You do not want to find yourself in a situation of defending a board action, such as compensation for your Executive Director (who also happens to be a board member), and not have evidence of arms-length decision-making. Accurate records of donor activity makes is much easier to solicit future contributions from your supporters. And, as we have discussed in other articles, building a fan-base of consistent givers is fundamental to your nonprofit’s financial health. Records can be kept in physical form or electronically and must be kept at the registered office of the corporation.
Other documents to retain (recommended)
Without good recordkeeping, your organization and all of the good work it does are at risk. In the court of law, a plaintiff who seeks to make a claim against the organization must do so before a certain period of time. In the case of a lawsuit or government inquiry, having access to these documents is critical to combating legal trouble. When organizations provide clear and accessible financial reports, they demonstrate a commitment to ethical stewardship of resources, which can enhance their reputation and encourage ongoing support. Moreover, accountability through financial records extends beyond mere compliance; it fosters a culture of responsibility within the organization itself. When staff members understand that their actions are being documented and reviewed regularly, they are more likely to adhere to best practices in financial management.
- One effective strategy is to utilize digital record-keeping systems that allow for easy storage, retrieval, and sharing of documents.
- Sometimes the records generated by a business or nonprofit organization can be overwhelming!
- For example, the Income Tax Act requires organizations, including nonprofits, to keep financial records for at least 7 years.
- Poor record-keeping can also lead to legal complications that may threaten the organization’s existence.
- This article was inspired by our customers and written to encourage your fundraising efforts.
- Program data and fundraiser success stories also makes great content for communicating to your donor base all the incredible things your nonprofit is accomplishing.
Nonprofit Law Basics: What Records Does a Nonprofit Organization Need to Keep?
Failure to adhere to these requirements can result in penalties or even loss of tax-exempt status. This can have severe consequences, including financial penalties and damage to the organization’s reputation. In addition to the name and address changes, a nonprofit can also request a change to the tax exemption status. If there is uncertainty, the nonprofit organization should request a private letter ruling. If the nonprofit requests a letter before filing for the yearly return, then the IRS can offer a ruling. If you find yourself or your organization in this scenario, it is best to speak with a tax or corporate legal professional about your best options.
Talk to a Tax CPA
Although retention periods vary for different types of records or documents, nonprofit organizations should have a written, mandatory policy for document retention and destruction policies. All staff should be familiar with these policies so they can keep appropriate records and not destroy any unwittingly. A nonprofit corporation should keep records of board of directors’ meetings. Tax-exempt organizations can choose any record keeping system, suited to its activities, that shows its income and expenses. If an organization has more than one program, it should ensure records identify the income and expense items attributable to each program. An exempt organization must keep books and records needed to show that it https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ complies with the tax rules.
That’s when bad bylaws can lead to unnecessary controversies or even costly litigation. Nonprofit Issues editor Don Kramer will review your current or proposed Bylaws to see if they work for you. Now that organizations are back in the office, planning events, and working in their communities again, it’s an excellent time to review their strategy for keeping and destroying paper or electronic files. Records for non-tax purposes – Some records are not needed for tax reasons at all. Insurance documents are one example of a non-tax document that should be kept until they are no longer needed for their purposes.
- However, specific record retention requirements may vary by state and local laws.
- Most nonprofits don’t spend a lot of time looking at their Bylaws until there is a question or a dispute.
- While fraud may seem unthinkable in an organization’s staff, it is possible.
- All donors are entitled to and should receive an official receipt from the nonprofit they donated to for their income tax purposes.
- Ineptness can be just as crushing, and internal controls will help monitor, enforce and update policies regarding keeping your records up-to-date, accurate and secure.
Records and minutes
Not only do state laws differ as to what must be retained, but nonprofits vary in the types of documents they generate. However, it is possible to identify a handful of documents that every charitable nonprofit should save permanently, as well as others that should be saved for a certain length of time by most nonprofits. The policy should specify that the nonprofit will also adhere to a regular business practice of document destruction according to the schedule referred to in the policy.
Identify Sources of Receipts
However, if the organization is a registered charity, then its books and records must be kept at the Canadian address that is on file with CRA and cannot be kept at a foreign address. For CRA’s purposes, documents can be kept in electronic format, provided this format can be analyzed by CRA’s equipment. If a source document is initially created in electronic format, then it must be kept in an electronic format. Scanned images of paper documents are acceptable if proper imaging practices are followed and documented. This is ordinarily written in the organization’s books, such as accounting journals and ledgers.
You should check with your accounting services for nonprofit organizations state’s specific employment law provisions to determine what needs to be kept on file and for how long. Empowering people with accessible and actionable information to help them succeed. In order to assess whether you have stayed within your budget, you’ll need good records. This will allow you to see where you may have overspent and underspent, and it can help you better plan your budget moving forward.
