Enterprises dealing with public funds are required to comply to Sarbanes-Oxley (SOX) Act. Organizations are looking for a single, complete, low-cost, enterprise-wide solution that could take care of all their SOX-compliance needs. This White Paper discusses the SOX compliance challenges and the problems faced by the IT administrators, who are mandated with the task of ensuring compliance to SOX. It explains how Privileged Identity and Information Management (PIIM) solutions could ensure effective internal controls and serve the enterprise-wide SOX-compliance needs. The vital ingredients that one should expect in a PIIM solution and the factors to ponder before zeroing-in on a PIIM solution, have also been dealt with.
The Public Company Accounting Reform and Investor Protection Act of 2002, popularly known as the Sarbanes-Oxley Act, enacted in the U.S in the wake of unprecedented, large-scale financial scandals, mandates the top management of public finance companies to incorporate strong internal controls and ensure accuracy and transparency in public financial disclosures.
Perhaps, the biggest challenge with SOX Act is that it just asks the companies to ensure accuracy and transparency in financial disclosure and establish internal controls without prescribing anything like 'best practices' or other specific details.
The objective of SOX Act is straight-forward: Assuring that the information, which the investing public rely on to make investment decisions are trustworthy, accurate and complete. But, ensuring compliance to this objective is indeed a daunting task as there are numerous factors that could lead to inaccurate financial reporting.
Auditors and analysts have listed out some of the prime factors that dampen the accuracy of financial disclosure:
From the foregoing, it is clear that effective internal control forms the backbone of SOX.
Though SOX Act targets the top-brass like the CEOs, CFOs and Board of Directors of the organizations by holding them directly responsible for mal-practices, the implementation part for compliance largely rests with the staff at the lower level.
The administrators and IT Managers, in particular, are responsible for defining SOX compliance policies and also demonstrate that the organization complies to the policies defined.
The administrators mandated with the task of ensuring compliance to SOX are bogged by several questions:
What does SOX Mandate?
Of the 11 sections of SOX, section 404 lays the foundation on how IT can aid SOX compliance. Section 302 and 802 are also relevant to some extent.Section 404 - Management Assessment of Internal Controls
This section pertains to the guidelines laid down by the Securities and Exchange Commission on what SOX demands. According to the SEC, companies must: "Include in their annual reports a report of management on the company's internal control over financial reporting".
The control report must include:
Today, organizations are looking for a complete solution that could take care of all their SOX-compliance headaches. But, such solutions are prohibitively expensive. Industry researchers have estimated that SOX and other financial governance spending in the U.S will reach $6.2B in 2008, up by nearly 2 per cent from 2007.
The SOX compliance costs for smaller organizations, in particular is very disproportionate. The U.S. Securities and Exchange Commission has predicted compliance costs of $91,000 for smaller public companies, technically those with less than $75 million in market capitalization.
Therefore, organizations are caught in a fix. They are required to comply to SOX, but not in a position to spend huge money. It is equally difficult to find a single solution that could take care of all their SOX compliance needs.
SOX lays stress on internal controls on access to privileged information, resources and applications. Deploying a Privileged Identity and Information Management (PIIM) Solution is one of the ways to achieve effective internal control in organizations.
All the documents, spreadsheets and reports containing sensitive financial data could be stored in a repository, which would serve as a secure, central vault. Ownership for the documents/data could be clearly-defined and the documents could be shared with the privileged users on need basis.
Similarly, the privileged identities, whose passwords are typically shared to gain access to databases, servers and other IT resources containing financial data, could be stored in the central vault. This would help in restricting access to these resources to a few privileged users alone.
For each company filing periodic statutory financial reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 it is required to include certifications that:
Section 802: Corporate and Criminal Fraud Accountability
Thus, PIIM solution will become the centralized repository for all sensitive data. It will act as the 'centralized control point' for the entire organization from the standpoint of SOX. The reports generated by the PIIM solution, with special emphasis on SOX related details, will provide a unified view of the happenings in the organization.
A single PIIM solution could serve almost the entire SOX compliance requirements of organizations. With the availability of affordable PIIM solutions in the market, the cost of deploying and maintaining such a solution would be very less, in fact, just a fraction of the cost involved in deploying many compliance management solutions.
The solution should be capable of securely storing documents containing sensitive financial data, in addition to storing privileged identities / passwords. This is a pre-requisite for SOX compliance.Ownership & Sharing Model
There should be provision for establishing clear-cut ownership for the passwords and documents. Only the owner should have exclusive privileges to access, view and change the document/password. Optionally, there should be provision to share the documents/passwords with other users on need basis, with fine-grained access restrictions. SOX emphasizes on 'segregation of duties'. The ownership and sharing model is essential to achieve segregation with respect to SOX related information in the organization.Secure Data Storage & Communication
All sensitive data stored in the PIIM application such as passwords, files, digital keys, account names, IP addresses etc should be encrypted using government approved and industry standard encryption algorithms like AES and stored in the database. All data communication between the user interface and database should be encrypted. In the case of web interfaces, the communication should be through secure http.
Account Activity Monitoring
Maintaining the passwords of sensitive resources in the centralized control point alone may not be sufficient for completely tracking the activities performed by the privileged users on the resources. In such cases, the PIIM application should have the provision for monitoring the user activities in resources through detailed access logs.Periodic Password Rotation
One of the important ways to protect IT resources from unauthorized access is to rotate the passwords of the resources at periodic intervals. Manually carrying out the password rotation would prove to be cumbersome. The PIIM solution should have provision to carry out periodic, automatic password rotation. Also, the solution should provide reports showing the frequency of password rotation as part of SOX compliance reports to be submitted to the auditors.Comprehensive Audit Trails
All activities happening in the system should be accurately captured as audit trails. Comprehensive auditing is, in fact, the cornerstone of SOX. When SOX-related information is stored in the PIIM application, all activities performed by the privileged user should be audited. Document/password access, changes done, login/logout events, failed login attempts, changes to user privileges and all other operations performed should be audited. Details on 'who', 'what' and 'when' of user actions recorded chronologically would help in fixing accountability issues.
