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. 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.
- By combining digital efficiency with physical security measures, nonprofits can ensure that their financial records are not only well-organized but also protected against potential risks.
- And, as we have discussed in other articles, building a fan-base of consistent givers is fundamental to your nonprofit’s financial health.
- Also, the adoption of a document retention policy sets guidelines and facilitates directors’ fulfillment of the duty of care, establishes transparency and ensures compliance.
- Although we work with nonprofits and events daily, our team members are not Event Consultants.
- However, the Evangelical Council for Financial Accountability (ECFA) has set Seven Standards of Responsible Stewardship™ for organizations to follow.
- Read the full disclaimer here.Unless otherwise specified, this website is not affiliated with any of the organizations mentioned above.
Government of Canada Corporate
The balance sheet provides a snapshot of the organization’s assets, liabilities, and net assets at a given point in time, offering insights into its financial stability. Meanwhile, the cash flow statement tracks the inflow and outflow of cash, highlighting how well the organization manages its liquidity. A https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ document retention policy generally establishes the length of time certain documents and electronic records should be retained by the organization. Maintaining accurate and organized tax records is crucial for any nonprofit organization.
What records must a tax-exempt organization keep?
We have summarized some broad suggested guidelines for document retention below. Of course, everyone’s business or organization is different, and it may have additional requirements for special circumstances. Call us if you have any questions or concerns, or would like us to review your organization’s document retention policy with you. To maintain your 501(c)(3) status and stay in good standing, it is important to keep accurate and comprehensive records.
- First and foremost, nonprofits should adopt a systematic approach to record-keeping that includes categorizing documents based on their type and purpose.
- The CRA also has more specific requirements on how long and where to keep your records as well as what format to keep them in.
- What might be less obvious is board meeting minutes, which are the notes of what was discussed and decided in any board meeting.
- 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.
- 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.
- He has an extensive background in auditing nonprofit organizations, as well as experience in auditing employee benefit plans.
Board minutes
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. For 501(c)(3) public charities, donor records must be kept for a minimum of 5 years in order to calculate the required public support test on IRS Form 990. The reality is, however, it’s a pretty good idea to retain all such financial documentation permanently. This is ordinarily written in the organization’s books, such as accounting journals and ledgers.
Nonprofits are subject to various regulations regarding financial reporting and tax compliance. 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 the court of law, a plaintiff who seeks to make a claim against the organization must do so before a certain period of time.
