Archiving

Digital archiving of documents is an increasingly important issue in today’s world. The terms ‘archiving’ and ‘digitisation’ now go hand in hand, making it necessary for organisations to say goodbye to mountains of paper and dusty binders. However, many are still reluctant to take this step because of the perceived uncertainties and challenges, such as the issue of ‘audit compliance’.

This article will shed some light on the subject of digital and audit-proof archiving and address the following points:

What does archiving mean?

The term ‘archiving’ originates from ancient times and is derived from the Latin word ‘archivum’, which roughly describes the place where deeds and documents are kept. In the second half of the 15th century, the term ‘archive’ or ‘archiving’ was introduced into the field of law and further established.

Since then, the basic idea of collecting and archiving has remained and is still used in many institutions today. However, this is not always due to internal company archiving policies, but usually due to legal requirements.

Today, archiving is generally defined as the systematic storage of documents and data for an unlimited period of time, in an unalterable and usually controlled form. This can be done in analogue, digital or electronic form. The aim of archiving is to store data and documents in such a way that they can be accessed and retrieved at any time.

Although documents that have already been archived are usually no longer relevant to day-to-day business, certain types of documents must still be kept for a certain period of time according to specific guidelines. This is a legal requirement.

Analogue vs. digital: What is digital archiving?

There are two general ways of archiving documents: analogue or digital. Analogue refers to the physical storage of files and documents in paper form. Digital document archiving involves storing information and data on a digital storage medium. Three options are available: hard disk systems (NAS – Network Attached Storage) are widely used and allow continuous access. Other alternatives, which are still in use, store data on tape or optical media such as CDs or DVDs, which means that they are not always accessible. A third option that has emerged in recent years is cloud storage.

However, when you work with documents and data in digital form, you do not necessarily need to have them available in their original digital form, as is the case with emails, for example. Thus, digitised and scanned paper documents, such as traditional letters, can also be archived electronically.

As a result of digitisation, organisations are generally focusing more and more on digitised processes, while their traditional counterparts, such as paper archives, are becoming less important. Terms such as ‘digital workplace’ and ‘paperless office’ are also becoming more common. In addition, the digitisation of documents is making digital document archiving, often referred to as electronic archiving, increasingly important.

Terminology

When digitising documents, and in particular when managing and processing them, the two terms ‘document management system (DMS)’ and ‘document archiving’ are often used as synonyms or confused. However, a DMS is primarily designed to store documents in a structured manner and to store additional document properties to make it easier for users to retrieve them. Document archiving, on the other hand, is usually already part of a document management system, as is the digitisation of paper-based documents and the automation of document-based processes. The purpose of document archiving is the long-term storage of documents. However, the line between DMS and archiving is becoming increasingly blurred, so much so that users hardly notice the difference in their day-to-day work.

Why digital archiving?

Archiving documents forms the basis of a company’s operations and provides legal security in the face of administrative bodies and legislators. Nevertheless, the topic of ‘archiving’ is not exactly popular with companies or employees because, depending on the type of archiving, it can be very time-consuming, complex and resource-intensive. In addition, archiving does not directly contribute to a company’s earnings.

To minimise these burdens, it is worth investing in a digital archiving strategy or concept and moving from analogue to electronic archiving. The specific advantages over the analogue alternative are:

The benefits of electronic archiving

Space-saving: Paper and folders no longer need to be physically stored in a dedicated archive, but are stored in a database. Cloud servers are particularly advantageous here.
Instant access: (online) documents and files are instantly available to all employees, anywhere, anytime.
Time saving: Documents are immediately available via full-text search and do not have to be manually searched for by employees in archives.
Transparency & clarity: The record can be viewed in its most current form, including permissions. Transparency also ensures that no unnecessary copies are made.
Cost reduction: Both the cost of renting a physical space and the cost of materials and personnel are reduced, resulting in long-term cost savings.
Continuity & consistency: Digital archiving of all media eliminates media disruption. If documents exist in paper form, they should be digitised.
Scalability: Good archiving software is easily scalable. This means that large amounts of data can be archived.
Legal compliance: Archived documents serve as reference and proof that legal requirements such as the German GoBD and the European GDPR have been met.