All activities happening in the system should be accurately captured as audit trails. Comprehensive auditing is, in fact, the cornerstone of SOX.Tamper-proof Audit Trails
Audit trails recorded by the central vault should not only be accurate, but also tamper-proof. Otherwise, malicious users would delete the records to conceal their actions. Audit trails will then be of no use to fix accountability issues. There should be no provision to delete the audit trails as Section 802 of SOX mandates that audit records be maintained for seven years after the auditor concludes the audit. Besides, alarms should be generated when an attempt is made to delete the trails.Request-Release Mechanism
The application should have provision for some sort of dual control when it comes to providing access to sensitive documents/passwords stored in the central vault. When a user needs access to the document/password, a request for authorization would be sent to the administrator, who would validate the request and authorize access.Risk Analysis and Management
Despite all the policies, standards, controls and precautions, the organizations might have to face innumerable threats to security. SOX mandates the presence of a sound risk analysis and management system in the organization to protect the financial data. Therefore, the application should have provisions for analyzing and managing various risks to the data.
For example, inactive users/resources are vulnerable to hacking and attacks. The application should provide a report on the inactive users/resources. Such users and resources need to be isolated and monitored. Failed login attempts are another indication of potential hacking attempts and they also need to be monitored. Frequently accessed data, passwords and resources and records should be isolated and monitored.
Out-of-the-box SOX Compliance Reports
When the very purpose of deploying a PIIM solution is for managing the SOX-related information, it should have provision for generating out-of-the-box reports depicting compliance to SOX. Particularly, the report should clearly depict who has access to what resources in the organization. This is the most basic requirement of SOX and automatic generation of such report would save a great deal of time for the administrators.
SOX auditors are required to certify the assessment of the effectiveness of internal controls established in the organization. So, apart from showing 'who' has access to 'what', there must be provision for proving other security measures such as periodic password rotation, enforcement of strong password policies, ensuring access is removed when an employee leaves the organization, eliminating need to share passwords to access systems and automating password reset process to eliminate human error.Custom Reports
Apart from the ready-to-use reports, the application should have provision for generating custom reports to prove compliance to SOX. For example, financial organization may be dealing with the data pertaining to different clients. Some of the clients may be big companies and would require SOX compliance report pertaining to their data alone. In that case, the administrators in the financial company will have the need to generate multiple SOX compliance reports. The PIIM solution should essentially have provision for easily filtering out the required data and generate SOX compliance reports based on that.
Real-time Alerts & Notifications
For detecting and preventing frauds in organizations, SOX lays stress on real-time notifications on access to sensitive data. To facilitate this, the application should have provision for sending alerts to the owners of documents/resources on various actions such as data/password access, change in access permissions, change in user roles, password expiry, automatic password reset etc.Backup & Disaster Recovery
SOX mandates organizations to have provision for disaster recovery. When all sensitive financial data are stored in the application, it should have a robust disaster recovery mechanism. The data should be backedup as and when there occurs a change in the data. There should also be provision for recovering the data quickly after a disaster.Continuous Availability of Information
Financial data stored in the application should be available for access at anytime as desired by the users. Once the application is deployed in production with all data, administrators would be heavily dependent on the application availability for retrieving documents/passwords. Continuous availability of the PIIM solution would be crucial in such scenarios. Otherwise, at the most wanted time, users would end up in not getting the required document/password and it may lead to problems, including security issues.Affordable Price
Though PIIM applications would provide high value for your buck by simplifying the compliance initiatives, the cost of the solution should not be too high to damage your pockets. The price of the solution should suit your IT budget and should be capable of providing rapid Return On Investment (ROI).
Consider a financial enterprise having critical financial data stored in 500 documents and 300 spreadsheets in diverse systems. Besides, other sensitive data are maintained in 100 file servers and databases. About 200 users, with different roles would require access to specific data. Information pertaining to different clients is stored.
This is how the PIIM Solution will help: All the 200 users will get accounts in PIIM solution with well-defined access permissions and roles. The users will be grouped based on departments/ divisions. The 500 documents and 300 spreadsheets will be stored in the PIIM application and specific ownership will be defined. The passwords of 100 file servers and databases will be stored in the PIIM solution and access permissions will be defined. The resources will be grouped for carrying out operations in bulk.
The resources/resource groups would be shared with users/usergroups on need basis. PIIM solution will become the central control point and all the users will have to access it first to get the data / access other resources. Reports on user activities can be generated based on different user roles. Thus, a centralized management environment will be in place.
Protection of sensitive financial data by establishing robust internal control processes and demonstrating the effectiveness of the controls through reports, form the crux of the SOX.
Deployment of a PIIM solution to manage critical financial data would prove to be cost effective and highly productive as it could act as the 'centralized control point' for information access. For ensuring SOX compliance, the application would act as an enterprise-wide solution. With a central vault, most of your SOX-related information protection activities could be automated.
Highly-skilled IT Managers and administrators need not have to spend their time generating SOX compliance reports. They can cash-in on the automation capabilities of PIIM application and meet the SOX Compliance requirements with ease and face the SOX audits with comfort.