RECORDS: Know How to Destroy Them, Make Them IRS Friendly
One government group is telling dealers how to destroy records, while another is mandating that you must save information electronically.
The FTC's disposal rule concerning consumer records was effective June 1. The Fair and Accurate Credit Transactions Act, known as the FACT act, is designed to help prevent identity theft. It will require dealers to take reasonable measures to protect against improper use of consumer records, whether the records are paper, electronic or otherwise.
Dealers must ensure unauthorized use of consumer records cannot take place when the records are discarded or abandoned. This includes records that are on disposed computer equipment, whether the computer is trashed, donated or sold. Consumer records will have to be destroyed by shredding, burning or erasing (if they are electronic), or by hiring a company to dispose of information.
NADA members can visit: www.nada.org/factact to find out more.Maintaining Electronic Records
While the FACT act concerns disposal of records, IRS ruling 98-25 requires dealers to retain their financial information in an electronic format that will enable the IRS to slice and dice the information anyway they want. The rule has been effective since 1998, but only recently has the IRS started to enforce it.
Most dealers' computer systems operate on proprietary software and they don't realize they may not be compliant with ruling 98-25 if the IRS is not able to access and utilize their financial records. One fix is purchasing an archiving system such as One View, which pulls information from the Dealer Management System. For approximately $200 a month, dealers get multiple functions, including their electronic information being made accessible for the IRS .
(If you are wondering why you need a company like One View and recalling that your DMS salesperson told you DMS is IRS compliant, that may not be the case. Dealers should get a signed statement from their DMS provider that says the DMS is compliant in case they are audited. The statement may make DMS liable for any IRS penalties.)