Category Archives: Cyber Crime

The Threat Within

Our Chapter’s May 16th and 17th upcoming training seminar on CYBER FRAUD AND DATA BREACHES emphasizes that corporate insiders represent one of the largest threats to an organization’s vital information resources. Insiders are individuals with access or inside knowledge about an organization, and such access or knowledge gives them the ability to exploit that organization’s vulnerabilities.  Insiders enjoy two critical openings in the security structure that put them in a position to exploit organizations’ information security vulnerabilities:

• the trust of their employers
• their access to facilities

Information theft by insiders is of special concern when employees leave an organization. Often, employees leave one organization for another, taking with them the knowledge of how their former organization operates, as well as its pricing policies, manufacturing methods, customers, and so on.

The ACFE tells us that insiders can be classified into three categories:

• Employees:  employee insiders are employees with rights and access associated with being employed by the organization.
• Associates: insider associates are people with physical access to an organization’s facilities, but they are not employees of the organization (e.g., contractors, cleaning crews).
• Affiliates: insider affiliates are individuals connected to pure insiders or insider associates (e.g., spouse, friend, client), and they can use the credentials of those insiders with whom they are connected to gain access to an organization’s systems or facilities.

There are many types of potential insider threats, and they can be organized into the following categories:

• Traitors
• Zealots
• Spies
• Browsers
• Well-intentioned insiders

A traitor is a legitimate insider who misuses his or her insider credentials to facilitate malicious acts.  When a trusted insider misuses his or her privileges to violate a security policy, s/he becomes a traitor. Below are some signs that an insider may be a traitor:

• Unusual change in work habits;
• Seeking out sensitive projects;
• Unusual work hours;
• Inconsistent security habits;
• Mocking security policies and procedures;
• Rationalizing inappropriate actions;
• Changes in lifestyle;
• Living beyond his or her means.

Zealots are trusted insiders with strong and uncompromising beliefs that clash with their organization’s perspectives on certain issues and subjects. Zealots pose a threat because they might exploit their access or inside knowledge to “reform” their organizations.
Zealots might attempt reform by:

• Exposing perceived shortcomings of the organization by making unauthorized disclosures of information to the public or by granting access to outsiders;
• Destroying information;
• Halting services or the production of products.

Zealots believe that their actions are just, no matter how much damage they cause.

A spy is an individual who is intentionally placed in a situation or organization to gather intelligence. A well-placed corporate spy can provide intelligence on a target organization’s product development, product launches, and organizational developments or changes.

Spies are common in foreign, business, and competitive intelligence efforts.

Browsers are insiders who are overly curious about information to or of which they do not need access, knowledge or possession to carry out their work duties. Their curiosity drives them to review data not intended for them.  Browsers might “browse” through information that they have no specific need to know until they find something interesting or something they can use. Browsers might use such information for personal gain, or they might use it for:

• Obtaining awards;
• Supporting decisions about promotions;
• Understanding contract negotiations;
• Gaining a personal advantage over their peers.

Browsers can be the hardest insider threat to identify, and they can be even harder to defeat.

The well-intentioned insider is an insider who, through ignorance or laziness, unintentionally fosters security breaches. Well-intentioned insiders might foster security breaches by:

• Disabling anti-virus software;
• Installing unapproved software;
• Leaving their workstations or facilities unlocked;
• Using easy-to-crack passwords;
• Failing to shred or destroy sensitive information.
While well-intentioned individuals might be stellar employees when it comes to work production, their ignorance or laziness regarding information security practices can be disastrous.

CFE’s need to understand that there are numerous motivations for insider attacks including:
• Work-related grievances;
• Financial gain;
• Challenge;
• Curiosity;
• Spying for competitors;
• Revenge;
• Ego;
• Opportunity;
• Ideology (e.g., “I don’t like the way my organization conducts business.”)

There are many ways our client organizations can combat insider threats. The most effective mitigation strategies recommended by the ACFE are:

• Create an insider threat program. To combat insider threats, management should form an insider threat team, create related policies, develop processes and implement controls, and regularly communicate those policies and controls across the organization.
• Work together across the organization. To be successful, efforts to combat insider threats should be communicated across the silos of management, IT, data owners, software engineers, general counsel, and human resources.
• Address employee privacy issues with general counsel. Because employees have certain privacy rights that can affect numerous aspects of the employer-employee relationship, and because such rights may stem from, and be protected by, various elements of the law, management should consult legal counsel whenever addressing actions impacting employee privacy.
• Pay close attention at times of resignation/ termination. Because leaving an organization is a key time of concern for insider threats, management should be cautious of underperforming employees, employees at risk of being terminated, and of employees who will likely resign.
• Educate managers regarding potential recruitment. Management should train subordinates to exercise due diligence in hiring prospective employees.
• Recognize concerning behaviors as a potential indicator. Management must train managers and all employees to recognize certain behaviors or characteristics that might indicate employees are committing or are at risk of committing a breach. Common behavioral red flags are living beyond one’s financial means, experiencing financial difficulties, having an uncommonly close relationship with vendors or customers, and demonstrating excessive control over their job responsibilities.
• Mitigate threats from trusted business partners. Management should subject their organization’s contractors and outsourced organizations to the same security controls, policies, and procedures to which they subject their own employees.
• Use current technologies differently. Most organizations have implemented technologies to detect network intrusions and other threats originating outside the network perimeter, and organizations with such technologies should use them to the extent possible to detect potential indicators of malicious insider behavior within the network.
• Focus on protecting the most valuable assets. Management should dedicate the most effort to securing its most valuable organizational assets and intellectual property against insider threats.
• Learn from past incidents. Past incidents of insider threats and abuse will suggest areas of vulnerability that insiders will likely exploit again.
Additionally:
• Focus on deterrence, not detection. In other words, create a culture that deters any aberrant behavior so that those who continue to practice that behavior stand out from the “noise” of normal business; focus limited investigative resources on those individuals.
• Know your people—know who your weak links are and who would be most likely to be a threat. Use human resources data to narrow down threats rather than looking for a single needle in a pile of needles.
• Identify information that is most likely to be valuable to someone else and protect it to a greater degree than the rest of your information.
• Monitor ingress and egress points for information (e.g., USB ports, printers, network boundaries).
• Baseline normal activity and look for anomalies.
Other measures organizations might consider taking to combat insider threats include:
• Educate employees as to what information is proprietary and confidential.
• Require that all employees and third-party vendors and contractors sign nondisclosure agreements; written agreements providing that all proprietary and confidential information learned during their relationship must be kept confidential and must not be disclosed to anyone, upon the commencement and termination of employment or contracts.
• Ensure that all an organization’s third-party vendors and contractors perform background checks on all third-party employees who will have access to the organization’s information systems.
• Prohibit employees, contractors, and trusted business partners from printing sensitive documents that are not required for business purposes.
• If possible, avoid connecting information systems to those of business partners.

Also, when possible, management should conduct exit interviews with departing employees. During an exit interview, the departing employee should be advised about the organization’s trade secrets and confidential information, as well as any obligation not to disclose or use such information for his or her own benefit or for the benefit of others without express written consent. Also, the employee should be given a form to sign stating that s/he was informed that any proprietary information should not be disclosed and that s/he agrees not to disclose any such information without consent.

Finally, when management terminates its relationship with an insider, it should immediately deactivate the insider’s access to company tools and resources.

Please consider joining us for at our May 16th and 17th Spring training event, Cyber Fraud and Data Breaches for 16 CPE credits!  You may register and pay on-line here!

Cyberfraud & Data Breaches May 2018 Training Event

On May 16th and 17th, our Chapter, supported by our partners national, ACFE and the Virginia State Police, will present our sixteenth Spring training event, this time on the subject of CYBERFRAUD AND DATA BREACHES.  Our presenter will be CARY E. MOORE, CFE, CISSP, MBA; ACFE Presenter Board member and internationally renowned author and authority on every aspect of cybercrime.  CLICK HERE  to see an outline of the training, the agenda and Cary’s bio.  If you decide to do so, you may REGISTER HERE.  Attendees will receive 16 CPE credits, and a printed manual of over 300 pages detailing every subject covered in the training.  In addition, as a door prize, we will be awarding, by drawing, a printed copy of the 2017 Fraud Examiners Manual, a $200 value!

