Rebecca:
This can be approached in two ways.  The "one-time destruction" approach
mentioned by Stephen Cohen or disaster recovery "damaged beyond salvage"
approach. Either way you need to list these records as being destroyed
in whatever serves as your destruction log. Since the records have never
been scheduled and have been determined to have no "legal, fiscal,
audit, or historical value" then document the destruction as you would
any "clean out" of a large paper repository.  

Keep in mind, severe mold damage can not only spread to other paper
records in close proximity, but can render the moldy records unreadable
if bad enough.  If you want to destroy them as damaged and a health risk
then list them as "damaged beyond salvage" and document the cause of the
damage (i.e. flood) and the date of the damage.  

Ginny Jones
(Virginia A. Jones, CRM, FAI)
Records Manager
Information Technology Division
Newport News Dept. of Public Utilities
Newport News, VA
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