[Federal Register Volume 65, Number 85 (Tuesday, May 2, 2000)]
[Notices]
[Pages 25508-25521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10801]


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OFFICE OF MANAGEMENT AND BUDGET


Procedures and Guidance; Implementation of the Government 
Paperwork Elimination Act

AGENCY: Office of Management and Budget, Executive Office of the 
President.
SUMMARY: The Office of Management and Budget (OMB) provides procedures 
and guidance to implement the Government Paperwork Elimination Act 
(GPEA). GPEA requires Federal agencies, by October 21, 2003, to allow 
individuals or entities that deal with the agencies the option to 
submit information or transact with the agency electronically, when 
practicable, and to maintain records electronically, when practicable. 
The Act specifically states that electronic records and their related 
electronic signatures are not to be denied legal effect, validity, or 
enforceability merely because they are in electronic form, and 
encourages Federal government use of a range of electronic signature 
alternatives.
    Electronic Availability: This document is available on the Internet 
in the OMB library of the ``Welcome to the White House'' home page, 
http://www.whitehouse.gov/OMB/, the Federal CIO Council's home page, 
http://cio.gov/, 

[[Page 25509]]

and the Federal Public Key Infrastructure Steering Committee 
home page, http://gits-sec.treas.gov/.

FOR FURTHER INFORMATION CONTACT: Jonathan Womer, Information Policy and 
Technology Branch, Office of Information and Regulatory Affairs, (202) 
395-3785. Press inquiries should be addressed to the OMB Communications 
Office, (202) 395-7254. Inquiries may also be addressed to: Information 
Policy and Technology Branch, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10236 New Executive 
Office Building, Washington, D.C. 20503.

SUPPLEMENTARY INFORMATION:

Background

    This document provides Executive agencies the guidance required 
under Sections 1703 and 1705 of the Government Paperwork Elimination 
Act (GPEA), Public Law 105-277, Title XVII, which was signed into law 
on October 21, 1998. GPEA is an important tool to improve customer 
service and governmental efficiency through the use of information 
technology. This improvement involves transacting business 
electronically with Federal agencies and widespread use of the Internet 
and its World Wide Web.
    As public awareness of electronic communications and Internet usage 
increases, demand for on-line interactions with the Federal agencies 
also increases. Moving to electronic transactions and electronic 
signatures can reduce transaction costs for the agency and its partner. 
Transactions are quicker and information access can be more easily 
tailored to the specific questions that need to be answered. As a 
result data analysis is easier. These access and data analysis benefits 
often have a positive spillover effect into the rest of the agency as 
awareness of the agency's operations is improved. In addition, 
reengineering the work process associated with the transaction around 
the new electronic format can give rise to other efficiencies.
    Public confidence in the security of the government's electronic 
information processes is essential as agencies make this transition. 
Electronic commerce, electronic mail, and electronic benefits transfer 
can require the exchange of sensitive information within government, 
between the government and private industry or individuals, and among 
governments. These electronic systems must protect the information's 
confidentiality, ensure that the information is not altered in an 
unauthorized way, and make it available when needed. A corresponding 
policy and management structure must support the hardware and software 
that delivers these services.
    To provide for a broad framework for ensuring the implementation of 
electronic systems in a secure manner, the Administration has taken a 
number of actions. In February 1996, OMB revised Appendix III of 
Circular A-130, which provided guidance to agencies on securing 
information as they increasingly rely on open and interconnected 
electronic networks to conduct business. In May 1998, the President 
issued Presidential Decision Directive 63, which set a goal of a 
reliable, interconnected, and secure information system infrastructure 
by the year 2003, and significantly increased security for government 
systems by the year 2000 based on reviews by each department and 
agency. In September, 1998, OMB and the Federal Public Key 
Infrastructure Steering Committee published ``Access With Trust'' 
(available at http://gits-sec.treas.gov/). This report describes the 
Federal government's goals and efforts to develop a Public Key 
Infrastructure (PKI) to enable the widespread use of cryptographically-
based digital signatures. On December 17, 1999, the President issued a 
Memorandum, ``Electronic Government,'' which called on Federal agencies 
to use information technology to ensure that governmental services and 
information are easily accessible to the American people (Weekly 
Compilation of Presidential Documents, vol. 35, pp. 2641-43, (December 
27, 1999); also available at http://cio.gov/). Among other things, the 
President charged the Administrator of General Services, in 
coordination with agencies, to assist agencies in the development of 
private, secure and effective electronic communication across agencies 
and with the public through the use of public key technology. This 
technology can offer significant benefits in facilitating electronic 
commerce through a shared, interoperable, government-wide 
infrastructure.

What is the Purpose of GPEA?

    GPEA seeks to ``preclude agencies or courts from systematically 
treating electronic documents and signatures less favorably than their 
paper counterparts'', so that citizens can interact with the Federal 
government electronically (S. Rep. 105-335). It requires Federal 
agencies, by October 21, 2003, to provide individuals or entities that 
deal with agencies the option to submit information or transact with 
the agency electronically, and to maintain records electronically, when 
practicable. It also addresses the matter of private employers being 
able to use electronic means to store, and file with Federal agencies, 
information pertaining to their employees.
    GPEA states that electronic records and their related electronic 
signatures are not to be denied legal effect, validity, or 
enforceability merely because they are in electronic form. It also 
encourages Federal government use of a range of electronic signature 
alternatives.
    This guidance implements GPEA, fosters a successful transition to 
electronic government as contemplated by the President's memorandum, 
and employs where appropriate the work described in ``Access with 
Trust.''

What Were the Comments on the Proposed Implementation?

    On March 5, 1999, OMB published the ``Proposed Implementation of 
the Government Paperwork Elimination Act'' for public comment. (64 FR 
10896). It was also sent directly to Federal agencies for comment and 
made available via the Internet. In addition, OMB met with relevant 
committees and staff of many interested organizations including: 
American Bar Association (both the Business Law and the Science and 
Technology Sections); American Bankers Association; National Automated 
Clearing House Association; National Governors Association; National 
Association of State Information Resource Executives; National 
Association of State Auditors, Controllers and Treasurers; National 
Association of State Purchasing Officers; the Government of Canada; the 
Government of Australia; and relevant industry forums. All were 
uniformly positive about the content and tone of the guidance. OMB 
received specific comments from 24 organizations. Most comments 
proposed changes in clarity and detail. Where the comments added 
clarity and did not contradict the goals of the guidance, they were 
incorporated. The principal substantive issues raised in the comments 
and our responses to them are described below.

I. Comments Regarding Risks and Benefits

    A number of comments, including those from the Justice Department 
and the General Accounting Office, requested that the guidance contain 
further information on how to conduct the assessments of practicability 
needed to determine the proper combination of technology and management 
controls to manage the risk of converting transactions and record 
keeping to

[[Page 25510]]

