Holding the Paper: Document Retention and Destruction Policy for Nonprofits

Knowing how long to maintain different types of paperwork is a challenge for any business, and with the unique documentation required of a nonprofit it can become even more confusing.  Everyone would like to have as little unnecessary paperwork as possible taking up file cabinet drawers or disk space, but discarding a vital document too soon (or at all) can be a big problem.  Further, the Sarbanes-Oxley Act made for significant changes in the legal requirements for document retention/destruction.  Here’s a look at implementing a proper document retention and destruction strategy for a nonprofit organization.

Keep forever.  The following items should be a permanent fixture in the files of a nonprofit:

  • Articles of Incorporation
  • Determination Letter from the IRS
  • Insurance policies
  • Minutes of meetings
  • Corporate resolutions
  • Audited financial statement

Have a plan.  It’s important for everyone who comes into contact with important documents to have a clear understanding of what needs to be saved, and for how long.  The best way to do this is to institute a document retention policy.

Quoting from IRS Form 990: “A document retention and destruction policy identifies the record retention responsibilities of staff, volunteers, board members, and outsiders for maintaining and documenting the storage and destruction of the organization’s documents and records.” (Source: Instructions to the Form 990 page 23.)

The effects of the Sarbanes-Oxley Act on the commercial business world are well documented, and its prohibition of the destruction of certain documents extends to nonprofits as well.  Essentially, any documents that are subject to review in litigation must be retained, which is a very broad set of criteria and yet another reason to institute a clear document retention strategy.

From both a risk management standpoint and from a legal perspective, having a written policy and a regular practice of document destruction according to a schedule is sound organizational strategy.

Determining the foundation for a document retention policy involves three steps:

1. Identify the types of paperwork a nonprofit generates

2. Determine the length of time each should be retained for either legal or organizational reasons

3. Record those retention times in a written schedule.  Remember, that the term “paperwork” encompasses electronic files, including email records, as well.

Know your own world: As if document retention guidelines weren’t complicated enough, there is no single set of rules.  Laws, especially those concerning payroll and employment issues, will vary from state to state, and other retention requirements may be different depending upon the type of nonprofit. Be sure to check with your CPA for your state’s requirements.

Click here to download a typical document retention schedule.