Legal Requirements for Electronic Data Interchange Records

Article excerpt

Legal Requirements for Electronic Data Interchange Records

Electronic data interchange (EDI) represents a logical extension from our traditional recordkeeping practices. Although EDI systems generally perform traditional accounting and purchasing functions, such systems can also create legally binding contracts between organizations.

An EDI system can function without paper or other hardcopy records. The computer of one organization actually transfers information directly to the computer of another organization.

This article explores some records management issues related to this technology:

* What is the relationship of EDI records to the traditional paper records that document the same function?

* What records must be maintained in an EDI system to meet legal requirements?

* Who is responsible for maintaining EDI records in an organization (i.e., who is the office of record)?

WHAT IS ELECTRONIC DATA

INTERCHANGE?

Electronic data interchange is a method by which two different organizations can initiate and conduct business through computer communications. A comparison shows the difference between an EDI and a traditional paper-based system for transferring information between organizations.

A paper-based purchasing transaction between Company A and Company B generally will proceed as follows:

* Company A enters the purchasing information into its computer and generates a purchase order.

* Company A mails the purchase order to Company B - generally taking three days in transit.

* Company B opens the purchase order, reviews the terms, and enters the information into its computer.

* Company B ships the goods at the appropriate time.

* Company B prints an invoice and sends it to Company A by mail - generally taking three days.

* Company A opens the invoice, reviews the content, and enters the appropriate information into its computer.

* Company A then prints a check at the appropriate time from information in the computer.

A typical EDI system would perform the same functions as follows:

* Company A enters the purchase order information into their computer.

* Company A transmits this data in standard codes via communication link to Company B's computer.

* Company B's computer would analyze the codes and translate the information into the format used by its order entry system.

* Company B would then review the order for accuracy and for the availability of the items ordered.

* Company B enters in its computer only changes or additions to the information transmitted by Company A.

* Company B transmits an acknowledgment to Company A utilizing the data already communicated by Company A.

* Company B ships the goods.

* Company B communicates invoice information to Company A by communication link.

* Company A reviews the invoice information and either prints a check or instructs its bank by computer to transfer funds to Company B.

An EDI system clearly promotes efficiency, accuracy, and speed in the purchasing process compared to a paper-based system. Information is keyed into a computer only once and used by both organizations. The desired actions also proceed much faster. For these reasons, many organizations, especially larger ones, have either implemented an EDI system or are seriously considering the implementation of this technology.

The remainder of this article reviews some issues affecting the use of EDI technology.

SPECIAL EDI

LEGAL REQUIREMENTS

At this time, no specific legal requirements apply uniquely to electronic data interchange records. No statutes or regulations either permit, preclude, or restrict this technology. Since United States law permits any action unless it is specifically prohibited or regulated, EDI technology can be used. …