Everything you need to know about human resource audit. An audit helps an organization to assess its current position. It helps estimate what needs to be achieved to improve the HR function.

The process involves a systematic review of all aspects of the HR function, typically with a checklist, in order to ensure that regulations and corporate policies are adhered to.

The aim is to learn in the process or discover, but not to test. The basic premise is that there is always scope for improvement.

An HRD audit process will provide certain advantages to the organization, such as linking the HR strategy, re-engineering the systems and processes, and improving the competency and functional efficiency of HR systems.


In this article we will discuss about human resource audit. Also learn about:- 1. Introduction to Human Resource Audit  2. Meaning of Human Resource Audit 3. Definitions 4. Objectives 5. Nature 6. Need 7. Scope 8. Importance 9. Process 10. Rationale and Other Details.

Human Resource Audit: Meaning, Objectives, Process and Function


  1. Introduction to Human Resource Audit
  2. Meaning of Human Resource Audit
  3. Definitions of Human Resource Audit
  4. Objectives of Human Resource Audit
  5. Nature of Human Resource Audit
  6. Need for Human Resource Audit
  7. Scope of Human Resource Management Audit
  8. Importance of Human Resource Audit
  9. Process of Human Resource Audit
  10. Rationale of Human Resource Audit
  11. Designing Information Systems for Human Resource Audit
  12. Human Resource Audit Relationship
  13. Frequency and Types of Human Resource Audit
  14. Areas of Human Resource Audit
  15. Modules of Human Resource Audit
  16. Action Plan of Human Resource Audit
  17. Approaches to Human Resource Audit
  18. Human Resource Audit Scoring
  19. Methodology of Human Resource Development Audit
  20. Human Resource Audit Report
  21. Advantages of Human Resource Audit
  22. Disadvantages of Human Resource Audit

Human Resource Audit – Introduction

Organizations are increasingly finding it imperative to improve returns on investment, in order to stay competitive. Traditionally, accounting norms were viewed only from the financial perspective and were applied to all departments ranging from marketing, production, distribution, etc. HRM was limited to salary and administration and, while doing so, it was analysed from the perspective of provisioning and expenditure.

However, in today’s competitive scenario, it has become essential to analyse HRM activities and assess their contribution in a more systematic and methodical manner. The Indian industry has aggressively adopted various innovative systems, such as HR audit and balanced scorecard, with a macro perspective of balancing performance management across all organizations.


Human Resource (HR) Audit is not only a tool for evaluating the personnel activities of an organisation, but also an important aspect of the human resource management. It is a great deal of attention from Human Resource Practitioners.

It basically review the effectiveness of human resource practices. It gives feedback about HR functions not only to operating managers, but also the HR department about how very well operating managers are meeting their HR duties.

Therefore, audit is the key word, which control and check the Human Resource activities in a public organisation and an evaluation of how these activities support overall organisational strategy. In the opinion of Gray “the primary purpose of personnel audit is to assess how various units are functioning and how they have been able to meet the policies and guidelines which were agreed upon and to assist the rest of the organisation by identifying the gap between objectives, lay-out and results achieved. The end product of evaluation should be to formulate plans for corrections or adjustment.”

Systematic audit can help build strong rapport between the department and operating managers. Further, audit creates discipline in personnel staff and encourages them to move away from intuitive techniques to a more rigorous assessment of the likely benefits to be achieved.


This aims at the following:

i. Introducing the theoretical framework behind concepts such as HRA, HR audit and balanced scorecard.

ii. Explaining the strategic framework behind their implementation in international vis-a-vis the Indian context.

iii. Presenting case studies to drive home learning.


Human Resources Audit:

Human resources audit is the systematic assessment of an organ­ization’s HR service excellence.

A good HR audit helps organizations to:

i. Identify the HR programmes that are most important to achieving the organization’s objectives.


ii. Find out how well the HR department is delivering these programmes.

iii. Benchmark HR work to ensure continuous improvement.

iv. Promote change and creativity.

v. Direct the focus of the HR staff to important issues.


vi. Bring HR closer to the line functions of the organization.

HRD Audit:

An audit helps an organization to assess its current position. It helps estimate what needs to be achieved to improve the HR function. The process involves a systematic review of all aspects of the HR function, typically with a checklist, in order to ensure that regulations and corporate policies are adhered to.

The aim is to learn in the process or discover, but not to test. The basic premise is that there is always scope for improvement.


An HRD audit process will provide certain advantages to the organization, such as linking the HR strategy, re-engineering the systems and processes, and improving the competency and functional efficiency of HR systems.

Human Resource Audit – Meaning

The term audit is normally associated with financial accounting and refers to the official examination and verification of a company’s financial and accounting records. HR audit is a similar concept in the field of Human Resource Management.

HR audit involves examining and reviewing the organization’s existing policies, procedures and practices regarding recruitment and selection, orientation and placement, training and development, job analysis and design, job evaluation, compensation, morale and motivation, employee health and safety, social welfare, industrial relations, etc.

According to Eric Flamholtz, “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.”

Normally, in an organization, not all HR policies are formal and written; there are many informal policies, not officially documented. The HR audit involves the review of all the HR policies, procedures and practices currently adopted by the organization, irrespective of whether they are formal or informal.

