HR Audit Process

Everything you need to know about human resource (HR) audit process.

Human Resource Audit is the critical analysis of the existing human resource within the organization. To be able to do that, the audit have to be served with the data that is quantitative, qualitative, as well as comprehensive.

In other words, the success of this stage of human resource planning solely rests upon the manner in which personnel records and other information are maintained.

The auditing process varies widely across organizations. The process includes briefing and orienting the employees to develop the plan and programme of audit, scanning/scrutinizing material information, surveying and interviewing the employees, synthesizing the current situation, prioritizing, identifica­tion of issues, etc.

The last stage comprises reporting wherein results of the audit are discussed with managers and staff specialists, in several rounds. Further, important issues are identified for inclusion in the formal report.

The human resource audit consists of various steps, process and phases that varies from organization  to organization which can be categorised as follows:-

1. Pre-Audit Information 2. Pre-Audit Self-Assessment 3. Briefing and Orientation 4. Scanning Material Information 5. Surveying Employees 6. Conducting Interviews 7. On-Site Review 8. Records Review 9. Audit Reporting.

Also, learn about four-step approaches of human resource audit process. They are:-

1. Defining Audit Statements 2. Assessing Current Practices 3. Analyze the Results and 4. Establish Improvement Goals and Take Action.

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HR Audit Process – Meaning, Step, Process and Phases

HR Audit Process – 6 Essential Steps in HRA that Vary from Organization to Organization

Human Resource Audit is the critical analysis of the existing human resource within the organization. To be able to do that, the audit have to be served with the data that is quantitative, qualitative, as well as comprehensive. In other words, the success of this stage of human resource planning solely rests upon the manner in which personnel records and other information are maintained.

It is from the base of the current situation that the human resource audit is to take in order that the future must be planned. Hence the information needs of such a critical exercise must be met.

One premise on which the human resource audit is based is that opportunities are being missed by staying with the current approaches. It considers the human resources process as dynamic and that it must continually be redirected and revitalised to be responsive to the ever changing needs.

Human Resource Audit is a systematic assessment of the strengths, limitations, and developmental needs of its existing human resources in the context of organizational performance.

Though the process would vary from organization to organization, generally it involves the following steps:

Step # 1. Briefing and Orientation:

This is preparatory meeting of key staff member to –

(i) Discuss particular issues considered to be significant.

(ii) Chart out audit procedures, and

(iii) Develop plans and programme of audit.

Step # 2. Scanning Material Information:

This involves scrutiny of all available information pertaining to the personnel, personnel handbooks and manuals, guides, appraisal forms, material on recruitment, computer capabilities if a computer and all such other information considered material.

Step # 3. Surveying Employees:

Surveying employees involves interview with key managers, functional executives, top functionaries in the organizations, and even employees representatives, if necessary. The purpose is to pinpoint issues of concern, present strengths, anticipated needs and managerial philosophies on human resources.

Step # 4. Conducting Interviews:

What questions to ask? The direction which audit must follow is based on issues developed through the scanning of information gathered for the purpose.

However, the audit efforts will get impetus if clarity is obtained as to the key factors of human resource management selected for audit and the related questions that need to be examined.

The process of the interview and the sequence of questions is often as important as their content. Another effective method is the ‘focus interview’. A focus interview involves meetings between a trained interviewer and selected members of the organization. Here the interviewer asks a variety of questions planned and prepared in the same fashion as the interview questionnaire.

Step # 5. Synthesising:

The data thus gathered is synthesized to present the current situation, priorities, staff pattern, and issues identified. Similarly, future needs, are identified and appropriate criteria developed for spotlighting the human resource priorities and specific recommendations made.

Step # 6. Reporting:

Just as the planning meetings of briefing and orientation, the results of the audit are discussed within several rounds with the managers and staff specialists. In the process, the issues that get crystallized are brought to the notice of the management in a formal report.

In conclusion, human resource audit is an important approach to human resource planning. It is practical because if correctly conducted, should increase the effectiveness of the design and implementation of human resource policies, planning and programmes. A periodic and systematic audit helps human resource planners develop and update employment and programme plans.

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HR Audit Process – 5 Step Process: Appointment of Auditors, Coverage, Specification of Standards, Collection & Evaluation of Information and Preparation of Audit Report

HRM audit is a function and, therefore, it should proceed as a process involving various steps which must be taken in a sequence.

These steps are as follows:

1. Determination of standards against which various aspects of HRM will be measured,

2. Collection and evaluation of relevant information to know the factual position, and

3. Preparation of audit report.

However, before taking auditing, the question of who will conduct audit, is the most important issue. Another issue is the determination of HR areas to be audited.

