I’ve read several articles in the trade press recently that indicate CFEs are finding some aspects of fraud investigations involving cloud based data to be especially challenging. This is a consequent follow-on of the uncontested fact that, for many organizations, cloud based computing does improve performance and dramatically reduces a wide range of IT and administrative costs.
Commissioning a cloud service provider can enable an organization to off-load much of the difficulty that comes with implementing, maintaining, and physically protecting the systems required for company operations. The organization no longer needs to employ such a large team of network engineers, database administrators, developers, and other technical staff. Instead, it can use smaller, in-house teams to maintain the cloud solution and keep everything running as anticipated. Moving to the cloud also can introduce new capabilities, such as the ability to add and remove servers based on seasonal demand, an option that would be impractical for a traditional data center.
Now that cloud computing has become a mainstream service, CFEs and forensic accountants are increasingly called upon to assess the cloud environment with an eye to devising innovative approaches to cope with the unique investigative features and risks these services pose while at the same time grappling with the effects on their examinations of the security, reliability and availability of critical data housed by their client’s outside IT provider. Based on this assessment, CFEs can advise their client organizations in how best to meet the new investigative challenges when the inevitable cloud involved fraud strikes.
The cloud encompasses application service providers, cloud infrastructure, and the virtual placement of a server, set of servers, or other set of computing power in an environment that is shared among many entities and organizations. Cloud platforms and servers extend and supplement an organization’s own servers, resulting in multiple options for computing and application hosting. It is not sufficient to think of cloud platform and infrastructure oversight as mere vendor management. Fraud examinations involving these environments are more complex, because of several factors about which the investigative team needs to make decisions when determining the structure of the examination.
The ACFE tells us that a cloud deployment can be just as variable in structure and architecture as a traditional IT implementation. Among the numerous cloud platforms confronting the CFE, the most common are infrastructure as a service, software as a service, and platform as a service. The employment of these three options alone makes a wide variety of models and other options available. Each of these options additionally poses a distinct set of fraud risks and preventative controls, depending on a client organization’s specific deployment of a particular cloud platform and infrastructure.
Many challenges and barriers to an unfettered examination can appear when the CFEs client organization has contracted with a cloud provider who is, in actual form, a third-party vendor. In some cases, reviewing the cloud service provider’s processes and infrastructure might not be allowed by contract. In its place, the vendor may offer attestation reports such as the American Institute of Certified Public Accountants’ (AICPA’s) Statement on Standards for Attestation Engagements No. 16 (SSAE 16) as evidence of organizational controls. In other cases, the provider might restrict the examination to a select portion of the service which can be problematic when the CFE is working to obtain an overview of a complex fraud. Further, providers often require the client to obtain specific approvals before any fraud examination activities can even begin. Ideally, client organizations should take these types of consideration into account before contracting with a cloud vendor, but such consideration is, for the most part, not realistic unless a client organization has historically experienced a large number of frauds. Fraud is, most often, not usually the first thing on many client’s minds when initially contracting with a cloud service provider.
One of the most difficult aspects of the fraud examination of a cloud infrastructure deployment is determining which fraud prevention controls are currently managed by the client organization and which by the cloud provider. With many cloud deployments, few controls are the actual responsibility of the provider. For example, the CFEs client may be responsible for configuration management, patch management, and access management, while the provider is only responsible for physical and environmental security.
A client organization’s physical assets are tangible. The organization buys a physical piece of equipment and keeps a record of this asset; a CFE can see all the organization’s technology assets just by walking through the data center. Cloud infrastructure deployments, however, are virtual, and it’s easy to add and remove these systems. Many organizations base their models on servers and systems that are there one day and gone the next. IT departments themselves also struggle with managing cloud assets, and tools to help cloud providers and clients are continually evolving. As a result, from the CFEs perspective, the examination scope can be hard to manage and execute. The CFE is also confronted with the fact that, because cloud computing is a relatively recent and fast-growing technology service, a client organization’s employees themselves may not possess much cloud expertise. This scarcity creates risks to the CFEs examination because IT administrators often aren’t positioned to fully explain the details of the cloud deployment and structure so critical details bearing on the fraud under investigation may not be adequately documented. Also, migrating from facilities that are operating internally to cloud-based services can dramatically alter the fraud risk profile of any organization. For example, when an organization moves to a cloud based service, in most cases, all its data is stored on the same physical equipment where other organizations’ data is housed. If configured inappropriately, data leaks can result.
Interacting with the client organization’s IT and management is the CFEs first step toward understanding how the organization’s cloud strategy is or is not related to the circumstances of the fraud under investigation. How did the organization originally expect to use the cloud and how is it using it in actual practice? What are the benefits and drawbacks of using it the way it uses it? What is the scope, from a fraud prevention and security perspective, of the organization’s cloud deployment? The lack of a cohesive, formal, and well-aligned cloud infrastructure strategy should be a red flag for the CFE as a possible contributing factor in any fraud involving cloud computing services.
The second step is CFE review of the client’s security program (or lack thereof) itself. IT departments and business units should ideally have a cloud security strategy available for CFE review. Such a strategy includes determining the type of data permissible to store in the cloud and how its security will be enforced. It also includes the integration of the information security program into the cloud. All the usual IT risks of traditional data centers apply to cloud deployment as well, among them, malware propagation, denial of service attacks, data breaches, and identity theft, all of which, depending on the implementation, can fall on either party to the contract. Professionals who have received training in cloud computing may or may not be able to adapt traditional IT programs for fraud examination of servers in physical form to a cloud environment.
There is good news for the examining CFE, however. Cloud infrastructure brings with it myriad security technologies useful to the CFE in conducting his or her examination that are not affordable in most traditional deployments from real-time, chronological reports on suspect activities related to identity and access management systems, to network segmentation, and multifactor authentication.
In summary, CFEs and forensic accountants should not approach a cloud involved engagement in the same way they approach other fraud examinations involving third-party vendors. Cloud engagements present their own complexities, which CFEs should attempt to understand and assess adequately. SSAE 16 and other attestation reports based on audit and attestation standards can be valuable as informational background to examination of a fraud involving cloud services. CFEs can help as a profession by reinforcing client community understanding that a correctly implemented cloud infrastructure can reduce a client organization’s residual risk of fraud by offloading a portion of the responsibility for managing IT risks to a cloud service provider. CFEs have a valuable opportunity to see that their client organizations benefit from the cloud while adequately addressing the new fraud risks that are introduced when their clients contract with a service provider and move IT operations to the cloud. Applying the same level of rigor to examinations involving cloud technology that they apply to technology managed in-house creates an environment in which the CFE and forensic accounting professions can be primary advocates for strong cloud strategy implemented within the structure of the client organization’s fraud prevention program.