Internal Audit’s Role Will Be Key in the GDPR Journey

 

By Jeff Sanchez, Managing Director
Technology Consulting


Andrew Struthers-Kennedy, Managing Director
Technology Audit

 

Over the next nine months, organizations will spend billions of dollars to comply with the General Data Protection Regulation, or GDPR — a European data protection and privacy regulation with the potential to be as disruptive to companies that conduct any kind of personal data exchange with the EU as the financial reforms created by the Sarbanes-Oxley Act were back in 2002. For starters, it is estimated that over the next year, companies in Europe will hire 28,000 data protection officers (DPOs) — one of the requirements of the GDPR. And that’s just one of the changes companies will have to make.

Protiviti held a popular webinar last month to discuss what GDPR is, how it will affect companies and how companies should prepare for this significant change. Scott Giordano of Robert Half Legal and Jeff Sanchez provided an overview of the regulation in a previous post. Here, we want to focus on GDPR’s implication for internal audit specifically. Two-thirds of the attendees at our webinar were from the internal audit function — not a surprise, as this is the group that will be providing assurance over the new controls once they are implemented, and is well positioned to provide guidance during their design and implementation.

The effects of this new law will be felt across all organizational departments, affecting policies, procedures, marketing, analytics, vendor contracts and customer transactions, among other things. The internal audit function, by virtue of its deep departmental access, compliance and risk knowledge, and board-level credibility, can play a significant role in both preparing for the change and monitoring compliance after the law is enforced, beginning May 25, 2018.

Between now and May 2018, internal audit can play a key role in guiding company strategy, serving as a strategic partner, helping the DPO, raising awareness of the new law, talking about potential risks, identifying gaps in the company’s compliance program, and helping to drive change within the organization.

Results from participants in Protiviti’s GDPR webinar

The majority of attendees we polled during the webinar (66 percent) said their companies are still in the early planning and discovery phase — conducting privacy risk assessments, identifying applicable laws, mapping data and trying to understand requirements. This is an area where internal audit can make a big difference.

Once the risks and compliance requirements have been identified, internal audit can add value by facilitating a gap analysis. With roughly a quarter of companies at this stage, common gaps we have seen so far include:

  • General lack of awareness related to the GDPR requirements (in particular among customer-facing functions, e.g., sales)
  • Lack of comprehensive inventory of personal data and mechanisms for how such data is being captured, stored, processed, and transmitted
  • Poor data mapping, or a lack of priority in privacy design
  • CRM systems not designed to accommodate the rights of data subjects
  • Third-party contracts that don’t reflect new regulatory requirements, and insufficient vendor management
  • Historical data that may not meet GDPR consent requirements
  • Insufficient accountability in data security and privacy across all users and applications
  • Security vulnerabilities during data processing
  • Slow or insufficient breach reporting and communication

Only after the requirements and compliance gaps have been identified can the organization begin to implement changes and move toward compliance. Our polling questions revealed that j ustone in ten companies has made it to this phase. Internal audit can add value here by helping to shape a compliance roadmap and advising on appropriate practices to meet the requirements of GDPR.

Of course, after the regulation takes effect, internal audit will play a pivotal role in assessing the compliance posture of an organization, testing the compliance framework and the timely reporting of data breaches, challenging management assumptions and making sure the organization is truly compliant. Data protection, specifically related to GPDR, might well be a focus point for all integrated audits that are conducted.

Companies and their internal audit departments should not underestimate the effort involved in complying with this law. The cost of complying is estimated at more than $1 million for 17 percent of U.S. companies, with larger companies likely to see higher costs. Now is the time to raise awareness among all functions that will be affected, inventory personal data, review data policies thoroughly, conduct a risk assessment and identify gaps, and engage with vendors. As with any business initiative of this scope, proper governance and oversight (including executive sponsorship and a dedicated steering committee) is going to be key to the success of the GDPR program.

For more information, we strongly encourage you to watch our free archived webinar, subscribe to our blog to be part of future discussions, and try to attend a roundtable near you. It’s not too late to start, but that won’t be the case for long.

