Develop a Well-Designed Record Retention Policy

by Amanda Meko, CPA, Partner/Director of the Not for Profit Services Group

Record retention problems have diminished somewhat as organizations have gone paperless. But paperless doesn’t always mean paperless, and you still need to maintain a number of documents, such as tax, accounting, bank, corporate, personnel and property records.

Creating Your Policy

If you haven’t done so already, create a record retention policy that describes how long critical documents should be maintained and ultimately disposed of.

Your organization’s legal counsel should review the record retention policy and advise you on areas where state or federal regulations mandate the time period for record retention and which records you should maintain permanently. While no laws offer a specific policy for all types of record retention, state and federal regulations do govern personnel records to protect against unfair labor practices and workplace discrimination.

Knowing How Long to Keep Records

Here are some minimum, best practice guidelines you can follow for retention periods: 

Accounting records. Generally, seven years is an adequate time to maintain most accounting records, including accounts receivable, accounts payable, expenditures and purchase orders, and donation records. You should permanently maintain certain items, such as audit reports, depreciation schedules, financial statements, general ledgers, fixed asset purchase records and tax returns. 

Bank records. Maintain these records for seven years.  

Corporate records. Nonprofits should permanently retain all corporate records, including board minutes, bylaws, licenses, and patents and trademarks.  Ensure that you have a copy of your original application for tax exemption (IRS Form 1023 or 1024) and IRS determination letter on file. Keep contracts, insurance policies and leases for seven years after expiration. 

Personnel records. Maintain employee personnel records, employment tax records, payroll records and timesheets for seven years. You can dispose of employment application records after three years. But you should retain pension and profit sharing records permanently. 

Other records. Ideally, you should permanently retain construction records, leasehold improvement records and real estate purchase records. You can dispose of lease payment records four years after the end of the lease. Keep expired grant contracts for seven years after the grant’s closure. 

Disposal Guidelines

Your policy won’t be effective unless you train your staff and volunteers on the correct procedures. Place shredding boxes around the workplace as a constant reminder that, if it’s proprietary information, it should go in the box and not in a trashcan. Always shred records containing sensitive information about personnel and clients.  Consider enlisting the services of an outside record destruction firm to ensure you don’t accidentally leak sensitive information to the public. Also establish a system for monitoring dates as records expire and set a chain of authority for proper authorization for the record disposal.  

Paper Management

Many not-for-profits can be overwhelmed with paperwork, even in a paperless society. Creating and following a record retention policy is the best way to keep the paper at bay while saving only what you need.