HR Audit

www.humanikaconsulting.com

“The things that get measured gets managed”

Agenda 1. Introduction 2. Challenges For H.R.

Department Eight Challenges 3. Meaning & Purpose Of Hr

Audit 4. Purposes Of Hrm Auditing 5. Objectives Of Hr Audit 6. Benefits Of HR Audit 7. Frequency Of HR Audit 8. The Principles Of Effective Hrm

Auditing 9. Types Of HR Audits 10. The Scope Of Human Resource

Audits 11. Hrm Audit Measures 12. HR Standards 13. Task Auditor

14. General Auditing Method 15. Methods Of Hr Audit 16. Research Approaches To Audits 17. Hrm Auditing Process

INTRODUCTION

• “How does a firm know if its human resource practices have an impact on business results?

• “..most professional service firms and organizations complete an extensive audit of their financial statements on an annual basis, but the programmes involving “people”, such as recruiting, training or pay-for-performance are seldom given the same scrutiny.”

• “..the starting point for enterprises wishing to manage their human capital successfully and seeking a labour competitive advantage is activities of the HR department.”

CHALLENGES FOR H.R. DEPARTMENT

EIGHT CHALLENGES IDENTIFIED BY DAVE ULRICH (1997)

Globalization The H.R department will need to create models and processes

for achieving global activeness, effectiveness and competitiveness.

Managing the Value Chain for Business Competitiveness

Innovation Faster Decision Making Price or Value Advantage Effective linking with Suppliers

Growth of the organization By increasing customer, acquisition and mergers

Building organizational capabilities Reviewing existing capabilities New capabilities Aligning new capabilities with business strategies.

Managing Change • Adopting some

new H.R. Practices

• Learning some New Skills and Attitudes

• Unlearning some existing skills and Attitudes.

Making Technology viable

Finding out ways and means to make technology successful.

Attracting and Retaining Intellectual Capital

• Attracting Talented People.

• Retaining them.

• Utilizing them suitably.

Transforming the Organization

Creating fundamental and lasting changes.

The Human Resources (HR) Audit is a process of examining policies, procedures, documentation, systems, and practices with respect to an organization’s HR functions.

The purpose of the audit is to reveal the strengths and weaknesses in the organization's human resources system and any issues needing resolution.

The audit works best when the focus is on analyzing and improving the

HR function in the organization.

MEANING OF HR AUDIT

PURPOSES OF HRM AUDITING

• Value – strategic (roi); operational (effectiveness); administrative (efficiency) and resource optimization (economical)

• Compliance – legislative and organizational policy

• Risk – people and related e.G. Ohs

OBJECTIVES OF HR AUDIT

• Effectiveness of performance of HR Department • Implementation of HR policies, procedures; • To find out the reasons for low productivity and improve HRD Strategies; • Evaluation of the HR staffs & employee; • Modify and Review HR system & challenges • Questioning: To seek answers to : What happened ? Why did it happen?

Why did it not happen?

Benefits of HR Audit

• Identification of contributions of HR department • Helps identify the gaps between the current state and the standard,

thereby streamlining HR work processes • Encouragement of greater responsibility and professionalism among HR

members • Clarification of HR duties and responsibilities • Stimulation of uniformity of HR policies and practices • Ensuring timely compliance with legal requirements • Reduction of HR costs through more effective personnel procedures • A thorough review of HR information systems.

Frequency of HR audit

• It is best to have a HR audit once in a year. The HR audit, if conducted continuously and regularly, then it becomes a fairly managed process.

• The chances of drastic corrections become lower if it is conducted regularly. Usually, the frequency of the audit being conducted depends on the company.

• An ideal audit can be conducted for every 18 months but the management must see to it that a well efficient audit is done on yearly basis.

THE PRINCIPLES OF EFFECTIVE HRM AUDITING

• Need for independence;

• Audit activities should be budgeted for properly;

• Acknowledgement that there are many types of audits;

• Each type of an hr audit has its own purpose and objectives;

• Establish timeframes for every phase/step of the audit;

• Training of auditors is a must;

• Set standards for the hr audits;

• Agree on reporting template;

• Auditors should sign a confidentiality agreement; and

• Auditors should agree beforehand on communication strategy.

Types of HR Audits

• Compliance: Focuses on how well the company 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/or the company’s strategic plan.

• Function-Specific: Focuses on a specific area in the HR function (e.g., payroll, performance management, records retention, etc.)

HR AUDIT-SECTION

HRIS

Recruitment

Documentation

Training, & Development

Compensation and Benefits

Health Welfare systems

Employee Relations

Safety

Resourcing

Performance Management

and evaluation

The Scope of Human Resource Audits

• Audit of Corporate Strategy The organization is going to gain competitive advantage. • Audit of the Human Resource Function Human Resource Information System, Staffing and Development, and Organization Control and Evaluation. • Audit of Managerial Compliance Human resource policies and procedures. • Audit of Employee Satisfaction To learn how well employee needs are met.

