Another danger is that the organization may make poor investment decisions such as the purchase of junk bonds by Orange County, California that resulted in its bankruptcy. The New Era scandal is another example of a bad investment decision. If the nonprofit purchased stocks or bonds in a company that subsequently comes under public and media scrutiny, it may experience adverse publicity or a significant decrease in the value of the investment. Every board should establish an investment policy that will guide the nonprofit in its investment and financial decisions. Even an organization operating on a cash current basis should have a policy.
All nonprofits exist for a specific purpose with a defined mission.
The board is responsible for ensuring that the organization stays focused on its mission. An excellent way to monitor an organization's progress is through its use of funds. Many nonprofits receive gifts or funding with restrictions or limitations on its use. The improper use of these funds can cause the funder to withdraw the money, require repayment of the expended funds, and refuse to provide future funding. A similar risk is the use of funds for purposes other than serving the organization's mission.