IRS Systems Security: Tax Processing Operations and Data Still at Risk Due to Serious Weaknesses

Published by the Government Accountability Office on 1997-04-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Committee on Governmental Affairs
                          U.S. Senate

For Release on Delivery
Expected at
10 a.m.
                          IRS SYSTEMS SECURITY
April 10, 1997

                          Tax Processing Operations
                          and Data Still at Risk Due to
                          Serious Weaknesses
                          Statement of Dr. Rona B. Stillman
                          Chief Scientist, Computers and Telecommunications
                          Accounting and Information Management Division

Mr. Chairman and Members of the Committee:

We appreciate the opportunity to participate in this hearing on Internal
Revenue Service (IRS) computer security weaknesses. Computer security
problems are not unique to IRS. In fact, since June 1993, we have issued
over 30 reports describing serious information security weaknesses at
major federal agencies. Moreover, we reported in September 1996 that in
the previous 2 years, serious information security control weaknesses had
been reported for 10 of the 15 largest federal agencies.1 This means that
literally billions of dollars worth of assets are at risk of loss and vast
amounts of sensitive data are at risk of unauthorized disclosure,
modification, and destruction. Accordingly, we designated information
security as a governmentwide high-risk issue in our 1997 report series on
high-risk programs.2

Over the past several years, we have reported that IRS’ management of
computer security is ineffective and have made recommendations to
strengthen computer security. Nevertheless, the GAO report that Senator
Glenn has just released shows that IRS continues to have serious
weaknesses in the controls used to safeguard IRS computer systems,
facilities, and taxpayer data. These weaknesses could result in the
disruption of tax processing operations or in the improper use,
modification, or destruction of taxpayer data.

Computer security control weaknesses make IRS’ computer resources and
taxpayer data unnecessarily vulnerable to external threats, such as natural
disasters and individuals or organizations with malicious intentions. They
also increase IRS’ vulnerability to internal threats, such as IRS employees
accessing taxpayer files for purposes unrelated to their jobs (e.g., reading
the files of celebrities or neighbors) or making unauthorized changes to
taxpayer data, either inadvertently or deliberately for personal gain (e.g.,
to initiate unauthorized refunds or abatements of tax). These unauthorized
and improper activities by IRS employees, which are commonly referred to
as browsing, have been the focus of considerable attention in recent years,
and have been of particular interest to this Committee. We found that
despite this attention and interest, IRS is still not effectively addressing its
browsing problem. IRS still does not effectively monitor employee activity,
accurately record browsing violations, consistently punish offenders, or
widely publicize reports of incidents detected and penalties imposed.

 Information Security: Opportunities for Improved OMB Oversight of Agency Practices
(GAO/AIMD-96-110, Sept. 24, 1996).
 High-Risk Series: Information Management and Technology (GAO/HR-97-9, February 1997).

Page 1                                                                        GAO/T-AIMD-97-76
                        Before discussing each of these areas in greater detail, it is important to
                        note that neither my statement nor our report that Senator Glenn just
                        released quantifies the total number of weaknesses that we found or the
                        number of weaknesses found in each of the eight functional categories of
                        security that we reviewed. Additionally, neither my statement nor the
                        report details the most serious weaknesses that we found. IRS officials
                        were concerned that public disclosure of this information would increase
                        the risks to their operations and employees. All of our findings have been
                        reported in detail to the appropriate congressional committees.

                        IRS relies on automated information systems to process over 200 million
Background              taxpayer returns and collect over $1 trillion in taxes annually. IRS operates
                        10 facilities throughout the United States to process tax returns and other
                        information supplied by taxpayers. These data are then electronically
                        transmitted to a central computing facility, where master files of taxpayer
                        information are maintained and updated. A second computing facility
                        processes and stores taxpayer data used by IRS in conducting certain
                        compliance functions. There are also hundreds of other IRS facilities (e.g.,
                        regional and district offices) that use information systems to support tax

IRS Computer Security   The Department of the Treasury requires IRS to have C2-level safeguards to
Requirements            protect the confidentiality of taxpayer data.3 C2-level safeguards ensure
                        “need-to-know” protection and controlled access to data. Similarly, IRS’
                        Tax Information Security Guidelines require that all computer and
                        communication systems that process, store, or transmit taxpayer data
                        adequately protect these data, and the Internal Revenue Code prohibits the
                        unauthorized disclosure of federal returns and return information.

