Why File Retention is So Important
In today's digital world, businesses are swimming in a sea of documents. From scanned papers to web uploads to emails, figuring out what to keep and what to toss can feel like a never-ending chore. But it's a chore worth tackling!
Why, you ask? Well, there are plenty of reasons why managing your digital documents is crucial, and why using software to help is a smart move. It's not just about having an electronic content management system (ECM) in place. Think of building an ECM as setting up the foundation. Without proper governance, business rules, and file plans, you'll end up with a digital mess that's just as chaotic as a pile of paper.
So, let's dive into some key reasons why file retention is so important:
Compliance
This is the big one! Industries have rules that tell you exactly how long you need to keep certain documents. No matter what field you're in, there are regulations—whether federal or industry-specific—that dictate how long you should hang onto those files. It's like having a rulebook for your digital filing cabinet. For example:
Public Companies:
Sarbanes-Oxley Act (SOX) – Requires publicly owned companies to retain financial documents for five years and provide an audit trail to prove the policy is in place.
Employers:
Fair Labor Standards Act (FLSA) – Controls the retention of payroll records, sales and purchase records and collective bargaining agreements for a period of at least three years.
Equal Employment Opportunity Commission (EEOC) – Personnel and employment records must be retained for one year. Upon involuntary termination of employment, the terminated employee’s records must be retained for one year from the date of termination.
Healthcare Providers:
Health Insurance Portability and Accountability Act (HIPPA) – Patient records need to be retained for at least six years from the date the records were created or the date when the records were last in effect, whichever is later.
Financial Services:
Gramm-Leach-Bliley Act (GLBA) – Financial institutions must be able to explain their information-sharing practices and to safeguard sensitive data.
Dodd-Frank Act – Imposes recordkeeping requirements to ensure transparency and accountability for financial institutions.
Consumer Protection:
Fair Credit Reporting Act (FCRA) – Records related to consumer credit information must be maintained for a reasonable period, generally no less than two years.
Skipping out on these regulations isn’t just a bad idea – it’s a costly one! If you can’t show that you are playing by the rules with proper evidence and audit logs, you could face some hefty fines. And those fines can really put a dent in your company’s wallet. So, keeping up with these regulations is a must. And if you need more evidence, don’t worry, we have more to show you later.
Security
By putting solid file retention plans and practices in place, you can keep sensitive company and client information safe from data breaches and unauthorized access. Think of it as having a regular cleanup routine that checks for expired documents and shreds them when their time is up. This helps prevent data theft and reduces the company’s liability. Here are some key features that will make a well-managed file retention plan the superhero for your data:
Access Control – Consider this a VIP list for your documents. Only the right people get access from the start. Sometimes, access is a bit more open at first, but once the document is sorted and processed, it’s restricted to just a few. File plans act like bouncers, making sure the only people with the proper creds can get in.
Reducing Data Exposure – With a good retention plan, companies keep only the files they need and securely dispose of the rest. This way, if a data breach happens, there’s less sensitive stuff floating around.
Regular Audits and Monitoring – To keep your retention plan in tip-top shape, regular check-ups are a must. The audits help identify any weak spots in how data is stored and handled. By keeping an eye on things, you can fix issues before they become big problems.
Encryption and Secure Storage – Most retention policies call for data to be encrypted, whether it is stored on-site or off. This means that even if there is a data breach, the information is protected and unreadable. This is super important for documents with personally identifiable information (PII).
On top of all that, having a solid file retention plan can act as a life preserver in the event of a disaster. To avoid human error, an automated plan would mean less instances of accidentally deleting important files or keeping unnecessary data. Even if not automated, just having a plan and sticking to it can make a world of difference.
Efficiency
A well-executed file retention plan is like having a super-organized closet for your data. By keeping things tidy and only holding onto what you need, companies can enjoy the following benefits:
Reduced Storage Costs – By ditching outdated, unneeded or redundant data, you can save big on storage costs, whether it’s physical servers or in the cloud.
Improved Data Retrieval – Finding information becomes a breeze when you clear out the clutter. With fewer files to sift through, you can make decisions faster and boost productivity.
