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PUBLICATIONS

Computer Science

and Technology

NBS Special Publication 500-153

Guide to Auditing for Controls

and Security:

A System Development Life

Cycle Approach

100

.U57

#500-153

1988
Tm he National Bureau of Standards' was established by an act of Congress on March 3, 1901. The Bureau's overall goal is to strengthen and advance the nation's science and technology and facilitate their effective application for public benefit. To this end, the Bureau conducts research to assure international competitiveness and leadership of U.S.

industry, science arid technology. NBS work involves development and transfer of measurements, standards and related science and technology, in support of continually improving U.S. productivity, product quality and reliability, innovation

and underlying science and engineering. The Bureau's technical work is performed by the National Measurement

Laboratory, the National Engineering Laboratory, the Institute for Computer Sciences and Technology, and the Institute for Materials Science and Engineering.

The National Measurement Laboratory

Provides the national system of physical and chemical measurement;

coordinates the system with measurement systems of other nations and

furnishes essential services leading to accurate and uniform physical and

chemical measurement throughout the Nation's scientific community,

industry, and commerce; provides advisory and research services to other Government agencies; conducts physical and chemical research; develops,

produces, and distributes Standard Reference Materials; provides

calibration services; and manages the National Standard Reference Data

System. The Laboratory consists of the following centers:

• Basic Standards^

• Radiation Research

• Chemical Physics

• Analytical Chemistry

The National Engineering Laboratory

Provides technology and technical services to the public and private sectors

to address national needs and to solve national problems; conducts research

in engineering and applied science in support of these efforts; builds and

maintains competence in the necessary disciplines required to carry out this research and technical service; develops engineering data and measurement

capabilities; provides engineering measurement traceability services; develops test methods and proposes engineering standards and code

changes; develops and proposes new engineering practices; and develops

and improves mechanisms to transfer results of its research to the ultimate

user. The Laboratory consists of the following centers:

• Applied Mathematics

• Electronics and Electrical Engineering^

• Manufacturing Engineering

• Building Technology

• Fire Research

• Chemical Engineering^

The Institute for Computer Sciences and Technology

Conducts research and provides scientific and technical services to aid Federal agencies in the selection, acquisition, application, and use of

computer technology to improve effectiveness and economy in Government

operations in accordance with Public Law 89-306 (40 U.S.C. 759),

relevant Executive Orders, and other directives; carries out this mission by

managing the Federal Information Processing Standards Program,

developing Federal ADP standards guidelines, cind managing Federal

participation in ADP voluntary standardization activities; provides scientific and technological advisory services and assistance to Federal agencies; and

provides the technical foundation for computer-related policies of the Federal Government. The Institute consists of the following divisions:

Information Systems Engineering

Systems and Software

Technology

Computer Security

Systems and Network

Architecture

Advanced Computer Systems

The Institute for Materials Science and Engineering

Conducts research and provides measurements, data, standards, reference

materials, quantitative understanding and other technical information

fundamental to the processing, structure, properties and performance of

materials; addresses the scientific basis for new advanced materials technologies; plans research around cross-cutting scientific themes such as nondestructive evaluation and phase diagram development; oversees Bureau-wide technical programs in nuclear reactor radiation research and

nondestructive evaluation; and broadly disseminates generic technical information resulting from its programs. The Institute consists of the following Divisions:

• Ceramics

• Fracture and Deformation^

• Polymers

• Metallurgy

• Reactor Radiation

'Headquarters and Laboratories at Gaithersburg, MD, unless otherwise noted; mailing address

Gaithersburg, MD 20899. ^Some divisions within the center are located at Boulder, CO 80303.

^Located at Boulder, CO, with some elements at Gaithersburg, MD
Computer Science

and Technology

NBS Special Publication 500-153

Guide to Auditing for Controls

and Security:

A System Development Life

Cycle Approach

Editors/Authors: Zella G. Ruthberg

Bonnie T. Fisher

William E„ Perry

John W. Lainhart SV

James G. Cox

' Mark Gillen

Douglas B. Hunt

Co-Sponsored by:

President's Council on Integrity and Efficiency

and

Institute for Computer Sciences and Technology

National Bureau of Standards

U.S. DEPARTMENT OF COMMERCE

C. William Verity, Secretary

Gaithersburg, MD 20899

April 1988

Research Information Center

National Bureau of Standards

Gaithersburg, Maryland 20899

National Bureau of Standards

Ernest Ambler, Director
Reports on Computer Science and Technology

The National Bureau of Standards has a special responsibility within the Federal Government for computer science and technology activities. The programs of the NBS Institute for Computer Sciences and

Technology are designed to provide ADP standards, guidelines, and technical advisory services to improve the effectiveness of computer utilization in the Federal sector, and to perform appropriate research

and development efforts as foundation for such activities and programs. This publication series will report

these NBS efforts to the Federal computer community as well as to Interested specialists in the academic

and private sectors. Those wishing to receive notices of publications in this series should complete and

return the form at the end of this publication.

Library of Congress Catalog Card Number: 88-600518

National Bureau of Standards Special Publication 500-153

Natl. Bur. Stand. (U.S.), Spec. Publ. 500-153, 266 pages (Apr. 1988)

CODEN: XNBSAV

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON: 1988

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington DC 20402
Table of Contents

EXECUTIVE SUMMARY xiii CHAPTER 1 GENERAL ADP AUDIT ISSUES 1

1.1 INTRODUCTION 1 1.1.1 Scope of the Audit Guide 1 1.1.2 How to Use the Audit Guide 2

1.1.3 Auditor Skills Needed 2

1.1.4 Auditing in a Computerized Environment 3

1.1.4.1 The Need 3

1.1.4.2 The Scope of Audit in a Computerized Environment 3

1.1.4.3 Relationship Between Systems Development Audits and

Operational Audits of Automated Information Systems (AISs) 4

1.1.5 Relevant Laws and Regulations 4

1.1.5.1 Requirements for Audit Involvement 4

1.1.5.2 Requirements for Internal Control 5

^

1.2 RISKS GENERATED BY COMPUTER TECHNOLOGY 6

1.2.1 Overview of Risks 6

1.2.1.1 Definitions 7

1.2.1.2 Vulnerability/Risk Related Requirements 7

1.2.2 Risks in a Computerized Environment 8

1.2.2.1 Additional Risks Present in a Computerized Environment 8

1.2.2.2 Assessing Vulnerabilities Through the Audit Process 9

1.3 CONTROL OBJECTIVES AND STANDARDS IN A COMPUTER

ENVIRONMENT 10

1.3.1 Impact of the Computer on Controls 10

1.3.2 Internal Control and Computer Security Review Policy 11

1.4 EVIDENCE IN AUTOMATED SYSTEMS 14

1.5 AIS AUDITABILITY 15

CHAPTER 2

AIS LIFE CYCLE CONSIDERATIONS 16

iii
2.1 BACKGROUND 16 (

2.1.1 PCIE - EDP Systems Review and Security Work Group 16

2.1.2 System Development Life Cycle 16

2.2 OPERATING ENVIRONMENT 17

2.2.1 IRM Planning and Implementation of Policy Guidelines 17

2.2.1.1 IRM Planning 17

2.2.1.2 Using Policy/Procedures/Standards 18

2.2.1.2.1 References Used by the Life Cycle Matrix 19

2.2.1.2.2 Major GSA References 21

2.2.2 AIS Development Methodologies 21

2.2.3 Project Administration and Control 23

2.2.4 AIS Life Cycle Matrix 24

2.3 LIFE CYCLE PHASES 26

2.3.1 Initiation - Phase I 27

2.3.2 Definition - Phase II 27

2.3.3 System Design - Phase III 27

2.3.4 Programming and Training - Phase IV 28

2.3.5 Evaluation and Acceptance - Phase V 28

2.3.6 Installation and Operation - Phase VI 29

^

2.4 RESPONSIBLE PARTICIPANTS AND THEIR FUNCTION IN THE

AIS LIFE CYCLE 29

2.4.1 Policy/Oversight Participants 29

2.4.1.1 Information Resources Management (IRM) Official 29

2.4.1.2 System Security Officer (SSO) 30

2.4.1.3 Internal Control Officer (ICO) 30

2.4.2 Functional/Operational Participants 30

2.4.2.1 Sponsor/User 30

2.4.2.2 Project Manager/Contracting Officer's Technical

Representative (COTR) 30

2.4.2.3 System Security Specialist (SSS) 31

2.4.2.4 Internal Control Specialist (ICS) 31

2.4.2.5 Contracting Officer 31

2.4.2.6 ADP Manager 32

2.4.2.7 QuaHty Assurance (QA) Specialist 32

2.5 USE OF EXTERNAL DEVELOPMENl^ SERVICES 32

2.5.1 Contractor Services 32

2.5,1.1 Differences from the AIS Life Cycle Matrix 33

iv
p 2.5.1.2 Differences in Audit Approach 34

2.5.2 Off-The-Shelf SoftwareATurnkey Systems 35

2.5.2.1 Differences from the AIS Life Cycle Matrix 36

2.5.2.2 Differences in Audit Approach 37

2.6 AIS LIFE CYCLE DOCUMENTATION 37

2.6.1 Needs Statement 38

2.6.2 Feasibility Study Document 38

2.6.3 Risk Analysis 38

2.6.4 Cost/Benefit Analysis 40

2.6.5 System Decision Paper 40

2.6.6 Audit Plan 40

2.6.7 Project Plan 41

2.6.8 Requirements Documents 41

2.6.8.1 Functional Requirements Document 41

2.6.8.2 Functional Security and Internal Control Requirements

Document 42

2.6.8.3 Data Requirements Document 42

2.6.8.4 Data Sensitivity/Criticality Description 42

2.6.9 Specifications Documents 42

2.6.9.1 System/Subsystem, Program and Data Base Specifications 42

9 2.6.9.2 Security and Internal Control Related Specifications 43

2.6.10 Validation, Verification and Testing Plan and Specifications 43

2.6.11 User Manual 44

2.6.12 Operations/Maintenance Manual 44

2.6.13 Installation and Conversion Plan 44

2.6.14 Test Analysis and Security Evaluation Report 44

2.7 DOCUMENT PHASING AND INTERRELATIONSHIPS 45

2.7.1 Need for Flexibility 45

2.7.2 Notation Conventions in Figure 2 46

CHAPTER 3

A WORK PRIORITY SCHEME FOR THE ADP AUDITOR 47

3.1 INTRODUCTION 47

3.1.1 The Work Priority Scheme in Perspective 47

3.1.2 Brief Overview of the Scheme 47

3.2 THE NEED FOR THE SCHEME 48

3.2.1 ADP Audits/Security Reviews - A Form of Control 48

I

V
^ 3.2.2 Size of Review Task 49 i

3.3 BACKGROUND ON THE METHODOLOGY 49

3.3.1 The Invitational Workshop 49

3.3.2 Workshop Points of Agreement 49

3.4 A WORK PRIORITY SCHEME FOR THE ADP AUDITOR 50

3.4.1 Assumptions and Caveats 50

3.4.2 Audit Planning/Prioritization Process 51

3.4.3 Non-Discretionary Audits 51

3.4.4 Risk Evaluation Levels and Dimensions 53

3.4.5 Two Level Work Priority Dimensions/Characteristics 54

3.4.5.1 Level I: .....55

3.4.5.1.1 Mission Impact/Strategic Value/Organization

(Business) Criticality and Sensitivity Factors 55

3.4.5.2 Level II: 56

3.4.5.2.1 System Size/Scale/Complexity 56

3.4.5.2.2 System Environment/Stability 57

3.4.5.2.3 Reliability/Integrity 58

3.4.5.2.4 Technology Integration 59

3.5 RISK SCORING -- APPLICATION OF THE WORK PRIORITY ^ SCHEME 59

3.5.1 Implementation of the Scheme 59

3.5.2 A Simple Scoring Approach 60

3.5.3 A Detailed Scoring Approach 60

3.5.4 Discretionary Audits 60

3.6 USES OF THE WORK PRIORITY SCHEME 62

3.7 PROBLEMS WITH AND SOLUTIONS TO USE OF SCHEME 63

3.7.1 Potential Difficulties in Utilization 63

3.7.2 Methods for Overcoming Difficulties 64

3.8 NEXT STEPS 65

3.8.1 The Audit Organization 65

3.8.2 The ADP Auditor 65

CHAPTER 4

AIS DEVELOPMENTAL AUDITS 67

(

vi
I

4.1 SDLCCONTROLOBJECTIVES AND AUDIT CONCERNS 67

4.1.1 Control Objectives 67

4.1.2 Auditors' Control Concerns 68

4.1.2.1 Legal Requirements 68

4.1.2.2 Management Policies 68

4.1.2.3 Internal Controls 69

4.1.2.4 Audit Trails 69

4.1.2.5 Documentation 69

4.1.2.6 Economy and Efficiency 70

4.2 APPROACH FOR SYSTEMS UNDER DEVELOPMENT 70

4.2.1 Introduction 70

4.2.2 Preliminary Review of the SDLC Methodology 71

4.2.2.1 Review the SDLC Methodology to be Used in Developing

the AIS Under Review 72

4.2.2.2 Compare Organization's SDLC Methodology to Audit Guide

SDLC Methodology 74

4.2.3 AIS Development Impact on Audit Scope 75

4.2.4 The Effect of a Quality Assurance (QA) Function on the ADP

Auditor's Role in the SDLC 76 ^ 4.3 AUDIT PARTICIPATION DURING THE INITIATION PHASE - PHASE I 77

4.3.1 Primary Audit Objective of the Initiation Phase 77

4.3.2 Overview of the Initiation Phase 77

4.3.2.1 Participants and Their Tasks 78

4.3.2.2 System Initiation Phase Documents 79

4.3.3 Audit Survey 80

4.3.3.1 Study the Initiation Phase Environment 80

4.3.3.2 Review Initiation Phase Plans 81

4.3.3.3 Gather Information on the Initiation Phase Status 81

4.3.3.4 Verify Information on Initiation Phase Status 81

4.3.3.4.1 Review Documents 81

4.3.3.4.2 Interview Key Participants 82

4.3.4 Customize Audit Objectives 83

4.3.4.1 SDLC Methodology Audit Considerations 83

4.3.4.2 Contracting/Purchase Audit Considerations 85

4.3.5 Detailed Audit Testing 86

4.3.5.1 Introduction 86

4.3.5.2 Systems Initiation Phase Audit Tests Program 86

4.3.5.3 Survey Questionnaire - Initiation Phase 86

vii
4.3.6 Audit Results/Reporting 88

4.3.6.1 Potential Deficiencies 88

4.3.6.2 Potential Effects of Deficiencies on Meeting System Mission ... 89

4.3.7 Reassess Audit Strategy 89

AUDIT PARTICIPATION IN THE DEFINITION PHASE - PHASE II .... 100

4.4.1 Primary Audit Objective of the Definition Phase 100

4.4.2 Overview of the Definition Phase 100

4.4.2.1 Participants and Their Tasks 101

4.4.2.2 System Definition Phase Documents 102

4.4.3 Audit Survey 103

4.4.3.1 Review Initiation Phase Outputs 104

4.4.3.2 Review Definition Phase Plans 104

4.4.3.3 Gather Information on Definition Phase Status 104

4.4.3.4 Verify Information on Definition Phase Status 105

4.4.3.4.1 Review Documents 105

4.4.3.4.2 Interview Key Participants 106

4.4.4 Customize Audit Objectives 108

4.4.4.1 SDLC Methodology Audit Considerations 108

4.4.4.2 Contracting/Purchase Audit Considerations 108

4.4.5 Detailed Audit Testing 109

4.4.5.1 Introduction 109

4.4.5.2 Definition Phase Audit Tests 109

4.4.5.3 Survey Questionnaire-Definition Phase 110

4.4.6 Audit Results/Reporting Ill

4.4.6.1 Potential Deficiencies Ill

4.4.6.2 Potential Effects of Deficiencies on Meeting System Mission . . 112

4.4.7 Reassess Audit Strategy 113

AUDIT PARTICIPATION IN THE SYSTEM DESIGN PHASE - PHASE

III 121

4.5.1 Primary Audit Objective of the System Design Phase 121

4.5.2 Overview of the System Design Phase 121

4.5.2.1 Participants and Their Tasks 122

4.5.2.2 System Design Phase Documents 123

4.5.3 Audit Survey 124

4.5.3.1 Review Definition Phase Outputs 124

4.5.3.2 Review Design Phase Plans 124

4.5.3.3 Gather Information on Design Phase Status 125

4.5.3.4 Verify Information on Design Phase Status 125

4.5.3.4.1 Review Documents 125

viii
4.5.3.4.2 Interview the Participants 126

4.5.4 Customize Audit Objectives 127

4.5.4.1 Design Methodology Audit Considerations 128

4.5.4.2 Contracting/Purchase Audit Considerations 129

4.5.5 Detailed Audit Testing 130

4.5.5.1 Introduction 130

4.5.5.2 System Design Phase Audit Test Program 130

4.5.5.3 Survey Questionnaire-Design Phase 131

4.5.6 Audit Results/Reporting 132

4.5.6.1 Potential Deficiencies 132

4.5.6.2 Potential Effects of Deficiencies on Meeting System Mission .. 133

4.5.7 Reassess Audit Strategy 134

4.6 AUDIT PARTICIPATION IN THE PROGRAMMING AND TRAINING

PHASE - PHASE IV 141

4.6.1 Primary Audit Objective of the Programming and Training Phase .... 141

4.6.2 Overview of the Programming and Training Phase 141

4.6.2.1 Participants and Their Tasks 142

4.6.2.2 Programming and Training Phase Documents 143

4.6.3 Audit Survey 144

^ 4.6.3.1 Review System Design Phase Outputs 144

4.6.3.2 Review Programming and Training Phase Plans 145

4.6.3.3 Gather Information on Programming and Training Phase

Status 145

4.6.3.4 Verify Information on Programming and Testing Phase Status . 146

4.6.3.4.1 Review Documents 146

4.6.3.4.2 Interview Key Participants 149

4.6.4 Customize Audit Objectives 151

4.6.4.1 Design Methodology Audit Considerations 151

4.6.4.2 Contracting/Purchase Audit Considerations 152

4.6.5 Detailed Audit Testing 153

4.6.5.1 Introduction 154

4.6.5.2 Programming and Training Phase Audit Tests 154

4.6.6 Audit Results/Reporting 154

4.6.6.1 Potential Deficiencies 155

4.6.6.2 Potential Effects of Deficiencies on Meeting System Mission . , 155

4.6.7 Reassess Audit Strategy 156

4.7 AUDIT PARTICIPATION IN THE EVALUATION AND

ACCEPTANCE PHASE -PHASE V 163

4.7.1 Primary Audit Objective of the Evaluation and Acceptance Phase 163

ix
4.7.2 Overview of the Evaluation and Acceptance Phase 164

4J.2.1 Participants and Their Tasks 164

4.7.2.2 Evaluation and Acceptance Phase Document 166

4.7.3 Audit Survey 166

4.7.3.1 Review Programming and Training Phase Outputs 166

4.7.3.2 Review Evaluation and Acceptance Phase Plans 166

4.7.3.3 Gather Information on Evaluation and Acceptance Phase

Status 167

4.7.3.4 Verify Information on the Evaluation and Acceptance Phase

Status 167

4.7.3.4.1 Review Documents 168

4.7.3.4.2 Interview Key Participants 168

4.7.4 Customize Audit Objectives 171

4.7.4.1 Evaluation and Acceptance Phase Methodology Audit

Considerations 171

4.7.4.2 Contracting/Purchase Audit Considerations 172

4.7.5 Detailed Audit Testing 173

4.7.5.1 Introduction 173

4.7.5.2 Evaluation and Acceptance Phase Audit Tests 174

4.7.6 Audit Results/Reporting 174

4.7.6.1 Potential Deficiencies 174

4.7.6.2 Potential Effects of Deficiencies on Meeting System Mission .. 175

4.7.7 Reassess Audit Results/Plans 175

Appendix A - PCIE Work Group on EDP Systems Review and Security A-1

Appendix B - Laws and Regulations B-1

Appendix C - Key Computer Security and Audit Definitions C-1

Appendix D - Additional Risks in a Computerized Environment D-1

Appendix E - Vulnerabilities in a Computerized Environment E-1

Appendix F - Evidence Provided by Computer Technology F-1

Appendix G - Key References - Annotated G-1

Appendix H - Bibliography H-1

Appendix I - PCIE/NBS Invitational Workshop - Discussion Groups

Membership I-l

Appendix J - Two Risk Scoring Methods J-1

i

X
LIST OF FIGURES

Figure Page

1. Automated Information System (AIS) - Life-Cycle Matrix 25

2. System Life-Cycle Documentation Flow Chart 39

3. Audit Planning/Prioritization Process 52

4. Audit Areas of Concern 61

5. Flow of Evaluation Work 169

F.l Audit Impact Matrix F-7

F.2 Comparison of Old and New Forms of Evidence F-8

J.l System Risk Scoring - Simplified Method J-2

J.2 Practice Template for Risk Scoring of an AIS J-8

LIST OF TABLES

Table Page

4.1 Initiation Phase Audit Tests 91

4.2 Definition Phase Audit Tests 114

4.3 System Design Phase Audit Tests 155

4.4 Programming and Training Phase Audit Tests 157

4.5 Evaluation and Acceptance Phase Audit Tests 176

J.l System Risk Scoring - Simplified Method Example J-3

J.2 Dimension Risk Scores and System Risk Scores for AIS 1 J-9

J.3 Dimension Risk Scores and System Risk Scores for AIS 2 J- 10

xi
LIST OF ACRONYMS

ADP Automated Data Processing

AIS Automated Information System

CFR Code of Federal Regulations

COTR Contracting Officer's Technical Representative

DP Data Processing

EDP Electronic Data Processing

FAR Federal Acquisition Regulation

FIRMR Federal Information Resources Management Regulation

FPR Federal Procurement Regulation

FPMR Federal Property Management Regulation

GAO General Accounting Office

GSA General Services Administration

ICS Internal Control Specialist

OIG Office of Inspector General

OMB Office of Management and Budget

NBS National Bureau of Standards

PCIE President's Council on Integrity and Efficiency

PCMI President's Council on Management Improvement

PM Project Manager

QA Quality Assurance

RFP Request for Proposal

SDLC System Development Life Cycle

SDM System Development Methodology

SLC System Life Cycle

sss System Security Specialist

W&T Verification, Validation, and Testing

xii
EXECUTIVE SUMMARY

This guide addresses auditing the system development hfe cycle (SDLC) process for an automated information system (AIS), to ensure that controls and security are designed and

built into the system. The guide also presents a process for deciding which system to audit

among an organization's universe of systems. It is directed toward mid-level ADP auditors

having a minimum of two years experience in ADP auditing, but can also be used by security

reviewers, quaHty assurance personnel, and as a training tool for less experienced ADP

auditors. ADP managers and system developers will also find it useful guidance on security

and control issues. The guide is designed to provide audit/review programs for each major

phase of the SDLC process and assumes a large sensitive system. The reader is expected to

make appropriate modifications for small less sensitive systems. The guide represents the

results of the past four years of activities by the Electronic Data Processing (EDP) Systems

Review and Security Work Group of the Computer Security Project within the President's

Council on Integrity and Efficiency (PCIE). (See Appendix A for more information on the

Work Group.)

This guide can be used in any of the following ways:

1. Understanding the need for and planning for audit or review involvement in AISs

under development - Chapters 1 and 2 are designed to assist the auditor in planning an audit for such systems under development. These chapters explain the

new or increased risks in AISs, the types of controls used in those systems, as well

as a conceptual model for systems development.

2. Identifying systems for audit/review involvement - Chapter 3 provides a risk as- sessment approach to help identify an agency's high-risk systems. These are the

systems most needing audit/review coverage.

3. Creating a phase-by-phase program for auditors or security reviewers involved in a review ofAISs under development - Chapter 4 provides a complete audit/review

program designed for each of the five major phases of the system development

process.

Throughout this document, the system development Ufe cycle (SDLC) is defmed as a major subset of the

system life cycle (SLC). The SLC consists of the five phases in the SDLC plus the sixth phase, Installation and Operation.

xiii
In order to provide a rich background of materials for the user of the guide, the relevant

laws and regulations are cited and described (Section 1.1.5 and Appendix B) and the most useful references are cited with many of them described (Sections 2.2.1,2.1 and 2.2.1.2.2, Appendices G and H). The relevant laws regulations, and standards promulgated by Congress, the

Office of Management and Budget (OMB), and the U.S. General Accounting Office (GAO)

have been divided into two sets: 1) those that require audit involvement in AISs and 2) those

that require internal control in AISs. Chapter 1 also contains a discussion of the related issues

of computer generated risk, control objectives and standards in a computer environment, the

audit/review evidence found in automated systems, and AIS auditability. The references appearing in Chapter 2 of the guide are also divided into two sets: 1) those NBS and DOD documents that formed the basis for the Life Cycle Matrix of Figure 1 and 2) the major related

General Services Administration (GSA) references on software improvement and software

engineering. Appendix G contains descriptions of key references relating to all the materials

in this guide while Appendix H contains a more general listing of related references, with no

descriptions.

- The model arrived at for describing the phases and functional roles in the AIS life cycle

is presented in the Life Cycle Matrix in Figure 1 and described at length in Chapter 2. The ac- companying flow of documents, as the system progresses through the Hfe cycle phases of Initiation, Definition, Design, Programming and Training, Evaluation and Acceptance, and

Installation and Operation, are shown in Figure 2 and described in Section 2.6. The activities

to be conducted by the functional roles (i.e.. Information Resources Management Official,

System Security Officer/Internal Control Officer, Auditor, Sponsor/User, Project

Manager/Contracting Officer's Technical Representative, System Security Speciahst, Internal

Control Specialist, Contracting Officer, ADP Manager, and Quahty Assurance Specialist) appear in abbreviated form in the Life Cycle Matrix of Figure 1 and are described more fully in

Section 2.4. Changes in these activities that result from the use of external development ser- vices (contract or off-the-shelf) are discussed in Section 2.5.

Since ADP audit or security reviews can be very time consuming and, therefore, can place

a tremendous drain on an organization's audit/review resources, the Work Group developed

a work priority scheme in March of 1986, using the input generated by a small invitational

workshop on the subject. This scheme was published as an internal report by the National

Bureau of Standards in August of 1986, NBSIR86-3386, and appears in this guide as Chapter

3. The scheme is in the form of a high level risk assessment which employs a two-level review

of the major areas of concern (or dimensions). Level I looks at the dimension called

Criticality/Mission Impact while Level II looks at four dimensions (namely, Size/Scale/Complexity, Environment/Stability, Reliability/Integrity, and Technology Integration). The result

of applying the scheme is to rank the audit/review work in order of degree of risk posed to the

organization by the various AISs. Information from existing risk analyses and vulnerability as- sessments may be used to reduce the costs of this risk assessment.

xiv
Chapter 4 presents an audit/review program for each of the five phases of the system

development process (SDLC). The control objectives used as the basis for each phase

audit/review are divided into six categories (i.e., Legal Requirements, Management PoUcies,

Internal Controls, Audit Trails, Documentation, and Economy and Efficiency) and are taken

from the U.S.GAO "Yellow Book" on standards for audit in the Federal government [GAOS1-

1]. The contents of each phase audit/review program are driven by the listing of activities found

in the Life Cycle Matrix of Figure L The first step in the audit/review program is to evaluate

the life cycle methodology currently being used by the organization, to ensure that it encompasses the best parts/documents of the methodology described in Chapter 2. The audit/review

coverage in each phase is presented in a parallel manner for consistency and equal comprehensiveness. Each phase audit/review effort is presented in terms of the same eight components:

1) brief introduction to the phase and appropriate audit participation, 2) primary audit objectives, 3) overview of the phase, 4) initial background audit survey, 5) customized audit objectives, 6) detailed audit testing, 7) assessment of audit results, and 8) questionnaires or matrices

for obtaining information (the audit program), found in Tables 4.1 to 4.5.

Although quality assurance is not heavily implemented in the Federal agencies at this

time, the quality assurance functional role was included because use of this activity, in early

system development particularly, can greatly reduce costly errors and omissions as well as the

agency's audit burden. Given the relatively limited amount of resources available for ADP

reviews and the time consuming nature of ADP systems development work, auditors should

focus heavily on 1) the effectiveness of the process for designing and developing internal controls in automated systems and 2) the substance of those internal controls. These reviews would

result in large cost savings for the organizations.

Any rigid application of the SDLC process presented here would be unrealistic in the

rapidly changing computer environments that may now include such elements as distributed

databases, expert systems, protyping, and computer-aided systems engineering. The reader is urged to be flexible and to follow the spirit of this document in such instances, rather than adhere bhndly to the details in this guide.

Although operational audits are also important, they are not addressed because there is already much public literature on that subject. For control assessment in the operational phase,

the GAO "Black Book" [GA081-3] has a particularly thorough treatment. The main reasons

for choosing to address SDLC audit are 1) there is a tremendous pay-off available to an or- ganization when systems are developed with controls and security from the start and 2) there

is currently very little comprehensive guidance available on SDLC audits for the Federal

government. The Work Group hopes this document helps to fill this need.

XV
ACKNOWLEDGEMENTS

This document represents the efforts of many people. The Hst of editors/authors cites the

individuals who contributed most to the final contents. Bonnie T. Fisher was primarily responsible for the Life-Cycle Matrix described in Chapter 2 and co-authored, with Zella G. Ruthberg, the Work Priority Scheme found in Chapter 3. William E. Perry wrote the initial draft

of the body of the document, under contract to the Institute for Computer Sciences and Technology (ICST) at the National Bureau of Standards (NBS) and the Office of Inspector General

(OIG) of the Department of Health and Human Services (HHS). Still under contract, he also

wrote the second draft, using extensive revisions recommended by John W. Lainhart IV, James

G. Cox, Mark Gillen, and Douglas B. Hunt as well as Bonnie T. Fisher and Zella G. Ruthberg.

The third and final draft was the result of many hours spent by this subcommittee of the EDP

Systems Review and Security Work Group (the editors/authors minus W. E. Perry).

During the latter half of this project, Gail Shelton and James G. Cox were the project

leaders of the EDP Systems Review and Security Work Group under Richard Kusserow, Inspector General of HHS. Ms. Shelton very ably planned and carried out the many administrative details of this complex undertaking while Mr. Cox handled the technical component. We

would like to thank them both for their efforts in these capacities. Finally, James E. Lebo, a Co-operative Education student with ICST/NBS converted the document into a desk top

publishing format and produced the very professional looking printing of the text. We would

like to thank him for his resourcefulness in accomplishing this in a conscientious and timely

manner.

Zella G. Ruthberg

Computer Scientist, ICST/NBS

October 30, 1987

xvi
CHAPTER 1

GENERAL ADP AUDIT ISSUES

1.1 INTRODUCTION

1.1.1 Scope of the Audit Guide

Auditing in a computerized environment covers a broad spectrum of activities. The activities range from using reports produced by computerized applications, to assessing the adequacies of controls in sophisticated information systems, to evaluating automated information

systems (AISs) under development. The range of skills needed to audit successfully in a computerized environment varies as greatly as the activities audited.

This guide covers auditing the system development life cycle (SDLC)^process for a sys- tem, to ensure that controls and security are designed into the system. The guide also presents

a process for deciding which system to audit among an organization's universe of systems. It

is directed toward mid-level ADP'^ auditors having a minimum of two years experience in ADP

auditing, but can also be used by security reviewers, quality assurance personnel, and as a training tool for auditors with less experience in ADP auditing. ADP managers and system

developers will also find it useful guidance on security and control issues. The guide is designed

to provide audit/review programs for each major phase of the SDLC and assumes a large sensitive system. The reader is expected to make appropriate modifications for a small less sensitive system.

Section 2.3 of this guide defines an SDLC that encompasses generally accepted phases

used in many Federal agencies. Each phase of this life cycle is defined there. The roles of the

participants, including the auditor^, are also defined. The audit role for each life cycle phase

is supported by an audit program in Chapter 4, including questionnaires for use by the auditor

during that phase. The GAO "Black Book" [GAOS1-3] provides a control assessment approach

for evaluating general and application controls in an operational computer-based environment.

1 Throughout this document, the system development Hfe cycle (SDLC) is defined as a major subset of the

system life cycle (SLC). The SLC consists of the five phases in the SDLC plus the sixth phase, Installation and Operation.

2 Electronic Data Processing (EDP) is the term commonly used in the private sector. However, since the

Federal government uses the broader term Automatic Data Processing (ADP) instead of EDP, and since

this document is being produced by the Federal government, this document will conform to Federal usage

and use ADP whenever there is a choice.

3 The terms 'auditor' and 'audit' are used throughout this document without the quahfiers 'internal' or

'external' since this guide can be used by both types.

1
1.1.2 How to Use the Audit Guide

This audit guide is designed to be used as an audit program for auditing AISs under

development. It can be used in any of the following ways:

1. Understanding the need for and planning for audit involvement in AISs under

development - Chapters 1 and 2 are designed to assist the auditor in planning an

audit for such systems under development. These chapters explain the new or increased risks in AISs, the types of controls used in those systems, as well as a conceptual model for systems development.

2. Identifying systems for audit involvement - Chapter 3 provides a risk assess-ment

approach to help identify an agency's high-risk systems. These are the systems

most needing audit coverage.

3. Creating a phase-by-phase program for auditors involved in a review of AISs

under development - Chapter 4 provides a complete audit program designed for

each of the five major phases of the system development process.

1.1.3 Auditor Skills Needed

Audits of systems under development require skills beyond those needed to conduct non- ADP audits of lesser scope. Because the system is under development, the auditor must often

assess how well a project is being managed, the adequacy of planning, or the standards being

followed. To do this, the auditor must have knowledge and experience in such areas as:

1. System development methodologies;

2. Standards for system documentation and software engineering;

3. Systems planning and project management methods; and

4. Methods, procedures, or standards for developing, documenting, and testing controls.

These skills have been laid out as job core dimensions by the EDP Auditors Foundation,

Inc."^, The skills are also those needed for certification as an information system auditor

(CISA). Generally, auditors who l)have mastered the CISAjob core dimensions, 2)have met

4 See Exhibit I in "Information Systems Audit Process," by S. R. Vallabhaneni [VALLS831 for a concise

picture of the job dimensions for a Certified Information Systems Auditor (CISA) and their relation to the

information systems audit function. See Appendix G for more information on the document.
the prerequisites for the CISA, and 3)have continued their education program then have the

skills needed for auditing systems under development.

Where particular skills are lacking, it is still possible to do useful ADP audit work. The

scope of the audit, however, should probably be restricted (e.g., if skills in controls are strong

but skills in systems management are weak, the audit might be properly restricted to control

issues). An alternative is to team up such an auditor with a person in the organization having

the missing skills and not involved in the system under review.

1.1.4 Auditing in a Computerized Environment

1.1.4.1 The Need - The computer has substantially altered the methods by which processes, such as payroll and accounts receivable, operate and are controlled and audited. The opportunities for personal review and clerical checking have declined as the collection and

subsequent uses of data are changed. The changes are the result of moving from manual procedures performed by individuals famiHar with both the data and the accounting process, to

high volume, automated techniques performed by individuals unfamiUar with either the data

or the accounting practices.

Computerization has substantially reduced the time available for the review of transactions before their entry into the automated system's records. As a result, in poorly controlled

systems the opportunity for discovering errors or fraud before they have an impact on operations may be reduced, especially in the case of real-time and data base systems. This has increased the importance of internal control/security procedures. Thus, it is imperative that the

auditor review these systems as they are being developed, to insure that adequate controls and

security are designed into the system from the outset.

1.1.4.2 The Scope of Audit in a Computerized Environment - Auditing in a computerized environment can be divided into two broad areas. First is the audit of operational

computer systems, and second is the audit of systems under development. These two types of

audits require significantly different approaches.

The audit of operational systems evaluates the results of operations. It is normally a dataoriented audit, looking at processed transactions. Controls can be evaluated by examining the

results of operation.

In a developmental audit, there is no operational system or data. The auditor evaluates

controls without the benefit of observing processing results. In addition, in a developmental

audit the auditor is concerned with ensuring that the developmental procedures and standards

have been properly followed. As stated earlier, this guide addresses developmental audits only.
1.1.4.3 Relationship Between Systems Development Audits and Operational Audits of

Automated Information Systems (ALSs) - The operational audit can identify AIS vulnerabilities, but these may not be correctable after development because of the associated

costs. Studies have shown that it costs approximately 50-100 times more to correct an operational system as it would have cost to build in the necessary control during development.

If the auditor can identify potential vulnerabilities during development, they can be more

easily and economically corrected than after the AIS is installed and operational. Thus, it becomes imperative to evaluate the adequacy of the developer's approach to controls, i.e., how

controls are addressed, implemented, and documented. When an adequate system of controls

is built in during development, it can be fine-tuned through operational audits, as necessary.

The developmental audit team should define operational audit programs, areas for

review during operations, and recommend specific audit tools and techniques for use during

operational audits. The developmental audit team can, therefore, play a significant role in

making operational audits of systems more effective, efficient, and economical.

1.1.5 Relevant Laws and Regulations

Congress and Federal regulatory agencies have grown increasingly concerned about the

integrity of Federal computerized systems. This concern also covers the security and privacy

of data stored by Federal computer systems. The relevant laws, regulations, and standards include the following: (Note that longer descriptions can be found in Appendix B.)

1.1.5.1 Requirements for Audit Involvement - The laws, regulations, and guidance pertaining to the performance of the audit function, particularly as related to AIS audits, are briefly described below:

1. Inspector General Act of 1978 (PL95-452) [IGA78] - Establishes the Offices of

Inspector General in many major Federal agencies and specifies their audit and

investigative responsibilities.

2. Standards For Audit of Governmental Organizations, Programs, Activities, and

Functions, by U.S. General Accounting Office (GAO), 1981 [GA081-1] - Defines the standards for the conduct of Federal audits.

3. Quality Standards for Federal Offices of Inspector General, by President's Council on Integrity and Efficiency (PCIE), 1986 [PCIE86] - Provides quality standards for management, operation, and conduct of the Federal Offices of Inspector

General.
4. Budget and Accounting Procedures Act of 1950 (PL8 1 -784) [BA?A50] - Specifies

detailed audit objectives for GAO conducted audits.

1.1.5.2 Requirements for Internal Control - The laws, regulations, and guidance describing control required for agencies and systems, including the responsibility for control, are listed

and briefly described below:

1. Budget and Accounting Procedures Act of 1950 (PL8 1-784) [BAPA50] - Requires that agency heads establish and maintain effective systems of internal control.

2. Brooks Act (PL89-306), 1965 [BRA65] - Provides for the "economic and efficient

purchase, lease, maintenance, operation, and utilization of automatic data

processing equipment by Federal departments and agencies."

3. Freedom of Information Act (PL93-502), 1974 [FIAA74] - Establishes procedures under which an individual can obtain records in the possession of the

Federal government while enabling the government to protect records that re- quire confidential treatment.

4. Privacy Act of 1974 (PL93-579) [PYA74] - Establishes standards and safeguards

for the collection, maintenance, or disclosure of an individual's personal information by Federal agencies, and grants an individual access to the records concerning him/her maintained by Federal agencies.

5. Federal Records Management Acts (PL81-754, PL94-575), 1950 [FRMA50] and

1976 [FRMA76] - Require establishment of standards and procedures to ensure

effective records creation, use, maintenance, and disposal.

6. Paperwork Reduction Act (PL96-511), 1980 [PRA80] - Defines the process to

reduce paperwork and enhance the economy and efficiency of the Government

and private sector by improving Federal information policy-making.

7. Federal Managers' Financial Integrity Act (PL97-255), 1982 [FMFIA82] - Requires that agency internal control systems be periodically evaluated and that the

heads of executive agencies report annually on their systems' status.

8. Standards for Internal Controls in the Federal Government, by U.S. General Accounting Office, 1983 [GA083] - Presents the internal control standards to be fol-
lowed by executive agencies, covering both the program management as well as the traditional financial management areas.

9. OMB Circular A-123, 1981 [OMB123] & A-123R, 1983 [OMBR123] - Prescribes

the policies and standards to be followed by executive agencies in establishing

and maintaining internal controls in their programs and administrative activities.

10. OMB Circular A- 127, 1984 [OMB127] - Prescribes policies and procedures to be

followed by executive agencies in developing, operating, evaluating, and reporting on financial management systems.

11. OMB Circular A- 130, 1985 [OMB130] - Establishes policy for the management

of Federal information resources as well as procedures for information system

security.

1.2 RISKS GENERATED BY COMPUTER TECHNOLOGY

1.2.1 Overview of Risks

Organizations assume risks in the conduct of their activities. These risks represent potential damaging events occurring that can produce losses. Controls or safeguards are installed to

reduce these risks. If controls are insufficient, specific opportunities for loss remain which are too large.

The two elements that generate the risks in a computerized environment are its unique

vulnerabilities and its unique set of threats. A vulnerability is a weakness or flaw in a computer-based system that may be exploited by a threat to cause destruction or misuse of its as- sets or resources. Threats can be physical (e.g., fire, water damage, earthquakes, and

hurricanes) or people-oriented (e.g., errors, omissions, intentional acts of violence, and fraud).

When a threat materializes and takes advantage of a system's vulnerabilities, a damaging event

occurs that causes a loss. The risk of damaging events cannot be totally eliminated, but the use

of controls on vulnerabilities and/or threats can reduce such risks to an acceptable level.

The purposes of a risk analysis of a computerized environment are (1) to search out its vulnerabilities and the probabilities of threats materializing to exploit these vulnerabilities,

and (2) to calculate the damage or loss to its assets that could be produced by the resulting

damaging events.^ Auditors should assess a computerized environment's vulnerabilities and

5 There is no consensus on the definition of risk analysis. Some people add a third component, "to make

control or safeguard recommendations that will reduce the damages or loss to an acceptable level, through the use of a cost/benefit analysis." Others in the field, however, consider that this addition makes

the activity a risk management program.
set of threats to arrive at some estimate of possible damaging events. Such an assessment would

also necessarily include reviewing the strength of existing controls.

1.2.1. 1 Definitions - Some useful definitions in the context of computer security and audit

follow. Appendix C contains definitions of additional relevant terms as well as the following.

1. Vulnerabihty: Avulnerability is a design, implementation, or operations flaw that

may be exploited by a threat, to cause the computer system or application to

operate in a fashion different from its published specifications and to result in

destruction or misuse of equipment or data [NBS SP 500-57, p.A-2].

2. Vulnerability assessment: The process of (1) identifying flaws and the controls

associated with those flaws in order to evaluate the adequacy of the control to

reduce the risks to an acceptable level, and (2) identifying those flaws requiring

management action, where risks are found to be too high.

3. Computer Generated Risk: Computer generated risk is the potential loss or damage to an organization that results from the use or misuse of its computer

[adapted from NBS SP 500-57, p. A-2]. This may involve unauthorized disclosure,

unauthorized modification, and/or loss of information resources as well as the

authorized but incorrect use of a computer. Risk can be measured to some extent by performing a risk analysis.

4. Risk analysis: Risk analysis is an analysis of an organization's information resources, its existing controls, and its remaining organization and computer system vulnerabilities [NBS SP 500-57, p. A-3]. It combines the loss potential for each

resource or combination of resources with an estimated rate of occurrence to es- tablish a potential level of damage to assets or resources in terms of dollars or other assets.

1.2.1.2 Vulnerability/Risk Related Requirements - Government-wide mandates/directives as well as agency-specific regulations require Federal agencies to conduct vulnerability

assessments. These requirements are found in OMB Circulars A- 123, A- 127, and A- 130. A

vulnerability assessment is conducted using part of a risk analysis. The vulnerability assess- ment is a major assessment of the adequacy of an agency's controls and uses many tools to ac- complish it, e.g., risk analysis. The Federal agencies must first identify vulnerabiHties and

threats, and then determine whether controls are adequate to reduce the resulting risks to an

acceptable level. If not, vulnerabihties will have been identified which need to be corrected,

and threats will have been identified which need to be guarded against by those Federal agencies.

7
1.2.2 Risks in a Computerized Environment

The risks in a computerized environment include both the risks that would be present in

manual processing, plus some risks that are unique or increased in a computerized environment. The auditor should identify these risks, estimate the severity of the risks, and then

develop audit tests to substantiate the impact of the risks on the application. For example, if the auditor felt that erroneous processing was a very high risk for a specific application, then

the auditor should devise tests to substantiate the correctness or incorrectness of processing.

This could be accomplished in a variety of ways. One way to verify processing accuracy would

be to use Computer Assisted Audit Techniques (CAATs).

1.2.2.1 Additional Risks Present in a Computerized Environment - The use of a computer introduces additional risks into the system environment. Thus, besides the traditional

risks, the auditor needs to assess the impact of these additional risks. The auditor should be

aware of these special risks because they pose threats which are not present at all or are present

to a lesser degree in non-computerized environments.

These additional risks include problems associated with:

• Improper use of technology;

• Inability to control technology;

« Inability to translate user needs into technical requirements;

© Illogical processing;

• Inability to react quickly;

• Cascading of errors;

9 Repetition of errors;

® Incorrect entry of data;

• Concentration of data;

• Inability to substantiate processing; and

• Concentration of responsibilities.

8
Each of these risks is discussed individually in Appendix D, including many of the conditions that cause the risks to occur.

1.2.2.2 Assessing Vulnerabilities Through the Audit Process - The objective of control is to reduce risk. In an ideal environment, everything would be processed correctly, and there

would be no need for control. Unfortunately, that environment does not exist, and risks are present which may introduce damaging events into the processing environment. Controls

reduce the number and/or severity of damaging events to an acceptable level.

In order to evaluate the effectiveness of controls, the auditor must determine the vulnerabihties present in the computerized environment and the resulting risks. Until the risks are understood, the effectiveness of controls in reducing those risks cannot be evaluated. Thus,

if the auditor is going to place reliance on controls, the auditor must both identify the vulnerabilities and determine the severity of those risks in the operating environment. It will be

useful for auditors, as they consider application system and data file risks, to be aware of the

many undesirable events which can have serious consequences.

The National Bureau of Standards' FIPS PUB 65 [FIPS65] provides the auditor and sys- tems developer a list of negative situations to which application systems are vulnerable,

grouped according to common system organizational structures. Those vulnerability lists are reprinted in Appendix E of this guide for the reader's convenience. While they are not intended to be all inclusive, they are suggestive of the various kinds of vulnerabilities that may

exist in every system.

The list of potential vulnerabilities helps identify the additional risks in a computerized

environment. Due to their value to the ADP auditor, as a tool in the identification of unique

risks, a brief description of the types of vulnerabilities found in FIPS PUB 65 is repeated below,

1. Erroneous or Falsified Data Input - Erroneous or falsified input data is the

simplest and most common cause of undesirable performance by an applications

system. Vulnerabilities occur wherever data is collected, manually processed, or prepared for entry to the computer.

2. Misuse by Authorized End Users - End users are the people who are served by

the ADP system. The system is designed for their use, but they can also misuse it for undesirable purposes. It is often very difficult to determine whether their use

of the system is in accordance with the legitimate performance of their job.

3. Uncontrolled System Access - Organizations expose themselves to unnecessary

risk if they fail to establish controls over who can enter the ADP area, who can
use the ADP system, and who can access the information contained in the system.

4. Ineffective Security Practices for the AppHcation - Inadequate manual checks and

controls to ensure correct processing by the ADP system, or negligence by those

responsible for carrying out these checks, result in many vulnerabilities.

5. Procedural Errors Within the ADP Facility - Both errors and intentional acts

committed by the ADP operations staff may result in improper operational procedures, lapsed controls, and losses in storage media and output.

