Melvin H. Barnes, Jr.
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In July 2002, the U.S. Congress passed the Sarbanes-Oxley Act into law. The Act was primarily designed to restore investor confidence following well-publicized bankruptcies that brought chief executives, audit committees, and the independent auditors under heavy scrutiny. The Act is applicable to all publicly registered companies under the jurisdiction of the Securities and Exchange Commission (SEC).
The Act calls for the formation of a Public Company Accounting Oversight Board (PCAOB) and specifies several requirements (“sections”) that include management’s quarterly certification of its financial results (Section 302) and management’s annual assertion that internal controls over financial reporting are effective (Section 404). In Section 404, the independent auditor of the organization is required to opine on management’s assertion over internal control and the fair presentation of the organization’s financial statements. This additional testing of management’s assertion is referred to as attestation examination.
Section 404 draws attention to the significant processes that feed and comprise the financial reporting for an organization. In order for management to make its annual assertion on the effectiveness of its internal control, management must document and evaluate all controls that are deemed significant to the financial reporting process. If the organization uses a service provider to process transactions, host data, or perform other significant services, management must look to the service organization for information on the design and operating effectiveness of the service organization’s controls.
Thus, the Sarbanes-Oxley Act requires chief executive officers and chief financial officers to certify each annual and quarterly report filed with the SEC, imposes criminal penalties for false certifications, and significantly increases the penalties for security law violations (Fleming, 2004). Although the Act makes no specific mention of information technology or information security/assurance, it requires organizations to verify or certify the internal controls of key business processes. When an organization determines what the key business processes are, it must answer the question, Does the network infrastructure that supports these processes have the proper controls?
Each organization affected by the Sarbanes-Oxley Act has some level of reliance on automated information systems to process and store the data that are the basis of financial reports (Byrum, 2003). Section 404 is the section that has the most impact on information technology resources and information assurance of the national electric grid infrastructure, due to the requirement of having internal controls implemented by the organization.
On May 22, 1998, President Clinton introduced Presidential Decision Directive (PDD) 63, which focuses on protecting the nation’s critical infrastructures from both physical and “cyber” attack (CCIPS, 1999). The nation’s electrical energy grid is a subset of one of the critical infrastructures for the United States. The nation’s critical infrastructures are energy (which the electrical grid is a subset), banking and finance, transportation, vital human services, and telecommunications. The first section of PDD-63 states:
The United States possesses both the world’s strongest military and its largest national economy. Those two aspects of our power are mutually reinforcing and dependent. They are also increasingly reliant upon certain critical infrastructures and upon cyber-based information systems.
Critical infrastructures are those physical and cyber-based systems essential to the minimum operations of the economy and government. They include, but are not limited to, telecommunications, energy, banking and finance, transportation, water systems and emergency services, both governmental and private. Many of the nation’s critical infrastructures have historically been physically and logically separate systems that had little interdependence. As a result of advances in information technology and the necessity of improved efficiency, however, these infrastructures have become increasingly automated and interlinked. These same advances have created new vulnerabilities to equipment failure, human error, weather and other natural causes, and physical and cyber attacks. Addressing these vulnerabilities will necessarily require flexible, evolutionary approaches that span both the public and private sectors, and protect both domestic and international security.
Because of our military strength, future enemies, whether nations, groups or individuals, may seek to harm us in nontraditional ways, including attacks within the United States. Because our economy is increasingly reliant upon interdependent and cyber-supported infrastructures, non-traditional attacks on our infrastructure and information systems may be capable of significantly harming both our military power and our economy (Clinton, 1998).
To carry out PDD-63, a government/commercial partnership was required that exceeded the working relationship between the military and industry. The National Infrastructure Protection Center (NIPC) at FBI Headquarters in Washington, D.C., is a joint government/private sector partnership and includes representatives from the relevant agencies of federal, state, and local governments and the private sector to address the daunting challenge of protecting the critical infrastructures on which our nation depends (CCIPS, 1999).
PDD-63 was superseded by Homeland Security Presidential Directive (HSPD) 7 on December 17, 2003. The creation of the U.S. Department of Homeland Security was followed by the transfer of certain critical infrastructure protection responsibilities from other agencies and departments to the Department of Homeland Security.
The purpose of HSPD-7 was stated as:
This directive establishes policies to strengthen the preparedness of the United States to prevent and respond to threatened or actual domestic terrorist attacks, major disasters, and other emergencies by requiring a national domestic all-hazards preparedness goal, establishing mechanisms for improved delivery of Federal preparedness assistance to State and local governments, and outlining actions to strengthen preparedness capabilities of Federal, State, and local entities (Bush, 2003).
HSPD-7 assigned roles and responsibilities to sector-specific federal agencies. The U.S. Department of Energy was assigned the responsibility for the nation’s energy critical infrastructure. Section 16 of the directive provided authority to establish a focal point for cyber-security. Section 16 states:
The Secretary will continue to maintain an organization to serve as a focal point for the security of cyberspace. The organization will facilitate interactions and collaborations between and among Federal departments and agencies, State and local governments, the private sector, academia and international organizations. To the extent permitted by law, Federal departments and agencies with cyber expertise, including but not limited to the Departments of Justice, Commerce, the Treasury, Defense, Energy, and State, and the Central Intelligence Agency, will collaborate with and support the organization in accomplishing its mission. The organization’s mission includes analysis, warning, information sharing, vulnerability reduction, mitigation, and aiding national recovery efforts for critical infrastructure information systems. The organization will support the Department of Justice and other law enforcement agencies in their continuing missions to investigate and prosecute threats to and attacks against cyberspace, to the extent permitted by law (Bush, 2003).
The differences between the two directives are not extremely large but they do reflect the change in American concerns following the September 11, 2001, terrorist attacks. The original purpose of PDD-63 was to require federal agencies to ensure the continuity and viability of physical and computer-based systems essential for minimal functioning of the U.S. government and economy in case of a terrorist attack. With the enactment of HSPD-7, the federal departments and agencies are required to develop methods and technologies to protect all critical infrastructures and key resources of the government and economic sectors.
The primary goal of HSPD-7 is to prevent the exploitation, incapacitation, or destruction of these infrastructures and resources. A secondary goal, however, is to foster the development of methods and technologies that can minimize the impact if an adverse event actually occurs. Federal departments and agencies have been instructed to work with state and local governments, and with the private sector, to accomplish the objectives laid out in this directive.
It is my assertion that the federal government’s goal of increased competition has had a negative impact on the security of the national electrical grid from an information technology standpoint. Government regulations that sought to provide transparency to corporate governance and increase competition in the electrical energy industry have opened a new age. Today, the control of electrical energy systems and resources has moved from dedicated channels to the Internet. The Internet provides access to all information technology systems regardless of their physical location. Nonetheless, the challenge for today’s electrical energy system is no longer a purely physical concern; it is now an information assurance concern.
Is my assertion true?
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