Katrina’s Harsh Lessons

Sometimes there’s more to a day’s work than you can possibly imagine.

by Randy Myers

ike thousands of her former neighbors, CPA Geralyn Suhor, president of the New Orleans chapter of the Society of Louisiana CPAs, is a Hurricane Katrina refugee. The sole practitioner from the New Orleans suburb of Chalmette was lucky to be out of the state with her family when Katrina slammed into the Gulf Coast on August 29, 2005, submerging her home and office under nine feet of water. Among her losses were electronic backups of her business files.

Although she was able to retrieve some soggy papers from an auxiliary office in nearby St. Bernard, La., what she recovered was incomplete—and even that took weeks of photocopying to make usable. A colleague offered her workspace in Metairie, La., a western suburb of New Orleans, where Suhor remained when tax season rolled around.

KINDNESS OF STRANGERS
For many people, Hurricane Katrina means lingering images of disaster: unimaginable winds, flooding, death and destruction, stunned survivors huddled in overcrowded and undersupplied shelters. The numbers are horrific: more than 1,000 people dead, nearly 284,000 homes destroyed, 71,000 businesses shut down—some temporarily, some gone forever. On returning home a month after the storm, Suhor says, “Besides every bush or tree being dead, what struck me was that there was no sound—of birds or squirrels or any natural wildlife.”

Fortunately, Suhor also has other, more hopeful memories: the fellow CPA who opened her closet and invited her to take any clothing she needed; the stranger who handed her sister a frozen turkey while the two of them inched along in a carpool line; the countless CPAs across the country who offered the use of their offices so Katrina refugees could begin rebuilding their practices. Still touched by those who stepped forward, Suhor says, “The storm opened the hearts of so many.”

BASIC NEEDS CAME FIRST
That greatness of heart helps to explain, in part, how so many CPAs from communities hammered by Katrina have found the spirit to begin rebuilding. “Some folks are crawling into a hole and pulling the hole in after them,” says CPA Jim Boyle, whose Mandeville, La., office escaped major damage but had no electrical power and other basic services for two weeks, “but others see this as the greatest opportunity they’ll ever have.”

Those CPAs who are rebuilding have new awareness of what a major catastrophe can do to their personal and professional lives and ideas for working through disasters in the future. They understand, in a visceral way the rest of us can only hope we’ll never experience, that the top priorities following a disaster have little to do with business.

“In the first month, the last thing anybody was thinking about was their tax return,” says CPA Jerry Levens, partner in charge of audit and attestation at Alexander, Van Loon, Sloan, Levens & Favre PLLC in hard-hit Gulfport, Miss. “It was, ‘How am I going to get water and food? Where am I going to take a bath?’ Those first weeks you’re just grateful to be alive.”

“Our first contact with clients wasn’t ‘What do you need for your business?’” says CPA Angela Pannell, who fled to Starkville, Miss., after flooding wiped out her home and the CPA practice that had employed her for 21 years. “It was, ‘Are you okay? Where are you now?’” Pannell is among those who chose not to resume life in the devastated area.

TRUE GRIT
Yet even as they tended to families, friends and colleagues dispersed by Katrina, many CPAs went to extraordinary lengths to get their practices up and running and to help clients start on the road to recovery. In Gulfport, Levens and his partners took turns sitting on a chair in the front doorway of their unusable office building in case any clients did show up. The dress code was “hurricane casual,” Levens recalls, “a T-shirt, shorts and a baseball cap.” Soon, employees joined them on the front porch in sweltering heat—punching numbers into handheld calculators hooked up to a generator, processing payrolls for businesses still able to meet them. For a restaurant client, Levens even had his son, who works in construction, retrieve a large safe from amid a pile of debris, deliver it to his front yard and unload it with a track hoe. There, a locksmith got the safe open, giving the client access to two days’ worth of cash receipts.

In Pascagoula, Miss., CPA Ed Jones, who runs his own practice, talked his way into a hospital’s cardiac care unit to visit a client who had just had open-heart surgery. It was the only way he could get the client’s permission to divulge personal information needed by the man’s insurance adjustor. Meanwhile, to maintain contact with other clients during two weeks without office phones, Jones periodically drove 40 miles to Hammond, La., where he could pick up a sporadic cell phone signal. Back in Mandeville, Boyle found a big part of his job had become providing traumatized clients with a figurative shoulder to lean on.

With their cash flow disrupted, CPAs who were able to drew on reserves to pay employees in the weeks they couldn’t work. CPA Lindsay Calub, partner of the New Orleans firm of Duplantier, Hrapmann, Hogan & Maher LLP, and chair of the Louisiana state society’s Peer Review Committee, estimates his 50-person firm used half a million dollars in cash reserves to pay its people in the weeks immediately after the hurricane. The practice had been headquartered on the 20th floor of a downtown New Orleans office building that started to come back in November, but by then the firm already had relocated to a Baton Rouge space owned by a client.