The audit also helps to check that the company complies with the legal requirements and regulations regarding employees as laid down by the government of the country. By means of an audit, the company can determine its strengths and weaknesses in the area of HRM and plan accordingly to improve its processes and procedures related to the human resource function.


Human Resource Audit also called Personnel Management Audit is well practised in Western developed countries. In India, there is no lull audit like financial audit of the personnel or Human Resource activities in an organisation. Audit is evaluation, examination, review and verification of completed activities, to see whether they represent a true state of affairs of the activities in the department audited.

Human Resource audit refers to an examination and evaluation of policies, practices, procedures to determine the effectiveness and efficiency of the Human resource management and to verify whether the mission, objectives, policies, procedures, programmes have been followed, and expected results achieved. The audit also makes suggestions for future improvement as a result of the measurement of past activities.

It helps essentially in evaluating the various HR practices and processes in an organization against the set standards. ‘An HR audit involves devoting time and resources to taking an intensely objective look at the company’s HR policies, practices, procedures and strategies to protect the company, establish best practices and identify opportunities for improvement'(SHRM, India).

‘A Human Resources Audit is a comprehensive method (or means) to review current human resources policies, procedures, documentation and systems to identify needs for improvement and enhancement of the HR function as well as to ensure compliance with ever-changing rules and regulations’ (Strategic HR Inc.).

The HR audit shall include evaluating:

1. Job Analysis


2. Recruitment

3. Selection

4. Performance Management

5. Performance Appraisals

6. Performance Feedbacks

7. Competency Mapping


8. Training Process

9. Compensation

10. Rewards Management

11. Benefits Management

12. Employee Relations

13. Workplace Safety


14. Best Practices

15. Managerial performance

16. Supervisory Performance

17. Leadership at various levels

18. HR Business Partner Role

19. HR Strategic Initiatives


20. Legal HR issues.

Human Resource Audit Definitions by Various Authors: Biles and Schuler, Storey and Sission, Stephen F.Ruffino, Schwind, Das and Wagar

Human Resource Audit is an examination and verification of personnel related accounts and records; it increases the effectiveness of the design and implementation of HR policies and programmes; and it is an important approach to human resource planning.

It is conducted to check whether the performance of managers has been fair in the overall interests of their organization. It is a systematic and comprehensive analysis of all activities and results of a personnel programme to review the effectiveness and utility of various personnel functions, activities, policies and procedures.

It is a strategic planning tool to help an organization evaluate the effectiveness of its human resources function. Audit reports provide key measurements on strengths and areas of enhancement to point out opportunities that a business organization can leverage to become better employer and meet long range goals.

“HR audit evaluates the HR activities in an organization with a view to their effectiveness and efficiency” – Biles and Schuler

“HR audit is concerned with the gathering, analysing information, and then deciding what actions need to be taken to improve performance” – Storey and Sission

“HR audit is a tool to measure an employer’s compliance with its legal obligations in managing its workforce and chart any corrective actions that might be needed” – Stephen F.Ruffino

“HR audit is an examination of the human resources policies, practices, and systems of a firm (or division) to eliminate deficiencies and improve ways to achieve goals” – Schwind, Das and Wagar

Human Resource Audit – Objectives

HR audit is a comprehensive analysis of HR functions, systems, policies and procedures of an organization.

The major objectives of HR audit are as follows:

1. To conduct an independent, objective, systematic and critical examination of HR functions of an organization.

2. To assess the general environment and performance efficiency in HR department.

3. To check for any deviations from standards and devise appropriate strategies and corrective actions in HR related areas.

4. To check for alignment of HR functions and organization’s overall practices and procedures.

5. To measure statutory compliances of HR activities as per law and other relevant agencies.

6. To explore the areas for saving personnel costs and expenses.

7. To provide feedback on better areas of performance and areas that needs improvement.

8. To identify HR areas that requires research and development inputs.

9. To recognize better performance of HR personnel through rewards.

Human Resource Audit – Nature

The nature of Human Resource Audit has been discuss in the followings:

(i) Human Resource Audit, generally, gives feedback about HR functions not only to operating mangers, but also to HR department.

(ii) Basically, audit is an overall quality control and check the HR activities in a public organisation.

(iii) Human Resource Audit also helps clarify organisational and management goals.

(iv) It is used as a tool for review of the effectiveness of human resource practices.

(v) It also helps the management of the organisation to evaluate how well its policies are going and identifies trouble areas that require particular attention.

K. Aswathappa has explained ten benefits resulting from Human Resource audit.

These are:

(1) Clarification of the HR department duties and responsibilities.

(2) Ensuring timely compliance with legal requirements.

(3) Creation of increased acceptance of the necessary changes in the HR department.

(4) Stimulation of uniformity of HR policies and practices.

(5) Encouragement of greater responsibility and professionalism among members of the HR department

(6) Identification of the contributions of the HR department to the organisation.

(7) Improvement of the professional image of the HR department.

(8) Finding solution of critical personal problems.

(9) Reduction of HR costs through more effective personnel procedures.