If both these issues are added to the above steps, the entire audit process will be as follows:

1. Appointment of Auditors:

The first step is the appointment of auditors to conduct audit. There are two alternatives for the appointment of auditors. Either internal personnel can act as auditors or there may be external auditors.

The advantage in appointment of external auditors is that they are independent and are unlikely to be influenced by organizational practices and culture. However, if it is not possible to appoint external auditors, a committee of managerial personnel drawn from different departments may be appointed.

The persons appointed as auditors must possess the following qualities:

i. Expertise in the fundamental principles and dynamics of human resource management to appreciate the various HRM functions and their linkages with other organizational functions;

ii. Attitudes and aptitudes for evaluation;

iii. Vigilant, cautious, and methodological in evaluation;

iv. Excellent interactive skills; and

v. Tendency to non-discloser of personal sensitive information of auditees.

2. Coverage of HRM Audit:

In the case of accounting audit, the scope of audit is well defined which is known to the organization as well as to the auditors. However, this is not the case with HRM audit as it is not legally mandatory.

Therefore, the top management of the organization should decide the topics of HRM which would be audited, whether the entire aspects of HRM as we have identified earlier or only the selected items which appear more important and relevant. The coverage of area should be carefully delineated after considering the cost involved in audit and benefits that are likely to accrue from this.

3. Specification of Standards:

This forms the actual step of HRM audit. Standards have to be set as a measurement criterion against which a fact is classified as desirable or undesirable. Werther and Davis have suggested five approaches against which actual performance may be measured. These are- comparative approach, outside authority approach, statistical approach, compliance approach, and management by objectives (MBO) approach.

In the comparative approach, the HR performance of the organization is compared with another organization known as model. In the outside authority approach, standards prescribed by various consultants and rating agencies can be used as benchmark for comparison.

In the statistical approach, various statistical tools can be used to measure performance which is available in quantitative form such as employee turnover, absenteeism, etc.

In the compliance approach, the performance may be measured in terms of legal compliances as required by various laws. In the management by objectives approach, performance is measured in terms of objectives of a function set and the actual performance achieved.

Generally, a combination of various approaches is adopted. Whatever approach is adopted, it must be made clear and specific before the information collection.

4. Collection and Evaluation of Information:

After establishing the standards, information about the various areas specified is collected. If the organization has well-established HR information system, various types of information are available from this source. Additional information may be collected through personal contacts.

After the relevant information is collected, this is compared with the standards established and conclusions may be drawn about the various aspects of HRM audit.

5. Preparation of Audit Report:

Based on the information and its evaluation, the auditors prepare audit report which includes all factual information, indicating the shortcomings wherever found. The report may also contain measures for overcoming various shortcomings. The report is submitted to top management for its assimilation of various HRM practices and to take suitable actions wherever necessary.

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HR Audit Process

The auditing process varies widely across organizations. The process includes briefing and orienting the employees to develop the plan and programme of audit, scanning/scrutinizing material information, surveying and interviewing the employees, synthesizing the current situation, prioritizing, identifica­tion of issues, etc.

The last step comprises reporting wherein results of the audit are discussed with managers and staff specialists, in several rounds. Further, important issues are identified for inclusion in the formal report.

The steps taken in this regard are as follows:

a. Determine the scope and type of audit – To decide upon the information sought leading to the areas to be audited.

b. Develop the audit questionnaire – In order to carry out a comprehensive audit or an audit of a specific practice, a questionnaire or checklist is designed for use during an audit.

c. Collect the data – This is the phase of the actual process of reviewing specific areas to collect the data about the company and its HR practices.

d. Benchmark the findings – The audit findings are compared with other similarly-sized companies. For example, the ratio of HR personnel to the total strength of the workforce is often compared.

e. Provide feedback about the results – During a closing meeting conducted by the auditors at the end of an audit (on the last day of audit to brief the findings), feedback is verbally provided and followed by a written audit report. Remember that audit is a fact-finding exercise and not a fault-finding one.

The company needs to analyse and develop a roadmap to determine the order in which the issues should be addressed. In addition to the top management, the auditor(s) should discuss the results of the audit with employees in the HR department.

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HR Audit Process – Orientation, Scanning, Survey, Interviews and Synthesis

Though the process varies from organisation to organisation/ generally it involves the following steps:

Process # 1. Orientation:

The key staff members of the organisation are to be made aware of the particular issues considered as significant. They should be oriented with the plans and programmes of audit. The audit procedures must be clearly explained to them. This is required to make them understand the need of HR Audit.

Process # 2. Scanning:

The information available in the personnel records, manuals, appraisal forms, etc. is to be scrutinized thoroughly.

