Tag Archives: GLBA

How to Maximize Your IT Security Budget

Sophisticated cyber criminals have followed businesses into the online world; they now can steal everything from intellectual property to credit cards en masse. And that’s just the start Add social security numbers, addresses, and other personally identifying information to the list and you can essentially reconstruct and hijack entire identities. What’s worse is that cybercriminals benefit from anonymity: They can compromise entire databases of sensitive information and leave only a masked IP address behind as a trail—and that trail often ends in a foreign country where both jurisdiction and law enforcement are limited.

Regulators Focus On Large Enterprises

As cyber criminals successfully raided corporate databases and siphoned away credit card, tax, banking, healthcare and other consumer information, regulators took notice. In an effort to protect consumers, governments and industry consortiums imposed regulations and mandates like Sarbanes-Oxley Act SOX, the Health Insurance Portability and Accountability Act HIPAA, the Gramm-Leach-Bliley Act GLBA, and the Payment Card Industry PCI standard. The initial round of enforcement and deadlines, however, was mostly targeted at large enterprises. Thus it is not surprising that over the last few years, large enterprises have made significant investments in cyber security and have at least increased the barrier to such breaches.

When Cybercrime Moves Downstream

Undeterred, cybercriminals are finding it easier to move downstream and target small to medium businesses, which are increasingly online but do not have the necessary safeguards. The Privacy Rights Clearinghouse website lists a long chronology of breaches. Take a look and you’ll find that while familiar names like ChoicePoint, the U.S. Department of Veterans Affairs, TJX, and Circuit City have endured highly publicized breaches, the majority of breaches actually occur at small to medium merchants.

Regardless of whether you are a small retailer, a credit union with a single location, or a doctor’s office or clinic, you face the same problems as a global enterprise when a breach occurs: potential fines, bad press, class-action lawsuits and customer attrition. In fact, the costs of security breaches can be more devastating for a small enterprise that has fewer financial and other resources.

The squeeze doesn’t end there. Regulations increasingly apply to small and medium-sized businesses, not just larger ones. The PCI Data Security Standard (PCI DSS) must now be met by any business that stores, processes, or transmits credit card information—regardless of annual transaction volume. Similarly, publicly traded companies with a market capitalization under $75 million must now comply with SOX. HIPAA, of course, applies to the smallest doctor’s office and the largest hospitals and insurance firms.

Combating Cybercrime with the Hidden Trail

Just thinking about how to provide adequate security can seem overwhelming to a small business. But your business already has the information you need to detect breaches in a timely manner and to cost effectively address regulatory requirements. Every second of the day, your servers, laptops, applications, network infrastructure, and security devices leave a trail of activity behind in the form of logs. Everything from a login or logout to a badge swipe or file access is tracked in this hidden trail. Bring this information together and you have a powerful and cost-effective means to detect threats and protect your business.

Tips On How to Maximize Your Security Budget:

  • Improve efficiency—consider approaches to security that require less hardware and effectively support consolidation and green initiatives.
  • Manage clear visibility on the network—knowing where your internal/external threats and policy violations exist will eliminate or reduce the extraneous costs of a data breach, fraud, or cybercrime.
  • Avoid the â¬Sone size fits all⬝ solutions—look for multiple performance options and scalability to adapt to evolving security and compliance regulations.
  • Understand the impact of automation—reserve limited and valuable IT resources for more strategic tasks.
  • Integrate security as part of the business—leverage security solutions in more strategic ways by offer a clear path to ROI and productivity gains.

For organizations of any size, there’s no doubt that battling cybercrime and meeting regulatory compliance will be a top business issue in 2009. However, given the state of security in today’s economy, it will be important to measure the cost-comparisons between technology and IT resources used versus the costs associated with a data breach or cybercrime attack.

Ansh Patnaik is the director of product marketing at ArcSight. He is an ISSA and ISACA member and maintains the CISSP certification. Ansh has worked in the security space for over 10 years with companies such as BindView/Symantec and Omniva Policy Systems.

