As more of the profession moves towards managing and reducing paper usage, accountants are finding that while their document retention policies may vary, it's one of the more important considerations to make when adopting any document management solution.
Outside of the federal- and state-mandated timelines to retain specific documents - which range anywhere from three to seven years, depending on the document - firms of all sizes that are engaged in one or more document management systems have found that setting their own policies can save time and money, and reduce frustration in dealing with what can be years' worth of paper files.
For those practices that have decided on a document management system, each faces the issue of deciding from what year to begin placing documents in their system and how long to keep them, both physically and electronically. Most systems today have the ability to set a timeline to purge files from the database, but the larger issue comes with storing the physical documents themselves.
Salina, Kan.-based Kennedy and Coe, with roughly 200 staff members, began its paperless journey around seven years ago. The firm initially stored files in its client engagement system, but eventually moved towards storing documents in a formal document management system - in its case, iChannel from Conarc. Principal and director of IT Greg Davis said that his firm has moved within two years of completely eliminating paper files from storage, and claims that his firm's retention policies, in addition to the systems it uses, have played a large role in this task.
"When we first set our [retention] policies, we thought there was going to be an industry standard, but there wasn't outside of legal requirements. Most firms are keeping [documents] longer than they legally have to," said Davis. "The key is to draw a line in the sand and say, 'From this time forward, it's going into our [document management] system and this is what the retention policy is.' Eventually you don't have to worry about it."
COST AND LEGAL CONSIDERATIONS
He also claims that there are other considerations outside of physical storage space when using document management systems.
"[Digital] storage area networks aren't cheap either; you have to factor in the cost of the hard drive space as well as physical space," said Davis. "Firms need to have a policy around litigation holds [preserving all relevant information in anticipation of litigation] as well; if you get put on notice and there is a potential legal action, you have to have a way to secure those documents so they can't be modified or deleted."
Sarasota, Fla.-based Kerkering Barberio & Co., which has over 100 staff, has been using document management systems for nearly five years and currently is evaluating others. Chief operating officer John Nicholas believes that regardless of what system a firm has, or how many they use, they need to set retention policies themselves and stick to them. "Honestly, I'm surprised how many firms our size and larger don't even have a document retention policy," he said. "I talk to our legal counsel and they say if you have one you darn well better follow it, because then you are worse than if you don't have one. In the end, the document management system and retention conversation are balled into one."
Nicholas claimed that there are three main drivers behind his firm's retention policies: legal liability, the cost of keeping documents on a network or in a physical storage space, and even potential revenue generation. "We are asked by some clients to keep their documents indefinitely, and we have not up to now charged them, but since banks with safe deposit boxes charge customers, why can't we?" he asked. "It's something we are just really discussing now."
Many smaller firms face similar document retention issues and, in some cases, have only just begun to scan in and store older paper files in their systems to finally relieve themselves of the cost of file storage.
WINNOWING AWAY THE PAPER
Having nearly a decade's worth of documents and a small staff prevented Tempe, Ariz.-based Skinner & Co. from making a serious effort toward reducing its paper files until recently. But principal Todd Skinner claims that its document retention policies and faith in its relatively new document management systems will help finally reduce physical client files and the cost of keeping them.
The firm began storing documents in Thomson Reuters' GoFileRoom and CCH's ProSystem fx Engagement three years ago, selecting documents from a specific year and after to scan into the system. Its retention policy has been to keep tax return files for existing clients indefinitely, while destroying other files after six years. Skinner claims the firm is finally starting to "chip away" at files from prior years, as it is "more comfortable" with its current DM systems.
"Our [retention] policy hasn't entirely changed since we began going paperless, but now our stored files are slowly coming in-house, we're shredding what is not applicable and scanning what is for existing clients," said Skinner. "Our ultimate goal, and it may take years, is to get rid of offsite storage. The past two years we've been doing this and once in a while we get like 20 boxes to shred or scan. The longer we've had our system, the more confidence we have in it."
For many sole practitioners, the challenge of managing paper files is even greater, but some, like Michael Taxin of Galloway, N.J., have found that staying committed to a retention plan will yield results.
Taxin, a certified senior advisor and president of the New Jersey Association of Public Accountants, has been using document management systems "even longer than many large firms." He currently manages his documents with PaperPort, OmniPage, and PDF Converter from Nuance Communications, and only retains control sheets, engagement letters and signed copies of A-6 forms. Taxin advised that sole practitioners should handle document retention for clients "one step at a time."
"The hardest part for sole practitioners is the set-up [of a DM system]. I would say start by scanning current client data, and then put in prior data at the same time," said Taxin. "Alternatively, if you have an administrator, you can put old client data in the day before they come in so you are ready for the interview process and go from there. Don't try to put all the old data in up front for every client whether they come back or not - it will cost you money and time and may not accomplish anything."
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