Record retention.

• Author: Parker, Kenneth M.

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MY FIRM RECENTLY LEARNED A PAINFUL lesson in the value of record retention. We suffered a major data loss in September 2008 when Hurricane Gustav sent a power surge through the office at the same time that our system was being backed up. Not only did we lose our hard drive; we also lost the backup tape. The previous backup tape was 30 days old, so we lost 30 days of work and data storage. The system was not designed to handle a loss of the backup data storage device at the same time that the hard drives were lost. Our liability insurance allowed for the time to recreate lost and damaged data, but it did not allow for the nightmare of figuring out what data were lost.

The Basics of a Record Retention Policy

Every firm should have a record retention policy and should have its legal counsel review this policy to make sure that all legal areas are covered. The policy should spell out what records should be kept and for how long.

Data sources to consider protecting include voicemail messages, faxes, e-mails, instant messages, document images, electronic working papers, and paper documents. If a firm does not have a policy that is comprehensive enough to cover all these areas, it is time to update its record retention policy.

Within this policy, firms should address statutes of limitation, discovery rules, contract requirements, registration and filing requirements, state board of accountancy rules, and other applicable rules and regulations. Once the firm establishes a record retention policy, everyone in the firm should include it in engagement letters and in client communications that pertain to the specific services being rendered. Several large firms have published brochures describing their record retention policies, defining the holding period for each type of record, and include the brochure with their engagement letters and other correspondence sent to clients.

Document Imaging and Storage Systems

Electronic document imaging and storage is the newest method of data storage, replacing paper file cabinets and large storage areas. There are currently hundreds of types of software that a firm can use to scan, organize, and store records. The software will automatically convert tax returns, depreciation schedules, bookkeeping data, workpapers, and other documents to PDF format and save them in a virtual filing cabinet.

Some software programs allow clients restricted access to data files that reside in the virtual file cabinet so that they can...