Why Nonprofits Should Have A Document Retention and Destruction Policy & What Should Be Included
Why?
A document retention and destruction policy (“DRD”) provides a nonprofit with instructions on which records must be kept, for how long, and whether records must be kept electronically, physically, or both. Most retention periods are tied to federal or state statute of limitations, that is, the timeframe within which legal proceedings must be initiated, and in some cases failure to maintain records may adversely impact a nonprofit in litigation and otherwise subject a nonprofit and/or individuals to fines and penalties. And though the IRS does not require a written document retention policy for tax exemption, the IRS does ask whether a nonprofit has one as part of Form 990, indicating the IRS views written document retention policies as part of nonprofit governance best practices.
What Should Be Included?
Documents that should be retained are those that are necessary for the nonprofit’s accounting, tax, and legal needs. This said, DRDs are not one-size-fits-all. Not only do laws as to what must be retained vary by state, but the size and circumstances of the nonprofit will also dictate what a policy covers. Generally speaking, however, all policies should address the below.
Responsible Party(ies)
A nonprofit’s DRD should name a responsible party, whether an individual or group, that implements and ensures compliance with the DRD. This “Records Management Officer” or “Administrator” handles the day-to-day, ensures the DRD is followed, and works with the Board and legal counsel to periodically review the policy for updates.
Define “Record”
Define what the nonprofit considers a “record,” i.e., those items related to fiscal or legal obligations or evidencing decision making. Transitory items such as personal emails should not be considered “records” for retention.
Retention Schedule
The records and associated retention period for each should be laid out in a user-friendly format, such as a table breaking them down by type. This could include such categories as Corporate Records, Accounting, Human Resources, etc. Furthermore, the DRD should address email retention as not every email is worth keeping.
How Records Will Be Maintained and Where
Paper Files
The DRD should address where paper files will be kept and how they will be protected.
Electronic Recordkeeping
A nonprofit must address the retention of information in electronic format beyond simply what must be saved, where it will be saved, and for how long. Retaining electronic files necessitates establishing standards for maintaining the integrity of these files, including guidelines for handling, security, backup procedures, archiving, and regular review of the system overall.
Privacy
Special attention should be paid to how privacy laws may affect document retention and destruction.
Legal Holds
There must be procedures in place for instituting a “hold” on documents where litigation, an audit, or government investigation is reasonably anticipated. Failure to preserve relevant records in such situations can result in legal liability, such as fines and/or imprisonment. It is imperative that the Responsible Party(ies) is notified of the need for the hold as soon as possible so that she can institute the hold procedures.
Transitions
Undoubtedly, people will leave the nonprofit. The DRD should address how records and access thereto will transition as well.
Destruction
The DRD should address how records should be destroyed, such as, is destruction the responsibility of the Responsible Party(ies) or individual employees? Is it a coordinated, nonprofit wide event? The protocols for destroying paper and electronic copies will differ, and with the latter, it is recommended that a nonprofit enlist the assistance of information technology professionals to ensure the adequacy of destruction methods.
Other Considerations
Is it worthwhile for your nonprofit to keep some documents simply for the sake of history or institutional memory?
Handheld devices, laptops, and cell phones may have documents or copies of documents beyond what exists on the nonprofit’s server.
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If your nonprofit is seeking guidance with maintaining and keeping accurate corporate records, please contact us to learn more.
This is a site offering non-comprehensive commentary. It is not an attempt to provide legal advice. This blog may be construed as an advertisement, but should not be construed as legal advice or a legal opinion on any specific facts or circumstances, nor does it create attorney-client privilege.
