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The HR Audit

The MEARIE Conference 2013



Nancy Chase, Partner, Risk Consulting,
KPMG LLP

June 20, 2013


©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Agenda
 The HR Landscape
– Industry / HR risks and challenges
 Why an Audit?
− Governance requirements and expectations
− The audit - what it is and what it is not!
 What to Expect
– Criteria and sources
– Approach
– Results
– Key Success Factors
 Closing Comments
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The HR Landscape
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Industry Trends and Challenges
 Demand for reliable, renewable, sustainable, and efficient power
generation
 New technologies and operating models
 Rapid pace of change
 Aging infrastructure / significant investment required
 Safeguarding health and safety
 Aging workforce
 Cost optimization focus






©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Impact on Human Capital Management
 New / different skill sets required
 Leveraging of new technologies
 Loss of corporate memory / knowledge due to turnover
 Increased competition for candidates
 Less committed / more transient workforce
 Expanded use of outsourcing
 Limitations on performance measures and reporting
 Integrating cultures and workforces
 Retaining and engaging multi-generations





©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Changing Technology and Work Arrangements
Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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HR is Going Mobile
Compared to 3 years ago, how is technology being used by your company’s HR function?
Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Retention – Key Priority
but only
believe their company
excels at retaining key
talent today

26%
believe HR’s #1 focus
for the next three
years must be
retaining crucial skills
and experience within
the business

40%
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Technology – Transforming HR
Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012
Web-based and mobile
HR platforms
Technology to capture
performance reviews and
other workplace reports
Social network sites
to recruit talent
Workforce data
analytics used for
business intelligence
Delivering business
applications via the
“software as a service”
and Cloud models
Social media to
reach alumni
What HR technologies are becoming more common in your organization?
69%
68%
57%
54%
65% 49%
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Six Areas of Priority
Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012
Retaining crucial skills

1
40%

Adopting new technologies

3
23%

Workforce planning

4 20%

Succession planning

5
20%

Managing a flexible workforce

6 20%

Expanding the global workforce

2
26%

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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The “ Big Three Challenges” for HR
Balancing Global and Local
1
2
3
■ Managing, hiring and identifying talent globally
■ While retaining local knowledge and insights
Managing a Flexible and Virtual Workforce
2
■ While maintaining employee loyalty
■ And continuing to provide career development opportunities
Retaining the Best Talent 3
■ Maintaining employee engagement in the face of a less
committed, more flexible workforce
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The “ Big Three Opportunities” for HR
The power to transform HR through technology
1
2
3
■ Mobile, online, self-service HR to drive efficiencies and reduce costs
■ Interactive online training programs to cost-effectively enhance the learning
experience
■ Using social media to access new sources of talent and shift the company’s
image to attract a new generation of employees

Data-driven HR

2
■ Introducing workforce analytics that provide business-critical data
■ Implementing advanced metrics to measure ‘return on human capital’
■ Using social media and other interactive tools for ‘listening’ to the
employee environment and gathering data about their level of
engagement

Seizing the opportunity to transform HR into a strategic player
3
■ Delivering a unique and differentiated people management strategy that’s
aligned with the organization’s goals
■ Focusing relentlessly on identifying ways to add value to the rest of the
business

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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Why an Audit?
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Impact of Risks and Trends on Governance
 Fundamental role of the Board = stewardship of the organization to
create shareholder value, including overseeing the management of the
business in the pursuit of the organization’s objectives
 In this context, the Board is interested in:
– Compliance and regulatory requirements
– Human capital development strategies (from attraction to succession)
– Optimizing skill sets and responsiveness to stakeholder needs
– Performance management and accountability
 Many of the key challenges facing the power and utilities industry relate
to human capital – the Board has an obligation to understand:
– How these risks are identified and managed (i.e. how effective are our HR
practices)
– How HR practices contribute to the bottom line (i.e. the efficiency factor)

©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The Value of the Internal Audit
 What Internal Audit Is:
− independent, objective assurance
− focused on areas of greatest significance or risk
− helps the organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance
− clearly linked to the business strategy

Internal Audit Is Not:
− a policing function
− interested in adding more bureaucracy / more control at all costs
− purely compliance focused
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The Three Lines of Defence


Board/Audit Committee
Senior Management
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A
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Financial Control
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C
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M
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A
u
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t
1
st
Line of Defence 2
nd
Line of Defence 3
rd
Line of Defence
Security
Risk Management
Quality
Inspection
Compliance
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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What to Expect
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The Audit Process
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Common Audit Objectives and Scope
 To assess the effectiveness of human capital management practices in
helping to ensure that required critical skill sets and talents are in place
to meet current and future requirements in a cost-effective manner.
 To assess the effectiveness and efficiency of HR practices in ensuring
that consistent, reliable, relevant, and timely information and advice is
provided to support HR decision-making.