Process # 3. Survey:

It involves collection of information to pinpoint issues, strengths and weaknesses, managerial philosophies and needs of the organisation. This may be collected from the executives.

Process # 4. Interviews:

What questions to be asked is to be decided. This is based on the issues and the information collected from surveys. The audit efforts will be fruitful if clarity is obtained as to the key factors selected for audit. Clarity can be obtained only if the accurate information is collected. The accurate information can be obtained through conducting interviews.

The questions may be developed by the audit team on the following topics:

Information – Coverage, Source and Adequacy are the areas to be covered under this topic.

Forecasting – Methodology, Reliability, Testability, Budgeting, Time framework and Technology are the factors to be considered.

Training and Development – Need assessment, Selection criteria, Quality, Climate, Levels covered and frequency are the factors to be carefully analyzed.

Performance appraisal – Validity of appraisal process, Benefits and drawbacks of the process, Uniformity in process, Linkage with pay and Feedback are the ones to be taken care of.

Management Succession Planning – Identifying key positions, availability of successors, matching future needs, responsibility for developing and non-performers.

Compensation – Adequacy of rewards, nature of job descriptions, flexibility in job evaluation systems, control over costs, rationale of reward system and opportunities for improvement are the important factors in this topic.

Process # 5. Synthesis:

The information gathered from the above steps is synthesised to find out the present situation, priorities, and issues relevant.

Human resource audits are not routine. The manner of conducting the audit may be self-directed surveys or conducted by the task force within the organisation or may be by the outside consultants. It may be one time affair or ongoing process within the organisation. The focus may be the extent to which managers and supervisors complied with the established personnel policies and practices.

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HR Audit Process – 4 Step Approach to Human Resource Audit Process

A simple four-step approach can be repeated as the annual planning and goal setting process occurs within the company. Progress can be measured against goals and a continuous improvement cycle naturally unfolds.

Step 1 – Defining Audit Statements:

Definition of desired human resource practices can occur through in a variety of ways. A good starting point is to take some time and reflect on the legal requirements and programmes that the department must administer. Simply listing them is a good first step.

Next, consider the areas of responsibility and traditional Human resource practices covered by Human Resource function – They may include human resource planning, staffing, performance management, employee relations, compensation and benefits, training and development, safety and welfare.

Employee surveys are important audit statements. Finally, other areas to consider are company initiatives that the human resource function may be required to support, i.e., internal customer requirements. Specifics are unique to our company, but examples could include supporting a total quality Management initiative, team based work system, etc. With this list in hand, a statement can be written about each major practice that we want to define. Typically, they are stated in the present tense and in a positive manner.

The following examples illustrate these traits:

i. The staffing process is documented so that the responsibility of each person in the process is clear and understood.

ii. Performance appraisals are completed for each employee in the organization.

iii. There is a train-the-trainer programme for each major training programme within the company.

iv. New employees complete a new hire orientation programme of key company policies and procedures within the first 30 days of work.

v. There is an issue resolution process that is well-understood and used by employees.

We may notice, definitions can be as complete or detailed, as the developer desires. In starting out, it is better to make more general statements and improve from year to year in those areas that we choose to raise the level of performance.

In summary, we may end up with as many as 60-70 statements depending upon size of the company and the level of detail that we prefer to measure. Regardless of the number, we are developing a description of the level and quality of performance we desire for the human resource function.

Step 2 – Assessing Current Practices:

With the list of statements completed, the assessing current practices require is to be objective. A good approach is to look for evidence that supports or refutes each statement made. Evidence may take the form of policies and procedures, output from employee surveys, interviews with key customers, data collection from a human resource information system, reports issued to regulatory departments, statistics, etc.

The first time the assessment is made, it may become apparent that the definition in step one needs improvement or modification. These changes should be noted and made a part of the next “improvement cycle.” As we review the summary of statements and our assessment, there are several analysis that can help.

Step 3 – Analyze the Results:

It is important to recognise strengths and opportunities for improvement. As results are reviewed, themes will emerge around specific human resource areas. For example, one company may be very strong in administration and managing legal requirements.

On the other hand, it may need improvement in developing higher-level systems definition. Another company may be very strong in areas of safety, security, and training, but need improvement in communication practices that run across the company.

Reviewing the data in a variety of perspectives is helpful to formulate a picture of overall human resource performance against the audit. It can reflect the positive effect of actions taken in previous years as well as provide information for future actions. It may become apparent that all definitions are ‘not equal in importance’. The effort required to meet the definition is one factor to consider.

For example, having performance appraisals for all employees may require significant effort. On the other hand, if you already have a good new hire orientation programme in place, that definition is more easily met.

