Overview
When a user does not have permission to view any objects within a virtual folder, the folder will still show, though with no objects. You can hide this folder when they are not able to view any of the contents
Solution
Right click the folder - Customized - under Grouping Level - Add/Edit - Define Grouping Level - Advanced and unselect "do not check object permissions for hiding subfolders":
With the checkbox unselected, the system will check to see if the folder should be hidden if the user does not have permission to view objects. The default is to skip this check to improve performance.
