Similar to the whistleblower protections enacted after Enron’s destruction of key documents, the federal government enacted laws to discourage destruction of documents. While the law does not require the adoption of a document retention policy, it is a recommended best practice.
The Sarbanes-Oxley Act (SOX) requires boards to be aware of and accountable for the acts of an organization. Also, the adoption of a document retention policy sets guidelines and facilitates directors’ fulfillment of the duty of care, establishes transparency and ensures compliance.
Legal Authority
It is a crime to intentionally or knowingly alter, destroy, conceal or falsify any record or document with intent to impede, obstruct, or influence a federal investigation or the administration of any other federal matter according to section 802 of SOX. 18 USCA 1519 (2009). Other state and federal laws, such as the Fair Labor Standards Act, require certain records to be retained for a certain period of time. Some states, such as California, have adopted nonprofit integrity statutes that set out specific document retention measures. In Minnesota, there does not appear to be such a statute or legislation. However, statutes of limitations on various legal claims may provide meaningful guidance on retention length for documents.
Form 990 Disclosure Requirements
On the IRS Form 990 nonprofit information return, Part VI, Section B, includes the following question:
Question 14: Does the organization have a written document retention and destruction policy?
A document retention policy generally sets out the length of time certain organizational physical and electronic documents must or should be retained, held in organizational files, and the manner of disposal of such documents. The adoption of this type of policy serves to provide notice to employees and the board of the types of documents to be retained and for how long. It also helps guard against preemptive destruction or inappropriate disposal ahead of an investigation.
Documents to keep permanently
- Articles of Incorporation and Bylaws
- Audit reports, from independent audits
- Corporate resolutions
- Checks
- Determination Letter from the IRS, and correspondence relating to it
- Financial statements (year-end)
- Insurance policies
- Minutes of board meetings and annual meetings of members
- Real estate deeds, mortgages, bills of sale
- Tax returns (990)
Other documents to retain (recommended)
- Accounts payable ledgers and schedules – 7 years
- Bank statements and reconciliations – 3 years
- Employment applications – 3 years
- Internal audit reports – 3 years
- Invoices (to customers, from vendors) – 7 years
- Payroll records and summaries – 7 years
- Personnel files (terminated employees) – 7 years
- Employee timesheets – 7 years
- Withholding tax statements – 7 years
Other considerations
- Document retention policies apply equally to documents saved in the cloud, on a server, or in a filing cabinet.
- When creating a document retention policy specifically for your nonprofit, think about whether there are certain types of documents or specific documents that for the sake of history, or institutional memory, should be maintained permanently.
- Nonprofits serving minor children may need to retain certain records at least until the child reaches majority age, plus the time allowed by the state statute of limitations for the now-adult to bring a claim against the nonprofit.
- Email records are “documents” that should also be addressed in your nonprofit’s document retention policy.
Additional Resources
- Document Retention Policies for Nonprofits (National Council of Nonprofits)
- IRS Compliance Guide for 501(c)(3) Public Charities (IRS)
- All about the document retention provision of the Sarbanes Oxley Act (Hurwit & Associates)