HR Audit

“The things that get measured gets managed”

www.humanikaconsulting.com
 Agenda
1. Introduction 14. General Auditing Method
2. Challenges For H.R. 15. Methods Of Hr Audit
Department Eight Challenges 16. Research Approaches To Audits
3. Meaning & Purpose Of Hr 17. Hrm Auditing Process
Audit
4. Purposes Of Hrm Auditing
5. Objectives Of Hr Audit
6. Benefits Of HR Audit
7. Frequency Of HR Audit
8. The Principles Of Effective Hrm
Auditing
9. Types Of HR Audits
10. The Scope Of Human Resource
Audits
11. Hrm Audit Measures
12. HR Standards
13. Task Auditor
 INTRODUCTION

• “How does a firm know if its human resource practices have an impact on
business results?

• “..most professional service firms and organizations complete an extensive

audit of their financial statements on an annual basis, but the programmes
involving “people”, such as recruiting, training or pay-for-performance are
seldom given the same scrutiny.”

• “..the starting point for enterprises wishing to manage their human capital
successfully and seeking a labour competitive advantage is activities of the
HR department.”
 CHALLENGES FOR
H.R. DEPARTMENT
EIGHT CHALLENGES IDENTIFIED
BY DAVE ULRICH (1997)
 Globalization
The H.R department will need to create models and processes
for achieving global activeness, effectiveness and competitiveness.
Managing the Value Chain for Business Competitiveness

Innovation
Faster Decision Making
Price or Value Advantage
Effective linking with Suppliers
Growth of the organization By increasing customer,
acquisition and mergers
Building organizational capabilities
Reviewing existing capabilities
New capabilities
Aligning new capabilities with business
strategies.
Managing Change
• Adopting some
new H.R.
Practices
• Learning some
New Skills and
Attitudes
• Unlearning some
existing skills and
Attitudes.
Making Technology viable
Finding out ways and
means to make technology
successful.
Attracting and Retaining Intellectual Capital
• Attracting Talented People.
• Retaining them.
• Utilizing them suitably.
Transforming the Organization
Creating fundamental and lasting changes.
 MEANING OF HR AUDIT
The Human Resources (HR) Audit is a process of examining policies,
procedures, documentation, systems, and practices with respect to
an organization’s HR functions.

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 works best when the focus is on analyzing and improving the
HR function in the organization.
PURPOSES OF HRM AUDITING
• Value – strategic (roi);
operational (effectiveness);
administrative (efficiency) and
resource optimization
(economical)

• Compliance – legislative and

organizational policy

• Risk – people and related e.G. Ohs

 OBJECTIVES OF HR AUDIT
• Effectiveness of performance of HR Department
• Implementation of HR policies, procedures;
• To find out the reasons for low productivity and improve HRD Strategies;
• Evaluation of the HR staffs & employee;
• Modify and Review HR system & challenges
• Questioning: To seek answers to : What happened ? Why did it happen?
Why did it not happen?
 Benefits of HR Audit
• Identification of contributions of HR department
• Helps identify the gaps between the current state and the standard,
thereby streamlining HR work processes
• Encouragement of greater responsibility and professionalism among HR
members
• Clarification of HR duties and responsibilities
• Stimulation of uniformity of HR policies and practices
• Ensuring timely compliance with legal requirements
• Reduction of HR costs through more effective personnel procedures
• A thorough review of HR information systems.
 Frequency of HR audit
• It is best to have a HR audit once in a year. The HR audit, if
conducted continuously and regularly, then it becomes a fairly
managed process.
• The chances of drastic corrections become lower if it is conducted
regularly. Usually, the frequency of the audit being conducted
depends on the company.
• An ideal audit can be conducted for every 18 months but the
management must see to it that a well efficient audit is done on
yearly basis.
THE PRINCIPLES OF EFFECTIVE HRM AUDITING
• Need for independence;
• Audit activities should be budgeted for properly;
• Acknowledgement that there are many types of
audits;
• Each type of an hr audit has its own purpose and
objectives;
• Establish timeframes for every phase/step of the
audit;
• Training of auditors is a must;
• Set standards for the hr audits;
• Agree on reporting template;
• Auditors should sign a confidentiality agreement; and
• Auditors should agree beforehand on communication
strategy.
 Types of HR Audits

• Compliance: Focuses on how well the company is complying

with current federal, state and local laws and regulations.
• Best Practices: Helps the organization maintain or improve a
competitive advantage by comparing its practices with those of
companies identified as having exceptional HR practices.
• Strategic: Focuses on strengths and weaknesses of systems and
processes to determine whether they align with the HR
department’s and/or the company’s strategic plan.
• Function-Specific: Focuses on a specific area in the HR function
(e.g., payroll, performance management, records retention, etc.)
 HR AUDIT-SECTION

HRIS
Performance
Management Recruitment
and evaluation

Resourcing Documentation

Training, &
Safety Development

Employee Compensation
Relations and Benefits

Welfare
systems Health
 The Scope of Human
Resource Audits
• Audit of Corporate Strategy
The organization is going to gain competitive advantage.