6. Program Errors - Applications programs should be developed in an environment

that requires and supports complete, correct, and consistent program design,

good programming practices, adequate testing, review, and documentation, and

proper maintenance procedures. Although programs developed in such an en- vironment may still contain undetected errors, programs not developed in this

manner will probably be rife with errors. Additionally, programmers can

deliberately modify programs to produce undesirable side effects or they can misuse the programs they are in charge of.

7. Operating System Flaws - Design and implementation errors, system generation

and maintenance problems, and deliberate penetrations resulting in modifications to the operating system can produce undesirable effects in the application

system. Flaws in the operating system are often difficult to prevent and detect.

8. Communications System Failure - Information being routed from one location

to another over communication lines is vulnerable to accidental failures and to

intentional interception and modification by unauthorized parties.

Both management and auditors conduct vulnerability assessments. Management does

the review as required by OMB Circular A- 123, while the auditor does it as an independent

assessment. The auditor looks both at management's performance of the review and at tests for inadequacies in management's system of internal controls.

1.3 CONTROL OBJECTIVES AND STANDARDS IN A COMPUTER ENVIRONMENT

1.3.1 Impact of the Computer on Controls

The objectives of control do not change in a computerized environment. The control objectives that are applicable to a manual system are equally applicable to a computerized sys- tem. What changes are the control techniques used to achieve the control objectives.

10
The new control complexities introduced by the computer require that, in addition to

controlling the traditional processes, new control techniques be introduced. These would cover

the automated processes themselves, as well as the interface between the manual and

automated processes (an area where control problems often occur).

Examples of the new types of controls that exist within the computer processes include

controls to ensure that:

• Proper versions of programs are in operation;

• Data integrity is maintained as it is passed between programs; and

• Access to the system is limited to only authorized individuals.

Examples of the new types of controls introduced as a result of the interface between the

manual and automated processes include controls to ensure that:

• All data to be entered for computer processing is, in fact, input for processing;

• Only correctly entered data is accepted for computer processing; and

• Rejected data is maintained on an automated suspense file until corrected.

Thus, new control techniques must be used to reduce the new, unique risks introduced by the

computerized environment.

1.3.2 Internal Control and Computer Security Review Policy

The U.S. General Accounting Office (GAO), as required by the Federal Managers'

Financial Integrity Act of 1982 [FMFIA82], has defined the internal control standards

[GA083,p. 9] to be followed by executive agencies in establishing and maintaining systems of

internal control. This GAO document on internal control standards provides guidance for

agencies in developing systems of internal control for AISs. It is through those control systems

that Federal managers fulfill their control responsibihties.

The purpose of systems of internal control is to reasonably ensure that the following goals are achieved:

1. Obligations and cost comply with applicable law.

11
2. All assets are safeguarded against waste, loss, unauthorized use, and misappropriation.

3. Revenues and expenditures applicable to agency operations are recorded and ac- counted for properly so that accounts and reliable financial and statistical reports

may be prepared and accountability of these assets may be maintained.

The Federal Managers' Financial Integrity Act directs the heads of executive agencies to

conduct armual evaluations of their internal control systems using guidelines established by

the Office of Management and Budget. These guidelines are incorporated into the audit

programs included in later sections of this manual. Controls not built into systems under

development will probably not be added in the operational system. As has been discussed ear- ner in Section 1.1.4,3, modification of operational systems is extremely difficult and costly. Excessive cost and programmatic requirements frequently prohibit building controls into systems

once operational.

The Comptroller General has defined the minimal level of quality acceptable for internal control systems in operation [GA083]. They constitute the criteria against which systems

of internal control are to be evaluated in the Federal government. The minimum level of internal control is divided into the following three categories:

1. General standards

• (a) Reasonable assurance: Internal control systems are to provide reasonable

assurance that the objectives of the systems will be accompHshed.

(b) Supportive attitude: Managers and employees are to maintain and

demonstrate a positive and supportive attitude toward internal controls at

all times.

(c) Competent personnel: Managers and employees are to have personal and

professional integrity and are to maintain a level of competence that al- lows them to accomplish their assigned duties, as well as understand the

importance of developing and implementing good internal controls.

(d) Control objectives: Internal control objectives are to be identified or developed for each agency activity and are to be logical, applicable, and

reasonably complete.

(e) Control techniques: Internal control techniques are to be effective and efficient in accomplishing their internal control objectives.

12
specific standards

(a) Documentation: Internal control systems and all transactions and other

significant events are to be clearly documented, and the documentation is to be readily available for examination.

(b) Recording of transactions and events: Transactions and other significant

events are to be promptly recorded and properly classified.

(c) Execution of transactions and events: Transactions and other significant

events are to be authorized and executed only by persons acting within the

scope of their authority.

(d) Separation of duties: Key duties and responsibilities in authorizing,

processing, recording, and reviewing transactions should be separated

among individuals.

(e) Supervision: Qualified and continuous supervision is to be provided to ensure that internal control objectives are achieved.

(f) Access to and accountability for resources: Access to resources and

records is to be limited to authorized individuals, and accountability for

the custody and use of resources is to be assigned and maintained. Periodic

comparison shall be made between the resources and the recorded ac- countability to determine whether the two agree. The frequency of the

comparison shall be a function of the vulnerability of the asset.

Audit resolution standard

When auditors identify potential control weaknesses, managers are re- quired to promptly resolve these audit findings. Specifically, managers are to:

(a) Promptly evaluate findings and recommendations reported by auditors.

(b) Determine proper actions in response to audit findings and recommendations.

(c) Complete, within established time frames, all actions that correct or other- wise resolve the matters brought to management's attention.

13
The audit resolution standard requires managers to take prompt, responsive action on

all findings and recommendations made by auditors. A responsive action is one which corrects

identified deficiencies. Where audit findings identify opportunities for improvement rather

than merely cite deficiencies, responsive action is considered to be that which produces improvements. The audit resolution process begins when the results of an audit are reported to

management, and is completed only after action has been taken that (1) corrects identified

deficiencies, (2) produces improvements, or (3) demonstrates the audit findings and recommendations are either invalid or do not warrant management action.

Auditors are responsible for following up on audit findings and recommendations to as- certain that resolution has been achieved. Auditors' findings and recommendations should be

monitored through the resolution and follow-up processes. Top management should be kept

informed through periodic reports so it can assure the quality and timeliness of individual

resolution decisions.

1.4 EVIDENCE IN AUTOMATED SYSTEMS

The evidence collected to support findings in an automated system may differ drastically from traditional audit evidence. For example:

1. Transactions might be entered with no hard-copy equivalent. The "evidence"

might have to be obtained from a data base management system.

2. Authorizations might be entirely electronic, through use of a password, with no

written signature available to examine.

3. Procedures might not be found in a written manual but rather in coded instructions in a program which directs operations through terminal screen prompts or

instructions.

4. The audit trail which supports a transaction process in an automated system, is itself automated. Rather than a paper trail, the trail might reside on computer

tapes or disk files or other electronic media.

In Appendix F, other changes in audit evidence are enumerated along with three brief

examples describing where evidence changed due to automation. Auditors must anticipate

evidence needed during AIS development to insure proper consideration is given to related

controls.

14
1.5 AIS AUDITABILITY

Auditability should be a management concern and relates to management control

responsibilities. Auditability relates to the substantial evidential matter produced and retained

by AISs, and the abihty to locate and reconstruct processing. Auditability also encompasses

the system of internal controls which assures the integrity of processing and the protection of

evidential matter.

Auditability takes on greater importance in AISs because many of these systems have

eliminated the traditional source documents. Transactions are originated electronically, and

thus auditability is dependent upon the ability of the system to substantiate the integrity of

those input transactions. This integrity is assured through an adequate system of internal controls.

The concept of auditability requires audit involvement in the development of AISs.

Retrofitting controls in AISs is expensive and difficult on an after-the-fact basis. Therefore,

the auditability and effective controls allowing for managerial and audit oversight must be

designed and incorporated into AISs as those systems are developed.

15
CHAPTER!

AIS LIFE CYCLE CONSIDERATIONS

2.1 BACKGROUND

2.1.1 PCIE - EDP Systems Review and Security Work Group

In October 1983, the President's Council on Integrity and Efficiency (PCIE) established a working group on Electronic Data Processing (EDP) Systems Review and Security^ under

the leadership of the Inspector General of the Department of Health and Human Services.

Included under the umbrella of the Computer Security Project, the Work Group was charged

with exploring ways to facilitate and improve Office of Inspector General reviews of automated

information systems (AISs), particularly those systems under development. Its objective was

to improve the likelihood that auditable and properly controlled systems are developed. While

the Work Group looked at automated systems throughout the entire system life cycle (SLC),

the clear focus was on the system development life cycle (SDLC) and the auditor's role in that

process.

2.1.2 System Development Life Cycle

While the concept of a SDLC is not a new one, linking it and the generally accepted phase

activities to other AIS and Information Resources Management (IRM) standards and requirements has not heretofore been successfully accomplished. Similarly, despite the growth of

ADP audit units in the OIGs, and recognition of the significant benefits to be gained from proactive reviews (i.e., those conducted during the system development process), few developmental audits have been conducted. One of the key deterrents appears to be the confusion

that exists regarding the actual role of the auditor during the SDLC.

To achieve their objective, and to clarify the role of the OIG/auditor, the PCIE Work

Group drew upon the Department of Defense life cycle approach to the management of automated systems and the National Bureau of Standards/Institute for Computer Sciences and

Technology's Federal Information Processing Standards Publications (FIPS PUBS) and Special Publications. Using this information, the Work Group developed an SLC functional matrix

for AISs. The matrix, structured around critical AIS documentation requirements, is intended

to clarify the functions of the auditor vis-a-vis other key participants in the ADP planning,

design, implementation, and review processes. With the matrix as a conceptual framework,

this audit guide is intended to facilitate the successful fulfillment of that role, focusing on sys- tems under development and major modifications to existing systems.

6 See Appendix A for more information on the activities of this group.

16
2.2 OPERATING ENVIRONMENT

The AIS life cycle used to develop systems will not be the same in every agency. In addition, the operating environment for the life cycle is a function of the agency in which it exists

and also varies from agency to agency. There is no single standard SDLC for the Federal

government. This chapter describes good practice for the SDLC and its operating environment. The use by Federal agencies of these AIS life cycle practices should result in a well-controlled and auditable AIS.

Management establishes the environment in which systems are developed. If the environment is structured, the probability of a well-defined life cycle and compliance to it increases.

Aloose management style leads to free-form system development which may result in serious

omissions. The operating environment reflects the adequacy of the general controls over sys- tem development, operations, and maintenance.

2.2. 1 IRM Planning and Implementation of Policy Guidelines

Agencies need to perform overall long-range IRM planning. The purpose of this planning is to determine which AIS projects are to be implemented, the priority and schedule for

their implementation, the individual(s) responsible for implementation, and the amount of resources to be allocated to each project.

In addition to formal IRM planning, organizations must identify and follow policies/procedures/standards for developing AISs. These policies/procedures/standards should be established and promulgated within the organization, based on guidance provided by such agencies

as the National Bureau of Standards and the General Services Administration.

Each of these two major considerations is discussed in some detail below.

2.2.1.1 IRM Planning - IRM planning is a means of selecting, prioritizing, budgeting, and

assigning projects to individuals and groups to implement. Many organizations have adopted

the concept using a management steering committee, an IRM planning committee, or an ex- ecutive IRM committee.

The following are the desirable characteristics of such an IRM planning committee:

(a) Is comprised of senior managers - The IRM committee should be chaired by the

senior manager of the agency, and be comprised of the direct subordinates of that

senior manager.

17
(b) Has representatives from all major agency data users - It is important that all users of information processing services are represented on the IRM committee. This

committee will establish priorities of work, which require that all users of ADP

services have a voice in how those resources are allocated. In addition, users such

as budgeting, legal, and ADP audit should also be represented on the IRM committee.

(c) Meets on a regular basis - For most agencies, quarterly is sufficient.

(d) Establishes AIS implementation priorities - The IRM committee determines

which systems are implemented, and in what sequence. Note that the IRM committee may also determine other data processing priorities, such as implementation of major software packages (e.g., data base management systems).

(e) Identifies and assigns projects to a Sponsor - The Sponsor is the individual responsible for implementing the AIS. For many systems, multiple entities will be involved. Thus, it is important for the IRM committee to identify who is in charge,

and then ensure that that individual has adequate resources at his/her disposal to

successfully implement the project.

(f) Monitors status of projects - The IRM committee must retain responsibility for

projects, and therefore should be receiving regular status reports on approved

AIS projects. If projects fall behind schedule, or encounter other problems, the

IRM committee should take appropriate action.

2.2. 1.2 Using Policy/Procedures/Standards - Although there is no uniform SDLC for the

Federal government, there are a variety of policies, procedures, and standards which have been

issued relating to the development of AISs. Many of these have been issued by the National

Bureau of Standards, the General Services Administration's Office of Software Development,

the Office of Management and Budget (OMB), and the U.S. General Accounting Office

(GAO). The objective of these policies/procedures/standards is to increase the probability of

success for the AIS.

Some of the more pertinent publications that system development projects should follow are listed below and can be found in Appendix G and H (annotated with an asterisk).

Auditors involved in the system development process should study these publications to ensure that they follow the guidance.

18
2.2.1.2.1 References Used by the Life Cycle Matrix - The following references are cited

in the Life Cycle Matrix in Figure 1.

1. FIPSPUB38 GUIDELINES FOR DOCUMENTATION OF COMPUTER

PROGRAMS AND AUTOMATED DATA SYSTEMS, 1976 February 15

[FIPS38].

Provides basic guidance for the preparation often document types that are used in the development of computer software. Can be used as a checklist for the planning and evaluation of software documentation practices.

2. FIPSPUB64 GUIDELINES FOR DOCUMENTATION OF COMPUTER

PROGRAMS AND AUTOMATED DATA SYSTEMS FOR THE INmATION PHASE, 1979 August 1 [FIPS64].

Provides guidance in determining the content and extent of documentation needed for initiation phase of the software life cycle. Covers preparation of project requests, feasibility studies, and cost/benefit analysis

documents.

3.FIPSPUB65 GUIDELINE FOR AUTOMATIC DATA PROCESSING RISK

ANALYSIS, 1979 August 1 [FIPS65].

Presents a technique for conducting a risk analysis on an ADP facility

and related assets. Provides guidance on collecting, quantifying, and analyzing data related to the frequency of occurrence and the damage caused by

adverse events.

4. FIPSPUB 73 GUIDELINES FOR SECURITY OF COMPUTER APPLICATIONS,

1980 June 30 [FIPS73].

Describes the different security objectives for a computer application,

explains the control measures that can be used, and identifies the decisions

that should be made at each stage in the life cycle of a sensitive computer

application. For use in planning, developing, and operating computer sys- tems which require protection.

5. FIPSPUB 101 GUIDELINE FOR LIFECYCLE VALIDATION, VERIFICATION,

AND TESTING OF COMPUTER SOFTWARE, 1983 June 6 [FIPSlOl].

Presents an integrated approach to validation, verification, and test- ing (W&T) that should be used throughout the software lifecycle. Also included is a glossary of technical terms and a list of supporting NBS

pubhcations. An appendix provides an outline for formulating a W&T

plan.

19
6. FIPSPUB 102 GUIDELINE FOR COMPUTER SECURITY CERTIFICATION AND

ACCREDITATION, 1983 September 27 [FIPS102].

Describes how to establish and how to carry out a certification and ac- creditation program for computer security. Certification consists of a technical evaluation of a sensitive system to see how well it meets its security

requirements. Accreditation is the official management authori zation for

the operation of the system and is based on the certification process. Also

included is a glossary of terms.

7. FIPSPUB 105 GUIDELINE FOR SOFTWARE DOCUMENTATION MANAGEMENT, 1984 June 6 [FIPS105].

Provides explicit advice on managing the planning, development, and

production of computer software documentation. Includes several checklists, references to relevant standards and guidelines, and a glossary of

terms.

8. NBS SPEC PLANNING FOR SOFTWARE VALIDATION, VERIFICATION, AND

PUB 500-98 TESTING, Patricia B. Powell, Editor, November 1982 [NBS98].

Presents a guide for managers, programmers, and analysts to aid in

developing plans for software VV&T and in selecting appropriate practices,

techniques, and tools. In explaining the fundamental concepts, this report

provides information to help in establishing organizational policies for

W&T.

GUIDE TO SOFTWARE CONVERSION MANAGEMENT, Mark

Skall, Editor, October 1983 [NBS105].

Describes explicit steps for carrying out software conversion projects.

This guide was developed to help managers avoid the common problems

associated with software conversion. It includes an extensive reference list, case studies, and a glossary of terms.

10. DOD7920.2 MAJOR AIS APPROVAL PROCESS, DOD INSTRUCTION, October

20, 1978 [DOD78-2].

Establishes the review and decision process and procedures for the

development of major AISs. It implements DOD's life cycle management

directive 7920.1.

9. NBS SPEC

PUB 500-105

20
2.2.1.2.2 Major GSA References - The following are major references by GSA on this

subject area. Other GSA references can be found in Appendices G and H. Also cited in Appendk G are the definitions of four classes of GSA regulations that are pertinent to this subject area.

1. SOFTWARE IMPROVEMENT - A NEEDED PROCESS IN THE FEDERAL

GOVERNMENT, June 1981 [GSA81-1].

An easy-to-read introduction to the concepts of software improvement and how these concepts can be used to effectively modernize Government software.

2. GUIDELINES FOR PLANNING AND IMPLEMENTING A SOFTWARE IMPROVEMENT PROGRAM (SIP), May 1983 [GSA83-3].

Serves as a starting point for establishing, planning, and implementing a SIP. Emphasizes the top-down incremental approach to software

improvement and explains what needs to be done to set up a SIP in an

organization.

3. THE SOFTWARE IMPROVEMENT PROCESS-ITS PHASES AND TASKS (PARTS 1 & 2), July 1983 [GSA83-5].

A companion for the "Guidelines" described above, this report goes

into greater detail discussing the phases and tasks needed for planning and

implementing a SIP.

4. ESTABLISHING A SOFTWARE ENGINEERING TECHNOLOGY (SET), June 1983

[GSA83-4].

Software engineering is an approach to managing software development and maintenance by using standards, procedures, and automated

tools. This book serves as a starting point for implementing a SET in your

organization.

2.2.2 AIS Development Methodologies

In the past, few structural restrictions were placed on the system designer. The project

team was given a mission and resources to accomplish that mission. The methods they chose

for building the AIS were left to their discretion. As a result, many systems were installed late,

followed no standards, were significantly over budget, and often failed to meet user needs.

This unstructured design approach offered minimal opportunities for management, let

alone the auditor, to identify problems during development. It was not until installation that

problems became apparent. The solution to this management dilemma was to develop a for21
malized method for developing automated systems. These methodologies are alternately

called system development methodologies (SDMs), system development life cycle (SDLC),

or system life cycle (SLC) methodologies.

The following are generally accepted as the desirable practices of a good SDLC

methodology:

1. Predefined documents/deliverables - All of the products/deliverables to be developed

during the creation of an automated system need to be defined. In the better design

methodologies, these products/documents are standardized. They will either be preprinted

forms, or screens available to the designer on computer terminals. The sequence in which the

products are created is also determined. In most instances, the output from one product or set of products is needed before the next product can be developed.

2. Life cycle phases or checkpoints - The life cycle should be divided into segments

defined by activities and outcomes or deliverables. Each segment encompasses some part of

the developmental process. The purpose of having distinct phases or checkpoints is to allow

decisions to be made regarding completion of the project, changes in direction, cancellation

of the project, and authorization for use of more resources on the project at these points in

time. Note that management in many organizations only authorizes work (i.e., resources) on

an AIS project through the next management checkpoint. This is done to assure that management can continually evaluate project status and make the appropriate management decisions.

3. Completion of products/documents are tied to life cycle phase checkpoints - At each

checkpoint, specified work is to be completed. This work is normally expressed as documents

to be produced. Thus, when someone reviews a project at a checkpoint they know which

products/documents are to be delivered at that point in time. This also helps ensure that the

project is on schedule and within budget. It is through the examination of these products that

the status of work can be determined.

4. Reviews are product/document reviews - Reviews of the status of projects are performed by reviewing the products/documents produced by the project team. Therefore, it is important that these products/documents be produced in a standardized format. The National Bureau of Standards, through its various FIPS publications, has issued standards for most

of the documents produced during the developmental process [FIPS38, FIPS64]. These

reviews must be signed off on upon completion, indicating satisfactory completion of the

product/document, and life cycle phase.

5. Training i s tied to products/documents - The training program for people associated

with developmental projects is centered around the products/documents to be produced.

Auditors involved in the developmental process should become familiar with the developmen22
tal products/documents in order to properly review that project. While the auditor need not

know how to develop the products, the auditor should understand the meaning of the information contained in those documents, and how the documents tie together in the

organization's SDLC process.

2.2.3 Project Administration and Control

Project administration and control are the tools of management to monitor and direct

the project during implementation. The life cycle methodology, and the developmental

products, are designed to create a secure, accurate, and cost-effective system to meet user

needs. Project administration and control produce documents which are used by management

in administering the project. The developmental products are normally retained as part of the

system documentation and become input to maintenance of the system. Project administration and control documents generally have a limited Hfe, and are not retained for the life of

the system but through the SDLC.

The project administration and control documents can be used by the auditor to evaluate

the status of projects and to evaluate the performance of project management. Project status

is evaluated by the products that relate actual work to scheduled/budgeted work. Project

management is evaluated on its ability to produce the specified work products in accordance

with the project management plan.

The products/documents used for project administration and control include:

1. Budgeting/budget status reports - The funds allocated for development of AISs

and the internal budgetary reporting systems stating the use of funds against

budgets.

2. Scheduling/schedule status reports - The division of system development tasks

into phases/deliverables, and relating those phases/deliverables to specific time

frames. The status report indicates whether or not the deliverables have been ac- complished within the stated time frames.

3. Development project status reports - Reports prepared by the individual project

members indicating the status of deliverables under their responsibility. To be

effective, these status reports must be able to definitively state the percent ofwork

done, as opposed to the amount of resources consumed.

4. Checkpoint review status report - The results of a formal analysis by which an independent group evaluates the completeness of work or product deliverables at specific system development checkpoints.

23
5. Resource utilization report - Status reports produced by computer operations.

These reports are normally generated automatically from statistical information

collected about resources consumed during the development project. One such

package is IBM's job accounting system called System Management Facility

(SMF).

6. Project management software system - Organizations utiHze a variety of management software systems to control projects. A commonly used software package is PAC II, which is a scheduling and status reporting system.

7. Automated software development environments -Complete and self-contained

software development, documentation, and test tools and techniques for systems

analysts, programmers, and reviewers. In general, such environments will

automatically generate all the reports and code, and provide mapping back to

high level specifications.

In most AIS projects, more emphasis is placed on system development than project

management. Thus, the auditor is more apt to find well-defined developmental products than

to find well-developed project administration and control documents. Many of the administrative documents are more quantitative in nature (e.g., stating the amount of resources used) as opposed to qualitative in nature (e.g., indicating percentage of project completion in relation

to the developmental work products).

2.2.4 AIS Life Cycle Matrix

Auditors cannot comprehensively review a system under development until there is some

structure to the development process. Without structure, the auditor will be unable to determine what deliverables are to be produced at what time. On the other hand, it is recognized

that different agencies within the Federal government use different system development

methodologies.

As a basis for structuring the review proposed by this guide, the PCIE Work Group on

EDP Systems Review and Security^ defined a recormnended AIS life cycle process in the form

of a Life Cycle Matrix (see Figure 1). This life cycle matrix was developed based on the more

7 See Appendix A for a description of the PCIE Work Group and its efforts in producing this life cycle

matrix.

24
PART

Inform

Offical

System

Contro

mce

id

;port &

Auditojstaiiaurity

Sponsc

Project Techni

Conition

tern

Plan

SystemU

Special

stalContra

ADPr,,

ical

Qualitj adent

VI

INSTALLATION & OPERATION

approves final installation of system; accredits all systems determined to be of critical sensitivity or importance to the Dept.; directs periodic reviews per P.L. 96-511 for continued need

• conducts periodic reviews per OMB Circulars A123, A-127, and A-130; feeding into long-range AIS planning process

• conducts periodic reviews per OMB A-130 &

GAO audit standards; updates Audit Plan and Program as needed

• oversees training; directs periodic reviews of sensitive applications for recertification; identifies need for changes to system and revises Project Plan accordingly

• directs implementation and updates User Manual & Operations/Maintenance Manual as needed

during implementation and operation

• conducts periodic reviews per OMB Circulars A123, A-127, and A-130

• if appropriate, continues to assure contract compliance

• conducts periodic reviews per OMB Circular A130; provides technical assistance; maintains sys- tem documentation

• reviews changes to software system; summarizes,

analyzes and reports on defects to responsible

participants

hin the phase or

Figure 1. AUTOMATED INFORMATION SYSTEM (AIS) - LIFE-CYCLE MATRIX [1]

LIFE-CYCLE PHASES

PARTICIPANTS

Coniracting Officcr/Co til rati Auditor [6]

ADP Motiagcr

Oualily /Vssuratice (OA) Specialist

OPERATING ENVIRONMENT

I «iablishM sysiein life-cycle principles, documentation re- quirements, records management policy, & long- range system planning and decision process; wiih OIG establishes procedures by which OIG is noiiflcd of all significant new s>-sicnis or s>-stcms modifLcations

» establishes Dept. imcmal control and computer security

policy, per OMB Circulars A-123, A-127, & A-130; also develops policy pertaining to privacy requirements of agency records and data, per Privacy Act of 1974

k develops ADP audit guide; conducts selective reviews or

audits of automated systems, tiascd on established criteri:

for prioriiUing systems, and reports on needed manage- ment improvements [4)

B establishes management le«l implementation guidelines & approval process for AISs; organizes a formal quality

reviews & recommendations penaining to ADP efforts

• establishes policy implementation guidelines & plannir processes for individual system development cfforu, based on DepL, requirements and OMB Circulais A-1

A-127, * A-130 guidance

s policy implementation guidelines based O

GSA/Dept. pnacurcment policy

Ileal policy implement,

tion development, put

ablishes and utilizes processes to msurc app icms meet requirements, including compliai

a processing procedures

I approves Needs SlBtcmer

s Risk Analysis; helps It

' reviews/evaluates Needs Statement, Feasibility

Sludy, Risk Analysis, Cost/Bencru Analysis, and Sys- tem Decision Paper, based upon rt scope of future involvement

* identifies & validates need; develops Needs Slale- mcni; directs Feasibility Study, Risk Analysis, and

Cost/Benefit Analysis; develops System Decision

Paper; selects a Project Manager

' develops or oversees development of Pcasibilily Sludy, Risk Analysis, Cost/Bencru Analysis, and S

tern Decision Paper

. appropriate, unless this ofDEVELOPMENT

approves System Decision Paper to advance lo Phase II, in consultation with SponserAJscr and ADP Manager (occurs between Phases) |3|

m SSO/ICO components of Project Plan,

ional Requirements Documents & Data R

iicnis Documents, on a select basis

> reviews/evaluates System Decision Paper, Project

Plan, Functional Requirements Documents, Data

Requirements Documents, and participates in

iheir development, as necessary; prepares Audit Program

( approves Project Plan and Functional Require- ments Documents, and updates System Decision

I provides consultation & review of SSO/ICO c. ponents of Project Plan, Functional Require- ments Documents and Data Requirements Documents

I reviews Project Plan, Functional Req. Doc^s.. Data Req. Doc's; as appropriate, provides technical support to Project Manager & Sponser/User

III SYSTEM DESIGN

approves updated System Decision Paper to ai

to Phase III, in consultation with SponsorAJsc ADP Manager (occurs between Phases). & en tcm into Dcpt's. formal systems' inventory

• reviews SSO/ICO components of System/Subsystem, Progmm and Data Base Specifications, and Validation, Venfication and Testing Plan and Specification:

i reviews/evaluates & possibly inputs to Risk Analysis,

Sys. Decision Paper, Sys./Subs)^ Program & Data

Base Specs., W&T Plan and Specs, and Revised

Projccl Plan; updates Audit Program

» appitives revised Project Plan and updates System

Decision Paper; reassesses Risk Analysis; approves

Validation, Verification and Testing Plan and

Specifications (all based on OA recomcndations)

k updates Project Plan; develops System/Subsystem Program & Data Base Specifications, & Validatio

Verification and Testing Plan and Specifications

» reviews SSO/ICO components of Sysiem/Subsystt Program and Data Base Specifications, and Valid

tion. Verification and Testing Plan and Spcciflcat

» rcvicivs W&T components of Sys7Subsys., Prog, i Data Base Specs., & W&T Plan and Specs; as appropriate, provides technical support to Project Manager and Sponsor/User in developing Specs.

I reviews system design, W&T components and

processing standards

PROGRAMMING & TRAINING

appnves updated System Decision Paper to ad

vanceio Phase IV. in consultation with Sponsor/Uer and ADP Manager (txrcurs between

Phase)

• revierc SSO/ICO components of User Manual, Opemions/Mainlenance Manual, Installation and

Connrsion Plan, and revised W&T Plan and

Speciicaiions

reviens/evaluates revised Project Plan, System

DecLsbn Paper, revised W&T Plan and Speeifica- tions.User Manual, Operations/Maintenance

Manuil, and Installation & Conversion Plan; upapprol-cs revised Project Plan, revised W&T Plan and S^fications. User Manual, Operations/Maintenante Manual & Installation & Conversion Plan; updaits System Decision Paper initiates user trainI updates Projea Plan; revises W&T Plan and

Specifcations; develops User Manual, Operations/Maintenance Manual, and Installation & Conversion Plan; responsible for programming and

revicBS SSO/ICO components of User Manual,

Operations/Maintenance Manual, Installation &

Conversion Plan, and revised W&Tand SpecificaI review W&T components of User Manual, Opeid ions/Maintenance Manual and Installaiioi & Coivxrsion Plan; provides technical support t( Projea Manager and Sponsor/User; may conduci DP tnining

' review program definition, program code, documentation, and training, for compliance lo design and data pnxessing standards

EVALUATION & ACCEPTANCE

approves updated System Decision Paper lo advince

lo Phase V, in consultation with Sponsor/User and ADP Manager (occurs between Phases)

reviews Test Analysis and Security Evaluation Report and SSO/ICO components of revised Installation &

Conversion Plan

reviews/evaluates revised Project Plan, revised IiKtallS' tion & Conversion Plan, and Test Analysis & Seturity FvBlualion Rcpon; updates Audit Program

> approves revised Project Plan and Installation & Conversion Plan; updates System Decision Paper; over- sees training; accepts (accredits) system for opcittion

' updates Project Plan; supports & oversees TesI

Analysis & Security Eval. Report and certifies iyslcm

security; revises User Manual, OpcrationsAlainlenancc Manual, and Installation and Conversion Plan

I reviews Test Analysis & Security Eval. Repon and SSO/ICO impacted documentation updates to Uler Manual. Operations/Maintenance Manual, and Instal- lation and Conversion Plan

I directs tests; reviews Test Analysis & Security Evil. Report, and Installation and Conversion Plan; coilinues to provide technical support; may do technical evaluation for certification.

' reviews Test Analysis & Security Eval, Report and ad-

\ises responsible participants on system achievement

of Needs Statement

INSTALLATION & OPERATION

approves final installation of system; accredits al systems determined lobe of critical sensitivity oi importance to the Dept.; directs periodic review; perP.L 96-511 fortominued need

• conducts periodic reviews per OMB Circulars A- m. A-127, and A-130; feeding into long-range AIS planning process

• conducts periodic reviews per OMB A-130 A GAO audit standards; updates Audit Plan at] Program as needed

* oversees training; directs periodic reviews of sen

live applications for receni lies tion; identifies need for changes to system and revises Projeci Plan accordingly

directs implemcntotion and updates User Manual & OperaiionsAfaintcnance Manual as needed

during implementation and operation

rcvieus changes to software system: summarizes

analyzes and reports on defects lo respcnsible

participants

|1] Matrix intended to reflect, primarily, roles & documents for large, in-house AIS

in body of report. |2|IRM lifers lo 'single offical* as identified under PL96-S11 and OMB Circular A

delegated, as provided for by Department policy,

|3| Relationship among IRM Official, Sponsor and ADP Manager may be formal, a; body, depending upon the organization and particular system.

All audit involvement in AIS life cycle should be based on an assessment of nce<!

all systems or phases.

|51 In some circumstances, some of these functions are handled by a COTR re.spons

(61 In some circumstances, some of these functions are handled by a Contract Audit

leielopment or redesign efforts. Alternative approaches arc discusse.

130, For smaller systems, however, approval authorities commonly

in the case of an established AIS approval body, or informal ad hoc

and potential risk/cirposure. and iKrformed on a select basis, not on

bit to the Project Manager.

ir responsible to the Conltacting Officer,

25
commonly recognized deliverables produced in Federal AIS projects, and a comprehensive

survey of system development practices in over 100 offices of approximately 76 Federal agencies and in selected private sector companies. This life cycle matrix should be used by auditors

as a basis for understanding how to review systems under development. Actual reviews must

be tied to the particular development methodology used.

The AIS life cycle matrix is designed to be used by the auditor in the following manner:

1. As a training tool - The matrix defines the major phases in the development of

an AIS in terms of key activities to be performed and products delivered. This

matrix can be used to orient the auditor to the developmental process by explaining:

(a) The phases/activities of the system development process;

(b) The participants in the developmental process;

(c) The responsibilities assigned to individual participants ("participants"

refers to functional responsibilities for development rather than job titles or full-time positions); and

(d) The products/deliverables to be produced.

2. As a basis for understanding a proposed review methodology - Because the

specific development methodology of various Federal agencies may differ, it is only possible to provide a generalized audit review methodology. The framework

for describing this methodology is the AIS life cycle matrix provided here.

3. For customization of the audit methodology to a specific Federal agency and AIS

- The auditor may need to customize the review methodology in this guide to the

specific AIS project under review. This can be accomplished by relating the

deliverables/responsibilities in the agency to the AIS under review.

4. In the absence of having a formal methodology or using one, this matrix can be

used by auditors as criteria for evaluating AISs under development.

2.3 LIFE CYCLE PHASES

The auditor should not expect that systems will be developed in accordance with this

specific SDLC methodology. The life cycle phases described in this guide are intended to

clarify the broad functions or activities which should occur during the development of an

26
automated system. The six phases cover activities commonly performed, so that whatever

development methodology the auditor encounters, the following six phases encompass the activities likely to be found, and thus could be customized to a specific audit (see Figure 1, Automated Information System (AIS) - Life Cycle Matrix).

2.3.1 Initiation - Phase I

Consistent with the DOD "Mission Analysis" and "Concept Development" Phases, the initiation phase begins with the recognition of a problem and the identification of a need. During

this phase, the need is validated, and the exploration of alternative functional concepts to satisfy the need is recommended and approved. The decision to pursue a solution must be based

upon a clear understanding of the problem, a preliminary investigation of alternative solutions,

including non-computer-based solutions, and a comparison of the expected benefits versus the

cost (including design, construction, operation, and potential risks) of the solution. At this

stage the risk/sensitivity of the data or information in or resources controlled by the AIS under

consideration should be evaluated.

2.3.2 Definition - Phase II

In this phase, the functional requirements are defined, and detailed planning for the

development of an operable AIS is begun. Functional requirements and processes to be

automated are documented and approved by an appropriate senior management official

before an AIS development effort is started. Requirements identification is iterative, as is the

analysis of potential risk, and involves those who identify and solve problems. It is critical that

internal control and specific security requirements be identified during this process. Requirements may be, and commonly are, modified in later phases as a better understanding of the

problem is gained. Also, during Phase II, a Project Plan specifying a strategy for managing AIS

development, certification, and accreditation is prepared. It defines the goals and activities for

all subsequent phases, and includes resource estimates during each phase, intermediate milestones, as well as methods for design, documentation, problem reporting, and change control.

Resource planning for W&Tshould be included here [FIPSlOl]. In essence, the Project Plan

describes the unique SDLC methodology to be used during the life of the particular project.

During this phase, the Audit Plan is also prepared so that the new AIS will be auditable from

the start.

2.3.3 System Design - Phase III

The activities performed during this phase result in a specification of the problem solution. The solution provides a specific high-level definition including information aggregates,

information flows and logical processing steps, as well as all major interfaces and their inputs

and outputs. The purpose is to refine, resolve deficiencies in, define additional details in, and

27
package the solution. The detailed design specifications describe the physical solution (algorithms and data structures) in such a way that it can be implemented in code with little or no

need for additional analysis. Agencies should define and approve security specifications prior

to acquiring or starting formal development of the applications. The validation, verification,

and testing (W&T) goals are also identified during this phase, and a plan for achieving these

goals is developed (See National Bureau of Standards FIPS PUB 101). The Project Plan

(schedules, budgets, deliverables, etc.) and Risk Analysis are reviewed and revised as required

given the scope and complexity of the solution formulated. These activities are coordinated

with the Certification Plan components.

23.4 Programming and Training - Phase FV

This phase results in programs which are ready for testing, evaluation, certification, and

installation. Programming is the process of implementing the detailed design specifications

into code. Completed code will then undergo unit testing, as described in the revised VV&T

Plan in this phase, and integration and system testing in Phase V. In addition to Programming

and Training Manuals, User and Maintenance Manuals are prepared during the fourth phase,

as is a preliminary Installation Plan which specifies the approach to and details of the installation of the AIS.

23.5 Evaluation and Acceptance - Phase V

o In this phase , integration and system testing of the AIS occurs. For validation purposes,

the system should be executed on test data, and the AIS field tested in one or more representative operational sites. Using actual functional transaction data, if designated a "sensitive"

system, the system should be certified for technical adequacy in meeting its security requirements by an appropriate authority, prior to accreditation and installation. Before certification,

all W&T test results would be documented and a comparison of actual and expected results

made.

OMB Circular A- 130 and NBS FIPS PUB 102 security evaluation should be part of the

broader test results/test evaluation report. The accreditation statement, the last key activity of

the phase, will be a statement from the responsible accrediting official (e.g., Sponsor/User)

8 Development Phase-The Institute for Computer Sciences and Technology at the National Bureau of

Standards (ICST/NBS), in structuring a framework within which the development of software could be

discussed, identified a Development Phase including four stages —definition, design, programming, and

testing. These are represented by Phases II-V described above. During the Development Phase the

requirements for software are determined and the software is then defined, specified, programmed, and

tested. Documentation is prepared within this phase to provide an adequate record of the technical

information developed. The PCIE Work Group's phases are intended to cover not only softwcu-e but also hardware, telecommunications, etc., i.e., all the components of an automated information system

28
that the system is operating effectively and is ready to be installed. Any caveats or restrictions

should be provided at this time.

23.6 Installation and Operation - Phase VI

Comparable to DOD's "Deployment and Operation" phase, and encompassing both

NBS' "Installation" subphase and "Operation and Maintenance" phase, the purpose of this final

life cycle phase is to: (a) implement the approved operational plan, including extension/installation at other sites; (b) continue approved operations; (c) budget adequately; and (d) control

all changes and maintain/modify the AIS during its remaining life. Problem reporting, change

requests, and other change control mechanisms are used to facilitate the systematic correction

and evolution of the AIS. In addition, periodic performance measurement and evaluation activities are performed to ensure that the system continues to meet its requirements in a costeffective manner in the context of a changing system environment. These reviews may be

conducted by either or both the quality assurance (QA) staff or the audit unit.

2.4 RESPONSIBLE PARTICIPANTS AND THEIR FUNCTION IN THE AIS LIFE

CYCLE

The auditor must recognize that organizational structures vary significantly from agency

to agency. The functions described in this section are described as "job title related" functions

so thatorganizations can look at them as specific job titles, if they have an equivalent job, or

as functions which must be performed whether or not the specific job exists. The list is not

meant to be all-inclusive, nor does it preclude smaller agencies or organizational units from

combining participants or roles.

The rationale for describing the participants is to identify the role of each key participant.

In the audit program, the auditor will be asked to verify that the respective AIS participants

have each performed their appropriate role. A brief description of all of the participants listed

in the AIS life cycle matrix follows, with the exception of the auditor, whose role constitutes

the bulk of this guide and is found in Chapter 4. (Note that these functions are divided into

poHcy/oversight participants and the functional/operational participants, based on the level of

the agency at which they operate.^)

2.4.1 Policy/Oversight Participants

2.4.1.1 Information Resources Management (IRM^ Official - This individual is responsible for developing uniform policies and procedures to ensure that an agency effectively and

9 Policy/oversight participants tend to function at the department level, setting and/or overseeing

implementation of internal control and security policy guidance. Functional/operational participants are located in program or line level and implement department policy or guidance

29
efficiently manages its records/information and its information resources. The IRM official is responsible for approving the development or acquisition of all information systems, though

this responsibility may be shared with an approval body, or for some systems, delegated outside that position. The IRM function, that of a "single official," is called for in PL96-511

[PRA80] and in OMB Circular A-130 [OMB130].

2.4.1.2 System Security Officer (SSO) - At the department level, the SSO is responsible

for the development, implementation, and operation of an agency's computer security

program. Designated by the IRM official, that individual is expected to define and approve

overall security specifications of new systems or changes to existing systems, whether

developed in-house or acquired from an outside source. The SSO is also responsible for conducting or overseeing the conduct of risk analyses prior to the development of any major sys- tem. The function is identified in OMB Circular A-130.

2.4. 1 .3 Internal Control Officer (ICQ) - At the department level, the ICO is responsible

for seeing that an agency's financial management information systems are identified, developed, maintained, reviewed, and improved as necessary. The ICO is responsible for the conduct ofvulnerability assessments of these financial management information systems, and their

internal control points. The ICO responsibihty is derived from OMB Circular A- 123

[OMB123]. The ICO does not perform the reviews per se, but establishes policy for determination of the internal control points, and oversees the scheduling and conduct of reviews performed at the operational or program level.

2.4.2 Functional/Operational Participants

2.4.2. 1 Sponsor/User - The Sponsor/User is responsible for initially identifying the need

that has to be met by an AIS. The Sponsor/User has to identify various alternative solutions

to the problem, and determine the feasibility and cost/benefit of the various alternatives. The

Sponsor/User also has to conduct or oversee the conduct of a Risk Analysis, to assess the potential vulnerabiHties of the system or appHcation being developed. That analysis must be continually updated or revised during the SDLC to assure the inclusion of appropriate internal

controls and security safeguards. The Sponsor/User is ultimately responsible for accepting (accrediting) the system as being complete, meeting its requirements, and being ready for operational use. Depending on the particular system, the Sponsor/User may be located at various

levels in the agency. Under OMB Circular A-130, the Sponsor/User, as the official whose

program an information system supports, should be responsible and accountable for the

products of that system.

2.4.2.2 Project Manager/Contracting Officer's Technical Representative (COTR) - The

Project Manager is the individual responsible for seeing that a system is properly designed to

meet the Sponsor/User's needs, and is developed on schedule. The Project Manager is respon30
sible for seeing that all system documentation is prepared as the system is being developed. If the system is developed either in-house or by a contractor, the Project Manager is responsible

for certifying that the delivered system meets all technical specifications, including security,

obtaining technical assistance from the ADP Manager as necessary. If a different individual,

the COTR should report to the Project Manager appraisals of technical adequacy of the AIS

being developed by the contractor. The Project Manager is designated by the Sponsor or chief

User and is responsible to the same.

2.4.2.3 System Security Specialist (SSS) ^^- This individual is responsible, at the program

or operational level, for seeing that a system complies with the agency's computer/system

security poHcy. The SSS approves design reviews, to assure that (l)the design meets approved

security specifications and system tests, and (2)administrative, physical and technical requirements are adequate prior to installation of the system. The function is referenced in OMB Circular A- 130, and must be coordinated with internal control review requirements under OMB

A-123.

2.4.2.4 Internal Control Specialist- This individual is responsible, at the operational

level, for seeing that a system complies with the agency's internal control policy. The ICS as- sures that a system meets basic standards for documentation, recording of transactions, execution of transactions, separation of duties, access to resources, and all other internal control

requirements. The function is referenced in OMB Circular A-123, and should be coordinated

with security review requirements under OMB Circular A- 130.

2.4.2.5 Contracting Officer - The Contracting Officer is responsible for awarding and

managing contracts to a vendor to provide part or all of the system development activity that

is not performed by a unit within the operating agency. The contract might also provide for

the procurement of system software required by a new application. The Contracting Officer

in either case, is responsible for seeing that the vendor or contractor complies with the terms

of the contract and that the deliverables are provided on time. Responsibilities are clearly

stated in the existing regulations (i.e., FIRMR, FPMR, FAR and FPR). He/she works with the

PM and COTR and, possibly, the Sponsor/User to assure that the request for proposal (RFP)

and the final contract clearly reflects user needs and critical internal control and security features.

10 The title of System Security Specialist, or SSS, is used in place of System Security Officer (SSO) to

differentiate the function and responsibility of the department's security office from that at the program

or operational level. The same distinction applies to the Internal Control Specialist versus the Internal Control Officer.

31
(Contract Auditor - If requested by the Contracting Officer, the Contract Auditor is responsible for reviewing a contractor's performance on a specified contract. Otherwise, compHance with the contract would fall under the purview of the Auditor.)

2.4.2.6 ADP Manager - The ADP Manager is the technical individual responsible for the

ADP installations and operations of an agency's programs (i.e., he/she is responsible for the

operation of the data processing center and the management of the system analysts, programmers, etc.). The data processing (DP) branch may actually develop parts of the AIS or may

provide technical support to the Project Manager and Sponsor/User during the system's life cycle.

Dependent upon the particular system/application under development, the ADP

Manager might serve with the Sponsor/User on a system review/approval board,

2.4.2.7 Quality Assurance (QA) Specialist - The operations level QA staff is responsible

for assuring the Sponsor/User that an application system is developed in accordance with the

system's stated objectives, contains the needed internal controls and security to produce consistently reliable results, and operates in conformance with requirements and data processing

procedures. Quality assurance, as defined in the AIS life cycle matrix, is the function that es- tablishes the responsibilities and methods used to ensure quality in data processing products.

The Quality Assurance Speciahst may or may not be personally involved in establishing these

responsibilities and methods.

The QA charter should allow for independent reviews. QA staff should actively participate in reviewing the development of new systems or appHcations and the significant

modification of existing systems. (Coordination with security/audit and VV&T participants is essential to avoid duplication of effort.) In addition, the QA staff should ensure data integrity

of systems. The presence and effective functioning of the QA staff will determine the nature

and extent of audit involvement, in that they commonly perform similar functions.

2.5 USE OF EXTERNAL DEVELOPMENT SERVICES

2.5.1 Contractor Services

Differences in the SLC which result from the use of contractor services in lieu of in-house

staff, are described briefly below. At least two points are key:

1. The term "contractor" applies to both private sector enterprises and activities of

the Federal government. This latter category includes, for example. General Services Administration, Defense and non-Defense laboratories, and the National

Bureau of Standards.

32
2. Contractors can be used in every phase and activity in the SLC. There are, however, restrictions on the type of work which contractors should do (e.g., poHcy

formulation and management of government employees), and ways in which they

should not be employed (e.g., personal services). These restrictions are stated in

the Code of Federal Regulations (CFR).

Regardless of whether these services are performed in-house or contracted out, the

operating environment and project management must make adequate provision for control over the system development process (e.g., requiring compliance with standards and subjecting deliverables to VV&T). Only items at variance with functions and activities specified in

the AIS Life Cycle Matrix are identified, and are described in the life cycle phase in which they

would occur. Differences in the audit approach, however, occasioned by the change in development circumstances, are presented following Phase VI.

2.5.1.1 Differences from the ATS Life Cycle Matrix

1. Operating Environment

• Information Resources Management (IRM) Official- Establishes guidelines

on the use of contractor services, e.g., issuing design specifications for

competitive award rather than automatically letting the same contractor

design and develop a particular software application.

