Bureau of the Public Debt: Areas for Improvement in Information  
Security Controls (14-JUN-07, GAO-07-899R).			 
                                                                 
In connection with fulfilling our requirement to audit the	 
financial statements of the U.S. government, we audited and	 
reported on the Schedules of Federal Debt Managed by the Bureau  
of the Public Debt (BPD) for the fiscal years ended September 30,
2006 and 2005. As part of these audits, we performed a review of 
the general and application information security controls over	 
key BPD financial systems. In our audit report on the Schedules  
of Federal Debt for the fiscal years ended September 30, 2006 and
2005, we concluded that BPD maintained, in all material respects,
effective internal control relevant to the Schedule of Federal	 
Debt related to financial reporting and compliance with 	 
applicable laws and regulations as of September 30, 2006, that	 
provided reasonable assurance that misstatements, losses, or	 
noncompliance material in relation to the Schedule of Federal	 
Debt would be prevented or detected on a timely basis. We found  
matters involving information security controls that we do not	 
consider to be reportable conditions but that nevertheless	 
warrant BPD management's attention and action. BPD mitigated the 
potential effect of such issues with physical security measures, 
a program of monitoring user and system activity, and		 
compensating management and reconciliation controls. This report 
presents the issues identified during our fiscal year 2006	 
testing of the general and application information security	 
controls that support key BPD automated financial systems	 
relevant to BPD's Schedule of Federal Debt. This report also	 
includes the results of our follow-up on the status of BPD's	 
corrective actions to address recommendations that were contained
in our prior years' audits and open as of September 30, 2005. In 
a separately issued Limited Official Use Only report, we	 
communicated detailed information regarding our findings to BPD  
management. We also assessed the general and application	 
information security controls over key BPD financial systems that
the Federal Reserve Banks (FRB) maintain and operate on behalf of
BPD. We have communicated the results of such testing to the	 
Board of Governors of the Federal Reserve System.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-899R					        
    ACCNO:   A70749						        
  TITLE:     Bureau of the Public Debt: Areas for Improvement in      
Information Security Controls					 
     DATE:   06/14/2007 
  SUBJECT:   Accountability					 
	     Computer security					 
	     Databases						 
	     Financial statement audits 			 
	     Information security				 
	     Information systems				 
	     Internal controls					 
	     Public debt					 
	     Security assessments				 
	     Bureau of the Public Debt Schedule of		 
	     Federal Debt					 
                                                                 

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GAO-07-899R

   

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June 14, 2007

The Honorable Van Zeck
Commissioner, Bureau of the Public Debt

Subject: Bureau of the Public Debt: Areas for Improvement in Information
Security Controls

Dear Mr. Zeck:

In connection with fulfilling our requirement to audit the financial
statements of the U.S. government,1 we audited and reported on the
Schedules of Federal Debt Managed by the Bureau of the Public Debt (BPD)
for the fiscal years ended September 30, 2006 and 2005.2 As part of these
audits, we performed a review of the general and application information
security controls over key BPD financial systems.

In our audit report on the Schedules of Federal Debt for the fiscal years
ended September 30, 2006 and 2005, we concluded that BPD maintained, in
all material respects, effective internal control relevant to the Schedule
of Federal Debt related to financial reporting and compliance with
applicable laws and regulations as of September 30, 2006, that provided
reasonable assurance that misstatements, losses, or noncompliance material
in relation to the Schedule of Federal Debt would be prevented or detected
on a timely basis. We found matters involving information security
controls that we do not consider to be reportable conditions3 but that
nevertheless warrant BPD management's attention and action. BPD mitigated
the potential effect of such issues with physical security measures, a
program of monitoring user and system activity, and compensating
management and reconciliation controls.

This report presents the issues identified during our fiscal year 2006
testing of the general and application information security controls that
support key BPD automated financial systems relevant to BPD's Schedule of
Federal Debt. This report also includes the results of our follow-up on
the status of BPD's corrective actions to address recommendations that
were contained in our prior years' audits and open as of September 30,
2005. In a separately issued Limited Official Use Only report, we
communicated detailed information regarding our findings to BPD
management. We also assessed the general and application information
security controls over key BPD financial systems that the Federal Reserve
Banks (FRB) maintain and operate on behalf of BPD. We have communicated
the results of such testing to the Board of Governors of the Federal
Reserve System.

131 U.S.C. S 331(e).

2GAO, Financial Audit: Bureau of the Public Debt's Fiscal Years 2006 and
2005 Schedules of Federal Debt, GAO-07-127 (Washington, D.C.: Nov. 7,
2006).

3Reportable conditions are matters coming to our attention that, in our
judgment, should be communicated because they represent significant
deficiencies in the design or operation of internal control, which could
adversely affect the organization's ability to meet the objectives of
reliable financial reporting and compliance with applicable laws and
regulations.

