Date posted: 24/03/2021 10 min read

How accountants can help clients recover from natural disasters

Floods, fire, drought and earthquake continue to test our communities’ resilience. Here’s how CAs can help in any recovery.

In Brief

  • CAs should help clients draw up an emergency plan and a risk register before a disaster occurs.
  • Good record-keeping can determine how resilient an individual or business is in the event of a disaster.
  • CAs need to show leadership and kindness after a disaster and let clients know they are there to assist.

By Prue Moodie

Disasters such as the 2019-2020 Australian bushfires and the 2010-2011 Christchurch earthquakes in New Zealand inspire immediate empathy. The world’s response to Australia’s bushfires – a torrent of donations – demonstrated that.

But once the spotlight moves on, victims and governments are left with the lonely and daunting prospect of reconstructing their lives, businesses and physical infrastructure.

What’s the role of an accountant in the physical and emotional debris left behind by a disaster?

As accountants increasingly take on the role of trusted adviser to businesses, it’s a time to show leadership and kindness, and to let clients know their accountant is there to assist, says Peter O’Regan FCA, vice-president of CA ANZ in Australia.

“Reach out to clients immediately, and ask ‘How can I help?’” says O’Regan, who comes from Mt Isa, a remote Australian mining town that, due to its location at the junction of several outback roads, serves as a commercial centre of north-western Queensland.

“We went through the 2019 northern Queensland floods. There were huge stock losses. But there was surprisingly little uptake of the government assistance,” he says. “People tend to think applying for government grants will be too hard – they self-assess.

“It’s relatively straightforward for accountants to find out about assistance. That might include grants, loans and tax payment deferrals.”

O’Regan recommends CAs contact clients following a disaster. “We have to be proactive. We’re trusted people in the community and we should live up to that standard,” he says.

Disasters affect everyone differently. At first glance, the impact on a business is worse than it is for an individual. After all, in a worst-case scenario, business owners have to cope with the loss of their personal effects, including their house, and the loss of a business, right?

In fact, says Warren Johnstone FCA, managing partner at BDO in Christchurch, business owners hit by this double whammy have a lucky card up their sleeve. The urgency of restoring business functionality tends to concentrate the mind. Paradoxically, an employee who has lost only a house could be more paralysed by his or her loss.

A business owner’s relationship with their accountant will be crucial to their ability to recover. It’s an important point to remember as we head towards a time of greater impact from natural disasters

More bad weather will mean more insurance claims

In late January 2020, the Bank for International Settlements (BIS) issued a warning to central banks about the economic impact of climate change. In its The Green Swan report, BIS printed a chart (using Munich Re data) that showed the increase in various kinds of insurance claims during the past 40 years. Earthquake claims rose marginally over the period, but climate-related claims more than tripled.

Rade Musulin, principal at Finity Consulting, is the lead actuary on the Australian Actuaries Climate Index, which tracks trends in weather conditions and sea levels.

Musulin sounds a note of caution to individuals who might jump to conclusions about climate change risk based on insurance loss data.

“There are more people, more assets and more incidents in addition to more extreme weather in many places. So it is difficult to isolate one specific driver of the change.”

In other words, even if there were no change in the climate, the number and cost of weather-related insurance incidents would have risen over the period –and is likely to continue to rise.

“However,” adds Musulin, “if you look back at several decades of meteorological data – at least three decades – there’s no question that there’s an increasing incidence of extreme weather conditions.”

What lessons can accountants draw from this? The first is that more of their clients are likely to be affected when disaster strikes. Factor in unquantifiable climate risk and, yes, it’s also likely that help will be needed more often as extreme weather events increase.

How can accountants help after a disaster?

Good record-keeping can determine how resilient an individual or business is in the event of a disaster. Michael Croker CA, tax leader at CA ANZ, emphasises the role accountants can play in modernising their clients’ record-keeping.

“This is a really important role for accountants – to bring clients who are suspicious of technology along with them, in their own best interests. Accounting software does more than store data; it captures data and gives you information about the efficiency of your business.

“When clients are applying for grants after a disaster, they often need both evidence of loss and evidence of a plan to get back on their feet. For the evidence of loss, record-keeping is vital,” he says.

“When clients are applying for grants after a disaster, they often need both evidence of loss and evidence of a plan to get back on their feet.”
Michael Croker CA

Jessica Nesbitt CA is an EY director and a captain in the Australian Army Reserve. She is involved in the defence force’s Operation Bushfire Assist and says accountants might consider becoming involved in large-scale operations to rebuild communities on a pro bono basis.