Life Sciences, Pharmaceutical and Medical Device Companies Need to Trust Less and Question More to Keep High-Value Data Safe

 

By Sharon Lindstrom, Managing Director
Manufacturing and Distribution Industry Leader

and Scot Glover, Managing Director
San Francisco Life Sciences Practice Leader

 

Life sciences, pharmaceutical and medical device companies possess sensitive, high-value data that cybercriminals, hacktivists, unscrupulous competitors and other malicious actors aim to steal or otherwise expose. Personally identifiable information (PII), such as employee data and information about clinical trial participants, is a prime target for compromise. So, too, is intellectual property (IP), like drug formulas, proprietary software and manufacturing processes.

Adversaries are finding success with their campaigns: According to a 2016 study by the Ponemon Institute, which included pharmaceutical and medical device businesses, 90 percent of healthcare organizations (an all-inclusive category for all sectors participating in the survey) have suffered a data breach in the past two years. Ponemon estimates that those incidents cost the healthcare industry US$6.2 billion.

There are other cyber risks, too, that can be even more damaging. The recent, massive WannaCry ransomware attack, for example, shows how the interconnectedness of healthcare systems, and weak security practices, can put both organizations and patients at risk. The malware also affected Windows-based radiology devices at two U.S. hospitals, according to reports. The attackers took advantage of known vulnerabilities in the devices’ software. Many devices across the healthcare system use old software that is difficult to update, which means they are ripe for malicious actors to exploit.

Time to move cybersecurity from “top concern” to “top business priority”

Although cybersecurity is, and has been, a top concern for leadership at life sciences, pharmaceutical and medical device companies and their stakeholders, most of these businesses aren’t doing enough to ensure PII, IP and other vital data, and their critical systems and devices, are protected. There are several reasons for this, including:

  • Too much trust: Companies often outsource key critical functions, such as research and development, marketing studies and patient data analysis. Unfortunately, many companies feel that the risk of a data breach or hack is also outsourced to the business partner, and that the collaborative agreements they’ve established with their commercial or academic partners or contracted research organizations somehow guarantee security.
  • Lack of insight: Businesses may not dig deeply enough into their collaboration networks or supply chains when conducting cyber assessments to identify security gaps and other risks.
  • Too few resources: Many organizations in the industry are small and in startup mode, and therefore operate very lean. They devote most of their time and budget to research and development, which leaves them with little or no funding to put toward enhancing their cybersecurity. Also, many of these businesses rely on cost-effective and easy-to-access technology tools to store and share information, which means information could be exposed to malicious hackers if the tools are not configured and secured properly.

To improve cybersecurity, life sciences, pharmaceutical and medical device companies must stop viewing the issue as a top concern and treat it as a top business priority. As a starting point, these organizations should seek to answer the following questions:

  1. What information do we share with our strategic partners electronically and how is that data protected while in transit or stored? More companies than ever before, big and small, are now working with contract resource organizations (CROs). These CROs exchange sensitive and confidential data over electronic networks continuously, and the potential for loss, compromise or theft of PII or IP is high. Cybercriminals often will target the security weaknesses of third parties to gain access to a targeted company, using tactics such as phishing. Another risk area: Many businesses are relying on third-party vendors, i.e., cloud providers, to manage and store their data.
  2. How are our strategic partners handling our information physically at the research site? This question relates to the earlier point about companies’ lack of insight into their collaboration network. Organizations must understand how their information might be exposed in a lab environment or at a research site. The theft, by an insider, of a researcher’s notebook with details about a new drug formula or a medical device in development could spell the end for a company whose entire value is tied up in that irreplaceable IP.

Medical device companies have a third question they should consider (although, so too should the organizations and patients relying on these devices):

  1. What is the risk that our products could be hacked and/or controlled by malicious actors? The potential for medical device compromise is no longer in the realm of science fiction. And there were warnings that this would become a reality even as the Internet of Things was emerging. Back in 2014, for instance, the U.S. Federal Bureau of Investigation (FBI) issued a report warning that cyber attacks against healthcare systems and medical devices were likely to increase as more healthcare records were digitized and more medical devices were connected to the Internet.