electronic form, and then conducting transactions electronically. Each 
assessment should contain elements of risk analysis and measurements of 
other costs and benefits. Most comments on assessment referred to the 
risk analysis portion.
    Risk analyses provide decisionmakers with information needed to 
understand the factors that can degrade or endanger operations and 
outcomes and to make informed judgments about what actions need to be 
taken to reduce risk. Consistent with the Computer Security Act (40 
U.S.C. 759 note), Appendix III of OMB Circular No. A-130, ``Security of 
Federal Automated Information Resources,'' (34 FR 6428, February 20, 
1996), Federal managers should design and implement their information 
technology systems in a manner that is commensurate with the risk and 
magnitude of harm from unauthorized use, disclosure, or modification of 
the information in those systems. To determine what constitutes 
adequate security, a risk-based assessment must consider all major risk 
factors, such as the value of the system or application, threats, 
vulnerabilities, and the effectiveness of current and proposed 
safeguards. Low-risk information processes may need only minimal 
consideration, while high-risk processes may need extensive analysis. 
OMB reiterated these principles on June 23, 1999, in OMB Memorandum No. 
99-20, ``Security of Federal Automated Information Resources,'' and 
reminded agencies to continually assess the risk to their computer 
systems and maintain adequate security commensurate with that risk, 
particularly as they take increasing advantage of the internet and the 
world wide web in providing information and services to citizens. 
(Available at: http://cio.gov/ and http://whitehouse.gov/omb/memoranda/m-99-20.html).
    The Commerce Department's National Institute of Standards and 
Technology (NIST) also recognizes the importance of conducting risk 
analyses for securing computer-based resources. NIST provides guidance 
on risk analysis (available at http://csrc.nist.gov/nistpubs):
    <bullet> ``Good Security Practices for Electronic Commerce, 
Including Electronic Data Interchange,'' Special Publication 800-9 
(December 1993);
    <bullet> ``An Introduction to Computer Security: The NIST 
Handbook,'' Special Publication 800-12 (December 1995);
    <bullet> ``Generally Accepted Principles and Practices for Securing 
Information Technology Systems,'' Special Publication 800-14 (September 
1996); and
    <bullet> ``Guide for Developing Security Plans for Information 
Technology Systems,'' Special Publication 800-18 (December 1998).
    More recently, the General Accounting Office published 
``Information Security Risk Assessment: Practices of Leading 
Organizations,'' GAO/AIMD-00-33 (November 1999) (Available at http://www.gao.gov/). This document is intended to help Federal managers 
implement an ongoing information security risk analysis process by 
suggesting practical procedures that have been successfully adopted by 
organizations known for their good risk analysis practices. This 
document describes various models and methods for analyzing risk, and 
identifies factors that are important in a risk analysis.
    A quantitative risk analysis generally attempts to estimate the 
monetary cost of risk compared with that of risk reduction techniques 
based on (1) the likelihood that a damaging event will occur, (2) the 
costs of potential losses, and (3) the costs of mitigating actions that 
could be taken. Availability of data affects the extent to which risk 
analysis results may be quantified reliably. The GAO report recognizes, 
however, that reliable data on likelihood and risks often may not be 
available, in which case a qualitative approach can be taken by 
defining risk in more subjective and general terms such as high, 
medium, and low. In this regard, qualitative analyses depend more on 
the expertise, experience, and good judgment of the Federal managers 
conducting the analysis. It also may be possible to use a combination 
of quantitative and qualitative methods.
    Other commenters wanted more guidance on how to weigh the risk 
analysis with other costs and benefits. In combination with the risk 
analysis, the results of a cost-benefit analysis should be used to 
judge the practicability of such a process transformation. All major 
information technology investments are evaluated under the Appendices 
of OMB Circular No. A-130, ``Management of Federal Information 
Resources'' and Part 3 of OMB Circular No. A-11 ``Planning, Budgeting, 
and Acquisition of Capital Assets.'' Specific guidance on information 
technology cost-benefit analysis is available from the Capital Planning 
and IT Investment Committee of the Federal CIO Council in the recently 
published ``ROI and the Value Puzzle.'' (Available at: http://cio.gov/
). When developing collections of information under the Paperwork 
Reduction Act, agencies currently address the practicality of 
electronic submission, maintenance, and disclosure. The GPEA guidance 
builds on the requirements and scope of the PRA; all transactions that 
involve Federal information collections covered under the PRA are also 
covered under GPEA. In addition, agencies should follow OMB Memorandum 
00-07 ``Incorporating and Funding Security in Information Systems 
Investments'', issued February 28, 2000, which provides information on 
building security into information technology investments (also 
available at: http://cio.gov/).
    The Department of Justice commented on the need for each agency to 
consider the broad range of legal risks involved in electronic 
transactions. Justice's comments are especially appropriate for 
particularly sensitive transactions, including those likely to give 
rise to civil or criminal enforcement proceedings and we expect them to 
be further developed in Juctice's forthcoming practical guidance. The 
risk analysis process required by the Computer Security Act and by good 
practice must be tailored to the risks and related mitigation costs 
that pertain to each system, as understood by the Federal managers most 
knowledgeable with the systems. When evaluating legal risks, Federal 
managers should consult with their legal counsel about any specific 
legal implications due to the use of electronic transactions or 
documents in the application in question. Agencies should also keep in 
mind that GPEA specifically states that electronic records and their 
related electronic signatures are not to be denied legal effect, 
validity, or enforceability merely because they are in electronic form. 
We are not, therefore, prescribing specific ``one size fits all'' 
requirements applicable to transactions regardless of sensitivity.
    In light of all the above comments, we have added greater detail to 
the practicability aspects of the guidance, and an expanded discussion 
of cost-benefit analysis and its relation to risk analysis. We have 
also placed additional emphasis on the need for risk analyses to 
identify and address the full range of risks, including reasonably 
expected legal and enforcement risks, and technological risks. Further, 
we included a reporting mechanism in Part I Section 3 to facilitate the 
assessment of practicability. Although many of the comments concern the 
costs and risks of changing to electronic transactions, it is also 
important to consider the full range of benefits that electronic 
transactions can provide. Possible benefits include: increased partner 
participation and customer satisfaction; reduced

[[Page 25511]]

transaction costs and increased transaction speed; improved record 
keeping and new opportunities for analysis of information; and greater 
employee productivity and enhanced quality of their output. An agency's 
consideration of risks needs to be balanced with a full consideration 
of benefits.

II. Comments Regarding Technology Neutrality

    A number of comments concerned the emphasis on technology 
neutrality with regard to the various electronic signature 
alternatives. They suggested we endorse one electronic signature 
technology in order to promote interoperability and ease of use. Other 
commenters disagreed. They expressed concern that promoting one 
technology requires predicting the direction and future of information 
technology standards and practices, which is a notoriously difficult 
task. Further, there are sometimes technologies that naturally fit 
particular electronic transactions and are easier to implement from a 
security, privacy, technical, or operational perspective than others. 
For example, implementing a technology that is easy to use would 
naturally fit when encouraging citizens to participate in electronic 
transactions.
    We do not believe it would be appropriate to endorse one 
technology, and we share the concerns of those commenters who argued 
against such an endorsement. At the same time, we recognize that 
cryptographically-based digital signatures (i.e., public key 
technology) hold great promise for ensuring both authentication and 
privacy in networked interactions, and may be the only technology 
available that can foster interoperability across numerous 
applications. There are, however, applications where personal 
identification numbers (PINs) and other shared secret techniques may 
well be appropriate. These are generally relatively low risk 
applications where interoperability is of lesser importance. A number 
of agencies have successfully used PINs in groundbreaking applications, 
particularly the Securities and Exchange Commission for regulatory 
filings and the Internal Revenue Service for tax filings. They have 
recognized the benefits of using PINs, but at the same time they are 
planning for an eventual transfer to digital signatures.
    Accordingly, the final guidance maintains the basic policy of 
technology neutrality for automated transactions while recognizing that 
agencies should select an alternative relative to the risk of the 
application, and calls on agencies to consider all of the available 
electronic signature technologies (including the advantages of public 
key technology) as part of their assessments.

III. Comments Regarding Records Management

    Several comments suggested that the guidance should give further 
emphasis to the role of the National Archives and Records 
Administration in working with the agencies to address the maintenance, 
preservation, and disposal of Federal records that are associated with 
electronic government transactions. We agree. The final guidance 
explicitly addresses NARA's role in the area of electronic records 
management, particularly as it relates to the use of electronic 
signature technologies.

IV. Comments regarding privacy protection

    Some commenters were concerned with the privacy implications of the 
guidance. They want to ensure that any move to electronic transactions 
does not encourage the gathering of unnecessary information, and that 
Federal agencies adequately protect the personal information that does 
need to be collected. We agree that agencies must incorporate privacy 
protections when developing electronic processes. Several helpful 
suggestions were made that have been incorporated into the final 
guidance. With respect to a commenters' concern that agencies not 
collect unnecessary information, the Privacy Act requires an agency to 
``maintain in its records only such information about an individual as 
is relevant and necessary to accomplish a purpose of the agency.'' 5 
U.S.C. 552a(e)(1); see e.g. Reuber v. United States, 829 F. 2d 133, 
138-40 (D.C.C. 1987). Furthermore, the collection by agencies of 
unnecessary information would be contrary to the Paperwork Reduction 
Act's mandate that agencies collect only information that is 
``necessary for the proper performance of the functions of the agency'' 
and ``has practical utility.'' 44 U.S.C. 3508.

V. State, Local and Non-governmental Concerns

    A number of comments were received from non-Federal entities. These 
comments were primarily concerned with the broader implications of the 
Act itself rather than the draft guidance. Specifically, some 
governmental entities expressed concern that Federal adoption of 
routine electronic transactions would require state and local 
governments to provide equivalent access for citizens. Some commenters 
were also concerned that they would be required to make all future 
transactions with the Federal government in an electronic format. 
Consultations with the state government groups identified above, during 
and subsequent to the comment period, seem to have alleviated these 
concerns significantly, particularly as we explained that GPEA 
contemplates optional rather than mandatory electronic transactions 
with the Federal government. Agencies are required to provide the 
option to their transaction partners. Transaction partners are not 
required to use the electronic option.

What Are the Future Plans for this Guidance?

    We intend to place this guidance into an appendix of OMB Circular 
A-130 as it is updated. OMB's final procedures and guidance on 
implementing the Government Paperwork Elimination Act are set forth 
below.

John T. Spotila,
Administrator, Office of Information and Regulatory Affairs.
April 25, 2000
M-00-10

Memorandum for the Heads of Departments and Agencies

From: Jacob J. Lew, Director
Subject: OMB Procedures and Guidance on Implementing the Government 
Paperwork Elimination Act
    This document provides Executive agencies with the guidance 
required under Sections 1703 and 1705 the Government Paperwork 
Elimination Act (GPEA), Public Law 105-277, Title XVII.
    GPEA requires agencies, by October 21, 2003, to provide for the (1) 
option of electronic maintenance, submission, or disclosure of 
information, when practicable as a substitute for paper; and (2) use 
and acceptance of electronic signatures, when practicable. GPEA 
specifically states that electronic records and their related 
electronic signatures are not to be denied legal effect, validity, or 
enforceability merely because they are in electronic form.
    GPEA is an important tool in fulfilling the vision of improved 
customer service and governmental efficiency through the use of 
information technology. This vision contemplates widespread use of the 
Internet and its World Wide Web, with Federal agencies transacting 
business electronically as commercial enterprises are doing. Members of 
the public who wish to do business this way may avoid traveling to 
government offices, waiting in line, or mailing paper forms. The 
Federal government can also save time and money transacting business 
electronically.

