“Cloud Computing: Is the perfect storm ahead of us?” KPMG

Jul 26, 2011 | Corporate Member News

Cloud computing has been available in various forms for years and while there is increased interest from businesses to better understand how they can leverage the cloud in their operations, the adoption rate has been hampered by various impediments. These impediments, as reported in a study by KPMG in the Netherlands,1 primarily focus on data and IT security and continue to remain at the top of the list of concerns regarding cloud adoption.  In addition to the data and IT risks, the cloud introduces new and unique litigation, regulatory and other risks that should be understood and addressed. It is becoming increasingly important for companies to understand the impact of this new computing strategy on computer forensic and eDiscovery issues.   

Big changes ahead … For everbody in business 

A survey of more than 2,000 Chief Information Officers (CIOs) in 50 countries found that only 3 percent of CIOs have fully adopted a cloud computing strategy for the majority of their IT needs.However, it is expected this number will increase to more than 40 percent within the next 4 years.2 Of the CIOs interviewed, many see cloud computing as a priority in their strategic planning going forward.  In KPMG in the Netherlands’ 2010 Cloud Computing Survey, the majority of CIOs agreed that the cloud would be important to their longer term IT strategy, but saw the issues around data and IT security as key impediments to the adoption of the cloud by most organizations.  

What is cloud computing? 

The cloud may be used for applications such as customer relationship management, accounting, finance, human resources and payroll. As a result, more documentation, more transactions and more information will be stored and processed in the cloud. The US Department of Commerce refers to the cloud as

“a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources that can be rapidly provisioned and released with minimal management effort or service provider interaction.” 3

KPMG defines the cloud as

“network connected data access and exchange; combined with network connected access to low cost computing and applications.”4

We further define the cloud’s characteristics to include the following:  

  • On-demand services: Availability when needed
  •  Network/Internet accessibility: Internal and external access  
  • Pooled IT resources: Shared infrastructure by departments of various organizations  
  • Elastic/scalable: Adjust services to unpredictable demand and add more power and capacity without adding more complexity  
  • Service-based: Users buy capabilities, not resources; billing based on usage 

Cloud computing often uses resources that are “virtualized” and, while they are not localized, they are made available via the internet to users as if they were. For example, a service provider can offer a virtual server environment simultaneously to multiple users by leveraging the same server infrastructure for each user. Virtualization, when done correctly, is transparent to end users who will have the impression that they are operating from their own server, just as if they were using a physical computer fully dedicated to them. The use of virtualized servers leverages the fact that, traditionally, most IT infrastructure did not run at full capacity. In a virtualized environment. the service provider increases the overall usage of their IT infrastructure by renting the unused capacity to other users through an on-demand costing model.

On the user end, the ability to pay only for the resources that are used is possibly the strongest argument for adopting the cloud. It allows corporations to outsource technology infrastructure and related costs and pay only based on the actual use they make of it, thus capitalizing on the potential of a lower cost structure or the ability to migrate costs from capital to operational budgets.

Private, public, community and hybrid cloud delivery models: The question of extraterritoriality   

In the cloud, information is shared with other connected networks using the most efficient route possible with limited consideration for what the actual route might be. This is meant to minimize the required bandwidth usage and costs associated with transferring data, which, however, also increases additional forensic risks around data retention and capture.

Similarly, the utilization of shared IT infrastructure in the cloud (e.g. servers) will be maximized for data exchange and/or processing with limited consideration of legalities or regulations connected with the jurisdiction where the data is ultimately stored.   

As a result, organizations should understand the characteristics of the four primary cloud delivery models and the limitations of each in assessing their suitability within their business strategy. Each delivery model is described as follows:5

Cloud Development Models 
Private Operated for a single organization. 
Public Available to the general public or large industry group; owned by an organization selling cloud services. 
Community  Shared by several organizations supporting a specific community. 
Hybrid  Two or more cols that remain unique but are bound by technology that enables data and application portability. 

Each delivery model differs in the amount of control organizations have over who can use the cloud services, the level and degree of data and IT security controls available to organizations, and the overall cost. 

