Human Resource Auditing NOTE with Questionaries

-

Human Resource Auditing

1. Introduction

Human resource management emerged from traditional personnel

Management in the 1980s. Traditional personnel management was viewed

largely as involving the performance of basic staffing functions, often

conducted without regard to other organizational activities and without

alignment to organizational objectives. Human resource management as a

profession evolved as an extension of the traditional personnel role into a

more effective organizational activity. Within the field of human resource

management a human resource audit is one method of evaluating or

assessing activities.

The word audit comes from the Latin, ‘audire’ (to listen). Auditing has

existed for centuries and can be traced to ancient Egypt, Babylon and

Rome. The auditor’s role was to ‘listen’ to the records and the notion of an

independent outsider ‘looking in’ is central to auditing (Higgins, H. N,

1997). It is not the function of an auditor to take the role of management;

the audit role is one of examination and of critiquing management systems

and procedures (Clardy 2004). In this study the term ‘human resource

audit’ describes the professional practice of auditing applied to human

resources management activities.

Human resource auditing is located both within and between each of the

fields of human resource management and auditing. This case has two

parent disciplines: auditing and human resource management. Auditing is

described as an investigative and information processing activity, which

evolved in response to the need for independently verified stewardship

reports (McBrayne, I 1990). Within the discipline of auditing a human

resource audit is a functional or activity audit conducted within or across a

range of defined auditing types.

Human Resource Auditing Page 1

This paper focuses on the uses of HR auditing to evaluate the contribution

of human resource management activities, as defined in the audit scope, to

a corporation’s current and future objectives. It will demonstrate that a

human resource management audit can identify areas where additional

value can be obtained from a valued, well regarded human resource

department.

2. Human Resource Management

Human Resource Management is the process of managing people in

organizations in a structured and thorough manner. This covers the fields of

staffing (hiring people), retention of people, pay and perks setting and

management, performance management, change management and taking

care of exits from the company to round off the activities.

The Society for Human Resource Management, describe human resource

management as “the formal structure within an organization responsible

for all the decisions, strategies, factors, principles, operations practices,

functions, activities and methods related to the management of people”

(SHRM 2007a).

In relation to human resource management it is observed that “every

manager is a human resource manager” (Mark A. Huselid, 1998) and that

human resource management involve “all management decisions”

emphasizing those human resource activities can also be undertaken by line

managers. They define human resource management as: The design of

formal systems in an organization to ensure effective use of human talent to

accomplish organizational goals.

2.1. Functions of HRM

human resource strategic planning, human resource planning, manpower

panning, recruitment / selection ,


induction ,orientation ,training ,management development, compensation

development, performance appraisals, performance

management ,succession planning, safety management ,staff

communication etc.

2.1.1. Human Resource Planning

HRP is the process including forecasting, developing and controlling-by

which a firm ensures that it has the right number of people and the right

kind of people, at the right places at the right time, doing work for which

they are economically most useful.

2.1.2. Recruitment and Selection

Recruitment is the attraction of capable candidates to a vacancy, whilst

selection concerns the assessment and identification of the suitability of

such applicants from this pool. Recruitment and selection offer key

opportunities for an organization to alter the type of staff it employs.

2.2.1.3. Compensation and Benefit

Employee compensation refers to all forms of pay or rewards going to

employees and arising from their employment, and it has two main

components: direct financial payments (in the form of wages, salaries,

incentives, commissions and bonuses) and indirect payments (in the form of

financial benefits like employer-paid insurance and vacations).

Benefits are forms of value, other than payment, that are provided to the

employee in return for their contribution to the organization, that is, for

doing their job. Prominent examples of benefits are insurance (medical, life,

dental, disability, unemployment and worker's compensation), vacation pay,


holiday pay, and maternity leave, contribution to retirement (pension pay),

profit sharing, stock options, and bonuses.

2.1.4. Training and Development

Training refers to the methods used to give new or present employees, the

skills they need to perform their jobs. Provision of training to the

management members as well as to employees, with the aim of enhancing

their knowledge, skill, and ability in making them always competent and

responsive in performing their duties, is considered to be one of the key

strategies that enhance the Corporation’s efforts to achieve its objectives.

2.1.5. Employee/Labor-Management Relations

Employee/Labor-Management Relations is a relationship that covers all

aspects of employment relations between the employer and the employees

in the context of organizational operations. It involves, regulation of

conditions of service, collective bargaining, management of strikes,

industrial democracy, employer-trade unions’ relations, and organization

personnel policies etc.

2.1.6. Safety and Security

Creating a safe, healthy and happy workplace will ensure that your

employees feel homely and stay with your organization for a very long time.

3. Definition of HR auditing

The word audit comes from the Latin verb audire to listen; the auditor’s role

was to ‘listen to the records’ (Higgins, H. N, 1997). Auditing has been

defined as: the accumulation and evaluation of evidence about information

to determine and report on the degree of correspondence between the

information and established criteria. Auditing should be performed by a

competent, independent person. (Clardy, A 2004).


