Tech That Combats Employee Fraud

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In a former position, McKenna managed internal investigations at a bank. He found that on a monthly basis he could expect anywhere from one to four reps out of 3,000 that had access to customer credit-card accounts at a particular call center to commit internal fraud. "We had to look at what they were doing on the computer and compare that to what nonfraud employees were doing," he says. "The keystroke behavior was much different." Some reps might search on particular names over and over again, while others might go into a customer's account five or more times a day.

Software that monitors keystrokes can potentially find those red flags. In research published early last year, about 45% of companies surveyed tracked content, keystrokes, and time spent at computer keyboards in 2007, up from 36% in 2005, according to the 2007 Electronic Monitoring & Surveillance Survey of 304 companies by the American Management Assn. and the ePolicy Institute. In addition, about 66% of employers surveyed say they monitor Web surfing and block connections to inappropriate Web sites, a group that often includes adult sites, game sites, and social networking sites.

IMV Projects, an engineering, procurement, and construction management company in the oil and gas industry, estimates that each of the company's 650 employees recouped about 10 hours of work per year after the company installed software from SpectorSoft to monitor Web usage and time spent chatting on instant messaging. "Our primary goal is to see where everyone is going," says Steven Terenta, network manager for IMV Projects. "The only time we look at one employee is when a supervisor asks us to check something out." The company now blocks access to Facebook except during the lunch hour. IMV Projects estimates the increased productivity amounts to at least $195,000 per year.

Hotlines Can Help

Technology can turn up suspicious activity, but it shouldn't be seen as the only solution, experts say. Much still depends on people noticing any activity that's out of the ordinary. "Most fraud is uncovered by accident," says Heriot Prentice, director of standards and guidance at the Institute of Internal Auditors. And the reporting of that fraud often relies on fellow workers who serve as whistleblowers. That's why experts say that something as low-tech as an anonymous hotline can be beneficial.

Best Buy (BBY) lets employees report fraud by phone and via the Internet. In fact, employees helped uncover fraud that led to a Best Buy vendor-relations manager pleading guilty in January to receiving kickbacks from a computer parts supplier in an alleged fraud scheme that Best Buy says cost it $31 million over four years.

"There's been a spike in the reporting of fraud. More people are coming forward recently," says Kathleen Edmond, chief ethics officer at Best Buy. Still Edmond says she's not sure whether fraud itself is on the rise. She points to the possibility that employees may have seen it go on in the past and not reported it. That's changed as the economy has sunk into distress and layoffs have started, she says, adding that employees are more likely to report fellow employees who are trying to get away with something.

Still, many employees don't welcome employers watching their every move online. That was certainly the case at Thomas Vanderbilt Communications. "In the beginning the employees were very upset; they felt a lack of trust and a lack of respect and that they should have privacy," Vanderbilt says. Most can now laugh about it, he says. "It takes the negativity away about it when you can joke about it," he says, "but it is a constant reminder that you are being watched."

King is a writer for BusinessWeek.com in San Francisco.