[[Page 25512]]

    This guidance also implements part of the President's memorandum of 
December 17, 1999, ``Electronic Government,'' which calls on Federal 
agencies to use information technology in ensuring that governmental 
services and information are easily accessible to the American people. 
Among other things, the President charged the Administrator of General 
Services, in coordination with appropriate agencies and organizations, 
to assist agencies in developing private, secure, and effective 
communication across agencies and with the public through the use of 
digital signature technology.
    Creating more accessible and efficient government requires public 
confidence in the security of the government's electronic information 
communication and information technology systems.
    Electronic commerce, electronic mail, and electronic benefits 
transfer can involve the exchange of sensitive information within 
government, between government and private industry or individuals, and 
among governments. Electronic systems must be able to protect the 
confidentially of citizens' information, authenticate the identity of 
the transacting parties to the degree required by the transaction, 
guarantee that the information is not altered in an unauthorized way, 
and provide access when needed.
    To reach these goals, agencies must meet objectives outlined by 
GPEA guidance. First, each agency must build on their existing efforts 
to implement electronic government by developing a plan and schedule 
that implement, by the end of Fiscal Year 2003, optional electronic 
maintenance, submission, or transactions of information, when 
practicable as a substitute for paper, including through the use of 
electronic signatures when practicable.
    Agencies must submit a copy of the plan to OMB by October 2000 and 
coordinate the plan and schedule with their strategic IT planning 
activities that support program responsibilities consistent with the 
budget process (as required by OMB Circular A-11).
Attachment
    Implementation of the Government Paper Work Elimination Act 
contains:

Part I. What policies and procedures should agencies follow?

Section 1. What GPEA policies should agencies follow?

Section 2. What GPEA procedures should agencies follow?

Section 3. How should agencies implement these policies and 
procedures?

Part II. How can agencies improve service delivery and reduce burden 
through the use of electronic signatures and electronic transactions?

Section 1. Introduction and background

Section 2. What is an ``electronic signature?''

Section 3. How should agencies assess the risks, costs, and 
benefits?

Section 4. What benefits should agencies consider in planning and 
implementing electronic signatures and electronic transactions?

Section 5. What risk factors should agencies consider in planning 
and implementing electronic signatures or electronic transactions?

Section 6. What privacy and disclosure issues affect electronic 
signatures and electronic transactions?

Section 7. What are current electronic signature technologies?

Section 8. How should agencies implement electronic signatures and 
electronic transactions?

Section 9. Summary of the procedures and checklist

Part I. What policies and procedures should agencies follow?

Section 1. What GPEA policies should agencies follow?

    The Government Paperwork Elimination Act (GPEA) requires Federal 
agencies, by October 21, 2003, to provide individuals or entities the 
option to submit information or transact with the agency electronically 
and to maintain records electronically when practicable. GPEA 
specifically states that electronic records and their related 
electronic signatures are not to be denied legal effect, validity, or 
enforceability merely because they are in electronic form. It also 
encourages Federal government use of a range of electronic signature 
alternatives.
    Sections 1703 and 1705 of GPEA charge the Office of Management and 
Budget (OMB) with developing procedures for Executive agencies to 
follow in using and accepting electronic documents and signatures, 
including records required to be maintained under Federal programs and 
information that employers are required to store and file with Federal 
agencies about their employees. These procedures reflect and are to be 
executed with due consideration of the following policies:
    a. maintaining compatibility with standards and technology for 
electronic signatures generally used in commerce and industry and by 
State governments;
    b. not inappropriately favoring one industry or technology;
    c. ensuring that electronic signatures are as reliable as 
appropriate for the purpose in question;
    d. maximizing the benefits and minimizing the risks and other 
costs;
    e. protecting the privacy of transaction partners and third parties 
that have information contained in the transaction;
    f. ensuring that agencies comply with their recordkeeping 
responsibilities under the FRA for these electronic records. Electronic 
record keeping systems reliably preserve the information submitted, as 
required by the Federal Records Act and implementing regulations; and
    g. providing, wherever appropriate, for the electronic 
acknowledgment of electronic filings that are successfully submitted.

Section 2. What GPEA procedures should agencies follow?

    a. GPEA recognizes that building and deploying electronic systems 
to complement and replace paper-based systems should be consistent with 
the need to ensure that investments in information technology are 
economically prudent to accomplish the agency's mission, protect 
privacy, and ensure the security of the data. Moreover, a decision to 
reject the option of electronic filing or record keeping should 
demonstrate, in the context of a particular application and upon 
considering relative costs, risks, and benefits given the level of 
sensitivity of the process, that there is no reasonably cost-effective 
combination of technologies and management controls that can be used to 
operate the transaction and sufficiently minimize the risk of 
significant harm. Accordingly, agencies should develop and implement 
plans, supported by an assessment of whether to use and accept 
documents in electronic form and to engage in electronic transactions. 
The assessment should weigh costs and benefits and involve an 
appropriate risk analysis, recognizing that low-risk information 
processes may need only minimal consideration, while high-risk 
processes may need extensive analysis.
    b. Performing the assessment to evaluate electronic signature 
alternatives should not be viewed as an isolated activity or an end in 
itself. Agencies should draw from and feed

[[Page 25513]]

into the interrelated requirements of the Paperwork Reduction Act, the 
Privacy Act, the Computer Security Act, the Government Performance and 
Results Act, the Clinger-Cohen Act, the Federal Managers' Financial 
Integrity Act, the Federal Records Act, and the Chief Financial 
Officers Act, as well as OMB Circular A-130 and Presidential Decision 
Directive 63.
    c. The assessment should develop strategies to mitigate risks and 
maximize benefits in the context of available technologies, and the 
relative total costs and effects of implementing those technologies on 
the program being analyzed. The assessment also should be used to 
develop baselines and verifiable performance measures that track the 
agency's mission, strategic plans, and tactical goals, as required by 
the Clinger-Cohen Act.
    d. In addition to serving as a guide for selecting the most 
appropriate technologies, the assessment of costs and benefits should 
be designed so that it can be used to generate a business case and 
verifiable return on investment to support agency decisions regarding 
overall programmatic direction, investment decisions, and budgetary 
priorities. In doing so, agencies should consider the effects on the 
public, its needs, and its readiness to move to an electronic 
environment.

Section 3. How should agencies implement these policies and procedures?

    a. To ensure a smooth and cost-effective transition to an 
electronic government that provides improved service to the public, 
each agency must:
    (1) Develop a plan (including a schedule) by October, 2000 that 
provides for continued implementation, by the end of Fiscal Year 2003, 
of optional electronic maintenance, submission, or transaction of 
information when practicable as a substitute for paper, including 
through the use of electronic signatures when practicable. The plan 
must address, among other things (and where applicable), the optional 
use by employers of electronic means to store and file with Federal 
agencies information about their employees. The plan should prioritize 
agency implementation of systems or modules of systems based on 
achievability and net benefit. The plan must be an addition to the 
agency's strategic IT planning activities supporting program 
responsibilities, as required by OMB Circular A-11. A copy of the plan 
should be provided to OMB.
    (2) For each agency information system identified in the plan 
required in #1 above, consider relative costs, risks, and benefits 
given the level of sensitivity of the process(es) that the system 
supports. Agency considerations of cost, risk, and benefit, as well as 
any measures taken to minimize risks, should be commensurate with the 
level of sensitivity of the transaction. Low-risk information processes 
may need only minimal consideration, while high-risk processes may need 
extensive analysis.
    (3) Based on the considerations in #2 each agency in its plan must 
include:
    (a) The name of the information process or group of processes being 
automated.
    (b) A brief description of the information processes being 
automated. In addition, the description must:
    1. Indicate whether further risk management measures are 
appropriate.
    2. Where such measures are appropriate, indicate when and how a 
combination of information security practices, authentication 
technologies, management controls, or other business processes for each 
application will be practicable. In addition, if a particular 
application is not practicable for conversion to electronic interaction 
as part of the plan, agencies should explain the reasons and report any 
strategy to make such conversion practicable.
    (c) The date of automation for the information process(es). If the 
implementation is judged to be not practicable by October 2003, that 
conclusion may be noted instead of the date. The dates should reflect 
the prioritization based on achievability and net benefit as discussed 
in #1 above.
    (4) Consistent with the plan take measures (including, if 
necessary, amending regulations or policies to remove impediments to 
electronic transactions) to: (a) implement optional electronic 
submission, maintenance, or disclosure of information and the use of 
any necessary electronic signature alternatives; and (b) permit private 
employers who have record keeping responsibilities imposed by the 
Federal government to store and file information pertaining to their 
employees electronically.
    (5) Ensure that measures taken under the plan reflect appropriate 
information system confidentiality and security in accordance with the 
Privacy Act, the Computer Security Act, as amended, and the guidance 
contained in OMB Circular A-130, Appendices I and III; and ensure that 
these measures use, to the maximum extent practicable, technologies 
that are either prescribed in Federal Information Processing Standards 
promulgated by the Secretary of Commerce or are supported by voluntary 
consensus standards as defined in OMB Circular A-119, ``Federal 
Participation in the Development and Use of Voluntary Consensus 
Standards and Conformity Assessment Activities,'' (63 FR 8546; February 
19, 1998).
    (6) Report progress annually against the plan (including any 
appropriate revisions to the schedule) above along with annual 
performance reporting required under OMB Circular A-11.
    (7) Consider the record keeping functionality of any systems that 
store electronic documents and electronic signatures, to ensure users 
have appropriate access to the information and can meet the agency's 
record keeping needs.
    (8) In developing collections of information under the Paperwork 
Reduction Act, address whether optional electronic submission, 
maintenance, or disclosure of information (including the electronic 
storage and filing by employers of information about their employees) 
would be practicable as a means of decreasing the burden and/or 
increasing the practical utility of the collection.
    b. Department of Commerce
    The Department of Commerce must promulgate, in consultation with 
the agencies and OMB, Federal Information Processing Standards as 
appropriate to further the specific goals of GPEA. The Department 
should also develop guidance in the area of authentication technologies 
and implementations, including cryptographic digital signature 
technology, with assistance from the Chief Information Officers Council 
and the Public Key Infrastructure Steering Committee.
    c. Department of the Treasury
    The Department of the Treasury must develop, in consultation with 
the agencies and OMB, policies and practices for the use of electronic 
transactions and authentication techniques for use in Federal payments 
and collections and ensure that they fulfill the goals of GPEA.
    d. Department of Justice
    The Department of Justice must develop, in consultation with the 
agencies and OMB, practical guidance on legal considerations related to 
agency use of electronic filing and record keeping.
    e. National Archives and Records Administration
    The National Archives and Records Administration must develop, in 
consultation with the agencies and OMB, policies and guidance on the 
management, preservation, and disposal of Federal records associated 
with electronic government transactions, and