• Audit of the Human Resource Function

Human Resource Information System, Staffing and Development, and Organization
Control and Evaluation.

• Audit of Managerial Compliance

Human resource policies and procedures.

• Audit of Employee Satisfaction

To learn how well employee needs are met.
 Audit of the Human Resource Function
1. Human Resource Information System
- Human Resource Plans : Supply and demand estimates; skill
inventories; replacement charts and summaries
- Job Analysis Information : Job standards, Job descriptions,
Job specifications
- Compensation Management : Wage, salary, and incentive
levels; Fringe benefit package; Employer-provided services
 2. Staffing and Development

• Recruiting : sources, availability,

employment applications
• Selection : selection ratios, selection
procedures, equal opportunity.
• Training and development :
orientation program, training
objectives and procedures, learning
rates
• Career development : internal
placement, career planning program,
human resource development efforts
3. Organization Control and
Evaluation
• Performance appraisals :
standards and measures of
performance, performance
appraisal techniques,
evaluation interview.

• Labor-ManagementRelations :
Legal compliance,
management rights, dispute
resolution problems.

• HumanResource Controls :
employee communications,
discipline procedures, change
and development procedures
 Audit of Managerial Compliance

• Compliance with laws is especially

important. When safety,
compensation, or labor laws are
violated, the government holds the
company responsible.
• If managers ignore policies or violate
employee relations laws, the audit
should uncover these errors so that
corrective action can be started.
Audit of Employee Satisfaction
• It refers to an employee’s
general attitude toward his
or her job.
• When employee needs are
unmet, turnover,
absenteeism, and union
activity are more likely. To
learn how well employee
needs are met.
• The team collects information
about wages, benefits,
supervisory practices, career
 HRM AUDIT MEASURES
• HR PLANNING
• RESOURCING – RECRUITMENT
EFFICIENCY AND EFFECTIVENESS
• COMPENSATION AND BENEFITS
MEASURES
• ORIENTATION/ON-BOARDING
• EMPLOYEE COUNSELING AND
DISCIPLINARY COSTS
• LOST TIME COSTS
• EMPLOYEE TURNOVER RATES
• TRAINING AND DEVELOPMENT
COSTS E.G. ROI
• ORGANIZATIONAL DEVELOPMENT
AND CHANGE MANAGEMENT
 HR STANDARDS
REFER TO ANNEXURE:

• Strategic HR Management
• Talent Management
• HR Risk Management
• Workforce Planning
• Learning & Development
• Performance Management
• Reward
• Employee Wellness
• Employment Relations
Management
• Organization Development
• HR Service Delivery
• HR Technology
• HR Measurement
Tasks of Auditors
• Identify who is responsible
for each activity.
• Determine the objectives
sought by each activity.
• Review the policies and
procedures used to achieve
these activities.
• Prepare a report
commending proper
objectives, policies, and
procedures.
• Develop an action plan to
correct errors in each
activity.
• Follow up the action plan to
see if it solved the problems
found through the audit.
GENERAL AUDITING METHOD

 Develop an understanding of the

management system and
procedures

 Assess the strength and

weaknesses of the management
systems and procedures

 Gather evidence and verify

findings

 Validate audit findings and

exceptions
 METHODS OF HR AUDIT

INDIVIDUAL INTERVIEW METHOD

GROUP INTERVIEW METHOD

WORKSHOP METHOD

QUESTIONNAIRE METHOD

OBSERVATION

ANALYSIS OF SECONDARY DATA

ANALYSIS OF REPORTS, RECORDS, MANUALS AND

OTHER PUBLISHED LITERATURE
INDIVIDUAL INTERVIEW METHOD
• Top level management and
senior managers are
interviewed, individually. It helps
in following:
•
 Knowing their thinking about
future plans and opportunities
available for the company

 Knowing about their

expectations from the HR audit

 Getting sensitive information

pertaining to working styles and
culture
GROUP INTERVIEW METHOD

Group interviews and discussions with the

employees and executives of large companies for HR
audit, facilitate collection of information about
effectiveness of existing systems.
 Relevant Questions that are
asked in Individual And Group
Interviews :
 What do you see as the future growth
opportunities and business directions of the
company?
 What skills and competencies does the
company have which you are proud of?
 What skills and competencies do you need to
run your business, or to perform your role,
more effectively at present?
 What are the strengths of your HRD function?
 What are the areas where your HRD function
can do better?
 What is good about your HRD subsystems,
such as: performance appraisal , career
planning, job rotation, training, quality circles,
induction training, recruitment policies,
performance counseling, worker development
programmes, and HRD departments?
 What is weak about them? What can be
improved?
 What changes do you suggest to strengthen
HRD in your company?
 What do you think are the ways in which line
managers can perform more developmental
roles?
 WORKSHOP METHOD

