This article is the 2nd post in a series on key policies nonprofits should adopt. The previous edition addresses a conflict of interest policy and now we will dive into two additional policies: “document retention & destruction” and “whistleblowers & retaliation policies.” In this blog you will learn about why these policies are important and what should be included in them.
Your organization can either vote to adopt these policies as separate documents, or adopt a version of the policies into your bylaws. If you choose to adopt a policy as a part of your bylaws, it will be more solidified in your governing documents and will have greater voting requirements to change them in the future. Make sure you read the 1st post to understand how your organization's bylaws and articles of incorporation lay the foundation for a properly functioning nonprofit.
Let’s get started on why these two sets of policies are important and why you should consider adopting them.
1. Document Retention and Destruction Policy
What is a “document retention and destruction” policy?
A document retention policy sets guidelines for the length of time that various documents will be preserved in the files of the organization.
This policy “identifies the record retention responsibilities of staff, volunteers, board members, and outsiders for maintaining and documenting the storage and destruction of the organization’s documents and records.”[1]
Why is it important to have a “document retention and destruction” policy?
Federal law prohibits the destruction of certain documents. You want to make sure you do not destroy anything that your organization has a duty to preserve.[2] There are also many documents which must be maintained to provide for verification for tax purposes.
If your organization becomes tax exempt by virtue of achieving 501(c)(3) charity status, you will be required to supply certain documents to any member of the public that requests them. Those documents include: (1) Your organization’s annual returns for up to 3 years after the listed due date (including Forms: 990-PF, 990-EZ, 990-T, and 990), (2) Official IRS paperwork showing your 501(c)(3) charity status, and (3) your organization’s application for exemption and all supporting documents submitted with your application (including Form 1023).[3]
What should a “document retention and destruction” policy include?
Your policy should include document categories and the length of time the organization will keep those business documents.[4] It should also include a provision that “restricts employees, officers and directors of the organization from destroying documents in anticipation of litigation.”[5]
In the chart below, you can find some of the records you are likely to encounter as a non-profit and times for how long you should keep them in Michigan. This is not an exhaustive list; you should air on the side of caution and preserve a document if you are unsure of the timeline.
|
How long to keep?[6] |
Document Type |
|---|---|
|
Permanently |
● Articles of Incorporation ● Audit reports, from independent audits ● Corporate resolutions ● Checks ● Determination Letter from the IRS, and correspondence relating to it ● Financial statements (year-end) ● Insurance policies ● Minutes of board meetings and annual meetings of members ● Real estate deeds, mortgages, bills of sale ● Tax returns ● Labor contracts and union agreements |
|
7 years |
● Bank statements and deposit slips ● Credit card statements ● Expense distribution schedules ● Invoices (from vendors) and Purchase orders ● Accident reports ● Canceled checks (general, payroll, payroll-related taxes) ● Contracts and leases (after expiration) ● Employee files (after termination) ● Paychecks, W-2 Forms, W-4 Forms, 1099 Forms ● Payroll records ● Time books |
|
6 Years |
● Annual administrative reports ● Major purchase receipts ● Personnel files (terminated) ● Open accounts ● Promissory notes (6-10 years) |
Sample: Sample document retention policy (American Institute of Certified Public Accountants)
Additional Resource: IRS Compliance Guide for 501(c)(3) Public Charities (IRS)
2. Whistleblower Policy
What is a “whistleblower” policy?
“A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported.”[7]
Why is it important to have a “whistleblower” policy?
Certain federal or state laws provide protection against whistleblower retaliation.[8] You should ensure your organization has a policy in place so that individuals know how to report issues, and that you have adequate procedures in place to respond to those problems.
A whistleblower policy will encourage and enable employees to raise serious concerns internally so that the organization can address and correct inappropriate conduct and actions.[9] This is important for the longevity of your organization because it helps you catch and address problems within the organization as soon as possible.
What should a “whistleblower” policy include?
Some general concepts which you should be sure to include are[10]:
- Reporting Responsibility
This clause encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization.
- No Retaliation Clause
Your policy should specify that the organization will protect any individual that comes forward from retaliation. This clause can also impose penalties for nonprofit members who retaliate against the individual who files a claim.
- Reporting procedure
Your policy should explain how individuals can report and what the process is after filing a report. It should encourage reporting and make the process easy for individuals to understand.
- Compliance officer
It should identify those staff or board members (or outside parties) to whom information can be reported. It is important to designate a secondary contact person in case the filer does not feel comfortable contacting the original compliance officer.
- Confidentiality
Complaints should be kept confidential to the best extent that it is possible. If the name of the individual who filed the complaint is not necessary, it should not be revealed.
- Procedures for Addressing a reported violations
The Compliance Officer should notify the person who submitted a complaint that it was received. This clause should also specify the timeline for investigation and corrective action upon receiving a complaint.
The National Council of Nonprofits has published a sample whistleblower protection policy which you can review.
Additional Helpful Sources
We hope that this information is helpful for drafting and accepting these important policies for use in your nonprofit. Here are some additional resources you may find helpful as you grow your organization!
- IRS Compliance Guide for 501(c)(3) Public Charities (IRS)
- National Council of Nonprofits website: https://www.councilofnonprofits.org/
[1] I.R.S., Instructions for Form 990 Return of Organization Exempt From Income Tax, 23.
[2] See 18 U.S.C. 1519.
[3] How to Keep Your Michigan Nonprofit Compliant, TRUiC How to Start and LLC,
https://howtostartanllc.com/start-a-501c3-nonprofit/michigan-nonprofit-compliance#8.
[4] Winston & Strawn LLP and DC Bar Pro Bono Program, “Document Retention Policies — What Every Nonprofit Should Know” 1 (May 2008) https://pbpatl.org/wp-content/uploads/2011/12/documentretention1.pdf.
[5] Id.
[6] Document Retention Policies for Nonprofits, National Council of Nonprofits https://www.councilofnonprofits.org/running-nonprofit/governance-leadership/document-retention-policies-nonprofits; Michigan Manufacturers Association & Clark Hill P.L.C., Business Record Retention Guidelines https://mimfg.org/Portals/0/Documents/Services/retentionguidelines.pdf, Records Retention Guide, Rehmann, https://www.michiganfoundations.org/system/files/documents/2021-09/Records_Retention_Guide-Rehmann.pdf.
[7] I.R.S., Instructions for Form 990 Return of Organization Exempt From Income Tax, 23 (Dec. 7, 2022) https://www.irs.gov/pub/irs-pdf/i990.pdf.
[8] I.R.S., Instructions for Form 990 Return of Organization Exempt From Income Tax, 23; See 18 U.S.C. 1513(e).
[9] Sample Whistleblower Protection Policy, National Council of Nonprofits https://www.councilofnonprofits.org/files/media/documents/2023/sample-whistleblower-protection-policy.pdf.
[10] I.R.S., Instructions for Form 990 Return of Organization Exempt From Income Tax, 23 (Dec. 7, 2022) https://www.irs.gov/pub/irs-pdf/i990.pdf; Sample Whistleblower Protection Policy, National Council of Nonprofits https://www.councilofnonprofits.org/files/media/documents/2023/sample-whistleblower-protection-policy.pdf.
By: Jessica Gracik