• Contracting Officer - Establishes guidelines, rules and procedures for the use

of contractor services.

2. Initiation - Phase I

• Sponsor/User - In coordination with the Project Manager, incorporates a preliminary assessment of the need for contractor services in the Feasibility

Study, Risk Analysis, and Cost/Benefit Analysis, where possible and as appropriate. (Minimally, the acquisition of contractor services can require a long lead time. Therefore, the impact on the project schedule must be

recognized and identified.)

• Project Manager/Contracting Officer's Technical Representative (COTR) - Supports the Sponsor/User in project initiation and the assessment of

government personnel and contractor resource needs.

(No other change is required. The typical use of the contractor is in support

of the Project Manager/COTR. However, contractors can also be used, for

33
example, by the ADP Manager to provide consultation, by the Sponsor/User

to develop the Needs Statement, or by the Auditor to review/evaluate the

Feasibility Study. In all cases, the government's interests must be protected

by a rigorous definition of what the contractor is expected to do. It is the

Contracting Officer's responsibility to ensure that the interests of the

government are met. Contracting for ADP resources is discussed in GSA's

41 CFR 201-32, and is referenced in 41 CFR 210-20.003, Requirements

Analysis.)

3. Definition - Phase II

• Project Manager/COTR - Incorporates the provision of contractor resources,

as appropriate, into the Project Plan to ensure that: (1) resource acquisition

schedules are meaningful; (2) the role of the contractor(s) is identified and

proper; and (3) objectivity controls are provided.

(No other particular change is required. Contractors may participate in any

activity unless otherwise precluded by Federal statute or Departmental

policy.)

4. System Design - Phase III

• Information Resources Management (IRM) Official- Oversees project to ensure objectivity of design with respect to requirements.

5. Programming & Training, Evaluation & Acceptance, and Installation & Operation - Phases IV, V, and VI

No particular change is required. Contractors may participate in any activity unless otherwise precluded by Federal statute or Departmental policy.

2.5.1.2 Differences in Audit Approach - The impact on audit of using contractor services

at key points in the SDLC, will vary with the degree of responsibility assigned to the contractor, and number of contractors involved. For example, at one extreme, contracts may be

awarded which incorporate all major phases of the project, from feasibihty study through

installation and operation, into a single contract. At the other extreme, contracts may be incorporated into the project which call for limited responsibility, such as development of a single

subsystem, or system documentation, or Training/User Manuals.

Care should be taken that the objective integrity of the approach is not compromised by

allowing a contractor, without proper management, to define the requirements and design a

34
system responsive to the requirements. Without this management, there is no incentive for a contractor to seek cost-effective design approaches.

Each of the possible permutations of contractor involvement has unique characteristics

which will require modification of the audit approach to specifically address the situation.

There are, however, common areas which will need to be considered. The degree of audit effort directed to these areas is, of course, dependent on the nature and scope of the contractor

involvement. The areas to be considered are:

• Project Plan - The overall Project Plan should include specific delineation of contractor responsibilities vis-a-vis the other "responsible participants." Particular attention

should be paid to the vaHdation, verification, testing, and certification of contractor

produced products.

• Requirements Specifications - The requirements description should be as complete

as possible, identifying the tasks to be completed and deliverable items, in as much

detail as necessary to ensure that all documentation and decision points reflected in

the AIS Life Cycle Matrix are adequately addressed, and that all relevant system

development standards and guidelines are incorporated.

• Contract Monitoring - Procedures and practices relating to the monitoring and evaluation of work under the contract should be sufficient to ensure compliance by the contractor with the SDLC documentation and decision level requirements.

The audit approach to systems development activities involving contractor support

remains focused on the requirements specified in the AIS Life Cycle Matrix. The use of contractors in the development process, however, does introduce additional elements for consideration in developing the overall Audit Plan. For example, the contractor should not be

substituted for user involvement, project management, standards, and documentation.

2.5.2 Off-The-Shelf Software/Turnkey Systems

The acquisition and installation of off-the-shelf software or turnkey systems, in lieu of

customizing a major system development effort, also requires modification of the functions or

roles identified in the AIS Life Cycle Matrix. The differences in the system life cycle are as follows. (It should be kept in mind that many of the changes identified are required for the

procurement of contractor services as well as software.)

35
Differences from the AIS Life Cycle Matrix

Operating Environment. Initiation (Phase TV and Programming & Training

(Phase IV^

No particular change is required.

Definition - Phase II

• Project Manager - Prepares Functional Requirements Document to serve as the basis of procurement action.

Design - Phase III

• Sponsor/User - Reviews proposed procurement for sufficiency.

• Project Manager - Identifies and appoints technical evaluation panel to

review technical competency of bids/offers.

• ADP Manager - Reviews requirements documents and provides technical

assistance to Contracting Officer relative to development of procurement

action.

Testing - Phase V

• Sponsor/User - Reviews results of all pre-award test procedures. Concurs in

any customizing and award.

• Project Manager - Oversees completion of "live test demonstration" and other

pre-award test procedures. Defines/approves required customizing. (If

customizing is required, that process should be done by returning to a sub-process identical, if abbreviated, to that for full systems development

Phases II-IV). Approves award to selected bidder/offeror.

• ADP Manager - Provides technical assistance in evaluating "live test demonstration" and other pre-award test procedures. Also oversees

installation of software at the test site.

36
5. Installation & Operation - Phase VI

• Sponsor/User - Identifies and initiates request for additional modifications

by manufacturer.

• Project Manager - Reviews system updates and ensures revisions to

documentation and manuals, and initiates required training.

• ADP Manager - Installs licensed system updates.

2.5.2.2 Differences in Audit Approach - The major differences for the auditor in reviewing the selection and installation of off-the-shelf software will be that little to no attention will

be paid to the actual coding process unless substantial customizing was required. Normally,

off-the-shelf software is considered reliable unless problems are found.

However, more often than not, off-the-shelf software or turnkey systems are found to

need modification to be responsive to user requirements. Any such modification may impact

the agency's ability to hold the vendor accountable for problems encountered or future

upgrades or maintenance. Modification to such software or to its operating environment

should, therefore, be a consideration for the auditor in any of the affected life cycle phases,

particularly with regard to VV&T implications.

2.6 AIS LIFE CYCLE DOCUMENTATION

Audits of systems under development are not practical unless well-defined documentation exists. System documentation requirements are a classic problem associated with the

development of any automated system. The many audit reports of the General Accounting Office (GAO) support this assertion. The individual findings of PCIE Work Group members

tend to corroborate the problem and the identified need. Much care was taken in the development of the documentation set presented here.

Managers may find it appropriate to either consolidate several requirements into a single

document, move documentation requirements to an earlier phase, or make other changes

which they deem necessary for the efficient and effective management of their program. What

is critical is that the purpose and functions of the documents elaborated on below are achieved.

The purpose and general content of each of the named documents or document types

identified in the AIS matrix are defined in the following paragraphs. Figure 2, System Life

11 The references after each document type contain the requirements or justification for that document.

(Note:NBS HPS PUBS apply equally to software and the full AIS).

37
Cycle (SLC) Documentation Flowchart, describes the flow of documents as an AIS project

proceeds through its SLC. It uses a single letter for identification of each document.

2.6.1 Needs Statement (FIPS PUB 64, DOD 7920.1, FIRMR 201-30.007)

A Needs Statement should be prepared to describe, in written form, deficiencies in existing capabilities, new or changed program requirements, or opportunities for increased

economy and efficiency. It should justify the exploration of alternative solutions (including

automation) to the deficiencies. An adaptation of the document should be used for systems

not designated as major systems. The need for AIS security should be identified, based on anticipated system's sensitivity/criticality. Since the Needs Statement is a management document, it normally should not exceed four to six pages in length.

2.6.2 Feasibility Study (FIPS PUB 64, FIRMR 201-30.007)

The purpose of the FeasibiHty Study is to provide: (1) an analysis of the objectives, re- quirements and system concepts; (2) an evaluation of alternative approaches for reasonably

achieving the objectives; and (3) identification of a proposed approach. This study, in conjunction with the Cost/Benefit Analysis should provide management with adequate information

to make decisions to initiate or continue the development, procurement, or modification of

software or other ADP-related services. The Feasibility Study may be supplemented with an

appendix containing details of a Cost/Benefit Analysis, or may be considered with a separate

Cost/Benefit Analysis.

2.6.3 Risk Analysis (FIPS PUBS 65, 87, and 102, OMB A-130)

The purposes of the Risk Analysis are to identify internal control and security vulnerabilities of an AIS, determine the nature and magnitude of associated threats to data and

assets, determine the resulting potential for loss, and provide managers, designers, systems

security specialists and auditors with recommended safeguards. These would be included

during the Design, Development and Installation/Operation Phases of a new and/or modified

AIS to reduce the potential loss.

It should be reviewed and revised, as necessary, during each phase of the SDLC to as- sure that appropriate security measures are installed. The findings and recommendations of

the Risk Analysis should be used by the review teams during the AIS security and certification

reviews. It should be prepared and maintained as a separate document, and should be reviewed

and updated as necessary, when a modification is made to the operational system.

38
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2.6.4 Cost/Benefit Analysis (FIPS PUB 64, OMB A-130, OMB A-123, FIRMR 201-

30.007)

The purpose of the Cost/Benefit Analysis is to provide managers, users, designers, sys- tems security speciaHsts, and auditors with adequate cost and benefit information, including

the impact of security, privacy, and internal control requirements on that information, to

analyze and evaluate alternative approaches to meeting mission deficiencies. This document,

in conjunction with the Feasibility Study, should provide the information for management to

make decisions to initiate or continue the development, procurement, or modification of

software or other AlS-related components. The Cost/Benefit Analysis may be prepared as a separate document, or details of the Cost/Benefit Analysis may be appended to the Feasibility

Study.

2.6.5 System Decision Paper (FIPS PUB 64, DOD 7920.2, OMB A-130, OMB A-123)

The System Decision Paper provides the information and framework critical to the

departmental and operating divisions' decision-making process during the development of an

AIS. It is the principal document for recording the essential information on the AIS, such as mission need, milestones, thresholds, issues and risks (including security, privacy and internal

controls), alternatives, cost/benefits, management plan, supporting rationale for decisions, affordability in terms of projected budget and out-year funding, and the decisions made by the

agency's Office of the Secretary. The System Decision Paper remains in existence throughout

the life of a major AIS. It must be approved at the appropriate level when milestones for each

life cycle phase are achieved.

The final iteration of the System Decision Paper, prior to the system's installation and

operation, should include an accreditation statement by the responsible accrediting official,

that the AIS is operating effectively. Any caveats on its operation need to be mentioned at this

time.

2.6.6 Audit Plan (Public Laws Establishing OIGs, GAOAudit Standards, OMBA-130,

OMB A-123, OMBA-73)

Audit Plans are developed encompassing all agency system activities. Systems under

development may be selected for review based on several factors, including the sensitivity or

criticality of the system or the effectiveness of internal agency ADP management control (e.g., a verification and validation group, a formalized testing process, a quality assurance function, or a risk management function).

For those systems selected for audit review, a detailed AIS specific audit plan is prepared.

The plan clarifies audit involvement, which may range from audit review of completed work

40
products at each development stage to active review participation in each system development

phase. In any case, the overall objective is to assess the adequacy of internal ADP controls and

provide the "reasonable assurances" to management spelled out in Appendix 1 of the GAO

Audit Standards [GA081-1].

2.6.7 Project Plan (FIPS PUBS 102 & 105, NBS SP 500-98, OMB A-130, OMB A-123)

The Project Plan specifies the strategy for managing the software/AIS development. It defines the goals and activities for all phases and sub-phases. It includes resource estimates over the duration of system development and intermediate milestones including management

and technical reviews (i.e., those for security, privacy, and internal controls requirements). In

addition, it defines methods for design, documentation, problem reporting, and change control. It also specifies supporting techniques and tools.

While the focus or emphasis of the Project Plan is on the developmental phases of an

AIS, the plan cannot omit consideration of the system's installation and operation, most

particularly the certification process the system must go through prior to entering the final life cycle phase. A formal Certification Plan should be included as a routine subsection of the

Project Plans for all systems designated as "sensitive." That subsection contains clarification of

responsibilities, security requirements and evaluation approach, evaluation schedule and support required, as well as identification of the evaluation products. Just as the remainder of the

Project Plan is to be reviewed and modified during each phase, so the Certification Plan is to

be revised as needed, commonly based on the updated Risk Analysis.

2.6.8 Requirements Documents

2.6.8.1 Functional Requirements Document (FIPS PUBS 38, 64, 87, & 124, DOD-STD7935, OMB A-130, OMB A-123, GSA 41, CFR 201-20) - The purpose of the Functional Requirements Document is to provide a basis for the mutual understanding between users and

designers of the initial definition of the software/AIS, including the requirements, operating

environment, and development plan.

It should include, in the overview, the proposed methods and procedures, a summary of

improvements, a summary of impacts, security, privacy, and internal control considerations,

cost considerations and alternatives. The requirements section should state the functions re- quired of the software in quantitative and qualitative terms, and how these functions will satisfy the performance objectives. It should also specify the performance requirements vis-a-vis

accuracy, validation, timing, and flexibility. Inputs/outputs need to be explained, as well as data

characteristics. Finally, the Requirements Document needs to describe the Operating Environment and provide or make reference to a development plan.

41
2.6.8.2 Functional Security and Internal Control Requirements Document (FIPS PUBS

38, 64, 73, 87, & 102, DOD-STD-7935, OMB A-130, OMB A-123) - The purpose of the

Security and Internal Control Requirements Document is to focus attention of the user and

system designer on the security/internal control needs of the system, based both on vulnerabilities identified during the Risk Analysis and established internal control/security standards (e.g., GAO guidance, NBS guidance).

Included should be requirements for general controls (i.e., management and environmental controls) at the computer installation, if additional ones are needed, and automated

application controls. All security requirements need to be defined and approved prior to ac- quiring or starting formal development of the applications.

2.6.8.3 Data Requirements Document (FIPS PUB 38, DOD-STD-7935, OMB A-130,

OMB A-123) - The purpose of the Data Requirements Document is to provide, during the

definition stage of software development, data descriptions and technical information about

data collection requirements. The data descriptions need to be separated into two categories-

-static and dynamic data. Data elements in each category should be arranged in logical groupings, such as functions, subjects, or other groupings which are most relevant to their use. The

document should also describe the type of information required to document the characteristics of each data element, and specify information to be collected by the user and that to be

collected by the developer. Finally, procedures for data collection, and the impacts of the data

requirements need to be discussed.

2.6.8.4 Data Sensitivity/Criticality Description (FIPS PUBS 65 and 102) - In the Data

Sensitivity/Criticality Description, specific types of sensitive data and assets should be identified. Once sensitive/critical data have been identified, it may be necessary to determine the

degree and nature of sensitivity within the general grouping. Categories of sensitivity and

criticahty will be agency dependent. The importance of this determination is that data sensitivity/criticality assessments need to be known before the nature and magnitude of threats can be postulated.

2.6.9 Specifications Documents

2.6.9. 1 System/Subsystem. Program and Data Base Specifications (FIPS PUBS 38, DODSTD-7935, OMB A-123, OMB A-130)^^- The purpose of the System/Subsystem Specifications is to describe for analysts and programmers the requirements, operating environment,

design characteristics, and program specifications (if desired) for a system or subsystem. The

purpose of the Program Specifications is to describe for programmers, the requirements,

operating environment, and design characteristics of a computer program. Both the Sys12 Note: These specifications are usually found in three separate documents.

42
tem/Subsystem and Program Specifications should have sections describing functions and performance requirements, in terms of accuracy, validation, timing and flexibility, and the operating environment. The purpose of the Data Base Specifications is to describe the nature, logical,

and physical characteristics of a particular data base. The section on physical characteristics

needs to address storage and design considerations.

2.6.9.2 Security and Internal Control Related Specifications (FIPS PUB 73 & 102, OMB

A-123, OMB A- 130) - By separating security and internal control specifications from the

broader specifications papers, added weight is given to their importance. The details may be

included as a separate, but clearly identifiable subsection of the other specification papers. Its purpose is to set forth security and internal control specifications to meet the functional

security and internal control requirements detailed in Section 2.6.8.2.

All specifications should be sufficiently precise to allow tests to be designed which will

tell whether the requirement is satisfied. The security specifications should be kept current

throughout the entire Hfe cycle of the AIS. No changes to the system should be permitted unless they either do not affect the security specifications or have been approved and entered as an official modification to the document. Security specifications should be reviewed by all or- ganizations involved in the use or operation of the application. For any sensitive application,

they must be reviewed and approved by the party responsible for security and by the

organization's auditors.

2.6.10 Validation, Verification and Testing Plan and Specifications (FIPS PUBS 38 and

101, NBS SP 500-98, OMB A-130, A-123, DOD-STD-7935)

13 The purpose of the W&TPlan is to plan for the evaluation of quality and correctness

of software, including requirements and design documentation. The W&TPlan also provides

plans for the testing of software, including detailed specifications, descriptions, and procedures

for all tests, as well as test data reduction and evaluation criteria. A W&Tplan is a document,

or group of documents, specifying a project's W&Trequirements and the procedures needed

to achieve them. Because the general system planning drives the W&T planning, in turn

providing feedback to the overall development, the general project planning and W&Tplanning are closely integrated. Once the overall background, goals, and requirements of the AIS

are clearly understood, W&Tplanning may begin.

13 Note: The W&T Plan and Specifications may be two separate documents.

43
2.6.11 User Manual (FIPS PUB 38, DOD-STD-7935, OMB Circular A-130, OMB A123)

The purpose of the User Manual is to sufficiently describe the functions performed by

the software in non-ADP terminology, such that the user organization can determine its applicability, as well as when and how to use it. It should serve as a reference document for initiation procedures, preparation of input data and parameters, and for interpretation of results.

In addition to general information, the manual should provide a full description of the application as well as a section on procedures and requirements, including those related to security,

privacy and internal controls. It should also describe error, recovery, and file query procedures

and requirements.

2.6.12 Operations/Maintenance Manual (FIPS PUBS 38 & 106, DOD-STD-7935,OMB

A-130, OMB A-123)

Two separate manuals may be necessary. The purpose of the Operations Manual is to

provide computer operations personnel with a description of the software and the operational environment so that the software can be run. It includes an overview of the software or- ganization, program inventory and file inventory, as well as a description of the runs and

sections on non-routine procedures, remote operations, and security requirements.

The purpose of the Maintenance Manual is to provide the maintenance programmer with

the information and source code necessary to understand the programs, their operating

environment, and their maintenance procedures and security requirements.

2.6.13 Installation and Conversion Plan ("Implementation Procedures (IP)" DOD-STD

7935, OMB A-130, NBS SP 500-105)

The Installation and Conversion Plan is a tool for directing the installation or implementation of an AIS at locations other than the test site, after testing of the AIS, including security

features,has been completed. It may also be used to direct the implementation of major

modifications or enhancements of an AIS which have already been installed. Those parts of

the document directed toward users should be presented in suitably non-technical language.

Those parts directed toward computer operations personnel should be presented in suitably

technical terminology.

2.6.14 Test Analysis and Security Evaluation Report (FIPS PUBS 38 & 102, NBS SP

500-98, DOD-STD-7935 "Test Analysis Report," OMB A-130, OMB A-123)

The purpose of the Test Analysis Report is to: (1) document the test analysis results and

findings; (2) present the demonstrated capabilities and deficiencies, including the security

44
evaluation report needed for certification of the AIS; and (3) provide a basis for preparing a statement of AlS/software readiness for implementation. Since it presents the deficiencies for

review by staff and management personnel (i.e., users), the document should be prepared in

non-technical language.

The Security Evaluation Report, which should be a large subsection of the document,

should end with a certification transmittal letter and contain a suggested accreditation state- ment for the responsible Accrediting Official. That statement would authorize installation of

the AIS, possibly with qualifications or exceptions. Agencies should conduct periodic reviews

of sensitive applications, once they are operational, and recertify the adequacy of security

safeguards.

2.7 DOCUMENT PHASING AND INTERRELATIONSHIPS

Figure 2 depicts the time-phasing of the documents identified and summarized in Section 2.6. Two factors are particularly worthy of note. First, each life cycle phase requires the

development of certain documentation. In general, the documents are representative of the

activities carried out during that phase, and are usually a prerequisite for moving to the next

phase. Second, the set of documentation demonstrates multiple interrelationships. That is, they feed into other documents and/or require updating as the project moves from one life cycle phase to another.

It should also be noted that Section 2.6 and Figure 2 do not depict all of the documentation needed to assure a project's success. Workbooks, memoranda, letters, electronic mail

notes, telephone logs, etc. are all part of the documentation set required for successful project

communication and control. The documentation set presented here should be viewed as deliverable products resulting from the activities within a particular life cycle phase.

The following discussion should enable the auditor to better interpret Figure 2, when

using it in the audit programs for the various phases.

2.7.1 Need for Flexibility

Flexibility in the interpretation of the Life Cycle Matrix is both desirable and in some instances necessary. That is, some changes to the life cycle discussed in this chapter would be

appropriate if the subject to be addressed is a major modification to a system rather than the

development of a new one. Similarly, modification of documentation needs might be appropriate if the system is small and uncomplicated rather than large and complex. However,

the discipline and attributes inherent in the life cycle phases, participants, and documents need

to be considered throughout any system development effort. Two examples illustrate this.

45
1. For small systems, project managers may not need a separate Validation,

Verification, and Testing Plan, and may find it convenient to integrate the activity

into the Project Plan, particularly during the early phases of a system's life cycle.

However, the need to continually assess the user's needs (validation) and to ensure the conceptual integrity of the design (verification) are not arguable.

2. Project managers may find it efficient to integrate the results of a Feasibility

Study, Cost/Benefit Analysis, and Risk Analysis into a System Decision Paper.

However, the need to address the feasibility of a project, its risks, and its costs

and benefits, is essential, even if the system is required by law.

Notation Conventions in Figure 2

The letter/number conventions and other notations used in Figure 2 reflect the follow1. Subscripts indicate updates of a particular document based upon new information either within a particular phase, or when moving from one phase to another.

Updates may not always be required, e.g., the User Manual developed in Phase

IV (Programming and Training), may remain unchanged into Phase VI (Installation and Operation). This is, however, an unlikely situation for large systems.

2. The Project Plan should be updated at the beginning of each phase to serve as a

coordinating medium throughout the phase. Experience indicates that the Project

Plan and the other documentation as well, are often updated several times during

a phase for large projects where, for example, the System Design Phase is 12 to

18 months in duration.

3. Selected documentation usually feeds into others. For example, System/Subsystem Specifications (Section 2.6.9.1) are a necessary input to the development of

both the Validation, Verification and Testing (VV&T) Plan and VV&T

Specifications (Section 2.6.10). Other relationships exist beyond those identified

in Figure 2. These relationships should be clearly defined by the Project Manager

when the program for documentation management is undertaken.

46
CHAPTERS

A WORK PRIORITY SCHEME FOR THE ADP AUDITOR

3.1 INTRODUCTION

3.1.1 The Work Priority Scheme in Perspective

In Spring 1985, the PCIE Work Group (see Appendix A) co-sponsored, with ICST/NBS,

a public/private sector workshop of ADP auditors, senior ADP managers, and computer

security speciaHsts who explored the criteria for assessing risk in computerized systems. (See

Appendix I for participant Hst.) Recognizing the common problem of limitations on audit

resources, the participants and their respective organizations donated two and one half days

of their time to determine the most productive way to assign those resources. An NBS Internal Report No. 86-3386, released August 1986, presented the results of that workshop.

That report and this Chapter describe a high level risk analysis for AISs that can be used

by computer security reviewers and ADP auditors to prioritize their non-discretionary and discretionary review activities for AISs. It divides the risk analysis problem into five areas of risk concern (called dimensions) with each area defined by a set of characteristics. Also presented

are two possible risk scoring schemes, one simple and intuitive, the other method more

detailed. Finally, an approach for deriving an ADP audit plan, using these scores is provided.

ADP auditors are urged to use existing Risk Analyses where possible, to reduce the audit burden. The identification and risk rating of sensitive systems by ADP auditors and security

reviewers should take place at the very earliest point possible so that the control requirements

are identified and provided for early in the SDLC.

3.1.2 Brief Overview of the Scheme

The Scheme described in this Chapter enables its user to systematically perform a riskbased evaluation of the subjects for ADP audit (or security review) within an organization (i.e.,

the universe of its AISs), and to arrive at a risk measurement for each AIS. This final risk

measure (or score) is based on an analysis of risk in key areas of concern (dimensions for

describng risk) in that system. These scores enable the user to rank the systems by determining which AISs offer the highest levels of risk to the organization and which dimensions within

each AIS contribute most to this high level of risk. Based on this analysis, the user can then

draw up an ADP audit or security review work plan for the organization in question. The work

plan would include annual coverage along with a basis for formulating the scope of specific

AIS reviews. Considering the generality of the dimensions and their associated characteristics,

the scheme is equally appropriate for public and private sector internal audit organizations.

47
The scheme employs a two-level review and the characteristics associated with the five

dimensions. The levels and their dimensions are:

Level ICriticality/Mission Impact

Level IISize/Scale/Complexity

Environment/Stability

Reliability/Integrity

Technology Integration

Each dimension is defined by a related set of characteristics which are used to estimate or calculate the amount of risk posed by that dimension to the failure of the system. ALevel I review

looks at Criticahty/Mission Impact of the system to the organization (see Section 3.4.5.1 for

Level I characteristics)and develops a risk score for each AIS with respect to this dimension.

Since this dimension is the most important of the five risk areas, it can be used as a first es- timate of the system risk score. The AISs can then be placed in sequence from high to low risk

and the low risk systems eliminated from further review consideration. Organizations with very

limited resources could stop at a Level I review and plan their work based on these results. It should be noted that some of this information may be available from already existing Risk

Analyses and vulnerability assessments within the organization, and should be used so as to

lower costs.

To refine the risk scores further, the high criticality risk AISs are reviewed at Level II. Risk scores are obtained for the four remaining dimensions for each high criticality risk AIS.

These four dimension risk scores are summed and added to the Level I risk score to yield the

system risk score for that AIS. The AISs reviewed at Level II can then again be placed in se- quence from high to low risk and thus enable the reviewer or audit unit to prioritize the work.

3.2 THE NEED FOR THE SCHEME

3.2,1 ADP Audits/Security Reviews - A Form of Control

In the past ten years there has been a slowly growing recognition of the need for controls

in the Federal Government's automated systems. Although there often is resistance among

program sponsors or user management to employing internal controls within AISs because of

the cost, time, and overhead that such controls can introduce, the interest in and use of controls in AISs is continuing to grow. This growth is augmented by the increasing emphasis OMB

has placed on internal controls since the passage of PL97-255, the Federal Managers' Financial Integrity Act of 1982 [FMFIA82], and the completion and revision of their own Circular

48
A-123. The General Accounting Office (GAO), at Congressional request, has closely followed

the Federal agencies' implementation of A-123, and, thus far, has been dissatisfied with

agencies' compliance—especially in the area of internal controls in AISs.

Audit organizations, whose activities existed well before the computer age, have long

recognized and stressed the need for internal controls in manual (primarily financial) systems

and the need for independent audits as a critical component of the oversight of an

organization's systems. With the advent of computerized AISs, career fields specializing in

ADP audit (generally found in audit organizations) and security review (often found in data

processing departments or management) have developed. Recognition and revision of their

role in the review of automated systems is increasing rapidly.

3.2.2 Size of Review Task

A major imphcation of the enormous numbers of computers/systems and our dependence on them, is that the universe of AISs that needs reviewing is also enormous. The number

of trained ADP auditors and security reviewers to do this job, however, has not kept pace with

that growing universe. A consistent methodology for obtaining a risk score for an AIS is seen

as a major tool for culling through the review work that needs to be done and assigning relevant

as well as realistic workloads to the review staff available within an organization.

3.3 BACKGROUND ON THE METHODOLOGY

3.3.1 The Invitational Workshop

The PCIE Work Group, in the course of its activities, decided that an essential component of their final product. Guide to Auditing for Controls and Security: A System Development Life Cycle Approach (this document), was a methodology for prioritizing the ADP

auditor's work. Rather than rely exclusively on the experience and background of the Work

Group members, it was decided to hold an invitational workshop on the subject and use the

ideas generated during the course of the workshop to develop a work priority scheme.

3.3.2 Workshop Points of Agreement

Although each group came up with a somewhat different set of major audit/security concerns (dimensions) for the scheme, there was universal agreement on four underlying

premises:

49
The entire ADP Audit Plan must first give consideration to non-discretionary

audits (mandated by law, regulation, and/or the agency/organization management). These are reflected in the front-end qualifiers (see Section 3.4.3 for list).

Only if there are remaining resources for ADP audit would the scheme be used

as originally intended.

The risk-based prioritizing evaluation needs to be performed at two levels, Level

I and Level II (if sufficient resources are available).

The first level of inquiry (for its Level I dimension) should concern itself with the

criticality of the AIS to the agency/organization mission. Only critical systems

should be reviewed further (for its Level II dimensions) and given a more detailed

risk score.

The ranking and rating of the risk characteristics of each dimension is program

and agency/organization specific. Only the risk scoring method is applicable

across the board.

3.4 A WORK PRIORITY SCHEME FOR THE ADP AUDITOR

3.4.1 Assumptions and Caveats

The use of the proposed work prioritizing scheme is based on certain ideal assumptions

and caveats. These include:

• An inventory of all computer systems (AISs)—operational, under development, or un- dergoing major change—is maintained by the organization, to establish the audit

universe.

• The above inventory may not be complete due to user development or system changes made outside the system development process.

• To use the priority scheme, certain minimal information is required or the assessment

of the system may not be valid.

• The full priority scheme would most easily be performed by ADP audit groups in order

to enlist multiple perspectives, especially where resources are known to be a concern.

14 It should be understood that the terms ADP audit and security review may be used interchangeably

throughout the scheme.

1.

2.

3.

4.

50
• Auditors in the organization must agree that risk qsil be evaluated by a standardized

scheme.

• Users should always be consulted in the risk evaluation conducted by the auditor to ensure appropriate assumptions and to assure maximum effectiveness.

• Auditor judgement is still needed!

Within this framework of assumptions and caveats the entire ADP audit work plan can then

be developed. To the degree these assumptions differ from the reality of the organization's

SDLC environment, the work planning methodology should be adjusted.

3.4.2 Audit Planning/Prioritization Process

The risk evaluation performed as part of the work priority scheme must be done within

the context of the entire audit planning process. There are elements of the process that need

to be considered prior to the risk evaluation (such as non-discretionary audit requirements),

and other elements that require consideration afterwards (such as resource constraints). The

following sections contain a suggested model for the entire prioritization process.

3.4.3 Non-Discretionary Audits

As can be seen from the model in Figure 3, the audit planning and prioritization process

starts with front-end qualifiers that must be considered by the auditor prior to making decisions

with respect to which system(s) should be audited. These front-end qualifiers consist of nondiscretionary factors which are beyond the auditor's control. These nondiscretionary factors

include, but are not limited to the following:

• External directives (e.g., laws, regulations, OMB circulars, and audit standards);

• Internal directives and priorities (e.g., contractual requirements; requirements, standards, and policies of audit and data processing organizations; upper management

directives);

• Business/organizational environment unique to the organization (e.g., effect of

economy on organization, budget of organization, and technology available to or used

by organization);

• Organizational unique factors (e.g., presence and strength of quality assurance and

security functions, management and control philosophy, structure, and policies);

51
Discretionery

Audits

Risk

Evaluation

Front-End

Qualifiers

Non-Discretionary

Audits

Back-End

Qualifiers

Audit

Implementation

Figure 3. Audit Planning- Prioritization Process

52
• Geo-political environment (e.g., public concern and politics);

• Resource constraints/economic health (e.g., dollars, time, expertise, training, tools,

and techniques);

• Known problems with the system, from current logs or previous evaluations and audits

(e.g., nature and magnitude of problems);

• Evaluations and audits planned by management; and

• Auditor's institutional knowledge of organization's universe of systems.

After all of the front-end qualifiers have been considered, it may be that the entire audit

plan is dictated by the non-discretionary work. That is, external directives, internal directives,

business environment, unique organization/responsibilities, and/or resource constraints may

require that certain audits be performed and these required audits may use up the Hmited audit resources available. In this case, the priority scheme may still be useful for determining audit

approaches and where and when to focus efforts.

If, on the other hand, additional audit resources are available for discretionary audits,

the risk evaluation of the work priority scheme can be used to identify and rank the systems in

greatest need of audit coverage. Ultimately, back-end qualifiers may need to be considered

for the discretionary audits, as described in Section 3.5.

3.4.4 Risk Evaluation Levels and Dimensions

As stated on pages 45 and 46, the work priority scheme expresses the risk concerns in

terms of two levels and five dimensions. The risk concerns in Level I are reviewed first and

those in Level II are reviewed second. Level I has one dimension and Level II has four dimensions. Each dimension is defined as a related set of characteristics which can estimate or measure the amount of risk posed by that dimension to a failure of the system. The chief con- cern of each dimension can be stated in the form of a question as follows:

1. What is the Impact/Criticality of the system to the organization?

A poorly developed or controlled system that is mission critical could jeopardize an

organization's basic operational or programmatic effectiveness; therefore, an impact/critical

system commands audit attention. The larger the impact, the more important it is to audit.

2. How Complex is the system? (This includes size considerations.)

53
The more complex the system, the more difficuh is communication and control, and consequently, the higher the risk of failure. The greater the chance for failure, the more important it is to audit the system.

3. How Stable is the system internally (structure) and externally (environment)?

The less stable the system, the more difficult it is to develop procedures for communication and control, the greater the chance for failure, and the greater the need to audit.

4. How Reliable is the system and the information it processes and generates (i.e.,

what is the chance of the system failing or the data being wrong)?

The answer to this question is obtained by looking at the controls in the system (integrity

controls) and prior audit experience. The less reliable, the more chance for failure and the

need to audit.

; 5. How well is the Technology Integrated into the organization?

The poorer the system technology is integrated with the skills of the staff and the standards and procedures of the organization, the more chance for failure and the greater the need

to audit.

These questions serve as the basis for the five dimensions itemized on page 46, and their

associated characteristics developed for the work prioritization scheme.

3.4.5 Two Level Work Priority Dimensions/Characteristics

The two level work priority scheme permits a high amount of flexibility since it can be

applied in any degree of detail required. For example, the results of Level I ranking may be

adequate to prioritize all audit work, based on available time and resources. If additional ranking characteristics are necessary, the more detailed Level II can be used to further prioritize

audit work. A two level review, additionally, enables the auditor to purge from consideration

those systems which will definitely not be reviewed for any number of reasons. Environment

and resource issues enter in here.

The two level work priority scheme follows in outline form, identifying the five dimensions and their related characteristics. [Note: The same characteristic may be used in more

than one dimension. The question asked in each will, however, be different.]

54
3.4.5.1 T^vel T :

3.4.5.1.1 Mission Impact/Strategic Value/Organization (Business) Criticality and Sen

sitivity Factors

• criticality of system to organization mission

• criticality/sensitivity of system to well being, safety or interest of general public/clients

/consumers

• criticality/sensitivity of data and information

-competitive advantage

-confidence of public in program/department

-privacy/confidentiality/security issues

• materiality of resources controlled by system

• fraud potential

• life cycle costs of system (people and dollars)

-development cost budget

• people

• dollars

hardware

software

facilities

-operating cost budget

• people

data processing/systems (including training) users (including training)

• dollars

hardware (CPU, peripherals, terminals, telecommunications, etc.)

-acquisition

-operation

software

-acquisition

-maintenance

supplies

facilities

configuration change control

55
• degree of dependence on AIS

• criticality of interfaces with other systems and external organizations

ALevel I review, outHned above, provides a "first cut" at the total audit universe. This initial review will identify critical systems that require audit coverage. The additional dimensions to be reviewed in Level II should be used to rank these critical systems to find those most

deserving of discretionary audit coverage.

3.4.5.2 Level IL

3.4.5.2.1 System^^ Size/Scale/Complexity

• size of user area impacted

. : : • number/complexity of interfaces/relationships with other projects or systems

• complexity of AIS technology (e.g., network size, communication needs, system configuration, degree of centralization, nature of transaction coupling mechanisms, nature of security)

• size/complexity of system

-size of system budget

• development costs

• maintenance/operation costs

-number/complexity of different inputs

-number/complexity of unique files

-number/complexity of unique outputs

-number/complexity of logical files (views) system will access -number/complexity of major types of on-line inquiry

-number of source documents maintained/retained

-number/complexity of computer programs

-complexity of programming language

-complexity of system configuration

-number of human elements interfacing the system

-number of decision levels

-number of functions by devices

-number, types, and complexity of transactions

-number of external organizations impacted

15 The term "system" is used in place of "project" to signify the entire AIS life cycle and the possibility of

auditing at einy point in the development process or operations.

56
• nature of interactions with external organizations

.2.2 System Environment/Stability

• organizational breadth (interfaces, dependencies, system configuration)

• management involvement/commitment

• project management approach and structure

-configuration management program

-management efficiency and effectiveness

• specificity of, agreement on, and support for user requirements

• confidence in estimates—both cost and time—premising make-or-buy decisions, ven

dor selection, system testing/validation, etc.

• number of vendors/contractors involved

• newness of function/process to user

• problems associated with current system performance and/or system development ef

fort

• existence/scope of data processing standards, policies and procedures, especially sys tems development life cycle methodology and documentation requirements

• availability of evidence - document and report preparation and maintenance for en

tire systems life cycle (e.g., test/validation/certification results, operations manual, sys tem specifications, audit trails, exception reporting)

• quality and completeness of documentation

• general controls

-physical access controls

-environmental controls

-communication controls

-management controls environment

-document controls

-system change and test/validation/certification controls

57
• on-going concern issues/organization effect (will mission objectives be met in a timely manner?)

-interruption tolerance

-ability to maintain performance

-unsatisfactory system performance (adverse consequences from degradation or

failure)

-unsatisfactor>' system development completion

-unsatisfactory conversion

• labor relations (e.g., salary parity, hours, fringe benefits, etc.)

• project team (management and staff effectiveness and training)

• organizational and personnel changes (frequency, magnitude, and number)

• functional requirements changes (frequency, number, and magnitude)

• technical changes (e.g., frequency, magnitude, and number)

• factors affecting cost/economic/budget climate

• availability and adequacy of back-up and recovery procedures

.2.3 Reliability/Integrity

• hazards/risks to information system (data, hardware, communications, facilities)

• general controls

-environmental (e.g., physical access controls, natural hazards controls)

-management

• applications controls

• availability and adequacy of audit trails

• quality and quantity of automated error detection/correction procedures

• availability and adequacy of back-up and recovery procedures

• completeness, currency and accuracy of documentation for audit

58
• prior reviews (e.g., A-123, A-i27, A-130, audits-internal, CPA, QA--IRM triennial

reviews)

• auditor judgement (intuitively obvious)

3.4.5.2.4 Technology Integration

• make-up of project team in relation to technology used (number, training, and ex- perience)

• applicability of the data processing design methodologies and standards to the technology in use

• pioneering aspects (newness of technology and/or technological approaches used in

this information system for application and organization)

• technical complexity of information system (interrelationships of tasks)

• user knowledge of DP technology

• margin for error (i.e., is there reasonable time to make adjustments, corrections or perform analyses before the transaction is completed?)

• utilization of equipment (tolerance for expansion)

• availability of automated error detection/correction procedures

• completeness, currency, and accuracy of documentation for implementation-

/maintenance/operation (e.g., operations/maintenance manuals).

• amount of hardcopy evidence

3.5 RISK SCORING -- APPLICATION OF THE WORK PRIORITY SCHEME

3.5.1 Implementation of the Scheme

For the scheme to be of use to the ADP auditor, an analysis approach for risk scoring

must be employed using the dimensions and characteristics. Two possible approaches for ar- riving at a system risk score are suggested here and described in Appendix J. The first scoring

method is a simple intuitive approach based on a minimal collection of information on the

AIS, while the second one is more elaborate and based on more detailed information on the

59
AIS. User experience will undoubtedly lead to modifications and improvements in the application of the scheme and the risk scoring methods. If the ADP reviewer for some reason does

not wish to use a scoring methodology, he/she could still keep the dimensions and their characteristics in mind when performing a less formal review.

3.5.2 A Simple Scoring Approach

The simple approach assigns a weight and a risk level to each dimension, based on a

qualitative judgement with respect to the characteristics associated with each dimension.

Criticality/ Mission Impact is always assigned the highest weight. The product of the weight

and risk level of a dimension is the risk score for that dimension. The Criticality/Mission Impact risk score is then the Level I system risk score. To obtain the Level II system risk score, the sum of the dimension risk scores over the four Level II dimensions is added to the Level

I system risk score. (See Appendix J for details.)

3.5.3 A Detailed Scoring Approach

The more detailed approach looks in depth at the characteristics associated with each

dimension. Each dimension is defined by a set of characteristics which are used to calculate

the amount of risk posed by that dimension to the failure of the system. Each characteristic is given a weight and a risk level. The product of these two numbers is the risk score of the characteristic, and the sum over the risk scores of the characteristics of a dimension yields the dimension risk score. Again, the Criticality/Mission Impact risk score is the Level I system risk score.

Similarly, to obtain the Level II system risk score, the sum of the dimension risk scores over

the four Level II dimensions is added to the Level I system risk score. (See Appendix J for

details.)

3.5.4 Discretionary Audits

After the systems have been identified and ranked, using the risk based evaluation,

several back-end qualifiers must be considered by the auditor in determining how many discretionary audits can be added to the audit plan (See Figure 3). These back-end qualifiers can be categorized in two areas:

- Audit Types and Objectives

- Audit Resource Constraints

Figure 4 identifies thf different audit methodologies that can be used and the different audit

objectives that can be accomplished in performing ADP audits. The auditor must consider the

audit methodology to be performed and the audit objective to be accomplished in deciding on

60
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the number of additional (i.e., discretionary) audits that can be perfomed. Furthermore, these

issues must be considered in Hght of the audit resource constraints (e.g., people, time, dollars,

expertise) that exist. For example, to perform a system under development audit which looks

at security, confidentiality, and privacy issues requires substantially more resources than an

operational system audit which looks at only data reliability issues. Thus, the mix of audit

methodologies to be performed, and the existing audit resource constraints must be considered

when deciding on the number of discretionary audits that can be added to the audit plan. After

these back-end qualifiers have been considered, the audit plan can then be finalized, and audits

conducted.

3.6 USES OF THE WORK PRIORITY SCHEME

The risk scores developed during the risk-based evaluation can be used for both developmental and operational systems. The major difference between risk-based evaluations of these

two classes of systems is that (1) the ranking of characteristics may change, and (2) some characteristics may not be applicable to both. The following is a brief enumeration of some possible uses of the Work Priority Scheme.

1) To determine relative risk between applications - A risk score of one application is compared to scores developed for other applications in the same department. Thus, risk scor- ing is used to determine relative risk among applications. The score is not used to determine

an absolute measure of risk.

2) To create an audit risk profile - An audit risk profile is a pictorial representation of

the various risk characteristics measured. While the audit risk score shows audit risk for the

entire AIS,the risk profile shows the relational risk among the various risk characteristics. The

objective of the risk profile is to graphically illustrate what characteristics contribute to the

total risk, and in what proportion.

3) To modify the characteristics contributing to audit risk - Both the auditor and data

processing management can use the audit risk scheme to identify those characteristics which

may cause the information system to be less successful than proposed. For example, if the application project personnel do not understand the computer technology being used, the probability of success of the information system being developed diminishes. Once the

characteristics that may cause the system to be less successful than desired are known, those

characteristics can be altered such that the probability of system success increases.

4) To help allocate audit resources - The information gathered during the audit risk

analysis can be used as a basis for allocating audit resources to review application systems

and/or review specific aspects of those systems. For example, high-risk information systems

may receive extensive reviews, medium-risk cursory reviews, and low-risk no reviews. For

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those systems reviewed, the area of review can be selected based on the high-risk characteristics. For example, if computer technology is a high-risk characteristic, the auditors may want

to expend time reviewing how effectively the project team is using that technology.

5) To develop a data base of risk characteristics - The information gathered during this

process should be saved and used for two purposes. The first use is to improve the audit risk

prioritization scheme to make it more predictive of audit risk; the second use is to assist data

processing management in structuring and planning projects such that those projects will have

the highest probability of success.

3.7 PROBLEMS WITH AND SOLUTIONS TO USE OF SCHEME

Potential difficulties in using the work priority scheme and methods for overcoming these

difficulties were discussed by the PCIE Work Group participants in order to facilitate the use

of the scheme. These follow in outline form.

3.7.1 Potential DifTiculties in Utilization

• Time and resources are needed for sufficient data collection.

• Organization data processing planning is often inadequate.

• There is a need to establish an understanding of and agreement on related issues on

a consistent basis by all affected parties (auditors/systems developers/users/etc).

• There is a need to convince affected management (audit and operations) as to the

credibility of the scheme and its impact on audit coverage, given a finite level of audit resources.

• Initial time and resources are needed to adapt the work priority scheme to the or- ganization.

• The ranking represents a snapshot at a given point in time which requires maintenance

and updating to ensure its continued validity.

• Audit planning needs to be separate from and sensitive to data processing and busi- ness cycle planning processes.

• Integrated skill knowledge is required that includes relevant expertise in pertinent

speciaHty areas.

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• Work priority scheme is just another tool for audit management to consider in its decision-making process.

• ADP audit resources are still likely to be insufficient to provide coverage suggested

by the scheme.

• An up-to-date and complete inventory of AISs is required—all those which are operational, developmental, and undergoing change.

,7.2 Methods for Overcoming Difficulties

• Make the underlying questionnaire and data gathering methods as simple as possible

for administering it.

• Refine data collection methods through experience and learning curve.

• Educate users (including DP community) regarding needs for standards, planning,

etc..

• Audit recommendations should emphasize necessary improvements to DP and busi- ness executives.

• Encourage early participation and collective editing to reach consensus on data collection instrument.

• Apply scheme retroactively to existing systems to demonstrate the risks that audit

coverage would have addressed.

• Emphasize that initial commitment would have long-term benefits and that, once es- tablished, maintenance would be considerably less costly.

• Analyze dynamics of the organization and the audit component within it to determine

the frequency of the "snapshot". Workload mix and control attributes may be affected

accordingly.

• Develop a means for staying atuned to planning cycles.

• Consider supplementing ADP audit resources with financial and generalist auditors

for areas not requiring specific technical expertise. They may even be more relevant

for business and institutional knowledge.

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• ADP audit resources may be supplemented with consultants for areas requiring highly skilled data processing knowledge.

3.8 NEXT STEPS

Recognizing both the significant benefits and limitations that accompany the work

prioritization scheme discussed above, what then should the ADP auditor expect to do next?

3.8.1 The Audit Organization

The NBS/PCIE workshop attendees came up with a number of recommendations for

further activity by ADPAudit/Computer Security Organizations. Abrief enumeration of these

follows.

1) The work priority scheme described here should be tested within organizations by applying it to the ADP planning considerations of a prior year's workload universe. This might help

ascertain how ADP audit resources may have been allocated differently and whether that al- location may have better assisted management in identifying and overcoming resultant control deficiencies in the systems.

2) Feedback should be captured on institutional knowledge of why and how systems have

failed so that one could determine whether the draft scheme would have targeted ADP audit resources on the most vulnerable systems.

3) A prototype needs to be developed which would include a survey questionnaire, a weighting and scoring system, a testing process, a methodology for evaluating results and modifying

the prototype, a method for the selection of testing sites, and a method of quantifying qualitative issues that would facilitate a comprehensive cost-benefit evaluation of the work priority

scheme.

