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Access to records.

Who may inspect association documents?

The question of who has access to association records arises in a number of contexts. The answer begins by defining records.

Both the federal government and the states have enacted laws governing access to business records, which generally set forth requirements for various aspects of how an organization conducts its affairs. Such documents may include financial records, minutes of meetings, mailing lists, data base records, lists of members, and employment and other types of contracts.

Some laws restrict or provide access to employee and personnel files. The association should retain those files during the period of employment and for a certain period thereafter in the event of subsequent litigation. As a matter of good policy, personnel files should not be made available to anyone except those at the supervisory level.

Government access

Government agencies such as the Internal Revenue Service and the Federal Trade Commission, as well as the legislative and judicial branches, are generally entitled to all existing records of an association. There is no requirement, however, that records be kept that could be used against an association in antitrust or environmental proceedings.

Some records necessary for income and expense determination, such as payroll and pension records, are required to be retained for three years for IRS purposes. The most practical approach is to retain IRS records permanently.

One IRS rule that deserves special attention is the provision requiring all 501(c)(3) and 501(c)(6) organizations to make a copy of the Form 990 available for inspection to any person--employees or the general public--making such a request. The technical reason given for this provision is that organizations with a tax exemption create a public interest in their financial statements.

In general, the information on Form 990 is the total compensation provided to the five highest-paid individuals of an organization. The new Form 990 also will include the compensation paid by affiliated organizations to the five highest-paid individuals. Thus, if an association has several for-profit subsidiaries that also pay compensation to some of the individuals included on the association list, this amount must be reported on the new Form 990 beginning this year--1993.

Several problems have arisen for associations in connection with this rule of access. A number of published articles, for example, have brought attention to the salaries of chief staff officers of major organizations, seemingly for the purpose of questioning or disapproving their salary levels.

Inspecting records

The right to inspect books and records is provided for in many statutes and in the common law, and is sometimes relied upon by members of nonprofit organizations that wish to inspect books and records of their associations. This is an important right that the courts have been willing to uphold.

In the District of Columbia, for example, each nonprofit corporation incorporated under the nonprofit corporation statute is required to keep correct and complete books and records of accounts and minutes of the proceedings of its members, the board of directors, and committees having any authority of the board of directors.

It is also required to keep a record of names and addresses of its members. The statute states that "all books and records of a corporation may be inspected by any member having voting rights, or his agent or attorney, for any proper purpose at any reasonable time."

Suppose that a member of a District of Columbia nonprofit corporation wants to obtain a copy of the membership list. Can he or she do so?

It depends on whether the reason for doing so is "proper." If the member wants the list to establish a competing organization, this would not be a proper purpose. If the member wants the list to conduct a mailing to members on association business--even if the mailing will urge that a special meeting be called and that the directors be removed--this is a proper purpose.

It is up to the board of directors to determine whether a purpose is proper, but courts have usually held that a proper purpose for wanting to see the membership list includes such things as wanting to conduct a proxy fight or call for a special meeting.

As another example, the National Sporting Goods Association, Mount Prospect, Illinois, at one time refused to provide a membership list to a member until the annual meeting. This position was consistent with the applicable law of Missouri.

The right of member access to records differs from state to state, so it's best to consult your state's nonprofit corporation statutes. An excellent reference is the Fletcher Cyclopedia on the Law of Private Corporations (Vol. 5A; sections 2213-2257), published by Callaghan & Company, Wilmette, Illinois.

Individual access

States have also enacted various laws specifying who may have access to certain records.

Directors, for example, are entitled to see any records they want to see. Some state statutes require good faith in making this request, which generally means that it is in the best interests of the association as contrasted with a personal reason. Other statutes permit former directors to review association records for the period during which they were in office.

The executive committee of the board of directors obviously is also entitled to see any records it wants to see. In some organizations, the board of directors has delegated to the executive committee certain duties with the understanding that only the executive committee is entitled to see the documents related to the issue at hand.

For example, some associations delegate to the executive committee the employment contract of the association's chief staff executive. In this instance, some boards take the position that only the members of the executive committee are entitled to see those records.

The staff of the association are only permitted to see whatever records are necessary to perform their jobs. This determination is made by supervisors and top executives of the organization.

Retention of records

Many associations maintain a schedule of periodically culling records (see "When to Throw It Away" in the September 1992 issue of ASSOCIATION MANAGEMENT). However, once a government agency issues an appropriate subpoena, the records can no longer be culled.

Record retention requirements generally depend on state statutes (with the exception of IRS records that, as mentioned earlier, have to be retained for at least three years).

George D. Webster is general counsel to ASAE and a partner in Webster, Chamberlain & Bean, a Washington, D.C., law firm.
COPYRIGHT 1993 American Society of Association Executives
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Article Details
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Author:Webster, George D.
Publication:Association Management
Date:Apr 1, 1993
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