For example, in the public cloud delivery model there is a possibility that a transaction initiated on a web-based accounting system of a Canadian company may be processed in a foreign jurisdiction. That same transaction may be validated in a second foreign jurisdiction and the data may finally be stored in a third foreign jurisdiction. As a forensic practitioner, this could result in a significant challenge if you were required to capture or investigate specific transactions, as the “digital footprint” (i.e. the trail of the transaction) would be complex and could be transacted in jurisdictions with limited desire to aid in such investigations.  To limit this digital footprint, organizations could attempt to specify to their cloud provider that the data must remain in a certain geographical area, such as a city, country or even continent. This becomes particularly relevant if the information is of a sensitive nature (e.g. personally identifiable information, commercial trade secrets, etc.) or if the stewardship of the information is controlled by law or regulation.6

Organizations examining the use of a cloud strategy should ensure they understand the relevant regulatory requirements.

For instance, according to the European Union Data Protection Directive,

“unless they take certain steps, organizations are prohibited from transferring personal information to countries that do not provide the same level of protection with respect to personal information of EU residents.”7

In the context of cloud computing, information processing and storage is potentially distributed among multiple jurisdictions using automated mechanisms; therefore, there is the risk of infringing upon EU regulations if restrictions are not clearly stated with the cloud provider in the service level agreement. 

Service level agreements (SLA) & investigation readiness 

Organizations can mitigate some of these risks if they undertake appropriate due diligence of the services required and the respective providers. In developing a cloud risk mitigation strategy, an organization should consider the conventional contractual elements they historically built into other computing technology procurements, as well as other considerations that are typical for cloud environments. These elements should include:  
  • The nature and sensitivity of the data and IT systems to be migrated to the cloud
  • The physical, jurisdictional and regulatory environments relevant to where the data is stored during collection, processing and storage  
  • The applicable laws and regulatory requirements of the organization as they relate to business data and records  
  • The minimum up-time of the infrastructure  
  • The IT security controls and data safeguards required to protect the data, and a right to audit clause  
  • Access to the data within the cloud and the capacity and stability of bandwidth provided in the contract  
  • The definition of an exit clause and strategy so that the data will be available and in a usable format if a decision is made to repatriate the data from the cloud.

Areas often not included in public cloud delivery model contracts include the “right to audit” clause or the requirement to preserve data or assist with investigations. It is therefore crucial for corporations migrating into the cloud to consider investigation readiness and audit trails in their negotiations with cloud services providers right from the start and have the SLA tailored as needed. The marginal cost of investigation readiness could represent substantial economies in the eventuality of a litigation/audit/investigation.

As a result, many companies may prefer a private cloud delivery model since these arrangements offer more control over data transfer, physical access to servers and logical access controls. Private clouds also allow for additional ease in complying with disclosure rules and investigative undertakings. 

In a recent preservation hold order, we were asked to collect software code and database contents of a public cloud environment. In this case, we were presented with limited options on how to gather the information in a forensically sound manner. Additionally the only method to capture this information was through a pre-defined web portal which was not designed for computer forensics. This altered our normal collection processes and resulted in additional time which would not have been required in a traditional hosting model. We expect that these challenges will continue to grow with further adoption of the cloud.

Moving data, moving target 

Computer forensics and eDiscovery involves strict and specific procedures in the collection and retention of electronic evidence to ensure the data will be admissible in future litigation or arbitration proceedings.  Simplistically, the evidence should be collected in a manner that maintains the integrity of the data, which often also requires the use of specialized forensic or data processing tools. 

These tools and procedures ensure that the metadata (i.e. the underlying system attributes of the data) is maintained. The approach to data collection has historically been based on the fact that the data physically resides on local computerized media: servers and hard drives, flash drives, CD-ROMs, DVDs, back-up tapes, etc.  In the cloud, these forensic tools may not be, as effective as the physical media is not typically accessible, which may further impact forensic investigations and eDiscovery.

