My college roommate owns a chain of car washes in Oklahoma. He wants me to audit his utility bills. No conflict of interest in the traditional sense — I won't find anything that isn't there. But if I DON'T find errors, will he think I didn't try hard enough? And if I DO find errors, will the contingency fee feel weird between friends? Anyone audited a close friend or family member?
Conflict of interest — auditing a friend's business
I audited my brother's manufacturing shop. It was fine. The key is treating it exactly like any other client — full engagement letter, formal report, standard contingency fee. Don't give a "friends and family discount" because that devalues your work. If he's a real friend he'll want to pay you fairly for professional services. I found $1,800/month in errors on my brother's account and he was happy to pay my 40% fee because he was still $1,080/month better off than before.
Derek's approach is right. Use the standard engagement letter and standard fee. The biggest risk with friends and family isn't the conflict — it's the informality. When there's no formal agreement, expectations get fuzzy and feelings get hurt. A professional engagement protects the friendship. As for finding nothing — that happens with any client. If the bills are clean, say so honestly. A friend who respects your expertise will appreciate the diligence even if there's no refund.
Good advice. Going to send him the standard engagement letter tonight. If he balks at the formality I'll explain it protects both of us. Thanks.