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I had a very similar situation at the last place I worked. There was an employee (lets call him Dolt) who had a very similar problem. Dolt took "telecommuting" days where nothing was accomplished. Since there was a policy that sick days were not accounted for unless you took more than three in a row (yep, no count of sick days was kept) he frequently worked three- and four-day weeks. He was assigned to a web design project for the corporate web portal, where he "appeared" to be working for eight months, but at the end of that time Dolt had literally nothing to show. When Dolt was assigned to a project, it was bound to come out worse than it started. My frustration over all this peaked when he was assigned to participate in a project I was leading and he brought to the table a bunch of nonsense ideas that were basically strung together bits of things he had read in magazines (imagine 30 then-current buzzwords strung by a four-year-old and you'll get the idea). Dolt was terminally incompetent; it just hadn't killed him yet. When I talked to management, it turned out that they were aware of everything - they just hadn't gotten enough documentation to fire Dolt yet.
My thoughts on your situation:
There are (at least) two sides to this:
First, the friendship: you'll have to decide if you are indeed this person's friend, and/or if you want to remain so. Think about how you would want this handled if you were in her shoes... perhaps she has some way (rightly or not) of justifying this to herself. Perhaps she has management's approval. Perhaps she doesn't understand the time-tracking system. Until you talk to her, you can't know. Also realize that talking to her directly (in a non-threatening, non-confrontational manner) without involving management is the "right" thing to do, but if she doesn't offer a valid explanation, or if she's merely offended by your "nosiness" (very likely, IMO), you've eliminated the possibility of going to management without her knowing that you were the one who "betrayed" her. Try and weigh the value of your friendship and your sense of injustice. Don't expect that this person will necessarily appreciate your intervention (no matter how you decide to handle it.)
Second, the work situation: think about how much this is really affecting you. If you can, it might be best to ignore it and let the chips fall where they may. This may mean that you continue to (occasionally) be frustrated by the injustice of a coworker getting paid to do nothing. It might mean waiting several months (or even years) until this person is found out and fired. It might even last until one of you moves to a different job. If it's the kind of thing that's really a problem for you, and is causing problems for projects that you share, you may have to (anonymously or not) pass this information along to your supervisor. If your own time accounting is accurate, you have nothing to worry about.
Finally, try and keep perspective. Remember that this is just one small drop in the ocean of life. Having been in a similar situation, I know how you're feeling - and I sympathize. Keep in mind that in three years, this will be an amusing story that you share with coworkers at a new job. In ten, it will be an anecdote you tell your subordinates when you explain why you carefully check your department's time accounting. :-)
Best of luck,
Dan
Have something to say, and say it as clearly as you can.
That is the only secret of style. -- Matthew Arnold
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