(10) Also review of the department information system.

Human Resource Audit – Need

According to Yoder, the need for personnel audit is largely influenced by several conditions.

Some of these are:

a. The Number of Employees- Very small units, because of the very small number of persons they employ, require comparatively little in the way of a formal audit.

b. Organisational Structure- Continuing feedback is facilitated if an organisation has a personnel department.

c. Communication and Feedback- An effective two-way communications system often reduces the need for a formal audit.

d. Location and Dispersion- The need for a formal audit is directly related to the number of isolated plants.

e. Status of an Industrial Relations Manager- If he participates in the top management plans, reports, discussions and decisions, the need for a formal audit may be less frequently felt.

f. Administrative Style- The greater the delegation of authority and decentralisation of power, the greater the value of a regular and formal audit.

Human Resource Management Audit – Scope

Organizational practices regarding the subject matters of HRM audit may vary.

However, a comprehensive scope of HRM audit includes all aspects of HRM which are as follows:

1. HR strategies and policies,

2. HRM functions,

3. HR compliance, and

4. HR climate.

1. HR Strategies and Policies:

The starting point of HRM audit should be an evaluation of HR strategies and policies and the way these are in tune with those of the organization. For formulating HR strategies and policies, it is essential that the objectives of HRM functions are clearly defined. The audit may evaluate the extent to which various HR strategies and policies have been formulated and what their qualities are.

Various HR strategies and policies may be audited by evaluating their:

i. Consistency with the organizational objectives, strategies, and policies;

ii. Consistency with the environment;

iii. Appropriateness in the light of organizational resources;

iv. Appropriateness in the light of time horizon; and

v. Workability.

2. HRM Functions:

The major thrust of HRM audit is on evaluation and review of various HRM functions relating to acquiring and employing human resources, developing human resources, compensation management, integration and maintenance of human resources, and industrial relations.

The audit should measure and evaluate these functions in the following context:

i. The type of HRM functions performed;

ii. The degree to which these functions are related to HRM objectives; and

iii. The degree to which these functions are performed effectively.

3. HR Compliance:

HR compliance refers to the adherence to various HR strategies and policies by line managers and adherence to legal requirements.

In this context, evaluation revolves around the following:

i. The extent to which line personnel adhere to various HR policies in dealing with personnel working under them; and

ii. The extent to which there is compliance with the legal requirements as provided under various legal Acts relevant for management of human resources.

4. HR Climate:

Quality of HR climate has important impact on motivation, job satisfaction, morale, and performance of human resources.

HR climate can be evaluated by various outcomes which are as follows:

i. Degree of employee turnover,

ii. Degree of employee absenteeism,

iii. Degree of accidents,

iv. Status of grievances and disciplinary actions, and

v. Findings of attitude and morale surveys.

Human Resource Audit – Importance

In modern times, personnel and industrial relations audits have been widely accepted as tools with which managers can control the programmes and practices of the personnel and industrial relations department.

The importance of personnel audit has increased in recent years because of the following reasons:

a. A change in managerial philosophy and theory, as a result of which a management now feels that employees’ participation in the activities of an organisation, and their identification with it, have a tremendous influence on the working of that organisation.

b. The changing role of the government, which intervenes more often and more extensively now, to control manpower management by an organisation with a view to protecting the interests of the employees, providing them with better working conditions and ensuring their economic security.

c. The increasing role played by trade unions and their strength, as a result of which they often question managerial competence in industrial relations.

d. The rising wages, changes in the skills of technical and professional workers, and the increasing expenditure incurred on the industrial relations department — these are the factors which have influenced and encouraged the trend in favour of a personnel audit.

Human Resource Audit – Process

1. Determining the Scope and Type of Audit:

Since HR is a very wide field, the company may either choose to conduct a comprehensive review of all HR functions or it may decide to review a few specific areas as it deems necessary. For example, a company may choose to review only the policies and procedures related to recruitment, selection and orientation policies.

2. Determining the Audit Method:

HR audits are usually conducted by using a questionnaire that elicits information about the relevant HR areas. The audit may also be conducted by interviewing managers and employees of the HR department to analyze how well they have understood the company’s policies and how efficiently these policies are being implemented. When using a questionnaire, care should be taken to design it in such a way that it elicits all necessary information regarding the areas to be audited.

3. Data Collection:

This step includes the actual process of collecting data about the organization and its HR practices. Information is collected by using the questionnaire and by interviewing relevant HR personnel about the HR procedures and policies being used in the company.

4. Setting the Standards:

To assess the efficiency of HR functions, the information collected has to be compared with some pre-determined standards. These standards have to be pre-set and any acceptable level of discrepancies should be specified clearly. Comparing the actual results with the standards will give an idea about the efficiency with which the HR functions are being performed.

5. Feedback about the Results:

After collecting information and comparing the results, the audit team summarises the findings and provides feedback to the company’s HR personnel and senior management in the form of an audit report.

The results of the audit should be discussed with the employees of the HR department so that they are made aware of the present condition of the HR functions in the company. Discussion with employees will also throw up new ideas for improving the policies and procedures in future.

