An

Assignment
on

HUMAN RESOURCE
AUDIT
Under the subject of

HUMAN RESOURCE MANAGEMENT

Submitted to Submitted by

Dr. AJAY PRATAP SINGH MUHAMMAD SALIM

(Faculty MBA, TIAS) 07217003909
MBA (2nd semester)
What is human resource audit……………….?

A healthy HR function in an organization is as important as the physical and mental well

being of a human body. Typically the basic reason why organizations prefer to conduct
an HR audit is to get a clear judgment about the overall status of the organization and
also to find out whether certain systems put in place are yielding any results. HR audit
also helps companies to figure out any gaps or lapses and the reason for the same.
Since every company plans certain systems and targets, an HR audit compares the
plans to actual implementation.

The concept of HR audit has emerged from the practice of yearly finance and
accounting audit, which is mandatory for every company, to be done by external
statutory auditors.

This audit serves as an examination on a sample basis of practices and systems for
identifying problems and ensuring that sound accounting principles are followed.
Similarly, an HR audit serves as a means through which an organization can measure
the health of its human resource function.

Some corporate person describes it as, human resource audit is a procedure to

measure the degree of compliance an organization has with the existing legal
obligations and labor laws. It also suggests corrective actions which may be necessary.

Why to audit human resources…………….?

Organizations undertake HR audits for many reasons:

1 To ensure effective utilization of human resources.

2 To review compliance with tons of laws and regulations.

3 To instill a sense of confidence in the human resource department that it is well-

managed and prepared to meet potential challenges and opportunities.

4 To maintain or enhance the organization's reputation in a community.

5. To clarify desired practices of HR work and roles within the organization (HR
Department, Line Managers).

6. To establish a baseline for future improvement.

7. To evaluate current effectiveness.

8. To standardize practices across multiple sites within a division or company.

9. To assess current knowledge and skills required of HR practitioners.

10. To improve performance levels to key customers within the organization.

An audit is a systematic process, which examines the important aspects of the function
and its management, and is a means to identify strengths, weaknesses and areas
where rectification may be warranted. An audit is done on sampling basis. And in
sampling, not every instance or situation can be examined.

An HR audit can be used by an organization for multiple purposes. Some of the more
common reasons are:

• To identify and address HR-related problems.

• To seek out HR-related opportunities.
• To conduct due diligence for mergers and acquisitions.
• To support initial public offerings.

How an audit is conducted is very often determined by its intended use. For instance,
the type of audit used to ascertain HR practices may be significantly different from the
type of audit used to support an initial public offering. Although the areas examined may
be similar, the process used and the depth of inquiry will vary from the intended
outcome.

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. These phases include:

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.

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. A very in-depth HR audit checklist is
completed.

Records Review: During the on-site visit, a separate review is conducted of HR

records and postings. Employee personnel files are randomly examined as well as
compensation, employee claims, disciplinary actions, grievances and other relevant HR
related information are checked.

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.

Audit of HR Climate

HRM Climate has impact on Motivation, Morale and Job Satisfaction. Quality of Climate
can be measured by examining: 1.Employee Turnover, 2.Absenteeism, 3.Safety
Records 4. Attitude Surveys

Employee Turnover:

ETO Implies the process of Employee Leaving & Joining - deaths, transfers,
retirements, resignations. High ET incurs increased costs – Recruitment, Selection,
Training, Disruption of Production, QC-Problems, and Team & Morale Building. Certain
% turnover is Unavoidable. Avoidable ETO causes Concern to HRM, gives excellent
measure of HR Climate, as it can be reduced. Specific Actions can Minimize ETO -
Better Hiring Practices, Orientation Training, Working Conditions, Remuneration &
Benefits, and Advancement Opportunities. Quality ETO Better than Quantity ETO

Absenteeism

It refers to failure on part of employee to report for work (Unauthorized Absence). It

costs money and reflect dissatisfaction with Organization. Unavoidable Absence
sanctioned. Manager must step in to remove causes of Avoidable Absenteeism – night
shifts, earning extra income, indebtedness, and lack of job security, job dissatisfaction,
and unfriendly supervision.
Accidents

Organizations keep records. Accidents cost money and also reflect prevailing
Organizational climate. Managements must have Safety Plan, implement, and evaluate
its Effectiveness.

