1. A Practical IT Approach To Sarbanes-Oxley Compliance
In 2002 the Sarbanes-Oxley Act was signed into law. It mandates more stringent controls on financial reporting for public companies.
There’s been quite a bit written about Sarbanes over the past couple of years – particularly about its impact on IT. The purpose of this presentation is to educate you on what SOX means to IT and to introduce you to Ecora, our products, and show you how Ecora products can help you achieve SOX IT compliance.

2. Ecora and Sarbanes-Oxley Compliance
Agenda
Sarbanes-Oxley -- What is It?
Some Definitions
Where are companies in compliance effort?
Why should I care?
Why a Framework?
COSO
COSO IT Controls
IT General Controls
Example of compliance work with a customer
Summary

3. Sarbanes-Oxley – What is it?
Federal law that imposes strict new financial reporting requirements for publicly traded companies.
Places burden on management to devise safeguards around the financial reporting process
Specifically identifies IT as a key component of process and audit activity

4. Sarbanes-Oxley – Definitions
Section 302 – Quarterly and annual reporting – set up internal controls. CEO and CFO own it.
Section 404 – Management Assessment of Internal Controls
Annual evaluation of internal controls
Quarterly filing of material changes to internal controls
Independent audit of internal controls
Recognized control framework required for assessment

5. Sarbanes-Oxley – Definitions
PCAOB – Public Company Accounting Oversight Board – established to oversee audits…
Audit Standard No page document defines SOX auditing standards
COSO -- Committee of Sponsoring Organizations of the Treadway Commission – Internal Control – Integrated Framework, PCAOB referenced framework
CobIT – Control Objectives for Information and Related Technology – another well known framework
Internal Control – A process designed….to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles…. (SEC Definition)

6. Sarbanes-Oxley – Definitions
Internal Control (cont.) – Internal control is not “one-size-fits-all,” and the nature and extent of controls that are necessary depend, to a great extent, on the size and complexity of the company. PCAOB Auditing Standard No. 2
Control Deficiency – exists when design or operation of a control does not allow management or employees …to prevent or detect misstatements on a timely basis.
Significant Deficiency – control deficiency (or combination of CDs) that adversely affects company’s ability to initiate, authorize, record, process, or report external financial data reliably
Material Weakness – significant deficiency (or combination of SDs) that results in more than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected

7. Where are companies in the process?
Plan
Document
Test
Report
Two Groups
< $75M Market Cap – 11/15/04
64% Testing
34% Documentation
2% Reporting
> $75M Market Cap – 7/15/05
60% Testing
3% Reporting
3% Planning
Ernst&Young 2004

8. Sarbanes-Oxley – Why should I care?
SOX is changing IT
No more IT closed “black box”
Auditors – with technical expertise -- are now looking closely at IT
E&Y projects that next year IT portion of SOX audit will grow from 10% to 25%.

9. Sarbanes-Oxley – Why should I care?
IT an integral part of the financial reporting and control process
Management’s heavy dependency on IT
High degree of automation in processing day to day transactions
IT data elements are the primary source of data used in decision-making
IT availability / integrity critical to the financial statement close and reporting processes

10. Why a Framework?
1. SOX Mandate -- Assessment of effectiveness requires “..suitable, recognized control framework...”
Must be identified in annual report
COSO is specifically referenced by PCAOB and forms foundation of its Auditing Standard No. 2.
2. It makes sense
Provides structure
Identifies functional areas of focus

11. Information and Communication
COSO Framework
A common sense approach to implementing internal controls
Control Environment
Risk Assessment
Control Activities
Lots has been written about COSO – however it’s actually a fairly intuitive and logical approach to project management.
Control environment – sets the tone of an organization, influencing the way people understand and contribute to the control process.
It is the foundation for all other components of internal control, providing discipline and structure.
Risk Assessment – involves identification and analysis by management – not internal auditor – of relevant risks to achieving objectives. Brings business sensibility and responsibility to the process.
Control Activities– policies, procedures and practices that ensure management objectives are achieved and risk mitigation strategies are carried out – this is where IT plays a central role
Information and Communication – supports all other control components by communicating control responsibilities to employees and providing information in a form and timeframe that allows people to carry out their duties
Monitoring – Just hat the name implies -- consists of processes that assess the quality of internal control performance over time. -- it covers external oversight of internal controls by managing/ mentoring other parties outside the process; or the application of independent methodologies, like customized procedures or standard checklists, by employees within a process.
Information and Communication
Monitoring

