Chapter 3:

Security Part I: Auditing

Operating Systems and
Networks
IT Auditing, Hall, 4e

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 Learning Objectives

o Be able to identify the principal threats to the operating

system and the control techniques used to minimize the
possibility of actual exposures.
o Be familiar with the principal risks associated with commerce
conducted over intranets and the Internet and understand the
control techniques used to reduce these risks.
o Be familiar with the risks associated with personal computing
systems.
o Recognize the unique exposures that arise in connection with
electronic data interchange (EDI) and understand how these
exposures can be reduced.

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 Operating System Control Objectives

o Protect itself against tampering by users.

o Protect users from accessing, destroying, or corrupting another
user’s programs or data.
o Safeguard users’ application modules from destroying or
corrupting other modules.
o Safeguard its own modules from destroying or corrupting other
modules.
o Protect itself from its environment including power failures and
other disasters.

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 Operating Systems Security

o Log-On Procedure:
o First line of defense against unauthorized access consisting of
user IDs and passwords.
o Access Token:
o Contains key information about the user which is used to approve
actions attempted during the session.
o Access Control List:
o Assigned to each IT resource and used to control access to the
resource.
o Discretionary Access Privileges:
o Allows user to grant access to another user.

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 Threats to Operating System
Integrity
o Accidental threats include hardware failures and errors in user
applications.
o Intentional threats are often attempts to illegally access data or
violate privacy for financial gain.
o Growing threat is destructive programs with no apparent gain,
which come from three sources:
o Privileged personnel who abuse their authority.
o Individuals who browse the operating system to identify and exploit
security flaws.
o Individuals who insert viruses or other destructive programs into
the operating system, either intentionally or unintentionally.

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 Operating Systems Controls

o Access Privileges - Audit Objectives:

o Verify that access privileges are consistent with separation of
incompatible functions and organization policies.
o Access Privileges - Audit Procedures:
o Review policies for separating incompatible functions.
o Review a sample of user privileges, especially access to data and
programs.
o Review security clearance checks of privileged employees.
o Determine if users have formally acknowledged their responsibility
to maintain data confidentiality.
o Review users’ permitted log-on times.

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 Password Controls

o A password is a secret code user enters to gain access to

system or data.
o Common contra-security behaviors:
o Forgetting passwords or failing to regularly change them.
o Post-it-syndrome which puts passwords on display.
o Simplistic passwords that are easy for criminals to anticipate.
o Most commonly passwords are reusable.
o Management should require changes and disallow weak ones.
o One-time passwords are automatically generated constantly by
the system when user enters a PIN.

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 Operating Systems Controls

o Password Control - Audit objectives:

o Ensure adequacy and effectiveness of password policies for
controlling access to the operating system.
o Password Control - Audit procedures:
o Verify passwords are required for all users and that new users are
instructed in their use and importance.
o Ensure controls requiring passwords to be changed regularly.
o Review password file for weak passwords.
o Verify encryption of the password file.
o Assess the adequacy of password standards.
o Review account lockout policies and procedures.

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 Controlling Against Malicious
& Destructive Programs
o Organizations can reduce threats:
o Purchase software from reputable vendors in original packages.
o Policy pertaining to unauthorized or illegal software.
o Examine upgrades and public-domain software for viruses before
implementation and use.
o Implement procedures for changing programs.
o Educate users regarding threats.
o Test all applications before implementation.
o Make frequent backups and limit users to read and execute rights only
whenever possible.
o Require protocols to bypass Trojan horses and use antiviral software.

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 Operating System Controls

o Viruses & Destructive Programs - Audit objectives:

o Verify effectiveness of procedures to protect against programs
such as viruses, worms, back doors, logic bombs, and Trojan
horses.
o Viruses & Destructive Programs - Audit procedures:
o Interviews to determine that operations personnel have been
properly educated and are aware of risks.
o Verify new software is tested on standalone workstations before
being implemented.
o Verify that antiviral software is current and that upgrades are
frequency downloaded.

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 System Audit Trail Controls

o System audit trails are logs that record activity at the system,
application and use level.
o Two types of audit logs:
o Keystroke monitoring involves recording user’s keystrokes and
the system’s response.
o Event monitoring summarizes key activities related to system
resources.
o Audit trails can be used to: detect unauthorized access,
reconstruct events and promote personal accountability.
o Benefits must be balanced against costs.

