Sarbanes-Oxley Act (SOX)
The most contentious aspect of SOX is Section 404, which requires management
and the external auditor to report on the adequacy of the company's internal
control over financial reporting (ICFR). This is the most costly (and,
therefore, most important) aspect of the legislation for companies to
implement, as documenting and testing important financial manual and
automated controls requires enormous effort.
Both management and the external auditor are responsible for performing
their assessment in the context of a
top-down risk assessment,
which requires management to base both the scope of its assessment and
evidence gathered on risk. Both the
Public Company Accounting Oversight
Board (PCAOB) and
Securities Exchange Commission (SEC) recently issued guidance on this topic
to help alleviate the significant costs of compliance and better focus the
assessment on the most critical risk areas.
The SEC identifies the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) framework by name as a methodology for achieving compliance.
According to the COSO framework, internal control consists of five
interrelated components. These
components provide an effective framework for describing and analyzing the
internal control system implemented in an organization. The five components
are the following:
Control environment:
The control environment sets the tone of an organization, influencing the
control consciousness of its people. It is the foundation for all other
components of internal control, providing discipline and structure. Control
environment factors include the integrity, ethical values, management's
operating style, delegation of authority systems, as well as the processes
for managing and developing people in the organization.
Risk assessment:
Every entity faces a variety of risks from external and internal sources
that must be assessed. A precondition to risk assessment is establishment of
objectives and thus risk assessment is the identification and analysis of
relevant risks to achievement of assigned objectives. Risk assessment is a
prerequisite for determining how the risks should be managed.
Control activities:
Control activities are the policies and procedures that help ensure
management directives are carried out. They help ensure that necessary
actions are taken to address risks to achievement of the entity's
objectives. Control activities occur throughout the organization, at all
levels and in all functions. They include a range of activities as diverse
as approvals, authorizations, verifications, reconciliations, reviews of
operating performance, security of assets and
segregation of duties.
Information and communication:
Information systems play a key role in internal control systems as they
produce reports, including operational, financial and compliance-related
information that make it possible to run and control the business. In a
broader sense, effective communication must ensure information flows down,
across and up the organization. Effective communication should also be
ensured with external parties, such as customers, suppliers, regulators and
shareholders.
Monitoring:
Internal control systems need to be monitored—a process that assesses the
quality of the system's performance over time. This is accomplished through
ongoing monitoring activities or separate evaluations. Internal control
deficiencies detected through these monitoring activities should be reported
upstream and corrective actions should be taken to ensure continuous
improvement of the system.
Health
Insurance Portability & Accountability Act (HIPAA)
Title II
of HIPAA defines numerous offenses relating to health care and sets civil
and criminal penalties for them. It also creates several programs to control
fraud and abuse within the health care system.
However, the most significant provisions of Title II are its
Administrative Simplification (AS) rules.
The relevant rules to the Healthcare Industry are the Privacy Rule
and the Security Rule.
The Privacy Rule establishes regulations for the use and disclosure of
Protected Health Information (PHI). PHI is any information about health
status, provision of health care, or payment for health care that can be
linked to an individual. This is interpreted rather broadly and includes any
part of a patient’s
medical record or payment history.
A covered entity may disclose PHI to facilitate treatment, payment, or
health care operations or if the covered entity has obtained authorization
from the individual. However, when a covered entity discloses any PHI, it
must make a reasonable effort to disclose only the minimum necessary
information required to achieve its purpose.
The Privacy Rule gives individuals the right to request that a covered
entity correct any inaccurate PHI. It also requires covered entities to take
reasonable steps to ensure the confidentiality of communications with
individuals. For example, an individual can ask to be called at his or her
work number, instead of home or cell phone number.
The Privacy Rule requires covered entities to notify individuals of uses of
their PHI. Covered entities must also keep track of disclosures of PHI and
document privacy policies and procedures. They must appoint a Privacy
Official and a contact person responsible for receiving complaints and train
all members of their workforce in procedures regarding PHI.
The
Security Rule complements the Privacy Rule. While the privacy pertains to
all (PHI) protected heath information, including paper and Electronic. The
Security rule deals specifically with (EPHI) electronic protected health
information. It lays out three types of security safeguards required for
compliance: administrative, physical, and technical. For each of these
types, the Rule identifies various security standards, and for each
standard, it names both required and addressable implementation
specifications. Required specifications must be adopted and administered as
dictated by the Rule. Addressable specifications are more flexible.
Individual covered entities can evaluate their own situation and determine
the best way to implement addressable specifications. The standards and
specifications are as follows:
Administrative Safeguards
- policies and procedures designed to clearly show how the entity will
comply with the act
Covered entities (entities that must comply with HIPAA requirements) must
adopt a written set of privacy procedures and designate a privacy officer to
be responsible for developing and implementing all required policies and
procedures.