3.8.2 The ADP Auditor

Hopefully, the ADP auditor will have the opportunity to prioritize his or her work before

jumping in. Whether or not the formal scheme and ranking methodology is used, however,

consideration of the dimensions and their associated characteristics is strongly recommended.

That review will, at the least, enable the auditor to place emphasis on those areas most vulnerable and in need of attention.

The next chapter provides detailed audit programs for each phase of the system development life cycle (SDLC) described in Chapter 2. Depending on the results of the prioritization

process, the auditor might choose to emphasize one phase over another or select aspects of

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each phase. The programs presented are for large critical systems that will undoubtedly re- quire a comprehensive review. The programs can be adapted and shortened, however, for

smaller sensitive systems.

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CHAPTER 4

AIS DEVELOPMENTAL AUDITS

4.1 SDLC CONTROL OBJECTIVES AND AUDIT CONCERNS

4,1.1 Control Objectives

Computer data processing should produce accurate, complete, and authorized information which is supportable and timely. In a computerized environment, this is accomplished by

a combination of controls in the computer application, and controls in the environment in

which the computer application operates.

Controls are divided into general and application controls. General controls can be further divided into management and environmental controls. Management controls deal with

organizations, policies, procedures, and planning. Environmental controls are the operational controls primarily administered through the computer center/computer operations group.

As computerized systems become more sophisticated, there is a general shift from application controls to general controls. This shift is due to the fact that some of the control functions performed by the application are shifted to the ADP environment. For example, the edit

and validation data procedures may move from the application to the environment when data

base concepts are used. Although the adequacy of controls over the computerized environment is growing in importance, the organization still cannot ignore the application controls area because there will always be important application controls.

This audit guide concentrates on application controls. These controls need to be reviewed

for each application, while general controls should be reviewed initially but not on every application. However, even general controls require periodic review as technology, personnel,

or policies change. The GAO "Black Book" [GAOS1-3] provides a control assessment for

evaluating general and application controls in an operational computer-based environment.

This audit guide specifically addresses the process of designing application controls into a new

or modified system and evaluating the entire development process.

To assist in this control evaluation, the control objectives can be divided into six

categories.^^ These categories are:

1. Legal Requirements

2. Management Policies

3. Internal Controls

4. Audit Trails

16 These control objectives come from the GAO "Yellow Book" [GA081-1]. Section 4.1.2 is taken almost

verbatim from that document.

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5. Documentation

6, Economy and Efficiency

4.1.2 Auditors' Control Concerns

The following material discusses the above six control objectives and the auditor concerns that they generate.

4. 1.2. 1 Legal Requirements - To provide reasonable assurance that systems/applications

conform with legal requirements.

Legal requirements applicable to systems and applications may originate from various

sources. One such requirement is compliance with State and Federal privacy statutes, which

restrict collection and use of certain types of information about individuals. Safeguards are obviously necessary in such systems. Conversely, organizations subject to the Freedom of Information Act should have systems/apphcations designed so that appropriate and timely

responses can be made to legitimate requests. The applicability of the Federal Information

Processing Standards program [required by the Brooks Act [BRA65]] to the system involved

should also be considered by the auditor. If such standards apply, they should be included in

the auditor's review.

Once again, auditor review of the design and development processes can help assure management that these requirements have been considered and satisfied.

4.L2.2 Management Policies - To provide reasonable assurance that systems/applications carry out the policies management has prescribed for them.

Pohcies on what is expected of automated systems should be established by management,

and the auditor should determine whether they are being adhered to in design. The auditor

should ascertain whether an appropriate approval process is being followed, both in developing new systems and in modifying existing systems. The auditor should consider the need for

approval of a system's design by data processing management, user groups, or other groups

whose data and reports may be affected. Also, the auditor should review the provisions for

security required by management, to protect data and programs against unauthorized access and modification.

If management's requirements are not being met, or have not been clearly articulated,

the auditor must report such shortcomings to officials who can take corrective action. Frequently, in the past, efforts to make new systems/applications operational by scheduled dates

have resulted in some elements or controls that were desired by management being set aside

by designers for later consideration. Auditors, in retaining their independence during the

design and development processes, should report such actions to top management for resolution.

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4.1.2.3 Internal Controls - To provide reasonable assurance to management that sys- tems/applications include the controls necessary to protect against loss or serious error. The system design and development processes include: (1) defining the processing to be

done by a computer; (2) designing the processing steps; (3) determining the data input and

files that will be required; and (4) specifying each individual program's input data and output.

Each area must be properly controlled, consistent with good management practices. The

auditor's review of these matters is designed to provide reasonable assurance to management

that the systems/applications, once placed in operation, will be protected against loss or serious

error.

Properly designed systems, with excellent control mechanisms built in, might have these

controls bypassed or overridden by management direction. This has occurred in systems immediately after they were implemented and put into operation. Many times the designers and

developers override such controls to get the system operational and then forget to activate the

controls after the system errors have been corrected.

Almost every system has manual aspects (e.g., input origination, output disposition), and

these, together with the electronic data processing controls, are considered when the auditor

is reviewing system controls for adequacy.

4. 1.2.4 Audit Trails - To provide reasonable assurance that systems/applications provide

the controls and audit trails needed for management, auditor, and operational review.

In financial applications, a transaction must be capable of being traced from its initiation,

through all the intermediate processing steps, to the resulting financial statements. Similarly,

information in the financial statements must be traceable to its origin. Such capability is referred to by various terms (e.g., audit trail, management trail, transaction trail) and is also

essential in non-financial systems or applications. The reliability of the output can be properly assessed when the transaction processing flow can be traced and the controls over it, both

manual and automated, can be evaluated.

During the design and development process, the auditor may recommend, through formal correspondence, audit trails or other controls to the design/development team. By doing

so through formal correspondence, the auditor will remain independent.

Audit of the systems design and development processes can help assure management

that this capability is in fact being built into the systems/applications.

4.1.2.5 Documentation - To provide reasonable assurance that systems/applications are documented in a manner that will provide the understanding of the system required for appropriate maintenance and auditing.

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The auditor should determine whether the design, development, and modification procedures produce documentation sufficient to define: (1) the processing that must be done by

programs in the system; (2) the data files to be processed: (3) the reports to be prepared: (4)

the instructions to be used by computer operators; and (5) the instructions to user groups for

preparation and control of data. The auditor should also ascertain whether management policy

provides for evaluation of documentation and adequate testing of the system before it is made

operational These steps are taken to ensure that the system and its controls can be relied on.

4. 1.2.6 Economy and Efficiency - To provide reasonable assurance that systems/applications will be efficient and economical in operation.

Determining whether an organization is managing and using its resources (e.g., personnel, property, space) efficiently and economically, and reporting on the causes of inefficiencies or uneconomical practices, including inadequacies in management information systems,

administrative procedures, or organizational structures, is considered here as a basic characteristic of government program audits. With the development of complex systems or applications, the auditor's review should also focus on whether the system has been developed in such

a way that operations will produce desired results at minimum cost. For example, early in a

system's development, the auditor should review the adequacy of the: (1) statement of mission needs and system objectives; (2) Feasibility Study and evaluation of alternative designs

to meet those needs and objectives; and (3) Cost/Benefit Analysis which attributes specific

benefits and costs to system alternatives.

4.2 APPROACH FOR SYSTEMS UNDER DEVELOPMENT

4.2.1 Introduction

The mid-level ADP auditor is presumed to fully understand the basic SDLC process and

to have a basic familiarity with the specific SDLC process utilized within the organization

under review. With this familiarity the ADP auditor only needs to survey the organization's

current SDLC process to ensure a complete and accurate understanding of the currently existent procedures and responsibilities. The survey should be structured around the AIS Life

Cycle Matrix (see Chapter 2) and may involve a "prehminary review of the SDLC methodology" (see Section 4.2.2). Additionally, an audit survey for each SDLC phase is incorporated in

Sections 4.3 through 4.7 for consideration in developing the scope of review throughout the

SDLC process. The survey scope is impacted by the effectiveness of the organization's quality assurance function as well as its utilization of appropriate technologies, and its methodologies

for software development and system installation. These impacts on the survey scope are further discussed in Section 4.2.3.

The rest of this chapter is designed primarily to assist the mid-level ADP auditor in

designing and conducting audits of the development of AISs that are in process. The chapter

70
is divided into the SDLC phases as reflected in the AIS Life Cycle Matrix described in Chapter 2. It prescribes audit coverage for consideration throughout the AIS development cycle.

The audit approach and considerations for each phase, however, are presented as separate

modules for use in review during the AIS developmental phase, or at the completion of a particular phase.

Each module within the rest of this chapter is presented in a parallel manner for a consistent and comprehensive description of potential audit coverage for each AIS developmental phase. The modules each contain the following segments:

1. Audit participation - Brief introduction of the phase and relevant audit involvement.

2. Primary audit objectives - Overall purpose for audit coverage during phase.

3. Overview - Description of the phase and its AIS life cycle matrix responsibilities

and deliverables.

4. Audit survey - Initial background analysis and pertinent survey technique(s).

5. Customized audit objectives - AIS phase developments impacting scope of subsequent audit coverage.

6. Detailed audit testing - Specific audit objectives, tests, and techniques.

7. Assessment of audit results - Analyses for developing and reporting phase audit

test results and planning future AIS audit coverage.

8. Questionnaires/Matrices - Tools for soliciting and assimilating pertinent phase

information.

4.2.2 Preliminary Review of the SDLC Methodology^^

The SDLC methodology described in this audit guide is a conceptual methodology. It incorporates good practices from many different methodologies into one approach. From an

audit perspective, it defines the type of documentation needed to ensure the auditability of an

AIS.

Auditors involved in system development reviews should not expect to find the system

developed precisely according to the methodology described in this audit guide. The auditors

should expect that the methodology used by the organization encompasses the best parts/documents of the methodology described herein. If the development methodology is deficient, the

auditor should recommend improvements in that methodology along the lines of that defined

in this audit guide.

17 This section is based on work done by the Internal Audit Steering Committee organized and chaired by

Coopers and Lybrand, New York. The material found here has been incorporated in the IIA pubhshed

document "System Development Audit Review Guide" [C&L86] that resulted from this committee's

efforts.

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The auditor has two tasks to perform in reviewing the SDLC methodology being used to

develop the system the auditor is reviewing. First, the auditor must make a preliminary review

of the system development methodology (SDM) for its adequacy in providing the discipline

and control over the AIS development as prescribed in this guide. Second, the auditor must

compare the SDLC being used for the AIS under review with this guide's methodology, for

coverage of its provisions and the adequacy of the control over the AIS development.

4.2.2.1 Review the SDLC Methodology to he Used in Developing the AIS Under Review

- The following represents an audit program to review the organization-specific SDM. This

program should be used for the following two purposes:

1. Prior to performing any development review, the auditor should become familiar

with the organization's SDM. The objective is to familiarize the auditor with the

processes that will be followed and documents produced, as the system is being

developed.

2. Prior to each development phase review, the auditor should review the methodology applicable to that phase. This review will help reconcile the SDM used for

the AIS under review, with the review program and documents described in this

audit guide. The steps that the auditor needs to take to perform a preliminary

review of a SDM either the entire methodology or the methodology for a single

phase of the development cycle, are:

1) Obtain a copy of the SDM used by the organization to develop and

' - monitor the development of new applications or systems. By interviewing

agency personnel, determine whether requirements are mandatory or advisory in nature.

2) Determine whether any prior evaluations have been performed on the

methodology and review them for background information.

3) Through observation, interview, and review of available evidence determine whether:

(a) The methodology as documented is up to date, and applications or systems are being developed in compliance with it.

(b) There are any known problems with the methodology as it exists.

(c) Deviations from the formal methodology are permitted.

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4) By reviewing documentation and interviewing key agency personnel,

evaluate the effectiveness of the SDM as follows:

(a) Is it formally structured into phases, each yielding a measurable

end product?

(b) Do identifiable closure points exist for each designated phase that

require the completion of formalized documentation?

5) Is emphasis placed on the incorporation of security and internal controls (including audit and quality assurance tools and techniques) into sys- tems being developed, ensuring that they are consistent with management

objectives?

6) Are planning requirements for each subsequent phase clearly identified?

7) Does the methodology allow for controlling changes in requirements

over the life of the project?

8) Has an ADP steering committee been established to review the system

development process, assign priorities to projects, and resolve problems

as they arise? Does it include senior departmental officials?

9) Does the SDM formally recognize participation of the following groups

or personnel in the development process:

(a) Sponsor/User,

(b) Project Manager,

(c) Data Processing,

(d) Quality Assurance,

(e) System Security/Internal Control, and

(f) Audit?

10) Have responsibilities for the participant groups in (9) above been formally established for each designated phase?

11) Are the roles and responsibilities of the members of the data processing project team or its equivalent clearly defined (e.g., system analyst, sys- tem designer, programmer, data analyst, data base administrator)?

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12) To ensure that the needs of users and the organization are met at each

phase, does the methodology provide sufficient opportunities for communication between users and system developers?

13) Do well-defined written standards exist to facihtate adequate

documentation?

14) Are the requirements for user, program, system and operations

documentation for each phase adequate and clearly identified?

15) Do well-defined written standards exist for programming?

16) Has the methodology incorporated considerations for:

(a) database environments,

(b) telecommunications,

(c) networking,

(d) distributed processing,

(e) end user programming (fourth generation),

(f) prototyping, and

(g) packaged software selection and implementation?

17) Are Project Managers authorized to make decisions on personnel,

resources, scheduling, costs, budgets, and most technical project matters?

18) Are Project Managers sufficiently supported by top management to

accomplish the system development project?

4.2.2.2 Compare Organization's SDLC Methodology to Audit Guide SDLC Methodology - Once the auditor has reviewed and understood the SDLC methodology being used for

the AIS under review, that methodology should be compared to the methodology described

in this audit guide.

This step involves the following tasks:

1. Compare the documents described in this audit guide to the documents in the

SDLC methodology used for developing the AIS under review. The documents

may have a different name, or they may be consolidated into fewer documents or

split apart into more documents. The task involves determining if comparable

documented information is contained in both methodologies.

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2. Identify deficiencies in the SDLC methodology used in developing the AIS under

review. This Hst can include either documents, or attributes of documents which

are missing from the methodology.

3. Determine the audit importance of missing documents or document attributes.

The auditor needs to determine whether the lack of those documents will have

any significant impact on the AIS. This determination can be made by reading

Sections 4.3 to 4.7 about the use and review of the information in those documents.

4. If the missing documents or document attributes are significant, the auditor

should recommend that the methodology be corrected, particularly for this AIS,

to provide that missing information.

4J23 AIS Development Impact on Audit Scope

As reflected in Section 4.2.1, the mid-level ADP auditor's scope of audit coverage will

be impacted by the organization's SDLC process as well as the characteristics of the individual

AIS under development. During the preliminary review of the SDLC methodology and the

specific AIS audit survey, the auditors will be identifying and assessing the various impacts on

their audit scope, and correspondingly aligning the necessary resources and expertise to ex- ecute the appropriate audit coverage.

The AIS impacts on or implications for the audit's scope may relate to the effectiveness

of controls within the organization's SDLC methodology or to the capabilities of the organization to effectively incorporate available technologies and SDLC disciplines. For example, an

effectively controlled SDLC methodology instituted in an organization, as evidenced by previous AIS development audit coverage or through a preliminary SDLC review, may allow the

auditors to confine their scope to a survey of the effective application of this methodology to

the specific AIS under review. Furthermore, while the auditors are absolutely independent of

those responsible for the SDLC process, the auditors' scope could also be curtailed after verifying the effectiveness of quality assurance activity during the AIS development. Unfortunately, a quality assurance function is a control within a SDLC process which has been formally

instituted in only a few organizations. It is differentiated from ADP audit which independently

assesses the whole SDLC process, including the quality assurance function's effectiveness.

Other SDLC methodology implications could compel the auditors to expand their

planned audit coverage or to supplement their assigned audit resources with specific expertise. Where historical audit coverage has evidenced SDLC control weaknesses in a phase, ex- panded audit coverage may be needed. Examples of such weaknesses may include: a)

75
introduction of new technologies without commensurate in-house expertise; b) utilization of

system testing methods without adequately protecting the security or integrity of data; c)

software development through purchased off-the-shelf applications without providing for

necessary interfaces or customizing; and d) procurement of system design and development

without adequate evaluation criteria or expertise to effectively oversee contracted work.

These and other AIS development implications should be evaluated for their potential

impact on the AIS as well as their impact on the audit scope and corresponding audit resources. The audit sun^ey should result in audit objectives customized to reflect these implications.

Their impacts should also be reflected in the detailed audit tests and again considered when

assessing audit results.

Should the auditors be unable to properly complement their resources with the necessary expertise or should other constraints be placed on the audit coverage, the AIS development review report should be qualified accordingly.

4.2.4 The Effect of a Quality Assurance (QA) Function on the ADP Auditor's Role in

the SDLC

The labels, definitions, and substance of QA can vary substantially among organizations.

One or more of the following might apply to the organization's concept of QA: design review,

independent testing, peer review, requirements review, walk-throughs, product assurance,

standards compliance enforcement, code review, and data integrity review.

The QA definition for purposes of this audit guide is: Any mechanism used by management which provides assurance that a quality product (requirements, design, code, etc.) is being developed. If management has an effective QA function in one area, the ADP auditor can concentrate efforts on other more vulnerable areas. Unfortunately, the mechanism

management has in place may be perfunctory and only give the illusion of quality, e.g., peer

review might be a pro forma paper exercise with little analytical criticism and no corrective

action. To determine the effectiveness of QA and its effect on audit activities, several steps

should be taken at the start of the SDLC or during a phase.

1. Determine what QA mechanisms are in place. The question to be directed to

: management is "How are you assured that products have quality (i.e., other than

personal assurances from systems personnel)?"

2. Evaluate QA mechanisms (i.e., what physical evidence is there that the

mechanisms actually work?). The evidence can be in the form of reports to

management, documentation of reviews or a prior audit of the process.

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3. Modify audit plans where QA is effective (e.g., if it can be established that standards are effectively enforced, the auditor may not need to review the adequacy of

documentation).

4. On the other hand, if significant problems are identified with the QA function,

the auditor should recommend strengthening the function, particularly for this

AIS, to provide the needed oversight function.

43 AUDIT PARTICIPATION DURING THE INITIATION PHASE - PHASE I

During the Initiation Phase, the need for a computerized solution to a problem is identified and validated. Alternate methods for satisfying the need are explored and a functional

recommendation is developed. The recommendation is presented to management, and if approved the AIS project continues through the remaining phases of systems development.

The primary audit objective during this phase is to ensure that the system need is established and that the cost for satisfying that need is justified. The auditor will perform the review

of the Initiation Phase by examining the documents produced during that phase, and interviewing the Initiation Phase participants and other involved parties. The result of the audit

review of this phase becomes an input to management in determining whether or not to approve the Initiation Phase recommendation.

43.1 Primary Audit Objective of the Initiation Phase

The primary objective of reviewing the Initiation Phase is to:

"Ensure that the system need is established and that the cost to satisfy that need is justified."

The achievement of that audit objective will require the auditor to review the documentation

produced during the Initiation Phase. The documentation is reviewed for two reasons: first,

to ensure that the documentation is complete and in compliance with the organization's Initiation Phase; and second, to ensure the accuracy and completeness of the established need

and the reasonableness of the cost-justification for accomplishing that need.

43.2 Overview of the Initiation Phase

Consistent with the FIPS PUB 64 "Project Request Document" [FIPS64] and DOD "Mission Analysis" and "Concept Development" Phases [DOD78-2], the Initiation Phase begins

with the recognition of a problem and the identification of a need. During this phase, the need

is validated, and the exploration of alternative functional concepts to satisfy the need is recommended and approved. The decision to pursue a solution must be based upon a clear under77
standing of the problem, a preliminary investigation of alternative solutions, and a comparison

of the expected benefits versus costs (including design, construction, operation, and potential

risks) of the solution. At this stage the risk/sensitivity of the data or information in the AIS

should be evaluated.

During the Initiation Phase it is immaterial whether the solution will be in-housedeveloped software, contracted software, or off-the-shelf software. The objective of this phase

is to look at alternate functional solutions to the user need. No particular change to the SDLC

methodology for this phase is needed regardless of which of the three potential implementation methods are selected later in the developmental process. Likewise, the audit approach

remains unchanged during this phase, whether or not the system is developed in-house or obtained through contracting or purchase.

4.3.2. 1 Participants and Their Tasks - Listed below are the responsible participants in the

Initiation Phase with a brief description of their role during the phase, including the role of

the auditor:

L System Security Officer(SSO)/Internal Control Officer(ICO) - Oversees or conducts Risk Analysis; helps evaluate system sensitivity.

2. Auditor - Reviews/evaluates Needs Statement, FeasibiHty Study, Risk Analysis,

and Cost/Benefit Analysis; based upon review determines scope of future involvement.

3. SponsorAJser - Identifies and validates need; develops Needs Statement; directs

Feasibility Study, Risk Analysis, and Cost/Benefit Analysis; selects a Project

Manager.

If all or part of the SDLC effort will be contracted, the Sponsor/User in coordination with the Project Manager, incorporates a preliminary assessment of the need

for contractor services in the Feasibility Study, Risk Analysis, and Cost/Benefit

Analysis, where possible and as appropriate. (Minimally, the acquisition of contractor services can require a long lead time; therefore, the impact on the project

schedule must be recognized and identified.)

4. Project Manager/Contracting Officer's Technical Representative (COTR) - If appropriate, awards contract and assures contract compliance. The Project

Manager/Contracting Officer's Technical Representative (COTR) supports the

Sponsor/User in project initiation and the assessment of government personnel

and contractor resource needs.

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5. System Security Specialist(SSS)/Internal Control Specialist(ICS) - Provides consultations as appropriate.

6. Contracting Officer - If appropriate, awards contract.

7. Contract Auditor - If appropriate, assures contract compliance.

8. ADP Manager - Provides technical consultation as appropriate.

9. Quality Assurance (OA) Specialist - Provides consultation on quality attributes

of Needs Statement.

4.3.2.2 System Initiation Phase Documents - The Initiation Phase audit will focus on the

documents produced during this phase. While the actual documents produced will vary from

agency to agency depending upon their system development methodology, the more common

documents produced during the Initiation Phase are:

1. Needs Statement (FIPS PUB 64, DOD 7920.2, FIMR 201-30.007) - A Needs

Statement should be prepared to describe in written form deficiencies in existing

capabilities, new or changed program requirements, or opportunities for increased economy and efficiency. It should justify the exploration of alternative

solutions.

2. Feasibility Study (FIPS PUB 64, FIRMR 201-30.007) - The purpose of the

Feasibility Study is to provide: (1) an analysis of the objectives, requirements and

system concepts; (2) an evaluation of alternative approaches for reasonably

achieving the objectives; and (3) identification of a proposed approach.

3. Risk Analysis (FIPS PUB 65 and 102, OMB A- 130) The purpose of the Risk

Analysis is to identify internal control and security vulnerabilities of an AIS,

determine the nature and magnitude of associated threats to data and assets, and

provide managers, designers, systems security specialists and auditors with

recommended safeguards to be included during the design, development, and installation/operation phases of a new or modified AIS.

4. Cost/Benefit Analysis (FIPS PUB 64, OMB A-130, OMB A-123, FIRMR 201-

30.007) - The purpose of the Cost/Benefit Analysis document is to provide

managers, users, designers, systems security specialists and auditors with adequate cost and benefit information, including the impact of security, privacy and

internal control requirements on that information, to analyze and evaluate alternative approaches to meeting mission deficiencies.

79
5. System Decision Paper (FIPS PUB 64, DOD 7920.2, OMB A- 130, OMB A- 123)

- The System Decision Paper (SDP) provides the information and framework

critical to the departmental and operating divisions' decision-making process

during the development of an AIS.

433 Audit Survey

In preparing for the Initiation Phase review, the auditor needs to understand the work

flow, gather the necessary documentation, and interview the responsible participants. Most of

this background analysis can be done within the team established to implement the project.

The tasks that need to be completed during the audit survey are to: (1) study the environment

in which the project will be initiated; (2) review Initiation Phase plans; (3) gather information on the Initiation Phase status; and (4) verify information on the Initiation Phase status. The four tasks are discussed individually below.

4.3.3.1 Study the Initiation Phase Environment - Prior to conducting the review of the

Initiation Phase, the auditor should:

1. Become familiar with the developing organization's system development life cycle (SDLC) methodology with particular emphasis on the methodology in the

Initiation Phase. Specific review tasks should include:

(a) Determine whether any prior evaluations of this SDLC methodology have

been made, and if so how its effectiveness was evaluated.

(b) Determine if the development team understands and supports the SDLC

methodology.

(c) By inquiry and review of documentation, evaluate the effectiveness of the

SDLC methodology.

(d) Compare the SDLC methodology to that defined in this audit guide and

note differences, particularly where problems might occur due to development deficiencies.

(e) Identify the documents produced by the SDLC methodology.

(f) Determine through interview whether the project team has been adequately trained in the use of the SDLC methodology.

2. Become familiar with the organization's cost-justification process.

80
3, Become familiar with the appropriate regulations/poHcies relating to the area being considered for automation.

4.3.3.2 Review Initiation Phase Plans - The auditor should become familiar with the

problem that has been recognized and the need to be satisfied. The plan to initiate the AIS

should be reviewed to ensure that it will result in the type of documents described in this subsection. The auditor should also inquire about Initiation Phase participants to ensure that the

participants identified in this subsection will in fact participate in the Initiation Phase.

4.3.3.3 Gather Information on the Initiation Phase Status - The auditor should obtain

and review the following Initiation Phase documents:

1. Needs Statement

2. Feasibility Study

3. Risk Analysis

4. Cost/Benefit Analysis

5. System Decision Paper

The auditor needs to determine status information in three areas. First is the status of

the above five documents, i.e, whether they have been prepared, and if so, whether in accord- ance with the SDLC methodology. Second is the status of the project, i.e., whether it is on time,

and whether the needed tasks have been completed, and if not, when their completion is ex- pected. Third, the auditor should identify any changes in the identified problem or need, and

validate that those changes have been properly incorporated into the documents developed

during this phase.

4.3.3.4 Verify Information on Initiation Phase Status - In fulfiUing this task, the auditor

should review the documents produced during the Initiation Phase, and interview key participants about their role in the preparation of those documents.

4.3.3.4.1 Review Documents - The Initiation Phase produces five major documents. An

AIS project begins with a Needs Statement. This statement either includes, or is supported by, a needs validation and justification statement. The Sponsor/User of the system must in some

manner be able to justify undertaking the AIS Initiation Phase. In previous system development audits it has been frequently noted that valid alternatives have not been considered

during the Initiation Phase. Therefore, the auditor should be particularly sensitive to ensure

that this has occurred for the system under review.

81
The Needs Statement becomes the basis for a Feasibihty Study and a Risk Analysis study.

The objective of these parts of the Initiation Phase is to identify a proposed approach and the

vulnerabihties associated with that approach.

The Risk Analysis provides additional input to supplement the Needs Statement so that a Cost/Benefit Analysis can be prepared. This document, in conjunction with the Feasibility

Study document, provides the necessary information for management to make a decision to

uiitiate or continue the development, or to take other appropriate actions. The actions of

management will be included within a System Decision Paper. This becomes the principle

document containing the essential information about the AIS. It becomes a basis for the sys- tem Definition Phase.

Note that different SDLC methodologies may produce slightly different documents. In

some organizations, the information defined within these five documents may be consolidated

into fewer documents, or expanded into a greater number of documents. What is important

from an audit perspective is that the information included in these five documents is developed

during the Initiation Phase.

The documents to be completed during the Initiation Phase will be specified by the

agency's SDLC methodology. The auditor, having gained a famiharity with that methodology

during the background step, can determine that all of the appropriate documents have been

prepared. The auditor should ensure the appropriate accumulation of information for the System Decision Paper, in order to verify the correctness of that document.

4.3.3.4.2 Interview Key Participants - The auditor should identify the responsible participants in the Initiation Phase, and interview them to determine that the needed Initiation

Phase tasks have been performed. A list of the responsible participants and the questions that

should be asked of those participants is provided below. The objective of this background task

is to ensure that the work necessary to properly prepare a System Decision Paper has been

performed. In specific organizations the participants may have different titles than those listed

below, or the tasks may be divided in a different manner. It is not as important that the tasks

be performed by the indicated responsible participant as it is that the tasks are performed (by

someone).

1. Sponsor/User tasks

(a) Has the Sponsor/User developed a Needs Statement?

(b) Has the SponsorAJser identified and vahdated the needs?

(c) What direction did the Sponsor/User provide for the preparation of an Alternatives Analysis, a Feasibility Study, a Risk Analysis, a Cost/Benefit

Analysis, and a System Decision Paper?

(d) Has the Sponsor/User selected a Project Manager?

82
2. Project Manager/Contracting Officer's Technical Representative (COTR)

(a) Has the Project Manager/COTR developed or overseen development of

an Alternatives Analysis, a Feasibility Study, a Risk Analysis, a Cost/-

Benefit Analysis, and a System Decision Paper?

3. System Security Specialist/Internal Control Specialist

(a) Has the System Security Specialist/Internal Control Specialist provided

security and/or internal control consultation as appropriate?

4. Contracting Officer

(a) Has the Contracting Officer, if appropriate, awarded the contract?

5. Contract Auditor

(a) Has the Contract Auditor, if appropriate, assured contract compliance?

6. ADP Manager

(a) Has the ADP Manager provided Initiation Phase consultation as appropriate?

7. Quality Assurance Specialist

(a) Has the Quality Assurance Specialist, if the function exists, provided consultation on quality attributes of the Needs Statement?

If the needed background information and/or the needed involvement by responsible

participants has not occurred,the auditor should report that potential vulnerability in the Initiation Phase audit report. The failure to perform these tasks may result in an incomplete

and/or inaccurate System Decision Paper.

43.4 Customize Audit Objectives

Unless the Initiation Phase is conducted in accordance with the process defined in this

audit guide, the auditor will need to customize the audit approach based on the agency's particular SDLC methodology. In addition, if the software is to be contracted or purchased there

will be other considerations.

4.3.4.1 SDLC Methodology Audit Considerations - The Initiation Phase is designed to

produce information leading to an implementation decision. In many instances, the decision

to implement the system is made after the problem has been recognized and the need defined,

and before any other information is collected and analyzed. In those instances, the project

team may not prepare the types of documents defined in this phase program.

83
Rather than four distinct documents leading to a decision paper, some organizations only

prepare a single document which may be called a "Needs Analysis" document. Within this document they tend to incorporate all of the components of the five major documents described

for this phase. The auditor should not be particularly concerned about the number of documents prepared, but should concentrate on the information in those documents to ensure it contains the same type of information as described in the five documents in this phase. Unless

that information is prepared, the full facts needed for decision and later implementation will

not have been developed.

In some instances the information may not be fully documented. Some installations

prepare oral presentations to initiate projects, with the documented information only on visual

aids. In those instances, the auditor should attempt to sit in on the presentation, or go over the

presentation with the presenters shortly thereafter.

During this phase or at its conclusion, the auditor will be reviewing the established need

and the cost-justification for implementing that need. In most Initiation Phase reviews, this

will involve evaluating the proposed system in the context of the agency mission. However,

there may be nondiscretionary factors which could affect the extent and scope of the Initiation

Phase review. The factors that would affect the extent and scope of the Initiation Phase audit

include:

1. Laws, regulations, OMB circulars, and other audit standards directing audit involvement in the program being computerized.

2. Requirements included in contractual provisions or other requirements defining

audit role during systems development.

3. A business or organizational environment which because of its unique factors

(e.g.,the size of the budget of the organization) warrants additional audit attention.

4. Presence or absence of internal assessment groups (e.g., ADP quality assurance,

or specialized staff groups, such as computer security officers) necessitating

greater or lesser audit involvement.

5. Applications which are politically sensitive (e.g., environment related applications).

6. Resource constraints on the audit organization (e.g., the lack of budget, expertise, or tools to do the appropriate audit function).

84
7. Past history of the agency/appHcation which indicates abnormal activity (e.g., previous GAO reports identifying agency/application vulnerabilities).

The presence or absence of these types of factors may result in changing the scope of the

audit (e.g., lead to a more detailed evaluation of the need for the system, or identification of

factors which could significantly change the effort/resources needed to implement the system).

4.3.4.2 Contracting/Purchase Audit Considerations - If the project may result in the ac- quisition and installation of off-the-shelf software, in lieu of customized software, there is no

particular change required for the Initiation Phase. Changes in the developmental process

would not occur until the next phase (i.e.. Definition - Phase II).

There are additional considerations if there is a probability that the software will be contracted to an independent vendor. The typical use of the contractor is in support of the Project

Manager/COTR. Contractors can also be used, however, by the ADP Manager, to provide

consultation to the Sponsor/User to develop the Needs Statement, or by the Auditor, to review-

/evaluate the Feasibility Study. In all cases, the government's interests must be protected by a rigorous definition of what the contractor is expected to do. It is the Contracting Officer's

responsibility to ensure that the interests of the government are met. Contracting for ADP

resources is discussed in GSA's 41 CFR 201-32, and is referenced in 41 CFR 201-20.003, Requirements Analysis.

The decision to use a contractor resides with the Sponsor or User,in consultation with

the Project Manager. The analysis to determine whether or not a contractor should be used

would be included in the Alternatives Analysis, Feasibility Study, Risk Analysis, and

Cost/Benefit Analysis. The conclusions drawn from these aspects of the Initiation Phase will

indicate the desirability of contracting out the software development.

If the use of off-the-shelf software or an independent contractor has not been included

as an alternative, the auditor should investigate why these alternatives have not been considered. If a contractor alternative is included, the auditor should evaluate whether or not that

alternative has been given appropriate consideration, and that the alternative selected is reasonable.

In systems that are to be completed through contract/purchase, the following concerns

should be addressed by the auditor:

1. Has a COTR been assigned to the project?

2. Is it known whether this type of software can be purchased/contracted for in the

public sector?

85
3. Are there any security considerations that might prevent this need from being

satisfied through contract/purchase?

4. Are adequate funds available for contract/purchase?

5. Are there any strong business/organization reasons that might preclude the work

being done by other than agency staff?

6. Is there adequate time to go through the purchasing/contracting procedure?

7. Will the system specifications be firm enough at the point of contracting/purchasing to provide the vendor with sufficient information to develop an appropriate

system?

43.5 Detailed Audit Testing

4.3.5.1 Introduction - The auditor should select those documents and criteria within

documents, that have a significant effect on the management decision to proceed with the

project. Those items should be tested through additional audit investigation and tests. The

recommended tests for the Initiation Phase are included in the Initiation Phase detailed test- ing program. (See Table 4.1)

4.3.5.2 Systems Initiation Phase Audit Tests Program - The program contained in this

guide (see Table 4.1) indicates the audit objectives/indicators to be evaluated. For each audit

objective/indicator, there are one or more audit tests to be performed. Where appropriate,

tools and techniques are listed to assist the auditor in performing these tests. Note that in some

instances the audit tool or technique consists of a general description, while in other instan- ces the program refers to a specific product or document containing a specific audit approach

for the indicated test.

4.3.5.3 Survey Questionnaire - Initiation Phase - The auditor has two verification tasks

to perform. First, the auditor must ensure that the appropriate forms, worksheets, and documents have been prepared as specified by the system development methodology. Second, the

auditor must verify that the information has been properly recorded on the documents. The

extensiveness of these verification tests will be dependent upon the specific audit objectives

selected.

In organizations having a quality assurance (QA) function, QA normally performs this

verification task. In those instances, the auditor need only test to determine whether or not

the quality assurance review is in place and working effectively.

86
The documents to be completed during the Initiation Phase will be specified by the

agency's system development methodology. The auditor, having gained a familiarity with that

methodology during the background step, can determine that all of the appropriate documents

have been prepared. The auditor should ensure the appropriate buildup of information into

the System Decision Paper in order to verify the correctness of that document.

The Needs Statement should include:

1. Expression of need in terms of agency mission;

2. Deficiencies in existing capabilities;

3. New or changed program requirements needed;

4. Opportunities for increasing economy and efficiency of user operation;

5. The internal control/security needed for the AIS; and

6. Alternative solutions to solving the need with justification for the alternatives

being proposed.

The Feasibility Study should include:

1. An analysis of the objectives, requirements, and system concepts;

2. An evaluation of alternative approaches for reasonably achieving the objectives;

3. Identification of the proposed approach; and

4. Sufficient information in the above three areas, or additional areas, to provide

management with adequate information to make decisions to initiate or continue

the development, procurement, or modification of software or other ADP-related services.

Risk Analysis should contain:

Identification of internal control and security vulnerabilities;

The nature and magnitude of associated threats to data and assets covered by the

proposed AIS;

Recommended safeguards to be included in the design to address the identified

risks; and

A detailed review of all data and assets to be processed or accessed by the sys- tem, showing the value and sensitivity of that data or assets.

The Cost/Benefit Analysis should include:

1. Costs to build the system;

2. Benefits to be derived from the system;

3. Impact of the AIS on security, privacy, and internal control requirements;

4. Analysis and evaluation of alternative approaches proposed in meeting the mission deficiencies; and

5. Detailed Cost/Benefit Analysis of the proposed alternative.

87
The System Decision Paper should include:

1. Information and framework critical to the decision-making process;

2. Mission need;

3. Milestones;

4. Thresholds;

5.

T J • 1 Issues and risks;

6. Alternatives;

7. Cost/benefits;

8. Management plan supporting rationale for decisions;

9. Affordability in terms of projected budget and out-of-year funding; and

10. The decision made (alternative selected).

Audit Results/Reporting

Problems identified in the previous audit steps should result in audit recommendations,

assuming the variance identified is significant. The auditor should be able to identify the potential impact of the variance prior to issuing an audit report recommending corrective action.

The audit report should be released prior to management's decision on whether or not to

proceed with the AIS (i.e., sign-off on the System Decision Paper).

4.3.6.1 Potential Deficiencies - The objective of the review is to determine whether the

Initiation Phase contains deficiencies. Any such deficiencies should be reported, together with

recommendations to overcome them. However, while specific deficiencies are unique to an

individual AIS, experience has shown that certain deficiencies are more prevalent than others.

These problems are listed below as a basis for comparison against deficiencies identified in

the review. They assist the auditor in assuring that these more common deficiencies have not

been overlooked.

1. The Needs Statement will not be complete, and thus the possibility that the implemented system will not meet the true needs of the user.

2. A reasonable set of alternatives will not be considered, and thus the alternative

selected might not be the best alternative.

3. The right individuals from user management might not be involved, or sufficiently involved, in the Initiation Phase, resulting in a decision which may not be fully

supported by user management. This is particularly true when two or more

, departments/agencies are involved in the same system.

88
4. All vulnerabilities may not be identified, or the magnitude of those vulnerabilities

may not be determined, which could result in extensive additional costs or operational vulnerabilities.

5. The Cost/Benefit Analysis does not identify all of the costs, or the benefits may

be overstated, resulting in a system being implemented which should not be.

6. The System Decision Paper may not include all important elements uncovered

during the phase, resulting in an incorrect decision due to lack of information.

7. The System Decision Paper may not be reviewed by a sufficient number of involved managers to have that paper adequately evaluated, resulting in the

implementation of a system which may be deficient or overly costly.

4.3.6.2 Potential Effects of Deficiencies on Meeting System Mission - The impact of the

identified deficiencies on completing the system mission must be determined. In order for user management to make effective decisions on audit findings and recommendations, they need

an assessment of the impact of those deficiencies on their mission. The auditor can use the

strategies for determining the value of an impact, as described in FIPS PUB 65, or can use information readily available and collected during the Initiation Phase review.

4.3.7 Reassess Audit Strategy

The audit of the Initiation Phase should conclude with a determination of the audit

strategy for the remaining developmental phases. The audit strategy should include:

1. Extent of audit involvement in the remaining system development phases.

2. Schedule of audit tasks, to be coordinated with the system development schedule.

3. Specific auditor assignments. [Note: It is advantageous to have continuity in audit

staff throughout the entire developmental process unless specialists are required

for a single phase audit.]

4. Audit tools and techniques to be used. [Note: Some tools require unique skills

and extended preparatory time.]

The audit strategy will be affected by the auditor's analysis of the Initiation Phase work.

The criteria which could extend or reduce the projected audit involvement in the remaining

phases include:

89
Outside directives impacting the scope and extent of audit involvement.

Competency and involvement of other internal groups providing an independent

assessment of the AIS (e.g., the quality assurance function).

The completeness and accuracy of the documents produced during the Initiation

Phase.

The apparent consensus of involved parties regarding the correctness of the alternative selected.

The assurance that can be placed on the Cost/Benefit Analysis and Risk Analysis.

90
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4.4 AUDIT PARTICIPATION IN THE DEFINITION PHASE - PHASE II

During the Definition Phase, the functional requirements are defined, and detailed planning for the development of an operational AIS is begun. Experience has shown that it is difficult to obtain a good requirements definition, GAO studies of AISs show inadequate

requirements statements to be one of the major causes of defects in AISs. Because of the difficulty in defining correct requirements the first time, requirement identification should be an

iterative process.

The audit objectives during the Definition Phase are to ensure that user needs have been

clearly defined and translated into requirements statements, including requirements for a sys- tem of internal control designed to conform to established standards. This audit objective will

be accomplished primarily through an independent analysis of the Definition Phase documents

and the vaHdation of the information contained in those documents.

4.4.1 Primary Audit Objective of tiie Definition Phase

The primary audit objective for the Definition Phase is:

"To ensure that users' needs have been clearly defined and translated into requirements state- ments which incorporate adequate controls and conform to estabhshed standards."

In accomplishing this objective, the auditor will have to understand the needs identified during

the Initiation Phase. This is necessary to ensure that the Definition Phase properly translates

those needs into appropriate requirements statements. In addition, many auditors emphasize

internal control requirements because experience has shown that to be a major weakness in

the Definition Phase.

In order to perform this audit phase effectively, the auditor must become familiar with

the Definition Phase of the agency's SDLC methodology. This will require an understanding

of the Definition Phase work flow and the documents produced during that phase. The auditor

will also need to identify the participants in the Definition Phase, and determine their specific

responsibilities.

4.4.2 Overview of the Definition Phase

In the Definition Phase, the needs from the Initiation Phase are translated into a computer solution. The system designers must develop the logic which will permit user needs to

be accomplished on a computer. This is achieved through the involvement of individuals from

user and data processing areas, and involved third parties such as internal control and security

personnel.

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The Definition Phase will produce the functional requirements and begin detailed planning for development of an operable AIS. Functional requirements and processes to be

automated are documented and approved by an appropriate senior management official

before the AIS development effort is begun. Requirements identification is iterative, as is the

analysis of potential risk, involving those who both identify and solve problems. It is critical

that internal control and specific security requirements be identified during this process. Requirements may be modified in later phases as a better understanding of the problem is gained.

Also, during the Definition Phase, a Project Plan specifying a strategy for managing AIS

development, certification, and accreditation is prepared. It defines the goals and activities for

all phases, and includes resource estimates during each phase and intermediate milestones, as well as methods for design, documentation, problem reporting, and change control.

The physical number of participants in this phase is normally greater than the Initiation

Phase. Data processing personnel play a much more active role during the Definition Phase.

Improperly defined requirements usually surface during definition.

4.4.2.1 Participants and Their Tasks - The responsible participants in the Definition

Phase, together with a brief description of their responsibilities follows:

1. Information Resources Management (IRM) Official - Approves Needs Statement to advance to Phase II (Definition), in consultation with Sponsor/User and

ADP Manager. (Note: This occurs between phases I & II.)

2. System Security Officer (SSO)/Internal Control Officer (ICO) - Reviews SSO/-

ICO components of Project Plan, Functional Requirements Documents and Data

Requirements Documents, on a selective basis.

3. Auditor(OIG) - Reviews/evaluates System Decision Paper, Project Plan, Functional Requirements Documents, Data Requirements Documents and participates in their development, as necessary; identifies audit trail and auditability

requirements, including quality assurance and audit tools and techniques, for incorporation in requirements documents; prepares Audit Program.

4. Sponsor/User - Approves Project Plan and Functional and Data Requirements

Documents, and updates System Decision Paper.

5. Project Manager/Contracting Officer's Technical Representative (COTR) - Develops Project Plan, Functional and Data Requirements Documents with

Sponsor/User participation and audit consultation.

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6. System Security Specialist/Internal Control Specialist - Provides consultation and

review of SSO/ICO components of Project Plan, Functional Requirements Documents and Data Requirements Documents.

7. Contracting Officer - If appropriate, awards contract.

8. Contract Auditor - If appropriate, assures contract compliance.

9. ADP Manager - Reviews Validation, Verification and Testing components of

Project Plan, Functional Requirements Documents, Data Requirements Documents, as appropriate; provides technical support to Project Manager and Sponsor/User.

10. Quality Assurance (QA) Specialist - Reviews project definition to ensure compliance with Needs Statement and data processing standards.

4.4.2.2 System Definition Phase Documents - The work performed during the Definition Phase will be recorded on six major Definition Phase documents. In addition, the System

Decision Paper will be updated as appropriate. Furthermore, each phase of the system life cycle provides an opportunity to reevaluate the risks, cost/benefit, and approach to be taken

during implementation. Regardless of the developmental methodology employed, the auditor can expect to find approximately the same information produced.

The six major documents produced in this phase and a brief description of their contents

follow. Note that the major laws, regulations, and directives that require or recommend these

documents are found in parentheses after each document name.

1. Audit Plan (Public Laws Establishing OIGs, GAO Audit Standards, OMB A- 130,

OMB A- 123) The objective is to assess the adequacy of internal ADP controls

and provide the "reasonable assurances" to management spelled out in Appendix

1 of the GAO Audit Standards (Yellow Book).

2. Project Plan (FIPS PUBS 102 & 105, NBS SP 500-98, OMB A-130, OMB A-123)

The Project Plan specifies the strategy for managing the software/AJS development. It defines the goals and activities for all phases and subphases.

3. Functional Requirements Document (FIPS PUBS 38, 64, & 124, DOD-STD7935, OMB A-130, OMB A-123) The purpose of the Functional Requirements

Document is to provide a basis for the mutual understanding between users and

designers of the initial definition of the AIS, including the requirements, operating environment, and development plan.

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4. Functional Security and Internal Control Requirements Document (FIPS PUBS

38, 64, 73, & 102, DOD-STD-7935, OMB A-130, OMB A-123) The purpose of

the Functional Security and Internal Control Requirements Document is to focus

attention of the user and system designer on the security/internal control needs

of the system, based both on vulnerabilities identified during the Risk Analysis

and established internal control standards. This document may be included as an

appendix to the Functional Requirements Document.

5. Data Requirements Document (FIPS PUB 38, DOD-STD-7935, OMB A-130,

OMB A-123) The purpose of the Data Requirements Document is to provide,

during the definition stage of software development, a data description and technical information about data collection requirements.

6. Data Sensitivity/Criticality Description (FIPS PUBS 65 and 102, OMB A-123 and

130) Based on an assessment of sensitivity and/or criticality, provides a general

statement of the nature and magnitude of potential threats for use in the formal

Risk Analysis, and preliminary determination of data sensitivity. This document

may be included as an appendix to the Data Requirements Document.

In addition to the six major documents produced in this phase, one document, the System Decision Paper, is updated.

4.4.3 Audit Survey

The audit survey in this and following phases will primarily involve review of: (1) the

documents produced in the previous phase; (2) appropriate audit workpapers produced in the

previous phase; and (3) those documents produced in the present phase. The audit survey in

the Initiation Phase required the auditors to look at the user area and appropriate policies,

regulations, and the SDLC methodology. That information should be documented in the audit

workpapers from the Initiation Phase.

