To Purge Or Not To Purge Effective Document Management Practices

To Purge or Not to Purge: Effective Document Management Practices

As new year resolutions go, getting better organized seems an easy goal. Clearing out closets, files, and even email inboxes can be good for the mind — and soul. But what about the organization?

Fortunately for the CFO of one healthcare organization, nothing was discarded by his predecessor. Having stepped into his role last year, he found a discrepancy between IRS regulations and the way his organization categorized certain donations. Before fingers could point his way, he also uncovered an auditor’s letter that identified the irregularity and recommended corrective actions six years before he arrived. While it was surprising that neither the prior management team nor board had rectified the matter, the current CFO is hailed as a hero as he spearheads the implementation of best practices that were suggested years prior.

Thus, we recognize the importance of saving information. Proof of decisions, discussions, and even innocence can be found in historic files. At the same time, we must resist the temptation to save everything, “just in case.” More prudent is having effective document management practices, typically dictated by a document retention and destruction policy.

Document Retention and Destruction Policy

The document retention and destruction policy, notarized for nonprofits and for-profits alike by the Sarbanes-Oxley Act, is among the good governance policies referenced on the IRS Form 990. As noted by the National Council of Nonprofits, instructions for the IRS Form 990 state: a document retention and destruction 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.

Criteria for Effective Document Management

Notably it is not simply the job of one person to keep a nonprofit’s information logically organized. Effective document management is an organization-wide system for retaining stipulated records – whether paper or electronic — for a defined period of time. According to the Nonprofit Alliance of Monroe County, two things must be true for an organization to be managing documents well:

  1. The organization must have all the records necessary for running and preserving the business, and
  2. People must be able to easily find those records at will.

By ensuring an organization keeps accurate and appropriate records, effective document management protects and enhances the business, ultimately increasing its impact. Specifically, notes the Nonprofit Alliance of Monroe County, it allows nonprofits to accomplish the following:

  • Back up claims. This is about evidence, which can allow organizations to settle potential disputes with vendors, donors, employees, or even government.
  • Analyze the business and its initiatives. It helps to monitor program impact, operational efficiency, and staffing issues by reviewing data that shows what works and doesn’t. Whether it’s event attendance patterns, budget trends, or volunteer histories, such records can expose issues and support organizational decisions.
  • Revisit terms and agreements to ensure compliance and identify inefficiencies. Keeping contracts, terms of service agreements, donor histories, etc. can help ensure adherence to requirements and illustrate opportunities for change.

Implications of Flawed Document Management

On the flip side, failure to manage documentation well can have significant repercussions, the organization says:

  • Inability to defend against complaints, litigation, or sanctions. Even when an organization is right in a case over employment, direct service provision, or funding allocation, it must be able to prove it or face potential penalties or consequences.
  • Inability to support numbers in case of an audit. This is a universal concern. Common practice is to “keep evidence for every number that appears on your tax returns – state and federal” …for at least three years.
  • Failure to prove compliance with regulatory agencies. Government agencies might claim an organization is in violation of regulations, so evidence of compliance will be essential in preventing the loss of licenses.
  • Potential loss of nonprofit status. Similarly, an organization might need to provide evidence over time of charitable activities in order to maintain its tax-exempt status.

Standards for Document Retention

While all organizations obviously need policies to inform their approaches to document management, there is no standard regulation for document retention that applies to all. State laws vary as do industry standards on what types of information get generated. The National Council of Nonprofits notes, however, that some documents should be saved permanently by all organization and others should be saved for a specific period of time (informed by states’ statutes of limitations on claims) by most nonprofits.

Records to keep permanently include:

  • 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

Innovations in Document Management

Innovations in technology obviously have transformed document management practices in recent years. Coveted physical space is no longer a restraint in record retention as file cabinets and closets are unnecessary in organizations that save documents on a server or in the cloud. Of course, it’s important to include security policies and back-up plans as part of any digital storage system.

In addition, organizations should consider the difference between what information is necessary to keep and what might be appropriate for the sake of organizational history. Technology makes it easy, for instance, to preserve the work of an ad hoc event committee that disbands after it executes an organization’s 25th anniversary gala. In a platform like BoardEffect, for instance, the committee’s workroom could be deactivated rather than deleted, enabling future users to reactivate it when seeking guidance for celebrating the organization’s 40th year.

Since goals and resources for document management vary by organization, each must develop its own policies and practices. Still, samples such as these can be useful not only for getting started, but also for reviewing and revising document management effectiveness on a regular basis:

http://managementhelp.org/misc/Sample-Document-Retention-Destruction-Policy.pdf

http://www.lawhelp.org/files/7C92C43F-9283-A7E0-5931-E57134E903FB/attachments/A38616F1-E4A3-4F62-927A-216E4EB84BEC/document-retention-policy-august-2015.pdf

Sonia J. Stamm

Sonia J. Stamm is Governance Consultant at BoardEffect. Since almost our inception, she has shared a best practice perspective on governance with our team and clients, partnering to guide boards toward optimal implementation of our software. As founder and principal of a nonprofit leadership consulting firm, Sonia supports the evolution of mission-based organizations through her work in board development, leadership transition and succession, and organizational effectiveness. A seasoned facilitator, trainer, and consultant, she enjoys guiding boards and organizations through critical junctures in their development.