Bureau of the Public Debt: Areas for Improvement in Information  
Security Controls (27-MAY-08, GAO-08-625R).			 
                                                                 
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,
2007 and 2006. 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, 2007 and
2006, 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, 2007, 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. However,  
we found matters involving information security controls that we 
do not consider to be significant deficiencies. As it relates to 
controls over financial reporting and compliance with applicable 
laws and regulations, BPD mitigated the potential effect of such 
control deficiencies with physical security measures, a program  
of monitoring user and system activity, and compensating	 
management and reconciliation controls. Nevertheless, these	 
matters warrant BPD management's attention and action. This	 
report presents the control deficiencies identified during our	 
fiscal year 2007 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' audit reports and open as
of September 30, 2006.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-625R					        
    ACCNO:   A82194						        
  TITLE:     Bureau of the Public Debt: Areas for Improvement in      
Information Security Controls					 
     DATE:   05/27/2008 
  SUBJECT:   Access control					 
	     Audit reports					 
	     Computer security					 
	     Electronic data processing 			 
	     Federal debt					 
	     Federal regulations				 
	     Financial management systems			 
	     Financial statement audits 			 
	     Financial statements				 
	     Information security				 
	     Information security management			 
	     Information security regulations			 
	     Internal controls					 
	     Physical security					 
	     Reporting requirements				 
	     Security assessments				 
	     System software					 
	     Corrective action					 
	     Bureau of the Public Debt Schedule of		 
	     Federal Debt					 
                                                                 

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GAO-08-625R


This is the accessible text file for GAO report number GAO-08-625R 
entitled 'Bureau of Public Debt: Areas for Improvement in Information 
Security Controls' which was released on May 28, 2008. 

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May 27, 2008: 

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,[Footnote 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, 2007 and 
2006.[Footnote 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, 2007 and 2006, 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, 
2007, 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. However, we found 
matters involving information security controls that we do not consider 
to be significant deficiencies.[Footnote 3] As it relates to controls 
over financial reporting and compliance with applicable laws and 
regulations, BPD mitigated the potential effect of such control 
deficiencies with physical security measures, a program of monitoring 
user and system activity, and compensating management and 
reconciliation controls. Nevertheless, these matters warrant BPD 
management's attention and action. 

This report presents the control deficiencies identified during our 
fiscal year 2007 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' 
audit reports and open as of September 30, 2006. 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 (FRBs) maintain and operate on 
behalf of BPD. We will issue a separate report to the Board of 
Governors of the Federal Reserve System on the results from that 
assessment. 

Results in Brief: 

Our fiscal year 2007 audit procedures identified 10 new information 
security control deficiencies, all of which relate to general controls. 
Specifically, the control deficiencies identified were in the areas of 
system software, and application software development and change 
control. In the Limited Official Use Only report, we made 11 
recommendations to address these control deficiencies. 

None of our findings pose significant risks to the BPD financial 
systems. As it relates to controls over financial reporting and 
compliance with applicable laws and regulations, BPD mitigated the 
potential effect of these control deficiencies with physical security 
measures and a program of monitoring user and system activity. Further, 
BPD has compensating management and reconciliation controls that are 
designed to detect potential irregularities or improprieties in 
financial data or transactions. 

During our follow-up on the status of BPD's corrective actions to 
address 11 open recommendations related to general information security 
control deficiencies identified in prior years' audits for which 
actions were not complete as of September 30, 2006, we found the 
following: 

* As of September 30, 2007, corrective action on 9 of the 11 
recommendations was completed. 

* Corrective action was in progress as of September 30, 2007, on the 
two remaining open recommendations, one of which relates to access 
control and the other to application software development and change 
control. 

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 12 findings, which include 2 from prior years, 8 have been 
completely resolved, and corrective actions for the remaining 4 are in 
progress. The Commissioner also stated that BPD intends to implement 
corrective actions for the remaining findings by September 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 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, 2007 and 2006, federal debt managed by BPD totaled 
about $9.0 trillion and $8.5 trillion, respectively, for moneys 
borrowed to fund the government's operations. These balances consisted 
of approximately (1) $5.1 trillion and $4.8 trillion of debt held by 
the public as of September 30, 2007 and 2006, respectively, and (2) 
$3.9 trillion and $3.7 trillion of intragovernmental debt holdings as 
of September 30, 2007 and 2006, respectively. Total interest expense on 
federal debt managed by BPD for fiscal years 2007 and 2006 was about 
$433 billion and $404 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. FRBs use a number of financial 
systems to process debt-related transactions. 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 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, 2006. We use a risk-based, rotation 
approach for testing general information security controls. Each 
general information security control area is subjected to a 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[Footnote 4]. Areas considered to be of 
higher risk are subject to more frequent review. Each key application 
is subjected to a 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 adequately designed, implemented, and operating 
effectively. 

The scope of our work for fiscal year 2007 as it relates to general 
information security controls included following up on open 
recommendations from our prior years' reports and reviewing access 
control, system software, and application software development and 
change control. In addition, we performed security diagnostics and 
vulnerability assessment testing of BPD's internal and external 
information system environment. 