Results in Brief

Our fiscal year 2006 audit procedures identified eight new information
security control issues, of which seven relate to general controls and the
other to an application control. Specifically, the general information
security control issues were in the areas of entitywide security program
planning and management, access control, application software development
and change control, and system software.  The application information
security control issue relates to the reporting of unusual activity. In
the Limited Official Use Only report, we made eight recommendations to
address these issues.

During our follow-up on the status of BPD's corrective actions to address
11 open recommendations related to information security control issues
identified in prior years' audits for which actions were not complete as
of September 30, 2005, we found the following:

           o As of September 30, 2006, corrective action on 8 of the 11
           recommendations had been completed.

           o Corrective action was in progress as of September 30, 2006, on
           the three remaining open recommendations, which relate to access
           controls.

BPD provided comments on the detailed findings and recommendations in the
separately issued Limited Official Use Only report. In those comments, the
Commissioner of the Bureau of Public Debt stated that of the 11
recommendations, which include 3 from a prior year, 4 have been completely
resolved, and corrective actions for the remaining 7 are in progress. The
Commissioner also stated that BPD intends to fully implement the remaining
recommendations by May 2008.

Background

The Department of the Treasury (Treasury) is authorized by Congress to
borrow money on the credit of the United States to fund federal
operations. Treasury is responsible for prescribing the debt instruments
and otherwise limiting and restricting the amount and composition of the
debt. BPD, an organizational entity within the Fiscal Service of the
Department of the Treasury, is responsible for issuing and redeeming debt
instruments, paying interest to investors, and accounting for the
resulting debt. In addition, BPD has been given the responsibility for
issuing Treasury securities to trust funds for trust fund receipts not
needed for current benefits and expenses.

As of September 30, 2006 and 2005, federal debt managed by BPD totaled
about $8.5 trillion and $7.9 trillion, respectively, for moneys borrowed
to fund the government's operations. These balances consisted of
approximately (1) $4.8 trillion and $4.6 trillion of debt held by the
public as of September 30, 2006 and 2005, respectively; and (2) $3.7
trillion and $3.3 trillion of intragovernmental debt holdings as of
September 30, 2006 and 2005, respectively. Total interest expense on
federal debt managed by BPD for fiscal years 2006 and 2005 was about $404
billion and $355 billion, respectively.

BPD relies on a number of interconnected financial systems and electronic
data to process and track the money that is borrowed and to account for
the securities it issues. Many of the FRBs provide fiscal agent services
on behalf of BPD, which primarily consist of issuing, servicing, and
redeeming Treasury securities held by the public and handling the related
transfers of funds. The FRB uses a number of financial systems to process
debt-related transactions throughout the country. Detailed data initially
processed at the FRBs are summarized and then forwarded electronically to
BPD's data center for matching, verification, and posting to the general
ledger.

Objectives, Scope, and Methodology

Our objectives were to evaluate the effectiveness of the general and
application information security controls over key financial management
systems maintained and operated by BPD relevant to the Schedule of Federal
Debt and to determine the status of corrective actions taken in response
to the recommendations in our prior years' reports for which actions were
not complete as of September 30, 2005. We use a risk-based, rotation
approach for testing general information security controls. Each general
information security control area is subjected to a full-scope review,
including testing, at least every 3 years. The general information
security control areas we review are defined in the Federal Information
System Controls Audit Manual.4 Areas considered to be of higher risk are
subject to more frequent review. Each key application is subjected to a
full-scope review every year.

To evaluate general and application information security controls, we
identified and reviewed BPD's information system general and application
information security control policies and procedures, observed controls in
operation, conducted tests of controls, and held discussions with
officials at the BPD data center to determine whether controls were in
place, adequately designed, and operating effectively.

The scope of our work for fiscal year 2006 as it relates to general
information security controls included following up on open
recommendations from our prior years' reports and conducting a full-scope
review of the general controls which includes a review of the entitywide
security program planning and management, access control, application
software development and change control, system software, segregation of
duties, and service continuity. In addition, we performed security
diagnostics and vulnerability assessment testing of BPD's internal and
external information system environment.

4GAO, Federal Information System Controls Audit Manual, GAO/AIMD-12.19.6 
(Washington, D.C.: January 1999).

Full-scope application information security control reviews were performed
on six key BPD applications to determine whether the applications are
designed to ensure that

           o access privileges (1) establish individual accountability and
           proper segregation of duties, (2) limit the processing privileges
           of individuals, and (3) prevent and detect inappropriate or
           unauthorized activities;
           o data are authorized, converted to an automated form, and entered
           into the application accurately, completely, and promptly;
           o data are properly processed by the computer and files are
           updated correctly;
           o erroneous data are captured, reported, investigated, and
           corrected; and
           o files and reports generated by the application represent
           transactions that actually occur and accurately reflect the
           results of processing, and reports are controlled and distributed
           only to authorized users.

