What are the time limits for those boxes accumulating dust in the archives? Does all backup material need to be kept or just the final product? Who is actually making sure that this happens?
These are all key questions that relate to records retention and management. There is a cost to keeping records, so most organizations need to know when old records can be destroyed.
Retaining records: what does the law say?
As a general rule, background material to the retained records need not be kept. For example, while contracts with suppliers and supplier records should be retained, supplier performance assessment records and routine correspondence with the supplier need not be retained.
Specialized industries and areas such as legal, banking, securities, insurance, health care, environmental, transportation, and not-for-profit organizations, may have their own governing statutes that establish a regulatory framework and specify minimum record retention requirements. If your business is in one of these areas, chances are you already have specific policies addressing these regulations. If you do not, it would be advisable to check with your legal advisors to be certain you are aware of, and complying with, all records retention regulations.
Statutory records retention requirements
Some of the most important statutes are listed below. Note that this list is for convenience only and does not constitute legal advice. Readers are advised to consult their legal counsel for further information.
Income Tax Acts (federal and provincial): records must be retained for varying periods, typically two or six years after the end of the fiscal year under the federal act, depending on the type of record. Some provincial acts require seven-year instead of six-year retention. As a result, eight years is generally used as the policy to provide a buffer to ensure that statutory requirements are met.
Commercial law: Records such as articles of incorporation, shareholder records and board minutes must be retained indefinitely (during the life of the corporation), and for specified periods after the corporation is dissolved.
Statutes of limitation (federal and provincial): Provinces have varying limitation periods depending upon the nature of the matter. Often there is a period of only two years from when the claim is discovered, or up to 6, 10, 15 or 20 years from the time of the original matter giving rise to a claim. In many provinces, most claims must be filed within two years of becoming aware that a claim may be made, but there are many exceptions and case law is developing at a rapid rate as well. (For example, in Ontario, tort and many contract and injury claims must be filed within two years.) If your business has records pertaining to a legal action, remember that these must be retained for a further period related to the amount of time allowed for appeal.
Labour Code or Employment Standards Acts (federal and provincial): Requirements vary by jurisdiction, but the Ontario Employment Standards Act is typical. It requires that most records relating to employment be kept for a minimum of three years from their date of creation. These include records related to salaries and wages, hours of work, overtime, vacations taken, and so on. On the other hand, the British Columbia Employment Standards Act requires that most employment-related records be retained for two years following the termination of employment. Signed union agreements should be kept permanently until some years after dissolution of the company.
Employment Insurance Act (federal): Records must be maintained for two years following the date of an employee’s termination, and employment equity data must be kept for two years following the period covered (i.e., three years in total).
In addition to statute law, there are administratively recommended periods. These are not the same as the periods prescribed by regulation (e.g., with the federal Income Tax Act) since regulatory requirements have the force of statute behind them. Rather, in many cases, the statute does not provide explicit minimum record retention periods, so administrative practices have been developed by regulatory or government departments (e.g., workers’ compensation boards and pension regulators).
Read more about how to destroy personal information here.
Retaining records for business needs
Sound governance principles require that information necessary to protect the business and manage its risks be retained. Much of the value of a business resides in its information, and the tendency is to retain as much information as possible. With effective storage and indexing schemes (so that the information can be retrieved), information is a valuable and important resource.
Some examples of the ways that the retention of information can mitigate business risk include:
- Protection of intellectual property including patents, trademarks, copyright, and know-how
- Ability to initiate or respond to legal actions
- Ability to resume operations in the event of a disaster (business recovery planning)
- Human resources issues, including employment equity and human rights allegations
However, retaining information inappropriately can have adverse consequences, including:
- Violating privacy and confidentiality requirements
- Providing ammunition to a counterparty in the event of a lawsuit or similar action
- The cost of storing and securing the information
Thus, retaining information to address business risks requires balancing such positive and negative factors.
Electronic versus paper business records
More and more essential records are created, communicated and maintained electronically. The sheer volume of records leads many companies to electronically scan and store documents that were previously retained as paper. Are there cases where electronic versions of documents are not appropriate?
Until recently, courts of law have been slow to accept electronic documents as evidence because of the greater ability to falsify or misrepresent the electronic paper trail. Recent cases, however, have demonstrated that email and other e-documents are being increasingly accepted by the courts.
As a general rule, it is acceptable to store records electronically so long as:
- Electronic archives are systematically managed
- Electronic archives are maintained in a secure (preferably off-site) location
- Documents that require signature or other proof of approval or authentication can be authenticated in that format (e.g., sales commissions approved electronically by the sales manager in a manner that is traceable)
However, legal documents and correspondence of particular import to the organization, such as major sales or supply contracts, would be best kept in their original signed hard-copy state.
Jeffrey is a popular presenter, and was an adjunct professor at York University for 15 years. He is a frequent course director and course author for many organizations, including provincial bodies of Chartered Professional Accountants across Canada.
He has written over 20 books including: Canadian Treasury Management, Canadian Risk Management, and Financial Instruments: A Guide for Financial Managers (all published by Thomson-Reuters/Carswell), as well as Finance and Accounting PolicyPro and Information Technology PolicyPro (guides to governance, procedures, and internal control), and Cash Management Toolkit for Small and Medium Businesses (all published by Chartered Professional Accountants of Canada [CPA Canada]).
Latest posts by Jeffrey Sherman, MBA, FCPA, FCA (see all)
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