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File Retention in the Digital Age — What CPAs Should Know

Considering the various types of information CPA firms encounter every day, file storage and retention can become a big challenge. Improper file storage can lead to liability claims and lawsuits. Today, voicemails, emails, instant messages, fax documents, images, and electronic documents are considered reports that must appropriately be stored. 

Because we’re in the digital age, clients expect and demand quick access to documents. CPAs must have a filing system that can not only securely store these digital documents but allow for seamless access when needed. Additionally, today’s CPAs must have organized destruction policies and effective methods for removing records from queues when notified about litigation. 

What to consider when creating retention timelines 

There are two things to keep in mind when creating retention policies. Firstly, the documents need to be retained only as long as they’re serving a useful purpose or until legal requirements are met. Secondly, keep in mind that statutes of limitation for document retention vary from state to state. CPAs should refer to their state professional organization or the local bar association for requirements on record retention.  

Discovery and Statutes of Limitation: Consult with an attorney to clarify statutes of limitations and rules of discovery. 

Regulations and Contractual Requirements: Be aware that particular retention policies may come into play if you’re working with clients who receive government funding or are subject to laws and regulations. 

State Rules: The state board of accountants’ regulations should be considered when creating retention policies.  

Services may affect retention policies 

Keep in mind the kinds of services your accounting firm offers when creating your document retention policies. Each service will have unique risks and regulations. For example, tax preparation document retention policies will be based on IRS regulations.  

Even if your clients have records retention policies of their own, it’s better not to rely on them to retain documents regarding your services. You cannot accurately know their policies or how closely they are followed. The firm is responsible for ensuring proper record retention for documents relating to engagement.  

Understanding email retention policies 

Email doesn’t make document retention any easier, especially considering how many are sent every day. Email is the most common form of business communication.  Because they’re used so frequently, and often transmit important and sensitive information, email retention policies must be carefully crafted and strictly followed throughout the organization.  

Due to sheer volume, email storage can become cumbersome. Systems that automatically delete specific types of email after a certain period can help. Procedures for retaining important emails can be created so they are moved to a client’s engagement file.  

If your firm is involved in a lawsuit, email is subject to discovery. Ensure your legal counsel is providing retention policies on email for the best result. If emails are deleted after you receive notice of an impending lawsuit it can trigger legal action against the firm. It’s critical that any automatic deletion system can be paused once notification of impending litigation is received. 

Why write a retention policy? 

Retention policies eliminate confusion among staff. Written plans clarify responsibilities between the firm and clients in regards to who must carry out the duty of record retention. 

A comprehensive written record retention policy will address:  

  • Definitions of client records 
  • Definitions of firm engagement work papers 
  • Retention periods for each type of document or record 
  • The document destruction process 

Document storage methods 

A firm must have a document management system (DMS) that provides easy storage and retrieval of documents.  

There a number of software products available for document storage. Whichever system your firm chooses, make sure it has the ability to digitize or scan documents, is customizable, and has a simple method for retrieval.  

Cloud-based document management systems offer an off-site solution and eliminate concerns about theft or physical damage to the DMS. Additionally, some cloud-based programs overwrite the data when it’s time to delete documents, making it inaccessible. 

Pending litigation complicate file retention policies 

The increased use of electronic documents and cloud-based storage have automated and eased many file retention policies. However, there still may be times when it becomes difficult to know what files you should keep and what can be destroyed.  

As a general rule, if your firm is involved in litigation or pending litigation, all related file deletion policies should be put on hold.  McGowenPRO encourages clients to take a proactive approach to file management and potential lawsuits by offering abundant resources regarding file retention.