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How Cybersecurity Can Strengthen Your Internal Controls

With the evolution of organizational digital footprints and the newly released guidelines from the Institute of Internal Auditors (IIA), cybersecurity has become a critical component of corporate governance and compliance frameworks. For organizations subject to the Sarbanes-Oxley Act (SOX) and internal audit programs, integrating robust cybersecurity measures is essential to protect sensitive financial data, ensure accurate financial reporting, and maintain stakeholder trust.

In the context of SOX, cybersecurity plays a crucial role as it mandates companies to implement robust internal controls over their IT systems, including cybersecurity measures, to protect financial data and ensure accurate financial reporting, which internal auditors are responsible for evaluating and testing regularly to verify compliance with SOX regulations. 

The Role of SOX in Corporate Governance & Data Security

The Sarbanes-Oxley Act of 2002 was enacted to enhance corporate governance and restore investor confidence following high-profile financial scandals. SOX mandates stringent internal controls over financial reporting (ICFR) to prevent fraud and ensure the accuracy of financial statements. As technology evolves, so do the risks associated with financial data, making cybersecurity a vital aspect of SOX compliance. One of the primary objectives of SOX is to safeguard the integrity of financial data. Cybersecurity measures, such as encryption, access controls, and continuous monitoring, play a crucial role in protecting this data from unauthorized access and tampering. Effective cybersecurity controls help prevent data breaches that could compromise financial reporting and lead to significant financial and reputational damage.

As most controls relevant to financial reporting include data and the use of systems, robust cybersecurity controls are more critical than ever. Most relevant SOX controls are IT-dependent manual or automated controls, all of which have a systems component. Access controls, data security, interface, key reports, and data integrity are all key factors in key business processes and operational and financial controls. Ensuring the key systems are properly configured and the data is stored, processed, and transmitted completely and accurately are all cybersecurity controls that are considered from an SOX and internal audit perspective. Heavier reliance on system-generated data and support requires heavier reliance on cybersecurity and IT general controls.

Additionally, ensuring proper data backups in the event of an incident or emergency is also a critical consideration from a SOX and internal audit perspective. Having available and reliable data backs should also be analyzed during the annual SOX review and any internal audit that these controls may impact.

Preventing Fraud Through Cybersecurity

Fraud prevention is a key focus of both SOX and internal audit programs. Cybersecurity measures, including strong authentication mechanisms, intrusion detection and prevention tools, network perimeter security, and anomaly detection systems, help identify and mitigate fraud risks. By implementing these controls, organizations can enhance their control environment by detecting suspicious activity early and taking corrective actions to prevent fraudulent transactions that could impact financial statements. Cybersecurity controls are integral to maintaining effective ICFR and fraud management. Enhancing the control environment with appropriate segregation of duties to ensure that only authorized personnel have the right access and privileges to sensitive financial information helps establish a secure audit trail. This not only supports SOX compliance but also enhances the overall reliability of financial reporting by providing a clear record of data access and modifications.

Incorporating cybersecurity considerations in the annual risk assessment process will help identify and evaluate vulnerabilities in financial systems. This helps organizations understand potential threats and implement/scope the appropriate controls for the annual audit process.

Regulatory Requirements and Cybersecurity Disclosures

Regulatory bodies, such as the Securities and Exchange Commission (SEC), have recognized the importance of cybersecurity in financial reporting. Recent SEC regulations require companies to disclose material cybersecurity incidents and provide annual updates on their cybersecurity risk management strategies. These disclosures ensure transparency and enable investors to assess a company’s preparedness to handle cyber threats. Additionally, regular reporting to the Board of Directors (BoD) is also a key component of the regulatory changes in cybersecurity compliance. This helps ensure that the appropriate attention and governance of the cybersecurity program are in place from a ‘top-down’ perspective.

How Centri Can Help

Incorporating cybersecurity considerations into SOX and internal audit programs is no longer optional but a necessity. By implementing robust cybersecurity measures, organizations can protect sensitive financial data, prevent fraud, strengthen internal controls, and comply with regulatory requirements. Ultimately, a strong cybersecurity posture enhances the integrity of financial reporting and fosters trust among stakeholders.

At Centri, we understand the evolving landscape of cybersecurity and the challenges it presents. Our team of IT Risk & Cybersecurity professionals is dedicated to helping your organization navigate these changes with confidence. We offer tailored solutions that enhance your cybersecurity measures, ensuring compliance with the Sarbanes-Oxley Act (SOX) and internal audit programs. Contact us to learn more.

Karyn DiMassa

Managing Director | CPA, PMP, CISA, CFE

Karyn is a Managing Director in the IT Risk & Cybersecurity Practice at Centri Business Consulting. She has more than 15 years of combined experience in internal IT audit and external audit support (IT controls), third-party assurance (SOC 1 and SOC 2 reporting), internal controls consulting, project management, IT risk and cybersecurity, and system implementation support. View Karyn DiMassa's Full Bio

Rich Sowalsky

Managing Director | IT Risk & Cybersecurity Practice Leader | CISA

Rich is a Managing Director at Centri Business Consulting and the leader of the firm’s IT Risk & Cybersecurity Practice. He has more than 16 years of combined experience in internal control consulting, IT risk, cybersecurity advisory, and risk-based internal audits and accounting. View Rich Sowalsky's Full Bio