Another reason why electronic archiving is not only useful but necessary is the significantly increased frequency with which documents are created and distributed, and the exponentially growing volume of data that goes with it. With an analogue solution that is managed manually, it is almost impossible to cope with this workload, especially in large organisations. Moving from an analogue to a digital strategy also modernises the existing IT infrastructure. This, in turn, benefits the entire company.

What needs to be archived?

Organisations archive a wide range of documents and data. This can include anything from correspondence with customers and invoices to annual reports – in fact, anything that is generated in a company. However, when it comes to archiving business documents, there are legal requirements where this voluntary nature of archiving no longer applies and retention is mandatory. The obligation to archive is based on the ‘Principles of proper accounting (GoB)’ or, in the case of digital data storage, the ‘Principles of proper management and retention of books, records and documents in electronic form and for data access (GoBD)’.

The decisive factor for the archiving obligation is that the documents are relevant for tax purposes. But not every document has to be kept for the same length of time. Again, the legislature has created precise specifications in the form of retention periods.

The most important business documents that the law requires to be archived include:

Books and records
Inventories
Annual accounts, consisting of a balance sheet and a profit and loss account
Management reports
Opening balance sheet
Work instructions and other organisational documents necessary to understand these documents
Commercial and business correspondence received (e.g. emails)
Reproductions of sent commercial and business correspondence
Accounting documents
Documents required to be attached to a customs declaration made using a data processing technique pursuant to Art. 77 (1) in conjunction with Art. 62 (2) of the Community Customs Code, provided that the customs authorities have waived their presentation or have returned them after submission

(Source: Hamburg Chamber of Commerce)

Retention periods

For companies, as well as for the self-employed, there are prescribed ‘minimum periods’ for archiving certain documents, known as retention periods. In most cases, these are six or ten years for business documents. These retention periods are regulated both in the German Commercial Code (HGB, § 257), which deals with commercial law, and in the German Fiscal Code (AO, § 147), which deals with tax law.

The following is a non-exhaustive list of business records defined by the HGB and AO and their retention periods:

6 years

Consignment notes
Assignment notices
Reminders & default notices
Wage lists for interim, final and special payments
General correspondence
Email correspondence
Investment grants (documents)

10 years

Accounting documents
Outgoing invoices
Bank statements
Utility bills
Balance sheets (including opening balances)
Incoming invoices including adjustment documents
Trading books

The starting point for the retention period is always the end of the calendar year. This means that a tax document from 2022, such as the opening balance sheet, must be archived until 31 December 2032.

Important: The retention period of a document depends on its function within the company. No statement can be made about the retention period based on the designation alone.

A comprehensive overview of the main types of written records and their retention periods can be found here: Hamburg Chamber of Commerce – ABC of Retention Periods

Start of retention periods

A retention period starts at the end of the calendar year in which the document was created. For example, the retention period for an invoice you created on 02/01/2019 starts on 01/01/2020 and ends on 01/01/2030.

The challenges of digital archiving

It should be clear to everyone that a strategic move from analogue to digital cannot be made immediately. In addition to the time required, such a forward-looking step is often associated with many uncertainties and challenges. One of the most important issues for organisations when it comes to digital archiving is protection against unauthorised access to the digital archive system. Attention should also be paid to the lifespan of the storage media, so that documents can be archived for many years in accordance with retention periods (long-term archiving). Both aspects are specified in the German GoBD.

In addition, the initial implementation requires a significant investment in costs and resources. These costs are quickly recouped through savings. Still, there is a need for expertise and specialist knowledge, as digital archiving can be complex and extensive. In particular, the topics of ‘GoBD compliance’ and ‘audit-proof archiving’ continue to cause great uncertainty in companies. But what exactly is audit-proof archiving?

Audit-proof archiving in accordance with the GoBD

The audit-proof archiving of documents is a special case of document archiving. It describes the archiving of documents subject to retention requirements (with commercial and tax relevance) in an electronic archiving system, taking into account the applicable retention periods. In November 2014, the German Federal Ministry of Finance introduced the Principles for the Proper Management and Storage of Books, Records and Documents in Electronic Form and for Data Access (GoBD), which came into force for the first time on 1 January 2015. In addition, the requirements of the German Commercial Code (HGB) and the German Fiscal Code (AO) apply to audit-proof archiving.

The GoBD apply to companies that are required to keep accounts, freelancers, the self-employed and small companies that are not required to keep accounts. This means that both large corporations and small and medium-sized enterprises (SMEs) have to deal with this issue.