[[Page 25514]]

must give particular consideration to records issues associated with 
the use of electronic signature technologies.
    f. General Services Administration
    The General Services Administration must support agencies' 
implementation of digital signature technology and related electronic 
service delivery.
    g. Office of Management and Budget
    OMB must provide continuing guidance and oversight for the 
implementation of GPEA, including through its review of collections of 
information under the Paperwork Reduction Act.

Part II. How can agencies improve service delivery and reduce 
burden through the use of electronic signatures and electronic 
transactions?

    This part provides Federal managers with basic information to 
assist in planning for an orderly and efficient transition to 
electronic government. Agencies should begin their planning promptly to 
ensure compliance with the timetable in GPEA.

Section 1. Introduction and Background

    a. As required by GPEA, this Part provides guidance to agencies for 
deciding whether to use electronic signature technology for a 
particular application. GPEA requires Federal agencies, by October 21, 
2003, to allow individuals or entities the option to submit information 
or transact with the agencies electronically and to maintain records 
electronically, when practicable. It specifically states that 
electronic records and their related electronic signatures are not to 
be denied legal effect, validity, or enforceability merely because they 
are in electronic form. It also encourages Federal government use of a 
range of electronic signature alternatives. The guidance helps agencies 
consider which electronic signature technology may be most appropriate 
and suggests methods to maximize the benefit of electronic information 
while minimizing risk when implementing a particular electronic 
signature technology to secure electronic transactions.
    The guidance builds on the requirements and scope of the Paperwork 
Reduction Act of 1995 (PRA). According to the PRA agencies must, 
``consistent with the Computer Security Act of 1987 (CSA) (40 U.S.C. 
759 note), identify and afford security protections commensurate with 
the risk and magnitude of the harm resulting from the loss, misuse, or 
unauthorized access to or modification of information collected or 
maintained by or on behalf of an agency.'' 44 U.S.C. 3506(g)(3). In 
addition, we note that all transactions that involve Federal 
information collections covered under the PRA are also covered under 
GPEA.
    b. As GPEA, PRA, CSA, and the Privacy Act recognize, the goal of 
information security is to protect the integrity and confidentiality of 
electronic records and transactions that enable business operations. 
Different security approaches offer varying levels of assurance in an 
electronic environment and are appropriate depending on a balance 
between the benefits from electronic information transfer and the risk 
of harm if the information is compromised. Among these approaches (in 
an ascending level of assurance) are:

    (1) so-called ``shared secrets'' methods (e.g., personal 
identification numbers or passwords),
    (2) digitized signatures or biometric means of identification, 
such as fingerprints, retinal patterns, and voice recognition, and
    (3) cryptographic digital signatures (discussed in more detail 
in Section 7).

    Combinations of approaches (e.g., digital signatures with 
biometrics) are also possible and may provide even higher levels of 
assurance than single approaches by themselves. Deciding which to use 
in an application depends first upon finding a balance between the 
risks associated with the loss, misuse, or compromise of the 
information, and the benefits, costs, and effort associated with 
deploying and managing the increasingly secure methods to mitigate 
those risks. Agencies must strike a balance, recognizing that achieving 
absolute security is likely to be highly improbable in most cases and 
prohibitively expensive if possible.

Section 2. What is an ``electronic signature?''

    a. GPEA defines ``electronic signature'' as follows:
    ``* * * a method of signing an electronic message that--
    (A) identifies and authenticates a particular person as the source 
of the electronic message; and
    (B) indicates such person's approval of the information contained 
in the electronic message.'' (GPEA, section 1709(1)).
    This definition is consistent with other accepted legal definitions 
of signature. The term ``signature'' has long been understood as 
including ``any symbol executed or adopted by a party with present 
intention to authenticate a writing.'' (Uniform Commercial Code, 1-
201(39)(1970)). The ``Uniform Electronic Transactions Act,'' recently 
adopted by the National Conference of Commissioners of Uniform State 
Laws, and which is being enacted by the States, contains a similar 
definition (see http://www.nccusl.org). These flexible definitions 
permit the use of different electronic signature technologies, such as 
digital signatures, personal identifying numbers, and biometrics 
(section 7 provides more detail on electronic signature technologies). 
While it is the case that, for historical reasons, the Federal Rules of 
Evidence are tailored to support the admissibility of paper-based 
evidence, the Federal Rules of Evidence have no actual bias against 
electronic evidence.
    b. In enacting GPEA, Congress addressed the legal effect and 
validity of electronic signatures or other electronic authentication:
    ``Electronic records submitted or maintained in accordance with 
procedures developed under this title, or electronic signatures or 
other forms of electronic authentication used in accordance with such 
procedures, must not be denied legal effect, validity, or 
enforceability because such records are in electronic form'' (GPEA, 
section 1707).

Section 3. How should agencies assess the risks, costs, and benefits?

    To evaluate the suitability of electronic signature alternatives 
for a particular application, the agency needs to perform an 
assessment. The assessment should include a risk analysis, in cases 
where the sensitivity of the transaction is sufficiently great, and a 
cost-benefit analysis. The assessment identifies the particular 
technologies and management controls best suited to minimizing the risk 
and cost to acceptable levels, while maximizing the benefits to the 
parties involved. Often parts of the assessment can be quantified, but 
some factors--particularly the risk analysis usually can only be 
estimated qualitatively.
    Availability of data affects the extent to which risk can be 
reliably quantified. A quantitative approach to risk analysis generally 
attempts to estimate the monetary cost of risk compared to the cost of 
risk reduction techniques based on:
    (i) the likelihood that a damaging event will occur,
    (ii) the costs of potential losses, and
    (iii) the costs of mitigating actions that could be taken.
    Reliable data on likelihood and costs may not be available. In this 
case a qualitative approach can be taken by defining risk in more 
subjective and general terms such as high, medium, and low. In this 
regard, qualitative analyses depend more on the expertise, experience, 
and good judgment of the

[[Page 25515]]

Federal managers conducting them than on quantified factors.
    The same can be true with other costs and benefits. Some factors, 
such as the value of deterring fraud, are difficult to quantify. If a 
new automated system is less secure than an old, paper-based system, 
attempts to commit fraud or to repudiate transactions may increase. It 
usually is not possible to quantify in monetary terms attitudes such as 
increased customer satisfaction and willingness to cooperate with an 
agency, which may result from electronic processes designed to be user-
friendly. However, many costs (design, development, and implementation) 
and benefits (reduced transaction costs, saved time etc.) can be 
quantified, as is the case for other IT projects. Clearly, then, the 
assessment should use a combination of quantitative and qualitative 
methods to judge the practicability of any electronic transaction 
method and should include a comprehensive risk analysis when warranted 
by the sensitivity of the data and/or the transaction.
    Those alternatives that minimize risk to an acceptable level should 
be assessed in terms of net benefit to the agency and the customer in 
order to determine the electronic signature most appropriate for the 
transaction. If the net benefits are negative, the agency may determine 
that using an electronic process is not practicable at this time. In 
any event, all risk analyses are exercises in managerial judgment.
    a. Consider the costs of risk mitigation. The assessment must 
recognize that neither handwritten signatures nor electronic signatures 
are totally reliable and secure. Every method of signature, whether 
electronic or on paper, can be compromised with enough skill and 
resources, or due to poor security procedures, practices, or 
implementation. Setting up a very secure, but expensive, automated 
system may in fact buy only a marginal benefit of deterrence or risk 
reduction over other alternatives and may not be worth the extra cost. 
For example, past experience with fraud risks, and a careful analysis 
of those risks, shows that exposure is often low. If this is the case a 
less expensive system that substantially deters fraud is warranted, and 
not an absolutely secure system. Overall, security determination should 
conform to the Computer Security Act: the level of security should be 
commensurate with the level of sensitivity of the transaction.
    b. Conduct a cost-benefit analysis to determine if an electronic 
transaction is practicable. The primary goal of a cost-benefit analysis 
should be to find a cost-effective package of security mechanisms and 
management controls that can support automated systems using electronic 
communications. In estimating the cost of any system, agencies should 
include costs associated with hardware, software, administration, and 
support of the system, both short-term and long-term. Agencies should 
consider the following issues when framing the cost-benefit analysis:
    (1) Offering more than one way to communicate electronically may 
enable more people to conduct electronic transactions. If different 
partners have different skills and differing security concerns, 
providing a combination of mechanisms will meet the needs of a greater 
number of possible partners. While admittedly adding cost, offering 
multiple alternatives can add greater benefit, as well. Under GPEA, the 
agency must considered this option whenever it expects to receive over 
50,000 electronic submittals (per year) of a particular form.
    (2) Electronic transactions can impose costs on the transaction 
partners. Many electronic signature techniques require specialized 
computer hardware and technical knowledge. The higher these threshold 
costs are, the higher the participation costs are for users. Higher 
costs will tend to narrow the range of potential users, which in turn 
limits the benefits of electronic communications.
    (3) Agencies should assess the costs of developing and maintaining 
electronic transactions. Information technology costs continue to fall 
and electronic signature techniques continue to evolve. As a result, 
the agency should periodically redo its risk and cost-benefit analyses 
on those programs where electronic transactions were initially deemed 
impracticable to determine whether costs and/or technologies have 
changed enough so that electronic transactions have become practicable.
    (4) If the cost-benefit analysis of a proposed solution indicates 
that the electronic solution is not cost effective, the agency should 
seek to identify opportunities to reengineer the underlying process 
being automated. Occasionally, practices and rules under the control of 
an agency are based on factors or circumstances that may no longer 
apply. In these cases new practices and rules should be proposed if the 
changes do not undermine the objective or impair security, and if the 
changes lead to a more efficient process.
    c. Document the decision. The Computer Security Act gives agency 
managers the responsibility to select an appropriate combination of 
technologies, practices, and management controls to minimize risk cost-
effectively while maximizing benefits to all parties to the 
transaction. Agency managers should document these decisions, however 
qualitative, in the system security plan (see the NIST ``Guide for 
Developing Security Plans for Information Technology Systems,'' Special 
Publication 800-18 (December 1998)) for later review and adjustment.

