Proper Documentation

Posted on Wednesday, June 09, 2021

Does your organization maintain proper documentation?

In general, an organization must maintain books and records to show that it complies with tax rules.  A nonprofit organization must be able to document the sources of receipts and expenditures reported on Form 990.  If an organization does not keep required records, it may not be able to show that it qualifies for tax-exempt status or should be classified as a public charity.  Thus, the organization may lose its tax-exempt status or be classified as a private foundation rather than a public charity.  In addition, it must be able to maintain sufficient financial information to prepare accurate and timely financial statements.  These statements are most often required by funders, banks, creditors, or reporting agencies. 

Nonprofits may receive revenue from various sources that need to be reported in different ways – contributions, restricted contributions, program service fees, unrelated business income, etc.  In order to make sure that these items are reported properly, the organization must maintain proper documentation.  In the same manner, organizations must maintain proper documentation for disbursements to ensure that the expenses were for legitimate business purposes. 

A document retention and destruction policy should be approved and in place for each organization that notes the types of documents to be maintained and for how long. 

The types of activities that an organization conducts will determine the types of records that should be maintained.  In general, the following documents should be kept to support to the organization’s activities.

Receipts

• Check copies for amounts over a set dollar amount.
• Grant letters/agreements.
• Deposit slips.
• Documentation from donors noting any restrictions on contributions.
• Schedule of restricted monies with amount spent.

Disbursements

• Invoices/receipts for payments made.  All payments should have supporting documentation from the vendor noting the vendor’s name, amount, date and purpose of payment.
• Receipts for all credit card purchases should be maintained with the credit card statement.
• Petty cash vouchers.

Cash

• Bank statements.
• Monthly bank reconciliations.
• Cancelled checks.

Receivables

• Agings showing amounts due and when.
• Documentation from donors for promises to give, including the amount, any restriction, and date to be paid.

Fixed assets

• Invoices for all fixed asset purchases.
• Depreciation schedule.

Payables

• Agings showing amounts due and when.

Notes Payable

• Loan agreements.
• Any covenant requirements.

Payroll

• Time cards.
• Payroll registers.
• Pay rates for each employee.
• Personnel files for each employee.
• Quarterly and annual payroll forms filed.

Contributed by: Carrie Minnich, CPA, MAcct |  Director | DWD CPAs & Advisors

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.