As the relentless wave of cyberattacks continues, all our client organizations are under intense pressure from key stakeholders and regulators to implement and enhance their anti-fraud programs to protect customers, employees and the valuable information in their possession. According to research from IBM Security and the Ponemon Institute, the average total cost per company, per event of a data breach is US $3.62 million. Initial damage estimates of a single breach, while often staggering, may not consider less obvious and often undetectable threats such as theft of intellectual property, espionage, destruction of data, attacks on core operations or attempts to disable critical infrastructure. These knock-on effects can last for years and have devastating financial, operational and brand ramifications.

Given the broad regulatory pressures to tighten anti-fraud cyber security controls and the visibility surrounding cyber risk, a number of proposed regulations focused on improving cyber security risk management programs have been introduced in the United States over the past few years by various governing bodies of which CFEs need to be aware. One of the more prominent is a regulation issued by the New York Department of Financial Services (NYDFS) that prescribes certain minimum cyber security standards for those entities regulated by the NYDFS. Based on the entity’s risk assessment, the NYDFS law has specific requirements around data encryption, protection and retention, third party information security, application security, incident response and breach. notification, board reporting, and annual certifications.

However, organizations continue to struggle to report on the overall effectiveness of their cyber security risk management and anti-fraud programs. The American Institute of Certified Public Accountants (AICPA) has released a cyber security risk management reporting framework intended to help organizations expand cyber risk reporting to a broad range of internal and external users, including the C-suite and the board of directors (BoD). The AICPA’s reporting framework is designed to address the need for greater stakeholder transparency by providing in-depth, easily consumable information about an organization’s cyber risk management
program. The cyber security risk management examination uses an independent, objective reporting approach and employs broader and more flexible criteria. For example, it allows for the selection and utilization of any control framework considered suitable and available in establishing the entity’s cyber security objectives and developing and maintaining controls within the entity’s cyber security risk management program, whether it is the US National Institute of Standards and Technology (NIST)’s Cybersecurity Framework, the International Organization for Standardization (ISO)’s ISO 27001/2 and related frameworks, or internally developed frameworks based on a combination of sources. The examination is voluntary, and applies to all types of entities, but should be considered a leading practice that provides the C-suite, boards and other key stakeholders clear insight into an organization’s cyber security program and identifies gaps or pitfalls that leave organizations vulnerable.

Cyber security risk management examination reports are vital to the fraud control program of any organization doing business on-line.  Such reports help an organization’s BoD establish appropriate oversight of a company’s cyber security risk program and credibly communicate its effectiveness to stakeholders, including investors, analysts, customers, business partners and regulators. By leveraging this information, boards can challenge management’s assertions around the effectiveness of their cyber risk management programs and drive more effective decision making. Active involvement and oversight from the BoD can help ensure that an organization is paying adequate attention to cyber risk management. The board can help shape expectations for reporting on cyber threats and fraud attempts while also advocating for greater transparency and assurance around the effectiveness of the program.

Organizations that choose to utilize the AICPA’s cyber security attestation reporting framework and perform an examination of their cyber security program may be better positioned to gain competitive advantage and enhance their brand in the marketplace. For example, an outsource retail service provider (OSP) that can provide evidence that a well-developed and sound cyber security risk management program is in place in its organization can proactively provide the report to current and potential customers, evidencing that it has implemented appropriate controls to protect the sensitive IT assets and valuable data over which it maintains access. At the same time, current and potential retailor customers of an OSP want the third parties with whom they engage to also place a high level of importance on cyber security. Requiring a cyber security examination report as part of the selection criteria would offer transparency into
outsourcers’ cyber security programs and could be a determining factor in the selection process.

The value of addressing cyber security related fraud concerns and questions by CFEs before regulatory mandates are established or a crisis occurs is quite clear. The knowledgeable CFE can help our client organizations view the new cyber security attestation reporting frameworks as an opportunity to enhance their existing cyber security and anti-fraud programs and gain competitive advantage. The attestation reporting frameworks address the needs of a variety of key stakeholder groups and, in turn, limit the communication and compliance burden. CFE client organizations that view the cyber security reporting landscape as an opportunity can use it to lead, navigate and disrupt in today’s rapidly evolving cyber risk environment.

Please decide to join us for our May Training Event on this vital and timely topic!  YOU MAY REGISTER 0N-LINE HERE.  You can pay with PayPal (you don’t need a PayPal account; you can use any credit card) or just print an invoice and submit your payment by snail mail!

Threat Assessment & Cyber Security

One rainy Richmond evening last week I attended the monthly dinner meeting of one of the professional organizations of which I’m a member.  Our guest speaker’s presentation was outstanding and, in my opinion, well worth sharing with fellow CFE’s especially as we find more and more of our client’s grappling with the reality of  ever-evolving cyber threats.

Our speaker started by indicating that, according to a wide spectrum of current thinking, technology issues in isolation should be but one facet of the overall cyber defense strategy of any enterprise. A holistic view on people, process and technology is required in any organization that wants to make its chosen defense strategy successful and, to be most successful, that strategy needs to be supplemented with a good dose of common sense creative thinking. That creative thinking proved to be the main subject of her talk.

Ironically, the sheer size, complexity and geopolitical diversity of the modern-day enterprise can constitute an inherent obstacle for its goal of achieving business objectives in a secured environment.  The source of the problem is not simply the cyber threats themselves, but threat agents. The term “threat agent,” from the Open Web Application Security Project (OWASP), is used to indicate an individual or group that can manifest a threat. Threat agents are represented by the phenomena of:

–Hacktivism;
–Corporate Espionage;
–Government Actors;
–Terrorists;
–Common Criminals (individual and organized).

Irrespective of the type of threat, the threat agent takes advantage of an identified vulnerability and exploits it in the attempt to negatively impact the value the individual business has at risk. The attempt to execute the threat in combination with the vulnerability is called hacking. When this attempt is successful, and the threat agent can negatively impact the value at risk, it can be concluded that the vulnerability was successfully exploited. So, essentially, enterprises are trying to defend against hacking and, more importantly, against the threat agent that is the hacker in his or her many guises. The ACFE identifies hacking as the single activity that has resulted in the greatest number of cyber breaches in the past decade.

While there is no one-size-fits-all standard to build and run a sustainable security defense in a generic enterprise context, most companies currently deploy something resembling the individual components of the following general framework:

–Business Drivers and Objectives;
–A Risk Strategy;
–Policies and Standards;
–Risk Identification and Asset Profiling;
–People, Process, Technology;
–Security Operations and Capabilities;
–Compliance Monitoring and Reporting.

Most IT risk and security professionals would be able to identify this framework and agree with the assertion that it’s a sustainable approach to managing an enterprise’s security landscape. Our speaker pointed out, however, that in her opinion, if the current framework were indeed working as intended, the number of security incidents would be expected to show a downward trend as most threats would fail to manifest into full-blown incidents. They could then be routinely identified by enterprises as known security problems and dealt with by the procedures operative in day-to-day security operations. Unfortunately for the existing framework, however, recent security surveys conducted by numerous organizations and trade groups clearly show an upward trend of rising security incidents and breaches (as every reader of daily press reports well knows).

The rising tide of security incidents and breaches is not surprising since the trade press also reports an average of 35 new, major security failures on each and every day of the year.  Couple this fact with the ease of execution and ready availability of exploit kits on the Dark Web and the threat grows in both probability of exploitation and magnitude of impact. With speed and intensity, each threat strikes the security structure of an enterprise and whittles away at its management credibility to deal with the threat under the routine, daily operational regimen presently defined. Hence, most affected enterprises endure a growing trend of negative security incidents experienced and reported.

During the last several years, in response to all this, many firms have responded by experimenting with a new approach to the existing paradigm. These organizations have implemented emergency response teams to respond to cyber-threats and incidents. These teams are a novel addition to the existing control structure and have two main functions: real-time response to security incidents and the collection of concurrent internal and external security intelligence to feed predictive analysis. Being able to respond to security incidents via a dedicated response team boosts the capacity of the operational organization to contain and recover from attacks. Responding to incidents, however efficiently, is, in any case, a reactive approach to deal with cyber-threats but isn’t the whole story. This is where cyber-threat intelligence comes into play. Threat intelligence is a more proactive means of enabling an organization to predict incidents. However, this approach also has a downside. The influx of a great deal of intelligence information may limit the ability of the company to render it actionable on a timely basis.