Workflow Optimization – An organized file system means smoother workflows. Employees spend less time hunting for documents and more time getting things done.
In short, an efficient file system keeps everything running smoothly, ensures productivity stays high, and helps keep storage costs low. It’s a win-win!
Reputation
When companies roll out a top-notch file retention plan, they’re showing everyone - customers, stakeholders, regulators, and the public - that they mean business when it comes to data integrity and compliance. This commitment helps build trust, giving them a competitive edge.
Plus, it keeps things transparent by making sure information is clear and up-to-date which will definitely come in handy during legal inquiries, public scrutiny, or even just regular audits.
Customers want to know their personal and financial information is safe. By sticking to strict retention policies, companies can reassure their customers that their data is in good hands. This not only builds trust and loyalty, but also reduces unnecessary risks for the business.
Return on Investment
When looking at a software platform for file retention, cost is something to think about. But don’t worry, it’s all about the return on investment (ROI), especially in terms of cost avoidance. Sure, having structured and understood file retention policies will potentially boost income if the company is considered trustworthy (as mentioned earlier), but avoiding unnecessary costs is always a win.
First off, you’ll save on hard drive space by deleting unneeded data, or at least slow down the need for more space. This also means fewer costs for physical storage if you’re dealing with paper documents. Plus, a well-defined file plan can cut down on the time employees spend hunting for documents, saving on staffing costs.
And if you throw in a software platform to automate your file retention plans, even more time is saved since no one has to manually mark or move files. Consider the file retention software your digital assistant that keeps everything tidy and efficient.
More significant, however, are the “soft costs” of risk avoidance. Fines for not following proper guidelines can be massive and could even sink a company. Remember the Enron/Arthur Anderson scandal in 2002 (1)? They had a documented file plan, but it wasn’t followed properly or automated. During an SEC investigation after a huge stock loss in October 2001, Enron went bankrupt and Anderson, their auditor, was found guilty of obstruction of justice by shredding documents. This led to the creation of the Sarbanes-Oxley Act (SOX), which can fine companies up to five million dollars for violations.
This is why it’s important to keep an eye on your file plans. If you don’t record that you followed your plans, you could still face those hefty fines. Staying on top of things can avoid a financial disaster.
A few other additional incidents of fines in the industry:
JP Morgan Chase was fined $125 million by the Securities and Exchange Commission in 2021 for failure to maintain and preserve written communications (2).
Northwestern Mutual Investment services was fined $16.5 million by the SEC for recordkeeping violations (3).
In 2023, Meta (Facebook) was fined $1.3 billion by Ireland’s Data Protection Commission for violating the General Data Protection Regulation (GDPR). A part of this fine was directly related to poor data management practices (4).
Let’s not forget about those pesky legal fees. Losing cases and incurring fines because important records went missing can be a nightmare. Plus, the more documents you have, the higher the legal costs of finding them. And don’t forget, having too many documents can increase your liability exposure.
This is why it’s so important to reduce the clutter and stick to a strict policy of deleting certain types of documents after a set number of years. Some companies think the best plan is to keep everything forever. Sounds easy, right? It could come back to bite you later. So, it’s better to stay organized and avoid those future headaches.
Summary
While file management and retention might seem like a boring back-office chore, not having the right plans in place can lead to all sorts of trouble – from minor hiccups to major disasters like big fines or even bankruptcy. It’s not something to ignore! If you don’t have a plan yet, now is the time to get started.
At ClearCadence, we’re here to help. Whether you are just starting out with an ECM system, or you have one but need better structure, we’ve got you covered. We’ll review your document types and folder structures, and make sure you’re up to speed with regulations for your industry. Our goal is to help you by setting up those long-term file plans that keep your company safe from audits, maintain data integrity, and keep your ECM system running smoothly.
Contact us today to discuss your file retention plans and let us show you how we can help.
Kevin Beddingfield is a long-time BPM architect with a specific focus on automating business processes - from training on BPM concepts to designing, developing and implementing end-to-end BPM solutions for Fortune 1000 clients.
ClearCadence has a long track record of assisting customers with analyzing, planning, designing, and implementing solutions. Visit the link below for more information about our organization.
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