 Scope can include:
– Attraction and recruitment
– Engagement and retention
– Performance management
– Human capital planning / talent management strategy
– Ethics and values
– Labour relations
– Termination and dismissal


©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Audit Criteria
 The standards against which HR processes and practices are assessed.
 Expressed in terms of reasonable expectations for HR processes and
practices to achieve expected results and outcomes related to human
capital management within the organization.
 Developed with reference to:
– recognized control frameworks (e.g. COSO)
– relevant legislation / regulatory requirements
– organizational policies
– leading practices





Key Success Factors:
Objectives and scope focused on key risk areas
Recognized and defensible audit criteria used to assess current practices
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Common HR Audit Procedures
 Interviews
 Benchmarking
– HR programs
– HR size and structure
 Process walkthroughs
 Documentation review
 Control testing
 Employee / stakeholder surveys
 Data analysis
 IT access and system testing







Information obtained through each audit procedure is analyzed against
the audit criteria to enable a conclusion.
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Example Audit Criteria





Criteria
Plans, practices, and/or systems are in place to identify the number and type of staff and skill
sets required for current and future operations.
HR components of operational plans are linked to strategic and business requirements,
reflect available financial resources, and are based on proper demographic analyses and
other information.
Critical positions have been identified and succession and/or career development plans have
been developed for each.
Mechanisms to assess and monitor employee satisfaction and morale are in place.
The HR function provides consistent, reliable, and timely advice and information for analysis,
planning, and decision making purposes.
Opportunities to increase process efficiency are periodically identified and implemented.
Performance evaluation processes align employee goals and performance with
organizational objectives and priorities and require objective assessments of actual
performance against goals at least semi-annually.
Roles, responsibilities, and accountabilities are clearly defined, communicated, and
understood.
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Results of the Audit
 Audit report will provide commentary on practices that are working well,
as well as provide recommendations for any areas for improvement or
issues identified.
 Provides management and the Board with assurance on:
– the effectiveness of key controls
– the efficiency of established processes
– the performance of the HR function and the extent to which the organization
manages its human capital in accordance with defined policies / expectations
– resolution of weaknesses identified
 Additionally can showcase the contribution of the HR function in
supporting the achievement of the organization’s overall objectives.



©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Key Success Factors
 Be open with risks, challenges, concerns – sharing this information
helps focus the audit on areas that can bring you the most value
 Identify peer organizations for benchmarking purposes
 Review the planned criteria and ask clarifying questions when
necessary
 Advise your team of the audit and its objectives – reiterate that it is not
an individual performance assessment
 Identify critical documents and interviewees that will help the audit team
assess each criteria
 Be open to suggestions for improvement
 Develop a formal action plan to respond to recommendations, monitor
progress, and report on this progress to EMT/Board



©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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In Conclusion…
©2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Final Thoughts….
 HR audits can highlight:
– How human capital strategies and practices support the business’s priorities
– The true value of the HR function and how it is measured
– The adoption of technologies to drive efficiencies
 HR audits can also:
– Provide support for additional investment
– Save costs down the road by identifying areas for improvement and proposing
solutions
 Use the HR Audit as an opportunity to validate what you think is working
well and to assist addressing areas of concern or uncertainty.
 Remember that internal auditors are inherently “advising/consulting” by
the very nature of their work. The internal audit has the added benefit of
providing assurance over your HR practices.
KPMG CONFIDENTIAL
The information contained herein is of a general nature and is
not intended to address the circumstances of any particular
individual or entity. Although we endeavor to provide accurate
and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on
such information without appropriate professional advice after
a thorough examination of the particular situation.
©2013 KPMG LLP, a Canadian limited liability partnership
and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are
registered trademarks or trademarks of KPMG International.
Thank you

Nancy Chase, Partner, Risk Consulting
KPMG LLP
(613) 212-2817
nchase@kpmg.ca