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When to throw it away.

An association staff member recently went to his manager with the perfect solution for the organization's overcrowded file cabinets: Destroy any files more than six years old. His boss gave him permission to proceed, but added, "Just be sure to make copies."

If your organization applies that much logic or less to deciding which records it retains and why, read on.

Keeping records

Associations maintain records to comply with the law, operate more efficiently, minimize litigation losses, and demonstrate that their organizations qualify for nonprofit exemptions. The law only requires that organizations keep important records for reasonable retention periods. The Uniform Preservation of Private Business Records Act specifies a three-year retention period whenever the law doesn't specify a time period.

If the law requires a specific retention period, keep the record for the required period. Watch for agencies that specify different retention periods for the same records. For example, the Department of Labor requires that organizations keep payroll records for three years; the Internal Revenue Service specifies four years. In such cases, keep the records for the longer period.

A statute of limitations specifies that a party file a lawsuit within a certain time period, or the law will not enforce the claim. Although statutes of limitations don't specify how long to keep records, records are important evidence in lawsuits. So, before tossing out records, determine whether the records would help defend your organization in a lawsuit.

How long to keep a record is more complicated than how to determine the statute of limitations and legally required retention periods. A retention requirement often differs from the statute of limitations. For example, your state may require you to keep personnel records for five years. But the statute of limitations in your state for breach-of-contract lawsuits may be 10 years. In such a situation, keep a portion of an employee's personnel record--including the employment contract and the records documenting why he or she left your organization--for 10 years.

Thus, if an employee sues your organization for breach of his or her employment contract, you can prove the terms of the contract and document the reason for termination.

Developing a retention program

Develop your records retention program as a regular course of business. Doing so ensures that you address all retention requirements and documents that the plan was executed over time rather than on an ad hoc basis or to deliberately destroy unfavorable information prior to litigation, investigation, or audit.

Who is responsible for managing the record-retention program depends on the size and structure of your association. In some organizations, for example, department managers maintain and destroy their department records, with oversight by a vice president of administration or similar officer. Regardless of who is responsible, it's a good idea for the records manager in your association to follow guidelines suggested here when developing your retention program.

Address all records. Reproductions--including personal, microfilm, and computer copies--have the same legal effect as originals, so destroying originals is inadequate. A court can subpoena these records and use them against your association even when you have destroyed the originals.

Create retention and destruction schedules. Ask the records manager at your association to query--preferably in writing--staff to determine how long they need records for business or other purposes. Require users to respond in writing to help document your retention program.

After receiving input from all record users in your organization and determining the legal retention requirements, create retention schedules (see sidebar, A Sample Record-Retention Schedule")

Your records manager may also create a schedule to destroy any records your association no longer needs. Make sure your records manager follows the same procedure for creating the destruction schedule as for the retention schedule. Once the program has been approved, distribute the retention and destruction schedules throughout your organization so that all employees who maintain records comply with them.

Obtain approval. Get and keep written approval from your chief executive officer, legal counsel, and tax adviser. These approvals prove that you developed the retention program in the regular course of business instead of in anticipation of an investigation. These approvals also show that you acted properly on behalf of your organization and help avoid personal liability for destroying records.

Destroy records when permitted. Once you have an approved program, destroy records in the regular course of business. Bum or shred documents that contain confidential information. Most organizations destroy records every month or year.

Make sure your records manager witnesses the destruction of the records and signs destruction certificates. Never haphazardly or selectively destroy records. It creates the impression that you improperly administered your record-retention program or that you destroyed records to avoid liability. Consider that in one lawsuit, a judge entered a default judgment against a defendant who destroyed documents to keep them from being produced in court. The judge noted that he would not have so ruled if the defendant had destroyed the documents in good faith under a bona fide retention program.

Document the program. Having a comprehensive, legally sufficient record-management program does little good unless you thoroughly document it. If your association cannot demonstrate that it properly maintained its records, the government may invoke sanctions. Consequently, maintain documentation on the actual record-retention procedure your organization follows and certificates that show if a record was retained or destroyed.

Here are guidelines that illustrate how long your organization should keep documentation for its record-retention program: destruction certificates, 3 years; destruction schedules, while active plus 10 years; records management procedures, while active plus 3 years; records inventory, 3 years; retention schedules, while active plus 10 years; and retention schedule approvals, while active plus 10 years.