Without appropriate steps to maintain metadata, for instance, it is impossible to effectively create a timeline of events that may be relevant to aspects of the litigation or a computer forensic investigation. Likewise, altered metadata impacts the ability within eDiscovery processes to determine if particular data elements are probative in nature simply based on the relevant dates of the case facts.    

The cloud infrastructure is comprised of many pooled resources, which may not be owned or controlled by the same service provider. Also, the cloud is elastic and resources are re-distributed fluidly to accommodate the additional needs of users or allow access to others when a party no longer needs the service. 

This fluidity in resource allocation means that an organization’s data could be spread across and shifted between a number of physical devices. From a computer forensic perspective, this means that the data may not be available for collection or what is available is of limited probative value.Imagine, in your capacity as business owner or the legal counsel, the implementation of a preservation hold order where the data resides in the cloud. There should be a process to preserve and assess the relevant paper and electronic records. If some of the information resides in the cloud, what will be your strategy to comply with these obligations?    

In response to such situations, some cloud service providers have begun to offer “forensic in the cloud” solutions, where clients can use the power offered by the cloud to “forensically” preserve their data with the simple click of a mouse. We do not believe this “service” has been proven as being appropriate by any court as of yet.  

Pushing collection to the hands of the end users may potentially reduce the overall costs of collection.  However, without standardized processes and specialized training there is a risk that data collected will not be acceptable to the courts. Further, with the pooled assets of a cloud, the process to follow transactional data and identify where it resides can be problematic. However, notwithstanding jurisdictional subtleties, which may impact the evidentiary preservation rules, it may be possible to use computerized logs in cloud data investigations. Such logs can be helpful in better understanding the flow of transactions, various related parties involved and potentially to uncover hidden assets in foreign jurisdictions that were not recorded in paper records. 

Should we move away from the cloud?

Organizations around the world are beginning to understand the benefits of doing business in the cloud, including “pay-for-use” service, outsourcing IT functions to a third party and immense processing and storage capacities. The power and potential uses of the cloud will necessitate that organizations continue to examine ways to leverage it in their businesses and IT strategies.

In spite of the challenges the cloud presents from a forensic and eDiscovery perspective, the cloud offers tremendous potential benefits to users as long as proper risk mitigation steps are developed and implemented. For organizations migrating to the cloud, it will mean involving relevant stakeholders from all areas of the business, including finance, operations, marketing, IT and legal. Additionally, organizations contemplating a cloud migration strategy should consult with external professional service providers familiar with mitigating the risks with cloud environments and should assess what their litigation readiness approach will be once in the cloud.  This should include consulting with IT security and computer forensic professionals, IT outsourcing assessment professionals and external legal counsel specializing in contract law and eLitigation. 


1 From Hype to Future: KPMG’s 2010 Cloud Computing Survey, KPMG in the Netherlands, 2010. 
3 National Institute of Standards and Technology, U.S. Department of Commerce. Special Publication 800-145. January 2011. 
4 The Cloud – Changing the Business Ecosystem, KPMG in India, 2011. 
5 The Cloud – Changing the Business Ecosystem, KPMG in India, 2011. 
6 Such as the Personal Information Protection and Electronic Documents Act (2000, c. 5) in Canada. 
7 http://ec.europa.eu/justice/policies/privacy/  

Simon Castonguay, CA•IFA, CISA, is a Manager with KPMG Forensic. He specializes in data analytics, investigations and fraud management in IT environments. He recently obtained a Diploma in Investigative and Forensic Accounting from the University of Toronto, where he focused his research on the impact of cloud computing on forensic accounting and computer forensic practices.

Contact [email protected] or (514) 840-2570  

The author of this article acknowledges the assistance in the preparation of this article of Robert Castonguay, CISSP, Associate Partner and National Leader of KPMG’s eDiscovery Services Group, and Louie Velocci, CA, CISA, CISSP, GCFA, CGEIT, Director with KPMG’s National IT Advisory practice.


KPMG LLP, the audit, tax and advisory firm (kpmg.ca), a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

KPMG’s Canadian Web site is located at http://www.kpmg.ca/ 

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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