6. Develop Action Plans:

Once the results of the audit are out, this information should be used for improving the working of the HR department. The findings of the audit should be categorised according to order of importance: high, medium and low. The organization should examine the areas of weaknesses as revealed by the audit and find ways to overcome them. Conducting HR audit would serve no practical purpose if no actions are taken.

Human Resource Audit – Rationale

A very famous watch-manufacturing company ventured into eye-care business. They needed, besides other staff, optometrists at every eye-care retail outlet, across the nation. A good optometrist is a vital link between the company and the customers. Many times it is the optometrist who coverts a potential to an actual customer.

The company had a very good hiring team in place and was confident that it would be able to hire very able personnel for their eye-care division as well. Their primary targets would be various students graduating from different optometrists colleges in India. They had been following these processes for quite some time for their watch-division.

The company went ahead with its plan of expansion. Later, when the hiring team visited the colleges to hire optometrists, to their dismay they found that most of these graduates were not employable. They had requisite knowledge but did not have very high level of skill that would be required in this profession.

They had hardly any time to train them now. Left with no option, they hired optometrists from competitors at a very high market price. Obviously the acquisition cost went-up that was least expected when the company was expanding into a new business.

In retrospect they should have ‘audited’ their hiring process in light of the new business and seen whether they needed to incorporate any changes. This would have forewarned them about the real state of talent demand and supply situation and they could have organized some pre-hiring training for the various graduating optometrists.

This way they would have not only been able to keep their hiring cost under control but would have also been successful in sowing a greater degree of loyalty among their new recruits. A timely audit would have saved the company a lot and made their process more efficient.

The rationale of the audit hence can be outlined as:

1. Audit increases the efficiency of the HR team.

2. It helps in saving a lot of cost.

3. Helps in achieving internal and external benchmarking.

4. Helps in compliance issues to various quality initiatives in the company.

5. Helps in legal compliance.

6. Improves managerial performance.

7. Improves supervision and leadership at all levels of the organization.

8. Helps to retrospect and reflect upon various practices from a practical stand-point.

9. Audit extends HR business partner’s role and helps it make quantifiable contributions in business.

10. Helps in making the HR department more effective and credible.

Human Resource Audit – Designing Information Systems

Human Resource (HR) audit is an important aspect of the human resource management. It is a difficult exercise and it designing of an effective human resource information system to be effective.

Some of the most important issues related to the Human Resource information system may be explained in the following:

1. Collecting Data:

In collecting data, we always face problem which is done by managers or individual supervisors. Generally, it is observed that data collected by out siders, consultants and university based researchers appear more credible than insider reports.

2. Asking Questions of the Data:

Data, which is to be collected, should provide useful information for organisational effectiveness most of the time data, is found to be misleading.

3. Interpreting the Data:

Data is most important for the management, which help the Human Resource Department in analysing and interpreting. So quality of data is the responsibility of the good management in the organisation.

4. Stimulating Remedial Action:

Quality of data are generating in the most of the organisation of Public Sector. The main purpose is to solve the problem of the organisation by the help of proper audit. So the human resource department to develop a working relationship between the worker and manager in the organisation.

In some cases, the action may require consultation between the supervisor and the higher management. The staff are responsible for the collection of data. They collected data with the help of the line management. Therefore, data should be collected only which is relevant to the human resource audit.

Human Resource Audit – Relationship

In most of the organisations, staff managers are also placed in the position of appraising the work of the managers and reporting their findings to the upper management.

There are four elements, which based on pre­requisites in Human Resources (HR) auditing:

First, successful personnel managers learn that they are more effective in bringing about improved performance if they discuss the results of their evaluations with the manager before sending them to the higher management. The main purpose of HR audit creates healthy, relationship between the staff and line groups.

Second, personnel are asked to associate like managers in data collection and interpretation processes from the beginning. Here itself, supervisors themselves are encouraged to interpret and give meaning to data collected.

Third, like managers will be ready to accept a staff control report, if they can see how its contents will help them achieve their objectives. Here, they like’s motivation to learn rises as it acknowledges there is a problem to be tackled.

Finally; the extent to which personnel develop impersonal, quantitative measures reduces the staff like conflicts that usually afflicts the auditing process.

Human Resource Audit – Frequency and Types

It is a common practice to have an annual evaluation or audit. At the end of each calendar or fiscal year, a report is presented, covering statistical information on the activities performed the results – achieved, the costs and expenditure involved, and comparisons of objectives and accomplishments.

By a perusal of this report, a great deal of useful information can be had about personnel activities In some organisations, however, this personnel audit is conducted periodically, generally in accordance with the needs of each organisation.

For example, attitude or morale surveys on particular subjects or topics may be conducted, or special reports may be prepared on such issues as grievances, the working of seniority rules or the effects of overtime practices and collective bargaining agreements. Two practices are generally followed while conducting a personnel audit.

In some cases, the audit is conducted by those employed in the organisation itself – generally by auditors or accountants.

In other cases the services of outside experts are engaged. The former is known as internal audit, while the latter is designated external audit. The advantages of having an outside auditor are that- (a) he has a background of knowledge of what others are doing in similar situations; (b) he has a professional attitude toward his work; and (c) he is objective in that he personally will not become a party to recommended changes.