Coping required many CPAs to put in extraordinarily long hours. Boyle, who used his firm’s three-month cash reserve to pay his two employees through the crisis, commuted to Houston for a month to work for a friend’s CPA firm and keep some cash flowing. “It was frustrating to leave my disabled child and pregnant wife,” but it also was not the time to pressure his clients to pay bills, he explains. “I went to Houston twice a week, while my staff worked in the office once it was able to reopen. I kept in touch with them by e-mail during lunch hours and in the evenings.”
Remarkably, some CPAs say they expect their practices to rebound fairly quickly. While some clients have gone out of business for good, others have come along, including companies needing help to apply for disaster-recovery loans from the Small Business Administration and newly formed building and recovery enterprises. But many CPAs face daunting challenges. Most of Suhor’s two dozen or so business clients survived, and she’s back in touch with about 75 of her 100 individual tax clients. They were mainly from hard-hit St. Bernard Parish east of New Orleans, where there isn’t a house that’s livable. Many of them found her after she made signs with her name and Web address and displayed them on consenting clients’ lawns.

ESSENTIALS: DATA, COMMUNICATION AND COVERAGE:
The Katrina survivors have new insights into what it means to prepare for a worst-case scenario. Suhor strongly urges CPAs to develop preparedness and recovery plans in conjunction with their clients, particularly for data protection (see “Every Business Needs a Plan”). “Now we have to decide whether to use Internet storage or to exchange and store backup information with another CPA firm in a location that is much farther away,” she says. “Clients who run small businesses out of their homes or have rental properties need copies of their records. They have to think hard about a truly safe place to store them.”

Levens stresses communications in the recovery process (see “Survivors and Rescuers Offer Tips”). Even though his firm had a complete list of emergency phone numbers, after Katrina it was days before he was able to reach any employees by telephone, and phone service for his office was not restored until November. Levens and his four partners are considering setting up a third-party answering service in a remote location, and then advertising that phone number to clients and employees at the beginning of each hurricane season.

Besides fallback communications capability, Levens says CPAs and their clients should review their insurance policies to understand precisely what is and isn’t covered and to plug any important gaps. His office got only about six inches of water, for example, but it was unusable for seven weeks. Flooding and resulting mildew necessitated replacing everything in the building within four feet of the floor, including walls and wiring. Because it was not in a flood zone, he didn’t have flood insurance. Boyle, too, says a comprehensive and well-thought-out insurance program is key. “It’s tough to fight a claim with an insurance company,” he concedes, “but it’s even tougher to sit around and wait for the government to do something.”

TIED IN KNOTS
The early response of both the federal and state governments to Hurricane Katrina has been widely reported and sharply criticized. Suhor credits the National Flood Insurance Program, run by the Federal Emergency Management Agency, with paying some claims quickly. But even though Congress let FEMA borrow to pay for hurricane-related claims, delays have frustrated recovery.

Many CPAs remain critical of the SBA, which has been slow to process loans aimed at helping homeowners and small businesses recover. As of November 15 the agency said it had approved only 1,078 small-business loans for property damage or economic losses across the Gulf Coast, while denying 1,945 applications. The agency said 24,268 business-related loan applications were still being processed, equal to about a four-month backlog at the then-current pace. “SBA lending is like UFOs,” remarks Boyle. “Many believe in it, but most of us have not seen any.”

Months later, the agency has made some headway. As of March 29, an SBA spokeswoman said it had approved 17,136 disaster loans for businesses totaling $1.6 billion. It had denied 17,942 loan requests and was still processing 6,599. In addition, it had approved more than 84,600 loans for homeowners and renters totaling $5.4 billion, putting its total loan approvals just over $7 billion. The previous largest disaster in SBA history was the 1994 Northridge Earthquake 20 miles northwest of Los Angeles, which triggered slightly more than $4 billion in SBA loans.

CPAs laud the efforts of their profession, including the AICPA, local chapters and state CPA societies, which listed job openings and assistance programs on their Web sites and otherwise helped to disseminate useful information. The Louisiana state society held seminars around the state for CPAs, businesses and the general public on insurance, tax issues and recovery procedures. Representatives from the Internal Revenue Service and the Louisiana Department of Revenue participated. The New Orleans chapter of the Louisiana state society held a four-hour seminar for CPAs in December on the Katrina Emergency Tax Relief Act of 2005, which pushed back tax-filing deadlines for those affected and removed deductibility limits on their personal casualty and theft losses (for more information on the act’s provisions, see “Surviving Katrina,” JofA, Feb.06, page 58).

Levens’s firm flew in a tax trainer from Georgia to educate staff on IRS rules for reporting casualty losses. “He was so touched by what had happened he refused to charge us one penny and asked us to give the fee to our employees who lost everything,” says Levens.

For practitioners whose communities were torn apart and whose personal and professional lives were disrupted by Hurricane Katrina, that sort of compassion has made it somewhat easier to undertake the extraordinary work of recovering from what is generally acknowledged to have been the most destructive and costly natural disaster in U.S. history.

Randy Myers is a financial writer and contributing editor for CFO, Corporate Board Member and Plan Sponsor magazines. The International Federation of Accountants in 2004 chose his Journal of Accountancy article “Ensuring Ethical Effectiveness” for an Articles of Merit Award. Myers lives in Dover, Pa.; his e-mail address is randy@randymyers.com.