Prior GAO Work on IRS   Over the past 3 years, we testified and reported numerous times on serious
Computer Security       weaknesses in security and other internal controls used to safeguard IRS
                        computer systems and facilities. For instance, in August 1993, we
                        identified weaknesses in IRS systems that hampered the Service’s ability to
                        effectively protect and control taxpayer data.4 Subsequently, in

                        The Department of Defense defines a hierarchy of security levels (i.e., A1, B3, B2, B1, C2, C1, and D),
                        with A1 currently being the highest level of protection and D being the minimum level of protection.
                         Financial Management: First Financial Audits of IRS and Customs Revealed Serious Problems
                        (GAO/T-AIMD-93-3, Aug. 4, 1993).

                        Page 2                                                                            GAO/T-AIMD-97-76
                      December 1993, IRS identified taxpayer data security as a material
                      weakness in its Federal Managers’ Financial Integrity Act report.

                      In 1994, we reported, and IRS acknowledged, that while IRS had made some
                      progress in correcting computer security weaknesses, IRS still faced
                      serious and long-standing control weaknesses over automated taxpayer
                      data. Moreover, we reported that these long-standing weaknesses were
                      symptomatic of broader computer security management issues.

                      With respect to employee browsing, we reported in September 1993 that
                      IRSdid not adequately (1) restrict access by computer support staff to
                      computer programs and data files or (2) monitor the use of these
                      resources by computer support staff and users.5 As a result, personnel
                      who did not need access to taxpayer data could read and possibly use this
                      information for fraudulent purposes. Also, unauthorized changes could be
                      made to taxpayer data, either inadvertently or deliberately for personal
                      gain (for example, to initiate unauthorized refunds or abatements of tax).
                      In August 1995, we reported that the Service still lacked sufficient
                      safeguards to prevent or detect unauthorized browsing of taxpayer

                      Our on-site reviews of security at five facilities disclosed many
Serious Computer      weaknesses in eight functional areas. These areas are (1) physical security,
Security Weaknesses   (2) logical security,7 (3) data communications management, (4) risk
Persist               analysis, (5) quality assurance, (6) internal audit and security,8 (7) security
                      awareness, and (8) contingency planning. Of these eight, the primary
                      weaknesses were in the areas of physical and logical security. Examples of
                      weaknesses are discussed below.

Physical Security     Physical security and access control measures, such as locks, guards,
                      fences, and surveillance equipment, are critical to safeguarding taxpayer
                      data and computer operations from internal and external threats. We
                      found many serious weaknesses in physical security at the facilities

                       IRS Information Systems: Weaknesses Increase Risk of Fraud and Impair Reliability of Management
                      Information (GAO/AIMD-93-34, Sept. 22, 1993).
                      Financial Audit: Examination of IRS’ Fiscal Year 1994 Financial Statements (GAO/AIMD-95-141,
                      Aug. 4, 1995).
                       Logical security measures are safeguards incorporated in computer hardware and software.
                       The phrases “internal audit” and “internal security” refer to functional disciplines, not IRS
                      organizational entities.

                      Page 3                                                                              GAO/T-AIMD-97-76
                                visited. IRS has approved for public release only the following examples of
                                physical security weaknesses:

                            •   Collectively, the five facilities could not account for approximately 6,400
                                units of magnetic storage media, such as tapes and cartridges, which could
                                contain taxpayer data. The number per facility ranged from a low of 41 to
                                a high of 5,946.
                            •   Fire suppression trash cans were not used in several facilities.
                            •   Printouts containing taxpayer data were left unprotected and unattended
                                in open areas of two facilities where they could be compromised.

Logical Security                Logical security controls limit access to computing resources to those
                                personnel and programs with a need to know. Logical security control
                                measures include the use of safeguards incorporated in computer
                                hardware, system and application software, communication hardware and
                                software, and related devices. We found numerous weaknesses in logical
                                security at the facilities visited. Again, IRS has approved public disclosure
                                of only the following examples:

                            •   Tapes containing taxpayer data were not overwritten prior to reuse,
                                providing the potential for unauthorized disclosure.
                            •   Access to system software was not limited to individuals with a need to
                                know. For example, at two facilities, we found that data base
                                administrators9 had access to system software, although their job
                                functions and responsibilities did not require it.
                            •   Application programmers were allowed to move development software
                                into the production environment without adequate controls. In addition,
                                these programmers were allowed to use taxpayer data for testing
                                purposes, which places these data at unnecessary risk of unauthorized
                                disclosure and modification.

Examples of Weaknesses          Weaknesses were also found in the remaining six functional areas. For
in Other Functional Areas       example, none of the facilities visited had conducted a complete risk
                                analysis to identify and determine the severity of all the security threats to
                                which they were vulnerable. Without these analyses, systems’
                                vulnerabilities may not be identified and appropriate controls may not be
                                implemented to correct them.