While appointing an outside auditor, certain conditions should be kept in mind regarding his work:

a. He cannot work miracles. He can diagnose ills and recommend treatment, but the patient must provide the will to get well.

b. He must receive top management’s support.

c. He cannot and should not relieve management of its responsibility for making the decisions

d. He can recommend, but the acceptance of his recommendations rests with management.

Human Resource Audit – Areas

The areas of HR audit include:

i. Mission statement relating to human resource management.

ii. Objectives, goals and strategies of human resource management.

iii. Accomplishments of human resource management.

iv. Programmes of human resource management including the detailed practices and procedures.

v. Human resource management policies.

vi. Human resource management philosophy, its practices and values.

vii. Responses of employees, trade unions and government to the practices and achievements.

viii. Role of human resources in total quality management.

ix. Role of human resources management in achieving organisations mission, objectives, goals and strategies.

Human Resource Management Objectives Vs. Performance:

Performance of the HRM should be evaluated against the objectives and strategies formulated earlier. HRM auditor, therefore, should formulate the questions to be asked based on the HRM objectives. Each activity of HRM should be assessed by framing the questions.

At this juncture, the questions suggested by Robert D. Gray may be used as model questions:

The questions suggested by Robert D. Gray are as follows:

(1) What is the philosophy underlying the function?

(2) What principles of management are being followed in carrying it out?

(3) What policies have been established for this function?

(4) What procedures have been established? Are they in line with philosophy, principles and policies?

(5) Are the procedures, policies, management principles and philosophy of each function consistent with those of other, related functions?

Who will be asking these questions in the formal evaluation, and how? There are at least five agents and methods to choose from, and, in fact, all or any combination may be used:

1. Observation by higher management.

2. Formal appraisal by higher management.

3. Group discussion among customers of the personnel department.

4. Opinion polls.

5. Use of a consultant.

In every function or activity of the personnel division at very major step such questions as the following must be raised and answers sought:

(1) What is being done?

(2) How is it being done?

(3) Who is doing it?

(4) Where is it being done?

(5) How much is it going to cost?

(6) What is the return?

(7) Is it a worthwhile investment?

(8) How does it affect people?

(9) Do we know of a better way of doing it?

(10) Who will be responsible for it?

(11) Are we achieving the results we planned to achieve?

(12) How do the results compare with the objectives?

(13) What modifications are necessary in the light of experience or more knowledge?

Constant vigilance is necessary in personnel administration, because people are dynamic and unpredictable. Before you know, programmes may be rendered obsolete and you are left behind.

Human Resource Audit – Modules

A comprehensive HR Audit encompasses aspects such as legal compliance, compensation/salary administration, recruitment and orientation, training and development, employee relations, communications, file maintenance, policies and procedures, terminations, etc.

Recruitment and Selection Assessment Module:

As a part of the audit, the auditors while assessing the recruitment and selection module will examine the following aspects:

(i) The existence of updated and accurate written policies and procedures to support the recruitment and selection processes.

(ii) A periodic review and an update on policies and procedures.

(iii) The communication of recruitment and selection policies to all concerned.

(iv) The budget and time frame for the recruitment for various positions.

(v) The methods adopted for quality maintenance in the selection process.

Performance Management Module:

An important element of HRM, after recruitment and selection, is the man­agement of performance.

The HR auditors examine the following aspects:

(i) The maintenance and update of clearly defined performance plans.

(ii) The extent of documentation of performance plans by the employees.

(iii) The involvement of employees in the development of individual performance plans.

(iv) The communication of the performance evaluation process to the employees.

(v) The methodologies for the identification of high performance and the evaluation of objective measures in performance.

(vi) The training of supervisors or feedback and counselling.

Compensation Management Module:

The HR auditors evaluating the compensation management examine the following aspects-

(i) The existence of clearly, defined compensation plans and administrative procedures.

(ii) Documentary support for salary actions relating to promotions, increases, demotions, etc.

(iii) Written procedures addressing the statutory compliance requirements.

(iv) The procedures for examining compensation equity vis-a-vis similar positions in similar industries in the market.

(v) The role of managers in compensation practices.

(vi) Documented incentive-award or incentive-compensation pro­grammes and implementation plans.

Human Resource Audit – Action Plan

The steps for improving the company’s corporate HR function effectively are:

(i) Define the role of the HR function in the context of the organization’s current and future business plans.

(ii) Create a system for cost-effective hiring.

(iii) Develop programmes for the orientation and training of new employees.

(iv) Develop and manage employee communication.

(v) Prepare key personnel policies and make it available to employees and also train the employees in policy adherence.

(vi) Implement and install the HR IS system.

Human Resource Audit – Approaches

There are mainly five approaches in the study of Human Resource Audit.

They are:

(i) The comparative approach,

(ii) The outside consultant approach,

(iii) The statistical approach,

(iv) The compliance approach, and

(v) The management by objectives-MBO approach

(i) Comparative Approach:

In this approach, the auditors can collect and analyze data of their own company and also compare the data of different firm or company. After comparing the data of different companies, then the auditors choose the best one, which, is most suitable for the organisation. Thus, comparative approach helps the auditors to get best data.

