This is the accessible text file for GAO report number GAO-07-899R 
entitled 'Bureau of the Public Debt: Areas for Improvement in 
Information Security Controls' which was released on June 15, 2007.

United States Government Accountability Office: Washington, DC 20548:

June 14, 2007: 

The Honorable Van Zeck: 
Commissioner, Bureau of the Public Debt: 

Subject: Bureau of the Public Debt: Areas for Improvement in 
Information Security Controls:

Dear Mr. Zeck: 

In connection with fulfilling our requirement to audit the financial 
statements of the U.S. government,[Footnote 1] we audited and reported 
on the Schedules of Federal Debt Managed by the Bureau of the Public 
Debt (BPD) for the fiscal years ended September 30, 2006 and 
2005.[Footnote 2] As part of these audits, we performed a review of the 
general and application information security controls over key BPD 
financial systems. 

In our audit report on the Schedules of Federal Debt for the fiscal 
years ended September 30, 2006 and 2005, we concluded that BPD 
maintained, in all material respects, effective internal control 
relevant to the Schedule of Federal Debt related to financial reporting 
and compliance with applicable laws and regulations as of September 30, 
2006, that provided reasonable assurance that misstatements, losses, or 
noncompliance material in relation to the Schedule of Federal Debt 
would be prevented or detected on a timely basis. We found matters 
involving information security controls that we do not consider to be 
reportable conditions[Footnote 3] but that nevertheless warrant BPD 
management’s attention and action. BPD mitigated the potential effect 
of such issues with physical security measures, a program of monitoring 
user and system activity, and compensating management and 
reconciliation controls. This report presents the issues identified 
during our fiscal year 2006 testing of the general and application 
information security controls that support key BPD automated financial 
systems relevant to BPD’s Schedule of Federal Debt. 

This report also includes the results of our follow-up on the status of 
BPD’s corrective actions to address recommendations that were contained 
in our prior years’ audits and open as of September 30, 2005. In a 
separately issued Limited Official Use Only report, we communicated 
detailed information regarding our findings to BPD management. We also 
assessed the general and application information security controls over 
key BPD financial systems that the Federal Reserve Banks (FRB) maintain 
and operate on behalf of BPD. We have communicated the results of such 
testing to the Board of Governors of the Federal Reserve System. 

Results in Brief: 

Our fiscal year 2006 audit procedures identified eight new information 
security control issues, of which seven relate to general controls and 
the other to an application control. Specifically, the general 
information security control issues were in the areas of entitywide 
security program planning and management, access control, application 
software development and change control, and system software. The 
application information security control issue relates to the reporting 
of unusual activity. In the Limited Official Use Only report, we made 
eight recommendations to address these issues. 

During our follow-up on the status of BPD’s corrective actions to 
address 11 open recommendations related to information security control 
issues identified in prior years’ audits for which actions were not 
complete as of September 30, 2005, we found the following: 

* As of September 30, 2006, corrective action on 8 of the 11 
recommendations had been completed. 

* Corrective action was in progress as of September 30, 2006, on the 
three remaining open recommendations, which relate to access controls. 

BPD provided comments on the detailed findings and recommendations in 
the separately issued Limited Official Use Only report. In those 
comments, the Commissioner of the Bureau of Public Debt stated that of 
the 11 recommendations, which include 3 from a prior year, 4 have been 
completely resolved, and corrective actions for the remaining 7 are in 
progress. The Commissioner also stated that BPD intends to fully 
implement the remaining recommendations by May 2008. 

Background: 

The Department of the Treasury (Treasury) is authorized by Congress to 
borrow money on the credit of the United States to fund federal 
operations. Treasury is responsible for prescribing the debt 
instruments and otherwise limiting and restricting the amount and 
composition of the debt. BPD, an organizational entity within the 
Fiscal Service of the Department of the Treasury, is responsible for 
issuing and redeeming debt instruments, paying interest to investors, 
and accounting for the resulting debt. In addition, BPD has been given 
the responsibility for issuing Treasury securities to trust funds for 
trust fund receipts not needed for current benefits and expenses.

As of September 30, 2006 and 2005, federal debt managed by BPD totaled 
about $8.5 trillion and $7.9 trillion, respectively, for moneys 
borrowed to fund the government’s operations. These balances consisted 
of approximately (1) $4.8 trillion and $4.6 trillion of debt held by 
the public as of September 30, 2006 and 2005, respectively; and (2) 
$3.7 trillion and $3.3 trillion of intragovernmental debt holdings as 
of September 30, 2006 and 2005, respectively. Total interest expense on 
federal debt managed by BPD for fiscal years 2006 and 2005 was about 
$404 billion and $355 billion, respectively. 

