Human resource (HR) auditing as a fundamental activity of strategic and operational management should be diagnostic, predictive, and action oriented. HR audits have evolved from a simple checklist of dos and don’ts to an objective, and systematic process that is an integral part of the internal controls, and risk management function of organisations.
What is a HR audit?
A HR audit is an objective examination of a company’s HR practices, policies and procedures. As a process, it’s a systematic evaluation undertaken to provide assurance to management and other stakeholders that: 1) compliance and governance requirements are being met; 2) business and talent management objectives are being achieved; 3) human resource management risks are identified, assessed, and managed; and 4) the organisation’s human capital adds value.
Why do a HR audit?
Although organisations can undertake audits of their HR activities for any number of reasons, compliance is the most frequently reported goal. The risks associated with misaligned, mismanaged, and unlawful employment practices are powerful motivators for embarking on the audit trail. Other equally important objectives are:
- Ensuring alignment of HR management and employment practices with the organisation’s business objectives.
- Assessing the outcomes of the organisation’s employment processes, policies, practices, and procedures.
- Developing effective human capital measurements and HR metrics to allow the organisation to calculate and measure the value added by human resources and benchmark best practices.
- Uncovering liabilities, vulnerabilities or opportunities in the HR department and recommending improvement solutions.
- Assessing and managing employment related fraud.
- Developing HR auditing procedures that become an ongoing and sustainable element of the organisation’s internal controls and risk management programme.
- Determining a pay structure and how to best allocate employee compensation or benefits.
Given that employee talent is a recognised driver of business success, regular HR audits can help companies adapt to changing employment laws and business practices. Efficient and effective HR management practices are therefore a necessary requirement for achieving business goals and objectives.
Types of HR audits
HR audits are not a “one size fits all” activity. There are several types of HR audits, each with different objectives and data needs. A compliance audit, for example, assesses compliance with national laws, internal polices and other regulations to ensure that the HR department operates within established legislative and other guidelines. In contrast, a best practice or benchmark audit compares a company’s HR practices to the HR practices of another organisation in a similar industry sector. The findings are used to assist the organisation in maintaining or improving its HR operations. A competitive audit evaluates the compensation strategy of a company to determine its effectiveness to attract and retain talent in a competitive market.Policy audits are areview of HR policy to determine policy effectiveness, the need for new policies or revisions to existing ones. HR function audits evaluate specific HR functions to identify deficiencies, while strategic audits analyse an organisation’s HR systems and processes to identify areas for improvement. This type of audit is useful for determining if HR practices align with organisational goals. Clarity about audit type is an important ‘first step ‘consideration.
The Audit Report
HR audit findings, presented in an audit report, often include proprietary and confidential information. All the quantitative and qualitative measurements and metrics used to assess HR practices, policies and procedures form part of the audit report. Reports can also include an assessment of results by comparing actual results against projected results, budgets, and internal and external standards; a description of the activities, behaviors, and internal controls that are needed to maintain or improve future results. Traditionally, audit report findings were shared only with senior management. Such restricted access is changing. Demands for greater transparency from external stakeholders are pushing the trend of making audit report findings available to a wider audience of non-management stakeholders that may include- shareholders, potential investors, unions, NGOs, and other interested parties. Information and data visualization technologies have improved the ease with which report findings can be accessed and shared.
Finally, if you are planning to undertake an audit of your HR activities, give some though to the type of audit you wish to undertake, the objective(s) of the audit, the HR functions, or activities to be audited, and finally the audit report- its content and accessibility options. A planned approach to designing and conducting a HR audit is a proven technique for process optimisation.