A good electronic record-keeping system is vital—especially for government work. Here’s what you need.
Good electronic recordkeeping is especially vital if you want to land government contracts. Government bids aren’t done on a handshake; you’ll often be asked to present an array of data including financial statements and human resources records. And once you land a government deal, you can be audited by the agency that gave you the contract (audits can take place as often as once a year on certain government contracts). If you can’t seamlessly produce the documents requested for an audit, you can jeopardize your chances of getting another bid.
Here’s how to handle e-recordkeeping and retention.
Make sure your systems are government-compliant. If you intend to seek government contracts, make sure you understand the different types of records you may be asked to produce. For example, you’ll need to share various HR records to prove your firm is compliant with affirmative action and other hiring policies. For certain contracts, such as those issued by the Department of Defense, check that your accounting software meets any auditing requirements. Upgraded versions of QuickBooks and Peachtree Accounting systems comply with DCAA (Defense Contract Audit Agency) rules.
Formalize an electronic records management system (ERM). “Carefully planning out a comprehensive electronic recordkeeping system enables business owners to gain control over their records,” says Scot Justice, a Nashville CPA and founder of The Virtual CFO, which specializes in setting up electronic accounting systems for small businesses.
At a minimum, your firm needs a policy that spells out which documents you will save, how long you will save them, where you will keep them, and who will have access to them. If you intend to work with the government, you’ll also want a system that allows you to easily tag each document with a specific contract ID number, so you can easily trace and recall all information related to that particular contract.
Get backup. A good backup system can make sure your data is safe, no matter what happens to your computer systems. Justice recommends using a remote, third-party firm to handle your storage. It typically costs $10 to $20 a month to send up to 10 gigabytes of data for off-site storage via an online connection. You want a system that backs up automatically (known as “pull”, rather than “push”). “Make sure the system encrypts your data for security,” adds Justice. “That’s a must.”
Hold on to certain originals. Be careful in your quest for the paperless office; you’ll want to hold on to some original paperwork, such as your firm’s articles of incorporation. Ask your CPA what originals you need to keep.
Consider an e-mail retention policy. The Sarbanes-Oxley Act, passed in 2002, requires publicly traded firms to keep an e-mail trail. While your firm may not be public, keeping up with the business standard may help you compete for government business. Moreover, e-mail is now subject to disclosure in lawsuits.
When choosing an e-mail management system (EMS) to handle e-mail archiving—whether software or a third-party service—consider the duration of retention for maintaining records, whether it can automatically delete records based on programmed policy, and how easily you can search for and retrieve e-mails.
Even e-records can be trashed (eventually). The question of how long to keep an electronic business record comes down to the type of record it is. Your CPA should be able to provide recommended retention times for particular documents. Below are basic recordkeeping rules of thumb:
Keep for one year:
- Routine correspondence with clients
- Purchase orders
- Employment applications
- Petty cash vouchers
- Employee personnel records
- Accounts payable/receivable ledgers and schedules
- Bank statements
- Contracts and leases
- Employee benefit plan records
- Articles of incorporation or partnership agreement
- Insurance documentation
- Property records
- Audit reports
- Tax documents