                                 The data base administrator is responsible for overall control of the data base, including its content,
                                storage structure, access strategy, security and integrity checks, and backup and recovery.

                                Page 4                                                                              GAO/T-AIMD-97-76
                           Also, we found that two of the facilities had not performed an audit of
                           operations within the last 5 years. Such internal audit and security reviews
                           are needed to ensure that safeguards are adequate and to alert
                           management to potential security problems.

                           Additionally, three of the five facilities did not have an adequate security
                           awareness program. For example, one site had no process in place to
                           ensure that management was made aware of security violations and
                           security-related issues. An effective security awareness program is the
                           means through which management communicates to employees the
                           importance of security policies, procedures, and responsibilities for
                           protecting taxpayer data.

                           Last, none of the five facilities visited had comprehensive disaster
                           recovery plans. Specifically, we found that disaster recovery procedures at
                           two of the five facilities had not been tested, while plans for the remaining
                           locations were incomplete—i.e., they failed to include instructions for
                           restoring all mission-critical applications and reestablishing
                           telecommunications. Further, none had completed business resumption
                           plans, which should specify the disaster recovery goals and milestones
                           required to meet the business needs of their customers.

                           IRS employee browsing of taxpayer information is another security threat
Electronic Browsing        that requires effective counter measures. To address this threat, IRS
Is Not Being               developed the Electronic Audit Research Log (EARL), an automated tool to
Addressed Effectively      monitor and detect browsing on the Integrated Data Retrieval System
                           (IDRS).10 IRS has also taken legal and disciplinary actions against employees
                           caught browsing. However, EARL has shortcomings that limit its ability to
                           detect browsing. In addition, IRS does not have reliable, objective measures
                           for determining whether or not the Service is making progress in reducing
                           browsing. Further, IRS facilities inconsistently (1) review and refer
                           incidents of employee browsing, (2) apply penalties for browsing
                           violations, and (3) publicize the outcomes of browsing cases to deter other
                           employees from browsing.

EARL’s Ability to Detect   EARL cannot detect all instances of browsing because it only monitors
Browsing Is Limited        employees using IDRS. EARL does not monitor the activities of IRS employees
                           using other systems, such as the Distributed Input System, the Integrated
                           Collection System, and the Totally Integrated Examination System, which

                             IDRS is the primary computer system IRS employees use to access and adjust taxpayer accounts.

                           Page 5                                                                        GAO/T-AIMD-97-76
                            are also used to create, access, or modify taxpayer data. In addition,
                            information systems personnel responsible for systems development and
                            testing can browse taxpayer information on magnetic tapes, cartridges,
                            and other files using system utility programs, such as the Spool Display
                            and Search Facility,11 which also are not monitored by EARL.

                            Further, EARL has some weaknesses that limit its ability to identify
                            browsing by IDRS users. For example, because EARL is not effective in
                            distinguishing between browsing activity and legitimate work activity, it
                            identifies so many potential browsing incidents that a subsequent manual
                            review to find incidents of actual browsing is time-consuming and difficult.
                            IRS is evaluating options for developing a newer version of EARL that may
                            better distinguish between legitimate activity and browsing.

IRS Progress in Reducing    IRS’management information systems do not provide sufficient
and Disciplining Browsing   information to describe known browsing incidents precisely or to evaluate
Cases Is Unclear            their severity consistently. IRS personnel refer potential browsing cases to
                            either the Labor Relations or Internal Security units, each of which
                            records information on these potential cases in its own case tracking
                            system. However, neither system captures sufficient information to report
                            on the total number of unauthorized accesses. For example, neither
                            system contains enough information on each case to determine how many
                            taxpayer accounts were inappropriately accessed or how many times each
                            account was accessed. Without such information, IRS cannot measure
                            whether it is making progress from year to year in reducing browsing.

                            A recent report by the IRS EARL Executive Steering Committee12 shows that
                            the number of browsing cases closed has fluctuated from a low of 521 in
                            fiscal year 1991 to a high of 869 in fiscal year 1995.13 However, the report
                            concluded that the Service does not consistently count the number of
                            browsing cases and that “it is difficult to assess what the detection
                            programs are producing . . . or our overall effectiveness in identifying IDRS

                            Further, the committee reported that “the percentages of cases resulting in
                            discipline has remained constant from year to year in spite of the
                            Commissioner’s ’zero tolerance’ policy.” IRS browsing data for fiscal years

                              This utility enables a programmer to view a system’s output, which may contain investigative or
                            taxpayer information.
                              Electronic Audit Research Log (EARL) Executive Steering Committee Report, (Sept. 30, 1996).
                              We did not verify the accuracy and reliability of these data.