Application information security control reviews were performed on six 
key BPD applications to determine whether the applications are designed 
to provide reasonable assurance that: 

* 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; 

* data are authorized, converted to an automated form, and entered into 
the application accurately, completely, and promptly; 

* data are properly processed by the computer and files are updated 
correctly; 

* erroneous data are captured, reported, investigated, and corrected; 
and: 

* 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. 

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 certain information security controls, 
including the follow-up on the status of BPD corrective actions to 
address open recommendations in our fiscal year 2006 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 
determine 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 deficiencies identified. We 
plan to follow up on these matters during our audit of the fiscal year 
2008 Schedule of Federal Debt. 

We performed our work at the BPD data center from March 2007 through 
October 2007. Our work was performed in accordance with U.S. generally 
accepted government auditing standards. As noted above, 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 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 an 
entitywide security management program, access controls, system 
software controls, application software development and change 
controls, 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 2007 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 10 new general 
information security control deficiencies. This included three control 
deficiencies related to system software and seven control deficiencies 
related to application software development and change control. 

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 data management systems. Controls over 
access to and modifications of system software are essential to protect 
the overall integrity and reliability of information systems. 

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 to provide reasonable assurance that 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. 

In a separately issued Limited Official Use Only report, we 
communicated detailed information regarding our findings to BPD 
management and made 11 detailed recommendations. 

During our follow-up on the status of BPD's corrective actions to 
address 11 open recommendations related to information security control 
deficiencies identified in prior years' audits for which actions were 
not complete as of September 30, 2006, we found the following: 

* As of September 30, 2007, corrective action on 9 of the 11 
recommendations was completed. 

* Corrective action was in progress as of September 30, 2007, on the 
two remaining open recommendations, one of which relates to access 
control and the other to application software development and change 
control. As such, we are reaffirming our two previous recommendations. 

None of our findings pose significant risks to the BPD financial 
systems. As it relates to controls over financial reporting and 
compliance with applicable laws and regulations, BPD mitigated the 
potential effect of these control deficiencies with physical security 
measures and a program of monitoring user and system activity. Further, 
BPD has compensating management 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. 
We will issue a separate report to the Board of Governors of the 
Federal Reserve System on the results from that assessment. 

Conclusion: 

BPD has made significant progress in addressing open information 
security control recommendations from our prior years' audits and is 
taking corrective action to address the two remaining unresolved 
control deficiencies. We therefore reaffirm our two recommendations 
related to these open control deficiencies. 

Our fiscal year 2007 audit identified 10 new information security 
control deficiencies, all of which relate to general controls. For 
these identified control deficiencies, we are making 11 
recommendations. BPD informed us that it has taken or plans to take 
corrective action to address all the control deficiencies we 
identified. We plan to follow up on the status of BPD's actions to 
address the identified control deficiencies as part of our fiscal year 
2008 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 11 new detailed 
recommendations set forth in the separately issued Limited Official Use 
Only version of this report. 

Agency Comments: 

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 12 
findings, which include 2 from prior years, 8 have been completely 
resolved, and corrective actions for the remaining 4 are in progress. 
The Commissioner also stated that BPD intends to implement corrective 
actions for the remaining findings by September 2008. We plan to follow 
up on these matters during our audit of the fiscal year 2008 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 
Members of the Senate Committee on Homeland Security and Governmental 
Affairs; the Subcommittee on Financial Services and General Government, 
Senate Committee on Appropriations; the Subcommittee on Federal 
Financial Management, Government Information, Federal Services, and 
International Security, Senate Committee on Homeland Security and 
Governmental Affairs; the House Committee on Oversight and Government 
Reform; the Subcommittee on Financial Services and General Government, 
House Committee on Appropriations; and the Subcommittee on Government 
Management, Organization, and Procurement, House Committee on Oversight 
and Government Reform. We are also sending copies of this report to the 
Secretary 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 [hyperlink, 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 Jeffrey L. Knott and Dawn B. Simpson, Assistant 
Directors; Dean D. Carpenter; Mary T. Marshall; and Zsaroq R. Powe. 

Sincerely yours, 

Signed by: 

Gary T. Engel: 

Director: 

Financial Management and Assurance: 

[End of section] 

Footnotes: 

[1] 1 U.S.C. ï¿½ 331(e). 

[2] AO, Financial Audit: Bureau of the Public Debt's Fiscal Years 2007 
and 2006 Schedules of Federal Debt, GAO-08-168 (Washington, D.C.: Nov. 
7, 2007). 

[3] A significant deficiency is a control deficiency, or combination of 
control deficiencies, that adversely affects the entity's ability to 
initiate, authorize, record, process, or report financial data reliably 
in accordance with U.S. generally accepted accounting principles such 
that there is more than a remote likelihood that a misstatement of the 
entity's financial statements that is more than inconsequential will 
not be prevented or detected. A control deficiency exists when the 
design or operation of a control does not allow management or employees 
in the normal course of performing their assigned functions to prevent 
or detect misstatements on a timely basis. 

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

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