The contribution that meeting a definition may have to the organization is another factor to consider. For example, supporting a company initiative like total quality management may be more meaningful to the organization at this point in time than other statements.

In summary, the purpose of analysis is to sort through the areas of strength and opportunities for improvement in order to take positive action steps to improve the effectiveness of the Human Resource function. It may become apparent that all definitions are ‘not equal in importance’.

Step 4 – Establish Improvement Goals and Take Action:

The ideal time to complete an audit is just prior to the annual planning process. With audit information in hand, you can be poised to take advantage of your insights into setting next year’s goals.

There are two aspects of setting goals – maintenance of current good practices and development of improved practices. Knowing the capacity and capability of the human resource department and system is critical in developing a realistic plan. Good practices need to become a part of the human resource system and ‘baked in’, so that, they occur in a reliable, predictable fashion.

With little discretionary time available, it is prudent to review the analysis of Step Three and decide which one or two areas will provide the greatest overall improvement for the Human Resource function, its customers and the organization. These need to be the areas that goals are established for the next year.

This is the point in the audit process, where definitions are reviewed and modified to create a new and improved vision of the human resource system as you wish it to be. Doing this on an annual basis allows practices to be improved and benefits shared.

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HR Audit Process – 5 Different Phases of Auditing Human Resource: Pre-Audit Information, Pre-Audit Self-Assessment, On-Site Review, Records Review and Audit Report

The HR audit process is conducted in different phases. Each phase is designed to build upon the preceding phase so that at the end of the audit, the organiza­tion has a very strong overview of the condition of the HR function.

These phases include the following:

Phase # 1. Pre-Audit Information:

This phase involves acquiring and reviewing relevant HR manuals, handbooks, forms, reports, and other information. A pre-audit information request is forwarded to the client, who compiles the necessary information and submits it for a review to the auditors.

Phase # 2. Pre-Audit Self-Assessment:

In order to minimize the time spent during the subsequent portions of the audit, a pre-audit self-assessment form is sent to the client. 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.

Phase # 3. On-Site Review:

This phase involves a visit to the client’s facility and interviews with the staff regarding HR policies and practices. A very in-depth HR audit checklist is completed.

Phase # 4. Records Review:

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 is checked.

Phase # 5. Audit Report:

The information gathered is used to develop an HR audit report. The audit report categorizes action needs into four separate areas- (a) urgent and important (UI), (b) not urgent but important (NUI), (c) not urgent and not important needs (NNI), and (d) important opportunities needs (IO) are sorted out. With the help of this classification scheme, the manage­ment can prioritize its steps.

Preparation for an Audit:

A comprehensive HR audit covers all areas of HR management, such as recruitment practices, training and development, compensation and benefits, employee and union relations, health, safety welfare, and security, miscellaneous HR policies and practices—welfare, strategic HR issues, manpower planning/ budgeting.

Besides classifying needs in each of the above areas, the HR audit also cites relevant laws, cases, and research to support the recommendations.

Auditor Engagement:

If an internal resource is being used, it is better to appoint the resource formally with clarity on scope, and to select persons who are non-political or those who are not high in the hierarchy. Also, if internal resources are auditing, they must be given training in auditing.

Auditors must have access to relevant information contained in employee files, documents, manuals, handbooks, forms, reports, and other confidential documents of the organization. Auditors must be given unrestricted access to records, once they sign an agreement for confidentiality.

Data Gathering:

The completion of a self-assessment questionnaire significantly expedites the audit process and allows for better audit planning.

On-Site Access:

The on-site part of the audit is most critical.

Using Audit Findings:

How does an organization use HR audit results? Since HR audit results are classified, an important aspect is already taken care of. Critical needs should be the first ones to be addressed.

Organizations generally have three options for dealing with audit results:

i. Use the HR audit as a blueprint or action plan for addressing HR needs.

ii. Address as many needs as possible using the organization’s internal expertise and resources.

iii. Contract out those need areas where internal expertise and resources are not available or do not fit in the core objectives of the organization.

An HR audit is much like an annual health check-up and performs the same function for the organization. An audit helps an organization assess where it currently stands and determine what it has to accomplish to improve its HR functions. It involves systematically reviewing all aspects of human resources, usually with a checklist, and ensuring that the government regulations and company policies are being adhered to.

The key to an audit is to remember that it is a tool to discover and not to test. There will always be room for improvement in every finding. A formal audit engagement letter is prepared, containing the objectives, scope, terms and conditions, time frame for completion, and remuneration for the auditor.

A confidentiality agreement is also made between the auditor and the organization. This starts the formal, process of auditing.

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