Document Management and Recordkeeping for Nonprofits

If you work for a nonprofit that’s funded by grants or donations, you need to keep iron-clad records in order to account for every penny if you’re ever audited. However, that doesn’t mean you need to retain all your files forever. Nobody has the storage space for that.

Here’s a handy guide to how long you have to keep various types of files, so you can go through your storage cabinets and free up some space:

Accounting

As a nonprofit, you have a fiduciary responsibility to ensure that your accounting records are as complete as possible. In particular, you need to keep track of donation records, invoices and acknowledgment letters for seven years, and to keep grant applications and contracts for seven years after they expire. It’s equally important to keep track of how you spend money. Payroll records should be retained forever, as should year-end financial statements, depreciation schedules and IRS Form 990 tax returns.

Ledger entries and invoices should be kept for seven years. However, it’s just as important that they be complete, correct and easy for an auditor to understand. That’s why it’s crucial for every nonprofit to have someone on staff who is trained in Generally Accepted Accounting Principles. If it doesn’t make sense for your organization to hire a full-time accountant, consider outsourcing. (BPW has a full Client Accounting Services department dedicated to do exactly that.)

Human Resources Records

A lawsuit alleging wrongful hiring, firing or payment practices can be ruinous for a company whether it’s true or not. If you don’t have proper documentation, you can’t prove you acted correctly. Records of employment and termination should be kept forever, as should any documents relating to retirement and pension plans. Records of promotions, demotions or discharges should be kept for seven years. Keep resumes of employees for four years after the employees’ termination, and keep resumes of applicants who were not hired for three years.

Because these records concern real people, make sure you have good security in place. Whether these records are stored as hard copies, digital files or both, determine who has the right to access these files and ensure that no one else can view or tamper with them.

Payroll Records

If you’re ever audited, a main concern of the IRS will be whether you paid the proper payroll taxes. That’s why you need to keep state unemployment records and payroll records forever. Payroll tax returns and garnishment records should be kept for seven years, and employment tax records should be kept for four years after the filing of that year’s fourth-quarter taxes, or longer if state law requires. In fact, state and local laws can often be more stringent than federal ones, so make sure you’re in compliance.

This is just a summary; your situation may be different. Document management is a complex subject for nonprofit managers, which is why it’s important to consult an expert. Be sure to stay aligned with all laws and keep your recordkeeping at the front of your mind. Please contact us at (805) 963-7811 if you have any questions about managing your nonprofit’s records.