Manage the program. Continually manage your record-retention program to ensure it is up to date and that employees are properly informed about the program. For example, train employees to retain and destroy records according to your retention schedule and to stop destroying records during an audit, litigation, or government investigation. Make certain that if any employee receives notice of a potential audit, litigation, or government investigation he or she reports it to your records manager, who can inform you and your legal counsel. Then either segregate or clearly mark those records so that they are not destroyed.

Periodically review your retention schedules--and check with your legal counsel--to see if the law or the business needs of your organization have changed, necessitating or permitting a different retention period.

Record Rules

Tax records. Most states require that organizations complete tax assessments within three years after the return was due or filed, whichever is later. But states often make exceptions to the three-year requirement. For example, understating your organization's income by at least 25 percent extends the assessment period to six years; filing a false return usually extends the period indefinitely.

The Internal Revenue Service (IRS) also has a three-year assessment limitation, with a six-year extension it" an organization understates its gross income, estate, gift, or excise tax by more than 25 percent; fails to declare constructive dividends; or operates a personal holding company. Other federal statutes of limitations may, apply in other situations, such as criminal prosecutions.

Capital gains and losses, depreciation, and emp]oyment taxes require retaining tax records for longer periods. Keep records of significant capital acquisitions for as long as necessary to prove the purchase price or basis for capital gains or losses. Property depreciation varies according to IRS regulations. You must keep employment taxes for at least four years after the tax due date or the date paid. The retention period for excise taxes varies from two to six years.

Employment records. Since many federal laws governing employment records--payroll; employment; and employee health, benefit, and pension records--overlap, choose the longest retention period. Almost every state has specific retention periods for records of wages and hours worked, unemployment compensation, workers' compensation, and similar information.

The four-year retention period stipulated by the Federal Insurance Contribution Act and the Federal Unemployment Tax Act meets all state wage statutes of limitations. Under the Age Discrimination and Employment Act, you must maintain employment records and other pre-employment records for one year, which also satisfies Title VII of the Civil Rights Act. You only need to keep employment records for temporary positions for 90 days.

The Age Discrimination and Employment Act requires a one-year retention period from the date of an employment action--promotion, demotion, transfer, selection for training, and so forth. Keep the records longer as a guide for setting salaries and so forth.

The Occupational Safety and Health Administration requires that you keep a summary. log and detailed records for work-related irjuries and illness for five years. Similarly, OSHA requires that you keep records of employees exposed to toxic or other harmful substances for 30 years.

The Age Discrimination and Employment Act requires employers to keep pension and benefit plans, seniority system plans, and merit pay plans when the), go into effect plus one year. The Employee Retirement Income and Security Act has a three-year statute of limitations if an employee has been informed of the breach of' the employer's responsibility or six years if he has not. Since no statute of limitations exists in employer-fraud cases, keep records for at least six years.

General business records. You must meet the state requirements in which your organization was formed and in which it conducts business. Most states require that you keep general business records, but they don't specify for how long. Although you could fall back on the three-year retention period of the Uniform Preservation of Private Business Records Act, you should be uncomfortable about keeping important business records for only three years.

Keep articles of incorporation and bylaws permanently. Keep minutes from board of directors meetings for at least 10 years to show association activities were properly authorized. Keep shareholder records as long as the information is current or active plus three years.

Government contracts. The federal government requires that you keep contracts for three years from the date of final payment. Keep records for accounts receivable, invoices, freight bills, purchase orders, material transfers, travel expenses, canceled checks, accounts payable, payroll, work orders, receipt arid inspection reports, production records, and so forth, for four years. Keep such records as labor cost distribution documents, petty cash records, time cards, paid employment checks, and store requisitions for two years.

Determine if any federal contracts require a different retention period. State and local governments generally adopt the same active-plus-three-year retention period.

Sales contracts. In most states, the Uniform Commercial Code has a four-year statute of limitations for sales contracts.

Contracts for improvements to real property. Most states have a specific statute of limitations governing improvements to real property. Thus, keep all records for the time period required by your state.

