Security is really a really vague topic so luckily for you there's a lot of scope for choice. Also, do you just need to do a report on it or do you actually need to do some development/implemenation?
If you want to write a software as a project to a security related subject, I'll recomend you to write a custom GINA (Graphical Interface for Authentication). It is the program that runs at the start of Windows XP and it takes the username and password as input and authenticates the user. You can write a custom GINA that will also take a third security code along with the user name and password to let the user log in. This is called two factor authentication. You can use any algorithm to generate a time based security code.