The objective of the survey in this and the remaining phases is to bring the auditor "up

to speed" in review activities. If the phases were short in duration, the survey in this and later

phases may not be necessary. However, in most instances, several weeks or months may elapse

between the conclusion of one phase and the point where the auditor re-enters the development process to conduct the review during the following phases.

Each survey will involve four steps. First, the auditor will need to review the output documents produced in the previous phase plus appropriate audit workpapers. Second, the auditor

must review and become familiar with the plans to complete this phase. Third, the auditor

gathers the documentation produced during this phase and evaluates the status of work in com103
parison to the plan. Lastly, the auditor verifies the documents produced during this phase

through challenging and analyzing those documents, as well as interviewing the participants

in the phase. Note that the specific work within these four tasks will be dependent upon the

customized audit objectives selected for this phase (see Section 4.4.4). These four tasks are discussed individually in the following sections.

4.4.3.1 Review Tnitiation Phase Outputs - The auditor should review the following five

Initiation Phase documents, or the equivalent documents produced by the developmental

methodology used for this AIS:

1. Needs Statement

2. Feasibility Study

3. Risk Analysis

4. Cost/Benefit Analysis

5. System Decision Paper

The key document for review is the System Decision Paper. This will include a summation of much of the information in the other documents. The auditor should refer back to the

other documents as appropriate to get more detailed information.

The auditor should review the audit workpapers prepared during the previous phase. The

major concern here is to review the deficiencies uncovered during the Initiation Phase. The

auditor, during this review, will want to ensure that those deficiencies have been adequately

addressed during the Definition Phase. One of the major audit tasks in each review phase is to evaluate the adequacy of the actions taken on auditor-identified deficiencies from the previous phase.

4.4.3.2 Review Definition Phase Plans - The System Decision Paper should provide the

details of the plan for implementing each phase. However, the auditor should be aware that

many organizations maintain their schedules and plans through automated scheduling and

project management systems. In these instances, the auditor may need the outputs from the

automatic scheduling system in order to review the plans.

The key plans, from an audit perspective, are the tasks which will produce the needed

documentation. Thus, the auditor should study the documents to be produced during the

phase, and then relate those to the plans to ensure that they will be produced during the phase.

If it is uncertain that all the needed information will be produced, the auditor should challenge

the adequacy of the plans.

4.4.3.3 Gather Information on Definition Phase Status - The auditor should monitor

project status periodically to determine when reviews should occur. This can be done through

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questioning project management, or through querying automated project status systems. The

auditor should not rely upon the project personnel to identify when a review is to occur, unless management has imposed the restriction that the phase is not complete until it has been

reviewed by audit.

The auditor needs to determine the status of three aspects of the project. First is the administrative status of the project, which is a budget and schedule status. This is necessary to

determine where the project stands and its availability for review. Second, the auditor needs

to determine the status of documentation. [Note: The fact that the administrative schedule indicates a document is complete does not necessarily indicate that all of the attributes of that

document have been completed.] If schedule and budget are tight, the project team may decide

to eliminate certain parts of documents in order to stay on schedule. If this is done, the auditor

should note those missing items as project deficiencies. Third, the auditor wants to determine

the status of changes. If there have been significant changes to the project, the auditor will

want to ensure that the schedule and budget have been adjusted accordingly, and any changes

needed to the documents produced in previous phases have been made.

4.4.3.4 Verify Information on Definition Phase Status - This task involves reviewing

documents produced during the Definition Phase and interviewing the key participants who

produced those documents.

4.4.3.4.1 Review Documents - The construction of an AIS is performed in conjunction

with development of a series of documents that build one upon another. The information used

for the project's Definition Phase originates from the Initiation Phase System Decision Paper.

This information is then supplemented and expanded upon through the processes which

produce the Definition Phase documents.

The document flow for the Definition Phase is determined by the SDLC methodology.

The System Decision Paper is the source document for both the Project Plan and the updated

System Decision Paper. [It is also the source document for the Audit Plan, but that will be

prepared by the audit function, as opposed to the developmental group. See Section 4.4.7 on

audit strategy for the tasks needed to develop the Audit Plan.] The Project Plan specifies the

strategy for managing the software development process. The Project Plan also indicates how

the system will be certified prior to installation and operation.

The System Decision Paper plus the Project Plan are used as the basis for developing the

Functional Requirements Document, the Functional Security and Internal Control Requirements Document, the Data Requirements Document, and the Data Sensitivity/Criticality

Description. The preparation of these documents requires extensive interaction among the

responsible participants. The interaction primarily involves the responsible functional/opera105
tional participants, although the policy/oversight participants will be contributing expertise in

their specialty areas.

All of the documents developed during this phase, with the exclusion of the Audit Plan, are also utilized to update the System Decision Paper. The auditor wants to ensure that the

System Decision Paper's currentness and completeness is maintained throughout the entire

development process. It is at this point in the cycle that management again must make a

decision regarding the continuation of the project. Management has the option to continue

the project through the next phase, cancel the project, or propose modifications to the project.

This may cause parts or all of the Initiation and Definition Phase to be repeated.

4.4.3.4.2 Interview Key Participants - The auditor has two concerns regarding the participants responsible for the Definition Phase; first, that the appropriate individuals participate, and second, that they perform the proper functions. To do this, the auditor should

identify who is participating in the Definition Phase, and the roles and responsibilities of those

individuals.

Listed below are the areas of recommended involvement:

1. Information Resources Management (IRM) Official

(a) Has the IRM official approved Needs Statement prior to commencing

Phase II (performed in consultation with Sponsor/User and ADP Manager)? Note that this occurs between the end of Phase I and the start of

Phase II.

2. System Security Officer (SSO)/Internal Control Officer (ICO)

(a) Has the SSO/ICO reviewed security/control components of the Project

Plan?

(b) Has the SSO/ICO reviewed security/control components of the Functional Requirements Document?

(c) Has the SSO/ICO reviewed the security/control components of the Data

Requirements Document? [Note: This may be done on a select basis as deemed necessary by the SSO and ICO.]

3. Sponsor/User

(a) Has the Sponsor/User approved the Project Plan?

(b) Has the Sponsor/User approved the Functional Requirements Document?

(c) Has the Sponsor/User approved the Data Requirements Document?

(d) Has the Sponsor/User developed/modified the System Decision Paper

prior to the completion of the phase?

106
4. Project Manager(PM)/Contracting Officer's Technical Representative(COTR).

(a) Has the PM/COTR developed a Project Plan?

(b) Has the PM/COTR developed Functional Requirements Documents

(with user participation)?

(c) Has the PM/COTR developed a Data Requirements Document (with user

participation)?

5. System Security Specialist(SSS)/Internal Control Specialist(ICS).

(a) Has the SSS/ICS provided consultation and review of the SSO/ICO components of the Project Plan?

(b) Has the SSS/ICS provided consultation and review of the SSO/ICO components of the Functional Requirements Document?

(c) Has the SSS/ICS provided consultation and review of the SSO/ICO components of the Data Requirements Documents?

6. Contracting Officer

(a) Has the Contracting Officer awarded the contract, if appropriate?

7. Contract Auditor

(a) Has the Contract Auditor assured contract compliance, if appropriate?

8. ADP Manager

(a) Has the ADP Manager reviewed the Project Plan?

(b) Has the ADP Manager reviewed the Functional Requirements Document?

(c) Has the ADP Manager reviewed the Data Requirements Document?

(d) Has the ADP Manager provided technical support, as appropriate, to the

Project Manager?

(e) Has the ADP Manager provided technical support, as appropriate, to the

Sponsor/User?

9. Quality Assurance (QA) Specialist

(a) Has QA Specialist reviewed project definition to ensure compliance with

Needs Statement?

(b) Has QA Specialist reviewed project definition to ensure compliance with

data processing standards?

Note that in some agencies, all of these positions will not exist; however, the tasks indicated for those responsible participants should be performed. The auditor should first ensure

107
that they are performed, and then ensure that the individual performing them has the necessary skills and responsibility to perform them effectively.

4.4.4 Customize Audit Objectives

The previously stated audit objectives must be modified for the specific AIS. The auditor

must identify the specific user needs that must be traced to clearly defined requirements state- ments, and the established standards to which controls must conform. This involves the creation of a set of specific audit objectives for the Definition Phase.

The extent of audit involvement in the Definition Phase will be partially dependent upon

a series of factors that can cause the AIS to have greater impact on the agency. Also, the greater

the number of factors that may negatively impact the success of the AIS, the greater the need

for audit involvement during this phase. That involvement should be reflected in the cus- tomization of audit objectives.

4.4.4. 1 SDLC Methodology Audit Considerations - The type of documents and information produced during the Definition Phase will be heavily dependent upon the prevailing

managerial style and philosophy. For example, if the managerial style is to anticipate risks,

much emphasis will be placed on the Risk Analysis. Likewise, if management is very concerned

about the Cost/Benefit Analysis, attention will be placed on creating that document. On the

other hand, if these are areas of little interest to management, only cursory attention may be

paid to these documents.

The auditor may also encounter automated SDLC methodologies. In those instances, the

developers will enter the information electronically; the information may not be printed in

hard-copy format. The auditor will either need to learn to use the system to review the information, or have someone print the information for audit purposes.

4.4.4.2 Contracting/Purchase Audit Considerations - There are minimal changes in the

audit approach during the Definition Phase, whether the AIS is developed in-house, purchased

off the shelf, or contracted for. However, two responsibilities are changed during the Definition Phase, and these will require the auditor to verify that those added responsibiHties are performed during the background/survey audit step. These changes are:

1. Off-the-shelf software change -

If off-the-shelf software is being considered, then the Project Manager, in preparing the functional requirements, must prepare that document to serve as the basis

for procurement action.

108
2. Contracting difference -

If it is expected that the software will be acquired through contract, the Project

Manager/COTR must incorporate the provision of contractor resources, as appropriate, into the Project Plan to ensure that: (l)resource acquisition schedules

are meaningful; (2)the role of the contractor(s) is identified and proper; and

(3)controls are provided for contractor objectivity.

No other particular changes are required. Contractors may participate in any activity unless otherwise precluded by Federal statute or departmental policy.

The specific contracting/purchase Definition Phase concerns that should be addressed

by the auditor include:

1. Does the phase define the type of contractors/vendors that will be eligible to perform this project?

2. Do benefits outweigh costs through the use of purchased/contracted software?

3. Will the contractor/vendor be able to deal with the significance of identified vulnerabilities/risks?

4. Has the COTR been sufficiently involved in the definition process to determine

whether adequate information has been developed to begin the contracting or purchase?

5. Have measurement criteria been established which can be used to evaluate the

product produced by a contractor/vendor?

4.4.5 Detailed Audit Testing

4.4.5.1 Tntroduction - The auditor has two document verification responsibilities. The

first is to ensure that the documents are prepared in accordance with the system development

methodology. [Note: This may be done by another independent review group, for example,

quality assurance, or may be done by the auditor on a test basis.] Second, the auditor wants to ensure that the same information is accurately transferred from document to document to

document. The latter responsibility is one that requires the auditor to understand the project, as well as the flow of documents through the development process.

4.4.5.2 Definition Phase Audit Tests - The auditor should validate sufficient attributes of

the documentation to enable reliance to be placed on them. At the end of this process, the

auditor will need to develop an opinion as to whether or not there are deficiencies in the

109
project, and to make recommendations. Testing independent sources will permit those

recommendations to be developed.

The validation should be performed using the Definition Phase detailed audit testing

program. (See Table 4.2) This program contains a set of audit objectives/indicators for evaluation. For each audit objective/indicator that the auditor selects, audit tests are recommended,

together with the tools and techniques for performing those tests. The audit program is designed to help the auditor select those items requiring validation.

4.4.5.3 Survey Questionnaire Definition Phase - The documents and the key attributes

to be included in each document that the auditor should verify follow. [Note: This information is needed, even if the developmental methodology has a slightly different set of documents.]

1. Project Plan should contain:

(a) Strategy for managing the software;

(b) Goals and activities for all phases and subphases;

(c) Resource estimates for the duration of the system development process;

(d) Intermediate milestones, including management and technical reviews;

(e) Methods for system development, documentation, problem reporting,

and change control; and

(f) Supporting techniques and tools.

2. Functional Requirements Document should contain:

(a) The proposed methods and procedures;

(b) A summary of improvements;

(c) A summary of impacts, internal controls, security, and privacy considerations;

(d) Cost considerations and alternatives;

(e) The functions required of the software in quantitative and qualitative

terms;

(f) How the software functions will satisfy the performance objectives;

(g) Performance requirements such as accuracy, validation, timing, and flexibility;

(h) Explanation of inputs/outputs; and

(i) The operating environment.

3. Functional Security and Internal Control Requirements Document should contain:

(a) Vulnerabilities identified during Risk Analysis; and

110
(b) Established internal control standards, and general as well as application

control requirements.

4. Data Requirements Document should contain:

(a) Data collection requirements (both static and dynamic data);

(b) Logical groupings of data;

(c) The type of information required to document the characteristics of each

data element;

(d) Specification of the information to be collected by the user;

(e) Specification of the information to b^ collected by the developer;

(f) Procedures for data collection; and

(g) Impacts of the data requirement needs,

5. Data Sensitivity/Criticality Description should include:

(a) Sensitive/critical types of data;

(b) Sensitive/critical types of assets; and

(c) Degree of sensitivity of data and assets.

4.4.6 Audit Results/Reporting

At the conclusion of audit testing, the information needed to develop findings and recommendations has been collected. At this point the auditor will need to determine any variances

between actual and expected results. For each variance the auditor will need to determine

whether that variance is significant, and if so, to develop recommendations.

4.4.6.1 Potential Deficiencies - The objective of the review is to identify deficiencies in

the Definition Phase. While the specific deficiencies will vary based on the AIS, there are

deficiencies which are common to the Definition Phase. These are listed below in order to

help the auditor assure that these deficiencies have not been overlooked in the review:

1. The estimate for resources and time required to implement the system is unrealistic based on the requirements. The auditor might utilize an automated estimating package in order to validate the reasonableness of the estimate.

2. The definition is inadequate to move to the next phase of systems development.

If the attributes specified in the documents for this phase are not complete, there

is a high probability that extra resources will be required in the following phases

to compensate for this deficiency.

3. The input requirements are incomplete. The information needed for processing

has not been fully specified, thus making design impractical.

Ill
4. The needed output requirements are incomplete. The lack of these requirements

will make system design impractical and uneconomical.

5. The processing specifications are incomplete. The definition does not indicate

how input requirements will be converted to output requirements. The net result

is that extra time will be required during design to develop this definition.

6. The system failures and/or impact of those failures will be inadequately defined.

The net result is that the appropriate recovery procedures may not be developed.

7. The level of service needed to achieve the processing objectives will not be adequately defined. The net result is that operations may not have the necessary

processing capacity to handle the system requirements.

8. The security and internal control requirements may not be fully defined. The net

result is that the implemented system may lack adequate security and internal

controls.

9. The assets requiring sensitivity/criticality controls may not be defined, resulting

in operational problems due to inadequate handling of the asset.

4.4.6,2 Potential Effects of Deficiencies on Meeting System Mission - Problems inadequately addressed in the Definition Phase will lead to escalating costs throughout the remainder of the system development process. Dr. Barry Boehm in the book Software Economics

[BOEMB81] estimated that the cost of fking inadequate definitions in the operational phase

of an AIS could be 100 times as costly as addressing the same problem in definition. Thus, it

is critical for the auditor to not only identify the deficiencies, but to estimate the impact of

those deficiencies.

The impact of Definition Phase deficiencies can be estimated in one of two ways. First is the actual cost of the deficiency itself. For example, the lack of controls may result in the loss

of assets in the operational system. Second, the auditor should estimate the escalating cost of

fixing definition problems. The rule of thumb provided by Dr. Boehm is that for each unit of

cost estimated as needed to fix a Definition Phase deficiency, it will cost ten times as much by

the time the test phase occurs, and 100 times as much once the system is placed into operation.

112
4.4.7 Reassess Audit Strategy

At each step of the developmental process, the auditors should reassess the audit strategy

and level of effort based upon the findings and recommendations during that phase. In addition, during the Definition Phase, the auditors should establish the Audit Plan.

The audit plan should be based upon accomplishing the six audit objectives outlined in

the GAO "Yellow Book"[GA081-l]. These are:

1. Provide reasonable assurance that systems/applications carry out the policies

management has prescribed for them.

2. Provide reasonable assurance that systems/applications provide the controls and

audit trails needed for management, auditor, and operational review.

3. Provide reasonable assurance to management that systems/applications include

the controls necessary to protect against loss or serious error.

4. Provide reasonable assurance that systems/applications will be efficient and

economical in operation.

5. Provide reasonable assurance that systems/applications conform with legal re- quirements.

6. Provide reasonable assurance that systems/applications are documented in a manner that will provide the understanding of the system required for appropriate maintenance and auditing.

113
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4.5 AUDIT PARTICIPATION IN THE SYSTEM DESIGN PHASE - PHASE III

The objective of this phase is to develop detailed design specifications which describe

the physical solution to the system requirements developed during Phase II, the Definition

Phase. The challenge of this phase is to determine how the requirements can be satisfied using

the computer. It may also be necessary to resolve deficiencies and clarify particular requirements in more detail so that the computer solution can be finalized and documented.

The audit objective during the system Design Phase is to ensure that system requirements

are adequately incorporated into the design specifications. The auditor should concentrate on

the adequacy of controls in the design. The auditor also wants to ensure that the system is auditable, and to design the methods for auditing the system once it becomes operational.

4.5.1 Primary Audit Objective fo the System Design Phase

The primary audit objective of the system Design Phase is:

"To ensure that system requirements are adequately incorporated into design specifications,

including controls that ensure auditability."

The accomphshment of this objective necessitates that the auditor understand the system

design process, as well as the application area and the controls needed to govern that area.

4.5.2 Overview of the System Design Phase

The Initiation and Definition Phases are designed to clarify and document Sponsor/User

needs and requirements. The system Design Phase takes those requirements and converts

them into specifications for a computerized system. The more specific the requirement

specifications, the easier it becomes to develop a workable computer solution. On the other

hand, if the requirements are not correctly or fully defined, additional work will need to be

done during the Design Phase in order to produce the outputs required by the Sponsor/User

to satisfy his/her needs.

The third phase results in a technical specification of the problem solution. The solution

provides a specific high-level definition, including information aggregates, information flows

and logical processing steps, as well as major interfaces and their inputs and outputs. The purpose is to refine the problem, resolve deficiencies, define additional details and package the

solution. The detailed design specifications describe the physical solution (algorithms and data

structures) in such a way that it can be implemented in code with little or no need for additional analysis.

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[Note: Agencies should define and approve internal control/security specifications prior

to acquiring or starting formal development of the applications. This is advisable for generating a suitable system since few data processing professionals have extensive training in design

principles and practices, and this weak area of system development needs all the loiowledgeable input possible.]

The validation, verification and testing (VV&T) goals are also identified during this

phase, and a plan for achieving these goals is developed (see FIPS PUB 101). The system tests should be able to verify that required administrative, technical, and physical safeguards are operationally adequate. The Project Plan (schedules, budgets, deliverables, etc.) and Risk

Analysis are reviewed and revised as required, given the scope and complexity of the solution

formulated. These activities are coordinated with the Certification Plan components.

4.5.2. 1 Participants and Their Tasks - Listed below are the responsible participants in the

system Design Phase, with a brief description of their role during the phase:

1. Information Resources Management (IRM) Official - Approves updated System

Decision Paper to advance to the system Design Phase, in consultation with Sponsor or User and ADP Manager (occurs between phases), and enters system into

department's formal systems inventory.

2. System Security Officer (SSO)/1nternal Control Officer (ICO) - Reviews SSO/-

ICO components of System/Subsystem, Program and Data Base Specifications,

and Validation, Verification and Testing Plan and Specifications.

3. Auditor(OIG) - Reviews/evaluates and possibly provides inputs to Risk Analysis,

System Decision Paper, System/Subsystem, Program and Data Base Specifications, VV&T Plan and Specifications, and revised Project Plan; updates Audit

Plan.

4. Sponsor/User - Approves revised Project Plan and updates System Decision

Paper; reassesses Risk Analysis; approves Validation, Verification and Testing

Plan and Specifications (all based on QA recommendations, where available).

5. Project Manager/Contracting Officer's Technical Representative (COTR) - Updates Project Plan; develops System/Subsystem, Program and Data Base Specifications, and Validation, Verification and Testing Plan and Specifications.

6. System Security Specialist/Internal Control Speciahst - Reviews SSO/ICO components of System/'Subsystem, Program and Data Base Specifications and Validation, Verification, and Testing Plan and Specifications.

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7. Contracting Officer - If appropriate, awards contract.

8. Contract Auditor - If appropriate, assures contract compliance.

9. ADP Manager - Reviews VV&T components of System/Subsystem, Program and

Data Base Specifications, and VV&T Plan and Specifications; as appropriate,

provides technical support to Project Manager and Sponsor/User.

10. Quality Assurance (QA) Specialist - Reviews system design, VV&T components,

and documentation for compliance to definition and data processing standards.

4.5.2.2 System Design Phase Documents - During the system Design Phase, three new

documents will be created and three documents will be updated, all based on the work done

during the Design Phase.

The three new documents are:

1. System/Subsystem, Program and Data Base Specifications (FIPS PUB 38) - The

purpose of the System/Subsystem Specifications is to specify the requirements,

operating enviroimient, design characteristics, and program specifications. The

purpose of the Program Specifications is to specify the requirements, operating

enviroimient, and design characteristics of a computer program. The purpose of

the Data Base Specifications is to specify the nature, logical and physical characteristics of a particular data base. [Note: These may actually be three separate

documents.]

2. Security and Internal Control Related Specifications (FIPS PUBS 73 & 102) - The purpose is to set forth security and internal control specifications to meet the

functional security and internal control requirements. This document may be included as an appendix to System/Subsystem, Program and Data Base Specifications document.

3. Validation, Verification, and Testing Plan and Specifications (FIPS PUB 101) - The purpose of the VV&T Plan is to plan for the evaluation of quality and cor- rectness of the software, including requirements and design documentation. The

W&T Plan also contains plans for the testing of software, including detailed

program specifications, descriptions, internal contols and security specifications,

and procedures for all tests, as well as test data reduction and evaluation criteria.

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The three updated documents are:

1. 2.

3.

Audit Plan

Project Plan

System Decision Paper

4.5,3 Audit Survey

The extent of the background work to be performed by the auditor will depend upon

his/her participation in the earlier phases, as well as the project status as perceived by the

auditor at the conclusion of the previous phase. The better the understanding the auditor has

of the system, or the better controlled the system, the less preparatory work the auditor will

need to do for this phase. The four tasks that the auditor will need to perform are:

1. Review Definition Phase outputs;

2. Review Design Phase plans;

3. Review information on Design Phase status; and

4. Verify information on Design Phase status.

Note that the specific work within these four tasks will be dependent upon the customized

audit objectives selected for this phase (reference Section 4.5.4). These four tasks are individually discussed below:

4.5.3.1 Review Definition Phase Outputs - Prior to beginning the survey phase of project

design, the auditor should study the results of the Definition Phase review. This would include

reviewing any workpapers and reports prepared by the audit review of the Definition Phase,

plus the key documents produced during the Definition Phase. It is also good practice to reread

Section 4.4 on Definition Phase audit before reviewing the results of the Definition Phase, to

reorient the auditor to the documents that are normally produced during that phase, and the

types of customized audit objectives and work programs that are performed by the auditor

during the Definition Phase.

4.5.3.2 Review Design Phase Plans - The Project Manager should prepare and maintain

a Project Plan. This document would contain a work plan, schedule, budget, individual assignments, and work tasks to be performed by the project team. The auditor should review this to

determine what work products are to be produced during this phase, the sequence in which

those work documents will be produced, to whom the task of preparing the documents have

been assigned, and the schedule and effort associated with each of the work documents. This

will enable the auditor to know the sequencing and scheduling of work documents so that the

auditor can develop an appropriate audit work schedule.

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4.5.3.3 Gather Information on Design Phase Status - The auditor should gather the documents appropriate to the design methodology. The type of documents that the auditor needs

to obtain and review during the background step of the Design Phase audit are:

1. System/Subsystem, Program, and Data Base Specifications;

2. Security and Internal Control Specifications;

3. Validation, Verification, and Test Plan and Specifications;

4. Updated Risk Analysis;

5. System Decision Paper (including updated cost/benefit data and analysis); and

6. Updated Project Plan.

The auditor needs to gather information about the status of the above documents. Specifically, the auditor should determine:

1. Status of document - Are they complete? If not, is additional work planned to be

undertaken to complete the documents, and if so, when will they be done?

2. Has the project proceeded according to the Project Plan? - If not, what action is being taken to get the project back on target?

3. Have any changes been made to the project's functionality or architecture? If so, the auditor needs to assess how they may impact the customized audit objectives

for previous audit phases and this phase.

4.5.3.4 Verify Information on Design Phase Status - The work done to verify the information on Design Phase status will be based upon the customized audit objectives selected.

4.5.3.4.1 Review Documents - The flow of work will depend upon the specific system

development methodology being used. Figure 2 represents the more traditional flow of paperwork in the SDLC and includes the Design Phase. This figure shows the input from the previous phase, the documents and document updates produced during this phase, and the

sequence in which they are produced.

For many data base systems, prototype systems, and skeletal code systems, programming

commences immediately after the Definition Phase. About the only parts of the identified

Design Phase documents that the auditor could expect to find are:

1. Operating environment, design characteristics, and program specification parts

of the System/Subsystem, Program and Data Base Specifications.

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2. Security specification part of the Security and Internal Control Related Specifications. [Note: While internal controls are very important, they may not be included in this document because the control portion may not have been deemed

necessary in the initial prototype version. This decision to develop without controls contains serious risks since the subsequent inclusion of controls may introduce major alterations in system behavior and cost.]

In the newer developmental methodologies, the Sponsor/User may do the testing himself/herself by examining the output to determine if it meets needs. If, however, the system

must fulfill a significant business/organization function, then the auditor should expect to find

at least a minimal test plan, regardless of the type of developmental methodology.

4.5.3.4.2 Interview the Participants - The role of the responsible participants will also

vary depending on the system development methodology. For example, in prototyping, the

SponsorAJser has a very active role in working with the developers through an iterative process

of design and implementation.

The auditor is concerned first that the proper responsible participants are included in the

system Design Phase, and second that they perform their proper roles. Again, note that the

names used for responsible participants may vary from agency to agency. What the auditor

must do, if the individuals listed here are not involved, is to determine whether or not the functions are performed, and if so, is there adequate division of responsibilities to ensure the necessary checks and balances for an effective system design.

The questions that the auditors should ask of the responsible participants include:

1. Information Resources Management (IRM) Official

(a) Has the System Decision Paper been approved?

(b) Has the system been entered into the department's formal system inventory?

2. System Security Officer/Internal Control Officer

(a) Have the SSO/ICO components of the system/subsystem been reviewed?

(b) Have the SSO/ICO components of the Program and Data Base Specifications been reviewed?

(c) Have the SSO/ICO components of the Validation, Verification, and Testing Plan and Specifications been reviewed?

3. Sponsor/User

(a) Has the revised Project Plan and updated System Decision Paper been approved?

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(b) Has the Risk Analysis been reassessed?

(c) Has the Validation, Verification, and Testing Plan and Specifications been

approved?

4. Project Manager/Contracting Officer's Technical Representative (COTR)

(a) Has the Project Plan been updated?

(b) Have the System/Subsystem, Program and Data Base Specifications been

developed?

(c) Have the Validation, Verification, and Testing Plan and Specifications

been developed?

5. System Security Specialist/Internal Control Specialist

(a) Have the SSO/ICO components of system/subsystem been reviewed?

(b) Have the SSO/ICO components of the data base specifications been

reviewed?

(c) Have the SSO/ICO components of the Validation, Verification, and Testing Plan and Specifications been reviewed?

6. Contracting Officer

(a) Has the Contracting Officer, if appropriate, awarded the contract?

7. Contract Auditor

(a) Has the Contract Auditor, if appropriate, assured contract compliance?

8. ADP Manager

(a) Have the VV&T components of the system/subsystem been reviewed?

(b) Have the VV&T components of the Program and Data Base Specifications been reviewed?

(c) Have the W&T Plan and Specifications been reviewed?

(d) Has technical support been provided to the Project Manager and Sponsor/User, if required?

9. Quality Assurance Specialist

(a) Have the system design, VV&T components, and documentation been

reviewed for compliance to definition and data processing standards?

4.5.4 Customize Audit Objectives

The audit objectives established for each AIS will vary depending upon (1) the purpose,

objective, and scope of the application, and (2) the auditor's concern over the ability of the

project team to successfully complete the project. This section offers a standard set of audit

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objectives/indicators for use by the review team. However, this list will need to be customized

by the audit team, based upon their assessment of the AIS under review.

4.5.4.1 Design Methodology Audit Considerations - The auditor may encounter significantly different design methodologies from agency to agency and system to system. While

the Initiation and Definition Phase of system development remain fairly constant, there are many different methodologies for designing computer systems. Among the more common approaches (which can be used singly or in combination) are:

1. Life cycle oriented design methodologies - The organization of this manual is oriented toward the life cycle design methodology. In this concept, there are distinct phases during which the design evolves. Each phase is distinct, producing

deliverables (i.e., products) which are input to the next phase.

2. Structured design methodologies - These are similar to the phase design methodologies, except the documents produced are different. The structured design

methodologies usually use Warnier-Orr diagrams to graphically illustrate the

logic paths throughout the design structure.

3. Data base management systems - The significant difference between data base

and non-data base is the responsibility for data design. In data base systems, data

design is performed by data base administrators, and the utilization of that data

requires a new series of documents.

4. Skeletal code - This is a design concept normally oriented toward a data base

structure. The key design concept is the partial construction of programs. In many

instances, one half or more of the program will be precoded in a generalized or

skeletal format. The designers can pick and choose among these skeletal programs for use in meeting Sponsor/User needs. In addition to the skeletal code,

the designers may choose utility programs, general-purpose programs such as data retrieval and analysis or report generators, as well as languages provided by

data base and data communication software.

5 . Prototyping - Prototyping is one of the newer design concepts which incorporates

two new design principles. The first is an interactive design process. Prototyping

recognizes that it is very difficult to define requirements correctly the first time.

Therefore, prototyping produces a system as quickly as possible so that the Sponsor/User can determine whether or not it meets needs. If it does not, the prototyping process continues until the right system has been designed. The second

characteristic of prototyping is the collapsing of system development phases.

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After basic requirements are done, the system design and remaining phases are normally collapsed into a single phase.

The auditor must first determine what design methodology is used, and then learn the

functional aspects of that design methodology. The documents identified in this audit guide

may vary significantly in this phase from what the system design group actually produces. For

example, if prototyping or skeletal code is used, then much of the information contained in

the system design documents described in this audit guide may not be necessary.

When the auditor encounters an unusual design methodology, the auditor should:

1. Reconcile the design methodology to the Hfe cycle development methodology

described in this audit guide. If the same basic information is produced, then the

audit programs outhned in this audit guide are applicable. The auditor need only

customize the audit approach to the specific design methodology.

If the auditor cannot reconcile the actual design methodology to the one imbedded in this audit

guide, then the auditor should:

2. Study the design methodology sufficiently to see how the life cycle phases in this

audit guide are collapsed by the methodology and regroup the audit programs to

conform to this condensed life cycle. It would then be a matter of judgement to decide what parts of the audit programs are applicable to this situation.

4,5.4.2 Contracting/Purchase Audit Considerations - There will be significant differen- ces in the audit involvement in this phase if the software is contracted or purchased rather than

developed in-house. For contracted software the auditor may: (1) interface with contractors;

(2) be involved in evaluating requests for bid and analysis of those bids; and (3) be involved

in the selection of contractors from an audit perspective. If the software is purchased off-theshelf, then the auditor may be involved in that purchase to ensure that the acquired software

meets the requirements established in the previous phase.

For contracted software, the Project Manager or the Information Resources Management Official oversees the project during this phase to ensure objectivity of results and to

preclude conflicts of interest between project goals and contractor expediency. The Auditor

then oversees this activity to ensure its effectiveness.

For off-the-shelf software, the Sponsor/User reviews the proposed procurement for sufficiency; the Project Manager identifies and appoints a technical evaluation panel to review

technical competency of bids/offers; and the ADP Manager reviews requirements documents

as well as provides technical assistance to the Contracting Officer relative to development of

129
the procurement action. The Auditor then assures that all these activities have taken place and

with appropriate care.

For software that has been purchased or contracted, the auditor should address the following specific points:

1. Has the contract been prepared in accordance with government purchasing re- quirements?

2. Does the contract provide for audit review of the contractor/developer work?

3. If the contractor goes out of business, does the government obtain source code

for the software (in the case where the contractor does not provide original source code)?

4. Does the contractor/developer have appropriate controls and safeguards to as- sure the quality of the software being produced (e.g., a quality assurance function, a detailed testing methodology)?

5. Does the contract provide for maintenance of the software?

6. Does the contractor/vendor have a test plan?

7. Does the contractor/vendor develop essentially the same documents as defined

in this audit guide?

4.5.5 Detailed Audit Testing

4.5.5. 1 Introduction - During the detailed audit testing, the auditor needs to concentrate

on the three new documents created during the Design Phase, not, however, to the exclusion

of the three updated documents. The auditor should be concerned that the updated documents

correctly reflect changes made in the areas covered by those documents during the Design

Phase. The amount of validation that the auditor will do on both the new and updated documents will be dependent upon the degree of risk associated with the appHcation system. The

greater the risk, the more extensive the validation.

4.5.5.2 System Design Phase Audit Test Program - The following system Design Phase

audit program is a program for validating the Design Phase documents. This program is audit

objective driven. For each objective to be accompHshed during vahdation, the auditor is provided with a series of tests to perform. For each test, some tools and techniques are recom130
mended. Note that in this phase, automated tools are proposed, but the use of these will be

dependent upon their availability at the installation where the review occurs. (See Table 4.3)

In designing an audit program for the system Design Phase, the auditor should read FIPS

PUB 101. That document provides guidance on vahdating system Design Phase products.

While the pubhcation was developed for data processing personnel, the validation insight in

the document is equally helpful to the auditor in preparing for and executing a system Design

Phase review.

4.5.5.3 Survey Questionnaire Design Phase - The document verification process re- quires the auditor to examine the documents to ensure they are complete, reasonable, and

consistent between documents. Verification can best be done by using a checklist provided

with the system design methodology. However, if verification has already been performed by

data processing, quality assurance, or a project review team, the auditor may want to ensure

the quahty of the designer's work and, if it is determined to be satisfactory, then perform the

validation step.

Questions to ask for each document include:

1. System/Subsystem, Program, and Data Base Specifications

(a) Does the document specify the design requirements?

(b) Does the document specify the operating environment?

(c) Does the document specify the design characteristics?

(d) Does the document specify the program requirements?

(e) Does the document specify the program operating environment?

(f) Does the document specify the program design characteristics?

(g) Does the document describe the functions and performance requirements?

(h) If so, are these performance requirements described in terms of accuracy,

validation, timing and flexibility, and also the operating environment?

(i) Is the nature, logical, and physical characteristics of data bases used

specified?

(j) Does the Data Base Specification address storage and design considerations?

2. Security and Internal Control Related Specifications

(a) Does the document specify the security design?

(b) Does the document specify the internal control design?

(c) Does the security design meet the security requirements?

131
(d) Does the internal control design meet the internal control requirements?

(e) Are the security and internal control specifications in sufficient detail so

that tests can be designed that will tell whether requirements are satisfied?

(f) Are changes to the system evaluated to determine whether they impact

internal control or security design?

(g) If so, is internal control and security design changed accordingly?

(h) If this is a sensitive application, has it been reviewed and approved by the

party responsible for security and control?

3. Validation, Verification, and Testing Plan and Specifications

(a) Does the document include a plan for testing the software?

(b) Does the plan include detailed specifications, descriptions, and procedures for testing all systems?

(c) Does the test plan include test data reduction and evaluation criteria?

(d) Is the VV&T Plan related to the system plan?

(e) Does the system plan drive the VV&T Plan?

(f) Does the VV&T Plan include general project background and information on the proposed solution to the mission deficiency(ies)?

(g) Does the W&T Plan include VV&T requirements, measurement criteria, and constraints?

(h) Does the W&T Plan include procedures to be appHed during development in general and by phase?

(i) Does the VV&T Plan include supporting information for W&T selections made?

(j) Does this document include appendices which describe project and en- vironmental considerations?

(k) Does this document include appendices which define the testing technique and tool selection information?

4.5.6 Audit Results/Reporting

The results of testing need to be analyzed, conclusions and recommendations developed,

and that information presented to the auditee in report format. The report should identify the

potential deficiencies, indicate the potential effect of those deficiencies on meeting the sys- tems mission, and then present recommendations to overcome those deficiencies.

4.5.6.1 Potential Deficiencies - The deficiencies found will vary from application to application. However, experience has shown that certain deficiencies are common in the Design

Phase, and, if these deficiencies are not corrected, serious application problems will occur

132
during implementation. The following eight deficiencies are listed to assist the auditor in as- suring that the types of deficiencies common to design have not been overlooked in this review:

1. System design documents will not be prepared, or not prepared in accordance

with the document intent.

2. The system of internal control will not be fully developed.

3. The security procedures designed to protect the appHcation will not be fully

developed.

4. Needed transactions for processing application information will not be defined,

and/or the authorization rules for transactions will not be defined.

5. The audit trail that permits reconstruction of processing will be incomplete.

6. An application vulnerability assessment will not be performed, or performed inadequately, so that all major potential vulnerabilities may not have been identified, and thus the system design is incomplete.

7. The system as designed will not meet the true Sponsor/User needs, and the Sponsor/User will not have had the opportunity to review the design documents and

comment on the inadequacy.

8. The phase will be concluded without the Validation, Verification, and Testing

Plan being completed.

4.5.6.2 Potential Effects of Deficiencies on Meeting System Mission - At the conclusion

of the Design Phase, both the functional and structural aspects of the AIS have been established. If the design has been done correctly, the following phases need only follow that design

and the system's mission should be accomplished. On the other hand, if the design is deficient,

then an inadequate system might be implemented with potentially disastrous results.

The effect of design deficiencies is twofold. First, they will impact on the implementation, which will cause resources to be improperly utilized. Data processing personnel will be

implementing the wrong system, and when it is uncovered will have to take out those incorrectly implemented portions and redesign and reimplement the system. The cost of doing this

rework can exceed the original cost of implementation, and frequently does.

The secondary effects of design deficiencies are on the users of the AIS. Unless the

deficiencies are caught in the Programming and Training Phase, or in the Evaluation and Ac133
ceptance Phase, they will result in incorrect or incomplete processing. The result can be financial loss, or it can be lost opportunities to effectively perform the agency's mission in accord- ance with the intent of legislation.

4.5.7 Reassess Audit Strategy

The audit strategy needs to be continually reviewed as the system progresses through the

developmental phases. The auditor will be looking at three aspects of audit strategy in the

Design Phase as follows:

1. Reevaluate auditor's role in the design - The auditor needs to continually assess whether more or less audit effort is needed during design. If the system is progressing according to realistic schedules and budgets, and the implementation

reflects the approved decisions of the previous phase, the amount of audit involvement can potentially be reduced. On the other hand, as the number of un- covered vulnerabilities increases, the greater the need for more audit

involvement. In particular, internal control or security weaknesses signify a need

for greater audit involvement.

2. Ensure auditability of system - The auditor wants to ensure that the architecture/structure of the system provides the necessary features to make the system

auditable. Reviewing the audit objectives for the Design Phase basically satisfies

this aspect of audit strategy. For example, if the systems of control are adequate,

if there is an adequate audit trail, and if that trail is saved for a reasonable time,

then the system is normally auditable. As there are deficiencies in these areas, the system becomes less auditable and the greater the need for a specific audit

recommendation to improve auditability.

3. Development of audit programs for the finished application - As the system desig- ners are designing the system, the auditors should be designing how the system

will be audited once it goes into production. This means the design of audit

programs, and the design/ acquisition of any audit tools necessary to perform that

audit. For example, the auditor may want to develop a skeletal extract program

which can then be customized for specific transactions or may want to have an integrated test facility included in the system during development.

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4.6 AUDIT PARTICIPATION IN THE PROGRAMMING AND TRAINING PHASE - PHASE IV

During this phase, programs will be developed and tested. The implemented programs

should be based on the detailed design/program specifications prepared in Phase III. If the

design was well specified, this phase will not be technically difficult, but if there are gaps in the

specifications, this phase will be required to compensate for those gaps because programming

is very detailed and requires all decisions to be made before the code can be written.

4.6.1 Primary Audit Objective of the Programming and Training Phase

During this phase, but prior to approval of the System Decision Paper by management,

the auditor should accomplish these two primary objectives:

"1. Ensure that the program/system fully implements the design specifications.

2. Ensure that documentation and training provide for a usable and maintainable system."

The auditor will accomplish these objectives through an evaluation of the Programming

and Training Phase documentation. In order to do this, the auditor must understand the sys- tem development methodology, the documents that are produced by that methodology, and

the flow in which the documents are produced. The auditor must also understand the status

of the data processing training program.

The documents produced during this phase will vary from methodology to methodology.

Even the same methodology may be implemented differently between two or more agencies

and thus produce different documents. In addition, if the software is contracted or purchased,

the documents within this phase will change dramatically. Also, as discussed in the Design

Phase, if the newer design concepts are used, such as prototyping, the programming part of

this phase may not exist and the training aspect may be significantly reduced.

4.6.2 Overview of the Programming and Training Phase

Programming is the process of implementing the detailed design specifications into code.

The process of converting specifications to executable code is primarily dependent upon the

completeness and specificity of the program design. If the program is well defined, the process

of programming is not technically complex.

Most system development methodologies clearly define how systems move from the

design to the programming phase. In fact, most data processing professionals are well trained

in programming, but few have extensive training in design principles and practices. Thus, from

141
a technical perspective, programming is frequently the best specified, and the most mastered

skill.

Although training is associated primarily with the Programming and Training Phase, the

origins of training should commence earlier as a requirement. Training is a specialty, but much

of the success of the system will be directly attributable to how well the users are trained. For

those parts of the system which they do not understand well, the probability exists that the

users will not use those features, or will use them incorrectly. Both impediments to a successful system can be overcome through the proper development and use of training materials.

Training is often excluded from the system development methodologies. Where it is included, it usually does not adequately address specific training requirements. Therefore, the

auditor might find a very strong developmental methodology for programming but a very weak

methodology for training.

Besides Programming and Training, User and Maintenance Manuals are prepared during

the fourth phase (see FIPS PUBS 38 and 64), as is a prehminary Installation Plan which

specifies the approach to, and details of, the installation of the AIS. This phase results in

programs which are ready for testing, evaluation, certification, and installation.

4.6.2. 1 Participants and Their Tasks - The Programming and Training Phase involves all of the same participants that were in the Design Phase. However, the project planners may as- sign different people to the Programming and Training Phase than they did for the previous

phases.

The responsible participants and their functions during this phase are:

1. Information Resources Management (IRM) Official - Approves updated System

Decision Paper to advance to Phase IV, in consultation with Sponsor and ADP

Manager (occurs between phases).

2. System Security Officer (SSO)/Internal Control Officer (ICO) - Reviews

SSO/ICO components of User Manual, Operations/Maintenance Manual, Installation and Conversion Plan, and revised W&T Plan and Specifications.

3. Auditor - Reviews/evaluates revised Project Plan, System Decision Paper,

Validation, Verification and Testing Plan and Specifications, User Manual,

Operations/Maintenance Manual, and Installation and Conversion Plan; updates

Audit Plan.

142
4. Sponsor/User - Approves revised Project Plan, revised VV&TPlan and Specifications, User Manual, Operations/Maintenance Manual and Installation and

Conversion Plan; updates Systems Decision Paper; initiates user training.

5. Project Manager/Contracting Officer's Technical Representative (COTR) - Updates Project Plan; revises VV&T Plan and Specifications; develops User

Manual, Operations/Maintenance Manual, and Installation and Conversion Plan.

Project Manager is responsible for programming and testing.

6. System Security Specialists/Internal Control Specialist - Reviews SSO/ICO components of User Manual, Operations/Maintenance Manual, Installation and

Conversion Plan, and revised VV&T Plan and Specifications.

7. Contracting Officer - If appropriate, awards contract.

8. Contract Auditor - If appropriate, assures contract compliance.

9. ADP Manager - Reviews VV&T relevant parts of User Manual, Operations/Maintenance Manual, and Installation and Conversion Plan; provides technical support to Project Manager and Sponsor/User; may conduct training.

10. Quality Assurance Specialist (QA) - Reviews program definition, program code,

documentation, and training, for compliance to design and data processing standards.

4.6.2.2 Programming and Training Phase Documents - There are three new documents

produced during this phase:

1. User Manual (FIPS PUB 38, DOD-STD-7935, OMB A-130, OMB A-123) The

purpose of the User Manual is to sufficiently describe the functions performed

by the software in non-ADP terminology, such that the user organization can determine its applicability, as well as when and how to use it.

2. Operations/Maintenance Manual (FIPS PUBS 38 & 106, DOD-STD-7935, OMB

A-130, OMB A-123) Two separate manuals may be necessary. The purpose of

the Operations Manual is to provide computer operations personnel with a description of the software and the operational environment so that the software can be run. The purpose of the Program Maintenance Manual is to provide the

maintenance programmer with the information and source code necessary to understand the programs, their operating environment, and their maintenance procedures and security requirements.

143
3. Installation and Conversion Plan (FIPS PUB 101, "Implementation Procedures"

DOD-STD 7935, OMB A-130, NBS SP 500-105) The Implementation

Procedures are a tool for directing the installation or implementation of an AIS

at locations other than the test site. This tool is used after testing of the AIS, including security and internal control features, has been completed.

4.6.3 Audit Survey

The Programming and Training Phase implements the system design. The auditor will

have two challenges during this review. The first is to ensure that the implementation is consistent with the design; the second is to review the controls over changes. The survey will

provide the auditor the background necessary to accomplish these tasks.

4.6.3.1 Review System Design Phase Outputs - As the Hfe cycle progresses, the size and

detail contained in the system documents increases. The design document review will be significantly more time consuming than the Initiation and Definition Phase document review.

For that reason it is important for the auditor to focus the review on the key elements of those

documents.

The auditor should concentrate the review on (l)the Security and Internal Control Related Specifications, and (2)the Validation, Verification, and Testing Plan and Specifications.

The role of the auditor, as defined in GAO's audit standards, is heavily directed toward assess- ing the adequacy of internal controls and security controls. In order to do this, the auditor must

understand the design specifications for those controls. Thus, in reviewing the Programming

and Training Phase, the auditor should concentrate on the adequacy of internal controls and

security controls.

In the evaluation of internal controls and security, the auditor has three activities to perform. The first is to identify the magnitude of the risk facing the AIS. Second, the auditor must

determine what security controls and other internal controls are in place. The third activity is to determine whether the controls work. Based on these three activities, the auditor makes an

assessment as to whether the working controls are adequate to reduce the risk to an acceptable level. The auditor's opinion is based on this assessment.

The Validation, Verification, and Testing Plan provides the standards against which implementation will be measured. This plan defines the test conditions that will validate controls. This document will indicate how the project team plans to implement the controls.

Assuming that the auditor has reviewed these documents, the two define precisely how the

controls should be implemented, and thus provide the guideHnes for conducting the programming review.

144
Training is an essential aspect of tlie proper performance of the operational MS. The

auditor's concern in training is that the controls will be properly exercised. Thus, the analysis

of the previously discussed two documents provides the background the auditor needs for

evaluating training in the use of internal controls and security controls.

