New Technologies and Your Audit

By Underwood, Doug | Independent Banker, April 2011 | Go to article overview

New Technologies and Your Audit


Underwood, Doug, Independent Banker


How to prepare for your next regulatory IT examination

Given the ever-changing technological landscape in which community banks operate, their evaluation of IT risk and controls must change in kind. Such technological advancements as social media/networking, cloud computing and server virtualization- along with threats such as data leakage-pose new risks to all financial institutions, and bank auditors and examiners will focus on how your community bank is mitigating these risks.

Security risks arise when banks rush to implement new technologies to meet evolving customer demands without first reviewing the effect on the bank's related risk tolerance. For instance, if a bank outsources data replication to a third party, does that require the third party to have access to the bank's internal network, and is management willing to accept those new risks? Technology also changes so quickly that risks can evolve before they are fully known.

As with all new technology, auditors and examiners expect bank management to complete a formal risk assessment as part of its information security program. If your community bank's management has not completed the appropriate risk assessment activities for its IT efforts, examiners could question your bank's overall IT governance.

Here is some guidance related to three issues-technology outsourcing, social media activities and server virtualization-to help prepare for your bank's next IT audit.

Outsourcing. Banks are increasingly considering service bureaus and software as a service options instead of internally hosting their computer network systems. Examples of outsourcing (outside of core processing and Internet banking) include data replication, imaging, e-mail and merchant capture.

Examiners and auditors want to verify that management has done due diligence and risk assessment for any new outsourcing relationships. An outsourced relationship vendor, especially for a critical system, should not be approached lightly. Any potential vendor should go through extensive vetting, and examiners will check that management has reviewed the vendor's financial condition to ensure that those IT projects can continue.

Examiners will also check into independent controls. Banks commonly obtain a Service Organization Control (SOC) report (previously SAS 70) to verify the effectiveness of controls at an outsourced vendor. However, just obtaining the report is not enough. Managers should review it carefully and complete a formal analysis to verify that controls critical to the bank's needs are operating effectively.

Financial institutions can request information beyond the SOC report, such as test results for business continuity or penetration testing results. Your community bank should validate that its service providers implement the same controls that the bank itself would if the service were internal. Controls to review may include but are not limited to the following:

* authentication controls,

* data protection and encryption controls,

* software development life cycle and change management controls,

* patch management controls and

* network and application monitoring controls. …

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