Cyber threat assessments are an effective means to tame what can be this overwhelming influx of intelligence information. Cyber threat assessment is currently recognized in the industry as red teaming, which is the practice of viewing a problem from an adversary or competitor’s perspective. As part of an IT security strategy, enterprises can use red teams to test the effectiveness of the security structure as a whole and to provide a relevance factor to the intelligence feeds on cyber threats. This can help CEOs decide what threats are relevant and have higher exposure levels compared to others. The evolution of cyber threat response, cyber threat
intelligence and cyber threat assessment (red teams) in conjunction with the existing IT risk framework can be used as an effective strategy to counter the agility of evolving cyber threats. The cyber threat assessment process assesses and challenges the structure of existing enterprise security systems, including designs, operational-level controls and the overall cyber threat response and intelligence process to ensure they remain capable of defending against current relevant exploits.

Cyber threat assessment exercises can also be extremely helpful in highlighting the most relevant attacks and in quantifying their potential impacts. The word “adversary” in the definition of the term ‘red team’ is key in that it emphasizes the need to independently challenge the security structure from the view point of an attacker.  Red team exercises should be designed to be independent of the scope, asset profiling, security, IT operations and coverage of existing security policies. Only then can enterprises realistically apply the attacker’s perspective, measure the success of its risk strategy and see how it performs when challenged. It’s essential that red team exercises have the freedom to treat the complete security structure and to point to flaws in all components of the IT risk framework. It’s a common notion that a red team exercise is a penetration test. This is not the case. Use of penetration test techniques by red teams is a means to identify the information required to replicate cyber threats and to create a controlled security incident. The technical shortfalls that are identified during standard penetration testing are mere symptoms of gaps that may exist in the governance of people, processes and technology. Hence, to make the organization more resilient against cyber threats, red team focus should be kept on addressing the root cause and not merely on fixing the security flaws discovered during the exercise. Another key point is to include cyber threat response and threat monitoring in the scope of such assessments. This demands that red team exercises be executed, and partially announced, with CEO-level approval. This ensures that enterprises challenge the end-to-end capabilities of an enterprise to cope with a real-time security incident. Lessons learned from red teaming can be documented to improve the overall security posture of the organization and as an aid in dealing with future threats.

Our speaker concluded by saying that as cyber threats evolve, one-hundred percent security for an active business is impossible to achieve. Business is about making optimum use of existing resources to derive the desired value for stakeholders. Cyber-defense cannot be an exception to this rule. To achieve optimized use of their security investments, CEOs should ensure that security spending for their organization is mapped to the real emerging cyber threat landscape. Red teaming is an effective tool to challenge the status quo of an enterprise’s security framework and to make informed judgements about the actual condition of its actual security posture today. Not only can the judgements resulting from red team exercises be used to improve cyber threat defense, they can also prove an effective mechanism to guide a higher return on cyber-defense investment.

A CDC for Cyber

I remember reading somewhere a few years back that Microsoft had commissioned a report which recommended that the U.S. government set up an entity akin to its Center for Disease Control but for cyber security.  An intriguing idea.  The trade press talks about malware and computer viruses and infections to describe self -replicating malicious code in the same way doctors talk about metastasizing cancers or the flu; likewise, as with public health, rather than focusing on prevention and detection, we often blame those who have become infected and try to retrospectively arrest/prosecute (cure) those responsible (the cancer cells, hackers) long after the original harm is done. Regarding cyber, what if we extended this paradigm and instead viewed global cyber security as an exercise in public health?

As I recall, the report pointed out that organizations such as the Centers for Disease Control in Atlanta and the World Health Organization in Geneva have over decades developed robust systems and objective methodologies for identifying and responding to public health threats; structures and frameworks that are far more developed than those existent in today’s cyber-security community. Given the many parallels between communicable human diseases and those affecting today’s technologies, there is also much fraud examiners and security professionals can learn from the public health model, an adaptable system capable of responding to an ever-changing array of pathogens around the world.

With cyber as with matters of public health, individual actions can only go so far. It’s great if an individual has excellent techniques of personal hygiene, but if everyone in that person’s town has the flu, eventually that individual will probably succumb as well. The comparison is relevant to the world of cyber threats. Individual responsibility and action can make an enormous difference in cyber security, but ultimately the only hope we have as a nation in responding to rapidly propagating threats across this planetary matrix of interconnected technologies is to construct new institutions to coordinate our response. A trusted, international cyber World Health Organization could foster cooperation and collaboration across companies, countries, and government agencies, a crucial step required to improve the overall public health of the networks driving the critical infrastructures in both our online and our off-line worlds.

Such a proposed cyber CDC could go a long way toward counteracting the technological risks our country faces today and could serve a critical role in improving the overall public health of the networks driving the critical infrastructures of our world. A cyber CDC could fulfill many roles that are carried out today only on an ad hoc basis, if at all, including:

• Education — providing members of the public with proven methods of cyber hygiene to protect themselves;
• Network monitoring — detection of infection and outbreaks of malware in cyberspace;
• Epidemiology — using public health methodologies to study digital cyber disease propagation and provide guidance on response and remediation;
• Immunization — helping to ‘vaccinate’ companies and the public against known threats through software patches and system updates;
• Incident response — dispatching experts as required and coordinating national and global efforts to isolate the sources of online infection and treat those affected.

While there are many organizations, both governmental and non-governmental, that focus on the above tasks, no single entity owns them all. It is through these gaps in effort and coordination that cyber risks continue to mount. An epidemiological approach to our growing technological risks is required to get to the source of malware infections, as was the case in the fight against malaria. For decades, all medical efforts focused in vain on treating the disease in those already infected. But it wasn’t until epidemiologists realized the malady was spread by mosquitoes breeding in still pools of water that genuine progress was made in the fight against the disease. By draining the pools where mosquitoes and their larvae grow, epidemiologists deprived them of an important breeding ground, thus reducing the spread of malaria. What stagnant pools can we drain in cyberspace to achieve a comparable result? The answer represents the yet unanswered challenge.

There is another major challenge a cyber CDC would face: most of those who are sick have no idea they are walking around infected, spreading disease to others. Whereas malaria patients develop fever, sweats, nausea, and difficulty breathing, important symptoms of their illness, infected computer users may be completely asymptomatic. This significant difference is evidenced by the fact that the overwhelming majority of those with infected devices have no idea there is malware on their machines nor that they might have even joined a botnet army. Even in the corporate world, with the average time to detection of a network breach now at 210 days, most companies have no idea their most prized assets, whether intellectual property or a factory’s machinery, have been compromised. The only thing worse than being hacked is being hacked and not knowing about it. If you don’t know you’re sick, how can you possibly get treatment? Moreover, how can we prevent digital disease propagation if carriers of these maladies don’t realize they are infecting others?

Addressing these issues could be a key area of import for any proposed cyber CDC and fundamental to future communal safety and that of critical information infrastructures. Cyber-security researchers have pointed out the obvious Achilles’ heel of the modern technology infused world, the fact that today everything is either run by computers (or will be) and that everything is reliant on these computers continuing to work. The challenge is that we must have some way of continuing to work even if all the computers fail. Were our information systems to crash on a mass scale, there would be no trading on financial markets, no taking money from ATMs, no telephone network, and no pumping gas. If these core building blocks of our society were to suddenly give way, what would humanity’s backup plan be? The answer is simply, we don’t now have one.

Complicating all this from a law enforcement and fraud investigation perspective is that black hats generally benefit from technology long before defenders and investigators ever do. The successful ones have nearly unlimited budgets and don’t have to deal with internal bureaucracies, approval processes, or legal constraints. But there are other systemic issues that give criminals the upper hand, particularly around jurisdiction and international law. In a matter of minutes, the perpetrator of an online crime can virtually visit six different countries, hopping from server to server and continent to continent in an instant. But what about the police who must follow the digital evidence trail to investigate the matter?  As with all government activities, policies, and procedures, regulations must be followed. Trans-border cyber-attacks raise serious jurisdictional issues, not just for an individual police department, but for the entire institution of policing as currently formulated. A cop in Baltimore has no authority to compel an ISP in Paris to provide evidence, nor can he make an arrest on the right bank. That can only be done by request, government to government, often via mutual legal assistance treaties. The abysmally slow pace of international law means it commonly takes years for police to get evidence from overseas (years in a world in which digital evidence can be destroyed in seconds). Worse, most countries still do not even have cyber-crime laws on the books, meaning that criminals can act with impunity making response through a coordinating entity like a cyber-CDC more valuable to the U.S. specifically and to the world in general.

