SKU.4013_Internal Audit, Evaluation & Conclusion Techniques, Compliance Testing

Food for Thought:
Compliance testing is a key audit method used to determine whether internal controls, processes, or policies are being followed as intended. Unlike substantive testing, which focuses on numbers and results, compliance testing focuses on behavior and adherence. Internal auditors typically use this technique when evaluating controls around areas like HR, finance, procurement, and regulatory compliance. It helps answer the question: Are people following the rules?

Template: SKU.4013_Internal Audit, Evaluation & Conclusion Techniques, Compliance Testing

A simple yet effective Compliance Testing Matrix in Excel helps auditors track their procedures, sample selection, exceptions found, and conclusions. The following columns are typically included:

  • Control / Policy Requirement

  • Test Procedure

  • Sample Size

  • Exceptions Noted (Y/N)

  • Details of Exceptions

  • Compliance Rate (%)

  • Conclusion

  • Auditor’s Comments

  • Responsible Person

  • Corrective Action Plan

 Application Example at ACME Corp.
At ACME Corp., Internal Auditor Auren was asked by CEO Liora to assess employee compliance with the company’s expense reimbursement policy. The policy required all expense claims over $50 to be supported by original receipts. Project Manager Aven was particularly concerned about rising travel expenses.

Auren selected 15 random expense reports from the past quarter. He documented the control requirement, the test procedure, and his observations in the Compliance Testing Matrix. During review, Auren found that 3 out of 15 reports lacked required receipts for claims above $50.

The results:

  • Compliance Rate: 80%

  • Conclusion: Partially Compliant

  • Exceptions: In some departments, employees misunderstood the threshold.

  • Recommendation: System should prompt users to attach receipts above $50, and a refresher training should be delivered.

Aven agreed to configure the expense system and scheduled a policy workshop for all team leads. Liora appreciated the data-driven insight, and requested compliance testing be extended to other areas such as overtime authorization and leave approvals.

Template: SKU.4013_Internal Audit, Evaluation & Conclusion Techniques, Compliance Testing

Categories: T&T, Internal Audit