Category: recordkeeping

Are You Keeping Too Much Nonprofit Documentation?

4 Document Management Steps You Should Follow

Last week, we talked about the importance of document retention for nonprofit compliance, especially as it relates to donor gifts. This week, let’s take a look at the importance of purging documents and data. When your nonprofit organization is required to keep documents, it can be easy to just keep everything. Has your data storage grown exponentially over the past few years? Has your organization become a pack rat, hanging onto records and data you don’t really need? As electronic storage capacity has increased and gotten cheaper, it is much easier to hold on to information. While it may seem that the cost to store data is cheap, it can be more expensive than you think. These hidden costs are why having an Information Governance plan is so important.

The hidden costs of too much data

Information Governance encompasses document management as well as information security, compliance, business intelligence and big data. It attempts to find the balance point between extracting value from data and reducing the potential risk of data. While the cost of storage may be minimal, it can cost exponentially more if there is ever a reason to do e-discovery for legal or compliance reasons. When there is a legal action of some sort, auditors or regulators or the FBI can secure the data on an organization’s servers and workstations and sift through it all. A study by the RAND Corporation, Where the Money Goes, estimates that e-discovery costs average $18,000 per gigabyte.

4 ways to manage the risk

There are steps that you can take to minimize your risk.

  1. If you don’t need it, delete it. Yes, this can take time, but every piece of unneeded information not only costs money to store, but it is a liability. Think of all of those emails in your inbox that also have attached documents.
  2. Purge unnecessary email and information. You are liable for constituent and customer data. If a customer is subject to legal action that requires e-discovery, and you have received related customer data, your systems are open for discovery as well.
  3. Classify information. You should classify all information that you are storing. For example, if an email string is discussing sensitive organizational data such as constituent personal information, that email should be clearly marked as confidential. This is legal protection.
  4. Make document management policies and follow them. It can be easy to ignore the document archiving process—the task is complete and you move on. However, creating a document management strategy is important for your long-term success, efficiency and compliance.

One way to gain valuable wisdom in matters that impact your organization is to contact Beck & Company Certified Public Accountants and Business Advisors. We want to use our many years of professional expertise to help your organization succeed. Contact us today for more information about our nonprofit services. We can assist you in implementing policies that save you money and let you focus on your mission.

Are You Keeping the Right Nonprofit Documentation?

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.