Audit of the Human Resource Function

1. Human Resource Information System - Human Resource Plans : Supply and demand estimates; skill

inventories; replacement charts and summaries - Job Analysis Information : Job standards, Job descriptions,

Job specifications - Compensation Management : Wage, salary, and incentive

levels; Fringe benefit package; Employer-provided services

2. Staffing and Development

• Recruiting : sources, availability, employment applications

• Selection : selection ratios, selection procedures, equal opportunity.

• Training and development : orientation program, training objectives and procedures, learning rates

• Career development : internal placement, career planning program, human resource development efforts

3. Organization Control and Evaluation

• Performance appraisals : standards and measures of performance, performance appraisal techniques, evaluation interview.

• Labor-Management Relations :

Legal compliance, management rights, dispute resolution problems.

• Human Resource Controls :

employee communications, discipline procedures, change and development procedures

Audit of Managerial Compliance

• Compliance with laws is especially important. When safety, compensation, or labor laws are violated, the government holds the company responsible.

• If managers ignore policies or violate employee relations laws, the audit should uncover these errors so that corrective action can be started.

Audit of Employee Satisfaction

• It refers to an employee’s general attitude toward his or her job.

• When employee needs are unmet, turnover, absenteeism, and union activity are more likely. To learn how well employee needs are met.

• The team collects information about wages, benefits, supervisory practices, career planning assistance, and other dimensions of job.

HRM AUDIT MEASURES

• HR PLANNING • RESOURCING – RECRUITMENT

EFFICIENCY AND EFFECTIVENESS • COMPENSATION AND BENEFITS

MEASURES • ORIENTATION/ON-BOARDING • EMPLOYEE COUNSELING AND

DISCIPLINARY COSTS • LOST TIME COSTS • EMPLOYEE TURNOVER RATES • TRAINING AND DEVELOPMENT

COSTS E.G. ROI • ORGANIZATIONAL DEVELOPMENT

AND CHANGE MANAGEMENT

HR STANDARDS REFER TO ANNEXURE:

• Strategic HR Management • Talent Management • HR Risk Management • Workforce Planning • Learning & Development • Performance Management • Reward • Employee Wellness • Employment Relations

Management • Organization Development • HR Service Delivery • HR Technology • HR Measurement

Tasks of Auditors • Identify who is responsible

for each activity. • Determine the objectives

sought by each activity. • Review the policies and

procedures used to achieve these activities.

• Prepare a report commending proper objectives, policies, and procedures.

• Develop an action plan to correct errors in each activity.

• Follow up the action plan to see if it solved the problems found through the audit.

Develop an understanding of the management system and procedures

Assess the strength and weaknesses of the management systems and procedures

Gather evidence and verify findings

Validate audit findings and exceptions

GENERAL AUDITING METHOD

INDIVIDUAL INTERVIEW METHOD

GROUP INTERVIEW METHOD

WORKSHOP METHOD

QUESTIONNAIRE METHOD

OBSERVATION

ANALYSIS OF SECONDARY DATA

ANALYSIS OF REPORTS, RECORDS, MANUALS AND OTHER PUBLISHED LITERATURE

METHODS OF HR AUDIT

• Top level management and senior managers are interviewed, individually. It helps in following:

• Knowing their thinking about

future plans and opportunities available for the company

Knowing about their expectations from the HR audit

Getting sensitive information pertaining to working styles and culture

INDIVIDUAL INTERVIEW METHOD

Group interviews and discussions with the employees and executives of large companies for HR audit, facilitate collection of information about effectiveness of existing systems.

GROUP INTERVIEW METHOD

What do you see as the future growth opportunities and business directions of the company?

What skills and competencies does the company have which you are proud of?

What skills and competencies do you need to run your business, or to perform your role, more effectively at present?

What are the strengths of your HRD function?

What are the areas where your HRD function can do better?

What is good about your HRD subsystems, such as: performance appraisal , career planning, job rotation, training, quality circles, induction training, recruitment policies, performance counseling, worker development programmes, and HRD departments?

What is weak about them? What can be improved?

What changes do you suggest to strengthen HRD in your company?

What do you think are the ways in which line managers can perform more developmental roles?

Relevant Questions that are asked in Individual And Group

Interviews :

Workshop Methods also known as Large Scale Interactive Process (LSIP) is conducted in some cases of audit.

