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Auditing HR Function
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Dimensions of HR Audit
HR Auditing
Human Resource
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Human Resource Information
System (HRIS)
A method by which an Organization
collects, analyses, and reports information
about people and jobs. An integration between IT System and
HRM process.
Offers an adequate, comprehensive andon-going information system about people
and jobs.
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HRIS: System Workflow
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HR Accounting
First developed byRensis Likert , and he pointedout that the expenses on human resource are fixedin nature and do not offer any immediate return.
According to Flamhotiz, HRA is accounting forpeople as an organizational resource. It involves
measuring the costs incurred by organization torecruit , select , hire, train and develop humanassets. It also involves the measuring economicvalue of people to the organization.
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Objectives of HR Accounting
Provide cost value information about acquiring,developing , allocating and maintaining humanresources.
Enable management to effectively monitor the use ofhuman resources.
Find whether human assets are appreciating or
depreciating over a period of time.Assist in development of effective management
practices on the basis of financial consequences.
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Approaches of HRA
Monetary Measures
Non Monetary Measures
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Monetary Methods
Historical cost method
Replacement cost method
Opportunity cost methodEconomic value method
Assets multiplier method
Discounted present value of future earnings method
Non-monetary MeasuresExpected realizable value method
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How to Calculate the value
of Manpower?
Lev and Schwartz model
Where,Vr = the value of an Individual r year old.
I(t)= the individuals annual earnings up to retirement
t = retirement age
r= a discount rate specific to the cost of capital to thecompany
Vr=
Vr=9
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Historical cost method
= Recruitment cost + selection cost
+ Orientation Costs + TrainingCosts + Development Costs
Where,
RC= Advertising, travel exp., consultants fee, incidental exp.SC= Form costs, testing and interview exp. and other Adm. exp.
TC= Trainers salary, Facilities cost, trainee's time spent in the
program measured financially, low productivity during training.
DC= Costs incurred in enhancing employee skills and expertise.
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Controlling Cost of
Manpower
Ratio Analysis
Cost per hire=
Recruitment Cycle time= Total time taken to
recruit new employee
Turnover Rate=
Cost of Training= 11
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Personnel Productivity
=
Management By Objectives
Finally Personnel budgets and Audit
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Auditing HR Functions
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What is AUDIT ?
Latin verb-audire-means-to listen
Listening implies an attempt to know thestate of the affairs as they exist & as they
are expected to exist
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AUDIT
An audit is an evaluation of a person,
organization, system, process, project or
product. Audits are performed to ascertainthe validity and reliability of information;
also to provide an assessment of a system's
internal control.
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What is HR audit?
An HR audit is a process to review
implementation of policies, strategies,
structure and procedures with respect to the
organization's HRM, ensure compliance with
employment law, eliminate liabilities (gap) ,
and educate the managers (feedback).
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Why Auditing HR Function?
To reveal the strengths and weaknesses in the humanresources system, and any issues needing resolution.
To know the extent of HR as CSF, HR can be a CSF if
employees are have unique skillsTo find out current manpower inventory and shortfall or
excess, if any for new project.
To evolve its HR function to a level where its full
potential to support the organizations mission andobjectives can be realized.
To find out the effectiveness of various personnelpolicies and practices.
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Approaches of HR Audit
Legal ApproachFunctional Approach
Strategic Approach
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Approaches of HR Audit
Functional Approach
Strategic Approach
This concept is centered on the verification
that the current labor laws are being
fulfilled.
The audit should verify if the firms
policies, practices, and documents
regarding employee hiring, retention,
discipline, termination, and post-
employment are both fair and legal
HR practices and policies must notdiscrimination on: equal employment
opportunities; basis of age and sex;
reasonable accommodations for disabled
workers; minimum wages etc.
Legal Approach
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Approaches of HR Audit
Legal Approach
Strategic Approach
Observing the procedures applied are theadequate ones and they function correctly
in the most cost effective manner.
The function of this level of the HR audit
is to study and analyze each one of the
specific areas of HRM. Area of HR Audit:
Description of companys staff
Job analysis
HR planning
Recruiting and personnel selection Training
Development of professionals
Retribution
Performance evaluation
Work condition
Functional Approach
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Approaches of HR Audit
Legal Approach
Functional Approach
The evaluation of the adaptation of the
HR policies and practices in their support
of the companys general strategy..Strategic approach has been developed as
a means of determining if the HR function
is a source of competitive advantage for
the company.Supplies information about the
knowledge, abilities, values, managing
experience, or other factors of each
employee to meet new strategy.
Strategic Approach
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Process of HR Audit
Step 1:Defining Auditing Statement
Step 2:Accessing Current Practices
Step 3:Analyzing the Result
Step 4:Preparing the Audit Report
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Before beginning the auditprocess
1. Determine who will conduct the audit.
Internal vs. External
2. Secure senior management commitment.
a. Are they ready to fix whats broken, even if it
costs $$$$?
b. Do they agree with the methodology?
c. Will they allow access to all
departments/information?
d. Will they publicly support the process? 23
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3. Define the parameters.
3. Who will be audited?
4. What do you want to audit?
5. What audit tools will you use?
6. How will the process be rolled out?
7. How will results get reported?
8. Who will get the results?
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4. Introduce the audit process to your
managers.
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Step 1: Defining Audit
Statements
Determine whether legal, functional or
strategic audit.
Determine the area of the HR audit whereauditor wants to audit.
Determining the every aspects of the each
area (detailed)Areas like quality of lifecycle, team based
work system and other contemporary issues
on HR are should be considered 26
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Step 3: Analysis of Results
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 theeffectiveness of the HR function
Examining different indices, ratios
Finding out strength and weakness point andopportunity for improvements.
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Ratios that should be
analyzed
Quit rate
Termination rate
Layoff rate
Retirement rate
Length of service rate
Salary and benefits package
Supervisory practices
Job design
Retirement plan
Rate Personnel functions to examine
Turnover Rate
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Absence rate
Tardiness rate
Exit interviewsDisciplineConvenience of lunchroom
and rest roomSick-pay policy
Job Attendance Rate
Rate Personnel functions to examine
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Overtime rate Employee planning and
scheduling
Shortage of staff
Selection and trainingprocess
Overtime Rate
Rate Personnel functions to examine
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Position
Vacancy Rate
Recruitment and selection
process
Salary and benefit package
Company image incommunity
Position/Vacancy Rate
Rate Personnel functions to examine
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Error/scrap rate Recruitment selection and
placement
Training and development
Job satisfaction
Error/Scrap Rate
Rate Personnel functions to examine
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Training and
development rate
Recruitment and selection
Training and development
Training and Development Rate
Rate Personnel functions to examine
Grievance Rate
Rate Personnel functions to examine
Grievance rate Supervisory practices Job dissatisfaction
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Step 4: Preparing Audit
Report
Table of contents Preface Statement of objectives, methodology, scope and techniques
used. Summary, conclusion and recommendation of the audit that
has been carried out. A clear and in-depth analysis of the data and information,
furnished area-wise. Evaluation, discussion, and analysis. Appendix Bibliography
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Problems in Auditing HR
Functions
No any fixed rules, systems, and regulation for auditing.
It compares past ratios, rates of turnover, expenditure etc.,
with those of other departments and organizations.
Organization cannot be taken as standard for comparison
and a decision arrived at.
Tendency to turn the HR audit into a fault-finding Process.
If not done properly, may create more troubles thansolutions.
Employee may try to pass the buck.
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Prepared By:
Tola Kanta Neupane
MBA , 2
nd
semester, IB&MS