Record keeping for small businesses

The mindset and behaviors associated with protecting intellectual property start with top management. It's a tough job considering the not-so-surprising latitude for departing employees to take corporate trade secrets with them. The Boston Business Journal reports that even with strict vendor confidentiality agreements, keeping corporate secrets may be difficult. Identifying intellectual property at early stages is a good start.

"Almost all intellectual property starts out as a trade secret. In a lot of ways, that's the point where it's most vulnerable," James Donnelly Jr. told the Boston Business Journal. "Intellectual property is expensive. Once you have it, you want to preserve your rights," said intellectual property attorney Peter McDermott.

The statistics of stolen or unprotected data is surprising. Ken Vander Meeden, president of the Cadillac Better Business Bureau, told the Cadillac News that almost one-fifth of small businesses do not scan e-mail using virus-scanning software. Two-thirds do not have an information security plan in place. And with the trend toward wireless networking, some 60 percent of small businesses do not use encryption to protect their wireless networks.

The accumulation of records and other documentation is a more frequent occurrence in the corporate world. The paperless office is non-existent. The first thought may be to throw out these old records but becoming familiar with state, federal, or tax laws concerning statutes of limitations or even requirements and periods for professional record keeping that may be applicable. Electronic imaging is an excellent way to preserve important documents, according to the Associated Press.

CPA Larry Blum told the Associated Press, "There are really no hard-and-fast rules, depending on the state of the client, depending on the industry they're in or the governing body that might be looking over them."

"Err on the side of an abundance of caution, because it's better to be safer than sorry," said attorney Dorothy Bass Burch.

There are definite exceptions. Corporate governance and those documents associated with the articles of incorporation or bylaws are categories to be considered. "Shareholder minutes need to be kept indefinitely as evidence of whether an action was authorized by the company." Property insurance records, plans, and blueprints should be retained indefinitely.

The Associated Press reports that the list of legal and financial documents for permanent storage extends to contracts, deeds, mortgages, bills of sale, trademarks, patents and copyrights, ledgers, pension and profit sharing information, tax returns, and items related to important business transactions, according to the CPA firm Rachlin Cohen & Holtz LLP in Miami.

Small businesses ought to consider keeping records pertaining to the buying, selling, or gifts of property, marriage and divorce records, cancelled stock certificates, and other categories already highlighted here, according to the Associated Press.

Bank statements, sales records, payroll summaries, customer invoices, and general correspondence have no definite storage time, although CPA firm Rachlin Cohen & Holtz LLP recommends four to seven years. They recommend employment records be retained longer, without specifying a time. Electronic archiving is a definite alternative. This technology has been developing as storage technology evolves.

"Sometimes when you scan things in, there is a question of authenticity," CPA Larry Blum told the Associated Press. Before originals are destroyed, it is a good idea to ensure courts or other government agencies will accept electronic copies of these documents.

Documentation associated with Sarbanes-Oxley (SOX) is very important, in particular. Although not every item of corporate governance should be kept but should be kept clear. SOX documentation should be accurate, stored efficiently with privacy in mind, and most importantly, compliant with current SOX regulations. IT World Canada recommends that:

  • Accountability be established using a list of major functional areas concerning SOX. The items in the list should identify specifically accountable senior managers.

  • Critical business processes should be documented. These processes should be specifically material to the production of financial statements and disclosures. Process diagrams are helpful in understanding simple and complex processes. Each step should be well documented, including the person performing or overseeing an activity, the systems involved, input information needed to complete the activity, output information resulting from the process, the business rules for the activity, and the calendar (the when and how) for the activity.

  • Define all computer systems necessary to process data.

  • Develop a code of conduct and gain its buy-in from the staff members who will perform the activities. The code should encourage staff to be honest, diligent, and willing to follow rules set up for the processing of the activities.

  • Identify and assess any risks and develop measures to overcome the risks found. Efficient mitigation of any risks will help reassure auditors.

    Individuals should consider good record keeping also, especially for your house. Any purchase documents, as well as additions and other improvements, should be recorded faithfully to save on capital gains. The Seattle Post-Intelligencer recommends that mutual fund and investment statements should be kept to document any capital losses used to offset your capital gains.

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