Louisiana seems to have more than its share of natural disasters – hurricanes, floods and tornadoes. And in spite of careful planning, other, more isolated catastrophic events, such as fires, sometimes occur.
The immediate concern during a natural disaster or other catastrophic event is to save human lives. Once the disaster is over and an assessment is made of the damage, it is often found that financial records were among those items that have been lost.
And unfortunately, financial records that are maintained electronically may be subject to cyber-theft or compromise through the very computer system on which they are maintained.
What can a local government or quasi-public organization (local auditee) do about its reporting responsibility to the Louisiana Legislative Auditor (LLA) if its records are destroyed?
The most important step a local auditee can take to preserve its records is to have a disaster recovery and business continuity plan in place before a catastrophic event takes place. Ideally, this plan should provide for
- - Identification of threats the local auditee faces to its assets and records
- Maintenance of backup copies of the local auditee's financial information off-site
- Periodic review and testing of the plan to ensure it is being implemented and is applicable to the local auditee’s current needs
The local auditee should also consider how it will get up and running again if a catastrophic event occurs. It is not wise for a local auditee to wait until its physical plant is gone to determine how it will continue to operate.
While having a disaster recovery and business continuity plan in place is critical, no plan will be able to address every situation. What happens if both the local auditee’s office and the place where the off-site backup files are stored are affected by a natural disaster? What happens if the disaster was so catastrophic that the local auditee must close its doors?
The audit law (Louisiana Revised Statue 24:513) gives the Legislative Auditor broad authority to prescribe the terms and conditions of the engagements of local auditees that report to him; but is silent as to the course of action that should be taken when a local auditee’s records are destroyed during a catastrophic event. However, the Legislative Auditor does make accommodations for local auditees that have lost their financial records in a disaster.
When a local auditee has knowledge that its records have been destroyed, the chief executive or financial officer should:
- 1. Contact
2. Accumulate any of the local auditee’s records that are available from third party sources, such as:
- - Bank and brokerage statements from the local auditee’s financial institutions
- Fixed asset records from the local auditee’s prior auditor or contract accountant
- Statements from trade vendors
- Any interim financial information provided to a regulatory agency or other party
The local auditee may wish to contract with a CPA firm to help them accumulate these items.
3. Assess the records that have been accumulated to determine whether the local auditee can provide financial statements to LLA; either at the level required by the audit law (see What Kind of Report Does My Agency Need to Provide to the Legislative Auditor?) or at a level lower than is required by the audit law (for example; reviewed or compiled financial statements if the agency is required by the audit law to provide audited financial statements).
4. Contact LLA staff again to discuss how to proceed. LLA staff may advise the local auditee to provide a report that is at a lower level of assurance than what is required by the audit law, with an affidavit attesting to the destruction of the local auditee’s records. LLA staff will also advise the local auditee to execute the affidavit if the local auditee is unable to provide a report of any kind to LLA; and may advise the local auditee to submit an emergency extension request for the report and/or affidavit if it will not be submitted to LLA by the statutory due date.