Experts have pointed out that we’re engaged in a technological arms race, an arms race between people who are using technology for good and those who are using it for ill. The challenge is that nefarious uses of technology are scaling exponentially in ways that our current systems of protection have simply not matched.  The point is, if we are to survive the progress offered by our technologies and enjoy their benefits, we must first develop adaptive mechanisms of security that can match or exceed the exponential pace of the threats confronting us. On this most important of imperatives, there is unambiguously no time to lose.

Help for the Little Guy

It’s clear to the news media and to every aware assurance professional that today’s cybercriminals are more sophisticated than ever in their operations and attacks. They’re always on the lookout for innovative ways to exploit vulnerabilities in every global payment system and in the cloud.

According to the ACFE, more consumer records were compromised in 2015-16 than in the previous four years combined. Data breach statistics from this year (2017) are projected to be even grimmer due to the growth of increasingly sophisticated attack methods such as increasingly complex malware infections and system vulnerability exploits, which grew tenfold in 2016. With attacks coming in many different forms and from many different channels, consumers, businesses and financial institutions (often against their will) are being forced to gain a better understanding of how criminals operate, especially in ubiquitous channels like social networks. They then have a better chance of mitigating the risks and recognizing attacks before they do severe damage.

As your Chapter has pointed out over the years in this blog, understanding the mechanics of data theft and the conversion process of stolen data into cash can help organizations of all types better anticipate in the exact ways criminals may exploit the system, so that organizations can put appropriate preventive measures in place. Classic examples of such criminal activity include masquerading as a trustworthy entity such as a bank or credit card company. These phishers send e-mails and instant messages that prompt users to reply with sensitive information such as usernames, passwords and credit card details, or to enter the information at a rogue web site. Other similar techniques include using text messaging (SMSishing or smishing) or voice mail (vishing) or today’s flood of offshore spam calls to lure victims into giving up sensitive information. Whaling is phishing targeted at high-worth accounts or individuals, often identified through social networking sites such as LinkedIn or Facebook. While it’s impossible to anticipate or prevent every attack, one way to stay a step ahead of these criminals is to have a thorough understanding of how such fraudsters operate their enterprises.

Although most cyber breaches reported recently in the news have struck large companies such as Equifax and Yahoo, the ACFE tells us that small and mid-sized businesses suffer a far greater number of devastating cyber incidents. These breaches involve organizations of every industry type; all that’s required for vulnerability is that they operate network servers attached to the internet. Although the number of breached records a small to medium sized business controls is in the hundreds or thousands, rather than in the millions, the cost of these breaches can be higher for the small business because it may not be able to effectively address such incidents on its own.  Many small businesses have limited or no resources committed to cybersecurity, and many don’t employ any assurance professionals apart from the small accounting firms performing their annual financial audit. For these organizations, the key questions are “Where should we focus when it comes to cybersecurity?” and “What are the minimum controls we must have to protect the sensitive information in our custody?” Fraud Examiners and forensic accountants with client attorneys assisting small businesses can assist in answering these questions by checking that their client attorney’s organizations implement a few vital cybersecurity controls.

First, regardless of their industry, small businesses must ensure their network perimeter is protected. The first step is identifying the vulnerabilities by performing an external network scan at least quarterly. A small business can either hire an outside company to perform these scans, or, if they have small in-house or contracted IT, they can license off-the-shelf software to run the scans, themselves. Moreover, small businesses need a process in place to remedy the identified critical, high, and medium vulnerabilities within three months of the scan run date, while low vulnerabilities are less of a priority. The fewer vulnerabilities the perimeter network has,
the less chance that an external hacker will breach the organization’s network.

Educating employees about their cybersecurity responsibilities is not a simple check-sheet matter. Smaller businesses not only need help in implementing an effective information security policy, they also need to ensure employees are aware of the policy and of their responsibilities. The policy and training should cover:

–Awareness of phishing attacks;
–Training on ransomware management;
–Travel tips;
–Potential threats of social engineering;
–Password protection;
–Risks of storing sensitive data in the cloud;
–Accessing corporate information from home computers and other personal devices;
–Awareness of tools the organization provides for securely sending emails or sharing large files;
–Protection of mobile devices;
–Awareness of CEO spoofing attacks.

In addition, small businesses should verify employees’ level of awareness by conducting simulation exercises. These can be in the form of a phishing exercise in which organizations themselves send fake emails to their employees to see if they will click on a web link, or a social engineering exercise in which a hired individual tries to enter the organization’s physical location and steal sensitive information such as information on computer screens left in plain sight.

In small organizations, sensitive information tends to proliferate across various platforms and folders. For example, employees’ personal information typically resides in human resources software or with a cloud service provider, but through various downloads and reports, the information can proliferate to shared drives and folders, laptops, emails, and even cloud folders like Dropbox or Google Drive. Assigned management at the organization should check that the organization has identified the sites of such proliferation to make sure it has a good handle on the state of all the organization’s sensitive information:

–Inventory all sensitive business processes and the related IT systems. Depending on the organization’s industry, this information could include customer information, pricing data, customers’ credit card information, patients’ health information, engineering data, or financial data;
–For each business process, identify an information owner who has complete authority to approve user access to that information;
–Ensure that the information owner periodically reviews access to all the information he or she owns and updates the access list.

Organizations should make it hard to get to their sensitive data by building layers or network segments. Although the network perimeter is an organization’s first line of defense, the probability of the network being penetrated is today at an all-time high. Management should check whether the organization has built a layered defense to protect its sensitive information. Once the organization has identified its sensitive information, management should work with the IT function to segment those servers that run its sensitive applications.  This segmentation will result in an additional layer of protection for these servers, typically by adding another firewall for the segment. Faced with having to penetrate another layer of defense, an intruder may decide to go elsewhere where less sensitive information is stored.

An organization’s electronic business front door also can be the entrance for fraudsters and criminals. Most of today’s malware enters through the network but proliferates through the endpoints such as laptops and desktops. At a minimum, internal small business management must ensure that all the endpoints are running anti-malware/anti-virus software. Also, they should check that this software’s firewall features are enabled. Moreover, all laptop hard drives should be encrypted.

In addition to making sure their client organizations have implemented these core controls, assurance professionals should advise small business client executives to consider other protective controls:

–Monitor the network. Network monitoring products and services can provide real-time alerts in case there is an intrusion;
–Manage service providers. Organizations should inventory all key service providers and review all contracts for appropriate security, privacy, and data breach notification language;
–Protect smart devices. Increasingly, company information is stored on mobile devices. Several off-the-shelf solutions can manage and protect the information on these devices. Small businesses should ensure they are able to wipe the sensitive information from these devices if they are lost or stolen;
–Monitor activity related to sensitive information. Management IT should log activities against their sensitive information and keep an audit log in case an incident occurs and they need to review the logs to evaluate the incident.

Combined with the controls listed above, these additional controls can help any small business reduce the probability of a data breach. But a security program is only as strong as its weakest link Through their assurance and advisory work, CFE’s and forensic accountants can proactively help identify these weaknesses and suggest ways to strengthen their smaller client organization’s anti-fraud defenses.

The Conflicted Board

Our last post about cyberfraud and business continuity elicited a comment about the vital role of corporate governance from an old colleague of mine now retired and living in Seattle.  But the wider question our commenter had was, ‘What are we as CFEs to make of a company whose Board willfully withholds for months information about a cyberfraud which negatively impacts it customers and the public? From the ethical point of view, does this render the Board somehow complicit in the public harm done?’

Governance of shareholder-controlled corporations refers to the oversight, monitoring, and controlling of a company’s activities and personnel to ensure support of the shareholders’ interests, in accordance with laws and the expectations of stakeholders. Governance has been more formally defined by the Organization for Economic Cooperation and Development (OECD) as a set of relationships between a company’s management, its Board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set (including about ethical continuity), and the means of attaining those objectives and monitoring performance. Good corporate governance should provide proper incentives for the Board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring.

