For labor organizations, the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA) requires that all records supporting a Form LM filing be kept for five years. The Internal Revenue Service requires that most records be kept for three years after a Form 990 is filed, and payroll tax records must be kept for a minimum of four years. These are just of few of the many recordkeeping requirements requiring compliance.
But what happens when there is a disaster and your records are destroyed? The answer is that your responsibility for maintaining required records is not mitigated by events beyond your control. With that in mind you should consider taking action to ensure the safety of your records.
The most basic way to safeguard your records is to keep a backup set in a safe place away from the original set of records. With current technology, it is easy and economical to create an electronic backup set of records. Many financial institutions provide statements and documents electronically. These and other documents in electronic form can be downloaded to a backup storage device such as an external hard drive, or burned to a CD or DVD. Original documents provided only on paper can be scanned into an electronic format. Ideally, computer data system backups should be created daily to limit the information that is at risk. Backups of other documents and information should be created on a regular basis. It is important that backups are stored offsite. If original records at your place of business are destroyed there is a good chance that backups kept at the same location or even nearby will also be destroyed.
There are many reasons to safeguard your records, and the governmental recordkeeping requirement is just one of them. In addition to your financial records, consider keeping a backup of other pertinent documents such as minutes, insurance policies, contracts, and leases. If disaster strikes, having backups of your records and important documents will help you cope with the situation.
By Donna A. Hubert, CPA, Partner, dhubert@legacycpas.com