The GoBD principles are based on the following guidelines:

Traceability and auditability: Documents and records must be verifiable and comprehensible to third parties.
Completeness: All business transactions must be recorded in full.
Accuracy: Transactions must be accurately and faithfully reflected in accordance with the actual circumstances of the transactions.
Timely entries and records: There must be a temporal relationship between transactions and their accounting treatment.
Organisation: Books and records must be kept in accordance with certain organisational principles.
Immutability: An entry or record may not be changed without a clear audit trail and within the legal framework.

Failure to comply with these principles of audit-proof archiving can result in severe penalties. A violation constitutes an accounting error and a breach of accounting and retention obligations. Penalties can range from significant costs for the company and fines to personal imprisonment*.

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Read our guest article by Markus Olbring, managing director of comdatis it-consulting GmbH & Co. KG, to find out how audit-proof archiving works with Microsoft 365 and SharePoint Online.

Archiving and the European GDPR

The General Data Protection Regulation, or GDPR for short, is a European Union regulation that governs the processing of personal data. The GDPR often presents problems for organisations, especially when it comes to retention periods for archiving. The question many ask is which regulation takes precedence: the GDPR or the retention requirement. The answer is neither, as both rules apply in parallel. According to the GDPR, documents containing personal data must be deleted as soon as the original purpose for archiving no longer applies.

On the other hand, there are the legal retention obligations and periods of the GoBD. These constitute the new purpose of archiving. Thus, this data can continue to be archived, but must be deleted once the retention period has expired. Failure to do so can result in huge fines*.

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How does digital archiving work?

In addition to specialised archiving systems, integrated document management systems (DMS) with archiving software are increasingly being used to ensure audit-compliant archiving in accordance with the principles of the GoBD. All company documents, such as invoices, delivery notes or balance sheets, can then be stored digitally in the DMS. The software helps users to comply with legal requirements, for example, by providing workflows and reminders to delete documents. Or simply by making a note of the retention period.

As there is a wide range of digital archiving systems and DMS on the market, it is important to consider which system best suits the organisation’s needs when making a decision. An example of a well-known provider of cloud-based software is Microsoft, with its products Microsoft 365 and SharePoint Online.

Digital archiving in the cloud with Microsoft 365 and SharePoint Online

With its Compliance & Security guidelines, Microsoft already offers a wide range of security templates for companies, for example with regard to retention requirements. These security templates are governed by Microsoft Purview (formerly Microsoft 365 Compliance) and Microsoft Azure Purview. They cover the topics of mass data and performance, data protection and data security, encryption and archiving.

Anyone using a DMS based on this will automatically get an archiving system. With SharePoint Online, Microsoft has also taken account of the need for audit-proof archiving and made it easy to implement. Among other things, the standard SharePoint document library offers the option of locking documents for editing. The retention period and expiry date are then displayed under the compliance details that can be selected there.

However, when it comes to comprehensive Enterprise Content Management (ECM) and complex solutions, Microsoft 365 and SharePoint Online quickly reach their limits as a DMS. This is where we come in with the Shareflex ECM Online product suite. Shareflex Documents, for example, offers a complete solution for document and process management, including predefined file structures, document types, access control, a workflow system and interfaces to various ERP systems. The Shareflex Contract solution focuses on the management of the specific document type of contracts and the complete lifecycle of a contract. Shareflex Invoice offers a predefined workflow for the digitalisation, verification and approval of incoming invoices.

The option of audit-proof archiving is guaranteed by the fact that all Shareflex solutions are based on SharePoint Online and use the extensive Microsoft 365 ‘Compliance & Security’ functions. If you would like to know more about us and our solutions, please contact us. We can help you find the right solutions to support and drive your business digitally.

*Legal information

The information contained in this article is for informational purposes only. It does not constitute legal advice. In particular, it cannot replace individual legal advice that takes into account the specifics of each case. Where we report on cases, in particular court decisions, their outcome should not be taken as necessarily indicating a similar outcome in other cases.

We endeavour to select the information provided in this article with care and to update or supplement it as necessary. However, we cannot guarantee that the information in this article is up-to-date, complete or accurate. This applies in particular to changes in legislation or case law.

Hamburg, 23 May 2022

Author: Sara Glöckner

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