Section 4. What benefits should agencies consider in planning and 
implementing electronic signatures and electronic transactions?

    Benefits from moving to electronic transactions and electronic 
signatures include reduction in transaction costs for the agency and 
the transaction partner. Transactions are quicker and it is often 
easier to access information related to the transaction because it is 
in electronic form. The electronic form often allows more effective 
data analysis because the information is easier to access. Better data 
analysis often improves the operation of the newly electronic 
transaction. In addition, if many transactions are electronic and data 
analysis can be done across transactions the benefits can spillover 
into the rest of the agency as operational awareness of the entire 
organization is improved. Moreover, business process reengineering 
should accompany all attempts to facilitate a transaction through 
information technology. Often the full benefits will be realized only 
by restructuring the process to take advantage of the technology. 
Merely moving an existing paper based process to an electronic one is 
unlikely to reap the maximum benefits from the electronic system.
    In order to account for all the benefits associated with electronic 
transactions, agencies should keep common information technology 
benefits in mind and look at the benefits realized by other agencies.
    a. What are the benefits? Agencies should identify all the benefits 
of automating program transactions and making those transactions 
secure, such as:
    (1) Increased speed of the transaction. The partner and the agency 
may spend less time completing the transaction. The quicker speed 
combined with putting the transaction online allows real-time help to 
the transaction partner, providing a benefit not found in a paper based 
transaction.
    (2) Increased partner participation and customer satisfaction. 
Often a decrease in partner transaction costs leads to more partners 
completing the transaction. In addition, partners tend to

[[Page 25516]]

have a more positive view of the process given its speed and ease of 
use.
    (3) Improved record keeping efficiency and data analysis 
opportunities. If data are easier to access and store then they can 
enhance program evaluation and expand awareness of the effects of the 
government program in question.
    (4) Increased employee productivity and improved quality of the 
final product. Electronic transactions tend to have fewer errors 
because often the system minimizes retyping and automatically detects 
certain errors. These benefits allow the employees to concentrate more 
time on other matters.
    (5) Greater information benefits to the public. Moving to 
electronic transactions and electronic signatures often can make the 
related information more accessible to the public and Freedom of 
Information Act requests.
    (6) Improved security. Designed, implemented, and managed properly, 
electronic transactions can have fewer opportunities for fraud and more 
robust security measures than paper and envelope transactions.
    (7) Extensive security for highly sensitive information. Even 
though implementing a more secure electronic signature option often is 
more expensive initially than implementing less secure alternatives, 
there could be larger expected benefits if the information being 
protected is particularly sensitive.
    b. What are examples of benefits from electronic signatures and 
transactions? The following examples highlight agencies' experience in 
gaining significant benefits from electronic transactions and 
electronic signatures.
    (1) The Internal Revenue Service uses electronic identification to 
strengthen validation by incorporating electronic links between the 
user and preexisting data about that user in the agency's records in 
its TeleFile program. It enables selected taxpayers to file 1040EZs 
with a touch-tone phone. Taxpayers get Customer Service Numbers (CSNs, 
i.e., PINs) that they then use to sign their returns and which help to 
validate their identities to the agency. Even though a CSN is not 
unique to an individual taxpayer (since it is only five digits long), 
the IRS authenticates the filer by using other identifying factors, 
such as the taxpayer's date of birth, taxpayer identification number, 
and by using additional procedures. This approach is not used over the 
Internet. Instead, it occurs in short-term connections over telephone 
lines, an environment where it is comparatively difficult for persons 
to eavesdrop and steal information or substitute false information.
    (2) Taxpayers who transmit their tax returns electronically give 
high marks to the Internal Revenue Service's electronic filing 
programs. The American Customer Satisfaction Index (ACSI) shows 
customer satisfaction scores for IRS e-file exceed those for both the 
government and retail sectors and rival those of the financial services 
sector. For electronic tax return filers, the overall ACSI customer 
satisfaction index is 74. This surpasses the rating among paper return 
filers and compares with a government-wide satisfaction rating of 68.6. 
In addition, 78% of customers with electronic filing experiences say 
they are more satisfied now than two years ago. Other benefits of the 
electronic filing program include:
    (a) Refunds are received in half the time and even faster with 
Direct Deposit.
    (b) Its accuracy rate of over 99% reduces the chance of getting an 
error notice from the IRS.
    (c) It provides an IRS acknowledgment within 48 hours that the 
return has been received.
    (3) The General Services Administration, Federal Technology Service 
conducted the FTS2001 Procurement in a totally paperless environment. 
Beginning with the Request for Proposals (RFP) release, which was 
digitally signed and posted on the internet along with a utility for 
verifying the signature, through the issuance of the contracts to the 
winning bidders in an electronic signing ceremony, no paper changed 
hands at any time during the process. Bids from the offerors were 
delivered on a single CD, in contrast with the previous FTS2000 
solicitation that required several pallets of documentation for each 
submission. It is estimated that the paper equivalent of this bid would 
have resulted in a stack of paper approximately 5 stories high. This 
electronic process resulted in efficiencies and savings to the 
government of approximately $1,500,000 in time previously required to 
process paperwork. The paperless process was enabled by issuing each 
potential bidder a cryptographically-based digital signature 
certificate housed on a hardware token.
    (4) EDGAR, the Electronic Data Gathering, Analysis, and Retrieval 
system, performs automated collection, validation, indexing, 
acceptance, and forwarding of submissions by companies and others who 
are required by law to file forms with the U.S. Securities and Exchange 
Commission (SEC). Its primary purpose is to increase the efficiency and 
fairness of the securities market for the benefit of investors, 
corporations, and the economy by accelerating the receipt, acceptance, 
dissemination, and analysis of time-sensitive corporate information 
filed with the agency. Other benefits include:
    (a) Elimination of the burdens and delays associated with 
microfiching 10-12 million pages of information annually in a paper 
format.
    (b) Free SEC web site experiences over half a million hits daily, 
many from individuals trying to improve the quality of their investment 
decisions by examining disclosure documents. Prior to EDGAR, 
individuals simply could not afford the typical, minimum cost of $25 
per document.
    (c) Full search capability allows improved ability to identify 
incidents of new or unusual conditions in the reports that are filed 
and allow rapid access to the information.
    (5) The U.S. Customs Service automated much of the information 
transactions with its import-export partners. It has allowed improved 
accuracy, efficiency, speed, and the ability to analyze the 
electronically filed data which has led to enforcement improvements. 
The Automated Commercial System (ACS) is the system used to track, 
control, and process all commercial goods imported into the United 
States. ACS facilitates merchandise processing, significantly cuts 
costs, and reduces paperwork requirements for both Customs and the 
trade community.

Section 5. What risk factors should agencies consider in planning and 
implementing electronic signatures or electronic transactions?

    Properly implemented electronic signature technologies can offer 
degrees of confidence in authenticating identity that are greater than 
a handwritten signature can offer. These digital tools should be used 
to control risks in a cost-effective manner. In determining whether an 
electronic signature is sufficiently reliable for a particular purpose, 
agency risk analyses need at a minimum to consider the relationships 
between the parties, the value of the transaction, the risk of 
intrusion, and the likely need for accessible, persuasive information 
regarding the transaction at some later date. In addition, agencies 
should consider any other risks relevant to the particular process. 
Once these factors are considered separately, an agency should consider 
them together to evaluate the sensitivity to risk of a particular 
process, relative to the benefit that the process can bring.

