Over time, nonprofit organizations accumulate a lot of paperwork. Eventually, someone is going to want to simplify and reduce the amount of paperwork – but what do you keep and what can you toss?
Nonprofit organizations should have a document retention policy on file as a guide for what to keep and specifically identify what can be destroyed (and when), as well as in what form that file storage takes.
These Document Retention Guidelines are minimum guidelines – your organization may choose to retain certain records for a longer period of time.
IMPORTANT NOTE: “Digital” means that you should permanently retain DIGITAL records of the documents, regardless of whether you can dispose of paper records.
Click here to view or download the guidelines as a PDF.
Proper financial management of a nonprofit organization is more than an simple checklist, but adopting these ten basic philosophies will make compliance with policies more natural and allow you to recognize financial failures sooner, rather than later.
- Remember the mission. The mission must be a top priority. This is especially true for financial policy, budgeting, allocation of resources, and, when necessary, budget cutbacks.
- Remember loyalty to constituents, organization and donors. All financial decisions should serve constituents, be true to the organization, respect the wishes of donors and requirements of granting organizations.
- Be an engaged Board Member. The day of the “honor board” is gone. Board Members are selected for the talents they bring “to the table.” If you cannot commit to regular meetings and regular participation in the life of the organization, you should respectfully resign and make room for an active replacement.
- Develop basic financial literacy. Understand basic terms, be able to find “income” and “expense” information and know how to ask questions about financial performance of programs. While financial genius is not required, ALL Board Members should have some basic understanding of the financial picture of the Nonprofit.
- Establish and USE financial controls. Assume mismanagement or fraud CAN happen to your nonprofit. Financial controls protect both the people handling the money and the organization. A high level of oversight and control fosters a high level of public confidence and less opportunity for mismanagement or fraud.
- Insist on regular financial reports and accurate record-keeping. By definition, nonprofits are a “public trust” held to a higher standard of care than a for-profit business. Regular reports and accurate record-keeping, including balancing the checkbook register, comparing current financial information with current budgets and previous years’ activities, are vital to the fiscal health of the nonprofit.
- Be a model of ethical behavior. Nonprofits are held to a higher standard of ethics than other organizations. The mere appearance of a Board Member conflict of interest or self dealing stance can ruin a nonprofit’s credibility. Act appropriately and document all financial decisions in meeting minutes.
- Obtain professional advice when needed. Legal and Financial professionals are wise investments. They will help prevent financial crisis and provide options if financial crisis is approaching.
- Pay Applicable Taxes.The IRS and your State Department of Revenue are the worst creditors you can have. Failure to timely file required paperwork and pay taxes (particularly employment and sales taxes) can be a costly mistake. Engage professionals to help you implement procedures that prevent tax failures.
- Regularly review and assess the financial situation. Conditions change quickly. Financial plans should be reviewed regularly to be sure that they are being implemented and are still helpful and relevant. Periodically ask a (qualified) tax or legal professional to review your policies against current industry practices. Compare notes with other like nonprofits to see if they have better procedures that you adapt for your use.
- Qualified Nonprofit: Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. Google “Exempt Organizations Exempt Check” for the website to check qualified status of nonprofits.
- Donations of Labor: You cannot deduct donations of time, even if it is in your area of business or expertise. If you don’t have an “out of pocket” component, you cannot deduct it. You can, however, deduct your employees’ time, if they volunteer while on your clock.
- Valuation of Donations. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
- Only “True” Donations are Deductible. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
- Provide and Keep Records. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.
- Current Year Deductions Only. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
- Credit Card Donations. Deducted when Received by Charity. Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
- Written Acknowledgment Required. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
- Special Forms for Donations of Property Valued at More than $500. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
- Appraisal Required for Property Donations More than $5,000. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.
For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property
Employee fraud can devastate not only an organization’s financial security but its reputation. Here
are 15 things you can do to minimize the risk of employee fraud within your nonprofit.
- Perform a background check on all new hires. The Board should have a policy of performing a criminal background check (called “Limited Criminal History Check”) on all new hires. Require the candidate to provide references and CALL the references (and listen “between the lines” to what is said) Don’t get pressured by the need to fill a vacancy or by the candidate’s self-disclosed “other options.” Check before you hire.
