Human resource audit





welfare and social security. performance appraisal and job evaluation. trade unionism. Since every company plans certain systems and targets. motivation and morale. employee and executive remuneration. 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. which is mandatory for every company. to be done by external statutory auditors. HR audit is very much useful to achieve the organizational goal and also is a vital tool which helps to assess the effectiveness of HR functions of an organization. safety and health. an HR audit compares the plans to actual implementation. participative management. communication. A healthy HR function in an organization is as important as the physical and mental well being of a human body. HR audit also helps companies to figure out any gaps or lapses and the reason for the same. training and development. 2 .DEFINITION H R Audit means the systematic verification of job analysis and design. and disputes and their resolution. industrial relations. The concept of HR audit has emerged from the practice of yearly finance and accounting audit. orientation and placement. recruitment and selection.

not every instance or situation can be examined. which examines the important aspects of the function and its management. an HR audit serves as a means through which an organization can measure the health of its human resource function.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. and is a means to identify strengths. And in sampling. weaknesses and areas where rectification may be warranted. An audit is done on sampling basis. Similarly. 3 . An audit is a systematic process.

a pre-audit selfassessment form. forms. Pre-Audit Self-Assessment: In order to maximize the time spent during subsequent portions of the audit. 4 . The selfadministered yes/no questionnaire asks a number of questions about current HR policies and practices. These phases include: Pre-Audit Information: This phase involves the acquiring and review of relevant HR manuals. The completion of this self-administered questionnaire allows auditors to identify key areas for focus during the HR audit. reports and other information. A pre-audit information request is forwarded to the client who compiles the necessary information for review by auditors. 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. handbooks. if sent to the client can be of use.The audit process The HR audit process is conducted in different phases. at the conclusion of the audit.

and important opportunities needs (IO). health. The areas that are urgent and important (UI). 5 . The audit report categorizes action needs into three separate areas. compensation and benefits. miscellaneous HR policies and practices-welfare. grievances and other relevant HR related information are checked. As a result of this scheme of classification. not urgent but not important needs (NNI)). Audit Report: The information gathered is used to develop an HR audit report. Employee personnel files are randomly examined as well as compensation. a separate review is conducted of HR records and postings. employee and union relations. managements can prioritize their steps. strategic HR issues. Records Review: During the on-site visit. The critical areas The comprehensive HR audit covers all areas of HR management like recruitment practices.On-site Review: This phase involves an on-site visit at the client's facility interviewing staff regarding HR policies and practices. manpower planning/budgeting. training and development. not urgent needs but important (NUI). safety and security. A very in-depth HR audit checklist is completed. employee claims. disciplinary actions.

An audit can help to evaluate how effective the programs and services are. Before conducting an audit. change. or remove programs and processes. cases and research to support the recommendations. the HR audit also cites relevant laws. followed by a more in-depth consideration of each of 6 . you should determine what aspects of the function need to be evaluated. The overall function can be evaluated. how well HR delivers on the programs and services. Approaches to HR Audit: There are five approaches for the purpose of evaluation of HR in any organization: • • • • • Comparative approach Outside authority Statistical Compliance approach and Management By Objectives(MBO) What should we include in an HR audit? HR audits are used to evaluate HR policies and practices. or where there are opportunities to either enhance.Besides classifying needs in each of the above areas.

Auditors must be given unrestricted access to records.If using internal resource it is better to appoint them formally with clarity on scope and select persons who are non political or those who are not high on hierarchy. Also. handbooks. it is preferable to set terms in writing defining and agreeing on scope . For example. Preparation for an audit Auditor engagement: If external firm carrying out the audit. Data gathering: Completion of a self-assessment questionnaire significantly expedites the audit process and allows for better audit planning. Individual and company needs dictate whether the audit should be conducted at the departmental or organizational level. it may be that a certain benefit program is no longer effective. once they sign agreement for confidentiality. Documents. 7 . manuals. This ineffectiveness may prompt an audit of that particular benefit program.the functional areas. if internal persons are auditing there must be training in auditing. as well as each of the programs and services offered so you make sure the company is in compliance and is meeting customer demands. forms and reports auditor must have access to relevant information contained in employee files and other confidential documents of the organization.