The role and mandate of the Board of Directors is of paramount importance in the governance framework. Typically, the directors are elected by the shareholders at their annual meeting, which is held to receive the company’s audited annual financial statements and the audit report thereon, as well as the comments of the chairman of the Board, the senior company officers, and the company auditor.

A Board of Directors often divides itself into subcommittees that concentrate more deeply in specific areas than time would allow the whole Board to pursue. These subcommittees are charged with certain actions and/or reviews on behalf of the whole Board, with the proviso that the whole Board must be briefed on major matters and must vote on major decisions. Usually, at least three subcommittees are created to review matters related to (1) governance, (2) compensation, and (3) audit, and to present their recommendations to the full Board. The Governance Committee deals with codes of conduct and company policy, as well as the allocation of duties among the subcommittees of the Board. The Compensation Committee reviews the performance of senior officers, and makes recommendations on the nature and size of salaries, bonuses, and related remuneration plans. Most important to fraud examiners and assurance professionals, the Audit Committee reviews internal controls and systems that generate financial reports prepared by management; the appropriateness of those financial reports; the effectiveness of the company’s internal and external auditors; its whistle-blowing systems, and their findings; and recommends the re-election or not of the company’s external auditors.

The Board must approve the selection of a Chief Executive Officer (CEO), and many Boards are now approving the appointment of the Chief Financial Officer (CFO) as well because of the important of that position. Generally, the CEO appoints other senior executives, and they, in turn, appoint the executives who report to them. Members of these committees are selected for their expertise, interest, and character, with the expectation that the independent judgment of each director will be exercised in the best interest of the company. For example, the ACFE tells us, members of the Audit Committee must be financially literate, and have sufficient expertise to understand audit and financial matters. They must be of independent mind (i.e., not be part of management or be relying upon management for a significant portion of their annual income), and must be prepared to exercise that independence by voting for the interest of all shareholders, not just those of management or of specific limited shareholder groups.

Several behavioral expectations extend to all directors, i.e., to act in the best interest of the company (shareholders & stakeholders), to demonstrate loyalty by exercising independent judgment, acting in good faith, obedient to the interests of all and to demonstrate due care, diligence, and skill.

All directors are expected to demonstrate certain fiduciary duties. Shareholders are relying on directors to serve shareholders’ interests, not the directors’ own interests, nor those of management or a third party. This means that directors must exercise their own independent judgment in the best interests of the shareholders. The directors must do so in good faith (with true purpose, not deceit) on all occasions. They must exercise appropriate skill, diligence, and an expected level of care in all their actions.

Obviously, there will be times when directors will be able to make significant sums of money by misusing the trust with which they have been bestowed and at the expense of the other stakeholders of the company. At these times a director’s interests may conflict with those of the others. Therefore, care must be taken to ensure that such conflicts are disclosed, and that they are managed so that no harm comes to the other shareholders. For example, if a director has an interest in some property or in a company that is being purchased, s/he should disclose this to the other directors and refrain from voting on the acquisition. These actions should alert other directors to the potential self-dealing of the conflicted director, and thereby avoid the non-conflicted directors from being misled into thinking that the conflicted director was acting only with the corporation’s interests in mind.

From time to time, directors may be sued’ by shareholders or third parties who believe that the directors have failed to live up to appropriate expectations. However, courts will not second-guess reasonable decisions by non-conflicted directors that have been taken prudently and on a reasonably informed basis. This is known as the business judgment ru1e and it protects directors charged with breach of their duty of care if they have acted honestly and reasonably. Even if no breach of legal rights has occurred, shareholders may charge that their interests have been ‘oppressed’ (i.e., prejudiced unfairly, or unfairly disregarded) by a corporation or a director’s actions, and courts may grant what is referred to as an oppression remedy of financial compensation or other sanctions against the corporation or the director personally. If, however, the director has not been self-dealing or misappropriating the company’s opportunities, s/he will likely be protected from personal liability by the business judgment rule.

Some shareholders or third parties have chosen to sue directors ‘personally in tort’ for their conduct as directors, even when they have acted in good faith and within the scope of their duties, and when they believed they were acting in the best interests of the corporations they serve.  Recently, courts have held that directors cannot escape such personal liability by simply claiming that they did the action when performing their corporate responsibilities. Consequently, directors or officers must take care when making all decisions that they meet normal standards of behavior.

Consequently, when management and the Board of a company who has been the victim of a cyber-attack decides to withhold information about the attack (sometimes for weeks or months), fundamental questions about compliance with fiduciary standards and ethical duty toward other stakeholders and the public can quickly emerge.   The impact of recent corporate cyber-attack scandals on the public has the potential to change future governance expectations dramatically. Recognition that some of these situations appear to have resulted from management inattention or neglect (the failure to timely patch known software vulnerabilities, for example) has focused attention on just how well a corporation can expect to remediate its public face and ensure ongoing business continuity following such revelations to the public.

My colleague points out that so damaging were the apparently self-protective actions taken by the Boards of some of these victim companies in the wake of several recent attacks to protect their share price, (thereby shielding the interests of existing executives, directors, and investors in the short term) that the credibility of their entire corporate governance and accountability processes has been jeopardized, thus endangering, in some cases, even their ability to continue as viable going concerns.

In summary, in the United States, the Board of Directors sits at the apex of a company’s governing structure. A typical Board’s duties include reviewing the company’s overall business strategy, selecting and compensating the company’s senior executives; evaluating the company’s outside auditor, overseeing the company’s financial statements; and monitoring overall company performance. According to the Business Roundtable, the Board’s ‘paramount duty’ is to safeguard the interests of the company’s shareholders.  It’s fair to ask if a Board that chooses not to reveal to its stakeholders or to the general investor public a potentially devastating cyber-fraud for many months can be said to have meet either the letter or the spirit of its paramount duty.

From Inside the Building

By Rumbi Petrozzello, CFE, CPA/CFF
2017 Vice-President – Central Virginia Chapter ACFE

Several months ago, I attended an ACFE session where one of the speakers had worked on the investigation of Edward Snowden. He shared that one of the ways Snowden had gained access to some of the National Security Agency (NSA) data that he downloaded was through the inadvertent assistance of his supervisor. According to this investigator, Snowden’s supervisor shared his password with Snowden, giving Snowden access to information that was beyond his subordinate’s level of authorization. In addition to this, when those security personnel reviewing downloads made by employees noticed that Snowden was downloading copious amounts of data, they approached Snowden’s supervisor to question why this might be the case. The supervisor, while acknowledging this to be true, stated that Snowden wasn’t really doing anything untoward.

At another ACFE session, a speaker shared information with us about how Chelsea Manning was able to download and remove data from a secure government facility. Manning would come to work, wearing headphones, listening to music on a Discman. Security would hear the music blasting and scan the CDs. Day after day, it was the same scenario. Manning showed up to work, music blaring.  Security staff grew so accustomed to Manning, the Discman and her CDs that when she came to work though security with a blank CD boldly labelled “LADY GAGA”, security didn’t blink. They should have because it was that CD and ones like it that she later carried home from work that contained the data she eventually shared with WikiLeaks.

Both these high-profile disasters are notable examples of the bad outcome arising from a realized internal threat. Both Snowden and Manning worked for organizations that had, and have, more rigorous security procedures and policies in place than most entities. Yet, both Snowden and Manning did not need to perform any magic tricks to sneak data out of the secure sites where the target data was held; it seems that it all it took was audacity on the one side and trust and complacency on the other.

When organizations deal with outside parties, such as vendors and customers, they tend to spend a lot of time setting up the structures and systems that will guide how the organization will interact with those vendors and customers. Generally, companies will take these systems of control seriously, if only because of the problems they will have to deal with during annual external audits if they don’t. The typical new employee will spend a lot of time learning what the steps are from the point when a customer places an order through to the point the customer’s payment is received. There will be countless training manuals to which to refer and many a reminder from co-workers who may be negatively impacted if the rooky screws up.

