Posted by Christina Bell, CPA
Every weekend I count on throwing away, recycling, or donating at least 10 items in my house. With three children, if I kept every piece of artwork, broken toy, and outgrown outfit, I’d be living in a sea of clutter and chaos. As a result, my family has a policy on how long we keep certain items. This policy ensures items we consider valuable are maintained and items that we believe no longer fulfill their purpose or benefit our family are disposed of in a responsible manner. Financial recordkeeping is similar. Organizations should have a record retention policy that preserves records for as long they serve a useful purpose or until all IRS and other regulatory requirements have been satisfied.
When an organization adopts a record retention policy it illustrates the organization’s commitment to transparency and compliance. Additionally, the IRS views a record retention policy as an indicator of an organization’s ability to effectively govern, as evidenced by IRS Federal Form 990 specifically asking if an organization has adopted a written document retention and destruction policy.
There are several resources, including resources from the AICPA and Better Business Bureau, that offer guidance by providing a suggested retention period to maintain records. When utilizing these resources or any other resources, to develop a record retention policy, it is important to remember that the most important criteria of any record retention policy are that they meet IRS guidelines as well as any other legal, contract, or industry requirements that may pertain specifically to your organization. Therefore, before a record retention policy is adopted, it should be reviewed by an organization’s management and their team of trusted legal and financial advisors.
When adopting or revising a record retention policy, consider utilizing electronic records (scans, pdf, etc.) wherever feasible. Electronic records take less storage space and have the advantage of maintaining several backups in multiple locations. The IRS allows records to be maintained electronically so long as they are retrievable and readable.
Utilizing the above information will help your organization have record retention policy that ensures all valuable information is maintained for its required period.