The scope of our work as it relates to application information security
controls also included following up on open recommendations from our prior
year's report for which actions were not complete as of September 30,
2005. We also reviewed the application information security control audit
documentation from the work performed by the Treasury Office of Inspector
General's contractor on another key BPD application.

Because the FRBs are integral to the operations of BPD, we assessed the
general information security controls over financial systems that the FRBs
maintain and operate relevant to the Schedule of Federal Debt. We also
evaluated application information security controls over six key financial
applications maintained and operated by the FRBs.

The evaluation and testing of information security controls, including the
follow-up on the status of BPD corrective actions to address open
recommendations in our fiscal year 2005 report, were performed by the
independent public accounting (IPA) firm of Cotton and Company, LLP. We
agreed on the scope of the audit work, monitored the IPA firm's progress,
and reviewed the related audit documentation to ensure that the findings
were adequately supported.

During the course of our work, we communicated our findings to BPD
management, who informed us that BPD has taken or plans to take corrective
action to address the control issues we identified. We plan to follow up
on these matters during our audit of the fiscal year 2007 Schedule of
Federal Debt.

We performed our work at the BPD data center from April 2006 through
October 2006. Our work was performed in accordance with U.S. generally
accepted government auditing standards. As noted earlier, we obtained
agency comments on the detailed findings and recommendations in a draft of
the separately issued Limited Official Use Only report. BPD's comments are
summarized in the Agency Comments and Our Evaluation section of this
report.

Assessment of BPD's Information Security Controls

General information security controls are the structure, policies, and
procedures that apply to an entity's overall computer operations. General
information security controls establish the environment in which
application systems and controls operate. They include entitywide security
program planning and management, access control, system software,
application software development and change control, segregation of
duties, and service continuity. An effective general information security
control environment helps (1) ensure that an adequate entitywide security
management program is in place; (2) protect data, files, and programs from
unauthorized access, modification, disclosure, and destruction; (3) limit
and monitor access to programs and files that control computer hardware
and secure applications; (4) prevent the introduction of unauthorized
changes to systems and applications software; (5) prevent any one
individual from controlling key aspects of computer-related operations;
and (6) ensure the recovery of computer processing operations in the event
of a disaster or other unexpected interruption.

Our fiscal year 2006 testing identified opportunities to strengthen
certain information security controls that support key BPD automated
financial systems relevant to BPD's Schedule of Federal Debt.
Specifically, our audit procedures identified eight new information
security control issues, of which seven relate to general controls and the
other to an application control. The general information security control
issues included two issues related to the entitywide security program
planning and management, three issues related to logical access control,
one issue related to application software development and change control,
and one issue related to system software. The application information
security control issue related to audit logs.

An entitywide program for security planning and management is the
foundation of an entity's security control structure and a reflection of
senior management's commitment to addressing security risks. The program
should establish a framework and continuing cycle of activity for
assessing risk, developing and implementing effective security procedures,
and monitoring the effectiveness of these procedures. Without a
well-designed program, security controls may be inadequate;
responsibilities may be unclear, misunderstood, and improperly
implemented; and controls may be inconsistently applied. Such conditions
may lead to insufficient
protection of sensitive or critical resources and disproportionately high
expenditures for controls over low-risk resources.

Access controls are designed to limit or detect access to computer
programs, data, equipment, and facilities to protect these resources from
unauthorized modification, disclosure, loss, or impairment. Such controls
include logical access controls and physical access controls. Logical
access controls involve the use of computer hardware and software to
prevent or detect unauthorized access by requiring users to input unique
user identifications (ID), passwords, or other identifiers that are linked
to predetermined access privileges. Logical access controls restrict the
access of legitimate users to the specific systems, programs, and files
they need to conduct their work and prevent unauthorized users from
gaining access to computer resources.

Application software development and change controls help ensure that only
authorized programs and authorized modifications are implemented. This is
accomplished by instituting policies, procedures, and techniques that help
make sure all programs and program modifications are properly authorized,
tested, and approved and that access to and distribution of programs is
carefully controlled. Without proper application software development and
change controls, there is a risk that security features could be
inadvertently or deliberately omitted or "turned off" or that processing
irregularities or malicious code could be introduced.

System software coordinates and helps control the input, processing,
output, and data storage associated with all of the applications that run
on a system. System software includes operating system software, system
utilities, file maintenance software, security software, data
communications systems, and database management systems. Controls over
access to and modifications of system software are essential to protect
the overall integrity and reliability of information systems.