EY has established a skills register to capture details of its personnel who have relevant skills and experience and are willing to volunteer. In this way, the firm can quickly respond to requests for support from communities, as well as the National Bushfire Recovery Agency and the Business Council of Australia’s BizRebuild community rebuilding initiative.

O’Regan says another very important role for accountants is to help charities, which are often flooded with money after a disaster.

“The accountant, acting as auditor, can make sure spending decisions are aligned with the charity’s constitution,” he says.

Be prepared before disaster strikes

How accountants can help clients recover from natural disastersBushfire Evacuation Centre. Image credit: Sean Davey.

But the most important service a CA can provide clients should be offered before a catastrophe occurs. Namely, help drawing up an emergency plan and a risk register.

“We encourage our clients to compile a risk register, in which they note possible disasters and what the effect is likely to be. The risk will depend on the event. If it’s potentially catastrophic, even a low chance [of it occurring] is meaningful,” says Nelson-based Bruce Gilkison CA, a sustainable business adviser.

Accountants should have their own secure back-up systems that are not located on-site and should urge clients to store copies of documents in a cloud server or in a fireproof box with a friend who lives some distance away.

Nesbitt adds: “In your initial letter of engagement, ask the client up front whether they agree to having the accountant ask for an exemption from tax reporting in certain circumstances.”

She also urges clients to prepare a one-page list of important information for the government and insurance companies that includes name and contact details of the tax accountant, tax file number and business and/or company numbers, Medicare number, bank account numbers, Human Services number, insurance policy numbers and associated phone numbers.

Emotional healing is important, too

Post-disaster, accountants’ assistance to access financial records, prepare insurance claims and apply for government grants and loans are priorities for clients. But a business relationship can become part of a victim’s emotional healing process, too, says Scott Wagenvoord, CA ANZ’s regional manager –South Island.

Wagenvoord was bank manager at Westpac’s Central Christchurch branch when it was hit by the 2011 earthquake. “Our employees were magnificent, listening to clients talk about their problems while they were trying to manage their own emotions.

“I think it’s reasonable to listen to your clients talk like this. You don’t need to direct them to a counselling service immediately. The vast majority of people are not so deeply affected that they need specialist psychological support, but they really need to talk.”

However, there is one conversation that may require follow-up with a counsellor.

“There’s a difference between a business that is affected by bushfire and just needs time to get back to an economically viable situation, and a business that has been struggling for a long time – often because of the long-term effects of climate change,” observes Croker.

“It’s the accountant who helps the business decide whether to stick it out, or whether to withdraw from the area.”

This is likely to be a difficult discussion. And it’s very likely your client will benefit from a conversation, or series of conversations, with a qualified counsellor afterwards.

Lessons from Christchurch: Before you help others, you must first help yourself

Warren Johnstone FCA, a partner with professional services firm BDO New Zealand, was working at BDO in Christchurch on Tuesday, 22 February 2011, when a magnitude 6.3 earthquake struck the city at lunchtime

There were two business issues that had to be dealt with urgently, he recalls. “We had to manage ourselves. The whole of the city centre was cordoned off for nine months, but the police did allow very controlled access. Our HQ was eventually pulled down, but before that a few members of staff were able to make two quick visits to recover laptops and files. The second issue was that we had 3000 clients who we knew would be needing our services“By 10pm that night we established that all our 70 staff were safe. On Wednesday, we had a partners’ meeting where everyone was assigned tasks. We were fortunate to get premises to operate from in an industrial estate.

“There were issues with us not being able to find some of our files, but the key information was on the computers we’d recovered. Our back-up server was located on the premises, so of course we don’t do that any more.

By the following Tuesday, they were up and running. “The staff had spent the previous week dealing with their own situations, and we had trauma counsellors and any other assistance we could offer them. But in the following week all our clients were contacted.

The priorities, he says, were contacting insurers and getting cash flow. “All of our clients had business interruption insurance. We helped negotiate with the insurers to release some cash immediately… Our main concern was making sure business owners understood what they were entitled to under their insurance policies.”

“Our main concern was making sure business owners understood what they were entitled to under their insurance policies.”
Warren Johnstone FCA

Johnstone says loss of profits is another area where accountants can be particularly helpful. “We were in a position to back up the owner’s estimate of profit loss. For example, the Rugby World Cup was due to be held in Christchurch soon after the earthquake. Of course, it was relocated. So hotels faced significant losses… Insurers argued that they’d make it up eventually. Or some used historical data from other World Cups that hadn’t been as popular. BDO was able to provide evidence of actual bookings and expected bookings that had been lost.

“We also spoke to a lot of clients about how they were feeling although we’re not trained counsellors. Speaking about their businesses helped many clients focus and brought clarity back to their thinking.