The policies and procedures must reference management oversight and
organizational buy-in to compliance with the documented security controls.
Procedures should clearly identify employees or classes of employees who
will have access to electronic protected health information (EPHI). Access
to EPHI must be restricted to only those employees who have a need for it to
complete their job function.
The procedures must address access authorization, establishment,
modification, and termination.
Entities must show that an appropriate ongoing training program regarding
the handling of PHI is provided to employees performing health plan
administrative functions.
Covered entities that out-source some of their business processes to a third
party must ensure that their vendors also have a framework in place to
comply with HIPAA requirements. Companies typically gain this assurance
through clauses in the contracts stating that the vendor will meet the same
data protection requirements that apply to the covered entity. Care must be
taken to determine if the vendor further out-sources any data handling
functions to other vendors and monitor whether appropriate contracts and
controls are in place.
A contingency plan should be in place for responding to emergencies. Covered
entities are responsible for backing up their data and having disaster
recovery procedures in place. The plan should document data priority and
failure analysis, testing activities, and change control procedures.
Internal audits play a key role in HIPAA compliance by reviewing operations
with the goal of identifying potential security violations. Policies and
procedures should specifically document the scope, frequency, and procedures
of audits. Audits should be both routine and event-based.
Procedures should document instructions for addressing and responding to
security breaches that are identified either during the audit or the normal
course of operations.
Physical Safeguards
- controlling physical access to protect against inappropriate access to
protected data.
Controls must govern the introduction and removal of hardware and software
from the network. (When equipment is retired it must be disposed of properly
to ensure that PHI is not compromised.)
Access to equipment containing health information should be carefully
controlled and monitored.
Access to hardware and software must be limited to properly authorized
individuals.
Required access controls consist of facility security plans, maintenance
records, and visitor sign-in and escorts.
Policies are required to address proper workstation use. Workstations should
be removed from high traffic areas and monitor screens should not be in
direct view of the public.
If the covered entities utilize contractors or agents, they too must be
fully trained on their physical access responsibilities.
Technical Safeguards
- controlling access to computer systems and enabling covered entities to
protect communications containing PHI transmitted electronically over open
networks from being intercepted by anyone other than the intended recipient.
Information systems housing PHI must be protected from intrusion. When
information flows over open networks, some form of encryption must be
utilized. If closed systems/networks are utilized, existing access controls
are considered sufficient and encryption is optional.
Each covered entity is responsible for ensuring that the data within its
systems has not been changed or erased in an unauthorized manner.
Data corroboration, including the use of check sum, double-keying, message
authentication, and digital signature may be used to ensure data integrity.
Covered entities must also authenticate entities it communicates with.
Authentication consists of corroborating that an entity is who it claims to
be. Examples of corroboration include: password systems, two or three-way
handshakes, telephone callback, and token systems.
Covered entities must make documentation of their HIPAA practices available
to the government to determine compliance.
In addition to policies and procedures and access records, information
technology documentation should also include a written record of all
configuration settings on the components of the network because these
components are complex, configurable, and always changing.
Documented risk analysis and risk management programs are required. Covered
entities must carefully consider the risks of their operations as they
implement systems to comply with the act. (The requirement of risk analysis
and risk management implies that the act’s security requirements are a
minimum standard and places responsibility on covered entities to take all
reasonable precautions necessary to prevent PHI from being used for
non-health purposes.)
Gramm-Leach-Bliley (GLB) Act
Many companies collect personal information from their customers, including names, addresses, and phone numbers; bank and credit card account numbers; income and credit histories; and Social Security numbers. The Gramm-Leach-Bliley (GLB) Act requires companies defined under the law as “financial institutions” to ensure the security and confidentiality of this type of information. The definition of “financial institution” under the Act is broad, and includes many businesses that may not normally describe themselves that way. The GLB Act applies to all businesses, regardless of size, that are “significantly engaged” in providing financial products or services. These include, for example, check-cashing businesses, payday lenders, mortgage brokers, nonbank lenders, real estate appraisers, and professional tax preparers.
The
Federal Financial Institutions Examination Council (FFIEC) is a formal
interagency body empowered to prescribe uniform principles, standards, and
report forms for the federal examination of financial institutions by the
Board of Governors of the Federal Reserve System (FRB),
the Federal Deposit Insurance Corporation (FDIC),
the National Credit Union Administration (NCUA),
the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision
(OTS), and to make recommendations to promote uniformity in the supervision of
financial institutions.