Application information security controls relate directly to the
individual computer programs that are used to perform certain types of
work, such as generating interest payments or recording transactions in a
general ledger. In an effective general control environment, application
information security controls help to ensure that transactions are valid,
properly authorized, and completely and accurately processed and reported.

In a separately issued Limited Official Use Only report, we communicated
detailed information regarding our findings to BPD management and made
eight recommendations.

During our follow-up on the status of BPD's corrective actions to address
11 open recommendations related to  information security control issues
identified in prior years' audits for which actions were not complete as
of September 30, 2005, we found the following:

           o As of September 30, 2006, corrective action on 8 of the 11
           recommendations had been completed.

           o Corrective action was in progress as of September 30, 2006, on
           the three remaining open recommendations which relate to access
           controls. As such, we are reaffirming our three previous
           recommendations.

None of our findings pose significant risks to the BPD financial systems.
In forming our conclusions, we considered the mitigating effects of
physical security measures, a program of monitoring user and system
activity, and reconciliation controls that are designed to detect
potential irregularities or improprieties in financial data or
transactions. Nevertheless, these findings warrant management's attention
and action to limit the risk of unauthorized access, disclosure, loss, or
impairment; modification of sensitive data and programs; and disruption of
critical operations.

Assessment of FRB Information Security Controls

Because the FRBs are integral to the operations of BPD, we assessed the
general and application information security controls over key financial
systems maintained and operated by the FRBs on behalf of BPD. Our fiscal
year 2006 audit procedures did not identify any new information security
control issues over such systems. We have communicated the results from
that assessment to the Board of Governors of the Federal Reserve System.

Conclusion

BPD has made significant progress in addressing open recommendations from
our prior years' audits and has informed us that corrective actions have
been taken or are being taken to address the three remaining unresolved
issues. We therefore reaffirm our three recommendations related to these
open issues.

Our fiscal year 2006 audit identified eight new information security
control issues, of which seven relate to general controls and the other to
an application control. For these identified issues, we are making eight
recommendations. BPD informed us that it has taken, or plans to take,
corrective action to address all the control issues we identified. We plan
to follow up on the status of BPD's actions to address the issues
identified as part of our fiscal year 2007 Schedule of Federal Debt audit.

Recommendation for Executive Action

We recommend that the Commissioner of the Bureau of the Public Debt direct
the appropriate BPD officials to implement the eight new detailed
recommendations set forth in the separately issued Limited Official Use
Only version of this report.

Agency Comments and Evaluation

BPD provided comments on the detailed findings and recommendations in the
Limited Official Use Only version. In those comments, the Commissioner of
the Bureau of the Public Debt stated that of the 11 recommendations, which
include 3 from a prior year, 4 have been completely resolved, and
corrective actions for the remaining 7 are in progress. The Commissioner
also stated that BPD intends to fully implement the remaining
recommendations by May 2008. We have modified our Limited Official Use
Only version of this report to acknowledge, where appropriate, BPD's
comments concerning additional actions taken in accordance with our
recommendations. Also, we plan to follow up on these matters during our
audit of the fiscal year 2007 Schedule of Federal Debt.

                                   - - - - -

In the separately issued Limited Official Use Only report, we noted that
the head of a federal agency is required by 31 U.S.C. 720 to submit a
written statement on actions taken on our recommendations to the Senate
Committee on Homeland Security and Governmental Affairs and to the House
Committee on Oversight and Government Reform not later than 60 days after
the date of the Limited Official Use Only report. A written statement must
also be sent 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 that report. In the Limited Official Use Only report, we also
requested a copy of your responses.

We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Homeland Security and Governmental
Affairs; the Subcommittee on Federal Financial Management, Government
Information, Federal Services, and International Security, Senate
Committee on Homeland Security and Governmental Affairs; the Subcommittee
on Financial Services and General Government, Senate Committee on
Appropriations; the House Committee on Oversight and Government Reform;
the Subcommittee on Government Management, Organization, and Procurement,
House Committee on Oversight and Government Reform; and the Subcommittee
on Financial Services and General Government, House Committee on
Appropriations. We are also sending copies of this report to the Secretary
of the Department of the Treasury, the Acting Inspector General of the
Department of the Treasury, and the Director of the Office of Management
and Budget. Copies will also be made available to others upon request. In
addition, the report will be available at no charge on GAO's Web site at
http://www.gao.gov.

If you have any questions regarding this report, please contact me at
(202) 512-3406 or [email protected]. Other key contributors to this
assignment were Jeff L. Knott and Dawn B. Simpson, Assistant Directors,
Dean D. Carpenter, and Debra M. Conner.

Sincerely yours,

Gary T. Engel
Director
Financial Management and Assurance

(198513)

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