Earlier in our Policies and Procedures series, we outlined several policies nonprofits should consider including in their custom Polices and Procedures manual. In the last article in our series, I covered Cash Management and Reserve Policies. In this piece, I will cover a policy outlined in the IRS Form 990, the Document Retention and Destruction Policy.
The purpose of a Document Retention and Destruction Policy is to document the expectations for maintenance and destruction of vital records such as Board policies and meeting minutes, contracts, leases, financial information, and more.
As a Nonprofit Advisor, I highly recommend nonprofits review their document retention and destruction policy on a yearly basis to ensure the policy accurately reflects the specific needs and activities of the organization, and in conjunction with the review process, make certain employees and stakeholders are maintaining compliance with the policy.
A good place to start with your Document Retention and Destruction Policy is to identify the potential liabilities which will allow you to recognize the rationale or “why” behind keeping specific records. A good practice for customizing your policy is to include a “Why keep these records” category with each group of documents.
The "Why's" behind document retention policies
IRS Compliance
The first “why” on the list is compliance with IRS rules. In order to remain in compliance with certain IRS rules, nonprofits may have to retain certain documentation for specific periods of time. For example, nonprofits operating in the United States must maintain nonprofit formation documents such as the Articles of Incorporation indefinitely. It is important to note nonprofits vary in the types of documents used to meet these requirements so confirm your policy correctly identifies the specific document for your organization.
State and Local Laws
The second factor to consider in developing your document retention and destruction policy are state and local laws. These laws cover several areas including, maintenance of the organization’s incorporation and nonprofit status, solicitation of contributions, vicarious liabilities for injuries caused by employees or volunteers, and sales and other local taxes. Both federal and state laws may apply for specific environmental, board’s fiduciary duty, employment, and data privacy issues.
Miscellaneous Legal Risks
The next factor to consider is other areas of legal risk. This includes considerations such as breach of contract, negligence, or personal injury. Consider consulting with your attorney or insurance agent to identify other risks.
Additionally, it is important to consider the potential legal cases brought against the organization or the organization’s board for wrongful decisions, negligence, or fraud. Statues of limitations vary from state to state and may impact the timeframe included in your document retention and destruction policy.
Developing a custom document destruction and retention policy for your nonprofit
A good way to evaluate whether these policies are complete is to ask, “does this policy fulfill the board of director’s fiduciary duties?” If yes, the policy is sound. If no, make any necessary adjustments to ensure the policy does fulfill the board of director’s fiduciary duty.
The final policy document should include the ‘why’, the applicable specific documents, and the period the records are retained.
Here are two examples of how this may look:
Legal, Insurance, and Safety Records | Retention Timeframe |
|---|---|
Copyright registrations | Permanent |
Environmental studies | Permanent |
General contracts | 3 years after termination |
Insurance Policies | Permanent |
Leases | 6 years after termination |
IRS Determination Letter | Permanent |
Nonprofit Corporate Records | Retention Timeframe |
|---|---|
Articles of Incorporation | Permanent |
Board and committee meeting minutes | Permanent |
Board Policies | Permanent |
Bylaws | Permanent |
IRS application for tax-exempt status | Permanent |
IRS Determination Letter | Permanent |
As with all policies and procedures, it is critical to create a truly customized document retention and destruction policy that is specifically tailored to your nonprofit’s operations, environment, and goals. I strongly caution against adopting generic templates available for free download. However, there are quality resources that can aid in developing a custom policy that fits the needs of your organization. The IRS has a series of Compliance Guides that include information on record retention methods, timelines, and rationale:
As partners in our clients’ success, our Nonprofit Specialists aim to arm our organizations with the knowledge needed to become financially strong and resilient. Please contact your accountant with specific questions or get in touch with Wegner CPAs’ Nonprofit Advisors to learn more about developing a customized policies and procedures manual that echoes the goals, culture, and mission of your organization.
