Recent Breaches More Likely To Result In Fraud

A year-old breach of a Utah Department of Health (UDOH) server that resulted in the theft of personally identifiable information on 780,000 Utahns will likely result in up to $500 million in fraud and other damages to the victims, underscoring the ultimate costs of security lapses, analyst and consulting firm Javelin Strategy & Research said in an analysis of the costs.

The breach, which succeeded because a contractor had set the server up with an easily guessable password, will cost the state up to $10 million, including two years of identity theft protection for the victims. Yet the victims will likely pay much more -- $406 million in fraud losses and $94 million in other costs, including the estimated 2.4 million hours needed to resolve the fraud, according to Javelin.

"The bad guys are getting better at using the information obtained from breaches to commit fraud," says Alphonse R. Pascual, senior analyst in Javelin's Security, Risk & Fraud group. "They are getting better at mining the data, and they are getting better at selling it."

The UDOH breach has led to new state legislation, empaneled a committee of experts to recommend changes to security practices, and could lead to fines. The director of the state of Utah's Department of Technology Services (DTS) lost his job following the breach.

While companies tend to measure breaches in terms of the direct cost to their businesses, they may want to think of the attacks in broader terms: the impact to their customers. Consumers whose information was stolen as part of a data breach in 2012 have a 1-in-4 chance of becoming a victim of fraud, up from a 1-in-10 chance in 2010, Pascual says.

[SQL injection, post-phishing privilege escalation, and poorly secured back-up information all played their part in exposing sensitive government data stores this year. See 10 Top Government Data Breaches Of 2012.]

As companies think about the impact of an attack on their bottom lines, they should consider whether the reputation damage will result in the loss of customers, says Tim Francis, vice president of portfolio management and the cyber lead at Travelers Bond and Financial Products.

"We tend to talk about the cost to the company as the place where the costs live and die, and not about the costs to the actual victims," he says.

While some companies, especially those that have to comply with government or industry regulations, have reduced their data retention to minimize the amount of information that falls within the scope of regulations, most companies will not want to follow that route, Francis argues.

"Companies, by and large, are paying more attention to the data they are taking in, but you also see that companies love data," he says. "They are building analytics around customer data to slice and dice the information so that they can to try to enhance revenue."

Yet Pascual stresses that there are good, and necessary, uses of data, as well as ways that data is poorly used or unnecessarily stored. Social Security numbers (SSNs), for example, are widely compromised and should never be used for a security credential, but many banks still allow them. Javelin found that 80 percent of financial institutions continue to allow customers to identify themselves using their SSNs, an abysmal security practice, the analyst firm states.

"This is static knowledge-based authentication of the worst kind," Pascual wrote in a blog post analyzing the UDOH breach. "SSNs are like the Twinkies of KBA [knowledge-based authentication] in that they have an indefinite shelf life -- they will be valuable for criminals as long as the financial industry continues to use them in this manner."

Finally, companies should educate and train their employees to minimize the risk of data breaches. In an analysis of 2012 data breached, managed security provider Trustwave found that nearly half were caused by remote access systems left vulnerable through misconfiguration. The No. 1 password discovered by the firm? Password1.

Companies need to understand who and what they are securing their systems against to best secure their customers' data, says Chris Pogue, director of SpiderLabs at Trustwave.

"It really is understanding more than just, 'I have stuff, and I need to secure it,'" he says. "It is understanding attack vectors, it is understanding criminal motivations, and it is understanding how crimes are committed."

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