How to Maximize Your IT Security Budget.

Hedge Your Bets: The Importance of IT Risk Management in M&A

Information & technology (IT) is a critical component in achieving an M&A strategy; without effective IT risk management, the value of the deal could be threatened or even eroded. IT risk management is a multi-disciplinary undertaking, and covers a variety of functional domains—ranging from data protection to change management. (See “Common IT Risk Management Areas” below) It is also a multi-faceted and complex undertaking that also entails consideration of a wide array of compliance requirements. As such, in a business environment with increasing emphasis on regulatory compliance, the role of IT risk management becomes more important as an enabler of the M&A strategy.

Often, many organizations need to demonstrate compliance with several overlapping requirements. A large financial company may need to meet Sarbanes-Oxley (SOX), Gramm-Leach-Bliley Act (GLBA), Payment Card Industry data security standard (PCI), Health Insurance Portability and Accountability Act (HIPAA), and other mandates such as those from the Federal Financial Institutions Examination Counsil, Office of the Comptroller of the Currency, and Federal Trade Commission; a global transportation company may need to meet SOX, HIPAA, PCI, FTC, and European Union and Asia-Pacific Economic Cooperation data protection requirements. The effort to meet these regulations often further complicates the efforts required to identify an approach and develop a strategy to mitigate risks when consolidating or separating companies.

Although many of these regulations address similar requirements such as data protection, access controls, transaction auditing, data availability and system monitoring; compliance with one set of regulations does not necessarily translate into compliance with another. The specifics of each set of regulations must be carefully evaluated.

Furthermore, international M&A transactions are likely to be much more complex than domestic transactions. In international transactions, companies must not only consider the regulatory compliance concerns noted above; they must also take into account the potential risks to corporate risk governance, employee data rights, customer data expectations, cross-border data flow, as well as the risk and compliance culture of the home countries of all entities involved in the M&A transaction. Failure to adequately address these factors could scuttle the transaction.

In this complex risk environment, it is clear that IT risk management must be effectively implemented to effectively address the myriad legal, regulatory, contract, and compliance requirements; otherwise, IT risk issues left unaddressed could fundamentally affect the overall M&A strategy and desired value creation.

Is the Loss of Business Value Real?
Based on Deloitte’s experience with M&A transactions, when IT risks, especially those risks that are compliance-driven, are not fully addressed, they can completely undermine the expected value creation of an M&A transaction. Generally, IT risk tends to impact M&A deal value in four primary areas: IT cost, EBITDA, technology, and regulatory and governance.

Examples of common IT risk issues that can have a serious negative impact on M&A transactions include:

  • Inevitable technology changes occur with disparate systems in combined entities and often create system consolidation delays and increase the security and compliance risks with the existing systems
  • The combined entity creates a new state, federal, and/or global jurisdiction operating footprint that often faces potential regulatory and financial risk from the possible compromise of personally identifiable information (PII)
  • The listing of IT assets assumed to be acquired during the financial due diligence process does not reconcile with detailed IT-listed assets, which results in lost value transfer
  • Unclear legal rights over existing key applications and information often inhibits integration and/or separation of IT systems
  • Sensitive information cannot be identified and located, which impedes, and can completely halt, application and system integration and/or isolation
  • The merged entities have disparate access management systems, but they have a need for immediate access to information, which often results in poorly consolidated systems that lead to segregation of duty conflicts and improper data access
  • Hidden liabilities in licenses and third-party contracts results in lost value and increased legal costs
  • Dated technology prevents customization and leads to lost business agility, opportunity and value

So, what is needed to minimize these types of risks from compromising an M&A transaction?

The IT Risk Management Framework
To mitigate the risks described above, M&A due diligance teams should incorporate a comprehensive IT risk management framework and readiness diagnostic into their planning and implementation efforts.

A sound IT risk management framework and readiness diagnostic has several key qualities. First, it is structured, risk-focused, and customizeable to cover small and large organizations. Next, it helps in the translation of information protection and technology issues into business risk impacts that will affect the overall M&A transaction. Finally, it helps address industry standards and regulatory requirements for each of the IT risk areas higlighted earlier in this paper.