Workshop Methods also known as Large Scale Interactive Process (LSIP) is

conducted in some cases of audit.
 QUESTIONNAIRE
METHOD

• Feed back about various dimensions of HRD, including

the competency base of HRD staff, the styles of line
managers, the implementation of various HRD
systems, etc are obtained through a detailed
questionnaire from individuals or groups for HR audit.
• This method helps in benchmarking.
 OBSERVATION
• The auditors should physically visit
the workplace
• To assess the extent to which a
congenial and supportive human
welfare oriented climate exists in
the company.
• This is essential because
employees are not likely to give
their best if they do not live in
good surroundings
• The observations can be
conducted using a check list of
questions.
 ANALYSIS OF SECONDARY DATA

 Analysis of secondary data can give an insight into the HRD assets and
liabilities of the company.
 Analysis of age profiles of the employees, analysis of the training
attended, analysis of the minutes of the meetings held etc., help in
determining the assets and liabilities.
ANALYSIS OF REPORTS,RECORDS, MANUALS
AND OTHER PUBLISHED LITERATURE
Published literature of the
company including annual
reports, marked hand-outs,
training calendar personnel
manual, and various circulars
issued from time to time are also
likely to help immensely in
assessing the strengths and
weaknesses of HRD.
 HRM AUDITING PROCESS

• PHASE 1: FOUNDATIONAL/INITIATION

• PHASE 2: ASSESSMENT

• PHASE 3: CONCLUDING AND REPORTING

OVERVIEW OF THE GENERIC HRM AUDITING PROCESS

• DESIGN AND DEVELOP HR POLICIES, PROCEDURES AND PRACTICES FOR YOUR

ORGANIZATION;

• ASSESS CURRENT HR POLICIES, PROCEDURES AND PRACTICES AGAINST SET

CRITERIA;

• ANALYSE THE RESULTS FROM EVIDENCE; AND

• TAKE ACTION: TO CLOSE GAPS, MAKE RECOMMENDATIONS/ SET IMPROVEMENT

GOALS.
HRM AUDITING PROCESS ILLUSTRATED
HRM AUDITING PROCESS ILLUSTRATED
 PHASE 1: FOUNDATIONAL/INITIATION
• AUDIT SET-UP ACTIONS

• AUDIT PLANNING ACTIONS

 Determine the purpose and objectives of the audit

 Determine the scope of the audit
 Determine the organizational components to be audited
 Determine the auditing tool to be used
 Determine costs and resources needed to perform theaudit
 Determine audit team governance
 PHASE 2: ASSESSMENT

• GENERAL COMMENTS

• IDENTIFY KEY ORGANIZATIONAL METRICS -

DETERMINE EMPLOYMENT ISSUES
ACCOUNTABILITY

• DEVELOPING A CHECKLIST

 REFER TO THE ATTACHED ANNEXURE: HUMAN

RESOURCES BEST PRACTICE AUDIT AND NEEDS
ASSESSMENT TOOL

• FORMULATING AUDITING METHODOLOGY AND

TOOLS
 PHASE 3: CONCLUDING AND REPORTING

• REPORT PREPARATION

• REPORT PRESENTATION

 QUANTIFY YOUR RESULTS - START WITH

OUTCOMES
 INCLUDE AN EXECUTIVE SUMMARY
 IDENTIFY RISKS
 IDENTIFY AND PRIORITIZE SOLUTIONS TO
PROBLEMS IDENTIFY. WHERE POSSIBLE,
FRAME YOUR SOLUTIONS FROM A
BOTTOM LINE PERSPECTIVE, I.E.,
CALCULATE THE BENEFITS AND COSTS OF
PROPOSED SOLUTIONS
 EVALUATE AND DISCUSS THE
ORGANIZATIONAL, FINANCIAL AND
EMPLOYEE RELATIONS IMPACT OF ACTION
OR INACTION

• DEVELOP A HR IMPROVEMENT PLAN

 The audit report
Findings of research are used to developed
a picture of the organization’s resource
activities. For this information to be useful,
it is compiled into audit report.
The audit report is a comprehensive
description of human resource activities
that includes both commendations for
effective practices and recommendations
for improving practices that are less
effective.
Audit report often contain several sections.
One part is for line managers, another is
for manager of specific human resource
function, and the final part is for the
human resource manager.
 Report for line managers
How line managers handle their duties such as:
• Interviewing applicants
• Training employees
• Evaluating performance
• Motivating workers
• Satisfying employee needs
The report also identifies people problems. Violations
of policies and employee relations law are highlighted
 Report for the HR Specialist
The specialists who handle employment training,
compensation, and other activities also need feedback.
Such feedbacks are :
1. Unqualified workers that need for training
2. Qualified workers that need for development
3. What others company are doing
4. Attitude operating managers toward personnel
policies
5. Workers pay dissatisfaction
Report for HR Manager
• It is contains all the information
given to both operating managers
and staff specialists. In addition,
HR Mangers gets feedback about :
• Attitude operating managers and
employees about services given by
HRD
• A review of HRD plans
• Human resource problems and
their implication
• Recommendations for needed
changes and priorities for their
implementation
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