WORKSHOP METHOD

• Feed back about various dimensions of HRD, including the competency base of HRD staff, the styles of line managers, the implementation of various HRD systems, etc are obtained through a detailed questionnaire from individuals or groups for HR audit.

• This method helps in benchmarking.

QUESTIONNAIRE METHOD

• The auditors should physically visit the workplace

• To assess the extent to which a congenial and supportive human welfare oriented climate exists in the company.

• This is essential because employees are not likely to give their best if they do not live in good surroundings

• The observations can be conducted using a check list of questions.

OBSERVATION

Analysis of secondary data can give an insight into the HRD assets and liabilities of the company.

Analysis of age profiles of the employees, analysis of the training attended, analysis of the minutes of the meetings held etc., help in determining the assets and liabilities.

ANALYSIS OF SECONDARY DATA

Published literature of the company including annual reports, marked hand-outs, training calendar personnel manual, and various circulars issued from time to time are also likely to help immensely in assessing the strengths and weaknesses of HRD.

ANALYSIS OF REPORTS,RECORDS, MANUALS AND OTHER PUBLISHED LITERATURE

HRM AUDITING PROCESS

• PHASE 1: FOUNDATIONAL/INITIATION

• PHASE 2: ASSESSMENT

• PHASE 3: CONCLUDING AND REPORTING

OVERVIEW OF THE GENERIC HRM AUDITING PROCESS

• DESIGN AND DEVELOP HR POLICIES, PROCEDURES AND PRACTICES FOR YOUR ORGANIZATION;

• ASSESS CURRENT HR POLICIES, PROCEDURES AND PRACTICES AGAINST SET CRITERIA;

• ANALYSE THE RESULTS FROM EVIDENCE; AND

• TAKE ACTION: TO CLOSE GAPS, MAKE RECOMMENDATIONS/ SET IMPROVEMENT GOALS.

HRM AUDITING PROCESS ILLUSTRATED

HRM AUDITING PROCESS ILLUSTRATED

PHASE 1: FOUNDATIONAL/INITIATION

• AUDIT SET-UP ACTIONS

• AUDIT PLANNING ACTIONS

Determine the purpose and objectives of the audit

Determine the scope of the audit

Determine the organizational components to be audited

Determine the auditing tool to be used

Determine costs and resources needed to perform the audit

Determine audit team governance

PHASE 2: ASSESSMENT

• GENERAL COMMENTS

• IDENTIFY KEY ORGANIZATIONAL METRICS -

DETERMINE EMPLOYMENT ISSUES ACCOUNTABILITY

• DEVELOPING A CHECKLIST

REFER TO THE ATTACHED ANNEXURE: HUMAN RESOURCES BEST PRACTICE AUDIT AND NEEDS ASSESSMENT TOOL

• FORMULATING AUDITING METHODOLOGY AND TOOLS

PHASE 3: CONCLUDING AND REPORTING

• REPORT PREPARATION

• REPORT PRESENTATION

QUANTIFY YOUR RESULTS - START WITH

OUTCOMES INCLUDE AN EXECUTIVE SUMMARY IDENTIFY RISKS IDENTIFY AND PRIORITIZE SOLUTIONS TO

PROBLEMS IDENTIFY. WHERE POSSIBLE, FRAME YOUR SOLUTIONS FROM A BOTTOM LINE PERSPECTIVE, I.E., CALCULATE THE BENEFITS AND COSTS OF PROPOSED SOLUTIONS

EVALUATE AND DISCUSS THE ORGANIZATIONAL, FINANCIAL AND EMPLOYEE RELATIONS IMPACT OF ACTION OR INACTION

• DEVELOP A HR IMPROVEMENT PLAN

The audit report Findings of research are used to developed

a picture of the organization’s resource activities. For this information to be useful, it is compiled into audit report.

The audit report is a comprehensive description of human resource activities that includes both commendations for effective practices and recommendations for improving practices that are less effective.

Audit report often contain several sections. One part is for line managers, another is for manager of specific human resource function, and the final part is for the human resource manager.

Report for line managers How line managers handle their duties such as: • Interviewing applicants • Training employees • Evaluating performance • Motivating workers • Satisfying employee needs

The report also identifies people problems. Violations of policies and employee relations law are highlighted

Report for the HR Specialist The specialists who handle employment training, compensation, and other activities also need feedback. Such feedbacks are : 1. Unqualified workers that need for training 2. Qualified workers that need for development 3. What others company are doing 4. Attitude operating managers toward personnel

policies 5. Workers pay dissatisfaction

Report for HR Manager

• It is contains all the information given to both operating managers and staff specialists. In addition, HR Mangers gets feedback about :

• Attitude operating managers and employees about services given by HRD

• A review of HRD plans • Human resource problems and

their implication • Recommendations for needed

changes and priorities for their implementation

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