Tag Archives: Auditing in the Cloud

Cloud Shapes

Just as clouds can take different shapes and be perceived differently, so too is cloud computing perceived differently by our various types of client companies. To some, the cloud looks like web-based applications, a revival of the old thin client. To others, the cloud looks like utility computing, a grid that charges metered rates for processing time. To some, the cloud could be parallel computing, designed to scale complex processes for improved efficiency. Interestingly, cloud services are wildly different. Amazon’s Elastic Compute Cloud offers full Linux machines with root access and the opportunity to run whatever apps the user chooses. Google’s App Engine will also let users run any program they want, as long as the user specifies it in a limited version of Python and uses Google’s database.

The National Institute of Standards and Technology (NIST) defines cloud computing as a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. It is also important to remember what our ACFE tells us, that the Internet itself is in fact a primitive transport cloud. Users place something on the path with an expectation that it will get to the proper destination, in a reasonable time, with all parties respecting the privacy and security of the artifact.

Cloud computing, as everyone now knows, brings many advantages to users and vendors. One of its biggest advantages is that a user may no longer have to be tethered to a traditional computer to use an application, or have to buy a version of an application that is specifically configured for a phone, a tablet or other device. Today, any device that can access the Internet can run a cloud-based application. Application services are available independent of the user’s home or office devices and network interfaces. Regardless of the device being used, users also face fewer maintenance issues. End users don’t have to worry about storage capacity, compatibility or other similar concerns.

From a fraud prevention perspective, these benefits are the result of the distributed nature of the web, which necessitates a clear separation between application and interaction logic. This is because application logic and user data reside mostly on the web cloud and manifest themselves in the form of tangible user interfaces at the point of interaction, e.g., within a web browser or mobile web client. Cloud computing is also beneficial for our client’s vendors. Businesses frequently find themselves using the vast majority of their computing capacity in a small percentage of time, leaving expensive equipment often idle. Cloud computing can act as a utility grid for vendors and optimize the use of their resources. Consider, for example, a web-based application running in Amazon’s cloud. Suppose there is a sudden surge in visitors as a result of media coverage, for example. Formerly, many web applications would fail under the load of big traffic spikes. But in the cloud, assuming that the web application has been designed intelligently, additional machine instances can be launched on demand.

With all the benefits, there are related constraints. Distrust is one of the main constraints on online environments generally. particularly in terms of consumer fraud, waste and abuse protection. Although the elements that contribute to building trust can be identified in broad terms, there are still many uncertainties in defining and establishing trust in online environments. Why should users trust cloud environments to store their personal information and to share their privacy in such a large and segregated environment? This question can be answered only by investigating these uncertainties in the context of risk assessment and by exploring the relationship between trust and the way in which the risk is perceived by stakeholders. Users are assumed to be willing to disclose personal information and have that information used subsequently to store their personal data or to create consumer profiles for business use when they perceive that fair procedures are in place to protect their individual privacy.

The changing trust paradigm represented by cloud computing means that less information is stored locally on our client’s machines and is instead being hosted elsewhere on earth. No one for the most part buys software anymore; users just rent it or receive it for free using the Software as a Service (SaaS) business model. On the personal front, cloud computing means Google is storing user’s mail, Instagram their photographs, and Dropbox their documents, not to mention what mobile phones are automatically uploading to the cloud for them. In the corporate world, enterprise customers not only are using Dropbox but also have outsourced primary business functions that would have previously been handled inside the company to SaaS providers such as Salesforce.com, Zoho.com, and Box.com.

From a crime and security perspective, the aggregation of all these data, exabytes and exabytes of it, means that user’s most personal of information is no longer likely stored solely on their local hard drives but now aggregated on computer servers around the world. By aggregating important user data, financial and otherwise, on cloud-based computer servers, the cloud has obviated the need for criminals to target everybody’s hard drive individually and instead put all the jewels in a single place for criminals and hackers to target (think Willie Sutton).

The cloud is here to stay, and at this point there is no going back. But with this move to store all available data in the cloud come additional risks. Thinking of some of the largest hacks to date, Target, Heartland Payment Systems, TJX, and Sony PlayStation Network; all of these thefts of hundreds of millions of accounts were made possible because the data were stored in the same virtual location. The cloud is equally convenient for individuals, businesses, and criminals.

The virtualization and storage of all of these data is a highly complex process and raises a wide array of security, public policy, and legal issues for all CFEs and for our clients. First, during an investigation, where exactly is this magical cloud storing my defrauded client’s data? Most users have no idea when they check their status on Facebook or upload a photograph to Pinterest where in the real world this information is actually being stored. That they do not even stop to pose the question is a testament to the great convenience, and opacity, of the system. Yet from a corporate governance and fraud prevention risk perspective, whether your client’s data are stored on a computer server in America, Russia, China, or Iceland makes a difference.

ACFE guidance emphasizes that the corporate and individual perimeters that used to protect information internally are disappearing, and the beginning and end of corporate user computer networks are becoming far less well defined. It’s making it much harder for examiners and auditors to see what data are coming and going from a company, and the task is nearly impossible on the personal front. The transition to the cloud is a game changer for anti-fraud security because it completely redefines where data are stored, moved, and accessed, creating sweeping new opportunities for criminal hackers. Moreover, the non-local storage of data raises important questions about deep dependence on cloud-based information systems. When these services go down or become unavailable i.e., a denial of service attack, or the Internet connection is lost, the data become unavailable, and your client for our CFE services is out of business.

All the major cloud service providers are routinely remotely targeted by criminal attacks, including Dropbox, Google, and Microsoft, and more such attacks occur daily. Although it may be your client’s cloud service provider that is targeted in such attack, the client is the victim, and the data taken is theirs’s. Of course, the rights reserved to the providers in their terms of service agreements (and signed by users) usually mean that provider companies bear little or no liability when data breaches occur. These attacks threaten intellectual property, customer data, and even sensitive government information.

To establish trust with end users in the cloud environment, all organizations should address these fraud related risks. They also need to align their users’ perceptions with their policies. Efforts should be made to develop a standardized approach to trust and risk assessment across different domains to reduce the burden on users who seek to better understand and compare policies and practices across cloud provider organizations. This standardized approach will also aid organizations that engage in contractual sharing of consumer information, making it easier to assess risks across organizations and monitor practices for compliance with contracts. policies and law.

During the fraud risk assessment process, CFEs need to advise their individual corporate clients to mandate a given cloud based activity in which they participate to be conducted fairly and to address their privacy concerns. By ensuring this fairness and respecting privacy, organizations give their customers the confidence to disclose personal information on the cloud and to allow that information subsequently to be used to create consumer profiles for business use. Thus, organizations that understand the roles of trust and risk should be advised to continuously monitor user perceptions to understand their relation to risk aversion and risk management. Managers should not rely solely on technical control measures. Security researchers have tended to focus on the hard issues of cryptography and system design. By contrast. issues revolving around the use of computers by lay users and the creation of active incentives to avoid fraud have been relatively neglected. Many ACFE lead studies have shown that human errors are the main cause of information security incidents.

Piecemeal approaches to control security issues related to cloud environments fail simply because they are usually driven by a haphazard occurrence; reaction to the most recent incident or the most recently publicized threat. In other words, managing information security in cloud environments requires collaboration among experts from different disciplines, including computer scientists. engineers. economists, lawyers and anti-fraud assurance professionals like CFE’s, to forge common approaches.

Navigating the Cloud

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.