Introduction to HR Audit

Meaning of  HR Audit:

• A Human Resources Audit (or HR Audit) is a comprehensive method 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 assess compliance with continuously changing rules and regulations.
• It is an important management control device to judge organizations performance and effectiveness of HR management. It helps to determine the effectiveness and efficiency of HRM.
• It gives feedback about HR functions to operating managers and HR specialists. It enables to check the effectiveness of personnel programs. It also provides feedback about how well managers are meeting their HR duties. It provides a quality control check on HR activities.

Objectives of HR Audit:

• To align and realign HR with business goals.
• To review the performance of the Human Resource Department and its relative activities like manpower planning and recruitment, training and development, performance appraisal, etc. in order to assess the effectiveness on the implementation of the various policies to realize the Organizational goals.
• To evaluate the job chart of the Human Resource Managers, Executives, Administrative Officers, Executive Officers, Recruitment Officers, whether they have implemented the directives and guidelines for effective Management of the HR in their respective Departments. It makes HR business driven and create a high return on HR investments.
• To identify the gaps, lapses, irregularities, short-comings, in the implementation of the Policies, procedures, practices, directives, of the Human Resource Department and to suggest remedial actions. Thus it controls the HR activities.
• To suggest measures and corrective steps to rectify the mistakes, shortcomings if any, for future guidance, and advise for the effective performance of the work of the Human Resource Department. Thus it corrects the HR activities.
• To evaluate the Personnel staff and employees with reference to the Performance Appraisal Reports and suggest suitable recommendations for improving the efficiency of the employees. It promotes professionalism among employees and the company.
• To determine and locate the factors which are detrimental to the non-implementation or wrong implementation of the planned HR activities. Thus it helps in understanding the reasons for lower employee productivity and employee attrition.

Benefits of HR Audit:

Benefits on Strategic Level:

• It identifies the contribution of the HR department to the organization
• It makes the HR function business-driven and reveals ways to strengthen its impact on achieving Company results.
• It ensures objective data and information needed for the Company strategic planning.

Benefits on the Operational Level:

• It helps align HR goals to corporate strategy and goals.
• It develops and improves the professional image of the HR department.
• It clarifies the HR department’s roles, duties, and responsibilities
• It finds critical HR problems and reasons for low productivity.
• It encourages for greater responsibility and professionalism among members of the HR department
• It creates self-confidence in HR function realization.
• It stimulates identity, uniformity, and alignment of HR policies and practices within the company.
• It reduces HR costs by more effective forecasting and planning.
• It creates increased acceptance of needed change in the HR department.

Benefits on the Administrative Level:

• It provides specific, measurable and verifiable data of the current state of the function;
• It ensures timely compliance with legal requirements, regulations, and standards;
• It reviews employees files, records, registers, and information;
• It reviews the HR information system, which is required for effective control and working.

Scope of HR Audit:

• HR audit comprises of a detailed study of various aspects and components of HR. These components are:

HR Systems:

• Systems are an organized way of making things happen. Every system has its own objectives, elements, and process. HR systems include manpower planning, performance management, feedback, and training and development, etc.
• These systems assist in planning, prediction and bringing professionalism, discipline, and security.

HR Strategies:

• Strategies are an organized way of doing things. the HR strategies imply the choice of the organization to use various systems related to the HR functions like recruitment, training, motivation performance appraisal, etc.
• Some of the important HR strategies include culture building strategy, communication strategy, quality, and customer orientation strategy etc.

HR Competencies:

• HR competencies are skill and knowledge required by the main stakeholders of the organization that hold the key for making human resources of the organization work. These include competencies of people working in the HR department.

HR Culture and Values:

• HR audit attempts to evaluate the extent to which the organization has values and culture. It indicates culture which encourages and promotes Openness, Collaboration, Trust, Authenticity, Pro -action, Autonomy, Confrontation and Experimentation.

HR Impact and Alignment:

• HR impact includes the impact made by various HR interventions in terms of its contribution to organizational performance involving cost reduction, revenue generation, profit, talent management, and intellectual capital formation, etc.

Approaches to HR Audit:

Comparative Approach:

• In this approach, HR auditors identify one model company and the results obtained of the organization under audit are compared with it.

Outside Authority Approach:

• In this approach, a benchmark is set to compare own results. A standard for audit set by an outside consultant is used as a benchmark.

Statistical Approach:

• In this approach, the statistical information maintained by the company in respect of absenteeism, employee turnover etc. is used as the measures for evaluating performance.

Compliance Approach:

• In this approach, the auditors make a review of past actions to determine to see whether those activities are in compliance with the legal provisions and in accordance with the policies and procedures of the company.

MBO (Management by Objectives) Approach:

• Under this approach, specific targets are fixed. The perform­ance is measured against these targets. The auditors conduct the survey of actual performance and compare with the goals set.