Life sciences, pharmaceutical and medical device companies must think more critically about, and build a better understanding of, their cyber risk exposure and know what digital assets malicious actors would be most likely to target. When it comes to cybersecurity, these businesses would do well to trust less and question more. Failure to do so can put not only their brands and reputations at risk but their entire business — as well as, potentially, the lives of their patients.

Data-Rich Manufacturing Demands Cybersecurity of the Supply Chain, Too

By Sharon Lindstrom, Managing Director
Manufacturing and Distribution Industry Leader

and Tony Abel, Managing Director
Supply Chain

 

Few manufacturers would disagree with the view that the Internet of Things, big data integration and other advances in technology are boosting productivity, streamlining supply and distribution channels, and improving product support. But the WannaCry ransomware attack unleashed on businesses, governments and hospitals across the globe last month and the most recent attack this week delivered a sobering reminder that those digital-driven innovations carry very real risk.

That’s especially true for supply chains. Competition and efficiency demands increasingly compel manufacturers to enlist third-party vendors to produce components for an end product, meaning proprietary information and specification data is sent digitally across the globe, ready for cybercriminals to steal and exploit. One recent survey of 1,400+ supply chain professionals found that data security/IT incidents ranked as the most critical risk to supply chains.

Cyber attacks are likely to grow in frequency and severity, according to our recent Flash Report discussing the WannaCry ransomware event. In the report, we highlighted the need for companies to not only adopt a cyber defense, but also to continuously evaluate and improve it to protect against evolving threats. We noted, again, that many organizations continue to ignore cybersecurity – or at best are inadequately addressing it.

Opaque Supply Chains

It makes sense that businesses that are underprepared in their own cyber defenses have even less insight into the cybersecurity of their suppliers. But clearly they should. According to a 2016 presentation given by cyber supply chain risk management specialist Jon Boyens, a program manager with the National Institute of Science and Technology (NIST), 80 percent of all information breaches occur within the supply chain, and almost 60 percent of companies do not have processes for assessing the cyber security of their vendors. Similarly, more than seven out of 10 organizations lack full visibility into their supply chains.

Even more alarming, NIST anticipated that cyber attacks and data breaches would cause nearly half of the manufacturing supply chain disruptions in the next couple of years. Such incidents are costly. NIST estimated that 55 percent of the disruptions incur more than $25 million in damages per incident. In addition, supply chain breaches that steal or alter data could result in substandard products, the loss of intellectual property, and backdoor access into the manufacturer’s systems, all of which could further tarnish an organization’s brand and diminish its value.

Samsung’s recent bout with the flawed batteries that sparked fires in its Galaxy Note 7 phones illustrates the potential damage to a company’s reputation and bottom line. Samsung ultimately identified specifications provided to its suppliers as the culprit, but not before the company took a $5.3 billion hit to earnings and lost consumer trust. How much worse would it have been if a cyber criminal altered the specifications intentionally?

Supplier Checklist

The good news is that manufacturers can mitigate supply chain risks by ensuring that their third-party vendors are pursuing similar cybersecurity efforts as their own. Here are a few fundamental questions that we recommend focusing on when assessing supply chain IT risk:

  • Does the supplier’s culture promote cybersecurity and ransomware awareness throughout the organization? What kind of training are its employees receiving to recognize and address threats?
  • What cyber defenses are in place, and are they sufficient to counter the latest malware threats? Is the supplier up to date on indicators of compromise for recent attacks?
  • How frequently does the supplier conduct cyber risk assessments? Is the regimen sufficient to keep up with the rapidly evolving threats, and does it include defenses to block operational disruptions? Does the supplier consider the risks in its own supply chain (e.g., Tier 2 and Tier 3 suppliers)?
  • Does the supplier have an effective response plan? How often is it updated, and how often does the organization conduct threat simulations as part of its cybersecurity training?

