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The average spending by companies on information security defences has tripled over the last six years, resulting in the overall cost to UK business of reported security breaches dropping by a third.

According to the latest edition of the UK government-sponsored Information Security Breaches Survey, the number of companies reporting a security breach has returned to roughly the level last seen in 2002, after reaching a peak in 2004.

Most firms that experience breaches encounter multiple problems. The average cost of the worst incident of the year tends to be dependent on the size of the business, varying from roughly £15,000 for small businesses to £1.5m for very large firms.

Expenditure on information security has increased from two per cent to seven per cent of the IT budget on average over the last six years. But this increase in spending is uneven with a significant minority (21 per cent) of companies spending less than one per cent of their IT budget on information security.

Nonetheless, the security landscape has improved markedly over that period with 94 per cent of wireless networks now encrypted, versus only 47 per cent in 2002. More than half (55 per cent) of UK companies have a documented security policy, versus 27 per cent in 2002. Two in five businesses provide ongoing security awareness training to staff – twice as many as six years ago.

Despite the improvements in security controls, the survey shows that many companies remain exposed to loss of confidential data. For example, four-fifths of companies that had computers stolen have not encrypted their hard drives, and two-thirds of companies do nothing to prevent confidential data leaving on USB sticks, for example.

Despite the increased use of encryption, 13 per cent of firms surveyed said they have detected unauthorised outsiders within their network. A significant minority (six per cent) reported that they had suffered a confidentiality breach. Worse still, one in ten websites that accept payment details do not encrypt them, according to the survey.

The 2008 Information Security Breaches Survey (ISBS) was carried out by a consortium, led by PricewaterhouseCoopers, on behalf of the Department for Business, Enterprise & Regulatory Reform (BERR). The survey, which is carried out every two years, was launched on Tuesday at the Infosecurity Europe conference in London.

Chris Potter, the partner at PricewaterhouseCoopers who led the survey, said businesses are beginning to talk a good security game but are failing to follow it up with actions in many cases. "There are still some fundamental contradictions. Some 79 per cent of businesses believe they have a clear understanding of the security risks they face, but only 48 per cent formally assess those risks.

"Also, 88 per cent are confident that they have caught all significant security breaches, but only 56 per cent have procedures to log and respond to incidents. The survey also shows 71 per cent have procedures to comply with the Data Protection Act, but only eight per cent encrypt laptop hard drives," he added. ®

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