Something Fishy: How to Protect Your Pest Control Business From Fraud

Editor's note: This article appears in the print version of February PCT under the headline "Something Fishy."

Pest control companies play a critical role in maintaining public health and safeguarding properties from the damage caused by various pests. However, in recent years, the industry has had to contend with a growing threat — fraud. Fraudulent activities in the pest control sector can have far-reaching consequences, including financial losses, damage to reputation and compromised customer safety. In this article, we will delve into the significance of pest control companies recognizing and addressing fraud. We’ll discuss the various forms of fraud prevalent in the industry, their impact and how companies can proactively combat fraud to protect their businesses and customers.

TYPES OF FRAUD. The two main types of fraud in the pest control industry are employee fraud and customer fraud.

One of the most significant threats that pest control companies face is internal fraud committed by their own employees. This type of fraud can manifest in various ways, including:

• Embezzlement: Employees may misappropriate company funds for personal gain, resulting in financial losses for the business.
• Time Theft: Workers may falsify their work hours or engage in activities unrelated to their job, costing the company both time and money.
• Inventory Theft: Pest control products and equipment can be valuable targets for dishonest employees who steal and resell them.

Fraudulent activities perpetrated by customers are another concern for pest control companies. These can take the form of:

• Non-Payment or Disputes: Some customers may refuse to pay for services, claim dissatisfaction to avoid payment or engage in chargeback fraud.
• False Claims: Customers might make false claims about damage or pests not properly eradicated, potentially leading to legal disputes and damage to the company’s reputation.

FRAUD IMPACT. Fraud can lead to significant financial losses, affecting the profitability and sustainability of pest control companies. Companies may incur additional expenses to investigate fraud, engage in legal battles or implement preventive measures. In some cases, fraud involving customer disputes can tarnish a company’s reputation, making it challenging to attract new clients.

Legal complications and lawsuits can arise from both customers and employees, causing damage to a company’s standing in the industry and the communities that companies serve. PMPs that fail to recognize and prevent fraudulent activities also may face fines and penalties from regulatory authorities.

Fraud can erode the trust that customers and partners have in a pest control company. This loss of trust can result in a reduced customer base, fewer referrals and difficulty in forming partnerships with other businesses.

HOW TO RECOGNIZE FRAUD. The following practices can help you better identify and respond to fraudulent activities.

Employee Training

• Recognizing Red Flags: Training employees to recognize signs of fraud, such as discrepancies in financial records or suspicious behavior, is crucial.
• Whistleblower Programs: Establishing a confidential whistleblower program can encourage employees to report fraud without fear of retaliation.

Enhanced Record-Keeping

• Financial Monitoring: Pest control companies should maintain meticulous financial records to detect discrepancies and anomalies in real time.
• Customer Communications: Detailed records of customer interactions can help resolve disputes and protect against false claims.

Internal Controls

Implementing robust internal controls can serve as a deterrent to employee fraud by:

• Segregation of Duties: Separating responsibilities within the company can reduce the risk of fraud.
• Access Controls: Restricting access to sensitive information and systems can prevent unauthorized use.

Technology Solutions

• Data Analytics: Using data analysis software can help identify irregularities and patterns indicative of fraud.
• Fraud Detection Software: Investing in specialized software for fraud detection can provide an additional layer of security.

CUSTOMER FRAUD PREVENTION. Contracts and agreements with terms reviewed by corporate counsel should ensure that the documents clearly outline the services to be provided and the terms of payment. Establishing transparent payment policies can deter customers from attempting to avoid payment for services rendered; this can be especially impactful for large-dollar items like direct and subcontracted fumigations and bed bug heat services that require financial obligations and significant capital outlays.

Quality assurance is critical to ensure that pest control services are conducted meticulously and can minimize false claims by customers. Follow-up and feedback surveys through regular communication with customers can address concerns and resolve disputes before they escalate into fraud allegations.

COLLABORATION AND REPORTING. Pest control companies should actively engage with their industry associations and share information about fraud and best practices. Learning from fellow companies’ experiences can help implement those practices for fraud prevention. Collaborative efforts to report and combat fraud within the industry can protect all stakeholders while avoiding any anti-trust allegations.

Cooperating with regulatory and law enforcement when fraud is suspected can lead to successful investigations and convictions, deterring potential fraudsters.

Proactive fraud detection and prevention measures are essential for the long-term survival of pest control companies. By addressing fraud before it escalates, businesses can ensure their financial stability and reputation.

SAFETY AND SUSTAINABILITY. Pest control companies have a duty to protect the health and safety of their customers. Failing to recognize fraudulent activities can compromise this fundamental responsibility.

FINAL THOUGHTS. As our experiences with the COVID-19 pandemic several years ago demonstrated, pest control companies are an indispensable part of society, protecting the public from the harms posed by pests. Recognizing the importance of addressing fraud is critical to safeguarding the financial well-being, reputation and integrity of these companies.

By understanding the various types of fraud, how it impacts businesses and implementing proactive measures for detection and prevention, the pest control industry can continue to thrive while upholding the highest standards of integrity and service. Through collaboration and vigilance, pest control companies can effectively combat fraud and ensure a safer, more trustworthy industry for all stakeholders.

The author is a licensed pest control and insurance professional who has provided risk management consultation for insurance providers and PMPs for more than 30 years. He can be reached at allenf@termitekllc.com.