The Human Resources Audit is a process of examining policies,

documentation, systems, and practices with respect to an organization’s HR

function. The purpose of the audit is to reveal the strength and weaknesses

in the human resources system, and all issues, which need resolution. The

audit is focused on analyzing and improving HR function in the

organization.

The audit is a diagnostic tool, not a prescriptive instrument. It will help the

managers to identify what is missing or need to improve in the organization,

but it can’t tell what else is necessary to do to address these issues. It is

most useful when an organization is ready to act on the findings, and to

evolve its HR function to a level where it’s full potential to support the

organization’s mission and objectives can be realized.

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. An

Audit involves systematically reviewing all aspects of human resources,

usually in a checklist fashion (Phillips, 1996).

An HR audit helps a company's senior management evaluate the efficiency

of its human resources department and programs. Depending on the needs

of the individual company, an HR audit evaluates the department's effects,

services and its place in the achievement of company goals and objectives.

It also assesses HR compliance with state and federal laws and determines

any weaknesses in the human resources management program. Senior

management can use the audit to make any necessary changes and evaluate

its overall approach to the human resources function (Phillips, J, 1996).

Encyclopedic Dictionary of Human Resource Management (Mark A.

Huselid, 1998) human resource audit is defined as:


‘… a series of systematic, formal procedures designed to evaluate the

efficiency and effectiveness of the firm's HR management system, compare

its performance to relevant internal and external benchmarks, evaluate the

appropriateness of this system for implementing the firm's strategic and

operational objectives, and thereafter provide a framework for improving

the way in which the firm manages people’.

3.1. Goals of the HR Audit

The review process should provide answers to several important questions

regarding the application of company’s policies. The audit’s goals are to

determine whether company’s policies are being applied consistently,

whether they are the norm for companies and branch location, and whether

they are consistently communicated to all employees. The audit should also

provide insight as to which individuals are responsible for the

implementation and enforcement of policies. Finally, it should distinguish

between policies that are applicable to non union employees, and the terms

and conditions of employment for employees who are represented by a

labour organization.

3.2. Benefits of HR Audit

Human resource audit also provides an opportunity to assess the financial

advantages and disadvantages of human resource functions, benchmark the

function, evaluate the effectiveness of the function, ensure compliance,

establish standards, promote change and creativity, bring human resources

closer to line managers, focus staff on critical human resources issues and

to improve the quality, image and contributions of the human resource

function (Walker, J. W, 1998).

Several benefits that result from an HR audit are:


Identification of the contributions of the HR department to the

organization,

Improvement of the professional image of the HR department,

Encouragement of greater responsibility and professionalism among

members of the HR department

Clarification of the HR department’s duties and responsibilities,

Stimulation of uniformity of HR policies and practices,

Finding critical personnel problems,

Ensuring timely compliance with legal requirements,

Reduction of HR costs through more effective personnel procedures,

3.3. Approaches to Human Resource Audits

There are five common approaches for the purpose of auditing of HR in any

organization:

3.3.1. Comparative approach: In this approach, another division or

company that has better practices or results is chosen as the model. The

audit team audits and compares the audited firm’s results with the best

practices of the model organization. This approach is commonly used to

compare the results of specific activities or programs. The approach is often

used with turnover, absence, salary data and staffing levels. It helps detect

areas where improvement is needed. It also makes sense to compare where

a procedure is being used for the first time.

3.3.2. External audit : In this approach, standards set by a consultant

or taken from published research findings serve as the benchmark for the

audit team. The consultant or research findings may help diagnose the

cause of problems.


3.3.3. Statistical: This approach relies on performance measures

drawn from the company’s existing information system. From existing

records, the audit team generates statistical standards against which

activities and programs are evaluated. With the mathematical standards as

a base, the team may uncover errors while they are still minor. Often this

approach is supplemented with comparative data from external sources

such as other firms, or industry association surveys. The information is

usually expressed in ratios or formulas that are easy to compute and use.

3.3.4. Compliance approach: This approach reviews past practices,

to determine if actions taken followed legal requirements and company

policies and procedures. The audit team here often examines a sample of

employment, compensation, discipline and employee appraisal forms. The

purpose of the review is to ensure that the field offices and the operating

managers have complied with internal rules and legal regulations, such as

minimum wages and equal employment opportunity laws. By sampling

elements of the human resources information system, the audit team looks

for deviations from laws and company policies and procedures. The team

can then determine the degree of compliance achieved.

3.3.5. Management by Objectives (MBO): In this management

by objectives approach, managers and specialists set objectives in their area

of responsibility. Then they create specific goals against which this

performance can be measured. The audit team researches actual

performance and compares it with the previously set objectives. They can

then evaluate the trends in this area.


3.5. Who should conduct HR audit?

The audit can be conducted by internal managers of the

organization, as external HR/Management expert or by a Labor Law

expert. Whoever is In-charge of audit must have excellent knowledge

about HR policies and should be able to maintain a check list to check the

existing policies with its present requirements. An audit conducted by

outside HR expert adds extra value to the whole process apart from

giving an insight into the whole issue.

