Every nonprofit is required to have a document retention policy. It is required under the Sarbanes-Oxley Act (remember Enron?), but is important for other reasons as well.
We have been contacted by 2 organizations who lost their tax exempt status because they failed to file their forms 990 for 3 consecutive years. When we asked whether they had their original application for tax exemption, both answered no. This makes reinstatement more complicated and more expensive, but not impossible.
Congress requires nonprofits to have a document retention policy because documents can be important in any investigation, whether by the IRS or other agencies. The policy requires that you keep certain documents for a stated period of time before you destroy them. You need to keep some documents, such as your original articles of incorporation, form 1023 (Application for Tax Exempt Status) and corporate minutes, forever.
The documents can provide you with a defense to a lawsuit or an investigation by a government agency. Let’s suppose that the Board of an organization approved a contract with one of its members. Did the Board or committee do an investigation to make sure the deal was fair?
Finally, the documents can tell the history of your organization’s accomplishments.
While you can get document retention policies off the internet, but make sure you review it carefully. As with other policies, one size does not fit all. You need to think through what documents are important and how long you should keep them.
There is more to document retention that just having the policy, and making sure it is distributed top all Board and staff. Here are some practical suggestions about documents you should consider:
Scan everything to your organization computer. Paper takes up expensive real estate. In addition, if you handle paper often enough it gets lost or misfiled.
Back up your office computers, online. I strongly recommend that you backup your office computers online. Online backup companies have software that will back up your computers automatically. It is also more secure than a tape or hard drive back up.
While the planning is something that may seem like an annoyance, consider the consequences when your computer dies and you can’t get the information easily. Safeguarding information is important for your reputation and your mission. If you have questions, please give us a call.