What does the term 'disallowed costs' generally refer to?

The term 'disallowed costs' specifically refers to costs that fail compliance criteria. In accounting and financial management, particularly within the context of government or grant funding, certain expenses must adhere to specific regulations or guidelines to be considered allowable for reimbursement. If costs do not meet these established criteria—perhaps due to being improperly documented, exceeding budget limits, or not aligning with the purpose of the funding—they are deemed disallowed.

Recognizing what constitutes a disallowed cost is crucial for organizations managing funds from external sources, as it helps them avoid financial penalties and ensure compliance with funding agreements. Understanding this distinction is vital for maintaining financial integrity and ensuring proper use of resources.