BPD relies on a number of interconnected financial systems and 
electronic data to process and track the money that is borrowed and to 
account for the securities it issues. Many of the FRBs provide fiscal 
agent services on behalf of BPD, which primarily consist of issuing, 
servicing, and redeeming Treasury securities held by the public and 
handling the related transfers of funds. The FRB uses a number of 
financial systems to process debt-related transactions throughout the 
country. Detailed data initially processed at the FRBs are summarized 
and then forwarded electronically to BPD’s data center for matching, 
verification, and posting to the general ledger. 

Objectives, Scope, and Methodology: 

Our objectives were to evaluate the effectiveness of the general and 
application information security controls over key financial management 
systems maintained and operated by BPD relevant to the Schedule of 
Federal Debt and to determine the status of corrective actions taken in 
response to the recommendations in our prior years’ reports for which 
actions were not complete as of September 30, 2005. We use a risk-
based, rotation approach for testing general information security 
controls. Each general information security control area is subjected 
to a full-scope review, including testing, at least every 3 years. The 
general information security control areas we review are defined in the 
Federal Information System Controls Audit Manual.[Footnote 4] Areas 
considered to be of higher risk are subject to more frequent review. 
Each key application is subjected to a full-scope review every year. 

To evaluate general and application information security controls, we 
identified and reviewed BPD’s information system general and 
application information security control policies and procedures, 
observed controls in operation, conducted tests of controls, and held 
discussions with officials at the BPD data center to determine whether 
controls were in place, adequately designed, and operating effectively. 

The scope of our work for fiscal year 2006 as it relates to general 
information security controls included following up on open 
recommendations from our prior years’ reports and conducting a full-
scope review of the general controls which includes a review of the 
entitywide security program planning and management, access control, 
application software development and change control, system software, 
segregation of duties, and service continuity. In addition, we 
performed security diagnostics and vulnerability assessment testing of 
BPD’s internal and external information system environment. 

Full-scope application information security control reviews were 
performed on six key BPD applications to determine whether the 
applications are designed to ensure that: 

* access privileges (1) establish individual accountability and proper 
segregation of duties, (2) limit the processing privileges of 
individuals, and (3) prevent and detect inappropriate or unauthorized 
activities; 
* data are authorized, converted to an automated form, and entered into 
the application accurately, completely, and promptly; 
* data are properly processed by the computer and files are updated 
correctly; 
* erroneous data are captured, reported, investigated, and corrected; 
and: 
* files and reports generated by the application represent transactions 
that actually occur and accurately reflect the results of processing, 
and reports are controlled and distributed only to authorized users. 

The scope of our work as it relates to application information security 
controls also included following up on open recommendations from our 
prior year’s report for which actions were not complete as of September 
30, 2005. We also reviewed the application information security control 
audit documentation from the work performed by the Treasury Office of 
Inspector General’s contractor on another key BPD application. 

Because the FRBs are integral to the operations of BPD, we assessed the 
general information security controls over financial systems that the 
FRBs maintain and operate relevant to the Schedule of Federal Debt. We 
also evaluated application information security controls over six key 
financial applications maintained and operated by the FRBs. 

The evaluation and testing of information security controls, including 
the follow-up on the status of BPD corrective actions to address open 
recommendations in our fiscal year 2005 report, were performed by the 
independent public accounting (IPA) firm of Cotton and Company, LLP. We 
agreed on the scope of the audit work, monitored the IPA firm’s 
progress, and reviewed the related audit documentation to ensure that 
the findings were adequately supported. 

During the course of our work, we communicated our findings to BPD 
management, who informed us that BPD has taken or plans to take 
corrective action to address the control issues we identified. We plan 
to follow up on these matters during our audit of the fiscal year 2007 
Schedule of Federal Debt. 

We performed our work at the BPD data center from April 2006 through 
October 2006. Our work was performed in accordance with U.S. generally 
accepted government auditing standards. As noted earlier, we obtained 
agency comments on the detailed findings and recommendations in a draft 
of the separately issued Limited Official Use Only report. BPD’s 
comments are summarized in the Agency Comments and Our Evaluation 
section of this report. 