(ii) Consultant Approach:

The organisation performance can improve only by an outside consultant. Consultant approach gives different types of ideas to the auditors which is most essential for comparative purposes in the organisation.

(iii) Statistical Approach:

In the statistical approach, certain statistical measures of performance are developed based on the company’s existing data. For examples-absenteeism and accident rates. These data help the auditors in assessing the positive and negative aspects of company’s performance.

(iv) Compliance Approach:

In the compliance approach, auditors review the past results and actions of the company’s policies and procedures. The check work of the auditors to go with the legal norms of the company’s policies and procedures.

(v) Management by Objectives (MBO) Approach:

The management by objectives approach deals with the specifications of goals against which performance is assessed. In this approach, managers set objective in their specific areas of responsibility.

The methods for evaluating and disseminating data take the form of:

(a) Comparison between time periods

(b) Comparison of organisations

(e) Trend lines, frequency distributions and statistical co-relations

(d) Ratio analysis voluntary turnover rate

(e) Classification of data; and

(j) Graphical or pictorial display.

Human Resource Audit – Scoring

Evaluate the score on the HR audit as follows:

60-70 – HR activities are complete, effective and probably meeting most legal compliance requirements.

45-59 – HR activities’ are being performed adequately but they are not as complete or effective as they should be. Also it is likely that some potential legal risks exist.

30-44 – Major HR problems exist, and significant attention needs to be devoted to adding and change the HR activities in the organisation.

Below 30 – Serious potential legal liabilities exist, and it is likely that significant HR problems are not being addressed.

In the HR audit, it is easy to announce policies but difficult to ensure their compliance. For progressive policies, promotion is very essential and promotion is based on merit HR audit mentioned here that it is the top management’s function to make regular check-ups. But top management is often too busy handling immediate problems.

In the public sector, the policy states that all promotions are to be based capability, irrespective of length of service. But a strong union frequently puts pressure on the management to promote senior employees. But merit and capability appear to be no longer significant factors.

Further, it is observed that line management often defers action until a serious crisis erupts, a staff group who have the technical resources performs an important functions. Regular audit identifies specific areas that require attention. Therefore, regular audits keep subordinates for their help.

Auditing Organisational Health:

Human Resources Development department deals with the overall effectiveness of an organisation’s human resource utilisation. Generally, a healthy organisation is one which is able to develop the hidden talents and capacities of its personnel and provide career and promotional opportunities to them to fulfill their ambitions for attaining rewarding positions. Thus, human resource audit is an important aspect of the human resource management.

Standards of Accountability:

In the public sector a system of Memorandum of Understanding (MOU) has been introduced for the purpose of improving organisational performance. Managers are accountable to the work of the employee in the organisation. In the human resource fields, managers may have standards for such objectives as hiring of employees, training, labour productivity and overtime utilisation.

Policy Implementation Audit:

Policy implementation has the key role in the management system of Human Resource Audit. The role of manager in the organisation, makes policy and supervise the employee. The top management decides that women are to receive equal considerations for promotions in administration, implementation of such policies will depend on continued audit and surveillance. Generally, government encourage managers to provide employees, reasonable time off with salary to participate in community service activities, such as family planning or literacy.

Cost Benefits Comparisons:

Budget is a good example of such companies. Most of the time, budgets are made without a study of the actual needs given for various activities. Audit is also undertaken to access whether the management’s policies are sensible and effective and whether the policies are really achieving the results consistent with costs. Therefore, budget must be regularly audited to find all type of expenditure in the organisation. Absenteeism Record

Generally, absenteeism can be regarded as an indicator of organisational health. The department of Human Resources watches absenteeism to explain the employees dislike for the Job. Basically, absenteeism is higher in industries where the work is long and where workgroups are large.

Turnover Rate:

Turnover Rate (Quit rate) is another measure for direct observation of law well things are progressing. It is a measure of changes in the work force overtime, it is observed that turnover tends to be higher in organisations that are larger, have longer work weeks and higher absenteeism rates. Therefore, quit rates have been seen to be relatively high in private sector and low in public sector.

Attitude Surveys:

Generally, attitude surveys determines how personnel feel about their jobs, bosses, management programmes, organisational climate and organisational change policies, personnel policies etc. Survey attempt to draw out more detailed answers through open-ended questions.

Company Records Measures:

Sometime without surveys, the organisation produces information that can be reassessed by staff experts with a view to obtaining measures of personnel effectiveness relating to scrap records, number of accidents, strikes and grievances and suggestions from employees, customers and shareholders

Human Resource Development Audit – Methodology

For a good HRD audit it is advisable to use a combination of methods.

The interviews can be scheduled hierarchically from the CEO to the HR chiefs, functional heads, the line managers, employees, etc. so that the auditors would be able to obtain a macro picture at the commencement of the audit and can subsequently relate the feedback from other constituents. Before conducting interviews, the auditors should be introduced to the people with whom they will be interacting.

During the process of observation, the auditors should attempt to look into various aspects, such as the physical layout, work environment, working conditions, amenities, and recreation facilities. During the meetings/ discussions and transactions, the auditors should be able to select cross- functional teams, groups/teams from whom the feedback will be authentic and open.

