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Internal Controls for Electronic Banking

Internal controls are essential to ensure the security, integrity, and reliability of electronic banking transactions. This article highlights key elements of internal controls designed to prevent unauthorized access, modifications, and tampering with electronic banking activities.

Authentication

Authentication is a critical component of internal controls that ensures all electronic banking transactions are executed by authorized individuals. To achieve this, authorized institutions should implement measures to prevent unauthorized access and modifications to electronic banking transactions.

• Use digital signatures to append a signature to the transaction.
• Detect unauthorized modifications through checksums or other encryption methods.
• Prevent subsequent disavowal by maintaining audit trails.

Data and Transaction Integrity

Data integrity refers to the assurance that information transmitted, processed, or stored is not altered without authorization. Authorized institutions should ensure that measures are in place to ascertain the accuracy, completeness, and reliability of information processed, transmitted, or stored.

• Conduct electronic banking transactions in a manner that makes them highly resistant to tampering throughout the entire process.
• Store, access, and modify electronic banking records in a manner that makes them highly resistant to tampering.
• Design electronic banking transaction and record-keeping processes to make it virtually impossible to circumvent detection of unauthorized changes.
• Implement adequate change control policies, including monitoring and testing procedures.
• Detect any tampering with electronic banking transactions or records through transaction processing, monitoring, and record-keeping functions.

Segregation of Duties

Segregation of duties is an essential element of internal controls designed to reduce the risk of fraud in operational processes and systems. Responsibilities and duties that should be separated and performed by different groups of personnel include:

• Operating systems function
• System design and development
• Application maintenance programming
• Computer operations
• Database administration
• Security administration
• Data security
• Librarian and backup data file custody

Authorization Controls

Authorized institutions need to strictly control authorization and access privileges. The common practices used to achieve this include:

• Basing authorization and access rights on job responsibility and the necessity to have them to fulfill one’s duties.
• Ensuring that no person has any intrinsic right to access confidential data, applications, system resources, or facilities solely by virtue of rank or position.
• Authorizing only employees who need access to confidential information and use system resources for legitimate purposes.

Maintenance of Audit Trails

An authorized institution’s internal control may be weakened if it is unable to maintain clear audit trails for its electronic banking activities. Authorized institutions should ensure that clear audit trails exist for all electronic banking transactions, including:

• The opening, modification, or closing of a customer’s account.
• Any transaction with financial consequences.
• Any authorization granted to a customer to exceed a limit.
• Any granting, modification, or revocation of systems access rights or privileges.

Confidentiality of Sensitive Information

Confidentiality is the assurance that sensitive information is only accessible by authorized parties. Authorized institutions should implement measures to prevent misuse or unauthorized disclosure of sensitive data and records, including:

• Implementing adequate security measures to protect sensitive information.
• Ensuring that only authorized personnel have access to sensitive information.
• Monitoring access to sensitive information.

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