Other written contracts. You may destroy written contracts after the statute of limitations period unless a state law requires a specific retention period. Remember, however, that several states may be involved--the state in which the contract was executed, where it was performed, and so forth. Use the longest statute of limitations.

Financial records. State laws set statute of limitations requirements for association financial records--except tax records. For example, California Corporate Code 5012 specifiies that the financial statements of a nonprofit organization are those prepared in conformity with generally accepted accounting principles or some other accounting that reasonally sets forth the assets and liabilities and the income and expenses of the corporation and discloses the accounting basis used in their preparation.

A Sample Record-Retention Schedule
 Retention
Record Period
Accident reports and claims 30 years


(settled cases)

Accounts payable ledgers 7 years

and schedules

Accounts receivable ledgers 7 years

and schedules
Audit reports Permanently
Bank reconciliations 1 year
Bills of lading 4 years
Capital stock and bond records; Permanently


ledgers; transfer registers;

stubs showing issues; record

of interest coupons; options;

and so forth
Cash books Permanently
Charts of accounts Permanently
Checks (canceled; see 4 years


exception below)

Checks (canceled; for important Permanently

payments such as taxes,

purchases of property, special

contracts, and so forth

checks should be filed with

the papers pertaining to the

underlying transaction)

Contracts and leases 7 years

(expired)

Contracts and leases still Permanently

in effect

Correspondence (routine) with 1 year

customers or vendors
Correspondence (general) 3 years
Correspondence (legal and Permanently


important matters only)

Deeds, mortgages, and bills Permanently

of sale
Depreciation schedules Permanently
Dividend checks/records Permanently


(canceled)
Duplicate deposit slips 1 year
Employee personnel records 3 years


(after termination)
Employment applications 3 years
Expense analyses and expense 7 years


distribution schedules

Financial statements (end-of-year, Permanently

other months optional)

Scrap and salvage records 7 years

(inventories, sales, and

so forth)
Securities transactions 3 years
Stenographer's notebooks 1 year
Stock and bond certificates 6 years


(canceled)
Stockroom withdrawal forms 1 year
Subsidiary ledgers 7 years
Tax returns and worksheets, Permanently


revenue agents' reports, and

other documents relating to

determination of income tax

liability

Tax records (affiliated Permanently

group)

Tax records (bad debts or 7 years

losses on securities)

General and private ledgers Permanently

(and end-of-year trial balances)
Insurance policies (expired) 3 years
Insurance records, current Permanently


accident reports, claims

policies, and so forth

Internal audit reports (in 3 years

some situations, longer

retention periods may be

desirable)

Internal reports 3 years

(miscellaneous)

Inventories of products, 7 years

materials, and supplies
Invoices to customers 7 years
Invoices from vendors 7 years
Journals Permanently
Minute books of directors and Permanently


stockholders, including

bylaws and charter

Notes receivable ledgers and 7 years

schedules

Occupational injury and 5 years

illness records
Option records (expired) 7 years
Payroll records and summaries 3 years


including payments to

pensioners
Petty cash vouchers 3 years
Physical inventory tags 3 years
Plant cost ledgers 7 years
Property appraisals by outside Permanently


appraisers

Property records including Permanently

costs, depreciation

reserves, end-of-year trial

balances, blueprints and plans

Purchase orders (except 1 year

purchasing department copy)

Purchase orders (purchasing 7 years

department copy)
Receiving sheets 1 year
Reorganization records Permanently
Requisitions 1 year
Sales records 4 years
Savings bond registration 3 years


records of employees

Tax records (corporate Permanently

deductions for dividends

paid)

Tax records (multi-employer 6 years

benefit plans)
Time books 7 years
Trademark registrations Permanently
Voucher register and 7 years


schedules

Vouchers for payments to 7 years

vendors, employees, and so

forth (includes allowances and

reimbursements of employees,

officers, and so forth for

travel and entertainment

expenses) Note: This is a sample record-retention schedule, compiled by ASAE from many sources. It does not take into account the individual needs of particular associations. Therefore, be sure your legal counsel reviews the record-retention schedule before you adopt it.
COPYRIGHT 1992 American Society of Association Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:records management
Author:Tomes, Jonathan P.
Publication:Association Management
Date:Sep 1, 1992
Words:2418
Previous Article:Service benchmarks for the meetings industry.
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