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 Operating System Controls

o System Audit Trails- Audit objectives:

o Ensure established system audit trail is adequate for preventing
and detecting abuses, reconstructing key events and planning
resource allocation.
o System Audit Trails- Audit procedures:
o Verify audit trail has been activated per company policy.
o Use data extraction tools to search for defined conditions such as:
unauthorized users; periods of inactivity; periods of activity
including log-on and log-off times; failed log-on attempts; and
specific access.
o Sample security violation cases and evaluate their disposition to
assess security group effectiveness.

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 Intranet Risks

o Intercepting network messages:

o Sniffing: Interception of user IDs, passwords, confidential e-mails,
and financial data files.
o Accessing corporate databases:
o Connections to central databases increase risk data will be
accessible to employees.
o Privileged employees:
o Overrides may allow unauthorized access critical data.
o Organizations reluctance to prosecute.
o Negligent hiring liability requires employers to check employee
backgrounds. Courts holding employers responsible for employee
criminal acts that could have been prevented with background
check.
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 Internet Risks

o IP spoofing is masquerading to gain access to a Web

server and/or to perpetrate an unlawful act without revealing
one’s identity.
o Denial of service (DOS) attack is an assault on a Web
server to prevent it from servicing users.
o Particularly devastating to business entities that cannot receive
and process business transactions.
o Motivation may be to punish an organization for a grievance or
may be done for financial gain.
o Network topologies are subject to risks from equipment
failure which can cause corruption or loss.

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 Three Common Types of DOS
Attacks

o SYN Flood: When the three-way handshake needed to

establish an Internet connection occurs, the final
acknowledgement is not sent by the DOS attacker, thereby
tying-up the receiving server while it waits.
o Smurf: DOS attacker uses numerous intermediary computers
to flood the target computer with test messages, “pings”
causing network congestion.
o Distributed Denial of Service:– May take the form of Smurf
or SYN attacks, but distinguished by the vast number of
zombie computers hijacked to launch the attacks.

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 SMURF Attack

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Distributed Denial of Service Attack

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 Controlling Risks from Subversive
Threats
o Firewalls prevent unauthorized access to or from a private network.
To accomplish this:
o All traffic between the outside network and organization’s intranet must
pass through the firewall.
o Only authorized traffic is allowed to pass through the firewall which must
be immune to all penetration.
o Network-level firewalls provide efficient, low security control.
o Screening router examines source and destination addresses attached
to incoming message packets but does not explicitly authenticate
outside users.
o Application-level firewalls provide higher, customizable network
security, but add overhead cost.
o Trade-off between convenience and security.
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 Dual-Homed Firewall

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 Controlling DOS Attacks

o Smurf attacks: Organizations can program firewalls to ignore

identified attacking site.
o SYN flood attacks have two tactics:
o Get Internet hosts to use firewalls that block invalid IP addresses.
o Use security software to scan for half-open connections.
o To counteract DDos attacks organizations use intrusion
prevention systems (IPS) that employ deep packet inspection
(DPI).
o Works as a filter that removes malicious packets from the flow before
they can affect servers and networks.
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 Encryption

o Conversion of data into a secret code for storage and

transmission.
o Sender uses an encryption algorithm to convert the original cleartext
message into a coded ciphertext which is decoded at receiving end.
o Earliest is the Caesar cipher method.
o Two fundamental components:
o Key is a mathematical value sender selects.
o Algorithm is procedure of shifting letters in cleartext message
number of positions key value indicates.
o Private key and public key encryption are two commonly used
methods.
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 EE3 and ED3 Encryption

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 Public Key Encryption

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 Digital Signatures &
Certificate

o Digital signature is electronic authentication that cannot be

forged.
o Sender uses a one-way hashing algorithm to calculate a digest of
the text message which is encrypted to produce the digital signature.
o Verifying the sender’s identity requires a digital certificate
which is issued by a trusted third party called a certification
authority (CA).
o Public key encryption is central to digital authentication making
public key management an important internal control issue.
o Public key infrastructure (PKI) constitutes policies and procedures
for administering this activity.

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 Digital Signature

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 Other Subversive Threat
Controls

o Message sequence numbering inserts a sequence number

in each message to prevent attempts to delete, change or
duplicate a message.
o Message transaction log records all attempted accesses
with user ID, time of access and location.
o Request-response technique sends control messages and
responses randomly making it difficult for an intruder to
circumvent.
o Call-back device requires a dial-in user to enter and
password and be identified.

