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Litigation Avoidance

April 1, 1998

5 Min Read
Litigation Avoidance

Abstract: Why do businesses and organizations keep records? Wewill discover that requirements from government, protection fromlitigation and sound business practice are just a few reasonsthat records are not a choice but a requirement. In a sea ofpaper and computer data, which documents represent businessrecords? All records are documents, but not all documents arerecords. If this is true, then how do you tell the differencebetween the two, and what does that mean to your business?

Record keeping is a requirement for all businesses. Whether welike it or not, all of us are required to keep records.Generally, there are three reasons to keep business records:litigation avoidance, regulatory adherence and sound businesspractice. Let's look at each separately.

Litigation Avoidance

Records are commonly described as the "results" ofbusiness transactions. The word "results" impliescompletion and serves as the evidence documenting what happenedduring the transaction. Records must have integrity to ensurethat the information accurately reflects the transaction and isunchangeable. We use records in courts of law and require expertopinions that attest to their integrity. Once accepted by thecourt, they can also be used as evidence.

Regulatory Adherence

Government requires all businesses to maintain records. Thereare thousands of federal, state, and local codes and statutesthat require record keeping. This is indeed a complex problem.Not only is there a myriad of requirements, but these are complexand confusing, and few businesses understand their record-keepingresponsibilities.

Sound Business Practice

In their acceptance rules, organizations such as the AmericanInstitute of Certified Public Accountants and the InternationalStandards Organization requires record-keeping standards andpractices that are designed both as audit trails and internalcontrols. These result in records as well.

Needless to say, the complexity of these requirements makesrecord keeping very difficult even for the smallest organization.Many companies give up and "throw in the towel" bykeeping everything, sometimes forever. It is estimated that thereare more than one billion cartons of inactive records in thiscountry alone. Probably less than half are in formalrecords-management programs or in commercial-records centers.Many are simply put out of sight and thus out of mind. Perhapsyou have some in your own self-storage facility, locked behindclosed doors.

Documents or Records: What's the Difference?

All records are documents, but not all documents are records.Which is which, and how does one know the difference? This is avery perplexing question. Documents today take many differentforms. We consider voice mail and e-mail documents. CertainlyMicrosoft Word or Corel's WordPerfect files, as well asspreadsheets from programs such as Lotus or Excel, are documents.There are even such things as compound or complex documents suchas a Word document with an Excel spreadsheet imbedded within it.Are these documents, as well? The answer: yes. Regardless ofform, shape, size or media, all are documents. But are theyrecords? The problem goes on and on. What do I keep and how do Ikeep it to protect myself from liability in litigation, appeasethe regulators and my accountant?

To top it off, documents are considered the "Currency ofthe Business Enterprise." Documents act as the primary meansof exchange within business systems. This has always been definedas exchange of information, but today's documents cannot onlyexchange information but also the work process. They carry valueto a business not only as records, but also as importantinformation assets that can be reused and shared in work groups.

Records are commonly segregated according to their life cycle.Typically, we classify them into active, semi-active andinactive. These three stages of the records' life representdifferent uses and importance.

Active Records. During the business process, there arecertain events that document the completion of parts of atransaction within the work process. These records are commonlykept near the employee that uses or creates the record, usuallyin file cabinets, electronic media storage or at ready access tocomplete a transaction.

Semi-Active Records. These records have reachedcompletion, but are maintained close by for easy reference. Theyare usually held in file rooms or in secretarial workstations forquick review immediately after the completion of a transaction,and are usually stored for up to a year or so afterward.

Inactive Records. These are records that have minimalpractical use on a day-to-day basis but must be maintained forcompliance issues. They are usually boxed and stored away fromthe high-cost office floor space, and are very often poorlyindexed and improperly packaged. They carry little importanceuntil they are needed to prove something to a court or aregulator. Then they become absolutely essential.

Records Retention Schedules

In order to maintain order in any records-management program,a company or organization must construct a retention schedule.This is done by grouping records into homogeneous types calledrecords series. Optimum records-management programs assign a lifecycle and a destruction date to each record series, along with acitation to the appropriate regulatory code or statute thatrequires the maintenance of that record. Retention scheduling iscomplex and precise. Professionals create these in therecords-management business usually with the certified recordsmanager (CRM) certification. Both the corporate legal council andthe internal auditor must approve the corporate records retentionschedules to insure maximum compliance.

Disposition

All records have a life cycle that ends in disposition. Thismeans either destruction or migration to another media. If therecord is destroyed, a certificate of destruction is required todocument the destruction. Destruction is usually done by thecommercial records center and validated by date, time, method andcorporate approval. This certificate is used to validate thedestruction in accordance with the retention schedule. This isproof that the record no longer exists and was destroyed in linewith the retention schedule guidelines.

Record Growth

Records are everywhere, and they continue to grow at an annualrate of 15 percent to 22 percent, compounded annually.Destruction rarely exceeds growth. Commercial records centers canexpect to run out of space periodically--just from existingclients. Although this continues the growth of storage revenue,it also requires additional capital investment for shelving andspace. Those of us in the industry must plan for thisinevitability.

Regular columnist Cary F. McGovern is a certified recordsmanager and owner of File Managers Inc., a records-managementconsulting firm that also provides outsourcing services,file-room management and litigation support services for thelegal industry. For more information about records management,contact Mr. McGovern at File Managers Inc., P.O. Box 1178, AbitaSprings, LA 70420; phone (504) 871-0092; fax (504) 893-1751;e-mail [email protected];Web: www.fileman.com.

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