we reported as unresolved at the time
of our last review at those selected sites.

Although IRS has made progress, controls over its key financial and tax
processing systems located at two sites were ineffective. In addition to
the 40 previously reported weaknesses for which IRS has not completed
actions, GAO identified new information security control weaknesses that
threaten the confidentiality, integrity, and availability of IRS's
financial information systems and the information they process. For
example, IRS has not implemented effective electronic access controls
related to network management, user accounts and passwords, user rights
and file permissions, and logging and monitoring of security-related
events. In addition, it has not effectively implemented other information
security controls to physically secure computer resources, and to prevent
exploitation of vulnerabilities and unauthorized changes to system
software. Collectively, these weaknesses increase the risk that sensitive
financial and taxpayer data will be inadequately protected against
disclosure, modification, or loss, possibly without detection, and place
IRS operations at risk of disruption.

A key reason for IRS's weaknesses in information security controls is that
it has not yet fully implemented an information security program to ensure
that effective controls are established and maintained. Until IRS fully
implements a comprehensive agencywide information security program, its
facilities and computing resources and the information that is processed,
stored, and transmitted on its systems will remain vulnerable.

Status of Previously Reported Weaknesses at Selected Sites

GAO's Mission

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