However, this scenario tends not to hold up when it comes to how employees typically share information and interact with each other. This is true despite the elevated risk that a rogue insider represents. Often, when we think about an insider causing harm to a company through fraudulent acts, we tend to imagine a villain, someone we could identify easily because s/he is obviously a terrible person. After all, only a terrible person could defraud their employer. In fact, as the ACFE tells us, the most successful fraudsters are the ones who gain our trust and who, therefore, don’t really have to do too much for us to hand over the keys to the kingdom. As CFEs and Forensic Accountants, we need to help those we work with understand the risks that an insider threat can represent and how to mitigate that risk. It’s important, in advising our clients, to guide them toward the creation of preventative systems of policy and procedure that they sometimes tend to view as too onerous for their employees. Excuses I often hear run along the lines of:

• “Our employees are like family here, we don’t need to have all these rules and regulations”

• “I keep a close eye on things, so I don’t have to worry about all that”

• “My staff knows what they are supposed to do; don’t worry about it.”

Now, if people can easily walk sensitive information out of locations that have documented systems and are known to be high security operations, can you imagine what they can do at your client organizations? Especially if the employer is assuming that their employees magically know what they are supposed to do? This is the point that we should be driving home with our clients. We should look to address the fact that both trust and complacency in organizations can be problems as well as assets. It’s great to be able to trust employees, but we should also talk to our clients about the fraud triangle and how one aspect of it, pressure, can happen to any staff member, even the most trusted. With that in mind, it’s important to institute controls so that, should pressure arise with an employee, there will be little opportunity open to that employee to act. Both Manning and Snowden have publicly spoken about the pressures they felt that led them to act in the way they did. The reason we even know about them today is that they had the opportunity to act on those pressures. I’ve spent time consulting with large organizations, often for months at a time. During those times, I got to chat with many members of staff, including security. On a couple of occasions, I forgot and left my building pass at home. Even though I was on a first name basis with the security staff and had spent time chatting with them about our personal lives, they still asked me for identification and looked me up in the system. I’m sure they thought I was a nice and trustworthy enough person, but they knew to follow procedures and always checked on whether I was still authorized to access the building. The important point is that they, despite knowing me, knew to check and followed through.

Examples of controls employees should be reminded to follow are:

• Don’t share your password with a fellow employee. If that employee cannot access certain information with their own password, either they are not authorized to access that information or they should speak with an administrator to gain the desired access. Sharing a password seems like a quick and easy solution when under time pressures at work, but remind employees that when they share their login information, anything that goes awry will be attributed to them.

• Always follow procedures. Someone looking for an opportunity only needs one.

• When something looks amiss, thoroughly investigate it. Even if someone tells you that all is well, verify that this is indeed the case.

• Explain to staff and management why a specific control is in place and why it’s important. If they understand why they are doing something, they are more likely to see the control as useful and to apply it.

• Schedule training on a regular basis to remind staff of the controls in place and the systems they are to follow. You may believe that staff knows what they are supposed to do, but reminding them reduces the risk of them relying on hearsay and secondhand information. Management is often surprised by what they think staff knows and what they find out the staff really knows.

It should be clear to your clients that they have control over who has access to sensitive information and when and how it leaves their control. It doesn’t take much for an insider to gain access to this information. A face you see smiling at you daily is the face of a person you can grow comfortable with and with whom you can drop your guard. However, if you already have an adequate system and effective controls in place, you take the personal out of the equation and everyone understands that we are all just doing our job.

Sock Puppets

The issue of falsely claimed identity in all its myriad forms has shadowed the Internet since the beginning of the medium.  Anyone who has used an on-line dating or auction site is all too familiar with the problem; anyone can claim to be anyone.  Likewise, confidence games, on or off-line, involve a range of fraudulent conduct committed by professional con artists against unsuspecting victims. The victims can be organizations, but more commonly are individuals. Con artists have classically acted alone, but now, especially on the Internet, they usually group together in criminal organizations for increasingly complex criminal endeavors. Con artists are skilled marketers who can develop effective marketing strategies, which include a target audience and an appropriate marketing plan: crafting promotions, product, price, and place to lure their victims. Victimization is achieved when this marketing strategy is successful. And falsely claimed identities are always an integral component of such schemes, especially those carried out on-line.

Such marketing strategies generally involve a specific target market, which is usually made up of affinity groups consisting of individuals grouped around an objective, bond, or association like Facebook or LinkedIn Group users. Affinity groups may, therefore, include those associated through age, gender, religion, social status, geographic location, business or industry, hobbies or activities, or professional status. Perpetrators gain their victims’ trust by affiliating themselves with these groups.  Historically, various mediums of communication have been initially used to lure the victim. In most cases, today’s fraudulent schemes begin with an offer or invitation to connect through the Internet or social network, but the invitation can come by mail, telephone, newspapers and magazines, television, radio, or door-to-door channels.

Once the mark receives and accepts the offer to connect, some sort of response or acceptance is requested. The response will typically include (in the case of Facebook or LinkedIn) clicking on a link included in a fraudulent follow-up post to visit a specified web site or to call a toll-free number.

According to one of Facebook’s own annual reports, up to 11.2 percent of its accounts are fake. Considering the world’s largest social media company has 1.3 billion users, that means up to 140 million Facebook accounts are fraudulent; these users simply don’t exist. With 140 million inhabitants, the fake population of Facebook would be the tenth-largest country in the world. Just as Nielsen ratings on television sets determine different advertising rates for one television program versus another, on-line ad sales are determined by how many eyeballs a Web site or social media service can command.

Let’s say a shyster want 3,000 followers on Twitter to boost the credibility of her scheme? They can be hers for $5. Let’s say she wants 10,000 satisfied customers on Facebook for the same reason? No problem, she can buy them on several websites for around $1,500. A million new friends on Instagram can be had for only $3,700. Whether the con man wants favorites, likes, retweets, up votes, or page views, all are for sale on Web sites like Swenzy, Fiverr, and Craigslist. These fraudulent social media accounts can then be freely used to falsely endorse a product, service, or company, all for just a small fee. Most of the work of fake account set up is carried out in the developing world, in places such as India and Bangladesh, where actual humans may control the accounts. In other locales, such as Russia, Ukraine, and Romania, the entire process has been scripted by computer bots, programs that will carry out pre-encoded automated instructions, such as “click the Like button,” repeatedly, each time using a different fake persona.

Just as horror movie shape-shifters can physically transform themselves from one being into another, these modern screen shifters have their own magical powers, and organizations of men are eager to employ them, studying their techniques and deploying them against easy marks for massive profit. In fact, many of these clicks are done for the purposes of “click fraud.” Businesses pay companies such as Facebook and Google every time a potential customer clicks on one of the ubiquitous banner ads or links online, but organized crime groups have figured out how to game the system to drive profits their way via so-called ad networks, which capitalize on all those extra clicks.

Painfully aware of this, social media companies have attempted to cut back on the number of fake profiles. As a result, thousands and thousands of identities have disappeared over night among the followers of many well know celebrities and popular websites. If Facebook has 140 million fake profiles, there is no way they could have been created manually one by one. The process of creation is called sock puppetry and is a reference to the children’s toy puppet created when a hand is inserted into a sock to bring the sock to life. In the online world, organized crime groups create sock puppets by combining computer scripting, web automation, and social networks to create legions of online personas. This can be done easily and cheaply enough to allow those with deceptive intentions to create hundreds of thousands of fake online citizens. One only needs to consult a readily available on-line directory of the most common names in any country or region. Have a scripted bot merely pick a first name and a last name, then choose a date of birth and let the bot sign up for a free e-mail account. Next, scrape on-line photo sites such as Picasa, Instagram, Facebook, Google, and Flickr to choose an age-appropriate image to represent your new sock puppet.

Armed with an e-mail address, name, date of birth, and photograph, you sign up your fake persona for an account on Facebook, LinkedIn, Twitter, or Instagram. As a last step, you teach your puppets how to talk by scripting them to reach out and send friend requests, repost other people’s tweets, and randomly like things they see Online. Your bots can even communicate and cross-post with one another. Before the fraudster knows it, s/he has thousands of sock puppets at his disposal for use as he sees fit. It is these armies of sock puppets that criminals use as key constituents in their phishing attacks, to fake on-line reviews, to trick users into downloading spyware, and to commit a wide variety of financial frauds, all based on misplaced and falsely claimed identity.