Sound Agreements Needed

Manufacturers and suppliers seeking to reduce supply chain risk also should review contracts to ensure compliance. Items for each party to consider include:

  • Are the supplier’s cybersecurity obligations spelled out clearly in the contract, and does the language extend to the supplier’s subcontractors?
  • Does the contract include assurances that the supplier has the infrastructure to uphold its end of the contract?
  • Who are the executives or managers executing the contract for the supplier? Are they the most appropriate personnel in regards to understanding cybersecurity threats and the supplier’s ability to meet its obligations?

As cyber threats continue to escalate, it is important for manufacturers to gain visibility into their supply chains in order to assess their overall risk-mitigation and response capabilities. The ideas outlined here represent basic but critical actions organizations should be implementing as they strive to secure the increasing amount of sensitive data shared in the production and sourcing processes.

Critical Condition: Cybersecurity in Healthcare

By Adam Brand, Director,
IT Security and Privacy

 

 

 

On June 2, the Health Care Industry Cybersecurity Task Force issued a draft of its Report on Improving Cybersecurity in the Health Care Industry, an analysis of how to strengthen patient safety and data security in an increasingly connected world.

The Congressional report, which sums up the state of healthcare cybersecurity to be in “critical condition,” may shock outsiders, but should come as no surprise to those in the industry, who are well-aware of the challenges and have been awaiting the report as a preview of potential future government regulatory action.

The report lists six imperatives, along with several recommendations and action items. The recommendations bring to the forefront several issues facing the healthcare industry — most notably the risk to patient safety. That’s a departure from the traditional focus on privacy and data protection, and suggests a regulatory gap that needs to be addressed quickly.

The release of this report could not have been timelier, coming on the heels of the debilitating worldwide “WannaCry” ransomware attack that forced hospitals in England to cancel surgeries. Last week we published a flash report that takes a deeper look into the Task Force’s document.

We think that organizations should not wait for the government to initiate solutions. Instead, healthcare providers and medical device makers should proactively increase efforts to bolster cybersecurity to avoid potentially overreaching or misaligned legislation.

In our flash report, we recommend that healthcare providers consider the following actions, tied to key themes of the report:

THEME: (providers) Existing efforts are not enough and patient safety is at risk.
ACTION: Expand cybersecurity efforts to include patient safety.

Healthcare leaders should note the emphasis on patient safety and ensure their cybersecurity program has fully addressed risks that could result in patient safety issues, not just a data breach.

THEME: (providers) Legacy devices are a significant problem.
ACTION: Create a concrete plan for legacy devices.

Develop a plan to phase out or update insecure legacy devices and operating systems, ideally over the next five years, and implement compensating controls such as network segmentation, enhanced monitoring and application whitelisting in the next 12 months to help address the near-term risk.

THEME: (providers) Lack of standard cybersecurity practices.
ACTION: Start formally aligning to a cybersecurity framework.

The report recommends that the Department of Health and Human Services (HHS) develop a health-care specific framework based on the minimum standard of security provided by the NIST Cybersecurity Framework and the HIPAA Security Rule. Health care organizations should begin now to think about how they would align their controls to the NIST CSF standard.

THEME: (manufacturers) Lack of cybersecurity focus; software development lifecycle (SDLC) gaps.
ACTION: Expand cybersecurity efforts, focus on SDLC.

Manufacturers should use the report as an opportunity to determine whether their medical device security program is adequate, given the increased attention on this area and the risks highlighted in the report. Specifically, manufacturers should be able to demonstrate clear security inclusion from new product model requirements through product retirement.

THEME: (manufacturers) Legacy systems are a hot-button issue.
ACTION: Increase activities for reducing numbers of in-use legacy devices.

To avoid negative impacts, manufacturers should work with healthcare providers to reduce the number of potentially compromised medical devices, through customer education and incentives.

THEME: (manufacturers) Minimum cybersecurity standards for medical devices.
ACTION: Work with industry peers to develop a standard.

We anticipate that future FDA device approvals will be contingent on meeting minimum cybersecurity standards. With the typical device development process of five to seven years, manufacturers need to collaborate now to get ahead of regulations and avoid business disruption.

