GFOA Certified Public Finance Officer (CPFO) Capital and Operating Budgeting Practice Exam

The notion of shared savings policies is centered around the idea of incentivizing departments or entities to save resources, often through cost reduction and efficiency measures. However, a significant drawback is that it can lead to spending on unauthorized items. This situation arises because the incentive structure may encourage some participants to utilize funds in ways that deviate from the originally intended or budgeted purposes, as they might feel pressure to demonstrate savings or fulfill targets. They could justify spending beyond approved budgets in an attempt to secure later savings in other areas.

This issue highlights the importance of rigorous oversight and transparent processes in shared savings initiatives to ensure that any savings realized contribute beneficially to the overall financial health of the organization rather than enabling potential waste or misallocation of funds. The other options do not accurately capture the inherent risks associated with shared savings policies in the same substantial manner.