Records Retention Schedules

Importance and Risk of Not Having a Retention Schedule

The Importance of A Retention Schedule

Records retention schedules serve as your credible legal authority to retain and purge records. If you faithfully follow a reasonable plan you will have a strong and credible legal basis for destroying records. Your good faith will be unassailable. If you destroy records haphazardly, you will be exposing your company to very serious litigation risks.

The records retention schedule captures all of the types of records created and used by a company in the course of its business and indicates how long these records are required to be retained. A retention schedule must be developed and faithfully executed in a systematic manner.

How Long Should We Keep Our Records?

Unfortunately, there is no definitive guide to record retention periods and disposition methods. Each record series needs and classification within your file plan must be examined individually in regard to usage patterns, departmental needs, historic value and legal issues.

Records Management currently holds material anywhere from 1 to 100 years, depending on a variety of factors. Even records that may appear similar between two departments often have very different usage patterns, and thus require very different retention strategies. However, the following two approaches may help you to formulate proper retention policies.

The “HALF-Life” Model

Many Records Custodians have found it helpful to evaluate their records based on the “HALF-Life” Model. In this model, we find that a record typically displays value in each of four categories:

• Historic: Does the record document an important part of Dartmouth’s history? Will it be a valuable resource to researchers many years from now?

• Administrative: How often do you actually use the material? What is the value of the information to your daily operation? At what point would not having the material available cease to be a serious hardship?

• Legal: Are there any external requirements to maintain the information, either from governmental or granting agencies? Does the record help to prevent a legal liability? Or does it perhaps pose a liability, even after the administrative value has disappeared?

• Fiscal: Is the informaton necessary for tax or audit purposes? Is it helpful in future budget and fiscal planning?

After evaluating a record series or node of your file plan in each of these four categories, in most cases you will have a good sense of how long the records should be kept.

It is also important to keep in mind that a record does not need to have lost all value in order to be disposed. There are many cases where a record still has some minor administrative value, but it is not enough to offset the storage and maintenance costs associated with maintaining the record. (This is most often true with very large sets with very low access frequencies.) In these cases, it may be appropriate to dispose of the record, despite the continuing administrative value.

The Robek Model

A more “textbook” approach is provided by Robek, Brown and Stephens, recognized authorities in the area of Records Retention:

1. Avoid the “Every Conceivable Contingency” syndrome.

2. Information should be retained if there is a reasonable probability that it will be needed in some future time to support some legitimate legal or business objective, and the consequences of its absence would be substantial.

3. Retention policies should generally be conservative, in the sense that they should not expose the organization to an inordinate degree of risk.

4. Remember, the presence or absence of information can be either helpful or harmful; therefore the best way to minimize the risks is to provide for systematic disposal immediately after the expiration of a document’s value for legal and business purposes.

5. A retention period is most likely to be valid if it is based on a consensus of the opinions of persons most knowledgeable about the value of the information and the costs, risks, and benefits of its disposal.

—Robek, Mary F.; Brown, Gerald F.; and Stephens, David O.; Information and Records Management (New York: McGraw Hill, 1995)

The first question you will be asked under oath.

One of the first questions you will be asked by an opposing attorney is, “What is your records retention policy?”

The second question will be. “Have your followed it?”

Ignoring records retention periods until it is too late is a common problem, especially with smaller organizations. Storing “everything forever” also increases litigation risk, discovery costs, and storage costs. Destroying information without regard to legal requirements can lead to severe sanctions, fines, unfavorable litigation settlement. In certain cases sanctions for spoliation of evidence have actually resulted in being prohibited from presenting a defense!

Risk and costs can increase dramatically when a formal records retention program is not in place and executed faithfully.

You can reduce litigation risk, discovery, and storage costs by instituting a simple yet formal records retention program that affords credible systematic destruction of information.

 

Famous Morgan Stanley Case $850 mijllion in punitive damages

Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc., 2005 WL 679071 (Fla. Cir. Ct., Mar. 1, 2005) and 2005 WL 674885 (Fla. Cir. Ct., Mar. 23, 2005)

In this famous case, Morgan Stanley was hit with $850 million in punitive damages in addition to ove $600 million in compensatory damages. Morgan Stanley was found to be guilty of spoliation of evidence.  The court sanctioned Morgan Stanley by giving the jury a detailed factual account of the discovery failings and allowing CPH to argue that the concealment was evidence of guilt and could be considered in determining punitive damages.  The court subsequently learned that Morgan had also intentionally hidden information about its discovery violations and had coached witnesses not to mention problems with certain backup tapes. The court sanctioned Morgan Stanley a second time by entering a default judgment against it on much of CPH’s complaint.

While the details of the Morgan Stanley case are complex, the lesson is simple - businesses need to take reasonable and proper steps to establish and manage a records retention policy.

Disclaimer

Please note: The legal requirements and limitation periods described below are examples for information purposes only and are not intended as legal opinion. Legal references alone should be used as the sole basis in establishing records retention schedules or disposing of records, as other requirements such as operational needs will likely apply also. We strongly advise every organization to engage qualified legal counsel prior to finalizing records retention schedules.

RECOMMENDED RETENTION PERIODS  (YEARS)

Record Series Years
Accounts Payable Ledger 7
Accounts Payable Ledger 7
Accounts Receivable Invoices 7
Accounts Receivable Ledger 7
Authorization – Accounting5 5
Bad Debts 7
Balance Sheets P
Bank Deposit Slips 3
Bank Reconciliations 7
Bank Statements P
Budgets3 3
Canceled Checks 10
Cancelled Dividend Checks P
Cash Book P
Cash Disbursement & Receipt Record P
Cash Sales Slips 7
Charge Slips 7
Charts of Accounts P
Check Register P
Depreciation Schedule P
Expense Reports 7
Financial Statements P
General Ledger P
Inventory Records P
Investment Transactions P
Journal Entries P
Petty Cash Records 7
Plans and Blueprints P
Plant Cost Ledger P
Profit/Loss Statements P
Property Appraisals P
Property Register P
Purchase Order 7
Subsidiary Ledger P
Trial Balance P
Vendor Invoices 7
Voucher Check Copies 7
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