Taming the paper monster: Records management, compliance and file security

In sharp contrast to optimistic forecasts that technology would rid your company of the “paper monster,” computers seem to have exacerbated the problem. Now, you’re sending, receiving and storing information electronically and printing copies—lots of copies.

You may be able to live with the mess, but what will happen someday if you need to get your hands on one of those documents? How long would it take you to find a copy of an accounts-receivable report from last July? Could you locate the documents that came with your phone system if something suddenly went haywire? Where would you look if the IRS demanded to see your corporate tax return from 1996?

Without a carefully designed records management program, you could come up empty-handed at the worst possible time, or at the very least be sent searching for a needle in a haystack.

“A well-considered records policy is essential to a healthy bottom line, both as a management tool and as a potential shield from liability,” wrote Norman Bates, president of Liability Consultants Inc., a security management firm in Framingham, Mass., in Security Management.

A records management system offers a number of benefits that offset the costs of developing and implementing it:

• Quick information retrieval.
• Lower operating costs.
• Proof of compliance.
• Protection of your business interests.
• Liability protection.
• Protection against unauthorized access.
• Protection against damage or destruction.

Case Study: Embezzler Has a Field Day

Hank Gold, financial adviser and principal in Datavantage, a tax and business services firm in Boston, relates this story, which underscores the high cost of poor records management:

As tax time approached, the owner of a Boston bar began the chore of preparing his annual return. Upon opening his filing cabinet, he found it virtually empty. Apparently, an employee who had been embezzling from the firm had destroyed the company’s receipts to cover his activities. The employee was fired, but the business owner still had no records to substantiate his operating expenses for the year.

His bank was willing to provide copies of all the checks he’d written. However, the owner couldn’t afford the processing fee of $5 apiece plus $20 an hour for labor. Eventually, the IRS used copies of the company’s bank statements to reconstruct the return. It counted all deposits as gross revenue and disallowed all disbursements for lack of support. The bar owner, facing the massive tax levies, was forced to close his business—all because he failed to monitor his records.