Nonprofits: Do you Have a Document Retention and Destruction Policy?

Another tax season is right around the corner and people and organizations all over are working to pull together the necessary documents. For nonprofit organizations, this will include submitting The Internal Revenue Service (IRS) form 990 which now stresses the importance of a document retention and destruction policy.

The IRS’ Form 990 is a tax document/information form that nonprofits have to file each tax season. This form allows the IRS to evaluate nonprofits and how they operate.

Although it’s not required for nonprofits to have a written document and destruction policy right now, the form asks the question about document retention and destruction and it’s meant to get nonprofits thinking about the issue. It indicates the IRS believes this is important and it may indicate this is something the IRS might consider as a future policy. But beyond the IRS aspect, having a document retention and destruction policy is just good business; it can help nonprofits comply with certain laws as well as protect themselves from fraud.

•  What and how long to keep files – Nonprofits should consult their legal and accounting staff to determine exactly what should be kept for their situation. Many think seven years is the rule of thumb when it comes to cycling out records, but this isn’t true for all documents. Before you toss files, consult a financial advisor or professional records management center to determine the length of time to keep specific records.


•  Retention schedule – Once you’ve decided what you should be keeping and for how long, it’s important to develop a schedule so documents are discarded in a timely manner. Remember, never assume it’s better to be safe than sorry because federal law says that during an audit, they can go through all records on hand.


•  Destruction policies – All it takes is the wrong person in the right place getting a few of your records and your organization could find itself trying to recover for years to come. In order to make sure this doesn’t happen to you, shred everything that you’re disposing of. If you have large amounts which need to be shredded, take advantage of local services which specialize in shredding.

Even though nonprofits differ in their business models compared to for-profit entities, it is just as important for them to have a working document retention and destruction plan in place - plus by developing a policy now, your organization will be ready if and when the IRS decides to make this a requirement of nonprofits.

What is ERM?

According to Wikipedia, “An electronic records management system (ERM) is a computer program (or set of programs) used to track and store records… ERM systems commonly provide specialized security and auditing functionalities tailored to the needs of records managers.”

That’s a pretty basic definition – good to know if you’re just curious, but not so useful if you’re actually trying to implement an ERM of your own. Are you even a records manager? What are you tracking and storing? A set of what kind of programs? What security and auditing functionality do you need?

Let’s start at the beginning.

The first question is the simplest. Are you a records manager? To answer a question with a question, do you have records? This can include accounts payable or receivable, human resources, taxes, legal documents, patient records… pretty much anything you produce that you need to keep track of. If so, the answer is yes, you are indeed a records manager.

The second question gets into the heart of how records management works. What are you tracking and storing? An important word to learn at this point is “metadata” – basically, data about data. The specifics will vary by user and use, but it’s going to be some sort of identifying information about what you are storing that can be used to find it. For example, patient accounts might have the name and date of birth of the patient, while payroll tax records might be the type of tax and the period for which it was paid.

Records management (RM) started out using this metadata to keep an electronic index of the location of physical data (think of a library catalog organized by title and author). Though physical data is still certainly a part of ERM, that principle has now evolved to include Enterprise Content Management (ECM - while ECM as a whole is a lesson for another day, it includes electronic capture, management, storage, preservation, and delivery of records; metadata can be expanded to a full-text search of the record). In a nutshell, ERM indexes the metadata and returns the location of the actual data (be it on the server or in a warehouse) to you in a click – way less time and trouble than getting a paper cut digging through six filing cabinets! Of course the key to a successful classification scheme is ease of use, but that may take some trial and error.

Next… a set of what kind of programs? Here at IMS, we use two: VCK, provided by Andrews Software, for our boxes and files, and FileBound from Marex Group for our digital projects. VCK keeps track of everything in our warehouse by a barcode and a database. If a client requests a file, we can quickly pull up the location and walk back to get it. FileBound works much the same way, except it is universal (we use it for our office records, while our wide array of clients use it for their own industry -specific needs) and it pulls the digital documents up for us.

The difference between these programs is probably obvious. Using the physical record doesn’t require a lot of new technology – at most, a lamp and some reading glasses will have you ready to go. However, some basic storage needs such as temperature, humidity, and a disaster plan still apply. A digital record requires a viewer that will open a variety of document types, and it has to constantly evolve to keep pace with ever-changing software and hardware requirements. Using a SaaS (Software as a Service) provider like FileBound eases some of that burden by taking on the software maintenance and data backups.

That said, there is also a major similarity between the two: each requires layers of security, both physical and virtual. What security and auditing functionality do you need? The boxes and the server both require protection from intruders, and the data in the system must be guarded from unauthorized access. Access, authorized or not, must leave a trail for auditing as well as for investigating any issues that might arise.

What none of these questions ask is why ERM? We’ve already mentioned the time and money you can save by not having to hunt down your files in a vaguely organized storage area. Keeping your records in a controlled index organized by context can mean increased efficiency across the board. What we haven’t discussed is that keeping better track of your business records can keep you in compliance with government regulations such as HIPAA or the Red Flags Rule, or that knowing what you have can push you into adhering to best practices by helping you create broad policies and specific procedures within your organization. A guided workflow can mean more innovation for your business.