The IT risk management framework and readiness diagnostic can be organized around five core components — integrated requirements, technology assessment, information assessment, business assessment, and risk quantification.

Integrated requirements establish the required IT risk management practices to be assessed during the M&A transaction. Assessment practices and criteria are established by identifying and aligning the applicable IT risk-related business requirements for each of the common IT risk management areas (see above). These should include:

  • Industry common practices (e.g. International Organization for Standardization (ISO) 27002, COBIT 4.1, Information Technology Infrastructure Library (ITIL), American Institute of Certified Public Accountant’s (AICPA) Generally Accepted Privacy Practices, etc.)
  • Laws and regulations (e.g. GLBA, HIPAA, EU Privacy Directive, CA SB1386, FTC Standards for Safeguarding Customer Information, etc.)
  • Industry standards (e.g. PCI Data Security Standard, BITS, etc.)
  • Acquiring and acquired organizations’ internal IT risk-related policies and standards for each of the common IT risk management areas previously mentioned

This particular IT risk management component is especially benefical to those organizations that worry about compliance such as How does the “new” operating structure comply with SOX quickly?’ By establishing and evaluating integrated requirements early in the IT due diligence process, the acquiring organization should have already identified the SOX related requirements and their impact on the other organization’s operations. Once the M&A transaction has been executed, the acquiring organization should be able to quickly apply their SOX control framework to the acquired organization and assimilate the various reporting entities into the new organization’s compliance testing and reporting process.

A Framework for Value Protection

The technology assessment considers core technology development, licensing and integration issues. Generally, this assessment will consider:

  • Technology software and infrastructure vulnerabilities that may affect service levels
  • Capacity and scalability of key systems to satisfy business requirements
  • System backup and power issues that may cause business disruptions
  • Unsupported systems and code
  • Vendor-owned source code that is not available for changes
  • Vendor service-level adequacy
  • Non-favorable clauses in vendor agreements that would be affected by change in ownership
  • Termination of key employees
  • Loss of quality resources required for integration efforts
  • Legal rights to existing key applications
  • Source code that is not in escrow
  • Hidden liabilities in licenses and support contracts

The information assessment considers sensitive data-handling requirements and how well data is protected. Generally, this assessment will consider:

  • Systems and data accessible by unauthorized users and how unauthorized access to such data can affect the company’s brand and reputation
  • Authorization, development, and approval processes for the records program
  • Privacy, intellectual property, and other sensitive information collection, usage, storage and complaints-handling processes
  • Third party contractual arrangement adequacy for addressing sensitive information handling

The business assessment considers technology strategy alignment with the business, business process control integrity & automation, and governance & compliance matters. Generally, this assessment will consider:

  • IT strategy that is not aligned with the current and future business requirements
  • Current systems that are not suitable for business requirements
  • Inefficient manual work-around procedures that are required to operate the business
  • Level of system automation that does not match the level disclosed by management
  • Recently-integrated business systems that have internal control integrity issues
  • Internal controls and SOX 404 issues that will impact regulatory compliance
  • Insufficient governance of IT system projects that could result in hidden future IT costs or write down of IT assets due to inappropriate system development

The risk quantification translates identified IT risks into financial impact statements and helps prioritize them for consideration in the final M&A transaction decision.

Today’s risk and compliance environment compels organizations that are developing M&A strategies to integrate IT risk management into their M&A planning and implementation processes. Left unaddressed, IT risk issues can fundamentally affect the overall M&A strategy and desired value creation. A properly structured IT risk management framework and readiness diagnostic can provide practical insights into the information and technology risk issues. Including IT risk management from the outset can make the M&A picture complete, rather than an unfinished puzzle. ##

Bill Kobel(bkobel@deloitte.com) is a Principal and John Gimpert (jgimpert@deloitte.com) is a Partnerwith Deloitte & Touche LLP.

Hedge Your Bets: The Importance of IT Risk Management in M&A.