4.6.3.2 Review Programming and Training Phase Plans - Project teams which have firm

implementation dates for AISs may need to make implementation compromises in order to

meet those dates. If the project is late going into the Programming and Training Phase, the

auditor could expect many of those compromises to occur. Two areas frequently compromised

are implementation of internal and security controls (including documentation), and development of training programs. The elimination or curtailment of either or both of these areas may

not directly impact the functional correctness of system outputs. In other words, the system

may be able to produce the desired reports yet not in a controlled manner, or in an environment in which the users are trained. It is the intent of many project teams to install these areas

after implementation.

The auditor wants to ensure that the Project Plan is sufficient to guarantee that controls

and training are adequately implemented. The plan should indicate who is responsible for

these areas, and how they are to be implemented through specific documents. In reviewing

the plan, the auditor will want to assure that the necessary control and training documents are included in the plan, and that there is sufficient time and resources to accomplish them.

4.6.3.3 Gather Information on Programming and Training Phase Status - Controlling

system change is particularly troublesome during the Programming and Training Phase. It is during this phase that items are implemented on a very detailed level. Since a computer works

in a binary mode, performing one event or another, there is no room for vague implementation. Thus, there are normally many clarifications of design during programming. The auditor

wants to ensure that these changes are received, logged, controlled, and implemented in an

orderly manner.

The auditor should be particularly concerned, during implementation, about documents

either not being produced, or being improperly or partially produced. The review of this

phase's status should look not only at the status of the project, but at the status of the completed documents. Again, the auditor should be alert to the fact that if the project falls behind

schedule, there is a strong tendency in many projects to delete the nonessential aspects of

design, at least the project's view of nonessential documents, in order to meet the implementation date.

The auditor should gather the following six documents during the Programming and

Training Phase:

145
1. System Decision Paper (updated)

2. Project Plan (updated)

3. Validation, Verification and Testing Plan and Specifications (updated)

4. User Manual

5. Operations/Maintenance Manual

6. Installation and Conversion Plan

Note that in different methodologies the same information may be in different documents. If the auditor is involved near the end of the phase, all of these documents should have

been produced. If the auditor reviews throughout the phase, then he/she may be able to get

the documents and perform the review at the point those documents are prepared.

4.6.3.4 Verify Information on Programming and Testing Phase vStatus - The auditor

should be looking for two general areas in verifying status. First, that internal controls and

security controls are properly implemented, and second, that all of the design specifications are implemented.

4.6,3.4.1 Review Documents - The flow of work must be compared against the system

development methodology in use. If other documents are produced, they should be included

and if indicated documents are not produced or updated, that, too, should be noted. Where

documents are not produced or updated, it is normally indicative of a potential problem in the

application design.

Verification requires the auditor to review the documents being produced to ensure that

the appropriate information has been collected, recorded, and is consistent with previous

documents. Verification is primarily a quality control responsibility, and should be performed

by the project team. In some organizations, it is performed by the quality assurance function.

If it has been performed, the auditor need only test check to make sure the quality control

function is working effectively. However, if the project does not have a documentation verification procedure in place, the auditor may need to do more extensive verification.

The auditor, during the Programming and Training Phase, needs to verify three new

documents and three updated documents. The verification questions to be used for each document are the following. They are not listed in any priority order.

146
User Manual verification questions

(a) Are the functions described sufficiently?

(b) Is the User Manual written in non-ADP terminology?

(c) Does the manual indicate when and how it is to be used?

(d) Does the manual serve as a reference document?

(e) Does the manual explain how to prepare input data and parameters?

(f) Does the manual explain how to interpret output results?

(g) Does the manual provide a full description of the application?

(h) Does the manual explain all of the user operating procedures?

(i) Does the manual explain user responsibilities related to security, privacy,

and internal controls?

(j) Does the manual describe how to detect and correct errors?

(k) Does the manual describe how to recover operations?

(1) Does the manual describe how to perform a file query procedure?

Operations/Maintenance Manual verification questions

(a) Does the manual provide computer operations personnel with a description of the software?

(b) Does the manual provide computer operations personnel with the instructions necessary to operate the software?

(c) Does the manual provide computer operations personnel with sections on

non-routine procedures, remote operations, and security requirements?

(d) Does the manual provide computer operations personnel with error procedures?

(e) Does the manual provide computer operations personnel with recovery

procedures?

(f) Does the manual provide maintenance programmers with the information

and source code necessary to understand the programs?

(g) Does the manual provide the maintenance programmer with an overview

of the architecture/structure of the system?

(h) Does the manual provide the maintenance programmer with maintenance

guideline procedures?

(i) Does the manual provide the maintenance programmer with the design

of internal control and security procedures so that they can be individually maintained?

Installation and Conversion Plan

(a) Does the plan explain how to install the software?

(b) Does the plan explain how to activate security procedures?

(c) Does the plan explain how to interconnect the software with other related

software packages?

147
(d) Does the plan explain how to install the software onto the operating en- vironment?

(e) Are the parts of the plan directed toward staff personnel presented in nontechnical language?

(f) Are the parts directed toward operations personnel presented in suitable

terminology?

System Decision Paper

(a) Has the System Decision Paper been reviewed and approved by the

responsible participants?

(b) Has appropriate information been incorporated into the System Decision

Paper to verify the correctness of that document?

(c) Has this document been updated to reflect changes in strategy occurring

during this phase?

Project Plan

(a) Is there a strategy for managing the software?

(b) Are goals and activities stated for all phases and subphases?

(c) Are resource estimates stated for the duration of the system development

process?

(d) Are the intermediate milestones, including management and technical

reviews, stated and being met?

(e) Are the methods for design, documentation, problem reporting, and

change control given?

(f) Are there supporting techniques and tools identified?

(g) Has this document been updated to reflect changes in strategy occurring

during this phase?

(h) Are controls in place to determine whether or not milestones have been

met?

(i) Are appropriate actions taken if milestones are not met?

Validation, Verification, and Testing Plan and Specifications

(a) Does the document include a plan for testing the software?

(b) Does the plan include detailed specifications, descriptions, and. procedures for all system tests?

(c) Does the test plan include a test data reduction and evaluation criterion?

(d) Is the VV&T Plan related to the system plan?

(e) Does the system plan drive the W&T Plan?

(f) Does the VV&T Plan include general project background and information on the proposed solution to any mission deficiency(ies)?

148
(g) Does the W&T Plan include VV&T requirements, measurement

criteria, and constraints?

(h) Does the VV&T Plan include procedures to be applied during development in general and in each phase?

(i) Does the VV&T Plan include supporting information for W&T selections made?

(j) Does this document include appendices which describe project and en- vironmental considerations?

(k) Does the VV&T Plan include tests of security and internal controls?

(1) Does the document include appendices which define the testing technique and tool selection information?

(m) Has this document been updated to reflect changes in strategy occurring

during this phase?

7. User Manual and Operations/Maintenance Manual Change Control

(a) Is a procedure in place to keep the training materials in these manuals upto-date?

(b) Are there controls in place to ensure that training materials based on these

manuals are updated as associated information in the manuals are updated?

4.6.3.4.2 Interview Key Participants - The auditor should interview all of the participants

in the Programming and Training Phase. If there are numerous participants in any functional

area, (e.g., several Sponsors) the auditor should select the most appropriate individuals to interview to ensure that they have fulfilled their proper role and responsibilities.

Listed below are the key questions that the auditor should ask of the responsible participants:

1. Information Resources Management (IRM) Official

(a) Has the IRM Official reviewed the updated System Decision Paper?

(b) Has the IRM Official approved the updated System Decision Paper?

(c) Has the review of the Paper been done in consultation with a Sponsor/User and ADP Manager?

149
2. System Security Officer (SSO)/Internal Control Officer (ICO)

(a) Has the SSO/ICO reviewed the SSO/ICO components of the User

Manual?

(b) Has the SSOACO reviewed the SSO/ICO components of the Operations/Maintenance Manual?

(c) Has the SSO/ICO reviewed the SSO/ICO components of the Installation

and Conversion Plan and the W&TPlan and Specifications?

3. Sponsor/User

(a) Has the Sponsor/User approved the revised Project Plan?

(b) Has the Sponsor/User approved the revised User Manual?

(c) Has the Sponsor/User approved the revised Operations/Maintenance

Manual and Installation/Conversion Plan?

(d) Has the Sponsor/User approved the updated System Decision Paper?

(e) Has the Sponsor/User initiated the appropriate user training tasks?

(f) Has the Sponsor/User approved the VV&T Plan and Specifications?

4. Project Manager(PM)/Contracting Officers Technical Representative (COTR)

(a) Has the Project Plan been updated?

(b) Has the VV&T Plan and Specifications been revised?

(c) Has the Users' Manual been developed?

(d) Has an Operations/Maintenance Manual been developed?

(e) Has the Installation and Conversion Plan been developed?

(f) Has it been ensured that appropriate programming was performed?

5. System Security Specialist/Internal Control Specialist

(a) Have the SSO/ICO components of the Users' Manual been reviewed?

(b) Have the SSO/ICO components of the Operations/Maintenance Manual

been reviewed?

(c) Have the SSO/ICO components of the Installation and Conversion Plan

been reviewed?

(d) Have the SSO/ICO components of the W&T Plan and Specifications

been reviewed?

6. Contracting Officer

(a) If appropriate, has the contract been awarded?

7. Contract Auditor

(a) If appropriate, has contract compHance been assured?

150
8. ADP Manager

(a) Have the VV&T relevant parts of the User Manual been reviewed?

(b) Have the W&T relevant parts of the Operations/Maintenance Manual

and Installation and Conversion Plan been reviewed?

(c) Has the requested technical support been provided to the Project

Manager?

(d) Has the requested technical support been provided to the Sponsor/User?

9. Quality Assurance (QA) Specialist

(a) Has the program definition been reviewed for compliance to design and

data processing standards?

(b) Has the program code been reviewed for compliance to design and data

processing standards?

(c) Has the documentation been reviewed for compliance to design and data

processing standards?

(d) Has the training been reviewed for compliance to design and data processing standards?

4.6.4 Customize Audit Objectives

The audit objectives defined for this phase may need to be customized depending upon

the design methodology used, and whether or not the AIS is acquired through contract or purchase.

4.6.4.1 Design Methodology Audit Considerations - The two audit objectives for this

phase need to be customized based on the following three factors:

1. Status of design up to this point - The fewer problems involved in this application, the less need for audit involvement during this phase. Generally, if design

is properly done, the audit involvement during this phase need only be minimal.

Any problems can be readily detected by auditors in the next phase.

2. Type of design methodology used - Audit involvement will change significantly

depending on whether the software is developed in-house, contracted, or purchased.

(a) For in-house developed software, the audit involvement should be at key

management checkpoints, normally at the end of developmental phases.

(b) For contracted software, the audit involvement must be specified in the

contract. Again, it would be at key management checkpoints, but it would

be those checkpoints specified in the contract. These should coincide with

the contractor's developmental phases.

151
(c) For purchased applications, the only audit involvement would be an as- sessment of the design methodology for the purpose of determining

whether adequate controls were incorporated to develop an effective application. This would be done in preparation for a buy/no-buy decision. In

addition, it will change significantly depending on whether more traditional statement-level languages are used for development, such as COBOL, or whether fourth-generation languages such as NATURAL are

utilized. Many of the fourth-generation languages are really an output of

the system Design Phase, and thus there is minimal work for the

implementation team during this phase.

3. Technology integration factors - During the implementation phase, the risk at- tributes of technology integration can be reassessed to evaluate the implementation risk. The greater the risk, the greater the need for audit involvement. The

technology integration attributes that need to be considered in evaluating the

scope and objectives of audit work include:

(a) Make-up of project team in relation to technology used (number, training

and experience);

(b) Applicability of the data processing design methodologies and standards

to the technology in use;

(c) User knowledge of related technology;

(d) Margin for error (i.e., is there reasonable time to make adjustments, corrections, or perform analyses before the transaction is completed?);

(e) Availability of automated error detection/correction procedures;

(f) Degree of dependence on AIS; and

(g) Criticality of interfaces with other systems and external organizations.

4.6.4.2 Contracting/Purchase Audit Considerations - If the software is obtained through

purchase and/or contract, the audit role will change. Rather than working with the project

team, the auditors will be working with the COTR and the contractor personnel.

It is important in the issuance of any contract that the contract provide auditors the right

to review contractor work. Without this contractual provision, the contractor may deny the

auditor access to documents and/or charge additional fees for those reviews.

If off-the-shelf software is acquired, this step will collapse into a training phase. Because

training is agency dependent, it will still be necessary to develop the training plan for training

end users in use of the software. It is normally also necessary to develop operations manuals

for purchased and/or contracted software, because of the unique internal operating conventions within an agency.

152
No specific changes in audit approach are required for contracted or off-the-shelf

software. The specific contracting/purchasing concerns that the auditor should have are:

1. If the contractor/vendor should go out of business, would the source code ownership revert to the government?

2. Will the training material be customized for the department/agency that will use

the AIS outputs?

3. If the implemented software is defective, will the vendor fix that software at no

additional cost?

4. Will defects in the software be fixed on a timely basis?

5. Are provisions included in the contract that permit changes to be made to the

AIS during development?

6. If the AlS/software is contracted, is there an effective communication Hne established between the Sponsor/User and the contractor for clarification of design

specifications prior to implementation?

7. For purchased software, is there a user group, or customer base that can be used

to inquire into problem and operation resolution?

4.6.5 Detailed Audit Testing

The purpose of this phase is to develop all appHcations and conversion programs and perform initial unit testing. Tasks to be accomplished in this phase are:

1. Flowchart solutions;

2. Code data structures;

3. Translation of program specifications into source language statements;

4. Installation of software packages and security features and establishment of communication network;

5. Performance of component and unit testing; and

6. Production of operating instructions and systems User Manuals while consulting

with user and computer service organizations.

153
By the end of this phase, the following documentation should be finalized:

1. User Manual.

2. Operations/Maintenance Manual.

3. Installation and Conversion Plan

4.6.5.1 Introduction - During detailed audit testing, the auditor needs to evaluate the adequacy of the programming effort by reviewing test results-unit, integration, and system test- ing. First, the auditor should evaluate the results of Quality Assurance reviews of testing

efforts. The results of this evaluation should determine the effectiveness of Quality Assurance's reviews, and thereby determine the nature and extent of audit involvement in this SDLC

phase. Should there not be an effective Quahty Assurance function, the auditor will need to

evaluate the adequacy of testing efforts himself^erself.

In addition to evaluating testing, the auditor needs to evaluate the adequacy of documentation—user, programming, maintenance, installation, and training manuals—and training.

Again, the auditor should review Quality Assurance efforts in these areas, and not duplicate

the work done by that function. If, however, there is not an effective Quahty Assurance function, the auditor will need to evaluate the adequacy of the documentation produced up to this

point in the SDLC process. Note that in many agencies this is a weak part of this SDLC phase,

and one to which the auditor can make a significant contribution since he/she needs to use this

documentation to understand the system, just like any system user. In addition, the auditor

should attend training sessions on the system (just like any other system user) to determine

the adequacy of training efforts.

There are a number of automated tools that can be used during this and the next phase.

Note that some of the tools are described in this phase for use in validating executable program

code, and some are included in the final development phase. The auditor should determine if tools in one phase might be equally appropriate for accomplishing audit objectives in the other

phase.

4.6.5.2 Programming and Training Phase Audit Tests - The Programming and Training

Phase test program is designed to assist the auditor in evaluating this phase. The questionnaire

(see Table 4.4) outlines the more common audit objectives. (Note that the customization step

may change these slightly.) For each objective, the auditor will be provided with one or more

tests to perform, and for each test, one or more tools and techniques will be suggested.

4.6.6 Audit Results/Reporting

The result of the Programming and Training Phase review should be documented and

given to project management. It is important that deficiencies are identified, the potential effect of those deficiencies on meeting system mission described, and given to project manage154
merit on a timely basis. Delays in submitting review reports could significantly increase the

cost of correcting deficiencies.

4.6.6.1 Potential Deficiencies - In the Programming and Training Phase some deficiencies occur more frequently than others. The following list of deficiencies are among the more

common ones for this phase, and are provided to assist the auditor in identifying them:

1. Documents and/or tasks of this phase are not completed or are not completed on

time, i.e., milestones are met but documents/tasks are not completed.

2. Milestones are not met due to incomplete tasks of this phase.

3. Applications are coded which could be done more economically through contracting or purchasing off-the-shelf software.

4. Documentation for programming and training is not prepared in accordance with

standards, or not prepared at all, resulting in additional maintenance and operational costs.

5. The program documentation is not maintained in a current state, meaning that

as the programs are changed the documentation is not updated. The net result is the documentation is unusable for maintaining the system.

6. No quality control is exercised over the documentation to ensure that it is complete and in compliance with standards.

7. Programs are not fully tested, resulting in defective programs being placed into

operation.

8. The users of the application are inadequately trained in the use of the application, so users either misuse the software, or are unable to use software features.

9. User Manuals are not prepared, or are not prepared in accordance with standards, resulting in transactions being incorrectly entered, processed, or output

being improperly utilized.

10. Audit and quality assurance tools and techniques are not included or not properly implemented in the AIS.

4.6.6.2 Potential Effects of Deficiencies on Meeting System Mission - Deficiencies in

programming will result in inaccurate or incomplete processing. The result may be abnormal

terminations in processing, resulting in reruns of processing and late delivery of outputs.

Deficiencies not uncovered through operational controls will result in improper processing by

AIS users.

Deficiencies in documentaion and training can and do result in operational malfunctions

and erroneous processing. Also, deficiencies in documentation and training may result in un- economical operations because tasks need to be performed several times in order to get them

performed correctly.

155
The auditor probably will not be able to quantify the impact of these potential deficiencies; however, he/she should be able to demonstrate the potential adverse effects which could occur due to inadequate programming, documentation, and training. Specifically, the auditor

could: 1) process test data to show that the system was not properly programmed to prevent erroneous processing; 2) compare user and programmer documentation to identify discrepancies between these two critical documents; and 3) compare user documentation to training

documentation and instructions to identify inconsistencies.

4.6.7 Reassess Audit Strategy

At the end of the Programming and Training Phase, the auditor needs to determine the

amount of audit involvement to be expended in the final phase. As with other phases, if there

are minimal problems detected by the end of this phase, the auditor may not need to expend

extensive effort in the Evaluation and Acceptance Phase. Conversely, if the auditor suspects

that there are potential weaknesses in the system, extensive audit involvement may be warranted during the next phase.

The auditor should also complete any post-implementation audit programs, tools, and

techniques during this phase. As the Sponsor/User is evaluating the system during the next

phase, the auditor should be prepared to evaluate the audit program developed for use during

operations. At a minimum, this audit program should include:

1. A list of potential areas for audit investigation;

2. Tools for file analysis and/or software packages for use during operation for file analysis;

3. Step-by-step audit programs for the audit team to use in auditing the operational AIS; and

4. A permanent working file on AIS, including key aspects of documentation, with

references to official AIS documents.

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4.7 AUDIT PARTICIPATION IN THE EVALUATION AND ACCEPTANCE PHASE - PHASE V

The objective of this phase is to ensure that the AIS is acceptable to the users prior to

placing the system into a production mode. During this phase, unit testing will be completed,

and integration and system testing undertaken. The results of these tests will provide user management with the information necessary to make a decision on acceptance, modification, or rejection of the AIS. The audit objective in this phase is to ensure that the total system and

data are vaHdated and fully meet all user requirements. The auditor should continue to emphasize internal control requirements as an area requiring specific audit attention. The fulfill- ment of this objective may be done in conjunction with the VV&T Plan, or it may be

independent of that plan.

4.7.1 Primary Audit Objective of the Evaluation and Acceptance Phase

The primary audit objective of this phase is to:

"Ensure that the total system and data are validated as fully meeting all user and internal control related requirements."

The fulfillment of this objective should be accomplished by reviewing the work of the W&T

test team, and conducting additional tests as appropriate. The actual performance of the task

is normally too time-consuming for audit to perform. It has been estimated that this phase of

the developmental process can consume up to 30 percent of the developmental effort.

If testing is properly performed, a test plan, test results, and a test report will be available. [Note that many Federal agencies neither plan nor formalize the results of testing into a

report.] The test plan should indicate the AIS functions, and then cross-reference them to the

tests designed to validate the correct operation of those functions. Test results should be

specifically documented and retained. The test report should indicate the results of those tests,

and then relate the test results back to the function, indicating whether or not it performs correctly.

If the test results and AIS Life Cycle Matrix are completed and prepared for the test report, the auditor's role becomes significantly easier. In these instances, the auditor only

needs to perform sufficient tests to ensure himself/herself that the test results are correct. The

auditor should then be able to draw the same conclusions from the test results and AIS Life

Cycle Matrix as the test team.

In completing the audit objective, the auditor should perform the same six steps described

in the other development phases. These steps are individually described below for this phase.

163
4.7.2 Overview of the Evaluation and Acceptance Phase

The evaluation of the AIS should be conducted in accordance with the revised VY&T

Plan. Completed code will undergo testing, as described in the revised VV&T Plan. Generally, three types of program testing are performed: unit, integration, and system. If performed

properly, unit testing will then validate the functioning of the unit; integration testing will

validate the interfaces between the units and the operating environment; and system testing

will validate the interaction between the application system and the user area. It is recommended, but often difficult to achieve, that unit testing be completed before integration test- ing commences, and integration testing be completed before system testing commences.

It is important that adequate time be allocated to testing. Previous GAO reports have indicated that software testing is basically an underplanned and undermanaged part of the

developmental process. This occurs because frequently the previous phases are completed

late, even though the installation date remains fixed. In order to meet the installation deadhne, the amount of time and effort allocated to testing deteriorates to the point that it is ineffective in accomplishing its objective.

After the review, analysis, and testing of the system, including execution of the programs

on test data, the AIS should be field tested in one or more representative operational sites. For particularly sensitive AISs, disaster recovery and continuity of operations plans should be

fully documented and operationally tested as well. Using actual transaction data, if designated

a "sensitive" system, it should be certified for technical adequacy in meeting its security re- quirements by an appropriate authority, prior to accreditation and installation. Before certification, all W&T test results should be documented and a comparison of actual and

expected results made.

The OMB Circular A- 130 and FIPS PUB 102 security evaluation should be part of the

broader test results/test evaluation report. The accreditation statement, the last key activity of

the phase, would be a statement from the responsible accrediting official (e.g.. Sponsor or IRM

Official) that the system is operating effectively and is ready to be installed. Any caveats or

restrictions should be provided at this time.

4.7.2. 1 Participants and Their Tasks - All or most of the participants responsible for the

AIS play an active role in evaluation and acceptance. In the early phases, the responsible participants are frequently senior people in the area of involvement. For example, the manager

or

assistant managers of the user area may be personally involved in the early developmental phases. As the work gets more technical, the responsibihties are frequently delegated

downward to lower-level people in the operational areas. During the Evaluation and Accep164
tance Phase, as critical decisions have to be made, the more senior people should again be involved.

The responsibilities of the participants in the Evaluation and Acceptance Phase are:

1. Information Resources Management (IRM) Official - Approves updated System

Decision Paper to advance to Phase V, in consultation with Sponsor/User and

ADP Manager (occurs between phases).

2. System Security Officer (SSO)/Internal Control Officer (ICO) - Reviews Test

Results and Evaluation Report and SSO/ICO components of Installation and

Conversion Plan.

3. Auditor(OIG) - Reviews/evaluates revised Project Plan, revised Installation and

Conversion Plan, and Test Analysis and Security Evaluation Report; updates

Audit Program.

4. Sponsor/User - Approves revised Project Plan and Installation and Conversion

Plan; updates System Decision Paper; oversees training; accepts (accredits) sys- tem for operation.

5. Project Manager/Contracting Officer's Technical Representative (COTR) - Updates Project Plan; supports and oversees Test Analysis and Security Evaluation

Report and certifies system security; revises User Manual, Operations/ Maintenance Manual, and Installation and Conversion Plan based on test results.

6. System Security Specialist/Internal Control Specialist - Reviews Test Analysis

and Security Evaluation Report and SSO/ICO impacted documentation updates

to User Manual, Operations/Maintenance Manual, and Installation and Conversion Plan.

7. Contracting Officer - If appropriate, awards contract.

8. Contract Auditor - If appropriate, assures contract compliance.

9. ADP Manager - Directs test reviews and validated VV&T components of Installation and Conversion Plan; continues to provide technical support.

10. Quality Assurance (QA) Specialist - Reviews VV&T results and advises responsible participants on system achievement of Needs Statement.

165
4.7.2.2 Evaluation and Acceptance Phase Document - The auditor will evaluate the

work performed in this phase by looking at the phase documentation. The phase produces one

new document, and three updated documents (System Decision Paper, Project Plan, Installation and Conversion Plan). The new document is:

1. Test Analysis and Security Evaluation Report (NBS SP 500-98, DOD-STD-7935

'Test Analysis Report," OMB A- 130, OMB A- 123, FIPS PUB 102) The purpose

of the Test Analysis and Security Evaluation Report is to (1) document the test analysis results and findings; (2) present the demonstrated capabilities and

deficiencies, including the Security Evaluation Report needed for certification of

the AIS; and (3) provide a basis for preparing a statement of AlS/software readi- ness for implementation.

4.73 Audit Survey

The main source of information for this phase will be the audit results and workpapers

from previous phases. If the same individuals are involved in evaluation and acceptance, as were involved in previous phases, background preparation work should be minimal. However,

the auditor is still concerned with the flow of work, the assurance that the responsible participants fulfilled their roles, and acquiring and reviewing the documentation produced during

this phase.

4.7.3.1 Review PrograTnming and Training Phase Outputs - At this point, the AIS has

been completed. The objective of this phase is to identify and remove defects from the AIS.

This is accomplished through creation of a series of test conditions, which, when processed

against the executable code, produce the proper results by which the system will be judged

correct (or inadequate).

The auditor may wish to review some of the documents from the earlier phases because

they indicate what the system is supposed to do. The programming phase documents are oriented toward what the system does to meet its objectives while the User Manual and Training Manual explain how the system is to be operated by the end users. It is recommended that

the auditor understand both the what and the how, in preparation for reviewing this final phase

of the system development process.

It is also important that the auditor ensure that the test data and testing documentation

is saved for use in validating subsequent changes to the AIS and for auditor usage as required.

4.7.3.2 Review Evaluation and Acceptance Phase Plans - The final phase is one which is frequently squeezed between the point where the programs are complete, and the date when

those programs must be placed into production. If the production date is firm, insufficient time

166
may be allocated to this phase. Therefore, it becomes essential that the auditor determine that

at least the most critical AIS functions are tested.

It is unrealistic to expect exhaustive testing to occur, though it is certainly desirable. There

will always be compromises between budget and schedule, and complete testing. In many instances there are no options regarding when the AIS is placed into production, particularly

when it is mandated by legislation. What is important is to optimize the test time available.

4.7.3.3 Gather Information on Evaluation and Acceptance Phase Status - Reports

should be maintained on the status of testing. The criteria for testing should be included in the

VY&T Plan. This will indicate which functions are to be tested, and what conditions will be

used to test those functions.

In the hierarchy of testing, the units or programs should be tested first. Once these have

been vaHdated as performing correctly, the integration or interfaces between the units or programs are tested. Once those interfaces have been validated, the acceptance test occurs,

which validates the interfaces between people and the system.

The status reports on testing should indicate which functions have been tested, which

functions work, which functions are in the process of being corrected, and when those functions should be retested. The auditor, at any point, should be able to determine how many

functions have been validated and how many remain unvalidated. If this status information is not available, the auditor should be concerned over whether the end product of testing will

adequately indicate AIS performance prior to the system being placed into production.

Without this type of information, management cannot make a knowledgeable decision regarding installation and operation of the AIS.

During this phase, the auditor should obtain for analysis purposes the following documents:

1. Test Analysis and Security Evaluation Report, including certification and ac- creditation statements.

2. Updated Installation and Conversion Plan.

3. Updated User Manual.

4. Updated Operations/Maintenance Manual (including change control).

5. Updated Project Plan.

4.7.3.4 Verify Information on the Evaluation and Acceptance Phase Status - By the

time this phase commences, all of the work necessary to develop the AIS should be complete.

The organization should have an executable AIS. What is needed is to be assured that the ex- ecutable system meets the system requirements/specifications.

167
4.7.3.4. 1 Review Documents - The flow of work in the Evaluation and Acceptance Phase

is primarily a flow of testing. This flow is illustrated in Figure 5. The flow shows that there are many modules (i.e., computer sub-programs) developed during this phase. Each of those

modules needs to be individually tested. The modules are then pulled together into programs.

Note that some of the programs may involve utility programs and other aspects of operating

software. These programs are then tested to validate that the multiple modules work correctly when intercoupled. Lastly, the programs are all put together as an AIS, and that AIS is validated to ensure that it works in the operating environment, that it works when interfacing

with other systems, and that it meets user requirements.

The auditor must become famihar with the flow of work during this phase. This includes

familiarization with the various types of testing and the expectation from those tests. As in

other aspects of system development, the exact flow of documents will vary from methodology to methodology, and within agencies using the same methodology.

The Evaluation and Acceptance Phase produces one new document (Test Analysis and

Security Evaluation Report), and five updated documents (Audit Plan, Project Plan, User

Manual, Operations/ Maintenance Manual, Installation and Conversion Plan). The auditor

should look at all of these documents, but put emphasis on verifying that the Test Analysis and

Security Evaluation Report properly implements and accomplishes the test plan objective, and

that the test results are properly reflected in the Security Evaluation Report.

4.7.3.4.2 Interview Key Participants - The auditor needs to verify that all of the appropriate responsible participants are involved in this phase, that they have been assigned the

appropriate role, and that they have correctly fulfilled that role. This step is normally done by

interviewing the involved participants to verify their needed participation.

Listed below for each of the desirable participants are the questions that the auditor

needs to ask those participants:

1. Information Resources Management (IRM) Official

(a) Have you approved the updated System Decision Paper?

(b) Did you review that paper in consultation with the Sponsor/User and ADP

Manager prior to approval?

2. System Security Officer (SSO)/Internal Control Officer (ICO)

(a) Have you reviewed the test results?

168

I
Figure 5. FLOW OF EVALUATION WORK

EVALUATION

DOCUMENTATION SYSTEM I ARCHITECTURE

Test Plan

Unit Test Results

Integration Test Results

System Test Results

Test Plan

Unit Test Results

Integration Test Results

System Test Results

VV&T Report

UNIT UNIT UNIT UNIT UNIT UNIT

MODULE MODULE

AIS

SYSTEM II ARCHITECTURE

UNIT UNIT UNIT UNIT UNIT UNIT

MODULE MODULE

AIS

SYSTEM I / SYSTEM

INTERFACE

169
(b) Have you reviewed the Security Evaluation Report?

(c) Have the SSO/ICO components of the Installation and Conversion Plan

been reviewed?

3. Sponsor/User

(a) Did you approve the revised Project Plan?

(b) Did you approve the revised Installation and Conversion Plan?

(c) Did you make the necessary updates in the System Decision Paper?

(d) Have you/your area overseen the necessary training?

(e) Did you as SponsorAJser accept the system for operation?

4. Project Manager/Contracting Officer's Technical Representative

(a) Did you make appropriate updates to the Project Plan?

(b) Did you support and oversee the Test Analysis and Security Evaluation

Report?

(c) Did you certify the system security?

(d) Did you revise the User Manual, based on test results?

(e) Did you update the Operations/Maintenance Manual, based on test results?

(f) Did you update the Installation and Conversion Plan, based on test results?

5. System Security Specialist/Internal Control Specialist

(a) Did you review the test results?

(b) Did you review the Security Evaluation Report?

(c) Did you ensure that the updates to the User Manual, Operations/Maintenance Manual, and Installation and Conversion Plan reflect any impact

on the SSO/ICO documentation?

6. Contracting Officer

(a) If appropriate, have you awarded the contract?

7. Contract Auditor

(a) If appropriate, have you assured contract compliance?

8. ADP Manager

(a) Did you direct testing?

(b) Did you review the validated W&T components of the Installation and

Conversion Plan?

(c) Did you provide the requested technical support?

170
9. Quality Assurance Specialist

(a) Did you review the VV&T test results?

(b) Did you advise responsible participants on system achievement of Needs

Statement?

4.7.4 Customize Audit Objectives

The specific audit objectives to be accomplished during this phase will vary depending

on management's need. If the project team does not have an adequate test plan, management

may ask the auditors to play a more active role in testing. Sometimes the auditors perform

some of the testing that occurs during this phase. While this is not recommended, it is sometimes a necessity because testing would not otherwise be performed.

The test program outlined for this phase includes the more common audit objectives for

this phase. It is those objectives that need to be customized based on the needs of management, as well as the audit evaluation of previous phases. This phase is the auditor's last opportunity to evaluate the system prior to its being placed into production. The greater the risks

associated with the system, or the greater the concerns uncovered in previous phases, the

greater the need for audit involvement during this phase.

4.7.4.1 Evaluation and Acceptance Phase Methodology Audit Considerations - Development activities are frequently deficient with respect to testing. They may include some

test documents but are usually not extensive. Some methodologies contain no test strategies/-

documents.

Development methodologies were developed years before test methodologies were

developed. FIPS PUB 101 on W&T[FIPSlOl], GAO's [GA081-3] "Evaluating Internal Controls in Computer Based Systems", and IEEE's "Standard for Software Test Documentation"

[IEEE83] and "Standard for Software Unit Testing" [IEEE86] provide such a test methodology. The auditor may also want to refer to AUERBACH's "A Standard for Computer Applications" [AUER86 + ] and NBS SP 500-136 on software acceptance testing [NBS136].

If the development methodology is deficient in the testing area, the auditor may wish to

suggest one of the above references as a test strategy. The key aspects of testing that need to

be addressed during this phase are:

1. Development of an adequate test plan;

2. Execution of the test plan; and

171
3. Analysis and reporting of test results.

The auditor should be particularly concerned with the test report. This report should indicate not only what works and doesn't work, but have an opinion from the test group regarding the adequacy of the system to be placed into a production status.

Test approaches that are used by corporations include:

1. An independent test team (i.e., a group of people independent of the project

people, who are professional testers).

2. Users of the AIS create their own test conditions, and determine whether the AIS

is acceptable to them for use in production.

4.7.4.2 Contracting/Purchase Audit Considerations - The Evaluation and Acceptance

Phase does not change significantly whether the software is developed in-house, through contract, or off-the-shelf purchase. Obviously, with contracted and off-the-shelf software there

would be minimal unit testing and integration testing, with the concentration being on system

testing. However, the phase is the culmination of the test plan, which in itself is customized

slightly depending on the source of the software.

Contracted software introduces no particular changes in audit activity. Contractors may

participate in all activities not otherwise precluded by Federal statute or departmental policy.

Contractors should not be involved in performing VV&T of systems they develop due to conflict of interest issues.

Purchase of off-the-shelf software results in the following changes for project participants:

(a) Sponsor/User reviews results of all pre-award test procedures. Concurs in any

customizing and award.

(b) Project Manager oversees completion of "live test demonstration" and other preaward test procedures, and defines/approves required customizing, (If cus- tomizing is required, that process should be done by returning to a sub-process

identical, if abbreviated, to that for full systems development (Phase II-IV). The

Project Manager also approves award to selected bidder/offeror.

(c) ADP Manager provides technical assistance in evaluating "live test demonstration" and other pre-award test procedures. Also oversees installation of software

at the test site.

172
Some of the specific contracting/purchasing considerations for this phase are:

1. Does the contractor/vendor have a test plan, and is it available for examination?

2. Can the contractor/vendor indicate which functions work and which functions do

not work?

3. Does the contractor/vendor guarantee the specified functions to work, and if not,

agree to fix them at no additional cost to the government?

4. Are the test conditions and results available to the government to validate that

the system performs as specified?

5. Does the government have the right to validate the functioning of the system

before accepting the system?

4.7.5 Detailed Audit Testing

The SponsorAJser will rely upon the Security Evaluation Report to determine whether

or not to accept the AIS. However, the Sponsor/User is usually not technically oriented, and

thus does not have the necessary background to challenge the information included within the

Security Evaluation Report. The independent opinion of the adequacy of that report, provided

by the auditor, can be important in determining whether or not the application will be ac- cepted, or if it is accepted, whether any counter strategies are needed to be put into place to

compensate for potential weaknesses.

4.7.5.1 Introduction - Testing is a very critical phase of the SDLC. Programs and applications must pass system and acceptance tests prior to certification for implementation. These

tests cover two different areas of concern, yet they have the same goal. The system test will

provide an internal assessment of the correctness, performance, and reliability of the operational system, while the acceptance test will determine user reaction to the product, its performance, installation procedure, documentation, and reliability. Once these tests have been

performed, the project team will review the results to ensure the system meets user requirements and is acceptable to the user.

The auditor has two major roles in this phase of the SDLC: (1) to ensure testing is adequately planned and performed in compliance with approved standards; and (2) to ensure test results are properly evaluated and included in system documentation.

173
4.7.5.2 Evaluation and Acceptance Phase Audit Tests - An Evaluation and Acceptance

Phase audit program is provided to assist in completing this step (see Table 4.5). The audit

program includes sub-objectives for audit, suggested tests for the auditor to undertake to ac- compHsh those objectives, and then tools that might prove helpful in conducting those tests. These are provided as guides to auditors to help them be more effective in reviewing AISs in

the Evaluation and Acceptance Phase.

4.7.6 Audit Results/Reporting

Once the auditor identifies a weakness, management will need recommendations to over- come that weakness. The recommendations should be consistent with the magnitude of the

variance. Variance with a minor impact may not warrant highlighting in an audit report or offering recommendations. Recommendations should be limited to those findings having a significant impact on the agency/organization mission.

4.7.6. 1 Potential Deficiencies - Deficiencies identified in this phase will normally represent operational deficiencies. If they are not corrected prior to the application being placed

into production, they may cause or contribute to a system failure. At this point in the development cycle there is no time to compensate for deficiencies in future phases.

Listed below are some of the more common deficiencies found in the Evaluation and

Acceptance Phase. These deficiencies are listed to help the auditor ensure that one or more

of the more common Evaluation and Acceptance Phase deficiencies has not been overlooked.

1. Testing does not include all of the tests included in the test plan, resulting in untested functions being placed into production.

2. A test report is not prepared, or if prepared does not adequately indicate which

areas have been validated to function correctly, and which have not been

validated. This results in applications being placed into production without the user knowing what works and what does not work.

3. User management is not involved in the decision whether or not to put the sys- tem into production, resulting in systems being placed in production which may

have defects which, if known, would result in the user stopping the system from

being placed into production.

4. The test plan, test results, and test reports are either not complete, or not

prepared in a manner that can be used as ongoing maintenance documentation.

This results in maintenance personnel having the costly task of reproducing test conditions and test results.

174
5. A parallel test is not conducted, resulting in the user being uncertain if the new

system can produce the same results as the old system (applicable only when cur- rent automated capabilities are in existence).

6. The AIS is not field tested at selected locations and, therefore, does not work

properly in the operational environment.

7. System development documentation is not updated to reflect the changes and activities that occurred during development. This results in maintenance occurring

with inadequate documentation and with the potential of increasing the defect

rate and/or costs of maintenance.

8. A written Conversion Plan is not prepared and followed, resulting in the potential for increased conversion costs and inaccurately or incompletely performed

conversion tasks.

9. System security is not certified. This results in potential security vulnerabilities

in the operational AIS.

4.7.6.2 Potential Effects of Deficiencies on Meeting System Mission - The impact of

deficiencies in this phase should be calculated as operational defects. The auditor should identify the potential deficiency event, estimate the number of times that event will occur within

the next year, determine the expected loss per event, and then multiply the two variables

together to calculate the annual loss expectation. FIPS PUB 65 explains how to perform this

calculation.

4.7.7 Reassess Audit Results/Plans

The auditor should conclude the audit program once the system becomes operational.

The insight gained during the developmental process should be passed on to the audit team

reviewing the operational system in order to properly focus and maximize audit effort. The

types of insight to be included in the program was described in the previous phase.

The auditor should select the final operational audit tools during this phase. These tools

should be tested (at the same time the AIS is tested) to ensure they work. Thus, the auditor

undergoes an evaluation and acceptance of audit tools at the same time that user management

undergoes an evaluation and acceptance of the AIS.

175
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APPENDIX A

PCIE WORK GROUP ON

EDP SYSTEMS REVIEW AND SECURITY

A. 1 SUMMARY OF BACKGROUND AND CHARGE

President Reagan established the President's Council on Integrity and Efficiency (PCIE)

in March 1981 to coordinate government-wide efforts to attack fraud and waste and help ensure system integrity in government programs and operations. Chaired by the Deputy Director of the Office of Management and Budget, the Council is composed of the Inspectors

General (IGs), as well as representatives from the Federal Bureau of Investigations, the

Department of Justice, and the Office of Personnel Management. Among its other functions,

the PCIE is charged with developing interagency programs and projects to deal efficiently and

effectively with those problems concerning fraud and waste which exceed the capability or

jurisdiction of an individual agency.

In October 1983, the Council decided that Electronic Data Processing (EDP) Systems

Review and Security was an issue requiring formal review, and established a working group.

Responsibility for the PCIE Work Group was given to the Inspector General of the Department of Health and Human Services, to be included under their ongoing Computer Security

Project. Composed of OIG and management representatives from fourteen Federal departments and agencies, the group was charged with facihtating and improving Office of Inspector General/Audit organization reviews of automated information systems (AISs), particularly

those systems under development. The objective of the PCIE Work Group was to improve the

likelihood that auditable and properly controlled systems are being developed.

To achieve this objective, the PCIE Work Group participants drew from the Department

of Defense life-cycle approach to the management of automated systems, and the National

Bureau of Standards' Institute for Computer Science and Technology's (NBS/ICST's) Special

Publications and Federal Information Processing Standards, to develop a system life cycle

matrix for AISs. That matrix, structured around critical AJS documentation requirements is intended to clarify the role of the internal auditor vis-a-vis other key participants in the EDP

planning, design, implementation, and review processes. With the audit role clearly delineated,

this audit guide has been developed to facilitate the successful fulfillment of that role, focusing on systems under development and major modifications to existing systems.

A-1
A.2 WORK GROUP DOCUMENTATION ACTIVITIES

The PCIE Work Group pursued a number of activities that enabled the group to arrive

at some consensus position regarding documentation needs during the SDLC. The following

is a brief enumeration of those activities:

1. PCIE Work Group participants were asked to review what documentation their

agencies used and to provide copies of the standards or poUcy to the Work Group;

2. Experienced systems staff, managers, and PCIE members met to reconcile how

the documents related to one another, and each life cycle phase;

3. Selected non-Federal organizations/firms were contacted to review the approach

being taken regarding their systems development/review activities;

4. National Bureau of Standards (NBS) representatives were brought in to facilitate

the consohdation of NBS standards and legal requirements, with the PCIE observations and recommendations.

5. General Services Administration (GSA) representatives were contacted to support the evolution of GSA's software engineering and information resources management (IRM) procurement programs, in consonance with both NBS standards and the work group recommendations;

6. General Accounting Office (GAG) representatives were contacted to see that

they generally agreed with the Work Group's view of the system development life cycle, documentation needs, and EDP review activities,

7. The Office of Management and Budget (OMB) representatives were contacted

to see that the Work Group's view did not violate or disagree with the then

developing revision to OMB Circular A-71 TMl, found in the subsequent OMB

Circular A- 130.

8. All Federal agencies were provided copies of the PCIE recommendations, and

offered an opportunity to comment both on the substance of the matrix, the documents, and the direction being taken.

A-2
A.3 PCIE WORK GROUP MEMBERS

Bonnie Fisher

(Project Leader)

Gail Shelton

Jim Cox

Wallace Keene

Bob Gignilliat

David Decker

Mike Houston

John Lainhart

Mac MacDonald

Roger Sies

William Lee

Allen Winokur

Health and Human Services

Office of Inspector General

Health and Human Services

Office of Inspector General

Health and Human Services

Office of Inspector General

Health and Human Services

Office of the Assistant Secretary for Management and Budget

Health and Human Services

Office of the Assistant Secretary for Management and Budget

Housing and Urban Development

Office of Inspector General

Department of Defense

Office of Inspector General

Department of Transportation

Office of Inspector General

Veteran's Administration

Office of Inspector General

Department of Labor

Office of Inspector General

Department of Commerce

Office of Inspector General

Department of Defense

Naval Audit Service

Zella Ruthberg National Bureau of Standards

Institute for Computer Sciences and Technology

A-3
Jim HoUohan

David Petrocci

Mary Ann Todd

Mark Gillen

Barry Snyder

Jack Landers

John Bjork

Larry Martin

Benson Simon

Doug Hunt

Tyrone Taylor

Smithsonian Institution

Audit Agency

Department of Treasury

Office of Inspector General

Department of Treasury

Financial Management Services

Department of Treasury

IRS Internal Audit

General Accounting Office

IMTEC

General Services Administration

OIRM

Small Business Administration

Office of Inspector General

Department of Energy

Office of ADP Management

Environmental Protection Agency

Office of the Comptroller

National Aeronautics & Space Administration

Office of Inspector General

National Aeronautics & Space Administration

Office of Inspector General

A-4
APPENDIX B

LAWS AND REGULATIONS

B.l SPECIFY AUDIT INVOLVEMENT

B.1.1 Standards for Audit of Governmental Organizations, Programs, Activities, and FunclKma(Yellow Book), GAO, 1981 Revision [GA081-1]: In 1981, the Comptroller General of

the United States (head of GAO) issued audit standards that were intended for application to

audits of all government organizations, programs, activities, and functions-whether they are performed by auditors employed by Federal, State, or local governments, The standards are designed to be general in nature and apply to audits of all types. These standards are periodically updated to reflect the current GAO audit direction.

The current standards contain an optional standard regarding audit participation in sys- tems development. The GAO strongly recommends that auditors be actively involved in

reviewing the design and development of new data processing systems or applications, and significant modifications thereto, as a normal part of the audit function.

B.1.2 The Inspector General Act of 1 Q78(;PT ,95-452. October 12, 1978) [IGA78]: The Act es- tablished the Office of Inspector General within major Federal agencies in order to form

independent and objective units:

To conduct and supervise audits and investigations relating to programs and

operations of the Department of Agriculture, the Department of Commerce, the

Department of Housing and Urban Development, the Department of the Interior, the Department of Labor, the Department of Transportation, the Community

Services Administration, the Environmental Protection Agency, the General Services Administration, the National Aeronautics and Space Administration, the

Small Business Administration, and the Veterans' Administration;

To provide leadership and coordination, and recommend policies for activities

designed (a) to promote economy, efficiency, and effectiveness in the administration of, and (b) to prevent and detect fraud and abuse in, such programs and

operations;

To provide a means for keeping the head of the establishment and the Congress

fully and currently informed about problems and deficiencies relating to the administration of such programs and operations and the necessity for and progress

of corrective action; and

B1
To comply with standards established by the Comptroller General (GAO) for

audits of Federal establishments.

B.1.3 Budget and Accounting Procedures Act of IQSOrPI ,K1 -784. September 12, 1950)

[BAPA50]: Part II of this Act is cited as the "Accounting and Auditing Act of 1950". This part

states that: The accounting of the Government is to provide full disclosure of the results of

financial operations, adequate financial information needed in the management of operations

and formulation and execution of the Budget, and effective control over income, expenditures,

funds, property, and other assets.

The auditing for the Government, conducted by the Comptroller General of the United

States as an agent of the Congress, is to be directed at:

determining the extent to which accounting and related financial reporting fulfill the purposes specified;

financial transactions have been consummated in accordance with laws, regulations, or other legal requirements; and

adequate internal financial control over operations is exercised, and afford an effective basis for the settlement of accounts of accountable officers.