The auditors have to be competent in meeting and team management areas. The auditors can cross-check various aspects, such as the preparedness of the employees for the audit meetings, openness/receptivity to feedback, co-ordination of the meetings, interpersonal relations, and organization conflicts.

1. Individual Interviews:

The auditors/consultants begin their evaluation by means of one-to-one interviews with the top management and senior managers. This enables the auditors to understand the future plans of and the opportunities available for the company. Another reason is that these interviews help the auditors/ consultants to understand the maturity of the top and senior management and also their style of management.

2. Group Interviews:

When undertaking an HRD audit in very large organizations, auditors may opt to obtain feedback from various segments of employees through group interviews. These groups may be selected on the basis of stratified sampling or random sampling methods. In some cultures, individuals may have inhibitions in giving feedback. In such cases, group interviews help to obtain feedback.

3. Workshops:

In certain instances, the auditors may feel the necessity of replacing the individual and group interviews with large scale interactive processes (LSIP), with the number of participants ranging from 30 to 300. The participants may gather in a room to give a feedback on the HR function and systems.

The participants work in small groups around various sub-systems to make presentations of the SWOT analysis and the auditors record the feedback. The feedback could aid their audit process.

4. Questionnaires:

The questionnaires can address the HR processes, such as career planning, work allocation, learning and developmental systems, and quality orientation. For the purpose of capturing the real picture, the auditors should do some homework before selecting various parameters in the questionnaire and assigning weighted averages to each of the items in the questionnaire depending on the organizational requirement.

Another caution for the auditors is to sufficiently map all the key HR practices while designing the questionnaire. The auditors should also be conscious and empathetic while designing each of the parameters. Typically some of the questionnaires design the items in the questionnaire with the OCTAPAC (openness, confrontation, trust, autonomy, pro-action, authenticity, collaboration) parameters.

Dr Udai Pareek and Dr T.V Rao have developed a questionnaire with over 250 items that takes around ninety minutes to complete. It can be administered individually or to a group. The individuals/groups are invited to assemble in a location and the objectives of the HRD audit are explained to them and subsequently the questionnaire is provided to them for feedback.

The questionnaire tries to assess various aspects, such as the competence of the HRD staff, style of line managers, efficacy, and user friendliness in implementing various HR systems. The foremost benefit of the questionnaire is that it helps in benchmarking the systems and processes.

5. Observations:

Auditors make it a point to visit the workplace, including the plant machinery room, canteen, and welfare amenities such as hospitals/schools being run by the management. These visits help the auditors assess the environment and the welfare orientation of the organization.

Employees will not be giving their best to the organization unless they are taken care of by being provided with good surroundings and welfare amenities for themselves and their dependents. These observations are recorded with the help of a checklist.

6. Secondary Analysis:

The analysis of secondary data gives a lot of insight into the state of affairs in an organization. For instance, an organization may have around 500 programmers in the J2E platform with a number of projects in that area. If the number of trained people is inadequate, it is an indication that the organization is not focusing upon building the competencies of the people working on the projects, leading to a possible drop in quality or standard.

The areas covered under the regulatory compliance audit include:

i. Personal files and record keeping.

ii. Job descriptions.

iii. Compliance with the statutory requirements such as the Compensation Act, and rules regarding ESI, PF, Gratuity, etc.  

Issues in HRD Audit:

The methods of an HRD audit can only be chosen based on the fundamental data relating to the familiarity of the auditor/consultant to the organization.

Some of the issues to be addressed are:

i. Does the auditor have an idea of the business objectives of the organization?

ii. Is the auditor aware of the competitive dynamics and the relative position of the organization?

iii. Has the auditor developed sufficient knowledge about the business environment?

iv. Does the auditor have the competencies and skills required in understanding tabulating, and analysing the feedback to be collected during the audit process?

v. Does the auditor have the capability of clarifying the role expectations of various departments, executives, individuals, etc.?

Limitations of HRD Audit:

Any audit is undertaken to evaluate the effectiveness of systems and procedures. The HRD audit is not an exception. However, if the HRD audit is held due to the directives/fancies of the CEO, it can lead to negative results. For instance, initially the top management may be very supportive of the HRD audit process.

However, when the feedback is continuously negative, they may become hostile and sometimes even aggressive with the auditors. Quite often the failure of an HRD audit is on account of failure in the implementation of corrective action based on the feedback. There have been instances when the HRD audit is used for a negative purpose, such as victimizing the HR department and removing some of the HR employees.

HR Audit should be voluntary and should be proactively undertaken by the management. There should not be any compulsion to conduct HR Audit, in order to facilitate a fair and objective report generation.

An HRD audit does not give an evaluation of the individuals, but it essentially focuses upon units and systems. However, if consultants so desire, they can give a formal feedback to the individuals.

The Challenges in Human Resource Development Audit:

An HRD audit starts with an evaluation of the HRD strategies, which either flow from or are aligned with the corporate strategies. But in the absence of a co-relation between the HR and corporate strategy, HRD audit lacks direction and gets relegated to becoming a pure administrative and routine function.