Attitude Surveys

Are Most Powerful Indicators of Organization-climate? Attitudes determine employee’s

feeling towards the Organization, supervisor, peer & activities. ASs conducted through
face-to-face interviews or anonymous questionnaires. Resulting Info – an invaluable
Insight What They Feel & Think. Useful to address Business Problems linked to
Productivity, Turnover, Absenteeism, Tardiness, and Work-Group Effectiveness.

What is an Audit Report……………….?

The Program 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.

Hr audit report 'contents'

1. Introduction

2. Executive summary

3. Background to the hr audit.

4. Organization chart.

5. Objectives of the hr audit.

6. Scope of the hr audit.

7. Methodology used for the hr audit.

8. Findings highlights
An example

HR Audit Process
Company______________________________________________Phone_____________
Address_________________________________________________________________
Contact Person_________________________ Total Number of Employees _________
Other Locations Within 75 miles? _________ Number of Employees _______
Federal Contractor?_________ Amount of Government Contracts? $______________
Union Facility? __________ If yes, which union(s)______________________________
What does the company do? (Is it a contractor or does it hire migrant labor?)
_________________________

Yes No (Check One or Mark “N/A”—Not Applicable)

Bulletin Boards—Are the following posters appropriately displayed?
____ ____ Minimum Wage Poster (Fair Labor Standards Act)
____ ____ Equal Employment Opportunity Act
____ ____ OSHA
____ ____ Family Medical Leave Act
____ ____ Employee Polygraph Protection Act
Personnel Files
____ ____ Job Applications and/or resumes? (1 year)
____ ____ Physical Exam/Medical exam results? (If used in employment decisions) (1 Year—
Must be kept separately and limited to employee’s supervisors, mgrs., safety workers, workers
compensation, and insurance carrier)
____ ____ Health Insurance Portability & Accountability Act (HIPAA) forms and compliance in
place?
____ ____ Notes on reference checks?
____ ____ Records of promotion and/or transfer, and/or demotion, and/or termination, and/or
layoff?
____ ____ Signed waiver of employee ADEA rights to sue for age discrimination? (1 year after
termination)
____ ____ Emergency Contact information available?
____ ____ Information on performance issues, coaching session notes, developmental issues
in file?

Performance Evaluations
____ ____ Formal job-evaluation process in place?
____ ____ If yes, are any subjective areas of the process clearly defined?
____ ____ If not, are there any documented reasons for pay differentials (especially if there are
gender
differences?)
____ ____ Copies of evaluations in personnel file
Independent Contractors
____ ____ Do you use any independent contractors?
____ ____ If yes, do records clearly distinguish between core employees and
contract/contingent workers?
Other Records
____ ____ Employee Benefit Plans (1 year after termination of the benefit plan)
____ ____ I-9’s (On file for 3 years or 1 year after termination whichever is longer; preferably
not with Personnel file)
____ ____ Payroll or other records that include name, address, date of birth, occupation, rate of
pay and pay each week for all employees (3 years)
____ ____ If more than 100 employees, is Form EEO-1 at each unit or company headquarters?
____ ____ IRS info—All info on remuneration for labor including tips and sick pay and taxes
withheld for each employee with Soc. Security number kept at least 4 years.
(Keeping records indefinitely is safest)
Occupational Safety and Health Act—Recordkeeping applies, if 10 or more employees
during past year**. Other areas apply to all employers (except agriculture, self-employed, most
mining & nuclear, & state employees)
____ ____ Are records of work-related injury or illness kept within 7 days of notice? **
____ ____ Records of all legally required medical examinations kept? **
____ ____ Records of employee exposure to potentially toxic materials or harmful physical
agents?
____ ____ Totals for the calendar year on OSHA form # 300-A posted in the workplace for
3 months?**
____ ____ OSHA 300 injury/illness log, privacy case list, annual summary and OSUA 301
Incident Report forms kept for 5 years?**
____ ____ Old OSHA 200 and 101 forms retained for 5 years following the year to which
they relate? **
____ ____ Procedure to insure reporting to OSHA any workplace incident resulting in a
fatality or hospitalization of three or more employees (OSHA form # 300) within 8 hours ?
____ ____ Records of any medical exam required by OSHA retained 30 yrs after
termination?
____ ____ Appropriate personal protective equipment supplied to employees?
____ ____ MSDS (Material Safety Data Sheets) maintained for each location and used for
training?

