Wednesday, August 1, 2007


The Human Resources (HR) Audit is a process of examining policies, procedures, documentation, systems, and practices with respect to an organization’s HR functions. The purpose of the audit is to reveal the strengths and weaknesses in the human resources system, and any issues needing resolution.
Typically the basic reason why organizations prefer to conduct an HR audit is to get a clear judgment about the overall status of the organization and also to find out whether certain systems put in place are yielding any results. HR audit also helps companies to figure out any gaps or lapses and the reason for the same. Since every company plans certain systems and targets, an HR audit compares the plans to actual implementation.

The audit works best when the focus is on analyzing and improving the HR function in the organization. The audit itself is a diagnostic tool, not a prescriptive instrument. It will help an organization to identify what it is missing or needs to improve, and 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. An audit is also a means by which an organization can measure where it currently stands and determine what it has to accomplish to improve its human resources function. It involves systematically reviewing all aspects of human resources, usually in a checklist fashion, ensuring that government regulations and company policies are being adhered to. The key to an audit is to remember it is a learning or discovery tool, not a test. There will always be room for improvement in every organization.
This concept of HR audit has emerged from the practice of yearly finance and accounting audit, which is mandatory for every company, to be done by external statutory auditors.

Organizations undertake HR audits for many reasons:

providing feedback on the value of the contribution of the HR function to the organization’s strategic business objectives

assessing the quality of HR practices, policies and delivery

reporting on extent of statutory HR compliance and remedial action required

assessing HR and line management relationships and ways these can be improved

setting guidelines for establishing HR performance standards and

identifying areas for change and improvement with specific recommendations

Who should conduct the audit?

The team that is responsible for the audit should represent a cross-section of the organization’s staff, including line staff, middle and upper management and those responsible for HR functions.

The Process:

The audit process consists of a series of questions covering the eight primary components of the HR function:

Roles, head count, and HR information systems (HRIS)
Here questions related to the following are asked
· Number of employees currently on staff. Are they regular, temporary or probationary
· Term of probationary and temporary periods
· The current employee status, responsibility and their job descriptions,
· No. of contract employees at work place.
· How the employees are classified


Here questions related to the following are asked
· Recruitment procedures for hiring people
· Recruitment sources used (eg: advertisement, referrals, personal contacts), screening and selection of candidates,
· Documentation of the Recruitment process,
· Interview process adopted (individual, sequential, panel),
· Check and documentation on references, final authority to hire and offer of employment , Turnover rate in the organization
· Negotiation of compensation packages


Here questions related to the following are asked
· Personnel files held by organization and their storage
· How are the following documented by organization?
Þ Hiring: Application, Interviewing and reference checks
Þ Compensation and Benefits
Þ Transitions
Þ Paid Time off
Þ Training
Þ Work History , Assignments , Accomplishments
Þ Performance evaluation and management
Þ Termination
· Interface between HR and finance
· Payroll service used by the organization
· Training of managers and employees about personnel files , policies and procedures, HRIS system being used

Training, development and career management

Here questions related to the following are asked
· New employee orientation
· Formal training program for employees and managers
· Training and development initiatives in organization
· Managers and Supervisors preparation for their roles
· Average organization expenditure on employee training and development
· Employee career planning, progression and opportunities

Compensation and benefits

Question related to compensation
· Administration of compensation program, setting of salaries and wages
· Job rating and re-evaluation and updating
· Salaries surveys conducted and pay ranges revision
· Merits integration in performance evaluation, Bonus system
· Communication of communication packages
Questions related to Benefits
· Health insurance program and eligibility requirements
· Health and wellness benefits offered (eg: - dental, vision, disability, life insurance, employee assistance program and other wellness benefits)
· Pension and retirement plan
· Paid Time off system
· Vacation schedule and eligibility requirement
· Cap limit to the amount of vacation accrued
· Treatment of unused accrued vacation

Performance measurement and evaluation
Here questions related to the following are asked
· Past and current appraisal system in the organization
· Type of appraisal process used
· Training of Performance evaluation system
· Role of supervisor/manager in performance appraisal
· Performance management in the organization
· Usage of the process (frequently/rarely)

Termination and transition
Here questions related to the following are asked
· Conditions of termination of employee
· Procedures used for Termination for Cause, Job closure, Resignation
· Approvals required, Checklists and legal reviews for termination
· Exit interview process conducted
· Documentation related to employee transitions
· Communication of termination of employees

Legal issues and personnel policies
Here questions related to the following are asked
· Personnel policies currently being used, their review and modification.
· Disparities between policies and practices
· Organization responsibility towards legal and employment questions
· Dealing of Employee grievances

The team works to collect information to answer the HR audit questions in each of these categories. The focus is on how these activities and tasks are actually performed in the organization. The first step is to collect all the pertinent information. The process of getting information, in and of itself, can be quite informative.

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