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The Importance of Establishing a Record Retention Policy for Your Organization

September 25, 2014

Joshua J. Bloom, CPA

As accountants and business consultants, we are often asked how long business records should be saved. Recordkeeping is important because it provides information to support decision-making by management and is generally required by legal retention requirements.

Records can be paper files, electronic documents, correspondence (including letters, faxes and emails) and data used in business applications and databases. A record retention policy helps establish a uniform rule across the organization as to how long something should be retained.

The length of time for keeping records varies greatly depending on the record type. A record retention policy is an important first step. Organizations should establish these policies to mitigate the risks associated with the seemingly endless federal, state and local laws and regulations in effect; employee, customer, vendor and supplier disputes; or for audits from federal, state, and/or local tax authorities. For many organizations, regulatory requirements may dictate how long certain documents are maintained. Organizations accepting funding from governmental or non-profit sources can be subject to additional requirements.

A record retention policy not only assists the organization with which records to retain, it also serves as a guide for when certain records can be destroyed due to physical or electronic space constraints. There is a cost of physical and electronic storage for large volumes of data. Physical storage costs include rental or lease expense for storage space, utilities and maintenance. Hardware storage costs include hardware, software, power consumption, labor and monitoring costs. Physical records being held in storage could be lost if there is a natural disaster (e.g., flooding, hurricane, etc.). Electronic records are also subject to risk of loss in the event of disaster, though they can (and should) be regularly backed up. A good record retention policy can also reduce legal risks and discovery costs, as well as recovery effort time, associated with legitimate lawsuits.

Destroying documents in accordance with a reasonable record retention policy can help protect your organization from legal risks. Never destroy documents or information in response to a request for information, or after being summoned by court order. Destruction of documents at this point may result in fines, penalties and/or imprisonment.

A sample record retention guide can be downloaded here. The retention periods listed indicate the minimum requirements and are provided as general guidance to customize in determining your organization’s document retention policy. Because statutes of limitations and state and local regulatory requirements vary from state to state, each organization should carefully consider its requirements and consult with legal counsel before adopting a document retention and destruction policy. In addition, federal awards and other government grants may provide for a longer period than is required by other statutory requirements.


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