“We learned many things from this natural disaster. Being as prepared as possible but also being prepared to act quickly, have good processes in place to make decisions, and then focusing on our people and clients’ needs were the main things. And then to be resilient. Everyone in Christchurch needed resilience during this traumatic time.”

Lessons from the NSW South Coast: Be mindful of the client’s state of mind

Peter Mann CA is a director of Kothes Accounting Group on NSW’s South Coast. The area was the heart of one of the most intense firegrounds of Australia’s 2019-2020 bushfire season. At the time Acuity spoke to Mann, in late January, many of the fires were still burning and the situation remained chaotic. The flooding rains of February, which finally extinguished the blazes, were yet to arrive.

Mann is based in Eden, close to the Victorian border, and says at least 70% of his business client base – which includes Mallacoota in Victoria – was adversely affected by the fires.

“Many of the bushfires in this area have lasted weeks. This issue is particularly relevant to business continuity insurance. I have been told that some insurance companies are only paying business interruption insurance from the time of evacuation to the time the Rural Fire Service advised the public it was safe to travel back to the South Coast. But that’s not long enough for a business to recover from a disaster of this scale.

“We’re helping our clients negotiate with insurance companies. They have been excellent about intermediate payments, but we’re encouraging our clients not to sign final settlements until we’ve had a look.

“We’re not lawyers, but we’ve had lawyers offer their services on a pro bono basis to provide legal advice on the status of individual clients’ insurance claims.”

“We’re not lawyers, but we’ve had lawyers offer their services on a pro bono basis to provide legal advice on the status of individual clients’ insurance claims.”
Peter Mann CA

The practice is helping its clients sort through the assistance on offer, from financial to mental health support.

“Some clients who were impacted by earlier fires did not believe they qualified for assistance. However, we are actively chasing up clients to ensure they apply again, as criteria have changed,” says Mann.

Alerting MPs and others to problems businesses were striking with their applications – for example, where farmers had an off-farm business in the same entity as the farm – has been important for the practice. So has acting as “a protective umbrella from unwanted distractions” for clients, such as dealing with ordinary tax reporting requests from the tax office.

Projecting cash-flow requirements has been another crucial job. The region’s businesses took a massive hit, with the fires striking in what is usually peak tourist season. Even those businesses not directly impacted by the inferno are experiencing significantly reduced income.

“It’s not yet the time to talk about the ongoing viability of a business,” adds Mann. “You have to be very mindful of the individual client’s state of mind.

“Also, we have to wait and see the details of the announced assistance packages. Some of the low-interest or no-interest loans [offered by the NSW and federal governments] might include questions that relate to business viability.”

A post-disaster checklist for accountants

Here is the best way CAs can assist their clients after a disaster. You can download the full version of CA ANZ’s business continuity plan here

  • Provide clients with replacement business records
  • Assist in negotiating with insurers
  • Assist in negotiating with banks
  • Assist in negotiating with the tax office
  • Assist clients sorting through the various government assistance packages
  • Assist clients to create business reconstruction plans (to access immediate government grants).

 A checklist for clients

After a disaster, CAs should urge their business clients to:

  • be upfront with their workers about the impact of the disaster on the business
  • check employment and contractor agreements. Can unutilised employees agree to reduced hours, bring forward annual leave plans or take unpaid leave if the business is temporarily closed or in restart mode? Legal advice maybe needed
  • check current insurance policies for coverage
  • collate details of losses (photographic evidence helps)
  • seek a second opinion on proposed insurance payouts
  • keep records of damaged, lost or destroyed trading stock (even if sold for reduced prices), equipment and business buildings
  • keep records of repairs, clean-up costs, temporary storage
  • ask landlords about possible rent relief and the timeframe for any necessary repairs to be done
  • speak to suppliers about delayed payment terms
  • ask suppliers how quickly they can resupply what’s needed to restart business operations
  • develop and implement a communications strategy that conveys their restart plans and how they’ll help customers as they, too, recover from the disaster
  • ask customers if they can bring forward payment of any amounts owed to the business
  • revise business cash-flow and business forecasts for the current financial year and subsequent years
  • discuss business recovery plans with financiers.

Read more:

Download these fact sheets and checklists from CA ANZ’s website.

A checklist on practical issues for small business impacted by bushfires

Find out more

Accounting implications of natural disasters

Find out more

Q&A: Dealing with natural disasters – Guidance on the issues accountants need to consider (CA ANZ members only)

Find out more

Managing the banking relationship in times of crisis – Addressing the accountant’s role (CA ANZ members only)

Find out more

From the CA Library - Faster Disaster Recovery

Outlines a 10-step approach to establish a disaster recovery contingency plan.

Download from the CA Library