HUMAN RESOURCE AUDIT

HR Audit :
1. Definition Of HR Audit
2. HR Audit Significance
3. Need Of HR Audit
4. Scope Of HR Audit
5. Use Of HR Audit
6. Objectives Of HR Audi
7. Benefits Of HR Audit
8. Special Areas of HR Audit
9. Threats Of HRM
10.FIVE Approaches to HR Audi
11. Period of Audit, Audit Report
Definition:
An HR audit is a process to review implementation of
your institutions policies and procedures, ensure
compliance with employment law, eliminate liabilities,
implement best practices and educate your managers.
(OR)

HR Audit refers to Examination & Evaluation of Polices,

Practices & Procedures to detect Effectiveness &
Efficiency of HRM and Verify if Mission, Objectives,
Polices, Procedures, Programs are chased and expected
results achieved. HR Audit also suggest future
improvements based on past activities measurement.
HR Audit Significance:
Managements Feel, that Employee Participation in Activities is:

1. Essential for Organization success.

2. It Provides Required Feedback.

3. Managing Rising Labor Costs.

4. Increasing Opportunities for Competitive Advantage of HRM.

5. HR Audit can avoid Government intervention

6. HRP protect Employees interests

Need for HR Audit:

Though, to audit HR- Policies & Practices

no legal obligation exists, some Modern
Organizations chase to:

1. Increase size of Organization & Personnel

2. Change Philosophy of Management towards HR

3. Increase Strength & Influence of Unions

Scope of Audit: HR Audit has vide scope, involves much more than Management.
Special
Policies area
Programmes &
Practices
HR Philosophy

supervision
Personnel Results
leadership styles Scope of
HR Audit Research &
Innovation
delegation
Planning -
Motivation &
Forecasting
commitment

Organizing Scheduling
Staffing &
negotiation
Development
 Use Of HR Audit:
Basic purpose of HR-Audit is to find:

1. How various units are functioning?

2. How they met policies & guidelines Pre-agreed upon?

3. To assist Rest of Organization in locating gaps between

Objectives & Results.
4. Formulate Plan for corrections
 Objectives:
1. Effectiveness: To review performance of Human resource Department and
its activities to determine effectiveness.
2. Implementation: To locate gaps, lapses, failings in applying
Polices, Procedures, Practices & HR-directives. Also to see areas of
wrong/ non- implementation that hindered the planned programs &
activities.
3. Rectification: To take corrective steps to rectify mistakes,
shortcomings contesting effective work performance of HR
Department.
4. Evaluation: To evaluate HR Staff & employees.
5. To evaluate the extent to which Line Managers Applied Policies
Programmes & Directives initiated by Top Management & HR
Department.
7. Modify: To review HR System and Modify to meet challenges in
comparison with other organizations.
8. Questioning: To seek answers to ‘What, Why ‘When Happened
while implementing Policies, Practices & Directives in managing HRs
Benefits of HR Audit:

1. Identifies contribution of HR Department.

2. Improves HR Department’s Professional Image.

3. Fosters greater Responsibility & Professionalism amongst HR Staff.

4. Classifies HR Department’s Responsibilities & Duties.

5. Stimulates Uniformity of Personnel Policies & Practices.

6. Identifies Critical personnel problems.

7. Ensures Timely Legal Compliance Requirements.

8. Reduces HR Costs
Pitfalls of HR Audit:

1. Full audit may be time consuming

2.May not be as objective and impartial as desired

3.Impact of certain actions may not be clear

Special Areas Of HR Audit:
Audit of HR Function
Audit of Managerial Compliance
1. Employee Turnover

2. Absenteeism
Audit of HR Climate
3. Safety Records

4. Attitude Surveys

Audit of Corporate Strategy

Audit and Human Resource ResearcH
Audit of HR Function:
Involves all activities of HR Functions, From HRP to IR
Major Areas:

1. Planning - Forecasting,

2. Scheduling;

3. Staffing & Development,

4. Organizing;

5. Motivation & commitment ;

6. Administration ;

7. Research & Innovation.

 Types of HR Audit

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:
Compliance. Focuses on how well the organization 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 the organization's
strategic plan. See Engaging in Strategic Planning.
Function-specific. Focuses on a specific area in the HR function (e.g., payroll,
performance management, records retention).
 Process of HR Audit

The general process of conducting an audit includes seven key steps,

each of which is discussed in greater detail below:
• Determine the scope and type of audit.
• Develop the audit questionnaire.
• Collect the data.
• Benchmark the findings.
• Provide feedback about the results.
• Create action plans.
• Foster a climate of continuous improvement.
 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. If the organization has
never audited its HR function, or if significant organizational or
legal changes have recently occurred, the audit team may want to
conduct a comprehensive review of all HR practice areas. On the
other hand, if concerns are limited to the adequacy of a specific
process or policy, the audit team can focus its review on that
particular area.
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.
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.
 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. Typical information that
might be internally benchmarked includes the organization's ratio of
total employees to HR professionals, ratio of money spent on HR
function relative to total sales, general and administrative costs, and
cost per new employee hired.
National standard benchmarking might include the number of days
to fill a position, average cost of annual employee benefits and
absenteeism rates.
 Provide feedback about the results