The challenge in the IT and globalized era is to build and sustain world- class organizations.

Irrespective of the specific strategy followed, organizations have to address the following challenges:

i. Building and improving quality consciousness.

ii. Striving to recruit and retain competent, creative, and committed employees.

iii. Aligning the business processes with the technology infrastructure and leveraging it for competitive advantage.

iv. Nurturing a creative and supportive work culture, which endanger pro­fessionalism and motivation among the employees.

v. Improving the responsiveness of the organization to environmental demands.

vi. Retaining the flexibility and suppleness of the organization in spite of growth and development.

vii. Training and developing the people through various interventions such as training, mentoring, 360-degree feedback, etc.

viii. Promoting learning orientation among the employees and facilitating the formation of informal networks to create a learning organization.

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 checkup 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.

Human Resource Audit – Report

The report should invariably be submitted, within reasonable time, after the audit work is over It should avoid the journalistic style; be based solely on the findings; be presented in a factual manner that is readily available for future reference; make use of graphic techniques where appropriate; and not be any longer than is necessary.

The following items should be contained in the report:

a. Table of Contents.

b. Summary and conclusion, in which the entire report is summarized for the top executives (This may be the only part of the audit that some of the important executives will read It should be short — not to exceed five to seven pages).

c. Preface giving a brief statement of the objectives.

d. The report proper, in which a major division is covered as a special section. (It is desirable to have this so typed that any section may be removed and sent to the persons concerned). Each section should be complete, and should contain as many supporting data as are practical without making it too voluminous. Other data should be included in the appendix.

e. Summary – This is more complete than summary and conclusions at the beginning of the Report.

f. Appendix – This includes supporting data that would be too voluminous to appear in the body of the Report.

g. It should be signed by all members making the audit.

Certain aspects of an audit report (such as a morale survey, a safety survey and similar special items of wide general interest) may be made available to the employees. Other phases of the audit may be appropriate to give only to top management.

Records to be Used in a Personnel Audit:

The main records and statistics to be used in a personnel audit are:

(a) Time standards;

(b) Cost records;

(c) Test scores;

(d) Training development effects;

(e) Interview records;

(f) Work stoppages;

(g) Medical reports;

(h) Accident reports;

(i) Grievance reports;

(j) Turnover reports;

(k) Labour costs;

(I) Payroll data;

(m) Performance evaluation and rewards.

In other words, both quantitative and qualitative yardsticks should be used for purposes of evaluation. Monappa and Saiyadain provide a number of yardsticks and indices, which are- “averages in the levels of employee turnover or absenteeism; cost figures for each major activity or function; accident frequencies; grievances; suggestions; internal data indicators – wage and salary surveys, employees’ state insurance scheme stabilities, productivity indications for certain jobs and / or machines, staffing and manning tables, job analyses and descriptions; and evaluation data regarding selection instruments.”

The methods for analysing data and information are:

a. Comparison of various time periods;

b. Comparisons between departments and other companies;

c. Trend lines, frequency distributions and statistical correlations;

d. Ratio analysis; for example, labour cost per unit of output;

e. Classification of data by kinds of employees, products and departments; and

f. Graphical or pictorial displays.

Components of the Human Resource Audit Report:

After auditing the policies of the human resource management, a report has to be prepared for consider­ation of the line or the top management.

The report may be presented in the following order:

(a) Table of contents

(b) Preface or introduction giving a statement of objectives, scope, research methodology and techniques of the HR audit;

(c) A summary of the conclusions and recommendations of the HR audit;

(d) The main report with analysis of data of each section or department concerned;

(e) A summary which is general comprehensive in nature and more in comparison to the brief prepared at the beginning of the HR audit report;

(f) An appendix containing supporting data, which might be too voluminous to appear in the body of the audit report.

Human Resource Audit – Advantages

(i) HR audit helps the company to identify the areas where improvement is required.

(ii) It helps to ascertain the proper contribution of the HR department towards the organization.

(iii) HR audit facilitates the development of HR plans for the future based on the current performance of the HR department.

(iv) It helps to motivate the employees to perform better and boosts their morale.

(v) HR audit keeps a check on whether the company is complying with the required legal rules and regulations.

(vi) The weaknesses of the HR department can be pin­pointed by way of HR audit so that remedial measures may be taken.

(vii) It enables the HR manager to evaluate the job positions and the employees in order to formulate promotion and transfer policies.

Human Resource AuditDisadvantages

(i) HR valuation methods assume that employees would remain with their organizations for a specified period of time. But this assumption is wrong because in reality employees do not remain with one company for long and often change jobs.

(ii) It is very difficult to establish standards for HRA as in case of other fields of accounting such as financial accounting or management accounting. Every organization uses its own standards, and thus the HRA data of no two organizations can be compared.

(iii) HRA dehumanises the employees by evaluating them in monetary terms. Human beings cannot be owned or used like machines.

(iv) There is no model of HRA valuation that can be said to be ideal. Each model has many practical drawbacks.

(v) The life of a human being is uncertain. The lifespan of an employee can never be predicted accurately, and therefore values can never be assigned to any employee with surety.