This is not a bug, you get the grave digger karma for digging any grave. It's like child killer, just a fancy title.
Reputation drop is when an NPC will see you - reputation for the faction of the NPC who saw you.
They can see you even through walls though, it's basically a check for all nearby NPCs.
You are less likely to be seen at night, there isn't really any more strategy to it at the moment