The fraudster’s environment has changed and is changing over time, from a face-to-face physical encounter to an anonymous on-line encounter in the comfort of the victim’s own home. While some consumers are unaware that a weapon is virtually right in front of them, others are victims who struggle with the balance of the many wonderful benefits offered by advanced technology and the painful effects of its consequences. The goal of law enforcement has not changed over the years; to block the roads and close the loopholes of perpetrators even as perpetrators continue to strive to find yet another avenue to commit fraud in an environment in which they can thrive. Today, the challenge for CFEs, law enforcement and government officials is to stay on the cutting edge of technology, which requires access to constantly updated resources and communication between organizations; the ability to gather information; and the capacity to identify and analyze trends, institute effective policies, and detect and deter fraud through restitution and prevention measures.

Now is the time for CFEs and other assurance professionals to continuously reevaluate all we for take for granted in the modern technical world and to increasingly question our ever growing dependence on the whole range of ubiquitous machines whose potential to facilitate fraud so few of our clients and the general public understand.

Small Scale Electronic Crime Scenes

Most frauds aren’t Enron.  As the ACFE tells us, most frauds encountered by practicing CFE’s are what I like to call “small crime-scene frauds” perpetrated by long time employees like Mary who works in a back office keeping the books, knows everything about the company, and who has been quietly embezzling lesser amounts of company funds without detection for the last fifteen years.  In today’s environment, Mary will be doing her work on a desktop computer, probably connected to a small network with internet access.  Mary’s workstation and the simple network supporting it constitute an electronic crime-scene to be investigated as thoroughly and with as much attention to detail as possible and accompanied by a full set of investigative documentation if there is ever to be any hope of obtaining a conviction (should Mary’s employer, your client, finally decide to go that way).

It goes without saying that the investigator or team of investigators to any crime scene, large or small, have the primary responsibility of protecting all the computer and related electronic evidence that might be useful in a future civil or criminal action. Evidence is where the CFE or other investigators find it. While crime scene evidence from personal and property crimes might be in plain view, computer and electronic evidence is subtler and might not be as evident or obvious at the scene.  In general, first responders at any scene can destroy critical latent evidence if they lack training in the proper identification, collection, and packaging procedures for the type of investigation. This means that both corporate security departments and law enforcement agencies routinely involved in such investigations specially train their personnel in computer and electronic investigative techniques. Much of the potential evidence at a small-scale scene might be circumstantial, but it could possibly be used to support the primary physical and direct evidence that a detailed investigation will later develop. A list of inappropriate purchases and related amounts found on Mary’s workstation at the crime scene could be persuasive to a jury if properly obtained.

Thus, education and preparation are major components of any successful crime scene search for electronic evidence. However, our corporate clients need to be made aware of what all law enforcement agencies know, that in-house or external security personnel, whose background might sometimes even include the performance of criminal crime scene searches, are usually not qualified for large or small-scale computer crime scene searches.

The basic steps involved in a small-scale computer site investigation include the following:

–Secure and protect the scene;
–Initiate a preliminary survey;
–Evaluate physical evidence possibilities;
–Prepare a narrative description;
–Take photographs of the scene;
–Prepare a diagram/sketch of the scene;
–Conduct a detailed search and record and collect physical evidence;
–Conduct a final survey;
–Release the crime scene.

Although a number of these steps also apply to crime scene searches for crimes involving misdemeanors and felonies, the orientation of their performance in the investigation of an electronic crime scene is more technical in nature. When a computer or some electronic device is suspected of having been used as a tool in the perpetration of a crime, normal evidence gathering techniques for computer forensics processing should always be followed. It does not matter whether the crime scene is also suspected of having been additionally involved in a separate fraud issue, a civil, or a criminal investigation; if a computer or other electronic device is involved, the steps will be the same in all cases.

It is also essential that the organization’s computer personnel be excluded from the crime scene. Most computer specialists are not familiar with computer forensics techniques and individuals among them could have been involved in the crime, wittingly or unwittingly. Additionally, security must be provided for the area while the investigation is proceeding. Any employees or visitors who subsequently enter the scene need to be identified.  Try to identify in writing anyone who has routine access to the site or anyone who might have a reason to be involved with the scene generally. Do not rely on your memory alone, as it will not sufficiently support you in a court of law.

Computer and electronic evidence usually takes on the same general forms with which we’re all familiar: computer hardware, peripherals, cell phones, hand held devices, various storage media, digital cameras, and the list goes on. The investigator will have a general knowledge of the types of evidence that can be collected from each of these devices; however, s/he must be prepared for new devices showing up at any crime scene at any time. A cautious walkthrough is a good first step to get a feel for the complexity of the site. In addition to a workstation, several additional workstations or areas might become part of the investigation. Keep in mind that due to the networking configurations of even today’s smallest systems, remote sites might probably be involved in the investigation.

The investigator(s) should strive to maintain a continuing level of control of the situation and of the physical site during the investigation.  An inventory log and chain-of-custody form should be completed and photographs made of all relevant devices and related electronic evidence. Specific activities that might be included in this phase of the investigation include:

–Determination of all the locations that might need to be searched;
–Look out for any specific issues that need to be addressed relating to pieces of hardware and software;
–Identification of any possible personnel and equipment needed for the investigation but not yet on-site;
–Determination of which devices can be physically removed from the site;
–Identification of all individuals who have had access to the computer or electronic resources material to the investigation.

The evaluation of physical evidence is a continuation of the preliminary survey and may not be perceived as a separate step. After the site is thoroughly photographed, a more detailed search can begin. Before any devices are handled, remember that fingerprint evidence might become evidence in establishing who used these devices. The smallest, most insignificant appearing piece of evidence might clinch a case. Any network capability and connections to the computer site must be identified. Networking can broaden any investigation considerably. If there is an internet connection, it can become a worldwide investigation involving various internet service providers and the possibility of subpoenas. Cell-phone evidence may involve various telephone network carriers and additional subpoenas.  Prioritize the evidence collection process to prevent loss, destruction, or modification. Focus first on items easily identifiable and accessible and proceed to identified out-of-sight evidence. Look for the obvious first, the suspect might have been sloppy.

A journal or narrative must be prepared concerning the investigation and the crime scene search. Anything and everything is important when conducting the scene investigation. Remember that the defense attorney is going to query any witnesses on the most obscure item possible. A technique suggested by the ACFE is to represent crime scenes in a “general to specific” scheme. Describe the site in broad terms and then get very specific with details. A sound idea is to cross-reference a chronological journal with the photographic evidence and a chain-of-custody form. The narrative effort should not degenerate into a sporadic and unorganized attempt to recover physical evidence. Under most circumstances, evidence should not be collected while developing the narrative. The narrative process can be accomplished by using audio, video, or text. Remember the axiom “haste makes waste.”

Developing a photographic profile of the crime scene is a requirement for any computer forensic investigation no matter how small. Photographs should be taken as soon as the incident scene is secured and before any computers or electronic devices are moved. Photographs should be taken from all angles of the physical site. Close-ups of cable connections for all devices should be included. Note these cables will need to be separately tagged in another step. Any video screens displayed would be photographed. The photographic effort needs to be recorded in a photographic log.  Photographs should be taken as soon as possible to depict the scene as it is observed before anything is handled, moved, or introduced to the scene. Photographs allow a visual permanent record of the crime scene and items of evidence collected from the crime scene.

A diagram or sketch establishes a permanent record of items, conditions, and distance/size relationships. They also supplement the photographic record. Usually a rough sketch is drawn at the crime scene and is used as a model for a complete, formal document that would be completed later. The sketch can be coordinated with any logs or journals via a numbering scheme. Sketches are used along with the reports and photographs to document the scene. A crime scene sketch is simply a drawing that accurately shows the appearance of a crime scene.

The CFE will usually have a general idea from discussions with the client as to the types of evidence that s/he will find at the incident scene. A checklist can be developed that will identify most types of computer and electronic evidence that might be at a small-scale crime scene. The major difference between investigations will probably be the size of the computer system and the amount of disk storage that will need to be secured or imaged. Seizure of electronic devices, such as cell phones and iPads, should not pose any special problems due to their small size. It might be necessary to determine the amount of disk storage records that need to be copied or imaged for later forensic analysis. On large data bases or for data in the cloud it will be next to impossible to copy or image the entire storage device. In these cases, a forensic examination might have to occur partly at the crime scene and partly off-site once the required permissions for data access are received from the data owners of record.