- Are Credit Checks legal? Do they work? A new trend in employee background checks is to also conduct a credit check. This can verify whether a candidate pays bills on time, and can be helpful in verifying previous addresses and employment. This information can provide clues about a candidate’s level of responsibility. You must obtain the candidate’s permission before on a separate consent form prior to running the check.
- If you decide to NOT hire a candidate based upon credit check results, you MUST inform the candidate of the reason and provide a copy of the adverse credit report, including the contact information for the credit reporting agency that provided the report. You must also keep the results of the credit check confidential (regardless of the results).
- Require two signatures on checks. Depending on your corporate structure, you can limit the two-signature requirement to checks above a certain threshold (for example, $250 or $500), or require two signatures on ALL checks.
- NEVER pre-sign checks. This is not only a “bad idea,” but compromises the nonprofit’s financial integrity. What would the public say if they knew that you allowed pre-signed checks?
- Do not allow one person control over all accounting functions. This is also called “separation of duties,” and provides both an actual and psychological barrier to fraud. Examples:
- The person that writes the checks does not sign the checks.
- The person that makes the deposits does not count the cash.
- The person that opens the mail does not count the deposits
- Two people count cash receipts (particularly for events that generate a lot of cash)
- The person that reconciles the check book with the bank does not handle the
- Cross-train employees to cover for vacations and illnesses
- Consolidate Checking Accounts. Talk to your banker about consolidating checking accounts. Usually, computer programs are very good about segregating project funds, so if you don’t have a need (or supervising agency requirement) for separate bank accounts, consider consolidating the accounts. If you must have more than one account, use the same bank and make sure the banking staff knows you and your organization. This will discourage “phantom accounts,” which can be used by employees for skimming.
- Eliminate petty cash. These days, there is very little requirement for cash, and petty cash can often be overlooked and easily “skimmed,” since it fosters a more lack accounting.
- Have an outside auditor review the books. At least annually for most nonprofits, and more often for larger nonprofits or nonprofits that have a significant amount of government money (either tax dollars or grant funds), an outside party should take a look at the books.
- Use a computer program to enter all financial activities. Even very small nonprofits can afford some of the “consumer-based” accounting packages that are both inexpensive and easy to use. Computer data that is regularly reconciled with company documents and bank statements can quickly show discrepancies and omissions that may lead to the discovery of
- Use Budgets. Consistent use of budgets and comparison of cash flow to budget expectations can reveal unexpected expenses or discrepancies in expected income
- Look for Ways to Improve. Encourage employees to suggest improvements to the financial system.
- Watch Employee Hours and Overtime. Verify employee hours, particularly overtime hours, to be sure that there is not “padding.” This is also true for compensatory time (Comp Time). Inflated Comp Time is the same as padding paid hours.
- Watch Corporate Stock and Inventory, Including Supplies. In today’s economy, employers are recording an increase in theft of office supplies and corporate inventory. Even larger items, such as computers and cameras have been reported stolen by employees. Note if office supplies seem to be depleting more rapidly than expected, or if sales revenue does not match inventory sold.
- Watch Expense Accounts. Require receipts for all reimbursements (including board reimbursements) and do not allow anyone to approve his or her own expense reports. Verify requests for reimbursement (Does mileage match approved destinations? Were purchases approved? Is there a “cap” for reimbursement of meals?)
- Verify Credit Card Charges. It can be “too easy” for employees to purchase items using the company credit card. Over the past several years, there have been several stories of executive staff using nonprofit credit cards personal purchases, particularly when the credit card statements are not closely reviewed and receipts matched with charges, and when the executive is the one that processes the credit card statements
- Routinely Review Bank Statements. Appoint someone outside of the financial routine to review bank statements. Many banks include check images and deposit slip images with the bank statements, which can be a quick way to review and verify checks and catch patterns of improper payments, overpayments and duplicate payments (whether deliberate or mistaken).
- Set the tone at the top. Promote high ethics and create a code of conduct and conflict of interest policies that reflect your culture and encourage ethical behavior at all levels.