Which brings us back to a lesson for another day…

(some information in this article was provided with assistance from aiim.org)

Wonders of the Modern Business World

Perhaps you are familiar with the Library at Alexandria – at its peak, it boasted around 700,000 painstakingly acquired scrolls, making it the largest assembly of information in the ancient world. While the exact details of its demise are disputed, it is known that the last repository of its once-fabulous collection was destroyed at the end of the fourth century A.D. Naturally, while it was difficult to replace seven centuries of knowledge, it was important to try: in 1974, serious planning began for the Bibliotheca Alexandrina, which was inaugurated in 2002 near the site of the original library. It is estimated that it will take approximately eighty years to fill the state-of-the-art structure to capacity.

Odds are good that your business doesn’t have 1600 years to recover from disaster, or even eighty to get back on track. Data compiled by the Disaster Recovery Institute finds that the majority of businesses that are unable to quickly recover computer operations after experiencing a serious loss of critical data will fail within two years. Several things contribute to this unfortunate statistic:

• bad publicity
• loss of customer confidence
• loss of internal workflow
• loss of sales capability
• inability to process customer orders
• loss of cash flow
• high cost of manual restoration of critical databases

Many companies are aware of the need to back up their server and keep the tapes offsite. What they are not aware of is the depth of contemporary records management and the way it is used in not only disaster recovery, but in business efficiency, cost reduction, regulatory compliance, and an evolution into an eco-friendly paperless environment. Over the next few days, we’ll be exploring the world of ERM, ECM, BPM, and a whole host of other acronyms that mean nothing to you now, but could make a huge difference in your organization.

Community Shred Day

Looking for some "Go Green" baby steps?

• According to Forrester Research, a copier, two printers, and a fax machine use a combined 1400 kWh per year. A multi-function device performing equivalent tasks uses only 700 kWh per year. That's half the energy and one-fourth the owner's manuals!



• A case of copy paper (5000 sheets) costs an average of $40. Conservatree estimates that same case of paper to use approximately 60% of a tree. What does that mean in terms an office manager can relate to? A filing cabinet holds approximately 10,000 sheets of paper. That paper costs the company about $80 and the environment 1.2 trees (and that's just the paper, not the folders). Ten filing cabinets will cost $800 and twelve trees.
  
  Consider the size of that cost for a moment. Now consider the cost of 500 MB worth of storage (that's less that one CD) that will hold an entire filing cabinet of information in a paperless environment. Those ten filing cabinets comprise about 5000 MB of storage - the size of one DVD plus half of a CD.



• Using recycled paper and shredding with a company that uses a paper mill for recycling provide a two-fold boost for the trees. Paper containing 30% post-consumer content saves almost 2% of a tree per ream or 18% per case. Paper with 50% post-consumer content saves 3% per ream or 30% per case.

Responsible Business Practices = Customer Retention

In the current climate of uncertain finances and regular reports of identity theft and fraud, consumers are looking more closely at where they put their business. From purchasing an automobile or a cell phone plan to choosing a bank or a doctor, we are all thinking twice about what we can afford to spend and who we can afford to spend it with. With that in mind, there are a few things to consider in your records management practices.

For starters, most industries are under some form of legislation regulating how they must maintain their records. It goes without saying that some of the rules can be vague at best and downright tedious at worst. However, if you take the extra time to reorganize your business practices to work with these rules instead of making small concessions to skate by, you are often going to find that your business will begin to operate more smoothly and give you less cause for panic when an audit or inspection rolls around.

Secondly, how much data do you really require on each customer or patient in your records? According to the New York Times (4/5/09), professors at The Wharton School view retention of any personal data as a liability and strongly recommend keeping the amount of information in your possession to a minimum. Do you really need that social security number? Last three employers? Credit card number? If you don't have to have it, don't put your clients (and yourself) at risk by keeping it in your files.

Finally, use your records management practices as a marketing tool. Are you archiving your hard copies at a secure offsite facility rather than within the grasp of every new employee that walks through the door? Are you shredding confidential information with a bonded company rather than throwing your shredded (or, Heaven forbid, unshredded) documents in the dumpster? Are you keeping your records backed up offsite or in the cloud in case of disaster? Your customers will value the security and be far more likely to keep their trust in you when they are cutting budgets if you can show them that you take their peace of mind seriously.

Red Flagging the Telecom Company

While the Red Flags Rule has basically the same end result for all entities required to be in compliance, the specifics of how this affects individual industries can become confusing. Today's article from the FTC takes a look at telecommunications companies.

The “Red Flags” Rule:
What Telecom Companies Need to Know About Complying with New Requirements for Fighting Identity Theft

by Tiffany George and Pavneet Singh
Federal Trade Commission

As many as nine million Americans have their identities stolen each year. The crime takes many forms. Thieves may buy a car, obtain a credit card, or establish telephone or Internet service using someone else’s identity. Consumers may not find out they’re victims of identity theft until they review their credit reports or read their monthly statements and notice charges they didn’t make – or until they get a call from a debt collector.

