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INTRODUCTION

DEFINITION OF HUMAN RESOURCE AUDIT

Human Resources (HR) Audit is the process of examining policies,


procedures, documentation, systems, and practices with respect to an
organization’s HR functions.. The audit works best when the focus is on
analyzing and improving the HR function in the organization.

It is also a measure of the degree of compliance to existing legal obligations


and labor laws, suggesting corrective actions which may be necessary. It
creates an atmosphere of transparency and goes a long way in avoiding
legal confrontations later.

HR Audit means the systematic verification of job analysis and design,


recruitment and selection, orientation and placement, training and
development, performance appraisal and job evaluation, employee and
executive remuneration, motivation and morale, participative management,
communication, welfare and social security, safety and health, industrial
relations, trade unionism, and disputes and their resolution. HR audit is very
useful to achieve the organizational goals and also is a vital tool which helps
to assess the effectiveness of HR functions of an organization.

It is the systematic assessment of your organization's HR service excellence.

PURPOSE OF A HUMAN RESOURCES AUDIT:-

The purpose of the audit is to reveal the strengths and weaknesses in the
organization’s human resources system, and any issues needing resolution.
The audit itself is a diagnostic tool, not a prescriptive instrument. It will help
to identify what you are missing or need to improve, and it may even tell you
what you need to do to address these issues. It is most useful when an
organization is ready to act on the findings, and to evolve its HR function to a
level where it’s full potential to support the organization’s mission and
objectives can be realized. Other aims of the audit are to:-

1) Ensure the effective utilization of an organization’s human resources.


2) Review compliance with a myriad of administrative regulations.
3) Instill a sense of confidence in management and the human resources
function that it is well managed and prepared to meet potential
challenges.
4) Maintain or enhance the organization’s and the department’s
reputation in the community.

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5) Perform a "due diligence" review for shareholders or potential
investors/owners.
6) Identify the HR programs that are most important to achieving your
organization's objectives.
7) Find out how well your HR department is delivering those programs.
8) Benchmark your HR work to ensure continuous improvement.
9) Promote change and creativity.
10) Focus the HR staff on important issues.
11) Bring HR closer to the line functions of the organization.
12) Assess the effectiveness of the Human Resources function
13) Ensure regulatory compliance.

The audit can be conducted by anyone with sufficient Human Resources


experience. Having experience working in more than one company is a plus,
as it provides the auditor with a broader perspective. There's an advantage
to having the audit conducted by an external consultant because the
external consultant has fewer biases about the organization and has less
personal interest in the outcome than an employee of the company, the
external consultant may also` be more objective.

SCOPE OF AUDIT:

Generally, no one can measure the attitude of human being and also their
problems are not confined to the HR department alone. The audit is very
broad in nature and covers the following HR areas:

• HR function.
• Managerial compliance of personnel policies, procedures and legal
provisions.
• Corporate strategy regarding HR planning, staffing, interpersonal
relations, remuneration and other HR activities.
• Climate on employee motivation, morale and job satisfaction.

HOW DOES THE AUDIT PROCESS WORK?

• Interview key staff


• Review relevant documentation
• Help you complete a comprehensive questionnaire
• Compile data a prepare and customized written report

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• Make specific recommendations to improve the efficiency and
performance of your HR function

THE AUDIT PROCESS

The HR audit process is conducted in different phases. Each phase is


designed to build upon the preceding phase so that the organization will
have a very strong overview of the health of the HR function, at the
conclusion of the audit.

The audit process consists of a series of questions covering the eight primary
components of the HR function:

1.)Roles, head count, and HR information systems (HRIS) : The complete


staff can be described by: hierarchic levels, years of service, qualification,
sex, and nationality; the number of permanent and temporary employees,
interns, and physically or mentally challenged employees; and indexes of
personnel rotation and absenteeism.

2.)Recruitment and selection :This includes the number of days needed


to fill a vacant post; the number of applications received by work place
categories; the average amount of days between the reception of the
application and the final answer; the average cost of recruitment and
selection per job post; the degree to which internal and external sources
of recruitment are used; the average number of candidates that do not
pass the selective tests; a study of the reliability and validity of the
selection tests; and the degree to which the recruiting efforts for the
company’s business plan.

3.)Documentation : Job analysis will be included in this. The number of


described posts and occupants per post; the degree to which the job
description cards have been updated; the degree of detail in the job
description cards; and the methods used to analyze and describe the jobs.

4.)Training, development, and career management :The training


indicators will include:-

I. The procedures followed and the frequency with which personnel


training needs are analyzed

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II. The criteria followed to define the content of the training
programs, the evaluation criteria of the efficacy of the training
programs
III. The percentage of the HR budget dedicated to training
IV. The average number of hours of training per employee
V. The percentage of employees that participate in training programs
by work place categories.

5.)Compensation and benefits :The average wage per employee and wage
difference among employees; the fixed and variable components of
retribution; the percentage of remuneration linked to the employee’s yield
and the internal equity and external competitiveness of the retribution
system.

6.)Performance measurement and evaluation: Evaluation indicators


include: the level of usage for promotion or career; the level of feedback
of results to the company’s personnel, and the degree to which poorly
performing employees are assisted in improving their performance.