At the conclusion of the audit process, the audit team must

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 can 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.
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.
Foster a climate of continuous improvement
At the conclusion of the audit, HR leaders must 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 way to do this is
to continuously monitor HR systems to ensure that they are up-to-
date and to have follow-up mechanisms built into every one of
them.
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.
 HR Audit Tools

Human resources audit tools help you conduct thorough evaluations

of your human resources effectiveness. You can use these tools to
help you identify HR processes that are functioning well and those
that require improvements. Common HR areas you should audit
include your compensation system, performance appraisal systems,
policies and procedures and health and safety practices.
 1. Interviews and Questionnaires

Interviews and questionnaires help you acquire feedback from all of

your employees, including top management. These tools are ideal
when you want to get a better understanding of the work your
employees perform. You can find out about their level of burden or
general working environment, and you can gain an understanding of
existing systems, structures, styles of top management and problems
that your employees face. You also can use questionnaires to assess
the competence and communication skills of your workforce and
discern competency gaps within your company. Through such
interactions with your employees, you also get a view of your
employees’ expectations of your HR functions.
2. Observations
Observation begins with a visit to the workplace, where you can
scrutinize your employees’ practices. Observations can be helpful
when you need to assess the adequacy of training programs,
employees' use of systems, adherence to policies and procedures and
when you want to assess the organizational culture. It also helps in
job analysis. When you observe employees, let them know why you
are doing so and what activities you are assessing. Be aware that
sometimes, observation is best when employees are unaware;
otherwise, they may change their customary behavior.
3. Key Performance Indicators
Key performance indicators are a designated set of values you use to
measure performance and target setting. In an HR audit, you can use
these indicators to analyse past performance. Examples of KPIs
specific to employees include reviews of the number of customer
queries handled in a day, projects performed in a year and the rate of
positive or negative customer feedback.
You can measure productivity and competency levels, analyse
succession plans and assess your reward system. Make sure that the
KPIs you design are aligned to the HR strategy. You can also use
these indicators to assess your company’s financial and market
position and your company’s vision.
4. Employee Satisfaction Survey
Surveys help you discover how employees feel about working with
their colleagues and top management. You also can get an idea of
their views on the adequacy of training programs and their general
working environment. Employee satisfaction surveys typically
include a ranking system so employees can communicate how
strongly they agree or disagree with a particular survey statement.
Such surveys can be helpful in reducing turnovers and recruiting
and training costs because they give an opportunity for you to listen
to your employees and respond to their needs.
 Auditor’s Role:

For each activity in the HR Audit functions Auditors must:

1 determine objective of activity.

2Identify who is responsible for its performance.

3 Review the performance.

4 Develop action plan to correct deviation, between Results & Goal.

5 Follow up action plan. HR Evaluation must justify existence of

department & its expenses. Department has no reason to function if fails to
contribute to Company’s bottom-line, Prune expenses to make department viable.
 FIVE Approaches to HR Audit:
Auditors may choose any of the five approaches for the purpose of
Evaluation.

1. Comparative Approach.

2. Outside Authority Approach.

3. Statistical Approach.

4. Compliance Approach.

5. MBO Approach
Comparative Approach –
Auditors Identify another Company as a MODEL. Result of their

Organization compared with those of Model Company.

Outside Authority Approach –

Often, Auditors use standard set by Outside Consultant as

BENCHMARK for comparison of own Results.

Compliance Approach –
Auditors review Past Actions to determine if those activities comply with legal

requirements and Company Policies, & Procedures. A Final approach is for

Specialists & Operating Managers to set objectives in their areas of responsibility.

Management By Objectives Approach –

creates Specific Goals against which performance can be measured. Then the

Audit Team Researches ACTUAL PEERFORMANCE and COMPARES

WITH THE OBJECTIVES.

 PERIOD OF AUDIT

Naturally any audit will be done annually. Though it is

preferred to conduct Human Resource Audit annually, but it is
advisable to conduct audit once in three years or five years,
keeping in view the fact that the realization of the
Organizational goals may not be identified within a year.

Audit Report

The Prog comes to end with preparation of Report. Report may be

Clean or Qualified. It is Qualified if HR Performance contains
Gaps for which remedies suggested. Report is Clean where
Performance is fairly Satisfactory
 HRM Leading Strategy formulation

Strategy formulation requires identifying ,analysing the companies

external opportunities and threats and its internal strengths and
weakness , HR plays a key role in strategy formulation .
The strengths and weaknesses of the companies human resource can
have a determining effect on the viability of companies strategic
formulation a company shell built its new strategy around the
competitive advantage stemming from its human resource
Certain Key steps in HR Strategy formulation are
worth reallocating in this context