Payment Card
Industry, Data Security Standard (PCI/DSS)
The Payment Card Industry Security Standards Council was founded by American Express, Discover Financial Services, JCB, MasterCard Worldwide, and Visa International. The PCI Security Standards Council created the Data Security Standards. The Payment Card Industry (PCI) Data Security Standards apply to all members, merchants, and service providers that store, process or transmit credit or debit cardholder data. Additionally, these security requirements apply to all “system components” which is defined as any network component, server, or application included in, or connected to, the cardholder data environment. Network components, include, but are not limited to, firewalls, switches, routers, wireless access points, network appliances, and other security appliances. Servers include, but are not limited to, Web, database, authentication, Domain Name Service (DNS), mail, proxy, and Network Time Protocol (NTP). Applications include all purchased and custom applications, including internal and external (Web) applications.
The following 12 Requirements comprise the Payment Card Industry Data Security Standard (PCI/DSS):
1. Install and maintain a firewall configuration to protect data.
2. Do not use vendor-supplied defaults for system passwords and other security parameters.
3. Protect Stored Data
4. Encrypt transmission of cardholder data and sensitive information across public networks
5. Use and regularly update anti-virus software
6. Develop and maintain secure systems and applications
7. Restrict access to data by business need-to-know
8. Assign a unique ID to each person with computer access
9. Restrict physical access to cardholder data
10. Track and monitor all access to network resources and cardholder data
11. Regularly test security systems and processes
12. Maintain a policy that addresses information security
ISO 17799
ISO 17799 provides
best practice recommendations on information
security management for use by
those who are responsible for initiating, implementing or
maintaining
Information Security Management
Systems (ISMS). The
Standard contains the twelve main sections:
·
Risk assessment and treatment
·
Organization of information security
·
Human resources security
·
Physical and environmental security
·
Information systems acquisition,
development and maintenance
·
Information security incident management
·
Business continuity management
·
Compliance
CobiT
COBIT is an IT governance framework and supporting toolset that allows managers to bridge the gap between control requirements, technical issues and business risks. COBIT enables clear policy development and good practice for IT control throughout organizations. COBIT emphasizes regulatory compliance, helps organizations to increase the value attained from IT, enables alignment and simplifies implementation of the COBIT framework.
Personal Information Protection and Electronic Documents Act (PIPEDA)
This Canadian law establishes a right to the protection of personal information collected, used or disclosed in the course of commercial activities, in connection with the operation of a governmental work, undertaking, business whether internal to Canada or internationally.
PIPEDA establishes the following principles to govern the collection, use and disclosure of personal information:
(a) accountability,
(b) identifying the purposes for the collection of personal information,
(c) obtaining consent,
(d) limiting collection,
(e) limiting use,
(f) disclosure and retention,
(g) ensuring accuracy,
(h) providing adequate security,
(i) making information management policies readily available,
(j) providing individuals with access to information about themselves,
(k) and giving individuals a right to challenge an organization's compliance with these principles.
A Privacy Commissioner has been created to receive complaints concerning violations of the principles, conduct investigations and attempt to resolve such complaints. Unresolved disputes relating to certain matters can be taken to the Canadian courts for resolution.
PIPEDA establishes a legislative scheme by which requirements in Canadian laws and regulations that contemplate the use of paper or do not expressly permit the use of electronic technology may be administered or complied with in the electronic environment. Appropriate authorities are authorized to make regulations about how those requirements may be satisfied using electronic means. In addition, the characteristics of secure electronic signatures are defined and described and grants authority to make regulations prescribing technologies or processes for the purpose of the definition "secure electronic signature".
This law, operative since July 1, 2003, would require a state agency, or a person or business that conducts business in California, that owns or licenses computerized data that includes personal information, as defined, to disclose in specified ways, any breach of the security of the data, as defined, to any resident of California whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person. The bill would permit the notifications required by its provisions to be delayed if a law enforcement agency determines that it would impede a criminal investigation. The bill would require an agency, person, or business that maintains computerized data that includes personal information owned by another to notify the owner or licensee of the information of any breach of security of the data, as specified.
This law:
·
Requires an agency, person, or business that
conducts business in
· Requires disclosure to be made in the most expedient time frame possible consistent with the legitimate needs of law enforcement.
· Defines "personal information" as an individual's first or first initial and last name in combination with any one or more of the following data elements, when either the name or the data elements are not encrypted:
(a) Social Security number;
(b) Driver's license number; or
(c)
· Defines "notice" as being provided by one of three methods: written notice; electronic notice consistent with federal law, or substitute notice.
· Allows a substitute notice only upon demonstration that the cost of providing notice would exceed $250,000, or more than 500,000 people would be notified. The substitute notice must consist of the following three actions: email notice, posting notice on the notifier's web site, and notification of the major statewide media.
·
Permits an agency, person or business to
comply with these provisions by utilizing their own notification procedures
as part of an information security policy, as long as such procedures are
otherwise consistent with the timing requirements of the law.
The law
requires entities that conduct business in