7.)Termination and transition

8.)Legal issues and personnel policies

It also covers equity and performance management

PHASES OF HR AUDIT

Pre-Audit Information: This phase involves the acquiring and review of


relevant HR manuals, handbooks, forms, reports and other information. A
pre-audit information request is forwarded to the client who compiles the
necessary information for review by auditors. Collect existing data such as:

• Hiring statistics (acceptance rate, hiring rate, hiring projections)


• Turnover
• Compensation and benefits philosophy and practice
• Exit interview summaries
• Employee complaints (discrimination, harassment, safety, other)
• Promotion and advancement practices and trends
• Human Resources budget and expenditures

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Pre-Audit Self-Assessment: In order to maximize the time spent during
subsequent portions of the audit, a pre-audit self-assessment form, if sent to
the client can be of use. The self-administered yes/no questionnaire asks a
number of questions about current HR policies and practices.

The completion of this self-administered questionnaire allows auditors to


identify key areas for focus during the HR audit.

On-site Review: This phase involves an on-site visit at the client's facility
interviewing staff regarding HR policies and practices. Assess the mission,
vision, strategy, and culture of the organization, from whatever written
material there is in the company (check with the department or person who
handles public, customer, or shareholder relations).

An in-depth HR audit checklist is completed. Collect existing data such as:

• Hiring statistics (acceptance rate, hiring rate, hiring projections)


• Turnover
• Compensation and benefits philosophy and practice
• Exit interview summaries
• Employee complaints (discrimination, harassment, safety, other)
• Promotion and advancement practices and trends

Where possible, compare the data you collected with market data. This
information will provide you with a point of view for the next phase of the
audit: the interviews. If, during the interview, discrepancies arise between
the data and the interviewee's answer, you can explore the reasons for the
discrepancy(s).

Conduct Interviews

The purpose of the interview is to collect input from the internal customer on
their Human Resources needs and how those needs are being met.The
interviews provide direct feedback on the needs of the organization as stated
by the customers. In addition they can provide indirect feedback. For
example, the results may indicate that different organizations have
conflicting goals. Perhaps a performance management system could correct
this problem or perhaps communication isn't flowing well in the organization,
suggesting a need for communication programs or some training and
development.

Some of the information collected during the interviews will be sensitive.


Confidentiality must be respected. Get advanced approval from top
management on the questions you will ask during the interview phase.

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Begin the interview with top management. Next conduct interviews with a
sample of subordinate managers including first line management. The topics
to discuss during the interview include:

• Perceptions of the company and its goals


• Strengths and weaknesses of top management
• Employee perceptions of the company and top management
• Relations with subordinates
• Support of career goals for self and employees
• Major Human Resources issues
• Which Human Resources functions work well
• Which Human Resources functions need improvement

Records Review

It is important to recognize strengths and opportunities for improvement. As


results are reviewed, themes will emerge around specific HR areas .
Employee personnel files are randomly examined as well as compensation,
employee claims, disciplinary actions, grievances and other relevant HR
related information are checked. The purpose of analysis is to sort through
the areas of strength and opportunities for improvement in order to take
positive action steps to improve the effectiveness of the HR function. The
ideal time to complete an audit is just prior to the annual planning process.
With audit information in hand, you can be poised to take advantage of your
insights into setting next year's goals.

There are two aspects of setting goals: maintenance of current good


practices and development of improved practices. Knowing the capacity and
capability of the HR department and system is critical in developing a
realistic plan

Audit Report: The information gathered is used to develop an HR audit report. The audit report
categorizes action needs into three separate areas. The areas that are urgent and important (UI),
not urgent needs but important (NUI), not urgent but not important needs (NNI)), and important
opportunities needs (IO). As a result of this scheme of classification, managements can prioritize
their steps. Possible actions that can be taken after the audit report include:-Modification of the
employee handbook, changes in the policy statement or training hr personnel in the recruitment
and hiring process.

The following areas should be audited as part of the regulatory compliance


audit:

a. Personnel files and recordkeeping (contain only job related


information)

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b. Pay equity
c. Job descriptions
d. Legal postings
e. Equal Employment Opportunity and Affirmative Action
f. Forms (applications, internal forms, etc.)
g. Workers' Compensation/ Work injury benefits Act
h. Legal reporting

Summarize the Results

Consolidate the information you collected. Compare the results with market
surveys. Determine which practices are good/popular/effective/competitive.
Determine which practices need improvement. Recommend specific
improvements referring to the results of both the Effectiveness audit and the
Regulatory compliance audit. Justify the recommendations. Determine how
to measure whether the improvements are successful.

Obtain Approval from senior Management

Present the preliminary results and recommendations to senior management


individually. Point out how these recommendations will support their needs.
Obtain their support, then present the final results and recommendations to
the senior management staff for final approval.

Implement the Program

Consider implementing the program in part of the organization as a pilot


program. Monitor and measure success and seek to continuously improve
processes. Be prepared to modify the program if an organizational change
requires it.

BENEFITS OF HR AUDIT:

It provides the various benefits to the organization. These are:

1. It helps to find out the proper contribution of the HR department


towards the organization.
2. Development of the professional image of the HR department of the
organization.
3. Reduce the HR cost.
4. Motivation of the HR personnel.
5. Find out the problems and solve them smoothly.

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6. Provides timely legal requirement.
7. Sound Performance Appraisal Systems.
8. Systematic job analysis.
9. Smooth adoption of the changing mindset.

Conclusion:

The auditors always prepare and submit an audit report to authority of the
organization, which may be clean or qualified. The clean report indicates the
appreciative of the department's function, but the latter one represents the
gaps in performance and therefore contains remarks and remedial
measures. HR Audit is very much helpful to face the challenges and to
increase the potentiality of the HR personnel in the organization.

References:

William.B.Werther and Keith Davis, Human Resource Management and


Personnel Management, 5th edition, McGraw-hill, 1996.

K. Aswathappa, Human Resource Management and Personnel Management,


4th edition, McGraw-hill, 2006.