Conflicts in documentation can cause considerable grief in a court of law. Also, if a computer system is to be reconstructed later, cable connections and maps must be precise. There are four basic premises to the search, recording, and collection phase of a small- scale investigation. These premises are as follows:

–The best search options are typically the most difficult and time consuming;
–The physical evidence cannot be over-documented;
–There is generally only one best chance to properly perform the investigative task;
–Cautious searching of visible areas and identification and searching of relevant off-site areas is crucial.

After the investigative team has completed all tasks relating to the search, recording, and collection phases at the small-scale crime scene, a critical review should be conducted to ensure that nothing has been missed. This is the last chance to cover all the bases and ensure nothing has been overlooked. The investigators must ensure that they have gone far enough in the search for evidence, documented all essential things, and made no assumptions that may prove to be incorrect later.

–Double-check documentation to detect inadvertent errors;
–Check to ensure all evidence is accounted for before leaving the crime scene;
–Ensure all forensic hardware and software used in the search is gathered;
–Ensure possible hiding places of evidence and difficult areas for access have not been overlooked;

An incident scene debriefing is the best opportunity for personnel and participants to ensure the investigation is complete.

The last step in the evidence investigation phase for a small-scale crime scene featuring electronic evidence is to release the incident scene back to its owners. The release is accomplished only after completion of the final survey. The individual investigator or team should provide an inventory of the items seized to the client owner/manager of the scene. A receipt for electronic evidence must be completed for any devices seized. A formal document should be provided that specifies the time and date of the release, to whom released, and by whom released.

Financing Death One BitCoin at a Time

Over the past decade, fanatic religious ideologists have evolved to become hybrid terrorists demonstrating exceptional versatility, innovation, opportunism, ruthlessness, and cruelty. Hybrid terrorists are a new breed of organized criminal. Merriam-Webster defines hybrid as “something that is formed by combining two or more things”. In the twentieth century, the military, intelligence forces, and law enforcement agencies each had a specialized skill-set to employ in response to respective crises involving insurgency, international terrorism, and organized crime. Military forces dealt solely with international insurgent threats to the government; intelligence forces dealt solely with international terrorism; and law enforcement agencies focused on their respective country’s organized crime entities. In the twenty-first century, greed, violence, and vengeance motivate the various groups of hybrid terrorists. Hybrid terrorists rely on organized crime such as money laundering, wire transfer fraud, drug and human trafficking, shell companies, and false identification to finance their organizational operations.

Last week’s horrific terror bombing in Manchester brings to the fore, yet again, the issue of such terrorist financing and the increasing role of forensic accountants in combating it. Two of the main tools of modern terror financing schemes are money laundering and virtual currency.

Law enforcement and government agencies in collaboration with forensic accountants play key roles in tracing the source of terrorist financing to the activities used to inflict terror on local and global citizens. Law enforcement agencies utilize investigative and predictive analytics tools to gather, dissect, and convey data to distinguish patterns leading to future terrorist events. Government agencies employ database inquiries of terrorist-related financial information to evaluate the possibilities of terrorist financing and activities. Forensic accountants review the data for patterns related to previous transactions by utilizing data analysis tools, which assist in tracking the source of the funds.

As we all know, forensic accountants use a combination of accounting knowledge combined with investigative skills in litigation support and investigative accounting settings. Several types of organizations, agencies, and companies frequently employ forensic accountants to provide investigative services. Some of these organizations are public accounting firms, law firms, law enforcement agencies, The Internal Revenue Service (IRS), The Central Intelligence Agency (CIA), and The Federal Bureau of Investigations (FBI).

Locating and halting the source of terrorist financing involves two tactics, following the money and drying up the money. Obstructing terrorist financing requires an understanding of both the original and supply source of the illicit funds. As the financing is derived from both legal and illegal funding sources, terrorists may attempt to evade detection by funneling money through legitimate businesses thus making it difficult to trace. Charitable organizations and reputable companies provide a legitimate source through which terrorists may pass money for illicit activities without drawing the attention of law enforcement agencies. Patrons of legitimate businesses are often unaware that their personal contributions may support terrorist activities. However, terrorists also obtain funds from obvious illegal sources, such as kidnapping, fraud, and drug trafficking. Terrorists often change daily routines to evade law enforcement agencies as predictable patterns create trails that are easy for skilled investigators to follow. Audit trails can be traced from the donor source to the terrorist by forensic accountants and law enforcement agencies tracking specific indicators. Audit trails reveal where the funds originate and whether the funds came from legal or illegal sources. The ACFE tells us that basic money laundering is a specific type of illegal funding source, which provides a clear audit trail.

Money laundering is the process of obtaining and funneling illicit funds to disguise the connection with the original unlawful activity. Terrorists launder money to spend the unlawfully obtained money without drawing attention to themselves and their activities. To remain undetected by regulatory authorities, the illicit funds being deposited or spent need to be washed to give the impression that the money came from a seemingly reputable source. There are types of unusual transactions that raise red flags associated with money laundering in financial institutions. The more times an unusual transaction occurs, the greater the probability it is the product of an illicit activity. Money laundering may be quite sophisticated depending on the strategies employed to avoid detection. Some identifiers indicating a possible money-laundering scheme are: lack of identification, money wired to new locations, customer closes account after wiring or transferring copious amounts of money, executed out-of-the-ordinary business transactions, executed transactions involving the customer’s own business or occupation, and executed transactions falling just below the threshold trigger requiring the financial institution to file a report.

Money laundering takes place in three stages: placement, layering, and integration. In the placement stage, the cash proceeds from criminal activity enter the financial system by deposit. During the layering stage, the funds transfer into other accounts, usually offshore financial institutions, thus creating greater distance between the source and origin of the funds and its current location. Legitimate purchases help funnel the money back into the economy during the integration stage, the final stage.

Complicating all this is for the investigator is virtual currency. Virtual currency, unlike traditional forms of money, does not leave a clear audit trail for forensic accountants to trace and investigate. Cases involving the use of virtual currency, i.e. Bitcoins and several rival currencies, create anonymity for the perpetrator and create obstacles for investigators. Bitcoins have no physical form and provide a unique opportunity for terrorists to launder money across international borders without detection by law enforcement or government agencies. Bitcoins are long strings of numbers and letters linked by mathematical encryption algorithms. A consumer uses a mobile phone or computer to create an online wallet with one or more Bitcoin addresses before commencing electronic transactions. Bitcoins may also be used to make legitimate purchases through various, established online retailers.

Current international anti-money laundering laws aid in fighting the war against terrorist financing; however, international laws require actual cash shipments between countries and criminal networks (or at the very least funds transfers between banks). International laws are not applicable to virtual currency transactions, as they do not consist of actual cash shipments. According to the website Bitcoin.org, “Bitcoin uses peer-to-peer technology to operate with no central authority or banks”.

In summary, terrorist organizations find virtual currency to be an effective method for raising illicit funds because, unlike cash transactions, cyber technology offers anonymity with less regulatory oversight. Due to the anonymity factor, Bitcoins are an innovative and convenient way for terrorists to launder money and sell illegal goods. Virtual currencies are appealing for terrorist financiers since funds can be swiftly sent across borders in a secure, cheap, and highly secretive manner. The obscurity of Bitcoin allows international funding sources to conduct exchanges without a trace of evidence. This co-mingling effect is like traditional money laundering but without the regulatory oversight. Government and law enforcement agencies must, as a result, be able to share information with public regulators when they become suspicious of terrorist financing.

Forensic accounting technology is most beneficial when used in conjunction with the analysis tools of law enforcement agencies to predict and analyze future terrorist activity. Even though some of the tools in a forensic accountant’s arsenal are useful in tracking terrorist funds, the ability to identify conceivable terrorist threats is limited. To identify the future activities of terrorist groups, forensic accountants, and law enforcement agencies should cooperate with one another by mutually incorporating the analytical tools utilized by each. Agencies and government officials should become familiar with virtual currency like Bitcoins. Because of the anonymity and lack of regulatory oversight, virtual currency offers terrorist groups a useful means to finance illicit activities on an international scale. In the face of the challenge, new governmental entities may be needed to tie together all the financial forensics efforts of the different stake holder organizations so that information sharing is not compartmentalized.