Employee Monitoring

A Publication from Alan D. Lasko & Associates, P.C.                                                 Fall 2017

For many businesses, monitoring of employees in the workplace is an effective tool for preventing and detecting fraud. This is an overview of employee monitoring tools, particularly those related to fraud prevention, as well as key legal considerations that employers must bear in mind.

Unfortunately, one of the biggest threats to many businesses are the companies' own employees. A single "trusted insider" can wreak havoc on a firm's reputation, operations and market value by sabotaging an IT system or committing theft of monies or intellectual property.

Similarly, employee fraud poses a significant threat to a company's bottom line. According to the Association of Certified Fraud Examiners 2016 Report to the Nations on Occupational Fraud and Abuse, the typical organization loses 5% of revenue in a given year as a result of fraud. Repeated instances of fraud can also lead to low morale and more bad behavior from other employees, who may conclude that "everyone else is doing it."

For these and many other reasons, almost 80% of U.S. businesses employ some type of employee monitoring. This monitoring takes many different forms and involve a variety of technologies and tools. 

Video surveillance can be used to deter and detect theft by employees. Email monitoring can reveal internal fraud schemes and flag excessive use of computers for personal purposes. Computer surveillance may track all activity, or target specific activities of employees on company-owned computers or terminals, as well as related devices (web cameras, microphones, etc.).  

Tools and techniques of computer surveillance may include:

·        Screen monitoring, which records video or static images on the computer's video display, including real-time video, accelerated or time-lapse video or screen shots, or captures at regular intervals (for example, once every three minutes).

·        Data monitoring, which records the content of files stored on the local hard drive or the user's private network share.

·        Keystroke monitoring, which levels of keyboard-intensive work, such as data entry; or keyboard logging, which captures all inputs via the keyboard, thus enabling the employer to review anything typed into the monitored device.

·        Other computer surveillance tools include idle time monitoring (measuring time away from the device, or when it's not actively used) and printer monitoring of documents printed from the computer.

·        Internet surveillance monitors an employee's online activity, such as web browsing, personal web-based email, and personal banking sites.

Keep in mind that "employee monitoring" can extend even past the period of an employee's term of employment. Employers need to take steps to ensure that access is disabled immediately when terminating any employee or contractor with authorized access to the organization's network, system or data. Former employees – especially those who took proactive steps before termination – may remotely access an employer's network to commit fraud, sabotage a system or steal intellectual property.

Monitoring to Prevent or Detect Fraud

Specific employee monitoring techniques may be required to help prevent the most common types of employee fraud. These typically employ data tracking and mining techniques to flag unusual or suspect transactions and activities. 

For example, purchasing fraud can include employees who generate purchase orders for goods diverted for personal use, or who set up phantom vendor accounts. Tests for this type of fraud detect red flags and bring them to management attention, such as: the same person enters and approves a purchase order; or an employee enters or approves multiple "split" purchase orders, just under the authorized limit. 

A common fraud risk involves an employee using a corporate credit card for personal use. Fraud tests can detect card use at vendors with suspect merchant codes (such as home supplies or personal entertainment) or during weekends and vacations.

Payroll fraud may involve creating phantom employees, charging excessive overtime, or retaining employees on the payroll after death or termination. Fraud tests can flag instances in which more than one employee has the same address or bank account, or highlight invalid address information, social security numbers, or unusually high amounts of overtime. 

Sales and receivables fraud may include employee collusion with vendors, or sales representatives who inflate sales to achieve higher commissions or bonuses. Fraud tests can detect customer accounts with exceptional credit terms, unusually large discounts granted to customers, or customers returning goods without a corresponding adjustment of the salesperson's commission.

Legal Considerations

Legal restrictions vary by jurisdiction for each type of employee monitoring. What may be legal in one country may violate laws in another. In the U.S., laws relating to workplace privacy are relatively weak, but in Europe, privacy laws are more stringent. In France, for example, employers generally cannot access emails designated as "private" or "personal" by the employee. India and most Australian states have no laws restricting workplace monitoring, whereas China, Japan and Singapore require notice of employee monitoring but generally don't require consent.

In the U.S., almost any kind of monitoring is legal when the employer owns the computers, terminals, network and Internet access, and as long as employees who are being monitored receive prior notice. Usually prior notice takes the form of a written policy which employees are required to read and sign. 

Labor union contracts and some employment agreements may offer protection from monitoring. Some public sector employees in the U.S. may be protected, in some instances, under the Fourth Amendment of the Constitution. Employees of the State of California may have additional protections. In some cases, software license agreements may impose additional restrictions or requirements related to employee monitoring.

However, employers must balance the need for monitoring against employees' views of monitoring. Most Americans have some misgivings about monitoring in the workplace. When monitoring is perceived as a lack of trust or an invasion of privacy, that can harm morale and affect employee retention. 

Alan D. Lasko

Monika Witek, MBA, CDBV

Alan D. Lasko & Associates, P.C.

Certified Public Accountants

205 West Randolph Street, Suite 1150

Chicago, Illinois 60606

Email:  [email protected]

Website:  www.adlassoc.com