12. COSO IT Controls
COSO identifies two broad groupings of information system control activities.
Control Activities
Application Controls
Application controls – apply to business processes and designed within applications to prevent/detect unauthorized transactions.
When you dig into control activities the COSO framework breaks information system control activities into two groups
Application Controls – these are internal to an application such as passwords, and other internal security features that protect a specific application
Then there are general controls – these controls are those that apply to all information systems. They provide continuous and ongoing protection of the infrastructure – they are the foundation for all other IT controls and that’s where Ecora plays a strong role.
General Controls
General Controls – apply to all information systems, support secure and continuous operation. They support all other controls

13. IT General Controls
IT general controls are foundation for all IT controls
Significant Accounts in Financial Statements
Balance Sheet
Income Statement
SCFP
Notes
Other
Business Processes/ Transaction Classes
Process 1
Financial Applications
Application X
Application Y
Application Z
IT Infrastructure Services
Database
Operating System
Network
Application Controls
*SCFP – statement of change in financial position
As you can see by this diagram – General controls are a foundation for all other IT controls – this makes sense because if you neglect infrastructure security and access you undermine any other control scheme you put into play.
General Controls
Adapted from IT Control Objectives for Sarbanes-Oxley by the IT Governance Institute

14. IT General Controls
IT General Controls are IT processes and related controls that are generally applied to support the computer application level. However, they may be performed on a single platform or application.
IT general controls provide a focus for IT to identify, assess, and develop internal controls around defined areas of operation as they relate to financial controls
Tests for controls are specific activities or processes that demonstrate and document proof that the controls are real and in place.
Remember -- the whole point of SOX is financial reporting – the objective is to provide documented proof that IT systems associated with financial reporting are locked down.
Let’s recap. Sarbanes-Oxley requires creation and assessment of internal control for financial reporting. Those internal controls must be defined by the company – which by the way has some latitude in their definition – and they must be audited. Auditors ask broad questions about access. Although this is changing – today 10% of internal controls are IT. That’s expected to rise to 25% in the next two years.
Ecora Enterprise Auditor collects and reports on a wide range of IT infrastructure configuration data which can be used in SOX compliance.
Let’s look at some concrete examples of IT internal controls and the auditor reports that support them.

15. System (OS) Access to System System (OS) Access to Data
IT General Controls
Your infrastructure figuratively surrounds you’re your financial reporting data. You need controls at each level.
Network Access
System (OS) Access to System
System (OS) Access to Data
Database Access
Financial Reporting Data
Another way to look at it is that we help validate the multiple layers surrounding your financial systems. Each ring or layer needs its own set of internal controls, tests, and documentation to show that you are complying with Sarbanes-Oxley.

16. How Ecora helps with IT General Controls
Ecora Auditor maps to IT general controls. We provide documented proof that you are complying with internal controls for IT systems that impact financial reporting.
IT Infrastructure Services
Database
Operating System
Network
General Controls
Ecora Infrastructure Coverage
Ecora Enterprise Auditor
Database MS-SQL, Oracle
I’m introducing Ecora here because I’m going to show you some concrete examples of internal controls from one of our clients. Ecora Enterprise auditor gives you an out of the box solution that reports on a significant portion of your infrastructure. We map pretty well to the COSO general control standard. We cover the major OSs, databases, and infrastructure applications. Our reporting and documentation capability can be used for a solid SOX foundation. The next series of slides show actual controls used by a recent SOX client.
Operating System Windows, Solaris, HP- UX, AIX, Red Hat Linux, Novell
Network Cisco

17. Client Example Database Internal Controls Internal Control
Test of Internal Control
Ecora Report for Test
A process exists to review and confirm access rights.
Ensure each DBA has own account and no generic accounts used to bypass audit trail of DBA activity
DBA Accounts
Ensure appropriate Authentication Mode is configured
Authentication Mode
Ensure all logins have passwords and not default password
Login Password
Review role memberships and permissions to ensure appropriate access and privileges to databases
Role Permissions &
Memberships
Set file system privileges to prevent unauthorized access to database server data files, log files, and backup files
System Privileges
Ensure Verify Function exists and valid to ensure user passwords are validated and strong password criteria required
Verify Function