COBRA—Insurance Continuation
____ ____ If more than 20 employees, is COBRA continuation offered?
Employee Retirement Income Security Act (ERIA)
____ ____ Records supporting data in Summary Plan Descriptions (SPFs) and related welfare
and pension reports (Retain 6 years. Exception: Records needed to determine eligibility benefits must
be retained as long as relevant.)
Employee Polygraph Protection Act
____ ____ Ever used Polygraphs? If yes, have the following items been retained for 3 yrs?
____ ____ Copy of statement provided employees telling specific incident being investigated?
____ ____ Basis for testing
____ ____ Records identifying loss
____ ____ Nature of employee’s access to person/property being investigated
____ ____ Notice given examiner identifying person(s) to be examined
____ ____ Reports, questions, lists, all records relating to testing
Compensation
____ ____ Is the turnover rate higher than expectation for any position?
____ ____ Job Analysis available for each position?
____ ____ Positions correctly categorized as exempt or non-exempt?
____ ____ Job Descriptions are up to date?
____ ____ Positions are categorized appropriately by job grades to insure internal equity
____ ____ Evaluation of local market done annually to insure external equity?
Employee Handbook
____ ____ Contains employment-at-will statement?
____ ____ Have a statement signed by each employee saying they have read and understand
the handbook?
____ ____ All key policies are covered including areas such as harassment, violence,
progressive discipline policy, federal regulations, leave, etc.
____ ____ Consistency between policies and practice in organization?
____ ____ Handbook is easily updated and there is a process in place for regular, periodic
review
Selection and Employment Processes
____ ____ The positions and organizational structure required for success has been identified.
This is reviewed before any position is replaced to see if changes are needed
____ ____ All questions on employment application are legal or defensible
____ ____ Job analysis has been done to identify the qualities, skills, abilities, and knowledge
needed for the position
____ ____ Job descriptions that include the major duties and responsibilities available for all
positions

____ ____ Interviewers are able to develop and ask questions that are legal and elicit
information which is behaviorally-based
____ ____ A clear process is in place for notification of candidates
____ ____ Adequate testing and/or background checking is done before extending an offer to
insure the person has the appropriate skills, knowledge, style, etc to be successful in the
position and has given accurate information
____ ____ Employment offer is contingent on passing a drug test
____ ____ Appropriate forms (I-9, W4, etc.) are completed before the person begins work
Americans with Disabilities Act—4 employees or more (Ohio); 15 or more Federal
Standard
____ ____ Policy in place
____ ____ Essential functions identified
____ ____ Job accommodations made, as appropriate
____ ____ Medical records kept separate from other personnel files; access is limited
Family Medical Leave Act--Private employers with 50 or more employees for each working day
during each of 20 or more weeks in the current or preceding year. All public employers.
____ ____ Basic payroll information and identifying employee data, including compensation
paid the employee and the manner in which it was determined, including all
additions and reductions in pay. (Even employers with no FMLA covered
employees must keep these records.)

____ ____ Record of dates FMLA leave is taken by FMLA eligible employees (time records,
requests for leave, etc.). Leave must be designated in records as FMLA leave.
However, leave so designated may not include leave required under state law or
an employer plan that is not also covered by FMLA.

____ ____ The hours of FMLA leave taken if in increments of less than one full day.

____ ____ Copies of all notices given to employees, as well as any received by the employer
requesting FMLA leave. Copies may be maintained in employee personnel files.

____ ____ Information stored in any form (paper or electronic) that explains employer policies
and employee benefits and the payment for benefits.

____ ____ Records of any dispute between the employer and an eligible employee regarding
the designation of leave as FMLA leave, including any written statement from the
employer or employee of the reasons for the designation and for the
disagreement.

____ ____ Records showing that exempt employees worked fewer than 1,250 hours in a 12-
month period, if leave is denied.

____ ____ FMLA-related medical records and documents pertaining to medical certifications,
recertification, or medical histories of employees or employees' family members, created for
FMLA purposes.