* Contract out those need areas where internal expertise and resources are not available or do not fit in the core competencies of the organization. Using audit findings How does an organization use HR audit results? Since the HR audit results are classified. ensuring that the government regulations and company policies are being adhered to. Organizations generally have three options for dealing with audit results. an important aspect is already taken care of. Critical needs should be the first ones to be addressed. An audit is a means by which an organization can measure where it currently stands and determine what it has to accomplish to improve its HR functions. * Use the HR audit as a blueprint or action plan for addressing HR needs. * Address as many needs as possible using the organization's internal expertise and resources.On-site access: The on-site portion of the audit is the most critical. It involves systematically reviewing all aspects of human resources. The key to 8 . usually in a checklist fashion. It can perform the same function for the organization. An HR audit is much like an annual health check.

Audit of managerial compliance of personnel policies. morale and job satisfaction. remuneration and other HR activities. There will always be room for improvement in every organization. no one can measure the attitude of human being and also their problems are not confined to the HR department alone. staffing. audit is to remember that it is a tool to discover and not to test. 9 . Scope of Audit: Generally. It covers the following HR areas: • • • • Audit of all the HR function. So it is very much broad in nature. procedures and legal provisions. Audit of corporate strategy regarding HR planning. Audit of the HR climate on employee motivation.

These are: • • • • • • • • • It helps to find out the proper contribution of the HR department towards the organization. Sound Performance Appraisal Systems. 10 . Smooth adoption of the changing mindset. Motivation of the HR personnel.Benefits of HR Audit: It provides the various benefits to the organization. Reduce the HR cost. Find out the problems and solve them smoothly. Development of the professional image of the HR department of the organization. Systematic job analysis. Provides timely legal requirement.

For instance. Although the areas examined may be similar. How an audit is conducted is very often determined by its intended use. To seek out HR-related opportunities. To conduct due diligence for mergers and acquisitions. 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. Some of the more common reasons are: • • • • To identify and address HR-related problems. the process used and the depth of inquiry will vary from the intended outcome. 11 .An HR audit can be used by an organization for multiple purposes. To support initial public offerings.

It investigates the alignment between HR and business strategy: 1. What was total revenue for the business unit for the most recently completed fiscal year? 2. Does the company business strategy link to Human Resources (HR)? Please describe. 4. training & development. performance management. What is the company business strategy? 3. selection. career management. Who develop the HR Strategy? Do you assemble a crossfunctional team to develop the HR strategy? 6. labour relations. What is your company's HR Strategy? Is the HR strategy aligned with the company's strategy? 5.HR Audit Questionnaire These elaborative questions fully capture the performance of HR in all HR functions: recruitment. and organization development. What does HR do in supporting the implementation of organization's strategy? 12 .

Is there an organizational chart? 2. Does the chart show reporting relationships? 4. and develop strategy to close the gap? Sample Audit Organization and Structure 1. Is the chart updated as changes occur? 5. Do you perform a gap analysis of current versus desired organizational behavior and performance. Does the chart include both employees’ names and position titles? 3. As the needs of the organization change.7. does its structure change? 13 . Determine how the human resources department will support strategic goal and impact organization performance? 8.

Is there a job description for each position in the department? 6. If there have been suits.HR Department Organization 1. Is the budget in line with other organizations of similar size and industry? 3. To what position does the top HR position report? 7. what were the outcomes? 5. Has the company been involved in any employment lawsuits? 4. Is the HR mission statement consistent with the vision and mission of the organization? 14 . Does the HR Department have a mission statement? 8. Is the department sufficiently staffed for the industry and the size of organization? 2.

For what functions is the HR Department responsible? Payroll Benefits Salary administration Recruitment Safety Training Strategic planning Labor relations Others 2.Functions of the HR Department 1. Should the HR Department be responsible for all of the functions listed above? 3. Should the HR Department be responsible for functions that are not listed above? 15 .

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.Conclusion: The auditors always prepare and submit an audit report to authority of the organization. but the latter one represents the gaps in performance and therefore contains remarks and remedial measures. The clean report indicates the appreciative of the department's function. 4 To maintain or enhance the organization's reputation in a community 16 . HR Audit is very much helpful to face the challenges and to increase the potentiality of the HR personnel in the organization. which may be clean or qualified. Organizations undertake HR audits for many reasons: 1 To ensure effective utilization of human resources.