Emphasis is to be placed on effecting orderly improvements resulting in simplified and

more effective accounting, financial reporting, budgeting, and auditing requirements and procedures, and on the elimination of those which involve duplication or which do not serve a purpose commensurate with the costs involved. Financial transactions of each executive, legislative, and judicial agency are to be audited by the General Accounting Office (GAO) in ac- cordance with such principles and procedures, and under such rules and regulations as may be

prescribed by the Comptroller General of the United States. In the determination of vouchers

and other documents, the Comptroller General is to give due regard to generally accepted

principles of auditing, including consideration of the effectiveness of accounting organizations

and systems, audit and control, and related administrative practices of the respective agencies.

B.1.4 Ouality Standards for Federal Offices of Inspector General, by President's Council on

Integrity and Efficiency (PCIE), 1986 [PCIE86]: This document contains quality standards for

the management, operation, and conduct of the Federal Offices of Inspector General (OIG).

They have been formulated and adopted as advisory standards by those Inspectors General

who are members of the PCIE. The subjects of the thirteen standards are: Maintaining Independence

Planning

- Organizing

Assuring Staff Qualifications

B-2
Directing and Controlling

Coordinating

Reporting

Preserving Confidentiality

Maintaining Quality Assurance

Reviewing Legislation and Regulations

Receiving, Controlling, and Screening Allegations

Investigating

Auditing

B.2 SPECIFY INTERNAL CONTROLS

B.2. 1 Federal Managers' Financial Integrity ActfPL97-255. September 8, 1982) [FMFIA82]

This Act requires internal control systems that are reasonable, to ensure that the following

objectives are achieved:

Obligations and costs comply with applicable law.

All assets are safeguarded against waste, loss, unauthorized use, and misappropriation.

Revenues and expenditures applicable to agency operations are recorded and ac- counted for properly so that accounts and reliable financial and statistical reports

may be prepared and accountability of the assets may be maintained.

The Act directs the heads of executive agencies to:

Make an annual evaluation of their internal controls using guidelines established

by the Office of Management and Budget (OMB).

Provide annual reports to the President and Congress that state whether agency

systems of internal control complywith the objectives of internal controls set forth

in the Act and with the standards prescribed by the Comptroller General. Where

systems do not comply, agency reports must identify the weaknesses involved and

describe the plans for corrective action.

B-3
B.2.2a Paperwork Reduction Act(;PL96-5 1 1 . December 11, 1980) [PRA80]: This Act

imposes Federal information policy-making responsibilities on the Director of the Office of

Management Budget (OMB) and requirements on Federal agencies to carry out these policies.

Some of the more pertinent ones are:

To develop and implement Federal information pohcies, principles, standards,

and guidelines and to provide direction and oversee the review and approval of

and acquisition and use of automatic data processing, telecommunications, and

other technology for managing information resources. To evaluate agency information management practices to determine their adequacy and efficiency and to determine compliance with OMB information

policies, principles, standards, and guidelines.

To develop and implement policies, principles, standards, and guidelines on information disclosure and confidentiality, and on safeguarding the security of

agency information.

To monitor compHance with the Privacy Act of 1974.

B.2.2b Paperwork Reduction Reauthorization Act of 1986(PL99-591. October 30,

1986) [PRRA86]: This Act enhances and clarifies various sections of the original Paperwork

Reduction Act of 1980. Some of the changes that are most pertinent to this report are:

The term "information resources management" is added as a key definition and

is defined as "the planning, budgeting, organizing, directing, training, promoting,

controlling, and management activities associated with the burden, collection,

creation, use, and dissemination of information by agencies, ..." OMB is explicitly given the responsibility to provide direction and oversee the

review and approval of not only privacy but also security of records.

OMB is to set a goal of reducing the burden of Federal information collections

by at least 5% for each successive fiscal year from 1986 through 1989.

Federal agencies are to implement the OMB directives generated by this Act.

Federal agencies are to periodically evaluate, and, as needed, improve the ac- curacy, completeness, and reliability of data and records in Federal information

systems.

B.2.3 EmokaA£t(PL89-306, October 30, 1965) [BRA65]: The Federal ADP Standards

program is authorized under this Act. It provides for the "economic and efficient purchase,

lease, maintenance, operation, and utilization of automatic data processing equipment by

Federal departments and agencies." Leadership roles for carrying out the goals of this Act are assigned to the Department of Commerce (DOC), the Office of Management and Budget

(OMB), and the General Ser\'ices Administration (GSA).

B-4
It authorizes the DOC to:

1. provide scientific and technological advisory services to other agencies for relating to automatic data processing and related systems;

2. make appropriate recommendations to the President concerning the establishment of uniform Federal automatic data processing standards; and

3. undertake research in computer science and technology as needed to fulfill the

above responsibilities.

Under the Act, the OMB is responsible for exercising fiscal control and providing policy

guidance to the Federal agencies on automatic data processing matters. The GSA is responsible for equipment procurement and maintenance. GSA reviews procurements and agency

requests for services to assure that Federal Information Processing Standards (FIPS) are properly cited and used. The Act reserves to the agencies the authority to determine how computers will be used in accomplishing their missions.

B.2.4 Management of Federal Information Resources(OMB Circular A- 130, (includes the

revision to Transmittal Memo #1, OMB Circular A-71) December 12, 1985) [OMB130]: This

calls for increased protection for Federal computers. OMB established, in 1978, a Federal

computer security program to guard against illegal use of information stored in computers and

to save taxpayer money. The program requires all executive branch departments and agencies

to establish a management control and audit process for sensitive computer applications.

The program announced by OMB requires each executive department and agency to:

Establish a management control process to assure that appropriate safeguards

are built into all new computer applications.

Assign responsibility for security of each new installation to a management official.

Establish personnel security policies for both Federal and contractor personnel.

Conduct periodic audits of all sensitive computer applications.

Include security requirements in specifications for the acquisition or operation

of computer facilities or related services.

Conduct periodic risk analyses of each computer installation.

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Assure that appropriate contingency plans are developed to reduce the effect of

computer breakdown, fires, or natural disasters.

B.2.5 The Privacy Act of 1974(;PL93-579. December 3 1, 1974) [PYA74]: This Act defines the

privacy of an individual as directly affected by the collection, maintenance, use, and dissemination of personal information by Federal agencies. In addition, the Act states that the increasing use of computers and sophisticated information technology has greatly magnified the harm

to individual privacy. Verifying compliance to this Act is part of the audit function. The Act

identifies which types of systems are included under the provisions of the Act. Basically, the

Act covers those systems for which information is extracted by an individual identifier. The

Act requires that systems covered under the Act be managed using good data management

practices. From a compHance perspective, the Act identifies who may and may not have ac- cess to personal information. The Act identifies when the information of the individual must

be obtained, and when information can be used without gaining permission of the individual

involved. The Act also states the type of disclosure required by the agency responsible for the

application system.

B.2.6 The Freedom of Information Act(;PL90-23. June 5, 1967, as amended by PL93-502,

November 21, 1974) [FIAA74]: This Act permits the public, except for specific categories of

matters, to have access to information held by Federal agencies. The categories of matters not

included are those that would impair rights of privacy or important government operations.

The Act was primarily directed toward information maintained by the executive branch of the

Federal government.

The agencies of the executive branch should inform the public where certain types of information may be obtained on request, and what internal agency appeals are available if a member of the public is refused requested information. Agency decisions to withhold identifiable records requested under the Act are subject to judicial review.

B.2.7a Internal Control SystemsfOMB Circular A- 123, October 28, 1981) [OMB123]:

This Circular prescribes policies and standards to be followed by executive departments and

agencies in establishing and maintaining internal controls in their program and administrative

activities. It requires agency heads to:

maintain effective systems of accounting and administrative control and

have an internal control directive and a review plan in the form of a vulnerabiHty

assessment.

It requires agency Inspectors General, in conjunction with internal audit, to determine

compliance with this Circular.

B-6
It states the internal control objectives are "to provide management with reasonable, but

not absolute, assurance that financial and other resources are safeguarded from unauthorized

use or disposition; transactions are executed in accordance with authorization; financial and

statistical records and reports are reliable; applicable laws, regulations, and policies are adhered to; and resources are efficiently and effectively managed."

It specifies standards for system(s) of internal control, including: "documentation, recording of transactions, execution of transactions, separation of duties, adequate supervision, ac- cess to resources, competent personnel, and reasonable assurance."

B.2.7b Internal Control SystemsrOMR Circular A-123 Revised, August 16, 1983)

[OMBR123]: Circular A-123 was revised to incorporate the requirements of the Federal

Managers' Financial Integrity Act [FMFIA82], OMB's Internal Control Guidelines [OMB82],

and GAO's internal control standards [GA083]. The most significant changes are:

The responsibiHty section now specifies the internal control responsibilities of

the designated senior internal control official and heads of organizational units

to conform with OMB Internal Control Guidelines. Internal control objectives now conform with the Act.

Internal control standards include those prescribed by GAO.

Employees for whom performance agreements should include internal control

responsibihties are defined.

An agency's responsibility for taking timely corrective actions on weaknesses disclosed through its evaluation of internal controls is described.

The Act's requirement for the agency head to submit an annual statement to the

President and the Congress about the agency's system of internal control is included.

B.2.8 Financial Management Systems(OMB Circular A-127, December 19, 1984)

[OMB127]: 'This Circular prescribes policies and procedures to be followed by executive

departments and agencies in developing, operating, evaluating, and reporting on financial

management systems." The responsibilites specified include:

'The head of each agency is responsible for ensuring that the planning, development, operation, review and reporting on the agency's financial management sys- tem are in accordance with this Circular.

The manager of each financial system has responsibilities for performance of

necessary system reviews and for issuance of reports thereon."

The agency Inspector General should provide technical assistance and advice in

the agency effort to review and improve the agency's financial management sys- tem.

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'Top agency management, as well as program and functional managers, shall participate in systems planning and evaluation to ensure that their needs are met."

Financial management systems objectives are spelled out. For systems operations, the

best acceptably priced contemporary technology should be used to achieve systems that are

useful, timely, provide reliable and complete information, use uniform definitions for comparabihty and consistency, and are efficient and economical. Reasonable controls for maintaining systems integrity should be used. The data in these systems should provide support for

budget preparation, for managers to carry out their responsibilities, and to enable full financial disclosure as required.

B.2.9 Standards for Internal Controls in the Federal Government( Green Book), GAO,

1983 [GA083]: This document contains the Comptroller General's internal control standards

to be followed by executive agencies in establishing and maintaining systems of internal control as required by the Federal Manager's Financial Integrity Act of 1982 [FMFIA82]. These

standards fall into three categories: General, Specific, and Audit Resolution.

The General standards consist of:

1. Reasonable Assurance that objectives of the systems will be accomplished;

2. Supportive Attitude maintained and demonstrated by managers and employees;

3. Competent Personnel who can accomplish their duties and understand need for

good internal controls;

4. Control Objectives developed for each agency activity; and

5. Control Techniques are efficient and effective.

The specific standards consist of:

1. Documentation for internal control systems and all transactions and other significant events;

2. Recording of Transactions and Events promptly and properly classified;

3. Execution of Transactions and Events only by authorized persons;

4. Separation of Duties for authorizing, processing, recording, and reviewing transactions;

5. Supervision to ensure internal control objectives are achieved; and

6. Access to and Accountability for Resources by authorized individuals, with periodic review of accountability.

The Audit Resolution standard requires managers to promptly evaluate, determine the

response to, and respond to audit findings.

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APPENDIX C

KEY COMPUTER SECURITY AND AUDIT DEFINITIONS

The following key definitions in ADP internal control and computer security are provided

to facilitate understanding of this guide.

1. Audit of computer security: A computer security audit is defined by NBS Special Publication 500-57^ as:

"An independent evaluation of the controls employed to ensure:

1. The appropriate protection of the organization's information assets (including

hardware, software, firmware, and data) from all significant anticipated threats or hazards;

2. The accuracy and reliability of the data maintained on or generated by an automated data processing system; and

3. The operational reliability and performance assurance for accuracy and timeli- ness of all components of the automated data processing system."

2. Audit of internal controls: An independent evaluation of the internal controls related to the area being audited. The evaluation should develop an opinion relating to the adequacy of the

internal controls to reduce risk to an acceptable level. Where internal controls are not acceptable, vulnerabilities should be identified. Auditing computer security is a subset of this activity.

3. Audit risk: Audit risks are the risks that are of concern to auditors,

4. Audit risk exposure: The possible forms of loss or harm that are of concern to auditors,

5. Audit risk exposure level : Proportional to the the probability of occurrence of the possible

forms of loss that are of concern to auditors,

6. Computer generated risk: Computer generated risk is the potential loss or damage to an

organization that results from the use or misuse of its computer. This may involve unauthorized

disclosure, unauthorized modification, and/or loss of information resources as well as the

authorized but incorrect use of a computer. This risk can be measured to some extent by performing a risk analysis. (Adapted from [NBS57], p.A-2)

1 [NBS57], p.A-3.

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7. Computer security: The current, generally accepted definition of computer security is given

in NBS Special Publication 500-57^

"Computer security is a state or condition that a computer system possesses.Computer security is never absolute. Rather, each system possesses security at some

level. Computer security is provided by internal safeguards (built into the

hardware and software) and external safeguards (physical and procedural) against

possible threats. The level of computer security is dependent on the degree to

which:

1. Tlie computer system's components (including hardware, software, firmware, and

data) are protected against all significant threats;

2. Data maintained on or generated by its data processing systems are accurate and

rehable; and

3. Its data processing systems are operationally reliable and satisfy criteria that as- sure the accurate and timely performance of the system."

8. Control: Any protective action, device, procedure, technique, or other measure that reduces

exposures. (FIPS102, p.61)

9. Exposure: A possible form of loss or harm, e.g., unauthorized disclosure, modification,

destruction, or denial of service.

10. Internal control: Any method, procedure, or practice used to reduce the probability of loss or harm due to a flaw or weakness in the system. Note that various accounting pubHcations

define control for specific purposes, such as internal accounting controls are controls used to

reduce financial risks.

11. OuaHty assurance: The planned, systematic process that ensures that automated system

products and acquisition/development processes comply with established standards, practices,

and procedures. Some of the quality assurance activities include lifecycle (a) validation,

verification, and testing; (b) monitoring of development and testing activities, and change controls; (c) data integrity assurance; and (d) reviews and audits.

12. Risk : Risk is a potential damaging event which, if it occurs, can produce losses (see Section 1.2.1)

13. Risk analysis : Risk analysis is an analysis of an organization's information resources, its existing controls, and its remaining organization and computer system vulnerabiHties. It combines the loss potential for each resource or combination of resources with an estimated rate

1 Ibid

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of occurrence to establish a potential level of damage to assets or resources in terms of dollars or other assets.

14. System development life cycle (^SDT .CV A systematic method used for building automated

information systems (AISs). This systematic process defines the activities and products/documents needed to create an AIS, and then divides the process into phases, assigning specific

products/documents to each phase.

The SDLC phases adopted in this document are:

Initiation pha,se: This phase recognizes the users' need, validates that need, ex- plores alternative functional concepts in order to recommend one for approval.

Definition phase: Defines the functional requirements and begins detailed planning for development of an operable AIS. The activities and goals for all phases,

including resource estimates and milestones, are determined during this phase.

Systems design phase: This phase develops the specification of the problem solution. The detailed design specifications describe the physical solution in such a way that it can be implemented in code with little or no need for additional

analysis.

Programming and training phase: This phase creates programs in accordance with

the system design. During this phase, a training plan and documents, as well as user and maintenance manuals are prepared.

Evaluation and acceptance phase: During this phase, completed code will undergo testing to validate its performance. The security requirements need to be certified by an appropriate authority prior to accreditation and installation.

Installation and operation phase: This phase is designed to: l)implement the approved operational plan, including extension to and installation at other sites;

2)continue approved operation; 3)budget adequately; and 4)control all changes

and maintain/modify the AIS during its remaining life.

15. Vulnerability: A vulnerability is a design, implementation, or operations flaw that may be

exploited by a threat, to cause the computer system or application to operate in a fashion different from its published specifications and to result in destruction or misuse of equipment or

data. ([NBS57], p.A-2]

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16. Vulnerability assessment : The process of (l)identifying flaws and the controls associated

with those flaws in order to evaluate the adequacy of the control to reduce the riskes to an ac- ceptable level; and (2)identifying those flaws for management action where risk levels are found to be too high.

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APPENDIX D

ADDITIONAL RISKS IN A COMPUTERIZED ENVIRONMENT

D.l IMPROPER USE OF TECHNOLOGY

Computer technology provides systems analysts and programmers with a variety of

processing capabilities. This technology must be matched to the needs of the user to optimize

the implementation of those needs. A mismatch of technology and needs can result in an unnecessary expenditure of organizational resources.

One of the more common misuses of technology is the introduction of new technology

prior to the clear establishment of its need. For example, many organizations introduce data

base technology without clearly establishing the need for that technology. Experience has

shown that the early users of a new technology frequently consume large amounts of resources during the process of learning how to use that new technology.

The type of conditions that lead to the improper use of technology include:

1. Early and/or premature user of new hardware technology;

2. Early user of new software technology;

3. Minimal planning for the installation of new hardware and software technology;

and

4. Systems analyst/programmer improperly skilled in the use of technology.

D.2 REPETITION OF ERRORS

In a manual processing environment, errors are made individually. Thus, a person might

process one item correctly, make an error on the next, process the next twenty correctly, and

then make another error. In automated systems, the rules are applied consistently. Thus, if the

rules are correct, processing is always correct, but if the rules are erroneous, processing will

always be erroneous.

Errors can result from application programs, hardware failures, and failures in vendorsupphed software. For example, a wrong percentage may have been entered for FICA deductions. Thus, every employee for that pay period will have the wrong amount deducted for FICA

purposes.

D1
The conditions that cause repetition of errors include:

1. Insufficient program testing;

2. Inadequate checks on entry of master information; and

3. Failure to monitor the results of processing.

D.3 CASCADING OF ERRORS

The cascading of errors is the domino effect of errors throughout an application system.

An error in one part of the program or application triggers a second yet unrelated error in

another part of the application system. This second error may trigger a third error, and so on.

The cascading of error risk is frequently associated with making changes to application

systems. A change is made and tested in the program in which the change occurs. However,

some condition has been altered as a result of the change, which causes an error to occur in

another part of the application system.

Cascading of errors can occur between applications. This risk intensifies as appHcations

become more integrated. For example, a system that is accepting orders may be tied through

a series of applications to a system that replenishes inventory based upon orders. Thus, an insignificant error in the order entry program can "cascade" through a series of applications

resulting in a very serious error in the inventory replenishment program.

The types of conditions that lead to cascading of errors include:

1. Inadequately tested appHcations;

2. Failure to communicate the type and date of changes being implemented; and

3. Limited testing of program changes.

D.4 ILLOGICAL PROCESSING

Illogical processing is the performance of an automated event which would be highly unlikely in a manual processing environment, for example, producing a payroll check for a clerical individual for over $1 million. This is possible in an automated system due to programming

or hardware errors, but highly unlikely in a manual system.

D-2
Computerized applications do not have the same human oversight as is incorporated into

manual systems. In addition, fewer people have a good understanding of the processing logic

of computerized applications. Thus, in some instances illogical processing may not be readily

recognizable.

The conditions that can result in illogical processing include:

1. Failure to check for unusually large amounts on output documents;

2. Fields that are either too small or too large, thereby impacting the completeness,

accuracy, or efficiency of the data being processed; and

3. Failure to scan output documents.

D.5 INABILITY TO TRANSLATE USER NEEDS INTO TECHNICAL REQUIREMENTS

One of the major failures of data processing has been a communication failure between

users and technical personnel. In many organizations users cannot adequately express their

needs in terms that facilitate the preparation of computerized applications. Likewise, the technical computer people are often unable to appreciate the concerns and requirements of their users.

The risk associated with failure to satisfy user needs is complex. Exposures include: (1)

failure to implement needs because users were unaware of technical capabilities; (2) improperly implemented needs because the technical personnel did not understand user requirements; (3) users accepting improperly implemented needs because they are unsure how to

specify changes; and (4) the building of redundant manual systems to compensate for weaknesses in computerized applications.

The conditions that can lead to the inability to translate user needs into technical requirements include:

1. Users without technical EDP skills;

2. Technical people without sufficient understanding of user requirements;

3. User's inability to specify requirements in sufficient detail; and

4. Multi-user systems with no user "in charge" of the system.

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D.6 INABILITY TO CONTROL TECHNOLOGY

The problems associated with the implementation of new technology have absorbed most

of the efforts of data processing personnel The SAC study [IIA-77- 1,2,3] implied that there

was too little time left to develop and install technological controls. The result is expenditure

of resources to correct technological problems.

Controls are needed over the technological environment. The controls ensure that the

proper version of the proper program is in production at the right time, that the proper files are mounted, that operators perform the proper instructions, that adequate procedures are developed to prevent, detect, and correct problems occuring in the operating environment,

and that the proper data is maintained and retrievable when needed. The types of conditions

that result in uncontrolled technology include:

1. Selection of vendor-offered system control capabilities by systems programmers

without considering audit needs;

2. Too many control tradeoffs for operational efficiency;

3. Inadequate restart/recovery procedures;

4. Inadequate control over different versions of programs;

5. Inadequate control over schedulers, system operators, tape librarians, print

capabihties, and data transmission capabilities; and

6. Inadequate review of outputs.

D.7 INCORRECT ENTRY OF DATA

In computerized applications, there is a mechanical step required to convert input data

into machine-readable format. In the process of conducting this task, errors can occur. Data

that was properly prepared and authorized may be entered into computerized applications incorrectly.

Much of the data entered into batch type systems is entered using a keyboard device.

Some of thse devices are keypunch machines and key-to-disk machines. The data originator

manually transcribes the input information onto some type of form, and the form is given to a key operator to enter on computer media. During this keying process, errors are made.

D-4
In the newer technology, data can be originated and entered at the same time. For ex- ample, order entry clerks receive orders by telephone and key them directly into computer

memory. However, errors can still occur during this process.

Other methods of data entry include optical scanners, process control computers that

monitor situations such as production machinery, automatic cash dispensers and point-of-sale

equipment. However, these are all mechanical devices and thus subject to failure.

The types of conditions that can cause incorrect entry of data include:

1. Human errors in keying data;

2. Mechanical failure of hardware devices;

3. Misinterpretation of characters or meaning of manually recorded input;

4. Misunderstanding of data entry procedures; and

5. Inadequate data verification procedures.

D.8 CONCENTRATION OF DATA

Computerized applications concentrate data in an easy to access format. In manual sys- tems, data is voluminous and stored in many places. It is difficult for an unauthorized individual

to spend much time browsing undetected through file cabinets or other manual storage areas.

Using computerized media, unauthorized individuals can browse using computer

programs. This may be difficult to detect without adequate safeguards. In addition, the data can be copied quickly without leaving any visible trail or destroying the original data. Thus,

the owners of the data may not be aware that the data has been compromised.

Data base technology increases the risk of data manipulation and compromise. The more

data stored in a single place, the greater the value of that data to an unauthorized individual.

For example, the information about an individual in the payroll application is restricted to cur- rent pay information, but when that data is coupled with personnel history, not only is current

pay information available, but also pay history, individual skills, years of employment, progression of employment, and perhaps performance evaluation.

The concentration of data increases the problems of greater reliance on a single piece of

data and reliance on a single computer file. If the data entered is erroneous, the more applications that rely on that piece of data, the greater the impact of the error. In addition, the more

D-5
applications that use the concentrated data, the greater the impact when that data becomes

unavailable due to problems with either the hardware or software used for processing that

data.

The conditions that can create problems due to the concentration of data in computerized

applications include:

1. Erroneous data and its impact on multiple users of that data;

2. Impact of hardware and software failures that ordinarily make the data available

to multiple users;

3. Inadequate access controls enabling unauthorized access to data; and

4. Inefficient use of system for data storage and/or retrieval, which may impact

response time or computer capacity.

D.9 INABILITY TO REACT QUICKLY

Much of the value of computerized appHcations is the ability to satisfy user needs on a

timely basis. Some of these needs are predetermined and reports are prepared on a regular

basis to meet these needs. Other needs occur periodically which require special actions to satisfy. If the computerized application is unable to satisfy these special needs on a timely basis,

redundant systems may be built for that purpose.

One of the measures of success of a computerized application is the speed with which

special requests can be satisfied. Some of the newer on-line data base applications with a query

language can satisfy some requests within a very short time span. On the other hand, some of

the older batch-oriented applications may take several days or weeks to satisfy a special re- quest. In some instances, the structuring of the application system is an inhibiting factor in

satisfying requests. For example, if an auditor wanted all of the supporting information for a supply requisition in a tape batched system, the cost and difficulty of satisfying that request

may be prohibitive. The reason is that the requisition could be spread over many weeks of

processing, due to back orders, returned shipments, and shipping errors. The evidence supporting the transaction may be spread over many tape files and the cost of processing those

files may be exhorbitant.

D-6
The conditions that can cause computerized applications to be unable to react quickly

include:

1. Computer time is unavailable to satisfy the request, or computer terminals/-

microcomputers are not readily accessible to users;

2. The structure of the computer files is inconsistent with the information requested;

3. General-purpose extract programs are not available to satisfy the desired request;

and

4. The cost of processing exceeds the value of the information requested.

D.IO INABILITY TO SUBSTANTIATE PROCESSING

Computerized applications should contain the capability to substantiate processing. This

substantiation includes both the ability to reconstruct the processing of a single transaction

and the ability to reconstruct control totals. Computerized applications should be able to

produce all of the source transactions that support a control total, and substantiate that any

source document is contained in a control total.

Application systems need to substantiate processing for the purposes of correcting er- rors and proving the correctness of processing. When errors occur, computer personnel need

to pinpoint the cause of those errors so they can be corrected. Computerized application cus- tomers, other users, and control-oriented personnel, such as auditors, frequently want to verify

the correctness of processing.

The conditions that may result in the inability to substantiate processing include:

1. Evidence is not retained long enough;

2. The evidence from intermediate processing is not retained;

3. Evidence is not independently reviewed for quality assurance and/or data integrity;

4. Outputs are not reviewed for quality by the users; and

5. The cost of substantiating processing exceeds the benefits derived from the

process.

D-7
D.ll CONCENTRATION OF RESPONSIBILITIES

The computerization of an application tends to concentrate the responsibihties of many

people into the automated application. Responsibilities that had been segregated for control

purposes among many people may be concentrated into a single application system. In addition, a single application system may concentrate responsibilities from many departments

within an organization.

The responsibilities in a computerized environment may be concentrated in both the application system and computer-oriented personnel. For example, the data base administrator

may absorb data control responsibilities from many areas in the organization. A single computer system project leader may have the processing responsibility for many areas in the or- ganization. New methods of separation of duties must be substituted for the previous

segregation of duties among people.

The conditions that cause the concentration of responsibilities in a computerized en- vironment include:

1. The establishment of a data processing programming and systems group to

develop computerized applications for an organization;

2. Centralized processing of computerized applications;

3. Establishment of a data base administration function;

4. The lack of adequate standards and enforcement of those standards; and

5. The lack of adequate quality assurance and systems or applications testing.

D-8
APPENDIX E

VULNERABILITIES IN A COMPUTERIZED ENVIRONMENT

The following five pages are an exact duplicate of the application system vulnerabilities

list found in FTPS PUB 65, GUIDELINE FOR AUTOMATIC DATA PROCESSING RISK

ANALYSIS. It is included here for the convenience of the reader.

E-1
1. ERRONEOUS OR FALSIFIED DATA INPUT. Erroneous or falsified input data is the

simplest and most common cause of undesirable

performance by an applications system. Vulnerabilities occur wherever data is collected, manually processed, or prepared for entry to the

computer.

• Unreasonable or inconsistent source data

values may not be detected.

• Keying errors during transcription may

not be detected.

• Incomplete or poorly formatted data rec- ords may be accepted and treated as if they

were complete records.

• Records in one format may be interpreted

according to a different format.

• An employee may fraudulently add, delete, or modify data (e.g., payment vouchers,

claims) to obtain benefits (e.g., checks,

negotiable coupons) for himself.

• Lack of document counts and other controls over source data or input transactions may

allov^ some of the data or transactions to be lost M^ithout detection—or allow extra

records to be added.

• Records about the data-entry personnel

(e.g., a record of a personnel action) may

be modified during data entry.

• Data which arrives at the last minute (or

under some other special or emergency

condition) may not be verified prior to processing.

• Records in which errors have been detected

may be corrected without verification of

the full record.

2. MISUSE BY AUTHORIZED END USERS.

End users are the people who are served by the

ADP system. The system is designed for their

use, but they can also misuse it for undesirable

purposes. It is often very difficult to determine

whether their use of the system is in accordance

with the legitimate performance of their job.

• An employee may convert Government

information to an unauthorized use; for

example, he may sell privileged data about an individual to a prospective employer,

credit agency, insurance company, or competitor; or he may use Government statistics for stock market transactions before

their public release.

• A user whose job requires access to individual records in a file may manage to compile a complete listing of the file and

then make unauthorized use of it (e.g., sell a listing of employees' home addresses as a mailing list)

.

• Unauthorized altering of information may

be accomplished for an unauthorized end

user (e.g., altering of personnel records).

• An authorized user may use the system for

personal benefit (e.g., theft of services).

• A supervisor may manage to approve and

enter a fraudulent transaction.

• A disgruntled or terminated employee may

destroy or modify records—possibly in

such a way that backup records are also

corrupted and useless.

• An authorized user may accept a bribe to modify or obtain information.

3. UNCONTROLLED SYSTEM ACCESS. Organizations expose themselves to unnecessary

risk if they fail to establish controls over who

can enter the ADP area, who can use the ADP

system, and who can access the information

contained in the system.

• Data or programs may be stolen from the

computer room or other storage areas.

• ADP facilities may be destroyed or damaged by either intruders or employees.

• Individuals may not be adequately identified before they are allowed to enter ADP

area.

• Remote terminals may not be adequately

protected from use by unauthorized persons.

• An unauthorized user may gain access to the system via a dial-in line and an authorized user's password.

• Passwords may be inadvertently revealed

to unauthorized individuals. A user may

write his password in some convenient

place, or the password may be obtained

from card decks, discarded printouts, or by observing the user as he types it. • A user may leave a logged-in terminal

unattended, allowing an unauthorized per- son to use it. • A terminated employee may retain access

to ADP system because his name and passE-2
word are not immediately deleted from

authorization tables and control lists. • An unauthorized individual may gain ac- cess to the system for his own purposes

(e.g., theft of computer services or data

or programs, modification of data, alteration of programs, sabotage, denial of ser- vices)

.

• Repeated attempts by the same user or terminal to gain unauthorized access to the

system or to a file may go undetected.

4. INEFFECTIVE SECURITY PRACTICES

FOR THE APPLICATION. Inadequate manual checks and controls to insure correct

processing by the ADP system or negligence

by those responsible for carrying out these

checks result in many vulnerabilities.

• Poorly defined criteria for authorized ac- cess may result in employees not knowing

what information they, or others, are permitted to access.

• The person responsible for security may

fail to restrict user access to only those

processes and data which are needed to accomplish assigned tasks.

• Large funds disbursements, unusual price

changes, and unanticipated inventory usage

may not be reviewed for correctness.

• Repeated payments to the same party may

go unnoticed because there is no review.

• Sensitive data may be carelessly handled

by the application staff, by the mail service, or by other personnel within the

organization.

• Post-processing reports analyzing system

operations may not be reviewed to detect

security violations.

• Inadvertent modification or destruction of

files may occur when trainees are allowed

to work on live data.

• Appropriate action may not be pursued

when a security variance is reported to the system security officer or to the perpetrating individual's supervisor; in fact,

procedures covering such occurrences may

not exist.

5. PROCEDURAL ERRORS WITHIN THE

ADP FACILITY. Both errors and intentional

acts committed by the ADP operations staff

may result in improper operational procedures,

lapsed controls, and losses in storage media and

output.

Procedures and Controls

:

• Files may be destroyed during data base

reorganization or during release of disk

space.

• Operators may ignore operational procedures ; for example, by allowing programmers to operate computer equipment.

• Job control language parameters may be

erroneous.

• An installation manager may circumvent

operational controls to obtain information.

• Careless or incorrect restarting after shutdown may cause the state of a transaction

update to be unknown.

• An operator may enter erroneous information at CPU console (e.g., control switch

in wrong position, terminal user allowed

full system access, operator cancels wrong

job from queue)

.

• Hardware maintenance may be performed

while production data is on-line and the

equipment undergoing maintenance is not

isolated.

• An operator may perform unauthorized

acts for periSonal gain (e.g., make extra

copies of competitive bidding reports, print

copies of unemployment checks, delete a

record from journal file).

• Operations staff may sabotage the computer (e.g., drop pieces of metal into a

terminal)

.

• The wrong version of a program may be

executed.

• A program may be executed using wrong

data or may be executed twice using the

same transactions.

• An operator may bypass required safety

controls (e.g., write rings for tape reels)

.

• Supervision of operations personnel may

not be adequate during non-working hour

shifts.

• Due to incorrectly learned procedures, an

operator may alter or erase the master files. • A console operator may override a label

check without recording the action in the

security log.

Storage Media Handling:

• Critical tape files may be mounted without

being write protected.

E-3
• Inadvertently or intentionally mislabeled

storage media are erased. In a case where

they contain backup files, the erasure may

not be noticed until it is needed.

• Internal labels on storage media may not

be checked for correctness.

• Files with missing or mislabeled expiration

dates may be erased.

• Incorrect processing of data or erroneous updating of files may occur when card

decks have been dropped, partial input

decks are used, write rings mistakenly are placed in tapes, paper tape is incorrectly

mounted, or wrong tape is mounted.

• Scratch tapes used for jobs processing sensitive data may not be adequately erased

after use.

• Temporary files written during a job step

for use in subsequent steps may be errone- ously released or modified through inadequate protection of the files or because of an abnormal termination.

• Storage media containing sensitive information may not get adequate protection

because operations staff is not advised of

the nature of the information content.

« Tape management procedures may not adequately account for the current status of

all tapes.

• Magnetic storage media that have con- tained very sensitive information may not

be degaussed before being released.

• Output may be sent to the wrong individual or terminal.

• Improperly operating output or postprocessing units (e.g., bursters, decollators or multipart forms) may result in loss of

output.

• Surplus output material (e.g., duplicates of

output data, used carbon paper) may not

be disposed of properly.

• Tapes and programs that label output for

distribution may be erroneous or not protected from tampering.

6. PROGRAM ERRORS. Applications programs should be developed in an environment

that requires and supports complete, correct,

and consistent program design, good programming practices, adequate testing, review, and

documentation, and proper maintenance procedures. Although programs developed in such

an environment will still contain undetected

errors, programs not developed in this manner

will probably be rife with errors. Additionally,

programmers can deliberately modify programs

to produce undesirable side effects or they can misuse the programs they are in charge of.

• Records may be deleted from sensitive files without a guarantee that the deleted rec- ords can be reconstructed.

• Programmers may insert special provisions

in programs that manipulate data concern- ing themselves (e.g., payroll programmer

may alter his own payroll records)

.

• Data may not be stored separately from

code with the result that program modifications are more difficult and must be

made more frequently.

• Program changes may not be tested adequately before being used in a production

run.

• Changes to a program may result in new

errors because of unanticipated interactions between program modules.

• Program acceptance tests may fail to detect errors that only occur for unusual combinations of input (e.g., a program that is

supposed to reject all except a specified

range of values actually accepts an additional value)

.

• Programs, the contents of which should be

safeguarded, may not be identified and

protected.

• Code, test data with its associated output,

and documentation for certified programs

may not be filed and retained for reference.

• Documentation for vital programs may not

be safeguarded.

• Programmers may fail to keep a change

log, to maintain back copies, or to formalize

recordkeeping activities.

• An employee may steal programs he is maintaining and use them for personal

gain (e.g., sale to a commercial organization, hold another organization for extortion) . • Poor program design may result in a criti- cal data value being initialized twice. An

error may occur when the program is modified to change the data value—but

only changes it in one place.

• Production data may be disclosed or E-4
destroyed when it is used during testing.

• Errors may result when the programmer

misunderstands requests for changes to the

program.

• Errors may be introduced by a programmer who makes changes directly to machine

code.

• Programs may contain routines not compatible with their intended purpose, which

can disable or bypass security protection

mechanisms. For example, a programmer

who anticipates being fired inserts code

into a program which will cause vital system files to be deleted as soon as his name

no longer appears in the payroll file. • Inadequate documentation or labeling may

result in wrong version of program being

modified.

7. OPERATING SYSTEM FLAWS. Design

and implementation errors, system generation

and maintenance problems, and deliberate penetrations resulting in modifications to the operating system can produce undesirable effects in

the application system. Flaws in the operating

system are often difficult to prevent and detect.

• User jobs may be permitted to read or write outside assigned storage area.

• Inconsistencies may be introduced into data

because of simultaneous processing of the

same file by two jobs.

• An operating system design or implementation error may allow a user to disable

audit controls or to access all system information.

• The operating system may not protect a copy of information as thoroughly as it protects the original.

• Unauthorized modification to the operating

system may allow a data entry clerk to enter programs and thus subvert the system.

• An operating system crash may expose

valuable information such as password lists or authorization tables.

• Maintenance personnel may bypass security

controls while performing maintenance

work. At such times the system is vulnerable to errors or intentional acts of the

maintenance personnel, or anyone else who

might also be on the system and discover

the opening (e.g., microcoded sections of

the. operating system may be tampered

with or sensitive information from on-line

files may be disclosed).

• An operating system may fail to record

that multiple copies of output have been

made from spooled storage devices.

• An operating system may fail to maintain

an unbroken audit trail.

• When restarting after a system crash, the

operating system may fail to ascertain that

all terminal locations which were previously occupied are still occupied by the

same individuals.

• A user may be able to get into monitor or supervisory mode.

• The operating system may fail to erase all scratch space assigned to a job after the

normal or abnormal termination of the job.

• Files may be allowed to be read or written

without having been opened.

8. COMMUNICATIONS SYSTEM FAILURE.

Information being routed from one location to another over communication lines is vulnerable

to accidental failures and to intentional interception and modification by unauthorized

parties.

Accidental Failures

• Undetected communications errors may

result in incorrect or modified data.

• Information may be accidentally misdirected to the wrong terminal.

• Communication nodes may leave unprotected fragments of messages in memory

during unanticipated interruptions in

processing.

• Communication protocol may fail to positively identify the transmitter or receiver

of a message.

Intentional Acts

• Communications lines may be monitored

by unauthorized individuals.

• Data or programs may be stolen via tele- phone circuits from a remote job entry

terminal.

• Programs in the network switching computers may be modified to compromise

security.

• Data may be deliberately changed by individuals tapping the line (requires some

E-5
sophistication, but is applicable to financial

data)

.

® An unauthorized user may "take over" a computer communication port as an au- thorized user disconnects from it. Many

systems cannot detect the change. This is particularly true in much of the currently

available communication equipment and in

many communication protocols.

• If encryption is used, keys may be stolen.

• A terminal user may be "spoofed" into

providing sensitive data.

• False messages may be inserted into the

system.

• True messages may be deleted from the

system.

• Messages may be recorded and replayed

into the system ("Deposit $100" messages)

.

E-6
APPENDIX F

EVIDENCE PROVIDED BY COMPUTER TECHNOLOGY

F.l TRADITIONAL FORMS OF AUDIT EVIDENCE

The evidence produced by an AIS may be different than that produced by manual sys- tems. It is important for the auditor to understand these new forms of evidence because the

methods used for auditing will change as the forms of evidence change. The following is a list- ing of the traditional forms of evidence that exist when manual processing is used. The description provides an example of how the computer can change the forms of that evidence:

1. People-initiated transactions - Transactions originated by people and entered

into a system for processing. In computerized applications, transactions can be

automatically generated. For example, the application can automatically issue a replacement order when inventory falls below a reorder point.

2. Hard-copy input - The manual recording of the information needed to originate a transaction. In computerized applications information can be entered through

a terminal, which leaves no hard document. For example, a pay rate change can be entered on a computerized payroll master file through a computer terminal.

3. Manual authorization - People, usually supervisors, review transactions and then

affix their signature, initials, or stamp to the document indicating authorization

for processing. In computerized applications, authorization can be predetermined. For example, sales on credit can be automatically approved if a predetermined credit limit is not exceeded. Other methods of electronic authorization

include entering a password, inserting a magnetically-encoded card, or turning a

supervisory key in a terminal.

4. Movement of documents - People carry documents from one workstation to

another, or move the documents by mail or equivalent service from one place of

business to another. By these methods, a physical document is moved. In computerized applications, the data can be sent electronically. The data is transcribed,

coded, often condensed, and then moved electronically over communication

lines.

5. Hard-copy processing - Processing is manually performed using the transaction

documents. For example, a form might show the steps performed by a procurement officer in selecting a vendor. Normally the documents contain work space

to perform the necessary processing. In computerized apphcations, processing is

F-1
done electronically within computer storage by computer programs following

predetermined rules.

6. Simplified processing - The processing performed must be simplified so that

people can perform the steps repetitively without a high probability of error. In

computerized applications, processing can be extremely complex due to the speed

and accuracy of the computer. For example, production scheduling can be calculated hundreds of different ways in order to select the most effective schedule.

7. Manuals of master information - The permanent-type information needed for

processing, such as pay rates and product pricing, is maintained in manuals. For

example, if GS pay rates by step are in manuals that evidence can be read by

people. In computerized applications, this information is stored on computer

media.

8. Hard-copy output - The results of processing are listed on hard-copy documents,

such as checks and reports. Frequently these documents contain the intermediate

processing results. In computerized applications, processing may not result in the

production of hard-copy documents. For example, funds can be transferred

electronically, output reports displayed on video screens. In some systems,

routine information is withheld so that the recipient receives only exception items

which require action.

9. File of documents - Input, processing, and output documents are stored in file cabinets or similar containers. When the data is needed, it can be manually located and retrieved from the physical storage area. In a procurement system, purchase orders might be stored in a file cabinet. In computerized apphcations, most

files exist on computer media, such as tapes and disks. To retrieve data from these

media requires the use of extract programs.

10. Hard-copy audit trail - The information needed to reconstruct processing is contained in hard-copy documents. These documents contain source data, the

authorization signature, methods of processing, and output results. This is nor- mally sufficient information to reconstruct the transaction and to trace the transaction to control totals, or from control totals back to the source document. For

example, a payroll paper audit trail would permit the reconstruction of each

employee's salary. In computerized applications, the audit trail may be fragmented, such as often occurs in a data base environment. Also, much of the audit

trail information may be stored on computer media. Computerized audit trails

frequently require the user of the audit trail to understand the rules of processing

F-2
because it may not be obvious which processing path was taken, especially when

computer processing is complex.

11. Procedure manual - All of the steps needed to process transactions through a sys- tem are contained in one or more procedure manuals. These are guides for people

in moving and processing transactions. For example, procedures might be

developed to define the steps to follow when a transaction is outside normal

processing, such as a claim for a nonreimbursed healthcare expense.

12. Manual monitoring - People, normally supervisors, oversee and review processing to determine its reasonableness, accuracy, completeness, and authorization.

For example, a supervisor would review department purchase orders for correct- ness and need prior to sending them to procurement. In computerized applications, much of this monitoring is performed automatically using predetermined

program logic. It is difficult to have people monitor processing as computer sys- tems become more integrated and complex and the processing cycle is shortened.

13. Proof of segregation of duties - Segregation of duties occurs by dividing tasks

among people. In computerized applications, segregation of duties not only involves the division of tasks among people, but the division of tasks among

automated processing steps. For example, one computer program may process

one part of a transaction, while another computer program processes a different

part.

14. Bulk processing techniques - The processing of large amounts of data may involve

re-sequencing or matching diverse data elements. This is often difficult and costly in a manual system, so it is only done when necessary. In computerized applications, large amounts of data can be stored in a single data base. The speed and

processing capability of the computer makes this data available in any format

desired. In a computerized environment, more complex analyses and secondary

uses of data can be made.

F.2 IMPACT OF COMPUTER TECHNOLOGY ON EVIDENCE

The introduction of the computer may change the traditional forms of evidence. If this

evidence changes, so must the methods of auditing change. Tools and techniques that are effective in a manual environment may not be applicable to audits in the computerized environment.

F-3
The forms of evidence that the auditor examines in a manual environment include:

1. Origination documents such as purchase orders, employee timecards, and requisition forms;

2. Approval evidence such as signatures, time stamps, and date stamps;

3. Processing evidence, including calculation forms, master data manuals, and adding machine tapes; and

4. Output evidence, including checks, bank statements, invoices and reports.

Understanding how computer technology impacts audit evidence enables the auditor to

recognize and appreciate the need to audit differently in a computerized environment. This

section will review the traditional forms of evidence in a manual environment and then identify the types of automated technology that may impact the traditional forms of evidence. This

will assist auditors in determining whether they need to modify their audit methods because

of the introduction of the computer.

F.3 IMPACT OF CHANGING EVIDENCE ON AUDIT

Most organizations subject to an audit function have a computer. In these organizations,

most applications are computerized. Thus, the question the auditor must ask is, "Does the computer impact my audit?" The audit is impacted if the form of audit evidence is changed. This

changed form of evidence can create new audit concerns, and at the same time require the

auditor to use new audit methods to obtain and/or examine the evidence.

F.3.1 The Audit Dilemma

One can look at two implementations of a computerized payroll application to assess the

audit impact of the computer on each implementation. An auditor is assigned to conduct an

audit of a payroll application. The application is computerized and the auditor needs to design an audit strategy. The audit dilemma is what, if anything, is different about the audit because

the application is computerized.

Case A - Computerized Payroll Application

Organization A computerized their payroll application. In this appHcation, each

employee fills out a timecard and the employee's supervisor signs the timecard approving the

hours. The data is entered into the application on a key-to-disk machine, and a copy of the

entered information is returned to the supervisor for verification. At the beginning of each pay

F-4
period, a listing is prepared of all changes to the payroll rates and deductions. Also, a detailed

report is printed listing each employee's pay i nformation, pay history, pay deductions, and wage

status at the end of that pay period. Each department gets a report showing all the information used for preparing payroll, together with the results of that processing. The checks are printed and then distributed by each employee's supervisor. The endorsed checks are independently reconciled by personnel outside the payroll department.

This application has not significantly changed the traditional forms of evidence. Thus,

the same methods used to audit a manual payroll system would be effective in the audit of this

computerized payroll application. However, the auditor may wish to use automated audit

methods, such as audit software, to improve the efficiency and economy of the audit.

Case B - Computerized Payroll Application

Organization B computerized their payroll application using data collection terminals.

Employees were issued magnetically encoded cards and when they enter and leave work they

insert these cards into the data collection equipment. This records employee start and stop

times. The personnel department uses a terminal to enter payroll changes into a payroll data

base. The effective date of the change is entered with the data so that information can be

entered whenever available. The results of payroll processing are transmitted electronically

to banks and deposited to employee accounts in that bank. The pay information is printed into

sealed envelopes and mailed to the employee's home.

In this application, the forms of evidence have changed significantly. These new forms of

evidence should raise audit concerns and cause the auditor to use new audit methods. Both

cases represented computerized applications. The cases are provided to illustrate that the computer itself should not be the key concern to the auditor but, rather, the effect of the application on the audit evidence.

F.3.2 Changing Forms of Evidence

The method for assessing the impact of the computer on the audit is to review whether

computer technology has changed the traditional forms of evidence. In Case A, the computer

was introduced but the evidence did not change. Therefore, the computer had little or no impact on the audit. In Case B, there was a significant change in the forms of evidence, and thus

the methods of auditing need to be changed accordingly.