Assessment of BPD’s Information Security Controls: 

General information security controls are the structure, policies, and 
procedures that apply to an entity’s overall computer operations. 
General information security controls establish the environment in 
which application systems and controls operate. They include entitywide 
security program planning and management, access control, system 
software, application software development and change control, 
segregation of duties, and service continuity. An effective general 
information security control environment helps (1) ensure that an 
adequate entitywide security management program is in place; (2) 
protect data, files, and programs from unauthorized access, 
modification, disclosure, and destruction; (3) limit and monitor access 
to programs and files that control computer hardware and secure 
applications; (4) prevent the introduction of unauthorized changes to 
systems and applications software; (5) prevent any one individual from 
controlling key aspects of computer-related operations; and (6) ensure 
the recovery of computer processing operations in the event of a 
disaster or other unexpected interruption. 

Our fiscal year 2006 testing identified opportunities to strengthen 
certain information security controls that support key BPD automated 
financial systems relevant to BPD’s Schedule of Federal Debt. 
Specifically, our audit procedures identified eight new information 
security control issues, of which seven relate to general controls and 
the other to an application control. The general information security 
control issues included two issues related to the entitywide security 
program planning and management, three issues related to logical access 
control, one issue related to application software development and 
change control, and one issue related to system software. The 
application information security control issue related to audit logs. 

An entitywide program for security planning and management is the 
foundation of an entity’s security control structure and a reflection 
of senior management’s commitment to addressing security risks. The 
program should establish a framework and continuing cycle of activity 
for assessing risk, developing and implementing effective security 
procedures, and monitoring the effectiveness of these procedures. 
Without a well-designed program, security controls may be inadequate; 
responsibilities may be unclear, misunderstood, and improperly 
implemented; and controls may be inconsistently applied. Such 
conditions may lead to insufficient protection of sensitive or critical 
resources and disproportionately high expenditures for controls over 
low-risk resources. 

Access controls are designed to limit or detect access to computer 
programs, data, equipment, and facilities to protect these resources 
from unauthorized modification, disclosure, loss, or impairment. Such 
controls include logical access controls and physical access controls. 
Logical access controls involve the use of computer hardware and 
software to prevent or detect unauthorized access by requiring users to 
input unique user identifications (ID), passwords, or other identifiers 
that are linked to predetermined access privileges. Logical access 
controls restrict the access of legitimate users to the specific 
systems, programs, and files they need to conduct their work and 
prevent unauthorized users from gaining access to computer resources. 

Application software development and change controls help ensure that 
only authorized programs and authorized modifications are implemented. 
This is accomplished by instituting policies, procedures, and 
techniques that help make sure all programs and program modifications 
are properly authorized, tested, and approved and that access to and 
distribution of programs is carefully controlled. Without proper 
application software development and change controls, there is a risk 
that security features could be inadvertently or deliberately omitted 
or “turned off” or that processing irregularities or malicious code 
could be introduced. 

System software coordinates and helps control the input, processing, 
output, and data storage associated with all of the applications that 
run on a system. System software includes operating system software, 
system utilities, file maintenance software, security software, data 
communications systems, and database management systems. Controls over 
access to and modifications of system software are essential to protect 
the overall integrity and reliability of information systems. 

Application information security controls relate directly to the 
individual computer programs that are used to perform certain types of 
work, such as generating interest payments or recording transactions in 
a general ledger. In an effective general control environment, 
application information security controls help to ensure that 
transactions are valid, properly authorized, and completely and 
accurately processed and reported. 

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

During our follow-up on the status of BPD’s corrective actions to 
address 11 open recommendations related to information security control 
issues identified in prior years’ audits for which actions were not 
complete as of September 30, 2005, we found the following: 

*As of September 30, 2006, corrective action on 8 of the 11 
recommendations had been completed. 

* Corrective action was in progress as of September 30, 2006, on the 
three remaining open recommendations which relate to access controls. 
As such, we are reaffirming our three previous recommendations. 

None of our findings pose significant risks to the BPD financial 
systems. In forming our conclusions, we considered the mitigating 
effects of physical security measures, a program of monitoring user and 
system activity, and reconciliation controls that are designed to 
detect potential irregularities or improprieties in financial data or 
transactions. Nevertheless, these findings warrant management’s 
attention and action to limit the risk of unauthorized access, 
disclosure, loss, or impairment; modification of sensitive data and 
programs; and disruption of critical operations. 