                            Page 6                                                                           GAO/T-AIMD-97-76
                              1991 to 1995 show that the percentage of browsing cases resulting in IRS’
                              three most severe categories of penalties (i.e., disciplinary action,
                              separation, and resignation/retirement) has ranged between 23 and
                              34 percent, with an average of 29 percent.14

Browsing Incidents Are        IRSprocessing facilities do not consistently review and refer potential
Reviewed, Referred,           browsing cases. The processing facilities responsible for monitoring
Disciplined, and Publicized   browsing had different policies and procedures for identifying potential
                              violations and referring them to the appropriate unit within IRS for
Inconsistently                investigation and action. For example, at one facility, the analysts who
                              identify potential violations referred all of them to Internal Security, while
                              staff at another facility sent some to Internal Security and the remainder to
                              Labor Relations.

                              IRS has taken steps to improve the consistency of its review and referral
                              process. In June 1996, it developed specific criteria for analysts to use
                              when making referral decisions. A recent report by the EARL Executive
                              Steering Committee stated that IRS had implemented these criteria
                              nationwide. Because IRS was in the process of implementing these criteria
                              during our work, we could not validate their implementation or

                              IRSfacilities are not consistently disciplining employees caught browsing.
                              After several IRS directors raised concerns that field offices were
                              inconsistent in the types of discipline imposed in similar cases, IRS’
                              Western Region analyzed fiscal year 1995 browsing cases for all its offices
                              and found inconsistent treatment for similar types of offenses. For
                              example, one employee who attempted to access his own account was
                              given a written warning, while other employees in similar situations, from
                              the same division, were not counseled at all.

                              The EARL Executive Steering Committee reported widespread
                              inconsistencies in the penalties imposed in browsing cases. For example,
                              the committee’s report showed that for fiscal year 1995, the percentage of
                              browsing cases resulting in employee counseling ranged from a low of
                              0 percent at one facility to 77 percent at another. Similarly, the report
                              showed that the percentage of cases resulting in removal ranged from
                              0 percent at one facility to 7 percent at another. For punishments other

                               The mix among these three categories has remained relatively constant each year with disciplinary
                              action accounting for the vast majority of penalties.

                              Page 7                                                                         GAO/T-AIMD-97-76
than counseling or removal (e.g., suspension), the range was between
10 percent and 86 percent.

IRS facilities did not consistently publicize the penalties assessed in
browsing cases to deter such behavior. For example, we found that one
facility never reported disciplinary actions. However, another facility
reported the disciplinary outcomes of browsing cases in its monthly
newsletter. By inconsistently and incompletely reporting on penalties
assessed for employee browsing, IRS is missing an opportunity to more
effectively deter such activity.

In conclusion, IRS’ approach to computer security has not been effective.
Serious weaknesses persist in security controls intended to safeguard IRS
computer systems, data, and facilities. These weaknesses expose tax
processing operations to the risk of disruption and taxpayer data to the
risk of unauthorized use, modification, and destruction. Further, although
IRS has taken some action to detect and deter browsing, it is still not
effectively addressing this area of continuing concern because (1) it does
not know the full extent of browsing and (2) it is addressing cases of
browsing inconsistently.

Because of this, our report contains a series of specific recommendations,
which if implemented, should greatly strengthen IRS computer security and
effectively address its security risks. In summary, the report recommends
that the IRS Commissioner (1) prepare a plan by April 30, 1997, for
correcting all the weaknesses we identified at the five facilities we visited
and for identifying and correcting security weaknesses at the other IRS
facilities, (2) provide this plan to selected congressional committees,
including the Senate Committee on Governmental Affairs, (3) report IRS’
progress against this plan in its fiscal year 1999 budget submissions,
(4) until corrected, report the security control weaknesses that we
identified as material weaknesses in Treasury’s Federal Managers’
Financial Integrity Act reports, (5) by June 1997, reevaluate IRS’ approach
to computer security and report the results to selected congressional
committees, including the Senate Committee on Governmental Affairs,
(6) ensure that IRS completely and consistently monitors, records, and
reports the full extent of electronic browsing, and (7) report IRS’ progress
in eliminating browsing in IRS’ annual budget submission.

IRShas concurred with these recommendations and stated that it will
implement them. We plan to monitor its progress in doing so to ensure that

Page 8                                                       GAO/T-AIMD-97-76
           security weaknesses are corrected and security management is

           Mr. Chairman, this concludes my statement. Lynda Willis, Director, Tax
           Policy and Administration Issues, and I will be happy to respond to any
           questions you or Members of the Committee might have at this time.

(511537)   Page 9                                                    GAO/T-AIMD-97-76
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