Gaps between what are being practices and what is desirable can

always only are identified in a better way by external HR expert.

Being independent, his views are always considered to be better than

internal person’s opinion.


HR AUDIT QUESTIONNAIRE/CHECKLIST

HR Audits help to determine effectiveness of an HR department and/or HR

systems. They are a systematic, objective tool to assess regulatory or policy

compliance in the workplace. For EIC Human Resource Staff

Please put a tick () mark inside the box that indicate your level of agreement for each question

HR AUDIT question/CHECKLIST

Str

on

gly

Ag

ree

Neu

tra

l Dis

ag

ree

Str

on

gly

Human Resource Planning The organization have plans for ensuring its development I believe that HRM is a strategic tool for an organizations that helps for sustainable competitive advantage Restrict hiring, giving compensation, reducing working, early retirement are the strategy that this organization are going to be act in case of surpluses of employees exist The organization estimates the size and composition of future to ensure survival and growth for sustainable competition with others Job analysis provides information about jobs currently being done in organization Labor turnover, retirement, resignation, termination, death are the factors that decrease internal supply of organization, but in my company these all factors do not affect the human resource planning

Recruitment and Selection There is a policy in place stating the organization philosophy on recruitment and selection The policy contain procedures to guide managers through the recruitment and selection process There is a formal process in place for identifying job vacancies Recruitment was done proactively from a planning mode as well as reactively to immediate replacement and new job openings Mobility of human resources and expansion of the company are the factors that necessitate for new vacancy(recruitment) HR department does perform all initial screening of candidates Exams and personality profiles are used in the selection process of the company

Compensation and Benefit The compensation policy of the company contain procedures to guide managers on how to implement the compensation system Distribution of compensation among departments are reviewed by


management for consistency and equity before awarding increasesThe organization have a policy clearly stating its position on employees compensation(salary) The organization compensation philosophy clearly communicated to all employees The organization have a clear policy regarding employee benefits

Performance Management and Evaluation Performance appraisal do reflect an employee's positive behavior as well as results

HR AUDIT QUESTION/CHECKLIST

Str

on

gly

Ag

ree

Neu

tra

l Dis

ag

ree

Str

on

gly

The company's performance appraisal include a written plan to improve employees knowledge and skills The company's performance evaluation establish clear objectives, expectations and performance measurement criteria linked to the specific job Employee who are better performers receive higher pay increase than poor performers

Staff Socialization The HR department fulfill their responsibilities by guiding and giving a full information for the selected employees to socialize shortly with the environment The company has practiced and allocated budget for welcoming program for new selected employees

Training and Development There is a policy that states the organization philosophy on employee training & development There is a process for assessing the organizations immediate training needs and individual development needs There is also a process to assess the organization's future training needs Job skills, knowledge and ability are considered in assessing training needs New technologies, processes, products, services, market changes and community needs are considered in assessing training needs All training programs and opportunities well communicated to employees The results of training programs are monitored and evaluated The organization has to give a sponsorship for employee to study in higher education

Employee/Labor-Management Relations The organization has clearly state its philosophy on labor relations and implement guiding procedures for managers Top management is informed and supportive of labor management


strategies and goalsThere is an atmosphere of management respect for union representation Company encourage employees to play a proactive role in improving the labor-management relationship The management has assess the employees motivation and job satisfaction towards employees benefit and company's productivity There is an atmosphere of management respect for union representation The management body understand the laws that govern collective bargaining Employees are given the opportunity to exchange information with superiors as well as assimilate information being transmitted from the top down There is a program that provides for management and employee participation in the discipline process

HR AUDIT QUESTION/CHECKLIST

Str

on

gly

Ag

ree

Neu

tra

l Dis

ag

ree

Str

on

gly

Safety and Security

safety hazards reported to the appropriate personnel Workplace accidents, near-misses, injuries, and illnesses reported and investigated Measures are in place to prevent intruders from entering the grounds or buildings There is a reliable response system in place in the event an alarm is triggered Employees are encouraged to promptly report incidents, and suggest ways to reduce or eliminate risks Structures are readily accessible to disabled employees

Recordkeeping and other documentation personnel files are current Personnel files are completed accurately and on time and currently held Documents regarding employees are kept for their required duration All appropriate labor posters are displayed in an easily visible place HRIS system are being used There is training of managers and employees about personnel files, and policies and procedures for accessing them?

Employee Communication Company creates an environment of open communication between


employees and managementThe corporate capture the creative insight of employees by soliciting their ideas for improvement? Company create environment to delegate decision making to the lowest level possible

THANK YOU FOR YOUR TIME IN FILLING THIS QUESTIONNAIRE AND HELPING ME WITH YOUR VALUABLE INPUTS. M M


Human Resource Auditing NOTE with Questionaries

Business

human resource activities

human resource department

human resource auditing

term human resource

human resource planning

performance management

role of management

human resource manager