Assessment of FRB Information Security Controls: 

Because the FRBs are integral to the operations of BPD, we assessed the 
general and application information security controls over key 
financial systems maintained and operated by the FRBs on behalf of BPD. 
Our fiscal year 2006 audit procedures did not identify any new 
information security control issues over such systems. We have 
communicated the results from that assessment to the Board of Governors 
of the Federal Reserve System. 

Conclusion: 

BPD has made significant progress in addressing open recommendations 
from our prior years’ audits and has informed us that corrective 
actions have been taken or are being taken to address the three 
remaining unresolved issues. We therefore reaffirm our three 
recommendations related to these open issues. 

Our fiscal year 2006 audit identified eight new information security 
control issues, of which seven relate to general controls and the other 
to an application control. For these identified issues, we are making 
eight recommendations. BPD informed us that it has taken, or plans to 
take, corrective action to address all the control issues we 
identified. We plan to follow up on the status of BPD’s actions to 
address the issues identified as part of our fiscal year 2007 Schedule 
of Federal Debt audit. 

Recommendation for Executive Action: 

We recommend that the Commissioner of the Bureau of the Public Debt 
direct the appropriate BPD officials to implement the eight new 
detailed recommendations set forth in the separately issued Limited 
Official Use Only version of this report. 

Agency Comments and Evaluation: 

BPD provided comments on the detailed findings and recommendations in 
the Limited Official Use Only version. In those comments, the 
Commissioner of the Bureau of the Public Debt stated that of the 11 
recommendations, which include 3 from a prior year, 4 have been 
completely resolved, and corrective actions for the remaining 7 are in 
progress. The Commissioner also stated that BPD intends to fully 
implement the remaining recommendations by May 2008. We have modified 
our Limited Official Use Only version of this report to acknowledge, 
where appropriate, BPD’s comments concerning additional actions taken 
in accordance with our recommendations. Also, we plan to follow up on 
these matters during our audit of the fiscal year 2007 Schedule of 
Federal Debt.

In the separately issued Limited Official Use Only report, we noted 
that the head of a federal agency is required by 31 U.S.C. 720 to 
submit a written statement on actions taken on our recommendations to 
the Senate Committee on Homeland Security and Governmental Affairs and 
to the House Committee on Oversight and Government Reform not later 
than 60 days after the date of the Limited Official Use Only report. A 
written statement must also be sent to the House and Senate Committees 
on Appropriations with the agency’s first request for appropriations 
made more than 60 days after the date of that report. In the Limited 
Official Use Only report, we also requested a copy of your responses. 

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Homeland Security and 
Governmental Affairs; the Subcommittee on Federal Financial Management, 
Government Information, Federal Services, and International Security, 
Senate Committee on Homeland Security and Governmental Affairs; the 
Subcommittee on Financial Services and General Government, Senate 
Committee on Appropriations; the House Committee on Oversight and 
Government Reform; the Subcommittee on Government Management, 
Organization, and Procurement, House Committee on Oversight and 
Government Reform; and the Subcommittee on Financial Services and 
General Government, House Committee on Appropriations. We are also 
sending copies of this report to the Secretary of the Department of the 
Treasury, the Acting Inspector General of the Department of the 
Treasury, and the Director of the Office of Management and Budget. 
Copies will also be made available to others upon request. In addition, 
the report will be available at no charge on GAO’s Web site at 
[hyperlink, http://www.gao.gov]. 

If you have any questions regarding this report, please contact me at 
(202) 512-3406 or engelg@gao.gov. Other key contributors to this 
assignment were Jeff L. Knott and Dawn B. Simpson, Assistant Directors, 
Dean D. Carpenter, and Debra M. Conner.

Sincerely yours:

Signed by:

Gary T. Engel: 
Director: 
Financial Management and Assurance

FOOTNOTES:

[1] 131 U.S.C. § 331(e). 

[2] GAO, Financial Audit: Bureau of the Public Debt’s Fiscal Years 2006 
and 2005 Schedules of Federal Debt, GAO-07-127 (Washington, D.C.: Nov. 
7, 2006). 

[3] Reportable conditions are matters coming to our attention that, in 
our judgment, should be communicated because they represent significant 
deficiencies in the design or operation of internal control, which 
could adversely affect the organization’s ability to meet the 
objectives of reliable financial reporting and compliance with 
applicable laws and regulations.

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

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