[[Page 25517]]

    a. What is the relationship between the parties? Agency 
transactions fall into seven general categories, each of which may be 
vulnerable to differing security risks:
    (1) Intra-agency transactions (i.e., those which remain within the 
same Federal agency).
    (2) Inter-agency transactions (i.e., those between Federal 
agencies).
    (3) Transactions between a Federal agency and state or local 
government agencies.
    (4) Transactions between a Federal agency and a private 
organization such as: contractor, business, university, non-profit 
organization, or other entity.
    (5) Transactions between a Federal agency and a member of the 
general public.
    (6) Transactions between a Federal agency and a foreign government, 
foreign private organization, or foreign citizen.
    Risks tend to be relatively low in cases where there is an ongoing 
relationship between the parties. Generally speaking, there will be 
little risk of a partner later repudiating inter-or intra-governmental 
transactions of a relatively routine nature, and almost no risk of the 
governmental trading partner committing fraud. Similarly, transactions 
between a regulatory agency and a publicly traded corporation or other 
known entity regulated by that agency can often bear a relatively low 
risk of repudiation or fraud, particularly where the regulatory agency 
has an ongoing relationship with, and enforcement authority over, the 
entity. For the same reasons, risks tend to be relatively low within 
rulemaking contexts, as all parties can view the submissions of others 
so the risk of imposture is minimized. Other types of transactions, 
involving an ongoing relationship between an agency and non-
governmental entities and persons, can have varying degrees of risk 
depending on the nature of the relationship between the parties; the 
same would apply in the case of those Federal programs in which the 
ongoing relationship is between entities that are acting (and 
collecting information under the PRA) on behalf of an agency and such 
non-governmental entities and persons--e.g., transactions between a 
lender, guaranty agency, or other institution participating in a 
Federal loan or financial aid program and another program participant 
or a member of the general public, such as a borrower or grant 
recipient. On the other hand, the highest risk of fraud or repudiation 
is for a one-time transaction between a person and an agency that has 
legal or financial implications. Agencies should also pay attention to 
transactions with non-Federal entities, where the agency has a law 
enforcement responsibility but does not have an ongoing relationship. 
Transactions between a Federal agency and a foreign entity may entail 
unique legal risks due to varying national laws and regulations. In all 
cases, the relative value of the transaction needs to be considered as 
well.
    b. What is the value of the transaction? Agency transactions fall 
into five general categories, each of which may be vulnerable to 
different security risks:
    (1) Transactions involving the transfer of funds.
    (2) Transactions where the parties commit to actions or contracts 
that may give rise to financial or legal liability.
    (3) Transactions involving information protected under the Privacy 
Act or other agency-specific statutes, or information with national 
security sensitivity, obliging that access to the information be 
restricted.
    (4) Transactions where the party is fulfilling a legal 
responsibility which, if not performed, creates a legal liability 
(criminal or civil).
    (5) Transactions where no funds are transferred, no financial or 
legal liability is involved and no privacy or confidentiality issues 
are implicated.
    Agency risk analyses should attempt to identify the relative value 
of the type of transaction being automated and factor that against the 
costs associated with implementing technological and management 
controls to mitigate risk. Note that the value of the transaction 
depends on the perspective of the agency and the transaction partner. 
In general, electronic signatures are least necessary in very low value 
transactions and need not be used unless specifically required by law 
or regulation (i.e. #5). Where authentication is necessary, the method 
of electronic signature should be appropriate to the level of risk.
    c. What is the risk of intrusion? The probability of a security 
intrusion on the transaction can depend on the benefit to the potential 
attackers and their knowledge that the transaction will take place. 
Agency transactions fall into three categories:
    (1) Regular or periodic transactions between parties are at a 
higher risk than intermittent transactions because of their 
predictability, causing higher likelihood that an outside party would 
know of the scheduled transaction and be prepared to intrude on it.
    (2) The value of the information to outside parties could also 
determine their motivation to compromise the information. Information 
relatively unimportant to an agency may have high value to an outside 
party.
    (3) Certain agencies, because of their perceived image or mission, 
may be more likely to be attacked independent of the information or 
transaction. The act of disruption can be an end in itself.
    d. What is the likely need for accessible, persuasive information 
regarding the transaction at a later point? Agency transactions fall 
into seven general categories:
    (1) Transactions where the information generated will be used for a 
short time and discarded;
    (2) Transactions where the information generated may later be 
subject to audit or compliance;
    (3) Transactions where the information will be used for research, 
program evaluation, or other statistical analyses;
    (4) Transactions where the information generated may later be 
subject to dispute by one of the parties (or alleged parties) to the 
transaction;
    (5) Transactions where the information generated may later be 
subject to dispute by a non-party to the transaction;
    (6) Transactions where the information generated may later be 
needed as proof in court;
    (7) Transactions where the information generated will be archived 
later as permanently valuable records.
    When analyzing the benefits of converting from paper systems to 
electronic systems, agencies should reflect on what information would 
be lost in the conversion, e.g., an envelope containing a postmark and 
the sender's fingerprints and handwriting, or the specific questions 
that were asked on a questionnaire. Agencies should determine whether 
collecting the potentially lost information is truly important and 
whether an electronic system could cost-effectively collect and store 
similarly useful information.
    In some paper transactions requiring a party's signature, the 
signature both identifies the party and establishes that party's intent 
to submit a truthful answer. Sometimes a notary or other third party 
signs as witness to the signature. When converting these transactions 
to electronic systems, agencies should ensure that the selected 
technology and its implementation are able to provide similar 
functions.

Section 6. What privacy and disclosure issues affect electronic 
signatures and electronic transactions?

    Section 1708 of GPEA limits the use of information collected in 
electronic signature services to communications with a Federal agency. 
It directs

[[Page 25518]]

agencies and their staff and contractors not to use such information 
for any purpose other than for facilitating the communication. 
Exceptions exist if the person (or entity) that is the subject of the 
information provides affirmative consent to the additional use of the 
information, or if such additional use is otherwise provided by law. 
Accordingly, agencies should follow several privacy principles:
    a. Electronic signatures should only be required where needed. Many 
transactions do not need, and should not require, identifying or other 
information about an individual. For example, individuals generally 
should not be required to provide personal information in order to 
download public documents.
    b. When electronic signatures are required for a transaction, 
agencies should not collect more information from the user than is 
required for the application of the electronic signature. When 
appropriate, agencies are encouraged to use methods of electronic 
signing that do not require individuals to disclose their identity. 
This includes the ability of individuals in a group to be identified by 
a group identifier rather than an individual identifier if the only 
information needed to authenticate is the fact that the individual is a 
member of the group.
    c. Users should be able to decide how, when, and what type of 
electronic authentication to use of those made available by the agency. 
If none are acceptable the user should be able to opt out to a paper 
process. If a user wants a certain mechanism for authentication to 
apply only to a single agency or to a single type of transaction, the 
user's desires should be honored, if practicable. Conversely, if the 
user wishes the authentication to work with multiple agencies or for 
multiple types of transactions, that should also be permitted where 
practicable. Specifically, it should be consistent with how the agency 
employs such means of authentication and with relevant statute and 
regulation and only if it conforms to practicable costs and risks.
    d. Agencies should ensure, and users should be informed, that 
information collected for the purpose of issuing or using electronic 
means of authentication will be managed and protected in accordance 
with applicable requirements under the Privacy Act, the Computer 
Security Act, and any agency-specific statute mandating the protection 
of such information, as well as with any relevant Executive Branch and 
agency specific privacy policies.

Section 7. What are current electronic signature technologies?

    Questions regarding the following should be directed to the 
Department of Commerce. This section addresses two categories of 
security: (1) Non-cryptographic methods of authenticating identity; and 
(2) cryptographic control methods. The non-cryptographic approach 
relies solely on an identification and authentication mechanism that 
must be linked to a specific software platform for each application. 
Cryptographic controls may be used for multiple applications, if 
properly managed, and may encompass both authentication and encryption 
services. A highly secure implementation may combine both categories of 
technologies. The spectrum of electronic signature technologies 
currently available is described below.
    a. Non-Cryptographic Methods of Authenticating Identity. (1) 
Personal Identification Number (PIN) or password: A user accessing an 
agency's electronic application is requested to enter a ``shared 
secret'' (called ``shared'' because it is known both to the user and to 
the system), such as a password or PIN. When the user of a system 
enters her name, she also enters a password or PIN. The system checks 
that password or PIN against data in a database to ensure its 
correctness and thereby ``authenticates'' the user. If the 
authentication process is performed over an open network such as the 
Internet, it is usually essential that at least the shared secret be 
encrypted. This task can be accomplished by using a technology called 
Secure Sockets Layer (SSL), which uses a combination of public key 
technology and symmetric cryptography to automatically encrypt 
information as it is sent over the Internet by the user and decrypt it 
before it is read by the intended recipient. SSL currently is built 
into almost all popular Web browsers, in such a fashion that its use is 
transparent to the end user. Assuming the password is protected during 
transmission, as described above, impersonating the user requires 
obtaining the user's password. This may be relatively easy if users do 
not follow appropriate guidelines for password creation and use. 
Agencies should establish adequate guidelines for password creation and 
protection.
    (2) Smart Card: A smart card is a plastic card the size of a credit 
card containing an embedded integrated circuit or ``chip'' that can 
generate, store, and/or process data. It can be used to facilitate 
various authentication technologies also embedded on the same card. By 
having different authentication choices the user can pick the 
authentication technique that meets but does not exceed the information 
requirement for the transaction. A user inserts the smart card into a 
card reader device attached to a computer or network input device. 
Information from the card's chip is provided to the computer only when 
the user also enters a PIN, password, or biometric identifier 
recognized by the card. Thus, the user authenticates to the card, 
making available electronic credentials which can then be used by the 
computer or network to strongly authenticate the user for transactions. 
This method offers far greater security than the typical use of a PIN 
or password, because the shared secret is between the user and the 
card, not with a remote server or network device. Moreover, to 
impersonate the user requires possession of the card as well as 
knowledge of the shared secret that activates the electronic 
credentials on the card. Thus, proper security requires that the card 
and the PIN or password used to activate it be kept separate. This is 
not a concern if a biometric is used for the latter purpose.
    (3) Digitized Signature: A digitized signature is a graphical image 
of a handwritten signature. Some applications require an individual to 
create his or her hand-written signature using a special computer input 
device, such as a digital pen and pad. The digitized representation of 
the entered signature may then be compared to a previously-stored copy 
of a digitized image of the handwritten signature. If special software 
judges both images comparable, the signature is considered valid. This 
application of technology shares the same security issues as those 
using the PIN or password approach, because the digitized signature is 
another form of shared secret known both to the user and to the system. 
The digitized signature can be more reliable for authentication than a 
password or PIN because there is a biometric component to the creation 
of the image of the handwritten signature. Forging a digitized 
signature can be more difficult than forging a paper signature since 
the technology digitally compares the submitted signature image with 
the known signature image, and is better than the human eye at making 
such comparisons. The biometric elements of a digitized signature, 
which help make it unique, are in measuring how each stroke is made--
duration, pen pressure, etc. As with all shared secret techniques, 
compromise of a digitized signature image or characteristics file

