you have summed up the problem

we are a design company and have a very "open" attitude
to internet useage.

everyone gets an internet useage policy when they join -
but we allow people free access as part of their jobs
involve use of many types of sites - unfortunately, it
appears this person is just misusing the privilege

I make random checks every month and this is the first
time i have found gross misuse - just dont know what to
do! My managers expect me to be checking - but this is
the first time i have had a serious violation, I have only
been checking this person since May 6 so don't have in
depth evidence yet

oh dear!