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 Operating Systems Controls

o Subversive Threats- Audit objectives:

o Verify security and integrity of financial transactions.
o Determine network controls (1) can prevent and detect illegal
access; (2) will render captured data useless; and (3) are sufficient
to preserve integrity and security of data.
o Subversive Threats - Audit procedures:
o Review adequacy of firewall: flexibility, proxy services, filtering,
segregation of systems; audit tools; weaknesses.
o Verify IPS with DPI for organizations vulnerable to DDoS.
o Review security procedures and message transaction logs.
o Verify encryption process and test operation of the call-back feature.

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 Controlling Risks from
Equipment Failure

o Line errors are losses from communications noise.

o Techniques to detect and correct data errors:
o Echo check - receiver returns the message to the sender.
o Parity check - extra bit is added onto each byte of data similar to
check digits.
o Audit objective is to verify integrity of transactions by determining
controls are in place to detect and correct message loss.
o Audit procedures include examining a sample of messages for
garbled content and verifying all corrupted messages were
retransmitted.

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 Vertical Parity Bit

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 Auditing Electronic Data
Interchange (EDI)

o EDI is the intercompany exchange of computer-processible

business information in standard format.
o Key to success is use of standard format for messaging
between dissimilar systems.
o Benefit of EDI:
o Reduces or eliminates need for data entry.
o Reduction of errors and paper forms.
o Mailed documents replaced with cheaper transmissions.
o Automated manual procedures and inventory reduction.

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 Overview of EDI

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Value-added Network and EDI

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 Auditing Electronic Data
Interchange (EDI)
o Electronic funds transfer (EFT) processing more complicated than
EDI for purchasing and selling.
o Converting remittance information to electronic form can result in very
large records.
o Both customer and supplier must establish EDI transactions are
valid and authorized.
o Some VANs have the capability of validating passwords and user ID
codes for the vendor.
o Before conversion, translation software can validate trading partner’s
IDs and passwords.
o Before processing, trading partner’s application software reference
valid files to validate transaction.

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 EFT Transactions Between
Trading Partners

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 Auditing Electronic Data Interchange
(EDI)

o Absence of source documents in EDI eliminates traditional

audit trail and restricts audit tests.
o Audit objectives relating to EDI are to determine:
o Transactions are authorized, validated, and in compliance with
the trading partner agreement.
o No unauthorized organizations can gain access to database.
o Authorized trading partners have access only to approved data.
o Adequate controls are in place to ensure a complete audit trail.

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EFT System Using Transaction
Control Log for Audi Trail

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 Auditing Procedures for EDI

o Tests of Authorization and Validation Controls:

o Review agreements with VAN to validate transactions.
o Review trading partner files for accuracy and completeness.
o Tests of Access Controls:
o Verify limited access to vendor and customer files.
o Verify limited access of vendors to database.
o Test EDI controls by attempting to violate access privileges.
o Tests of Audit Trail Controls:
o Verify existence of transaction logs.
o Review a sample of transactions to verify key data values were
recorded correctly.

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PC Accounting System Modules

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 PC Systems Risks and Controls

o Operating System Weaknesses:

o PCs provide only minimal security for data files and programs.
o Once computer criminal gains access to user’s PC, little to prevent
stealing or manipulation of the data.
o Weak access control.
o Inadequate segregation of duties.
o Multilevel password control used to restrict employees sharing
computers.
o Risk of theft and virus infection.
o Weak backup procedures.

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 Audit Objectives Associated with PC
Security

o Auditor should verify:

o Controls in place to protect data, programs, and computers from
unauthorized access, manipulation, destruction, and theft.
o Adequate supervision and operating procedures exist to
compensate for lack of segregation between the duties of users,
programmers, and operators.
o Backup procedures are in place to prevent data and program
loss due to system failures, errors and so on.
o Systems selection and acquisition procedures produce
applications that are high quality, and protected from
unauthorized changes.
o System virus free and adequately protected to minimize the risk
of becoming infected with a virus or similar object.
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Audit Procedures Associated with PC Security

o Observe PCs are physically anchored.

o Verify segregation of duties and/or adequate supervision.
o Confirm reports are prepared, distributed, and reconciled by
appropriate management at regular and timely intervals.
o Determine multilevel password control as needed.
o Verify drives are removed and stored appropriately.
o Verify backup procedures are appropriate.
o Verify software purchases and selection and acquisition
procedures.
o Review policy for using antiviral software.

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 Internet & Intranet
Technologies and
Malicious & Destructive
Programs
APPENDIX

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 Internet Technologies

o Packet switching:
o Messages divided into small packets where each packet of the
message may take a different routes.
o Virtual private network (VPN) is a private network within a public
network.
o Extranet is a password controlled network for private users.
o World Wide Web (WWW) is an Internet facility that links users
locally and globally.
o Web pages are maintained at Web sites which are computer
servers that support HTTP.