[[Page 25519]]

could pose a security (impersonation) risk to users.
    (4) Biometrics: Individuals have unique physical characteristics 
that can be converted into digital form and then interpreted by a 
computer. Among these are voice patterns (where an individual's spoken 
words are converted into a special electronic representation), 
fingerprints, and the blood vessel patterns present on the retina (or 
rear) of one or both eyes. In this technology, the physical 
characteristic is measured (by a microphone, optical reader, or some 
other device), converted into digital form, and then compared with a 
copy of that characteristic stored in the computer and authenticated 
beforehand as belonging to a particular person. If the test pattern and 
the previously stored patterns are sufficiently close (to a degree 
which is usually selectable by the authenticating application), the 
authentication will be accepted by the software, and the transaction 
allowed to proceed. Biometric applications can provide very high levels 
of authentication especially when the identifier is obtained in the 
presence of a third party to verify its authenticity, but as with any 
shared secret, if the digital form is compromised, impersonation 
becomes a serious risk. Thus, just like PINs, such information should 
not be sent over open networks unless it is encrypted. Moreover, 
measurement and recording of a physical characteristic could raise 
privacy concerns where the biometric identification data is shared by 
two or more entities. Further, if compromised, substituting a 
different, new biometric identifier may have limitations (e.g., you may 
need to employ the fingerprint of a different finger). Biometric 
authentication is best suited for access to devices, e.g. to access a 
computer hard drive or smart card, and less suited for authentication 
to software systems over open networks.
    b. Cryptographic Control. Creating electronic signatures may 
involve the use of cryptography in two ways: symmetric (or shared 
private key) cryptography, or asymmetric (public key/private key) 
cryptography. The latter is used in producing digital signatures, 
discussed further below.
    (1) Shared Symmetric Key Cryptography
    In shared symmetric key approaches, the user signs a document and 
verifies the signature using a single key (consisting of a long string 
of zeros and ones) that is not publicly known, or is secret. Since the 
same key does these two functions, it must be transferred from the 
signer to the recipient of the message. This situation can undermine 
confidence in the authentication of the user's identity because the 
symmetric key is shared between sender and recipient and therefore is 
no longer unique to one person. Since the symmetric key is shared 
between the sender and possibly many recipients, it is not private to 
the sender and hence has lesser value as an authentication mechanism. 
This approach offers no additional cryptographic strength over digital 
signatures (see below). Further, digital signatures avoid the need for 
the shared secret.
    (2) Public/Private Key (Asymmetric) Cryptography--Digital 
Signatures
    (a) To produce a digital signature, a user has his or her computer 
generate two mathematically linked keys--a private signing key that is 
kept private, and a public validation key that is available to the 
public. The private key cannot be deduced from the public key. In 
practice, the public key is made part of a ``digital certificate,'' 
which is a specialized electronic file digitally signed by the issuer 
of the certificate, binding the identity of the individual to his or 
her private key in an unalterable fashion. The whole system that 
implements digital signatures and allows them to be used with specific 
programs to offer secure communications is called a Public Key 
Infrastructure, or PKI.
    (b) A ``digital signature'' is created when the owner of a private 
signing key uses that key to create a unique mark (the signature) on an 
electronic document or file. The recipient employs the owner's public 
key to validate that the signature was generated with the associated 
private key. This process also verifies that the document was not 
altered. Since the public and private keys are mathematically linked, 
the pair is unique: only the public key can validate signatures made 
using the corresponding private key. If the private key has been 
properly protected from compromise or loss, the signature is unique to 
the individual who owns it, that is, the owner cannot repudiate the 
signature. In relatively high-risk transactions, there is always a 
concern that the user will claim someone else made the transaction. 
With public key technology, this concern can be mitigated. To claim he 
did not make the transaction, the user would have to feign loss of the 
private key. By creating and holding the private key on a smart card or 
an equivalent device, and by using a biometric mechanism (rather than a 
PIN or password) as the shared secret between the user and the smart 
card for unlocking the private key to create a signature this concern 
can be mitigated. In other words, combining two or three distinct 
electronic signature technology approaches in a single implementation 
can enhance the security of the interaction and lower the potential for 
fraud to almost zero. Furthermore, by establishing clear procedures for 
a particular implementation of digital signature technology, so that 
all parties know what the obligations, risks, and consequences are, 
agencies can also strengthen the effectiveness of a digital signature 
solution.
    The reliability of the digital signature is directly proportional 
to the degree of confidence one has in the link between the owner's 
identity and the digital certificate, how well the owner has protected 
the private key from compromise or loss, and the cryptographic strength 
of the methodology used to generate the public-private key pair. The 
cryptographic strength is affected by key length and by the 
characteristics of the algorithm used to encrypt the information. 
Further information on digital signatures can be found in ``Access with 
Trust'' (September 1998) (http://gits-sec.treas.gov/).
    c. Technical Considerations of the Various Electronic Signature 
Alternatives. (1) To be effective, each of these methods requires 
agencies to develop a series of policy documents that provide the 
important underlying framework of trust for electronic transactions and 
which facilitate the evaluation of risk. The framework identifies how 
well the user's identity is bound to his authenticator (e.g., his 
password, fingerprint, or private key). By considering the strength of 
this binding, the strength of the mechanism itself, and the sensitivity 
of the transaction, an agency can determine if the level of risk is 
acceptable. If an agency has experience with the technology, existing 
policies and documents may be available for use as guidance. Where the 
technology is new to an agency, this may require additional effort.
    (2) While digital signatures (i.e. public key/private key) are 
generally the most certain method for assuring identity electronically, 
the policy documents must be established carefully to achieve the 
desired strength of binding. The framework must identify how well the 
signer's identity is bound to his or her public key in a digital 
certificate (identity proofing). The strength of this binding depends 
on the assumption that only the owner has sole possession of the unique 
private key used to make signatures that are validated with the public 
key. The strength of this binding

[[Page 25520]]

also reflects whether the private key is placed on a highly secure 
hardware token, such as a smart card, or is encapsulated in software 
only; and how difficult it is for a malefactor to deduce the private 
key using cryptographic methods (which depends upon the key length and 
the cryptographic strength of the key-generating algorithm).
    A Public Key Infrastructure (PKI) is one mechanism to support the 
binding of public keys with the user's identity. A PKI can provide the 
entire policy and technical framework for the systematic and diligent 
issuance, management and revocation of digital certificates, so that 
users who wish to rely on someone's certificate have a firm basis to 
check that the certificate has not been maliciously altered, and to 
confirm that it remains active (i.e., has not been revoked because of 
loss or compromise of the corresponding private key). This same 
infrastructure provides the basis for interoperability among different 
agencies or entities, so that a person's digital certificate can be 
accepted for transactions by organizations external to the one that 
issued it.
    (3) By themselves, digitized (not digital) signatures, PINs, 
biometric identifiers, and other shared secrets do not directly bind 
identity to the contents of a document as do digital signatures which 
actually use the document information to make the signature. For shared 
secrets to bind the user's identity to the document, they must be used 
in conjunction with some other mechanism. Biometric identifiers such as 
retinal patterns used in conjunction with digital signatures can offer 
far greater proof of identify than pen and ink signatures.
    (4) While not as robust as biometric identifiers and digital 
signatures, PINs have the decided advantage of proven customer and 
citizen acceptance, as evidenced by the universal use of PINs for 
automated teller machine transactions. PINs combined with encrypted 
Internet sessions, particularly through the use of Secure Sockets Layer 
technology on the World Wide Web, are very popular for retail consumer 
transactions requiring credit card or other personal authenticating 
information. This may well be suited for a variety of government 
applications. Also, secure Web browsers are increasingly being designed 
to accommodate digital signatures, making this approach a possible 
interim step towards implementing the more robust authentication 
provided by digital signatures.
    (5) It is important to remember that technical factors are but one 
aspect to be considered when an agency plans to implement electronic 
signature-based applications. Other important aspects are considered in 
the following sections.