F-5
Prior to undertaking an audit of a computerized application, the auditor should identify

the type of technology used. For example, the auditor would identify whether or not data is stored on computer storage media, whether communication facilities are used, etc. Then, by

using the Audit Impact Matrix (Figure F.l)l, the auditor can identify the type of evidence that

may be impacted by that technology. The auditor should then investigate whether or not the

audit evidence has, in fact, been impacted. For example, on-line input/output devices can impact the means of authorization. Knowing this, the auditor determines if, in fact, the methods

of authorization have changed. If so, the auditor needs to consider whether this creates new

audit concerns and/or necessitates new audit methods.

F.4 OBTAINING NEW FORMS OF EVIDENCE

Computer technology produces new forms of evidence. Much of the evidence is encoded

on computer media and thus requires special effort to transcribe it into human-readable format. Other evidence is in the form of systems documentation. Special ADP skills may be

needed in order to properly assess the completeness and usefulness of this documentation.

Figure F.2, entitled "Comparison of Old and New Forms of Evidence," is provided as a guide to auditors in identifying, obtaining, and assessing these new forms of evidence. The

figure is not meant to be all-inclusive but, rather, representative of the types of new forms of

evidence and the audit methods needed to obtain and utilize that evidence.

F.5 ANTICIPATING EVIDENCE AND RELATED CONTROLS

During AIS development, both managers and auditors must anticipate the evidence

needed from the system to effectively discharge their responsibilities and thereby insure consideration is given to the related controls.

1 Figures F.l and F.2 have been taken from [AUER86 + 1, Appendix B-1, with permission.

F-6
Figure F. 1 . Audit Impact Matrix

Computer Technology

Audit

Input/

Output

Devices

Media

Programming

3)

Crt

Systems

Documentation Evidence (0cO

Online Commu

calion

Storage Data

Ba

People-initiated transactions

Hard copy input *^ Manual authorization

Document transmission

Hard copy processing (simplified procedures) (^) (^) ^

Manuals of master information

Hard copy output >^

' Documents filing

Hard copy audit trail Procedure manuals

Manual monitoring

Segregation of duties

Large volume processing (accessibility/usability)

1

F-7
Figure F.2. Comparsion of Old and New Forms of Evidence

Traditional Form

ot Evidence New Form

of Evidence Methods for Obtaining New Evidence

Paople-initiated transactions Computer-generated

transactions

Auditor must examine systems

documentation and/or programs to review where and how the computer

generates transactions Transactions can

be tested two ways; First, test data can

be created for the program to determine whether transactions are correct and

generated at the appropriate times. Second, using audit software, the auditor can extract the detailed records entering

the program and the computergenerated transactions exiting the program. The auditor must then manually confirm whether the

transaction was properly generated.

Hard copy input Terminal-initiated input Audit software can be used to sample a number of the input transactions; their authenticity must then be verified with the individual(s) responsible for entering them.

Manual authorization Automatic or electronic authorization Audit software can be used to prepare

letters asking the individual responsible

for the authorization to confirm that it was, in fact, valid.

Manual document

transmission Telecommunications The auditor can extract all of the documents transmitted from one work

station and compare them to an extract

of the transactions received at another

location

Hard copy processing Computer

programming

There are several methods of verifying computer processing First, test data can

be run through the program and compared against manually calculated

results Second, the auditor can write a

Simulation routine and compare actual processing against running the same

data through the simulation routine. Third, the auditor can flowchart the program using an automatic

flow-charting routine and then "paper

debug" the processing to determine that

it is correct.

Master information manual Computer master file Using audit software, the auditor can

extract a sample of master information

information) and compare it to the

authorization documents to enter that information

L/UUUfMt7Ml IIIIIIU ^Amni itor filo The 1 lie a\j\l\v\ji anrlitrtr ^an ^Cll 1 iico use :3iiHrt auuil cnftwaro dwltwaic fnlu extract needed information from the computer file to print as hard copy

Procedure manuals Data dictionary The auditor can request printouts from the

attributes.

Manual monitoring Computer edits and

audits Erroneous test data can be entered into the computer to determine that the edit and audit routines prevent or detect those errors

Segregation of duties Division of automated

processing The auditor can use a tiansaction conflict matrix to verify that there is adequate

separation among automated processing

steps

F-8
APPENDIX G

KEY REFERENCES - ANNOTATED

1. AUTOMATIC DATA PROCHSSTNG AND TRLRCOMMUNICATIONS IN THE

FEDERAL GOVERNMENT Office of Information and Regulatory Affairs, Office of

Management and Budget, Washington, DC 20503, January 1985 [OMB85]: This document is an armotated bibliography. Much of what is included here is new since 1982 and is likely to be

under constant revision. Laws, policies, and regulations concerning ADP and telecommunications change rapidly and present a bewildering complexity to the uninitiated. Both

government and the private sector are publishing increasing numbers of guides for keeping

abreast of new technologies, systems, and products as aids in planning for the future. A complete and current bibliography is impossible to maintain.

The descriptions of laws and other documents listed herein are for information purposes

only and should not be interpreted as policy statements in themselves.

The bibliography is arranged by issuing agency and type of document. A subject guide is also provided at the end of the document. Citations are generally arranged in reverse chronological order, with the most current materials listed first. Exceptions to this rule are numbered series of documents, which are listed in numerical order regardless of issue date.

Numbered series, such as Federal Information Processing Standards, are not indexed in the

subject guide and hence must be scanned separately. For major reports, aimotations are provided.

2. ADP AUDFT GUIDE. VOLUME 2. GUIDELINES FOR AUDFFS OF COMPUTERBASED SYSTEMS UNDER DEVELOPMENT. U.S. Air Force Audit Agency, November 1, 1980 [AFAA80]: This audit guide provides guidelines for auditing computer-based systems

under development. The guidelines explain the auditor's role, then provide a methodology for

surveying the environment in which the system is being developed. The audit guide emphasizes

the importance of allocating audit effort toward the high-risk areas. The guide is divided into

two major parts: (1) project planning and management; and (2) system development project

execution. These two parts are subdivided into the key aspects of those two areas, and then

there are twenty chapters, one provided for each criterion, providing guidelines for evaluating that aspect of project planning and management, and system development project execution.

3. INFORMATION SYSTEMS AUDIT PROCESS. S. Rao Vallabhaneni, CPA, CMA, CISA^

EDP Auditors Foundation, Inc., P.O. Box 88180, Carol Stream, IL 60188, 1983 [VALLS83]:

This book is designed to provide adequate coverage of subject material for candidates taking

the Certified Information Systems Auditor (CISA) examination, a program of the EDP

Auditors Foundation. The book focuses on the substantive issues covered by the CISA exG1
amination. For general information such as examination study techniques, test-taking skills,

sample examination questions and answers, development of the job dimensions, and administrative matters, please refer to the CISA Study Guide of January 1981.

The purpose of this reference is to demonstrate the skills needed to audit systems under

development. Auditors lacking skills in any of the eleven job-dimension categories identified

should obtain additional training in those areas prior to conducting audits of systems under

development.

4. COMPUTER SYSTEM SECURITY (CSS) SCOPING FOR OPERATIONAL TEST

AND EVAT I lATION (OT&FX The BDM Corporation, 1801 Randolph Road, SE, Albuquerque, NM 87106, October 31, 1984 [BDM84]: This report describes the scope of operational

test and evaluation for computer system security. In audits of sensitive systems where security

is important as a requirement, this document can be used to scope the nature of security

problems, and then what type of operational test and evaluation needs to be taken based on

those potential security risks. The book identifies security requirements and then indicates the

type of tests that can be undertaken in each of those areas.

5. OFFICE OF INSPECTOR GENERAL AUDIT PLAN FOR REVIEWING DEVEI OPMENTAL SYSTEMS. U.S. Department of the Interior, Office of Inspector General, 134

Union Blvd., Suite 520, Lakewood, CO 80228, 1986 [DOI86] : This audit plan proposes a threephase approach to auditing developmental systems in the department. The three phases are intended to provide maximum oversight during the developmental process with minimum

auditor involvement. The primary objectives of such an oversight role are to assure:

Proposed systems are needed.

Systems are properly justified, feasible, and cost beneficial.

Systems development is properly planned and controlled.

Users are fully involved and trained.

Systems are adequately tested and converted in a controlled manner.

All internal controls are adequate and work, including audit trails. Audit resources are conserved.

6. AUDITOR'S MANUAL FOR SYSTEMS DEVELOPMENT LIFE CYCLE REVIEWS. Bureau of Government Financial Operations, Department of the Treasury, Office of Inspector General [DOTR-1]: The purpose of this manual is to create a structured approach to sys- tems development hfe cycle (SDLC) audits. The authors researched existing publications on

the subject and consulted organizations that conduct training in this area. From these sources,

the authors were able to develop a methodology that detailed the audit objectives and techniques required to carry out an effective review of the development of a system throughout its

life cycle. The auditor should look at this manual not as a cookbook for performing SDLC

G-2
audits but as a guide for effectively developing a structured audit approach geared to the

specifics of the systems development project under review.

Before the auditor can use this manual as a guide to structure an audit program, the

specific objectives, parameters, and constraints of the systems development project under

review must be clearly identified. In other words, the auditor must understand the system

before he can determine the structure of the audit program. As was detailed in the introduction, the primary function of an audit is to assure management that the system has adequate

internal controls, meets identified objectives and user requirements, and is auditable.

7. RFVTFW OF NEW OR MODTFTRD DRSTGN, Department of the Treasury, Office of the

Inspector General, Bureau of the Public Debt [DOTR-2]: This audit guide is based on the six

objectives of the additional GAO audit standard on audit involvement in systems development

(Appendix I in GA081-1). For each of the following seven phases, the audit guide provides a

brief summary of what the auditor should do, followed by detailed audit checklists: (1) systems

plaiming, (2) user specifications, (3) technical specifications, (4) program development and

testing, (5) user procedures and training, (6) systems testing, and (7) conversion/implementation.

8. SYSTEM REVIEW AUDIT GUIDELINES. Richard P. Bush, George W. Steffen, Thomas

M. O'Callaghan, Auditing Department, Federal Reserve Bank of Chicago, October 1981

[FRB81]: This audit guide keys the auditor involvement in systems development to specific

control objectives. The guidehnes do not attempt to tell an auditor what steps to follow when

auditing a system development project. Rather, they point out the most important objectives

of the process and leave it to the auditor to determine the degree of attention to these objectives. All objectives included in this set of guidelines are viewed to be critical to the system

development process. A prudent auditor would therefore give appropriate consideration to

all of these objectives when reviewing a system development project.

It is expected that an auditor will use these guidelines as a basis for developing detailed

audit procedures for reviewing system development projects. The authors of this document

believe that the decision as to the type and extent of audit procedures employed is best left to

the audit function performing the review.

9. MUFTI-AGENCY - ADP SYSTEM DEVET OPMENT FIFE CYCLE PROCESS. U.S.

Department of Agriculture, Office of Inspector General, Washington, DC August 1983

[DOA83]: This document explains the system development life cycle process, from the

perspective of what should be included in each life cycle phase. Knowing this information, the

auditor is then informed as to what to look for during an audit of a system under development.

G-3
This audit guide is provided for use by OIG auditors involved in the review of automated

system development activities. This guide was developed to provide a consistent approach

within OIG for monitoring ADP systems development. This guide should be used for all audits

which involve the monitoring of an ongoing system development effort or the review of an

operational system from a development standpoint.

10. EVALUATTNG INTERNAL CONTROT.S TN COMPT JTRR-RASRD SYSTFMS U.S.

Government Accounting Office, June 1981 [GA081-3]: This guide is intended to help auditors

make a detailed review and evaluation of internal controls in computer-based systems. It includes the kinds of controls an auditor should expect to find in computer-based systems but

does not try to estabhsh standards for specific combinations of controls that should be used.

Therefore, any one system would not include all the kinds of controls in the guide.

Detailed procedures are presented in sections as follows:

Initial data collection

Identification and evaluation of internal controls

Detailed analysis and testing of controls and records

Reporting and recommendations

It is not intended that all sections be applied to every audit. Questionnaires, checklists,

internal control profiles, and internal control matrices are also included.

11. A STANDARD FOR AUDITING COMPIJTRR APPLICATIONS. WilHam E. Perry,

AUERBACH PubHshers, 6560 N. Park Avenue, Pennsauken, NJ [AUER86 + ]: This audit

guide is directed primarily at audits of operational systems. It presents an EDP audit in stepby-step format. However, the manual contains specialized sections, for example, a section on

data base controls, that should prove beneficial in applications using these technologies. Also,

the detailed operational programs should be beneficial in evaluating the adequacy of controls

during development.

All large CPA firms have their own audit guidelines. For example, Arthur Andersen is- sued "A Guide for Studying and Evaluating Internal Accounting Controls;" and Touche Ross

& Company has the 'Touche Ross Audit Process." Generally, these are available from the CPA

firms. Auditors should inquire of the firms auditing governmental agencies as to what audit

guides they have available, and request them if the firms make them available to their cHents

or other interested parties.

12. STANDARDS FOR AI JDTT OF GOVERNMENT ORGANIZATIONS. PROGRAMS.

ACTIVITIES. AND FUNCTIONS. GAO, 1981 Revision [GA081-1]: This document contains the standards to be followed by Federal auditors in performing their independent audit

G-4
function. Auditing scope encompasses three areas: financial and compliance; economy and efficiency; and program results. The four general standards relating to the scope of audit work

are auditor qualifications, independence, due professional care, and scope impairments. This

standards document also includes an appendix providing guidelines for the auditor's role

during system development, design, and modification.

13. ATJDTTTNG rOMPTITFR SYSTFMS FTP Technical Library, Port Jefferson Station,

N.Y. 11776, 1981 plus updates [FTP81 + ]: This extensive manual is currently in four volumes

and covers the computer audit field. Volume II addresses audit participation in the design of

systems, system conversion, and system and program change.

14. INTERNAL CONTROLS. FTP Technical Library, Port Jefferson Station, N.Y. 11776,

1980 plus updates [FTP80 + ]: This manual explains how controls should be built into

automated information systems. It includes an appendix which describes the functioning of over 500 different controls.

15. EDPACS (EDP AUDFF, CONTROL, AND SECURFFY NEWSLETFER), Automation

Training Center, Inc., Reston, Virginia 22090 [EDPACS]: EDPACS is a monthly newsletter

on EDP audit, control, and security topics. The newsletter normally contains at least one ex- tensive article on a specific EDP audit or security topic. The remainder of the newsletter is usually devoted to a summarization of the recent literature on the topics of EDP audit, control, and security.

16. STANDARDS FOR INTERNAL CONTROTi> IN THE FEDERAL GOVERNMENT. U.S. General Accounting Office (GAO), 1983 [GA083]: This document defines standards for

internal controls in the U.S. Federal Government. It is designed as a document to assist Federal

managers in complying with the Federal Manager's Financial Integrity Act of 1982. The Act

defines five general standards, six specific standards, and an audit resolution standard. The

five general standards are reasonable assurance, supportive attitude, competent personnel,

control objectives, and control techniques. The specific standards are documentation, recording of transactions and events, execution of transactions and events, separation of duties, su- pervision, and access to and accountability for resources. The audit resolution standard

addresses prompt resolution of audit findings.

17. SYSTEM DRVFJ OPMENT MONFTORTNG PROGRAM. U.S. Department of Labor,

Office of Inspector General, Washington Regional Office, 1987 [DOL87]: This document was

developed by the Office of Audits in the Office of Inspector General of the Department of

Labor. The monitoring methodology uses three phases:

Phase I: Pre-Survey

Phase II: Survey

Phase III: System Development Monitoring

G-5
The Pre-Survey allows the auditor to develop a picture of the general development environment while the Survey allows the auditor to identify worksteps for System Development

Monitoring. The System Development Monitoring is divided into seven modules: Planning

and Initiation, Acquisition and Procurement, Project Administration, System Design and

Development, Programming, Testing and Conversion, and Implementation. The first two

phases and the seven modules of the third phase each contain a series of worksteps for the

auditor with a detailed data gathering instrument for each workstep. Appendices on reporting requirements, key terms, and key criteria are also included.

18. MODEL FRAMEWORK FOR MANAGEMENT CONTROL OVER AUTOMATED

INFORMATION SYSTEMS. President's Council on Management Improvement and

President's Council on Integrity and Efficiency, (Draft) August 1987 [PCMIIE]: This report

synthesizes for managers the multitude of directives which contain overlapping and sometimes

confusing guidance on how to protect automated information systems operations. It presents

a model framework to help managers establish internal controls and document compliance

for these systems. The framework has:

1. An analysis of Governing Directives that Federal Managers must follow. This

yielded a set of 55 Control Requirements derived from Governing Directives.

2. A life cycle approach to assure that the Control Requirements have been met by

the system under review at each phase of the life cycle.

3. A document flow analysis that parallels the phases of the life cycle and gives the

auditor a means of checking that the Control Requirements have been met.

The life cycle phases and the documents for each phase are based on the work of the PCIE

and can be found in greater detail in Chapter 2 of the present audit guide.

G-6
APPENDIX H

BIBLIOGRAPHY

AFAA80 ADP Audit Guide. Volume 2. Guidelines for Audits of Computer-Based

Systems Under Development. U.S. Air Force Audit Agency, November 1, 1980.

AICPA78 Tentative Report of the Special Advisory Committee on Internal Accounting Control. American Institute of Certified Public Accountants, 1211

Avenue of the Americas, New York, NY 10036, September 15, 1978.

AUER86 + A Standard for Auditing Computer Applications. William E. Perry, Auerbach Publishers, Inc., 6560 N. Park Ave., Pennsauken, New Jersey 08109,

1986 + updates.

BAPA50 Budget and Accounting Procedures Act ot 1950. PL81-784, September 12,

1950.

BDM84

BOEMB81

BRA65

C&L86

DOD77

DOD78-1

DOD78-2

Computer System Security (CSS) Scoping for Operational Test and Evaluation. The BDM Corporation, 1801 Randolph Road, SE, Albuqerque, NM

87106, October 31, 1984.

Boehm, Barry W., Software Engineering Economics. Prentice-Hall, Inc.,

Englewood Chffs, NJ 07632, 1981.

Brooks Act. PL89-306, October 30, 1965.

System Develpment Audit Review Guide, by Coopers & Lybrand, 1251

Avenue of the Americas, New York, New York 10020, PubHsher: Institute

of Internal Auditors, 249 Maitland Avenue, Altamonte Springs, Florida

32701, September 1986.

Automated Data Systems Documentation Standards. DOD-STD-7935,

September 13, 1977.

Life Cycle Management of AISs. DOD Directive 7920.1, October 17, 1978.

Major AIS Approval Process. DOD Instruction 7920.2, October 20, 1978.

H1
DOI86 Office of Inspector General Audit Plan for Reviewing Developmental Systems. U.S. Department of Interior, Office of Inspector General 134 Union

Blvd., Suite 520, Lakewood Co 80228, 1986.

DOL87 System Development Monitoring Program. U.S. Department of Labor, Office of Inspector General, Washington Regional Office, 1987.

DOT86 ADP Internal Control and Vulnerability Assessment Guidelines. Office of

Information Systems and Telecommunications and Office of Financial

Management, Department of Transportation, April 1986.

DOTR-1 Auditor's Manual for Systems Development Life Cycle Reviews. Bureau of

Government Financial Operations, Department of the Treasury, Office of

Inspector General.

DOTR-2 Review of New or Modified Design. Department of the Treasury, Office of

Inspector General, Bureau of the Public Debt.

EAF83 Control Objectives- 1983. EDP Auditors Foundation, Inc., P.O. Box 88180,

Carol Stream, IL 60188, 1983.

FIAA74 Freedom of Information Act. PL90-23, June 5, 1967, as amended by PL93-

502, November 21, 1974.

FIPS21-2 COBOL (ANSI X3.23-1985), FIPS PUB 21-2, National Bureau of Standards, March 18, 1986.

FIPS38 Guidelines for Documentation of Computer Programs and Automated

Data Systems. FIPS PUB 38, National Bureau of Standards, February 15,

1976.

FIPS64 Guidelines for Documentation of Computer Programs and Automated

Data Systems for the Initiation Phase. FIPS PUB 64, National Bureau of

Standards, August 1, 1979.

FIPS65 Guideline for Automatic Data Processing Risk Analysis. FIPS PUB 65, National Bureau of Standards, August 1, 1979.

FIPS68-2 BASIC (ANSI X3.113-1987), FIPS PUB 68-2, National Bureau of Standards, August 28, 1987.

H-2
FIPS69-1 FORTRAN (ANSI X3.9-1978), PIPS PUB 69-1, National Bureau of Standards, December 24, 1985.

FIPS73 Guidelines for Security of Computer Applications. PIPS PUB 73, National Bureau of Standards, June 30, 1980.

FIPS87 Guidelines for ADP Contingency Planning. PIPS PUB 87, National Bureau

of Standards, March 27, 1981.

PIPS 101 Guideline for Lifecycle Validation, Verification, and Testing of Computer

Software. PIPS PUB 101, National Bureau of Standards, June 6, 1983.

PIPS 102 Guidelines for Computer Security Certification and Accreditation. PIPS

PUB 102, National Bureau of Standards, September 27, 1983.

PIPS 105 Guideline for Software Documentation Management. PIPS PUB 105, National Bureau of Standards, June 6, 1984.

PIPS106 Guideline on Software Maintenance. PIPS PUB 106, National Bureau of

Standards, June 15, 1984.

FIPS109 PASCAL (ANSI/IEEE 770X3.97-1983), PIPS PUB 109, National Bureau

of Standards, January 16, 1985.

FIPSl 10 Guideline for Choosing a Data Management Approach. PIPS PUB 1 10, National Bureau of Standards, December 11, 1984.

PIPS 123 Specification for a Data Descriptive Pile for Information Interchange

(DDU (ANSI/ISO 8211-1985), PIPS PUB 123, Nstional Bureau of Standards, September 19, 1986.

FIPS126 Database Language NDL (ANSI X3.133-1986), PIPS PUB 126, National

Bureau of Standards, March 10, 1987.

PIPS127 Database language SOL (ANSI X3.135-1986), PIPS PUB 127, National

Bureau of Standards, March 10, 1987.

FIPS128 Computer Graphics Metafile (CGM) ANSI X3.122-1986), PIPS PUB 128,

National Bureau of Standards, March 16, 1987.

H-3
Guideline for Software Verification and Validation Plans (ANSI/IEEE

1012-1986), FIPS PUB 132, National Bureau of Standards, November 19,

1987.

Management of ADP Resources. FIRMR 201-30.007, General Services

Administration, December 21, 1984. [This is part of FIRMR Bulletin 15.]

Federal Managers' Financial Integrity Act of 1982. PL97-255, September

8, 1982.

System Review Audit Guidelines. Richard P. Bush, George W. Steffen,

Thomas M. O'Callaghan, Auditing Department, Federal Reserve Bank of

Chicago, October 1981.

Federal Records Management Act, PL81-754, 1950.

Federal Records Management Act. PL94-575, 1976.

Internal Controls. FTP Technical Library, Port Jefferson Station, New York

11776, 1980 + updates.

Auditing Computer Systems. FTP Technical Library, Port Jefferson Station, New York 11776, 1981 + updates.

Data Base Management Systems-Without Careful Planning There Can Be

Problems. U.S. General Accounting Office, June 29, 1979. FGMSD-79-35.

Contracting for Computer Software Development-Serious Problems Require Management Attention to Avoid Wasting Additional MilHons. U.S.

General Accounting Office, November 9, 1979. FGMSD-80-4

Standards for Audit of Governmental Organizations. Programs, Activities,

and Functions. "Yellow Book", U.S. General Accounting Office, 1981

Revision.

Federal Agencies' Maintenance of Computer Programs: Expensive and

Undermanaged. U.S. General Accounting Office, February 26, 1981.

AFMD-81-25.

H-4
GA081-3 Evaluating Internal Controls in Computer-Based Systems "Black Book",

U.S. General Accounting Office, June 1981. AFMD-81-76.

GA081-4 Assessing Reliability of Computer Output. U.S. General Accounting Office, June 1981. AFMD-81-91.

GA083 Standards for Internal Controls in the Federal Government, "Green Book",

General Accounting Office, 1983.

GSACFRl ADP Management Programs. 41 CFR 201-20, General Services Administration.

GSACFR2 Contracting for ADP Resources. 41 CFR 201-32, General Services Administration.

GSACFR3 Requirements Analysis. 41 CFR 210-20.003, General Services Administration.

GSA81-1

GSA81-2

GSA82-1

GSA82-2

GSA83-1

GSA83-2

GSA83-3

GSA83-4

Software Improvement - A Needed Process in the Federal Government. General Services Administration, June 1981.

Conversion Contracting Techniques Associated with Procurement of a Replacement ADP Hardware System. General Services Administration,

Seprember 1981.

A Software Tools Project: A Means of Capturing Technology and Improving Engineering. General Services Administration, February 1982.

Conversion Work Packages. General Services Administration, July 1982.

Conversion Plan Outline. General Services Administration, January 1983.

Software Conversion Lessons Learned, Volume I . General Services Administration, January 1983.

Guidelines for Planning and Implementing a Software Improvement

Program (SW). General Services Administration, May 1983.

Establishing a Software Engineering Technology (SET). General Services

Administration, June 1983.

H-5
GSA83-5

GSA84-1

GSA84-2

GSA85

The Software Improvement Process-Its Phases and Tasks TParts 1 & 2). General Services Administration, July 1983.

Preparing Software Conversion Studies. General Services Administration,

January 1984.

Software Tool Evaluation and Selection Guidelines. General Services Administration, August 1984.

Software Aids and Tools Survey. General Services Administration, November 1985.

GSA86-1 Conversion Cost Model (Version 4). General Services Administration, May

1986.

GSA86-2 Programmers Workbench Handbook. General Services Administration,

June 1986.

GSA86-3 Information Systems Planning Handbook, General Services Administration, December 1986.

IEEE83-1 Standard Glossary of Software Engineering Terminology. ANSI/IEEE Std

729-1983.

IEEE83-2 Standard for Software Configuration Management Plans. ANSI/IEEE Std

828-1983.

IEEE83-3

IEEE84-1

Standard for Software Test Documentation. ANSI/IEEE Std 829-1983.

Standard for Software Quality Assurance Plans. ANSI/IEEE Std 730-1984.

IEEE84-2 Guide to Software Requirements Specifications. ANSI/IEEE Std 830-1984.

IEEE86-1

IEEE86-2

Standard for Software Unit Testing. ANSI/IEEE Std 1008-1986.

Standard for Software Verification and Validation Plans. ANSI/IEEE Std

1012-1986.

H-6
IGA78 Inspector General Act of 1978. PL95-452, October 12, 1978.

IIA77-1 Systems Auditahility and Control, Data Processing Audit Practices Report. The Institute of Internal Auditors, 249 Maitland Avenue, Altamonte

Springs, FL 32701, 1977.

IIA77-2 Systems Auditahility and Control, Data Processing Control Practices

Report. The Institute of Internal Auditors, 249 Maitland Avenue, Altamonte Springs, FL 32701, 1977.

IIA77-3 Systems Auditahility and Control, Executive Report. The Institute of Internal Auditors, 249 Maitland Avenue, Altamonte Springs, FL 32701, 1977.

NBS57 Audit and Evaluation of Computer Security II: System Vulnerahilities and

Controls. Edited by Zella G. Ruthberg, NBS Special Publication 500-57,

National Bureau of Standards, April 1980.

NBS98 Planning for Software Validation, Verification, and Testing. Edited by

Patricia B. Powell, NBS Special Publication 500-98, National Bureau of

Standards, November 1982

NBS105 Guide to Software Conversion Management. Edited by M. Skall. NBS Special Publication 500-105, National Bureau of Standards, October 1983.

NBS133 Technology Assessment: Methods for Measuring the Level of Computer

Security. William Neugent, John Gilligan, Lance Hoffman, Zella G. Ruthberg, NBS Special Publication 500-133, National Bureau of Standards, October 1985.

NBS136 An Overview of Computer Software Acceptance Testing. Delores R. Wallace, NBS SP 500-136, National Bureau of Standards, February 19, 1986.

NBSIR86 Work Priority Scheme for EDP Audit and Computer Security Review. Zella G. Ruthberg and Bonnie Fisher-Wright, National Bureau of Standards Internal Report, NBSIR 86-3386, March 1986.

OMB73 Audit of Federal Operations and Programs. OMB Circular A-73 (Revised),

Office of Management and Budget, June 20, 1983.

H-7
OMB82 Internal Control Guideline. Office of Management and Budget, December

1982.

OMB85 Automatic Data Processing and Telecommunications in the Federal

Government. Office of Information and Regulatory Affairs, Office of

Management and Budget, Washington, DC 20503, January 1985.

OMB123 Internal Control Systems. OMB Circular A- 123, Office of Management and

Budget, October 28, 1981.

OMBR123 Internal Control vSystems. OMB Circular A- 123 Revised, Office of Management and Budget, August 16, 1983.

OMB127 Financial Management Systems. OMB Circular A- 127, Office of Management and Budget, December 19, 1984.

OMB130 Management of Federal Information Resources. OMB Circular A- 130, Office of Management and Budget, December 12, 1985.

PCIE86 Ouality Standards for Federal Offices of Inspector General, by President's

Council on Integrity and Efficiency (PCIE), 1986.

PCMIIE Model Framework for Management Control Over Automated Information

Systems. President's Council on Management Improvement and

President's Council on Integrity and Efficiency, (Draft), August 1987.

PRA80 Paperwork Reduction Act of 1980, 44 U.S.C. 3501, PL96-511, December

11, 1980

PRRA86 Paperwork Reduction Reauthorization Act of 1986. PL99-591, October 30,

1986.

PYA74 Privacy Act of 1974. 5 U.S.C. 552, PL93-579, December 31, 1974.

VALLS83 Vallabhaneni, S. Rao, Information Systems Audit Process. EDP Auditors

Foundation, Inc., P.O. Box 88180, Carol Stream, IL 60188, 1983.

H-8
APPENDIX I PCIE/NBS INVITATIONAL WORKSHOP

CO-CHAIRPERSONS: Bonnie T. Fisher & Zella G. Ruthberg

DISCUSSION GROUPS MEMBERSHIP

The following is a listing of the participants in the Invitational Workshop that resulted in

the high level Risk Analysis presented in Chapter 3. This Risk Analysis is to be used for

prioritizing the work of ADP auditors and security reviewers. The Workshop format used five

discussion groups and the members are listed alphabetically for each group.

I-l
GROUP

A

John Lainhart

(Group Leader)

Robert L. Gignilliat

(Recorder)

Nander Brown

Peter S. Browne

James E. Haines

Kenneth Jannsen

Jarlath O'Neill-Dunne

Tyrone Taylor

John Van Borssum

J. Armand Villemaire

Patricia D, Williams

Department of Transportation

Office of Inspector General

Director, Office of ADP Audits and Technical Support

Department of Health and Human Services

Senior Systems Security Officer

Federal Home Lx)an Mortgage Corporation

Assistant General Auditor

Profile Analysis Corporation

President

Boeing Computer Services Co.

Director, Quality Assurance

Blue Cross/Blue Shield of Illinois

Director, Internal Audits

Coopers and Lybrand, (New York, NY)

Partner

National Aeronautics and Space Administration

Space Station Management Analyst

Security Pacific National Bank

Vice President, EDP Auditor

Department of Defense

Air Force Audit Agency, Staff Auditor

Department of Treasury

Internal Revenue Service

Head of Security

1-2
GROUP B

Barry R. Snyder

(Group Leader)

Mark J. Gillen

(Recorder)

Robert P. Abbott

General Accounting Office, IMTEC

Group Director, Technical Services

Department of Treasury

Internal Revenue Service

Internal Audit Manager

EDP Audit Controls, Inc. President

Lorretta Ansbro Federal Reserve Bank of New York

Audit Official

Stephen F. Barnett Department of Defense

Computer Security Center

Chief, Office of Application System Evaluation

Larry Bergman Boeing Computer Services Co.

EDP Audit Manager

Robert Berndt Bank of America (San Francisco)

Vice President, EDP Audit Manager

Keagle Davis Touche Ross & Co. (Jacksonville)

Partner

Michael Goldfine General Motors Corporation

Assistant Director, Audit Staff

Ralph E. Gooch Department of Treasury

Financial Management Services

Chief of Security Branch

Michael G. Houston Department of Defense

Office of Inspector General

Program Director, Audit Policy and Oversight

Jack Wheeler General Accounting Office, IMTEC

Special Assistant, Technical Services

1-3
GROUP C

Wallace O. Keene

(Group Leader)

Department of Health & Human Services

Acting Deputy Assistant Secretary for Management Analysis

and Systems

Allen Winokur

(Recorder)

Navy Audit Service

EDP Auditor

David L. Decker Department of Housing and Urban Development

Office of Inspector General

Director, EDP Audit

Frederick Gallegos General Accounting Office (Los Angeles)

Manager, Management Services Group

Carole A. Langelier DeLoitte, Haskins and Sells (Washington, D.C.)

Partner

Joseph T. McDermott Department of Defense

Office of Inspector General/AUDIT

Program Manager

Gerald Meyers EDP Audit Consultants

Managing Partner

Carl A. Pabst Touche Ross & Company (Los Angeles)

Partner, Director of EDP Audit

Frederick G. Tompkins ORI, Incorporated

Senior Principal Scientist

Hart J. Will, Ph.D. University of Victoria, B.C.

Professor of Public Administration

1-4
GROUP D

Larry Martin

(Group Leader)

Gail L. Shelton

(Recorder)

James Cox

Department of Energy

Manager, Computer Security Program

Department of Health & Human Services

Office of Inspector General

Program Analyst

Department of Health & Human Services

Office of Inspector General

EDP Auditor

Tim Grance, 2nd Lt.

Michael J. Henitz

U.S. Air Force

Computer Security Program Office

Computer Security Staff Officer

Peat Marwick Mitchell & Co.

Computer Audit Office

Partner

William M. Hufford

Stanley Jarocki

William C. Mair

Sun Banks, Inc. Vice President, EDP Audit Manager;

EDP Auditors Association

Regional President

Bankers Trust of New York

Vice President, Group Manager

Touche Ross & Co. (Detroit)

Partner

Thomas Nugent

Kenneth A. Pollock

Department of Navy, NARDAC

Computer Specialist

EDP Auditors Foundation

Director of Research

F. A. Schlegel Management and Computer Services, Inc. President

1-5
D. L. Von Kleeck

H. C. Warner

GROUP D (continued)

Management and Computer Services, Inc. General Manager

Florida Power and Light

Director, Internal Audits

1-6
GROUP E

Douglas B, Hunt National Aeronautics and Space Administration

(Group Leader) Office of Inspector General

Director, Technical Services

William C. Lee Department of Commerce

(Recorder) Office of Inspector General

Office of Automated Information Systems

Computer Specialist

Philip Carollo Sears, Roebuck and Company

Director, EDP Audits

Don Coiner Basic Data Systems, Inc. President

Robert V. Jacobson International Security Technology, Inc. President

Thomas Lux Touche Ross & Company (Chicago)

Audit Supervisor

Jim Manara Security Pacific National Bank

Quality Assurance Division

Vice President

Brian McAndrew U.S. Navy

Navy Audit Service

Assistant Director, Audit Policy

Brian Morse Coopers & Lybrand (Washington, D.C.)

Partner

Benson J. Simon Environmental Protection Agency

Program Analyst

Jane Tebbutt Department of Health and Human Services

Office of Inspector General

Director, Interagency Projects Division
i
APPENDIX!

TWO RISK SCORING METHODS

J.l A SIMPLE SCORING APPROACH

J. 1. 1 The Scoring Method

This method risk scores each system by using Figure J.l to calculate the scores as described below.

Step 1 - Assign Tmportance Weights. A weight, reflecting the importance of the dimension to

the system under review, is assigned to each of the five dimensions shown in Figure J.l. This

weight will in turn reflect the importance of the dimension's characteristics to the system under

review. One of the two suggested weighting schemes^ shown in Figure J.l can be used, al- though specific situations may require modification of these. The weights in set 1 add up to an

arbitrary number while those in set 2 add up to 100. Set 2 allows for easy conversion of the

weights to percentages.

Step 2 - Assign Risk Level . For each dimension assign a risk level from 1-5 which reflects the

degree of risk for that dimension. Suggested risk level values are: 5 = High Risk

3 = Medium Risk

1 = Low Risk

For example, a system with demonstrated rehability would pose a low risk and warrant a low

risk level value ( = 1).

Step 3 - Calculate Dimension Risk Score . The dimension risk score is its weight times its risk

level.

Step 4 - Calculate System Risk Score. For a Level I type system risk score, use the risk score

for the Criticality/Mission Impact dimension. The Level II system risk score is the sum of each

of the five dimension's risk scores.

Step 5 - Rank System Scores. Perform Steps 2, 3, and 4 for each system under consideration

and rank systems numerically from high to low. The highest scoring systems pose the highest

risk and therefore deserve more audit/review attention.

1 The suggested weights were derived from data collected from representatives attending the PCIE

Workshop.

J-1
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J.1.2 Example of a Scored System

Table J.l is an example of a calculated risk score for one system. The suggested weights

of set 1 in Figure J.l were used except for Technology Integration. This was given a higher

weight of 15 because, in the organization, almost all new systems have failed whenever any

new technology is introduced. The five dimensions were then given a risk level value based on

audit knowledge and surveys. A total score of 480 was then calculated for ranking purposes.

Although the "strawman" paper describes five approaches to analyzing risk (See Appendix B in [NBSIR86]), a method of ranking and rating is suggested here as an approach commensurate with the softness of the data available. Each dimension of the scheme is rated and

ranked separately, with scores then combined. Since Criticality/ Mission Impact is the Level I dimension of the proposed scheme, one would analyze this dimension first. The procedure is as follows:

First, the n characteristics within a dimension are ranked according to their respective

importance to that dimension. The importance rank number of characteristic i is I(i) and ran- ges from 1 to n with n correlated with the most important characteristic. For operational sys- tems one can use discriminant analysis applied to equal sets of known system failures and

successes to obtain this ranking. For developmental systems a consensus view of audit management can be used, ideally obtaining Sponsor/User input.

Second, the importance ranking number, I(i), is converted to an importance weighting

factor, W(i), that is normalized to 20. (The reason for selecting 20 will be explained in Section

J.2.4.) This means that the sum of the weighting factors for the characteristics within a dimension is set to 20 (or normalized to 20). Since each of the five dimensions has a different number of characteristics and we wish to treat the dimensions as equals, normahzation will

guarantee that the risk score range for each dimension will be the same.

The normalization factor, F, is the number which converts the importance ranking number I(i) to the importance weighting factor W(i). The relationships are:

J.2 A DETAILED SCORING APPROACH

J.2.1 Risk Scoring a Dimension

(1) W(i) = Fxl(i)

(2) S W(i) = I]FxI(i) = 20

i = 1 to n i = 1 to n
Solving equation (2) for F, we find

(3) F= 20

S I(i)

i = 1 to n

and substituting for F in equation (1) yields the importance weighting factor W(i) for characteristic i, i.e.,

(4) W(i) = 20x 1(0 E I(i)

i = 1 to n

Third, each characteristic is rated with respect to the risk of occurrence. One of the following risk ratings, R(i), is assigned to characteristic i. R (i) = 3 (for High Risk)

R (i) = 2 (for Medium Risk)

R (i) = 1 (for Low Risk)

These ratings can be assigned by the auditor, again with user assistance if appropriate.

Finally, a Risk Score for that dimension is obtained by multiplying the importance weighting by the risk rating of the characteristic and summing over the characteristics for that dimension. The equation for this is the following:

DRSG) =S W(i)xR(i)

i = 1 to n

where i = characteristics 1 to n

W (i) = importance weighting for characterististic i R (i) = risk rating for characteristic i DRS (j) = dimension j's risk score,] = 1 to 5

The Risk Score for each of the five dimensions will range from 20 to 60 using these importance weighting and risk rating number assignments.

J-5
J.2.2 Level I System Risk Score i

After completing a Level I review for an organization's universe of AISs, using the

analysis scheme in Section J.2.1, one can use the Criticality/Mission Impact dimension risk score as a first order approximation to a system risk score. Since these risk scores have all been

normalized to the same number (20), it is possible to compare these risk scores across AISs

and eliminate from further consideration AIS's having a low risk with respect to

Criticality/Mission Impact.

J.2.3 Level II Review Considerations

If it is decided that the more detailed Level II review is appropriate and/or affordable,

one must decide upon a sequence for reviewing the remaining dimensions of the high risk critical AISs. While there is no "correct" way to do this, it might be appropriate to consider the following.

Since the Environment/Stability dimension includes the organization's general controls,

including the strength and involvement of quality assurance, project management, and security

functions throughout the SDLC (ofboth systems and major enhancements to existing systems),

it may be most useful to review this dimension first in a Level II review. These general controls would heavily impact the need for audit coverage as well as the scope and expertise necessary in that coverage. The EDP auditors could confidently reduce their scope and related

testing of applications if they could rely on the organization's general controls and the

safeguards these various review functions provide in the SDLC process. Any ranking or

prioritizing of the elements in the work priority scheme, beyond the overriding factors

described above (i.e., external influence and mission criticahty), could nol be reasonably ac- compHshed without a survey of the organization's general and applications controls and/or

without an institutional knowledge of the organization, its SDLC process, and any facts and

circumstances affecting system development activities. The characteristics in all four Level II dimensions should be weighted and rated in the light of such background information, and the

dimension risk score, DRS, obtained for each of the four Level II dimensions.

J.2.4 Level 11 System Risk Score

As a second order approximation one can treat the dimensions as equal contributors to

the risk score for the AIS as a whole. Under this assumption the system risk score, SRS, is then

a simple sum of the five dimension risk scores, DRS.

i

3-6
(5) SRS = S DRS 0)

j = 1 to 5

where SRS = system risk score

j = dimensions 1 to 5

DRS (j) = dimension j's risk score

Since DRSO') can range from 20 to 60, SRS will range from 100 to 300. The choice of 20 for

the sum of the weights of the characteristics within a dimension is arbitrary and was made in

order to place SRS in a reasonable range for comparing one system's risk score to another's.

J.2.5 An Example

It may be a useful exercise to go through an example of the arithmetic involved. Assume

we wish to calculate dimension risk scores and system risk scores for two AISs. To simplify

matters we shall assume small numbers of characteristics for each dimension. Dimension 1 has four characteristics, dimension 2 has three characteristics, dimension 3 has five characteristics, dimension 4 has three characteristics and dimension five has 2 characteristics. The

importance rankings I(i) and the risk ratings R(i) are obtained from audit management and

the auditor respectively. The rest of the numbers in Tables J.2 and J.3 are calculated using

equations (1) - (5). (A practice template of the table has been included in Figure J.2 to assist

the reader in learning the methodology.)

Using dimension 1 as a first order system risk score, we find AIS 1, with DRS = 42, is more at risk than AIS 2, with DRS = 38. We obtain the second order risk score by adding the

five dimension risk scores for each AIS. Using these numbers, AIS 1, with SRS = 191.4, is again more at risk than AIS 2, with its SRS = 180.0. Only experience with the method will

enable the reviewer to obtain more refined interpretations of the calculations.
Figure J.2. PRACTICE TEMPLATE FOR RIS K S CORING OF AN AIS

AIS

DIMENSION F W(i) R(i) WxR DRS(j)

DIM1

C(1)

C(2)

C(3)

C(4)

DIM 2

C(1)

C(2)

C(3)

DIM 3

C(1)

C(2)

C(3)

C(4)

C(5)

DIM 4

C(1)

C(2)

C(3)

DIM 5

C(1)

C(2)

SRS

J-8
Table J. 2. DIMENSION RISK SCORES AND SYSTEM RISK SCORES

FORMS 1

AIS 1

DIMENSION F wen W y R DRS { i DIM 1 C(1) 2 2 4 1 4

C(2) 1 2 2 2 4

C(3) 4 2 8 2 16

C(4) 3 2 6 3 18

10 - 20 - 42 42.0

DIM 2

C(1) 3 10/3 10 1 10

0(2) 2 1013 20/3 2 40/3

C(3) 1 10/3 10/3 3 10

6

- 20 - 33.3 33.3

DIM 3

C(1) 4 4/3 16/3 3 16

0(2) 2 4/3 8/3 2 16/3

0(3) 5 4/3 20/3 1 20/3

0(4) 1 4/3 4/3 2 8/3

0(5) 3 4/3 4 3 12

15 20 42.7 42.7

DIM 4

0(1) 1 10/3 10/3 3 10

0(2) 3 10/3 10 3 30

0(3) 2 10/3 20/3 1 20/3

6 20 46.7 46.7

DIM 5

0(1) 1 20/3 20/3 2 40/3

0(2) 2 20/3 40/3 1 40/3

3 20 26.7

26.7

SRS 191.4

Ist Order SRS (Range = 20 to 60) = DRS(1) = 42.0

2nd Order SRS (Range = 100 to 300)= SRS = 191.4
i

Table J. 3. DIMENSION RISK SCORES AND SYSTEM RISK SCORES

F0RAIS2

AIS__ 2

DIMENSION F WfYY i ) ^ 1 ; Wx R DRS ( i ^ DIM 1 C(1) 4 2 8 3 24

C(2) 2 2 4 1 4

C(3) 1 2 2 2 4

C(4) 3 2 6 1 6

10 - 20 = 38 38.0

DIM 2

C(1) 2 10/3 20/3 3 20

C(2) 1 10/3 10/3 1 10/3

C(3) 3 10/3 10 2 20

6

- 20 - 43.3 43.3

DIM 3

C(1) 5 4/3 20/3 3 20

C(2) 3 4/3 4 1 4

C(3) 1 4/3 4/3 2 8/3

C(4) 2 4/3 8/3 1 8/3

C(5) 4 4/3 16/3 3 16

15 20 45.4 45.4

DIM 4

C(1) 2 4 20/3 2 40/3

C(2) 2 4 10 1 10

C(3) 1 4 10/3 3 10

5 20 33.3 33.3

DIM 5

C(1) 2 20/3 40/3 1 40/3

C(2) 1 20/3 20/3 1 20/3

3 20 20

20.0

SRS 180.0

1st Order SRS (Range = 20 to 60) = DRS(1) = 38.0

2nd Order SRS (Range = 100 to 300)= SRS = 180.0

J- 10
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4. TITLE AND SUBTITLE

Guide to Auditing for Controls and Security: A System Development Life Cycle Appro^c^

5. AUTHOR(S) zella G.

James G.

Ruthberg, Bonnie Fisher-Wright, William E. Cox, Mark Gillen, Douglas B. Hunt

Perry, John Lainhart,

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11. ABSTRACT (A 200-word or less foctual sunnmary of most significant inforwatlon. If document includes a significant

bibliography or literature survey, mention it here) This guide addresses auditing the system development life

cycle (SDLC) process for an automated information system (AIS)

to ensure that controls and security are designed and built into

the system. It is directed toward mid-level ADP auditors having

a minimum of two years experience in ADP auditing, but can also

be used by security reviewers, quality assurance personnel, and

as a training tool for less experienced ADP auditors. ADP

managers and system developers will also find it useful guidance

on security and control issues. It is designed to provide audit/review programs for each major phase of the SDLC process.

It presents: (1) the model arrived at for describing the phases

and functional roles in the entire AIS life cycle, (2) the

accompanying flow of documents as the system progresses through

the life cycle phases of Initiation, Definition, Design, Programming and Training, Evaluation and Acceptance, and

Installation and Operation, (3) a security audit/review work

priority scheme, and (4) audit/review programs for Initiation

through Evaluation and Acceptance. The Installation and

Operation phase is not treated because of already existing

literature in this area. The guide represents the results of the

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pertinent laws and regulations.

12. KEY WORDS (Six to twelve entries; alphabetical order; capitalize only proper names; and separate key words by semicolons)

Audit/review work prTority scheme; automated information system; computer security

review/audit; controls audit/review; controls/security regulations; life cycle documenta

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