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Record Retention Policies Solutions for CPAs' Records Management Challenges by Laurie Shufeldt Published by The Arizona Society of Certified Public Accountants, January 2008
Whether in an accounting firm or a corporate accounting position, CPAs work with endless documents and electronic records that track business transactions and workflow processes. Usually there is little time at the end of the day to review each record and classify it for retention purposes. That is why comprehensive records management is vital to growing businesses and a necessity for CPAs to work efficiently and within the codes of conduct, regulations and compliance laws that govern their profession. What is a records retention policy? A records retention policy classifies all physical documents, electronic records and unstructured content in a centralized management process that maintains records for specified periods of time before securely destroying them. Specific legal requirements for records retention vary among companies based on location, size and type of business. Categorizing which records to keep and which are okay to delete reduces paper storage that occupies physical space and removes electronic data that can clutter databases and slow operating systems. A record can be defined as any information that is generated or communicated in either paper or electronic format. As electronic communications have increased, the need to revise or create new retention policies to encompass new types of records is vital for companies to remain compliant and productive. How to comply with regulations To comply with records retention regulations, documents need to be stored for the length of time necessary to satisfy legal and operational requirements. Retention policies must address all issues that pertain to industry and government compliance guidelines as well as potential litigation. Industry analysts estimate that there are over 150 federal and state laws that dictate the length of time data must be retained. Chris Ritchie, President of iScanofAZ.com, says, “An evaluation determines the retention period best suited to a specific kind of record depending on the industry. No record should be destroyed while it still has value nor should it be retained after its value has been consumed.” Today, companies need to retain more data over longer periods, so there is greater need for procedures and flexible management systems that can easily be updated to reflect changes in regulations. CPAs within industry positions or practices providing auditing and consulting services must adhere not only to accounting standards but also comply with state, federal, and industry regulations. The AICPA, trade associations and the Arizona Society of CPAs can help Arizona accounting professionals stay informed of changes in compliance regulations. Some of the top record types that CPAs need to retain permanently include audit reports, financial statements, and tax returns. Other information such as accounts payable and receivable schedules, expense and inventory records, bank statements, and payroll records should be kept for seven years. Since regulations vary for different locations and companies, CPAs should refer to their industry regulations as well as generally accepted accounting standards. There are many variables of compliance. Companies need to save records for future litigation as well as complying regulations. Sometimes there are different guidelines for complying with state, federal and industry standards. For instance, the Public Company Accounting Oversight Board (PCAOB), which regulates the public accounting profession with standards for audits of public companies such as Sarbanes Oxley, requires accounting firms to keep audit work papers for 7 years which is 2 years longer than AICPA standards of 5 years. When federal, state or industry rules overlap, CPAs should retain for the longer time period. Setting up, monitoring and enforcing a records retention policy
Benefits and consequences of a records retention policy According to IT Compliance Institute research, 65% of enterprises have no records management policy. In today’s competitive environment a record retention policy can give a company the competitive edge through improved efficiency and productivity. Similarly, CPA firms that are small- or medium-sized businesses have advantages over enterprise size companies because of their smaller size and easier to manage policies. Classifying and centralizing records improves the entire document management system which aids in making business decisions and allows for better customer service through improved search functions. There are complementary benefits to having an automated records retention policy that are intermingled with operations such as business continuity and disaster recovery. A company operates more efficiently when a retention policy is documented and automated and allows for consistency among different departments or offices within the organization. Managing records helps reduce storage costs by deleting unnecessary data. Penalties for noncompliance can affect the reputation and financial future of a company and result in prosecution, fines, and jail terms for company officers. Out of fear of losing necessary information or because of lack of a retention policy some companies choose to save all records. Keeping all historical data results in slow applications, poor disaster recovery, frustrated users and poor customer service. The challenge of managing records in electronic environments with increasing and changing litigation and regulations can affect competitiveness, performance, customer service, and profits. How technology plays a role
To comply with regulations CPAs need secure, long-term data protection, fast accessibility and recoverability, and safe secure destruction. For ECS Financial Services, a small CPA and portfolio management services company in Illinois, naming and saving documents was the biggest challenge. Using document scanning in its records retention program with software that tracks a destroy date for records, ECS has entirely automated the retention process. The company has recognized greater efficiency with reduced hours for manual document searches and with less storage for paper files they have added new office space for employees. CPA firms can maximize productivity with centralized records management solutions that are part of the larger information management system. With streamlined data searches and integration with business continuity and disaster recovery plans, a records retention policy can improve overall efficiency. Ritchie says, “My clients can see immediate savings to their bottom line using a company that offers a total solution.” Using a paperless system with document scanning allows for centralized storage and quick access to all records. IDC estimates unstructured data comprises about 80% of a company’s records, so the role of technology in record retention is essential to centralize data. As more employees work offsite, there is increasing need to capture data from mobile worksites. With records retention requirements ranging from five to thirty years, technology solutions can maintain all structured and unstructured records and ensure that records are secure and data can not be altered or destroyed before the retention period ends. For more information about how to automate records retention policies, contact Chris Ritchie of iScan of Arizona at critchie@iscanofaz.com or Laurie Shufeldt of FileVision at lshufeldt@filevision.net. # # # “Legal Requirements to Archive Database Data.” January 2, 2007. www.dbazine.com. “Many organizations lack records retention policies, survey shows.” October 12, 2007. Compliance news. www.itcinstitute.com. “”Leaving a Paper Trail?” March/April 2006. www.insight-mag.com.
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