For millions of consumers, identity theft inflicts economic, psychological, and emotional harm. Victims may have to spend money and time repairing the damage to their good name and credit record. The cost to business can be staggering as well, with charges racked up by identity thieves unpaid and uncollectable.

Telecommunications companies may be the first to spot the red flags that signal the risk of identity theft, including suspicious activity suggesting that crooks may be using stolen information to establish service. That’s why you need to know about a new law that requires many businesses – including most companies that provide telecommunications services to consumers – to spot the red flags that can be the telltale signs of identity theft and do something about them.

The new regulation – called the Red Flags Rule – requires companies to develop a written “red flags program” to detect, prevent, and minimize the damage that could result from identity theft. The Federal Trade Commission, the nation’s consumer protection agency, enforces the Red Flags Rule.

The FTC will begin enforcing the Rule on May 1, 2009. Is your company required to comply with the Red Flags Rule? If so, what’s your next step?

WHO MUST COMPLY

Companies that provide telecommunications services may be covered by provisions of the Rule that apply to “creditors.” The Rule includes some specific definitions and exceptions, but it boils down to this: If your company regularly bills customers after services are provided, you are a creditor under the new law and will have to develop a written program to identify and address the red flags that could indicate identity theft in your covered accounts. The rule defines a “covered account” as a consumer account that allows multiple payments or transactions or any other account with a reasonably foreseeable risk of identity theft.

SPOTTING RED FLAGS

The Red Flags Rule gives telecom companies the flexibility to implement an identity theft prevention program that best suits their business, as long as it conforms to the Rule’s requirements. The Rule requires that your program identify relevant red flags, detail your process for detecting them, describe how you will respond to them to prevent and mitigate identity theft, and spell out how you will keep your program current. Many companies already have fraud detection or prevention procedures they can incorporate into their program. Your program should be appropriate to the size of your organization, as well as to the nature of your business.

What red flags signal identity theft? There’s no standard checklist, but here are a few signs that may arouse your suspicions:

• Alerts, notifications or warnings from a consumer reporting agency. For example, if a fraud alert is included with a credit report, federal law requires you to take reasonable steps to verify the identity of the customer who wants to open an account with you. If you find out that there’s a credit freeze in place, you may want to follow up and ask for more information.
• Suspicious documents. Has an applicant given you identification documents that look altered or forged? Is the physical description on the identification inconsistent with what the applicant looks like? Is other information on the identification inconsistent with what the customer’s told you? More investigation may be required.
• Suspicious personally identifying information. Personal information that doesn’t match what you’ve learned from other sources may also be a red flag of identity theft. For example, if the current address doesn’t match the address in the consumer report – or if the Social Security Number doesn’t match the date of birth – fraud could be afoot. If the address on the application is fictitious or a mail drop – or if the only contact information is a pager – there may be a problem.
• Suspicious activity relating to a covered account. Did a customer ask for a new cell phone or add a new authorized user soon after a change of address? Did a customer’s use patterns abruptly change? Did a new customer fail to make the first payment or make an initial payment but no others? Is mail returned repeatedly as undeliverable even though transactions still are being conducted on the account? Don’t ignore the voice of experience when it tells you that something seems questionable.
• Notices from victims of identity theft, law enforcement authorities, or others suggesting that an account may have been opened fraudulently. Cooperation is key. Heed warnings from others that identity theft may be ongoing.

Of course, a red flag by itself may not indicate ID theft, but may be relevant in a larger context.

SETTING UP AND WRITING DOWN YOUR RED FLAGS PROGRAM

Once you’ve identified the red flags that are relevant to your business, your program should include the procedures you have put in place to detect them in your day-to-day operations. Your program also should describe how you plan to prevent and mitigate identity theft. How will you respond when you spot the red flags of identity theft? Will you close questionable accounts or monitor them more closely? Will you contact the consumer directly? When automated systems detect red flags, will you manually review the file? Finally, because identity theft threats change, consider how you will keep your program current to ensure you address new risks and trends.
No matter how good your program looks on paper, the true test is how it works. According to the Rule, the program must be approved by your Board of Directors or – if your company doesn’t have a Board – by a senior employee. The Board may oversee the administration of the program, including approving any important changes, or designate a senior employee to take on these duties. Your program should include information about training your staff, and provide a way for you to monitor the work of your service providers. The key is to make sure that all members of your staff are familiar with the Rule and the new compliance procedures.

WHAT’S AT STAKE

Although there are no criminal penalties for failing to comply with the Rule, violators may be subject to financial penalties. But even more important, compliance with the Red Flags Rule assures your customers that you are doing your part to fight identity theft.

For more information about designing a compliance program and your compliance responsibilities, email RedFlags@ftc.gov or visit ftc.gov.

Tiffany George and Pavneet Singh are attorneys in the Federal Trade Commission’s Bureau of Consumer Protection.