By Jonny Rosch, CPA

Nonprofit document retention policies are as much about good governance as data management. From the checkbox on the Form 990 asking whether the organization has a document retention policy and potential state and federal inquiries, to fundraising and financial governance, the importance of document management is understood. The challenges lie in which records to keep, how to store them, for how long, and how to cascade the policy throughout the organization.

And while there may not be a uniform template for nonprofit document retention policies, there are generally accepted guidelines on what to keep and how long.

What is a Document Retention Policy and how is It Used?

A good document retention policy helps nonprofits operate smoother and ensures more effective governance.

Donors, stakeholders, legal and regulatory agencies, and volunteers have an obligation to know how a nonprofit organization uses its funds. Though this is typically the purview of financial reporting, an updated document retention policy can help organizations stay accountable to the communities they serve. And more transparency and a commitment to governance signals to current and potential donors that the organization cares about the data it’s entrusted with.

A document retention policy lays out responsibilities for document maintenance and destruction: how long to keep certain records, whether they should be stored digitally or physically, on-site or off-site, and who’s responsible. In these ways, it’s more like a document management policy. The document retention policy can act as a standalone document or be part of an employee handbook, Board bylaws, or volunteer training.

The extent and detail of a document management policy varies. Staff, volunteers, the Board of Directors, and outside advisors are all obligated to follow it. Organizations can choose whatever type of recordkeeping system makes sense to them, as long as it’s consistent, clear, and tracks income and expenses separately. Online software like QuickBooks can be a quick and effective way to manage records and bookkeeping in one place.

Records Retention Guidance

There are four basic types of financial records to keep: accounts receivable, accounts payable, employment tax, and assets. A few examples are invoices, bank deposit slips, Forms 1099, account statements, canceled checks, salary and wage statements, financing documents, and more.

In general:

  • Keep financial records for at least three years after the return for that year is filed.
  • Keep employment records for at least four years.
  • Keep asset records for as long as the organization owns or uses the asset plus three years after its disposal.

Below are more detailed timeframes for how long to keep certain types of records; some state rules will vary.

Documents to Keep Permanently

  • Audit reports
  • Year-end financial statements
  • Checks for important purchases or payments
  • Legal correspondence
  • Deeds, mortgages, and bills of sale
  • Income tax determination letter
  • Depreciation schedules
  • Insurance records, current accident reports, claims, policies, etc (active and expired)
  • Meeting minutes, Bylaws, and charter
  • Patents and related papers
  • Trademark registrations and copyrights
  • Retirement and pension records
  • Tax returns and worksheets
  • Annual reports

Documents to Keep for 7 Years

  • Accounts payable ledgers and schedules (includes Forms 1099)
  • Tax withholding statements
  • Expired contracts, mortgages, notes, and leases
  • Expense distribution schedules
  • Invoices
  • Payroll records and summaries
  • Personnel files for terminated employees
  • Timesheets

Documents to Keep for 3 Years

  • Bank statements and credit card receipts
  • Sales records
  • Petty cash vouchers
  • Internal audit reports
  • Employment applications
  • Inventory records for products, materials, and supplies

Documents to Keep for 2 Years

  • Bank reconciliations
  • General correspondence
  • Customer or vendor correspondence
  • Duplicate deposit slips

Other

In addition to the above timeframes, there are a few other guidelines that nonprofits may need to follow.

  • Contracts still in effect should be kept for the duration of the contract period.
  • Paper documents not otherwise mentioned above should be discarded after three years.
  • Electronic documents should be destroyed after one year and scrubbed from individual computers, databases, networks, and/or USB drives or back-up storage. That would also typically include text messages and emails.
  • If there’s an ongoing government investigation or litigation, keep all documentation related to those proceedings.
  • Keep paper and electronic files related to Single Audit Government grants and other types of government relief usually have their own document retention standards.

Final Tips for Effective Document Retention Policies

  • Emails are documents, too – electronic communications that fall into one of the categories above should be stored accordingly.
  • If using a cloud-based or other digital document storage solution, have a back-up plan in case something happens to that data, whether it’s an accidentally deleted file or a data breach.
  • Including language at the beginning of the document retention policy about how it connects to broader governance and fiduciary responsibility can help staff, volunteers, and the Board of Directors better understand their role in and the importance of document management.
  • Before adopting a template from another nonprofit or group, always double check that it meets the appropriate state and specific funding requirements, and customize as needed.

Document retention policies can help organizations decrease costs for physical and/or electronic storage, organize files, and stay compliant, and there’s no one-size-fits-all solution. Before adopting or updating a document retention policy, it’s helpful to work with an audit and assurance advisor who can ensure you’re following the most up to date state and federal requirements and that your records retention policy makes sense for your organization.

For questions about your nonprofit’s document retention policy, contact PBMares Not-for-Profit Partner Jonny Rosch, CPA.