If you work at a not-for-profit that is funded by grants or donations, you need to keep iron-clad records in order to account for every penny in case you are ever audited. However, that does not mean you need to retain all your files forever. Nobody has the storage space for that. Here is a handy guide to how long to keep various types of files, so you can go through your storage cabinets and free up some space.
Your not-for-profit has a fiduciary responsibility to ensure that your accounting records are as complete as possible. Every not-for-profit should have someone on staff who is trained in Generally Accepted Accounting Principles (GAAP). If it does not make sense for your organization to hire a full-time accountant, consider outsourcing.
- You need to keep track of donation records, invoices, and acknowledgment letters for seven years, and to keep grant applications and contracts for seven years after they expire.
- Payroll records should be retained forever, as should year-end financial statements, depreciation schedules, and IRS Form 990 tax returns.
- Ledger entries and invoices should be kept for seven years. It is important that they be complete, correct, and easy for an auditor to understand.
Human resources records
A lawsuit alleging wrongful hiring, firing, or payment practices can be ruinous whether it’s true or not. Without proper documentation, it can be a challenge to demonstrate you acted correctly.
- Records of employment and termination should be kept forever, as should any documents relating to retirement and pension plans.
- Records of promotions, demotions, or discharges should be kept for seven years.
- Keep resumes of employees for four years after termination, and keep resumes of applicants who were not hired for three years.
Because these records concern real people, make sure you have good security in place. Whether these records are stored as hard copies, digital files, or both, determine who has the right to access these files and ensure that no one else can view or tamper with them.
The IRS will be concerned about whether you paid the proper payroll taxes. In case of audit:
- You need to keep state unemployment records and payroll records forever.
- Payroll tax returns and garnishment records should be kept for seven years
- Employment tax records should be kept for four years after the filing of that year’s fourth-quarter taxes, or longer if state law requires. State and local laws can often be more stringent than federal ones, so make sure you are in compliance.
These are general recommendations, your situation may be different. Document management is a complex subject for not-for-profit managers. If you need help, contact R&A.
About this Author
Amy leads R&A's tax department. Her focus is individual and business tax compliance and consulting with an emphasis on working with clients through all stages of their business and life. Amy's clients span a variety of fields including manufacturing, medical practices, and hospitality. She also is accredited in business valuations and assists clients in valuations for business transition planning and estate and gift planning.