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AR Best Practices | Answers

Record Retention  locked

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Q:  Where can I get a record retention guide? I need information on how long to keep AR reports, documents, tax records and manuals.

A: The AR Network provides a record retention guide in the Tools section. It covers all accounts receivable documents, including manuals. At the bottom of that guide you'll find a link to IRS publication 583 Starting a Business and Keeping Records, which provides additional information.

For other areas, you should be able to find a number of guides and lists on the Web simply by searching for "record retention guide" or "document retention guide." Be sure to consider the source of the results you find, and be warned, not all records retention guides will agree. For example, while many lists cite 7 years as the length of time to keep accounts receivable ledgers and schedules, a few cite 6 years. Here are a few lists you might find helpful:

Massachusetts Society of CPAs

McKonly & Asbury LLP Guides for Businesses

There are also lists that focus on specific areas in some detail, for example, human resources records. Some states provide information as well, often tied to specific statutes. See the state Web sites.

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Q:  We are considering using our document imaging system to store our deposit support. This would involve imaging valid checks that are being deposited. Our banking manager has significant concern that we would be liable for any fraudulent activity that may arise from unauthorized access to these checks and feels it would be necessary to stamp them void before imaging them.

Are there any "best practices" out there for safely storing these types of documents electronically to avoid the possibility of fraudulent activity? If the checks are signed and have the MICR coding, it is thought they could be reprinted on generic check stock and passed through a bank. Any suggestions would be appreciated.

A: Your banking manager is correct to be concerned about security. Here are a few recommendations regarding imaging checks for storage:
  • The MICR information should be eliminated from the image – this information is a fraudster’s ticket to steal
  • Mark the check “void”
  • Deface the signature area
  • Make sure your electronic document storage system incorporates controls and limits access to the image files. Put control procedures in place around your imaging process and record access.
  • Consider cyber liability insurance in a form that would protect you from employee or third party fraud if they broke through your security system to the area where this information is stored
You might want to contact the Enterprise Content Management Association for ideas regarding electronic record storage solutions.

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Q:  We are switching from paper checks to EFT for our payments. We now have large amounts of paperwork containing banking details information lying around. The information has already been scanned into our system. What is the Best Practice for storing/destroying this information? Do we have to store it and for how long?

A: In most cases an electronic copy is acceptable documentation as long as it is readable, has the substance of the transaction and adequate safeguards to prevent unauthorized access and alteration. Some companies like Johnson & Johnson scan all invoices and other supporting documentation upon receipt save it for some period of time, maybe a few days and then destroy it. Other companies may keep it longer so that there is adequate time for its technology services group to perform backup archives on electronic data so that they are sure a copy has been archived in case of a system crash. The timing depends on your organization's back up routine.

You can also refer to the record retention guide found in TARN's Tool Suite.

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Q:  We are scanning our paper work, however I am not sure if pdf files are acceptable for audits. Is there any rule on when and if originals can be destroyed?

A: Electronic records are acceptable and original paper documents may be destroyed. Please see IRS Revenue Procedure 98-25 .

It's important to note that if you retain paper documents along with electronic copies, the paper documents control, i.e. you have to supply the paper documents in an audit. However, making electronic versions of the documents and destroying the paper is acceptable provided that you follow the rules set forth in IRS RP 98-25.

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