The task force took a year to complete its report, and the result is a very thorough look at the challenges facing healthcare security today. Healthcare providers and medical device manufacturers would be well-served by a careful review of the report to determine how the adoption of these recommendations might affect their organizations.

Download the Protiviti flash report here.

Fintech Perspective: Balancing Speed to Market With Sound Risk Management

 

 

Christopher Monk, Managing Director
Business Performance Improvement

and

Tyrone Canaday, Managing Director
Technology Consulting

 

As financial institutions develop innovative technology, in-house or by partnering with fintech companies, they need to carefully consider regulatory requirements for both third-party risk management and information security. Protiviti hosted a Fintech Innovation webinar on April 5, which addressed the need for banks and other financial institutions to balance sound third-party risk management with the desire for ensuring speed-to-market for new products and services in a bid to remain competitive in today’s marketplace. The attendees primarily consisted of traditional financial services companies (81 percent) – mainly banking organizations and some insurers. Fintech companies represented seven percent of the audience.

We want to highlight some of the results of the polling questions submitted during the webinar because they give insight into the current state of fintech innovation and the areas banking firms are most concerned about as they work to achieve a balance between innovation and sound risk management.

The collaboration is not without challenges. Of those saying they are facing challenges with their third-party risk management programs (a large majority), one-third consider coordinating activities and workflow between different groups in the organization responsible for managing parts of third-party risk, such as the business (the first line of defense), the vendor management office, procurement and the compliance and information security functions, to be the most difficult. Seventeen percent of respondents highlighted the difficulty in gaining coverage of all of the organization’s third parties across all of the lines of business in the enterprise. Other issues include understanding and keeping up to date with all of the evolving regulations, and managing the workload by enhancing the efficiency and scalability of the third-party risk management process.

Most significantly, almost half (44 percent) of all respondents indicated that their organization does not track the risks associated with fintech companies and other vendors effectively.

Addressing the challenges

For institutions that are just beginning their innovation journey, a good starting point is to ensure they understand what their current capabilities are, including those for actively managing third-party risks as well as data security and privacy risks. From there, firms can then begin to consider pushing forward with developing innovative products using a structured research and development (R&D) lifecycle. By layering the two efforts together, firms can ensure third-party considerations are addressed throughout the process, and the level of risk management rigor and scrutiny is increased as they progress through the R&D gates.

During our webinar, Protiviti experts guided attendees through the many ways in which fintech companies are disrupting the marketplace and offered a new third-party risk management framework that can help manage the risks inherent with partnering with smaller, startup firms and launching new technology products and services. You can access the free recorded version here, and we recommend a full listen.

For even more detail on how traditional financial institutions can balance the need for speed-to-market for new products with the need for information security and risk management compliance as best practices, refer to our newly published white paper: Enabling Speed of Innovation Through Effective Third-Party Risk Management.

Paul Kooney of Protiviti’s Security and Privacy practice contributed to this content.

Four Ways for Insurers to Prepare for New NAIC Cybersecurity Rules

By Adam Hamm, Managing Director
Risk and Compliance

 

 

 

Cybersecurity and technology represent immense challenges and opportunities for all insurers and financial services companies. Organizations need to protect sensitive information and customer data to the greatest extent possible, and to recover as quickly as possible in the event of a breach.

Insurance companies store large amounts of personal information about their policyholders. Cybercriminals know this, and have been increasingly targeting insurers. The past two years have seen a dramatic increase in successful cyberattacks, exposing the personally-identifiable information of more than 100 million Americans. As a result, state insurance regulators have been looking for ways to protect consumers and ensure the integrity of the industry. This month, New York became the first state to adopt cybersecurity guidelines. And the National Association of Insurance Commissioners (NAIC) is working towards completing its Data Security Model Law.

Continue reading

Your Personal Information Is Not Personal Anymore – So Who’s Guarding It?

