Documents Retention: A Component of An Effective Risk Management Program

By Melanie Herman, Executive Director of the Nonprofit Risk Management Center

Like other nonprofits, legal aid and defender require countless documents including those stored in filing cabinets and file folders as well as those stored electronically -- in order to operate. There are client files, accounting records, personnel records, board minutes and reports, staff reports, case law, interesting articles and a myriad of other information some useful, some of no apparent value. However, without the effective management of information an organization can become lost in a sea of paper and electronic records. Operating efficiency decreases because the staff cannot locate important information, critical client needs are unmet due to the burden of paperwork, and valuable office space is allocated to file storage. Nonprofit managers, including those in the legal aid community, are starting to pay greater attention to the role and importance of document retention in the management of the organization. And a growing number see the risk management aspects of documents retention.

An organization retains files for a number of reasons. First, some documents may have a historical significance such as organizational history or landmark cases. Other records must be retained for specific time periods due to regulatory or statutory requirements. The Internal Revenue Service has numerous retention requirements for income tax returns, employment tax payments and 990 forms. Various state bar associations have requirements for retaining client billing and accounting information plus general client files. The Fair Labor Standards Act and other employment laws require the maintenance of payroll and other personnel information. All of these records and more must be available for inspection and verification.

Besides the legal and statutory requirements, an attorney has to retain certain records until a potential claim is barred due to the time lapsed since the resolution of the matter. In addition, an agency s records can help with its defense of a malpractice claim. The organization may need to prove that it used the appropriate standard of care in its handling of a matter. Files on the representation may provide evidence of competent representation. To an organization s detriment, its files can also be used to produce the smoking gun that shows that the organization failed to use the appropriate standard of care.

In the legal aid community, the retention of client files poses an additional concern. An agency must retain client files within the confines of the law and legal ethics. However, these requirements may cause a problem when an agency cannot represent an otherwise eligible client due to a conflict. An effective records retention program must address this issue.

A client's file belongs to the client and an attorney must release the file to the client upon the client s request after the representation has terminated. However, the agency must determine what information within its files truly belongs to the client. Each state may have separate requirements concerning which information belongs to client and which belongs to the organization (such as its work product and billing information). If requested, the attorney must release the file to the client.

Another issue is how long the agency should retain client files after the resolution of the matter. There is no universal guideline has to how long an attorney must retain client files. For an attorney s files, the retention requirements vary by the type of legal activity. Some documents should never be destroyed such as stock certificates, deeds, and wills while other files are covered by statutory or legal requirements. Some bar associations recommend that criminal lawyers retain client files for the duration of the client s life unless authorized by the client to destroy or dispose of the file. The Bar Association of San Francisco in Formal Opinion No. 1996-1 stated that, absent an agreement with the client, the files must be kept as long as there is any continuing reasonably foreseeable prejudice to the rights of the client if the client paper [s were] destroyed.

Risk Management Strategies

Since the files belong to the client, an attorney needs the client s permission to dispose of it. One method is to inform the client at the beginning of the relationship how the agency will handle client files and how long it keeps files after a matter closes. The file provision can state that the agency will return the file to the client upon request or it will retain the file for a designated period of time. After that time period the agency has no obligation to retain the file and may destroy it. The designated time period will depend upon the nature of the matter.

Therefore, every organization needs a records retention program. The program s goal is to ensure that the appropriate records are maintained to meet legal and statutory requirements as well as meet the information needs of the organization. An effective program includes the following parts.

1. Documentation Guidelines
   Every organization should provide its staff with its guidelines for documenting its files. The primary purpose for record keeping is to document the actions taken by the staff at each step of the process. The documentation then supports the action taken and provides a method of supervising agency activities.

   The first step is to identify the information to be maintained in each type of file. For example, a client s file can contain the initial interview record, correspondence, pleadings, deposition transcripts, exhibits, physical evidence, expert s reports and other items. Each organization will have its own approach for client files and other pertinent records such as donor information, volunteer files, payroll records, accounting files, and corporate records.

2. Retention Requirements
   Establish the retention requirements by type. First, identify the records to be retained and then research the legal and statutory requirements. Also, identify who is responsible for assigning the retention requirement and destruction date. This step should also include notification to the client of the record retention provisions applicable to that client s file.

3. Storage provisions
   Determine where and how the documents will be stored. Do not forget about any documents stored electronically. Also consider the need for items that must be stored permanently or require protection from fire and theft (i.e., corporate documents, deeds, wills, etc.).

4. Archiving and Record Keeping
   Establish a procedure for cataloging and inventorying the stored records. The agency needs to be able to retrieve the file as needed as well as schedule it for destruction.

5. Records Destruction
   Decide how the organization will destroy the various files. Files with confidential information should be shredded or incinerated. Also, have a knowledgeable employee review all files before destruction to ensure that there are no reasons for retaining any file.

6. Recordkeeping
   The organization should maintain records of its records retention activities. Beware of activities that the public might perceive as the destruction of evidence.

7. Annual Program Review
   Review the retention guidelines annually for legal or statutory changes. Also confirm that the record destruction is occurring as planned or modify the schedule.

Summary

Many records are important to the successful operation of a nonprofit organization. However, many other documents and records that a typical organization keeps are unnecessary and create an unnecessary burden. An effective records retention program helps an agency operate efficiently. Like many other risk management strategies, it takes some time to establish the program but long-term rewards should make the initial investment worthwhile.

Melanie Herman is the Executive Director of the Nonprofit Risk Management Center, a resource center serving nonprofits throughout the U.S. For more information on the Center, visit www.nonprofitrisk.org or call (202) 785-3891.