CPAs design disaster recovery plans for one thing: to quickly aid clients in their time of need, whatever that need is and whenever it arises. Cheryl Folkerth, CPA and technology manager with Abalos & Associates, in Phoenix, said that disaster recovery is a basic numbers game - sometimes with dire consequences.
According to a study at the University of Minnesota, 93 percent of organizations that lose critical systems for more than 10 days file bankruptcy almost immediately.
Other studies, she added, indicate that 90 percent of companies that experience a catastrophic loss of data and equipment without a disaster recovery plan are out of business within two years. Unquestionably, a small or midsized company that has a minimum of cash reserves and of cash flow rarely recovers from a major loss.
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So then, how difficult is it to set up such a disaster recovery plan, and is the CPA really the best party to implement it?
Mitchell Freedman, founder of Mitchell Freedman Accountancy Corp. in Sherman Oaks, Calif., pointed out that many parts of the country have been subjected to natural disasters for eons. "Businesses that are located in such areas, therefore, must have a disaster recovery plan in place in order to ensure their survival after such events."
Being prepared
The American Institute of CPAs started providing disaster recovery information to businesses, consumers and CPAs through a resource center on its CPA2Biz.com portal following 9/11.
Two guides from the AICPA deserve a look:
* Disasters and Financial Planning: A Guide for Preparedness was written and produced for the AICPA and the American Red Cross as a public service by the National Endowment for Financial Education. It is divided into six chapters: Making a Disaster Plan, Protecting Your Property, Protecting Your Income, Protecting Your Health and Life, Protecting Your Records, and Protecting Your Loved Ones.
* Disaster Recovery: A Guide to Financial Issues was also written and produced for the AICPA and the Red Cross by the NEFE. It addresses some of the financial questions asked by people who have experienced a disaster, and covers the first days following the disaster, looking at how to restore household stability, manage an injury or disability, and the financial decisions that must be made after a death. It then looks at the following weeks and months with a view toward stabilizing your finances, lawsuits and other settlements, and managing property loss. The last part looks ahead to future financial needs, job retraining and education, estate planning reminders, and emergency preparedness.
The booklets are free at local American Red Cross chapters across the country. To request a copy of either or both of the guides, go online and visit www.redcross.org/services/disaster/beprepared/financeprep.html.
Since the terrorist attacks of Sept. 11, 2001, Freedman said that it has become undeniably clear that any part of the country can be subjected to a disaster, including man-made ones.
As a specific example, he cited the Oklahoma City bombing. "Most people thought of that as an anomaly. Now all business owners and managers must be aware that they can become victimized. Their business may be in close proximity to a government office, an important landmark or an important economic enterprise, any of which could be a target of a terrorist attack."
Freedman noted that inasmuch as there could be a loss of office space, important papers, computer equipment and electronic data, not to mention key personnel, it is vital that owners and managers do themselves, their customers, their staff and the economy a service by planning for the possibility of a disaster, so that they can be up and running as quickly and as practically as possible should a catastrophe occur.
Gerald Gagne, CPA, CISA and shareholder of Massachusetts-based Wolf & Co.'s Information Technology Assurance Services Group, added that businesses face the risk of process interruption every day.
"A business interruption could take the form of computer failure or theft, physical or cyber-terrorism, fire, tornado, flood or even employee sabotage," he said. "It runs the gamut of what could happen. A well-thought-out business continuity plan defines the resources, actions, tasks and data required to manage the business recovery process in the event of accidental or intentional business interruption."
To JoAnn Ralph, managing consultant of RK Risk Management LLC, an affiliate of Rothstein Kass, headquartered in Roseland, N.J., it's crucial for a business to have a disaster recovery plan. "Reported statistics indicate that a business that suffers a significant loss in productivity or revenue and whose recovery is delayed due to the inadequacy of insurance or disaster planning runs a higher risk of failure within two years of resuming operations. Without a plan of action, a great deal of time is wasted and the costs to get the business up and running again would be inflated."
