HUMAN RESOURCE (HR) AUDIT

Human Resource Audit question

1. How effective is the selection process in ensuring that people are placed in appropriate
positions? Explain.
2. How effective is the appraisal process in accurately assessing performance? Explain.
3. How effective are rewards (financial and non-financial) in driving performance? Explain.
4. How effective are the training, development, and career planning activities in driving
performance? Explain.
5. How effective is the appraisal process in differentiating performance levels for justifying
reward allocation decisions? Explain.
6. How effective is the appraisal process in identifying developmental needs of individuals
to guide training, development, and career planning? Explain.
7. How effective are the training, development, and career planning activities in preparing
people for selection and placement into new positions in the organization? Explain.

An HR Audit is like an annual health check-up, it plays a vital role in instilling a sense of
confidence in the Management and the HR functions of an organisation.

The word “audit” comes from the Latin verb audire , which means, to listen.

Listening implies an attempt to know the state of the affairs as they exist and as they are
expected/ promised to exist. Auditing as a formal process is rooted in this feature of listening.
Consequently, it is a diagnostic tool to gauge not only the current status of things but also the
gaps between the current status and the desired status in the area that is being audited.

Auditing has been a routine exercise in the area of finance, especially because it is a statutory
obligation. However, in case of Human Resource, there is no legal binding to adopt auditing.
Some of the companies nevertheless prefer to have Human Resource audits.

Like any audit, the Human Resource Audit is also a systematic formal process, which is designed
to examine the strategies, policies, procedures, documentation, structure, systems and
practices with respect to the organization’s human resource management.
It systematically and scientifically assesses the strengths, limitations, and developmental needs
of the existing human resources from the larger point of view of enhancing organisational
performance.

Human Resource Audits are not routine practices aimed at problem solving. Instead of directly
solving problems, HR audits, like financial audits, help in providing insights into possible causes
for current and future problems.

Need and Purpose of Human Resource Auditing

The commonly understood audits are the established and regular accounting audits carried out
in accordance with specific statutory regulations. However, in the case of human resource
audits, there is no legal obligation, but enlightened managements have voluntarily accepted its
usefulness depending upon the circumstances.
What Specific Areas Do HR Audits Examine?
Types of Audits

An HR audit can be structured to be either comprehensive or specifically focused, within the

constraints of time, budgets and staff. There are several types of audits, and each is designed
to accomplish different objectives. Some of the more common types are:

1. Compliance. Focuses on how well the organization is complying with current federal, state,
and local laws and regulations.

2. 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.

3. Strategic. Focuses on strengths and weaknesses of systems and processes to determine

whether they align with the HR department's and the organization's strategic plan. See
Engaging in Strategic Planning.
The HR Audit Process:
The general process of conducting an audit includes seven key steps, each of which is discussed
in greater detail below:

(i) Determine the scope and type of audit.

(ii) Develop the audit questionnaire.
(iii) Collect the data.
(iv) Benchmark the findings.
(v) Provide feedback about the results.
(vi) Create action plans.
(vii) Foster a climate of continuous improvement.

1.Determine the scope and type of the audit-To uncover the needed information, the audit
team must determine exactly which areas to target for review.

2.Develop the audit questionnaire

Whether conducting a comprehensive audit or an audit of a specific practice, the audit team
should invest sufficient time in developing a comprehensive document that elicits information
on all the subjects of the inquiry. HR must develop a list of specific questions to ensure that the
questionnaire is complete.

3. Collect the data

The next phase includes the actual process of reviewing specific areas to collect the data about
the organization and its HR practices. Audit team members will use the audit questionnaire as a
road map to review the specific areas identified within the scope of the audit.

4. Benchmark the findings

To fully assess the audit findings, the team must compare them with HR benchmarks. This
comparison will offer insight into how the audit results compare against other similarly sized
firms, national standards or internal organizational data

5. Provide feedback about the results

At the conclusion of the audit process, the audit team summarize the data and provide
feedback to the organization's HR professionals and senior management team in the form of
findings and recommendations.
 Findings are typically reduced to a written report with recommendations prioritized based on
the risk level assigned to each item (e.g., high, medium and low). From this final analysis, the
audit team develop a timeline for action that will help determine the order in which to address
the issues raised. In addition to a formal report, the audit team should discuss the results of the
audit with employees in the HR department, as well as with the senior management team, so
that everyone is aware of necessary changes and that approvals can be obtained quickly.

6. Create action plans

It is critical that the organization actually to do something with the information identified as a
result of an audit. The organization must create action plans for implementing the changes
suggested by the audit, with the findings separated by order of importance: high, medium and
low. Conducting an audit and then failing to act on the results actually increases legal risk.

7.Foster a climate of continuous improvement

At the conclusion of the audit, HR leaders engage in constant observation and continuous
improvement of the organization's policies, procedures and practices so that the organization
never ceases to keep improving. This will ensure that the company achieves and retains its
competitive advantage.

One approach is to designate someone on staff (or an outside consultant) to monitor legal
developments to ensure that HR policies and practices are kept current. Likewise, organizations
should keep track of the audit findings and changes made, turnover, complaints filed, hotline
issues, and employee survey results to identify trends in the organization's employment-related
issues. Identifying problematic issues, growth areas or declining problem spots can help in the
decision of where to allocate time, money and preventive training resources in the future.
Why Are HR Audits Important?

An HR audit is the only way you can fully assess whether your HR processes and policies are
benefiting or harming your overall business. If you’re in danger of a lawsuit or criminal suit, if
your HR systems are inefficient, if your employees aren’t developing, or if you can’t attract the
right employees, your business will suffer. Improve those areas, and you can improve your
chances for success.