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 Message Packet Switching

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 Internet Addresses

o E-mail addresses:
o Format is USERNAME@DOMAIN NAME
o URL address:
o Defines the path to a facility or file on the Web.
o Subdirectories can be several levels deep.
o IP address:
o Every computer node and host attached to the Internet must have
a unique Internet protocol (IP) address.

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 Protocols

o Rules and standards governing design of hardware and

software that permit network users to communicate and share
data.
o Functions include:
o Facilitate physical connection between the network devices.
o Synchronize transfer of data between physical devices.
o Provide basis for error checking and measuring network
performance.
o Promote compatibility among network devices.
o Promote network designs that are flexible, expandable, and cost-
effective.

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 Internet Protocols

o Transfer Control Protocol/Internet Protocol (TCP/IP) permits

communication between Internet sites.
o File Transfer Protocol (FTP) used to transfer files across the
Internet.
o Simple Network Mail Protocol (SNMP) transmits e-mail messages.
o Secure Sockets Layer (SSL) and Secure Electronic Transmission
(SET) are encryption schemes.
o Network News Transfer Protocol used to connect to Usenet groups
on the Internet.
o HTTP and HTTP-NG control Web browsers.
o HTML is the document format used to produce Web pages.
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 Intranet Technologies

o A network topology is the physical arrangement of network

components.
o Networks are classified as LANs or WANs:
o Local area networks (LANs) can cover several miles and connect
hundreds of users.
o Networks that exceed geographic limitations of LANs are wide area
networks (WANs).
o The physical connection of workstations to the LAN is achieved
through a network interface card (NIC).
o A server is used to store the network operating system, application
programs, and data to be shared.

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 LAN with File and Print
Servers

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 Bridges and Gateways Linking
LANs & WANs

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 Star Topology

o A network of IPUs with a large central computer (the host).

o Host computer has direct connections to smaller computers,
typically desktop or laptop PCs.
o Popular for mainframe computing.
o All communications must go through the host computer, except
for local computing.

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 Star Network

Topeka St. Louis

Local Data
Local Data

Kansas
City Central Data
POS

POS Dallas
Tulsa
Local Data

Local Data
POS
POS
POS

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 Hierarchical Topology

o A host computer is connected to several levels of subordinate

smaller computers in a master-slave relationship.

Corporate Production
Level Planning System

Production
Regional Scheduling
Regional
Level System Sales System

Sales Sales Sales

Warehouse Warehouse Production Production Local Processing Processing
Processing
System System System System Level System System
System

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Ring Topology

o Configuration eliminates the central site.

o All nodes in this configuration are of equal status (peers).
o Responsibility for managing communications is distributed among
the nodes.
o Common resources that are shared by all nodes can be
centralized and managed by a file server that is also a node.

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Ring Topology

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Bus Topology

o Most popular LAN topology.

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Client-Server Topology

o Configuration distributes the processing between the user’s

(client’s) computer and the central file server.
o Both types of computers are part of the network, but each is
assigned functions that it best performs.
o This approach reduces data communications traffic, thus
reducing queues and increasing response time.

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Client-Server Topology

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Network Control

o Purpose of network control is to:

o Establish communications sessions.
o Manage the flow of data across the network.
o Detect and resolve data collisions between nodes.
o Detect line failure of signal degeneration errors
o Two or more signals transmitted simultaneously will result in data
collision which destroys messages.
o Polling most popular technique for establishing a communication
session in WANs.
o Token passing involves transmitting special signal around the network.
Only the node processing the token is allowed to transmit data.

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Pooling Method of Controlling
Data Collisions

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Token-Passing Approach to
Controlling Data Collisions

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Carrier Sensing

o A random access technique that detects collisions when they

occur.
o Technique is used with bus topology.
o Node wishing to transmit listens to determine if line is in use. If it
is, it waits a pre-specified time to transmit.
o Collisions occur when nodes hear no transmissions, and then
simultaneously transmit.
o Data collides and nodes instructed to hang up and try again.
o Ethernet is the best-know LAN using this standard.

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 Malicious & Destructive Programs

o Virus is a program that attaches itself to a legitimate program

to penetrate the operating system and destroy programs, files
and the operating system itself.
o Worm is used interchangeably with virus.
o Logic bomb is a destructive program triggered by some
predetermined event or date.
o Back door (or trap door) is a software program that allows
unauthorized access to a system.
o Trojan horse program purpose is to capture IDs and
passwords.

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.