Tech That Combats Employee Fraud

Tools that monitor Web use and computer keystrokes can help companies cut down on worker malfeasance but can't catch every would-be crook

By Rachael King

Thomas Vanderbilt Communications employees like to kid each other that they're being watched by Big Brother. But the software used by their employer to monitor their computer use is no joke. The Atlanta marketing and advertising company makes no secret that it's keeping tabs on every Web site they visit, every keystroke they tap, every instant message they send—even the contents of the messages on their personal Hotmail or Gmail accounts. "I don't feel like I'm spying on my employees," says Thomas Vanderbilt, president and chief creative officer of the firm, whose past and current clients include high-profile brands such as Coca-Cola (KO) and Starbucks (SBUX).

Vanderbilt signs confidentiality agreements with his clients and needs to be sure that contractors and young twentysomething employees aren't sharing, say, images from celebrity ad photo shoots or other closely held information. The software, made by SpectorSoft, proved especially valuable when it sniffed out dummy expense reports being created by a new accounts payable clerk.

Instances of fraud rise during recessions as employees become financially desperate or disgruntled—or both, experts say. That fraud can range from abusing expense accounts to skimming and check tampering. For example, nearly two-thirds of 1,280 executives said they expect accounting fraud perpetrated by both employees and executives to increase during the next two years, according to a Deloitte survey released in January.

Hard Times Bring More Fraud

Besides financial fraud, companies find less insidious but still costly forms of abuse such as employees spending long, production-sapping stretches on Facebook or YouTube (GOOG).

To help avoid cases of worker fraud, companies are increasingly using monitoring and tracking software. "Employee fraud definitely increases in economic hard times," says Frank McKenna, co-founder and chief fraud strategist of BasePoint Analytics, a firm that offers fraud consulting and software for banks, mortgage lenders, and credit-card companies. The primary reason is that employees no longer have access to credit or the ability to continue a certain lifestyle and a desperate few will resort to wrongdoing. Also, employees tend to feel less loyal to companies as they watch layoffs happen. In some cases, layoffs can actually remove people who served as watchdogs against abuse by their colleagues.

At one Fortune 500 company in the medical industry, a woman claimed to have cancer and said she was taking sick days for her treatments. Turns out that she was actually going for spa treatments and charging them to her corporate credit card. The expenses appeared to be legitimate travel-related expenses since she was going to a hotel-based spa. The situation was recently flagged by auditing software from Oversight Systems that compared the detailed charge records from American Express (AXP) with attendance data.

Keystrokes Can Raise Red Flags

BasePoint's McKenna says that in order to catch fraud, businesses have to look at behaviors that aren't typical of employees in certain jobs. One way to do that is to monitor keystrokes.