Section 8. How should agencies implement electronic signatures and 
electronic transactions?

    After the agency has conducted the assessment and identified an 
appropriate electronic signature technology alternative that may be 
used to secure an automated business process, the agency will proceed 
to implement this decision. For any electronic transaction, agencies 
should collect and record adequate information regarding the content, 
process, and identities of the parties involved. In doing so, agencies 
should consider the following:
    a. Build from a policy framework. GPEA applies to interactions 
between outside entities and the Federal government, as well as to 
transactions and record keeping required by parties under Federal 
programs. Accordingly, agencies should consider whether their policies 
or programmatic regulations support the use and enforceability of 
electronic signature alternatives to handwritten signatures as well as 
to electronic record keeping under Federal programs. If necessary, 
agencies should develop a strategy to make any revisions needed to 
achieve this goal. In addition, by clearly informing the transaction 
partners that electronic signatures and records will be acceptable and 
used for enforcement purposes, their legal standing is enhanced. 
Several agencies have already chosen to promulgate policies or 
regulations on this issue, including:
    (1) Securities and Exchange Commission (17 C.F.R. Part 232), 
electronic regulatory filings;
    (2) Environmental Protection Agency (55 FR 31,030 (1990)), policy 
on electronic reporting;
    (3) Food and Drug Administration (21 C.F.R. Part 11), electronic 
signatures and records;
    (4) Internal Revenue Service (Treasury Reg. 301.6061-1), signature 
alternatives for tax filings;
    (5) Federal Acquisition Regulation (48 C.F.R. Parts 2 and 4), 
electronic contracts;
    (6) General Services Acquisition Regulation (48 C.F.R. Part 
552.216-73), electronic orders;
    (7) Federal Property Management Regulations (41 C.F.R. Part 101-
41), electronic bills of lading.
    (8) Administrative Committee of the Federal Register (1 C.F.R. Part 
18.7), electronic signatures on documents submitted for publication in 
the Federal Register.
    (9) Commodity Futures Trading Commission (17 C.F.R. Part 1.4 and 
Part 1.3(tt)), electronic signatures for filings.
    When specifying the requirements for electronic record keeping by 
regulated entities or government business partners (e.g. contractors or 
grantees), particularly the maintenance of electronic forms pertaining 
to employees by employers, agencies should consult the ``Performance 
Guideline for the Legal Acceptance of Records Produced by Information 
Technology Systems,'' developed by the Association for Information and 
Image Management (ANSI/AIIM TR31). This set of documents offers 
suggestions for maximizing the likelihood that electronically filed and 
stored records will be accorded full legal recognition. If an agency 
chooses to use digital signature technology, a regulation might specify 
that each individual will be issued a unique digital signature 
certificate to use, agree to keep the private key confidential, agree 
to accept responsibility for anything that is submitted using that key, 
or accept other conditions under which the agency will accept 
electronic submissions.
    b. Where necessary, use a mutually understood, signed agreement 
between the person or entity submitting the electronically-signed 
information and the receiving Federal agency. As a matter of 
efficiency, arrangements with large numbers of customers may be best 
accomplished by setting forth an agency's terms and conditions in a 
policy or regulation. Arrangements with smaller numbers of customers 
may lend themselves to one or more agreements, using a document 
referred to as a ``terms and conditions'' agreement. These agreements 
can ensure that all conditions of submission and receipt of data 
electronically are known and understood by the submitting parties. This 
is particularly the case where terms and conditions are not spelled out 
in agency programmatic regulations.
    c. Minimize the likelihood of repudiation. Agencies should develop 
well-documented mechanisms and procedures to tie transactions to an 
individual in a legally binding way. For example, the integrity of even 
the most secure digital signature rests on the continuing 
confidentiality of the private key, so instituting procedures for 
ensuring the confidentiality of the private key would be in an agency's 
interest. Similarly, in the case of electronic signatures based on the 
use of shared secrets like PINs or passwords, the integrity of the 
transaction depends on the user not disclosing the shared secret, so an 
agency should have

[[Page 25521]]

procedures for encouraging the maintenance of the PIN's integrity. If a 
defendant is later charged with a crime based on an electronically 
signed document, he or she would have every incentive to show a lack of 
control over (or loss of) the private key or PIN, or in the case of a 
PIN, that the government failed to protect the PIN on its computer 
system. Indeed, if that defendant plans to commit fraud, he or she may 
intentionally compromise the secrecy of the key or PIN, so that the 
government would later have a more difficult time uniquely linking him 
or her to the electronic transaction. Promulgating policies and 
procedures that ensure the integrity of security tools helps counter 
such fraudulent attempts.
    Thus, transactions which appear to be at high risk for fraud, e.g., 
one-time high-value transactions with persons not previously known to 
an agency, may require extra safeguards or may not be appropriate for 
electronic transactions. One way to mitigate this risk might be to 
require that private keys be generated and kept on hardware tokens, 
making possession of the token a critical requirement. Another way to 
guard against fraud is to include other identifying data in the 
transaction that links the key or PIN to the individual, preferably 
something not readily available to others.
    It is also important to establish that the user of the digital 
signature or PIN/password is fully aware of obligations he or she is 
agreeing to by signing at the time of signature. This can be ensured by 
programming appropriate ceremonial banners into the software 
application that alert the individual of the gravity of the action she 
is about to undertake. The presence of such banners can later be used 
to demonstrate to a court that the user was fully informed of and aware 
of what he or she was signing.
    d. Carefully control access to the electronic data, after receipt, 
yet make it available in a meaningful and timely fashion. Security 
measures should be in place that ensure that no one is able to alter a 
transaction, or substitute something in its place, once it has been 
received by the agency unless the alteration is a valid correction 
contained in an electronically certified re-transmission. This can be 
achieved with a digital signature because it binds the identity of the 
individual making the signature to the entire document, so any 
subsequent change would be detected. Thus, the receiving agency needs 
to take prudent steps to control access to the electronic transaction 
through such methods as limiting access to the computer database 
containing the transaction, and performing processing with the data 
using copies of the transaction rather than the original. The 
information may be needed for audits, disputes, or court cases many 
years after the transaction itself took place. Agencies should make 
plans for storing data and providing meaningful and timely access to it 
for as long as such access will be necessary.
    e. Ensure the ``Chain of Custody.'' Electronic audit trails must 
provide a chain of custody for the secure electronic transaction that 
identifies sending location, sending entity, date and time stamp of 
receipt, and other measures used to ensure the integrity of the 
document. These trails must be sufficiently complete and reliable to 
validate the integrity of the transaction and to prove, (a) that the 
connection between the submitter and the receiving agency has not been 
tampered with, and (b) how the document was controlled upon receipt.
    f. Consider providing an acknowledgment of receipt. The agency's 
system for receiving electronic transactions may be required by statute 
to have a mechanism for acknowledging receipt of transactions received 
and acknowledging confirmation of transactions sent, with specific 
indication of the party with whom the agency is dealing.
    g. Obtain legal counsel during the design of the system. Collection 
and use of electronic data may raise legal issues, particularly if it 
is information that bears on the legality of the process, may 
eventually be needed for proof in court, or involves questions of 
privacy, confidentiality, or liability.

Section 9. Summary of the Procedures and Checklist

    To summarize the process and restate the principles that agencies 
should employ to evaluate authentication mechanisms (electronic 
signatures) for electronic transactions and documents, the following 
steps apply:
    a. Examine the current business process that is being considered 
for conversion to employ electronic documents, forms or transactions, 
identifying customer needs and demands as well as the existing risks 
associated with fraud, error or misuse.
    b. Identify the benefits that may accrue from the use of electronic 
transactions or documents.
    c. Consider what risks may arise from the use of electronic 
transactions or documents. This evaluation should take into account the 
relationships of the parties, the value of the transactions or 
documents, and the later need for the documents.
    d. Consult with counsel about any agency specific legal 
implications about the use of electronic transactions or documents in 
the particular application.
    e. Evaluate how each electronic signature alternative may minimize 
risk compared to the costs incurred in adopting an alternative.
    f. Determine whether any electronic signature alternative, in 
conjunction with appropriate process controls, represents a practicable 
trade-off between benefits on the one hand and cost and risk on the 
other. If so, determine, to the extent possible at the time, which 
signature alternative is the best one. Document this determination to 
allow later reevaluation.
    g. Develop plans for retaining and disposing of information, 
ensuring that it can be made continuously available to those who will 
need it, for managerial control of sensitive data and accommodating 
changes in staffing, and for ensuring adherence to these plans.
    h. Develop management strategies to provide appropriate security 
for physical access to electronic records.
    i. Determine if regulations or policies are adequate to support 
electronic transactions and record keeping, or if ``terms and 
conditions'' agreements are needed for the particular application. If 
new regulations or policies are necessary, disseminate them as 
appropriate.
    j. Seek continuing input of technology experts for updates on the 
changing state of technology and the continuing advice of legal counsel 
for updates on the changing state of the law in these areas.
    k. Integrate these plans into the agency's strategic IT planning 
and regular reporting to OMB.
    l. Perform periodic review and re-evaluation, as appropriate.

[FR Doc. 00-10801 Filed 5-1-00; 8:45 am]
BILLING CODE 3110-01-U