I admit that Post-it® note sheets that adhere to virtually any surface are now my substitute of choice for retention. – Candice Bergen
While the humorous quote about Post-it® notes from Candice Bergen probably brings a smile to your face at the thought of Post-it® notes sufficing for record retention, the subject of which documents should be kept and for what length of time is one that is worthy of discussion for nonprofit organizations.
Donations Records
One area of note is donor gift documentation. It is a complex topic as shown by the several IRS publications that focus solely on this area. Nonprofit organizations that rely on donor gifts must be in compliance with the strict regulations regarding donations. The compliance rules and procedures allow the organizations to avoid penalties and retain their tax-exempt status.
The tricky part is that there are different regulations for the various donations. Donations can be in the form of money, vehicles, inventory, and investments, among other forms of gifts. For some organizations, there can be a basic type of donation that is usually received. However, when an organization continues to grow and gain more donors, the donations might take on a different look. An organization might normally receive monetary gifts, then one day a donor might show up with a vehicle donation, or there could be that donor who wants to donate a large tract of land.
These are real dilemmas for a nonprofit organization. It is wise to know not only what documentation you need to keep but also what documentation needs to go to the donor. Most donation documentation needs to be retained for ten years.
Who’s Who List
Nonprofit organizations also have special documentation requirements for detailing every relationship, whether that is
- “disqualified” persons or those with conflict of interest—anyone who exercises control over the organization’s activities as well as member of that person’s family and owned entities,
- related organizations or
- donor advised funds—a distribution from a fund that results in excess benefits to specific people that can influence an excise tax on the recipient.
Other areas requiring retained documentation include:
- Financial Records: Generally, financial records such as ledgers and schedules, bank statements and checks should be retained for ten years.
- Conflict of Interest Policies: While the IRS does not require a written conflict of interest policy, they strongly recommend one.
- Compensation Reviews: It is important to maintain documentation on compensation for all trustees, directors and employees. You need to have proof of proper compensation levels.
- Public Inspection and Distribution of Form 990 and 990 T: Each annual information return needs to be available for three years.
- Written Disclosure: Records disclosures are required when a donor receives goods or services in exchange for a single payment exceeding $75.
- Employee Personnel Records: Employee personnel records should be kept for seven years after termination.
- Volunteer Records: Volunteer records should be retained for three years.
Please note that this is not a comprehensive list of documentation and their retention requirements. As always, consult IRS regulations that are currently in effect or work with a nonprofit consultant who can help you maintain compliance.
Having clear documentation polices are critical to maintaining regulatory compliance and ensuring your nonprofit’s reputation. Lack of proper documentation can result in fines and penalties, temporarily restricted endowment funds and even removal of your nonprofit status. Don’t take that chance; stay up to date on documentation rules and implement practices that comply with them.
When you need professional expertise, contact Beck & Company. We have spent years learning the rules and regulations for nonprofit organizations and we work hard to stay apprised of all changes. We want to use our professional expertise to not only make your organization run more smoothly but also to help you succeed. Contact us today for a consultation.