Whether the motivations are decreasing cost, organizing files, or staying compliant, a document retention policy helps to achieve all three goals. The Board of Directors has a fiduciary duty to serve the best interests of the organization and its donors. A document retention policy helps Board directors and members fulfill their responsibilities in this area.
- However, keeping documents for the proper length of time is crucial when it comes to maintaining regulatory compliance.
- Though this is typically the purview of financial reporting, an updated document retention policy can help organizations stay accountable to the communities they serve.
- They must be followed strictly and this includes all reporting and filing rules.
- A nonprofit must keep clear and complete records to ensure that it complies with tax rules.
Nonprofit Document Retention Schedule
Without good recordkeeping, your organization and all of the good work it does are at risk. CRA can also impose penalties on a non-profit organization or a registered charity if it fails to keep adequate records or fails to provide CRA with access to its records when requested. For instance, CRA may prosecute the organization on a summary conviction basis and apply any penalty for unpaid taxes that are otherwise payable. Further, if the organization is a registered charity, then improper record keeping can result in the charity’s suspension of tax-receipting privileges or loss of its status as a registered charity.
Your Legal Questions Answered
The books of a nonprofit must be available for inspection by the IRS at all times. A nonprofit organization can use any recordkeeping system suited to their activities. If you have more than one program, the system should separate income and expense items attributed to each program. There are no federal or state laws that specify the recordkeeping process except in a few rare cases.
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- There’s a well-worn cliché that says, “If it’s not in writing, it didn’t happen”.
- Do you save everything, “just in case,” or do you throw the records out as soon as you are finished with them to keep your desktop (physical or digital) clean?
- It is important for organizations to maintain revenue and expense statements and balance sheets to prepare accurate financial statements.
- As a New Mexico Nonprofit attorney my clients wonder what nonprofit recording keeping requirements there are for a tax exempt organizations.
- Establishing effective record-keeping guidelines is essential for nonprofits to manage their financial documentation efficiently.
- In addition, an organization may be unable to complete its tax returns accurately and may be subject to penalties.
This could involve using locked filing cabinets or safes for sensitive paperwork such as tax returns or donor information. It is also advisable to create backup copies of important files—both digital and physical—to safeguard against loss due to unforeseen circumstances such as natural disasters or technical failures. By combining digital efficiency with physical security measures, nonprofits can ensure that their financial records are not only well-organized but also protected against potential risks. To optimize the management of financial records, nonprofits should adopt best practices that enhance both organization and security. One effective strategy is to utilize digital record-keeping systems that allow for easy storage, retrieval, and sharing of documents.
Document Retention Requirements
Minutes that are approved long after a meeting or by directors that were not present at that meeting are less valuable as evidence in a court. This is why many boards use the current meeting to review and approve the minuets of the last meeting.The courts also value minutes that don’t have many changes as compared to their original draft. But approving them at a subsequent board or members meeting can increase their value as evidence in court if that approval reflects the consent of those who attended the AGM. This internal accountability can lead to improved operational efficiency as employees become more conscientious about how they handle funds and resources. Ultimately, robust financial record-keeping not only satisfies external demands for transparency but also cultivates an internal environment where ethical practices are prioritized.
- Board minutes are the written record of the actions and decisions taken at a board meeting.
- By keeping all the receipts, a nonprofit can keep track of where the money is coming from and where it is going.
- Furthermore, inadequate documentation can expose organizations to fraud or mismanagement risks, as there may be insufficient oversight over financial transactions.
- For example, paper files (printouts) provide a backup for digital (computer) records.
- ONCA’s rules about how long a document must be kept depends on the document.
Record retention policies (also called a ‘schedule’) describes how long an organization needs to keep a piece of information (record), where it’s stored, and how to dispose of it when the time comes. Employee compensation and tax information are also necessary for every nonprofit organization. Cash method – using the cash method will allow a nonprofit to report income during a specific tax year. Remember, even https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ if 990-N is filed, or no return is filed, records must be maintained showing activities conducted, income received and expenses incurred. This is all information that the IRS and your state will likely want details concerning. Again with regard to the IRS, program accomplishment data and fundraiser details are required disclosures on Form 990 for nonprofits filing anything greater than a Form 990-N.
- The Board of Directors has a fiduciary duty to serve the best interests of the organization and its donors.
- In addition to digital solutions, nonprofits should also consider maintaining physical copies of critical documents in a secure location.
- Oh, and make sure your minutes reflect what actually transpired in your board meetings, not a revisionist history.
- If the IRS or another government agency examines your nonprofit for some reason, it is very common for them to request documentation of board decisions.
- Empowering people with accessible and actionable information to help them succeed.
All records should be kept by a nonprofit organization until the statute of limitations is up. This means that any documents needed for federal tax purposes should be kept safely until the tax year has long past, treating three years as a good rule of thumb for document retention. However, usually after three years have elapsed the records can be relatively safely removed. The policy should specify that the nonprofit will also adhere to a regular business practice of document destruction according to the schedule referred to in the policy. An exempt organization must make available for public inspection its annual information return (e.g., Form 990, Form 990-EZ).
What Type of Record Keeping is Required?
Here in The Commons, we encourage your comments and hope you will join the discussion. Please keep your comments on topic in order to make this a valuable place for all Washington nonprofits. I believe it’s a unique and concise place to get answers to this often wispy area called nonprofit. Whether your nonprofit has 10 employees, 200 employees, or more than 1000, you probably have a personnel policy “handbook.” You give it to new employees and require that they sign to acknowledge receipt.
Document Retention Policies for Nonprofits
The statute of limitations generally runs three years after the date the return is due or filed, whichever is later. An organization may be required to retain records longer for other legal purposes, such as for state or local tax purposes. Keep track of all the money that comes into your organization, including cash register receipts, bank deposit slips, receipt books, invoices, credit card slips, and any Form 1099-MISC you send to the IRS. This amount is the sum of all the money the nonprofit receives, including contributions. ONCA’s rules about how long a document must be kept depends on the document. But your nonprofit’s list of directors and officers only needs to be kept for 6 years.Your nonprofit may have to follow other rules, beside ONCA’s.