Friday, October 26, 2012

Financial Records Retention for Churches

Records retention of financial data can get very complicated very quickly but I think it should be simple. I've studied different charts but it all can be divided into two categories: 7 years and permanent.

7 Years
  • Bank statements & reconciliations
  • Contribution records
  • Accounts payable records
  • Payroll detail
  • And other financial detail records
  • Commercial insurance records and payments (property and workers' comp)
  • W-2s, W-3s, 1099s, and 1096s
  • General Ledger detail
  • Monthly financial statements
  • And other big picture records
The short-term docs are kept mostly in case of a church or staff member being audited by the IRS; IRS audits can go back only 7 years maximum. Also, after 7 years, most financial info is considered "historical" and not relevant to the church's current status.

The reason for keeping insurance docs forever is for legal purposes: if something comes up years later (child molestation or a building issue), you want to get the insurance company at the time of the incident to pay for and handle all the legal issues You need to keep a copy of the policy and payment of the bill to prove it was in effect. Other long-term docs are kept for legal and financial history; they are rarely consulted but it is a good way to keep financial history. There is no legal or financial reason to keep records of individual gifts beyond 7 years.
BTW, there is no permanent or long-term accepted standard for record-keeping. Right now the best way is on paper with an electronic backup in PDF format. Everyone is waiting on the Library of Congress to determine the definitive long-term storage but LoC is waiting on technology (which changes constantly). Until then, print things out (old-school) and have an electronic version (new school).
These docs need to be stored
  • In a climate controlled environment such as a closet
  • Above floor level  so that rising water won't damage them 
  • Behind a secure door which is keyed differently than all other building keys
  • In boxes on shelves to make access in subsequent years easier
  • Together by fiscal year and all permanent records need to be stored together
  • And, the financial records storage closet can also be used to store items that just don't fit in the finance office.
Each year, the oldest docs need to be shredded. I took the annual shredding chore and made it into an opportunity to help church members. I announced, especially to the senior adults, the day that shredding would happen and encouraged them to bring in old docs such as tax records and bank statements. The seniors were very grateful that the shredding could be done at no cost to them and it didn't cost the church any extra either.

Shredding will cost less than $100 or you can see if your bank will shred your docs for you. Some businesses have "shredding parties" to draw new customers - take advantage of that even if you don't become one of their customers.
Lead On!

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