Scott Laliberte (2014)

By Scott Laliberte, Managing Director
IT Security and Privacy

 

 

We live in an age of great convenience enabled by technology. Snap a photo of your check on your smartphone to make a deposit, simple. Rollover an IRA from your home office, easy. Change the password on your bank account from the airport, no problem.

What is less apparent to consumers of these services is the risks they may be assuming by making use of these conveniences. And while few of us have the wish to give up our conveniences, we’d better be ready to demand the best processes and technologies available to protect us from the risk of fraud and identity theft.

For businesses, meeting demands for enhanced personal identity protection can be costly, and it introduces new inconveniences to their customers – something of which businesses are always conscious. It helps when consumers realize the value of better security, and even demand it, despite the potential costs and inconveniences. We are all familiar with the annoyance of forgetting our password and having to jump through a half a dozen hoops to get it back – but at least we recognize it’s our own interest that demands it.

Businesses are limited to just a few options when they want to confirm the identity of a consumer: These are things the consumer knows, things the consumer has, and things the consumer is. For instance, a consumer knows her password, date of birth, social security number, and the answers to several secret questions, like make of car or mother’s maiden name. Some of these are easy to guess; all are easy for a hacker to store and reuse: If one breach reveals the customer’s password and secret question responses for one site, hackers are smart enough to “replay” this information to hack other sites. Things the consumer has, like her cell phone, are harder for hackers to obtain. Adding an “out of band” element to authentication – like texting a PIN to the phone to authorize a logon to a website – protects customers even when hackers have other identifying data. Finally, things the customer is offer strong protection as well (though they also may be subject to replay or other issues). Biometrics, such as fingerprints and retina scans, are two methods in this category right now.

These are the kinds of protections businesses must now routinely offer and customers must demand, or at least reward with their patronage those businesses that offer them.

Here are some suggestions for businesses that wish to add themselves to the category of companies with strong, responsible customer identity protection:

  • Offer enhanced security features but allow your customers to opt in. Not all consumers will be willing to take on more complex authentication to protect their identities against theft. Some simply don’t care, and the complexity may drive them away.
  • Consider how fees might offset the costs of enhanced protection, and also how fees might affect customer loyalty. Monitor how these services are priced by other players in your industry.
  • Develop your in-house knowledge of the changing cybersecurity landscape and expedite development of your expertise in areas that are affecting your business the most.
  • Educate your consumers so they can recognize the value of the enhanced security you offer to protect them against significant losses – and why the added inconvenience is a minor hassle compared to the syphoning of their 401k, for example.
  • Employ advanced fraud analytics to monitor for suspicious activities and high-risk transactions.

From the consumers’ perspective, the following actions should help us to become partners in the effort to protect their own identity:

  • Sign up for identity theft protection services. These services monitor credit inquiries and can protect against thieves using stolen personal information to apply for credit in your name. While they may not be able to detect activity directed at your 401k, HSA, or other financial accounts, these services may provide support to resolve problems resulting from identity theft and some even offer insurance against loss.
  • Monitor financial statements promptly to ensure all transactions are valid.
  • Change passwords often; don’t reuse passwords on other sites. Vary your secret questions; choose questions with answers that are the hardest to guess (e.g., the name of your best friend in high school is harder to guess than your favorite color).
  • Welcome enhanced security features like out-of-band authentication (such as a PIN texted to your phone) and biometrics (using your fingerprint or iris) – especially for high-risk transactions such as changes to key account information (password, email, address) or transfers of money.
  • Vote with your wallet: Gravitate toward businesses that offer enhanced security features. Encourage your established providers, via survey responses and direct requests, to offer enhanced security features, and be prepared to pay for them – perhaps in higher fees; certainly in inconvenience.

Businesses will continue to benefit from offering convenient online features to their customers, as a way of achieving customer loyalty and competitive advantage. Consumers will come to expect faster, secure, seamless services as platforms and technology allow. Businesses and consumers alike will do well to stay informed about how to protect consumer data in this evolving landscape. As long as identity theft continues to reward hackers, they’ll keep looking for ways to circumvent security measures. We need to evolve our security techniques to keep up with the ever-changing threats from cybercriminals.