18. Client Example Database Internal Controls Internal Control
Test of Internal Control
Ecora Report for Test
Prove adequate password validation in place
Password Lifetime, Password Grace Period, Password Reuse Time, Failed Login Attempts, Password Lock Time
Appropriate controls exist to review and manage remote network access
Audit and review list of linked and remote servers
External Servers
Identify all public database links. Review and replace with private links as appropriate to restrict access to confidential data
Public Links

19. Client Example Database Internal Controls Internal Control
Test of Internal Control
Ecora Report for Test
Controls exist to insure data is collected for tracking user activity
Set Initialization Parameters to provide security and ensure database auditing is active
Initialization Parameters
Enable audit events to provide audit trail of user activity
Auditing Enabled
Audit and review DB owner for each database
DB Owner
Enable Archive Log Mode to allow point in time recovery to ensure data not lost when recovering
Archive Log Mode

20. Client Example OS Internal Controls Internal Control
Test for Internal Control
Ecora Report for Test
A control process exists to review and confirm access OS rights.
Audit and review user privileges on each system
User Privileges
Audit and review system access permissions to sensitive files
NTFS Permissions
Ensure systems configured to restrict anonymous remote access to your systems.
Remote Access
Select sample of terminated employees and determine if their access has been removed
User Access

21. Client Example OS Internal Controls Internal Control
Test for Internal Control
Ecora Report for Test
Procedures for protection against malicious programs are in place through the use of anti-virus and other software and measures
Ensure systems are updated with appropriate service packs and hotfixes
Patch Levels
Ensure anti-virus software installed on systems
Computer without Ant-virus Installed

22. Client Example OS Internal Controls Internal Control
Test for Internal Control
Ecora Report for Test
Procedures exist to maintain effectiveness of authentication and access mechanisms
Ensure built-in local administrator account is renamed
Built-in Admin Renamed
Ensure strong password and account lockout policies are implemented.
Password Policy
Ensure all services are configured appropriately and that only required services are running to protect system from unauthorized access
Services Summary
Audit and review list of local administrators to ensure only appropriate accounts have full admin privileges
Admins Group Report
If using SNMP ensure appropriate Community String(s) defined to prevent unauthorized users from obtaining systems status information
SNMP

23. Client Example OS Internal Controls Internal Control
Test for Internal Control
Ecora Report for Test
IT administration insures appropriate audit mechanisms are in place to allow detail event tracking
Ensure strong audit policy configured to ensure audit trail of events is recorded to provide audit trail of user activity (e.g. account login events, policy change, object access, process tracking, etc..)
Audit Policy
Ensure event log setting are configured to retain recorded events for appropriate time and prevent guest access to logs
Event Log

24. Summary Sarbanes-Oxley is here to stay – annual and quarterly
Internal controls defined by each company
IT will bear an increasing burden of SOX compliance
Framework can be guide
IT general controls are foundation of all controls
Sustainability is requirement
Automation tools will make your job easier
Let’s recap. Sarbanes-Oxley requires creation and assessment of internal control for financial reporting. Those internal controls must be defined by the company – which by the way has some latitude in their definition – and they must be audited. Auditors ask broad questions about access. Although this is changing – today 10% of internal controls are IT. That’s expected to rise to 25% in the next two years.

25. And now a word from our sponsor…
Ecora Software, Inc. and Enterprise Auditor
Enterprise Auditor automates the collection of configuration data from the major infrastructure applications, databases, OSs, and network components and delivers audit ready reports.
Ecora’s Enterprise Auditor forms the foundation for Sarbanes-Oxley IT internal controls. It gives you a platform for, and proof of compliance with IT internal controls.
Solution Express combines Enterprises Auditor and an Ecora Systems Engineer (no-charge) to get your IT Sarbanes-Oxley compliance effort on a fast track.
Before we begin I’d like to make one thing clear – we are not a Sarbanes-Oxley silver bullet. None – to my knowledge exists.
Ecora Enterprise Auditor however can play a substantial role in defining controls – and more importantly – giving you audit ready reports that prove you are complying with those internal controls. And as we’ll see Internal Controls are central to Sarbanes-Oxley