36 HR Audit: Nature, benefits, scope and approachesto HR Audit
Pragya Dheer
Learning Outcome: The Main purposes of human resource audit is :
(i) To review the system of acquiring, developing, allocating & utilizing human resource in the organisation.
(ii) To evaluate the extent to which line managers have implemented the policies & programmes initiated by top management/ human resource departments.
(iii) To identity shortcomings in the management of human resources.
(iv) To evaluate the human resource staff.
“An Human Resource Audit is like an annual health check-up, it plays a vital role in instilling sense of confidence in the management & the Human Resource function of an organisation” .
36.1. Introduction: –
The word ‘audit’ comes from the Latin verb ‘audire ’ , which means to listen. Listening implies an attempt to know the state of the affairs as they exist and as they are expected / promised to exist. Auditing as a format process is rooted in this feature of listening. Consequently, it is a diagnostic tool to gauge not only the current status of things but also the gaps between the current status and the desired status in the area that is being audited.
http://www.morismu.com/audit-and-assurance.html
Auditing has been a routine exercise in the area of finance, especially because it is a statutory obligation. However, in case of Human Resource there is no legal binding to adopt auditing. Some of the companies nevertheless prefer to have Human Resources Audits.
The human resource audits is based on the premise that human resource are dynamic & must continually be redirected & revitalized to remain responsive to the ever changing needs. Human Resources Audits are not routine practices aimed at problem solving. Instead of directly solving problems, Human Resource audits like financial audits, help in providing insights into possible causes for current & future problems.
A well run and managed Human Resource department can increase morale, reduce employee turnover and help a business run smoothly and is many cases remain competitive. Employees should be seen as the most valued asset of a company & treated accordingly. Because of this, to make sure a Human Resource department is operating to its best capacity, it is important to run a periodic Human Resource Audit.
36.2. Meaning & Definition:
Human Resources are the people in an organisation, so a human resources audit is a look at those people and the processes that put them in place to make sure the system is working efficiently. An HR audit also goes beyond looking at the hiring process into areas like employee retention, budgeting, training, employee compensation, management / employee relation & virtually any process or practice, within the company that affects its people.
A periodic Human Resources audit can qualify its effectiveness within an organisation. Human Resources audits may accomplish a variety of objectives , such as ensuring legal compliance ; helping maintain or improve a competitive advantage ; establishing efficient documentation & technology practices & identifying strengths & weaknesses in training, communication & other employment practices.
36.2.1. Definition:
“Human Resources Audit is a comprehensive method of objective & systematic verification of current practices, documentation, policies & procedures prevalent in the HR system of the organisation“. An effective Human Resource Audit helps in identifying the need for improvement & enhancement of the HR function. It also guides the organization in maintaining compliance with ever – changing rules & regulations. Human Resource Audit, thus helps in analyzing the gap between ‘what is the current HR function ‘ and ‘ what should be / could be the best possible HR function ‘ in the organisation.
“Human Resources Audit means the systematic verification of job analysis & design, recruitment and selection orientation & placement, training & development, performance appraisal & job evaluation, employee & executive remuneration, motivation & morale, participative management, communication, welfare & social security, safety & health, industrial relations, trade unionism & disputes & their resolution”. HR audit is very useful to achieve the organisational goal & also is a vital tool which helps to assess the effectiveness of HR functions of an organisation.
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“Human Resources audit implies critical examination & evaluation of policies, programmes & procedures in the area of human resources management. It is a periodic review to measure the effectiveness of human resource management and to determine the steps required for more effective use of human resources”. Human resource audit involves a formal, systematic & indepth analysis , investigation & comparision.
36.3. Need for Human Resource Audit:
To make the show successful and increase the effectiveness of the organisation, management found the solution in competent man power. Human resource development functions should be performs as per the planning & expected results. To ensure & not to take chance the organisation undertake HR audit due to following reasons:
36.3.2. As an organisation grows, continuous feedback is required to improve the performance of its personnel. Human resources audit provides the required feedback; it is all the more necessary in a diversified & decentralized organisation.
36.3.3. Trade unions have become more powerful & are playing more active role in human resource management. They often question management’s competence in industrial relations. Management can meet this challenge through human resource audit.
36.3.4. Human Resource audit is becoming necessary due to rising labour costs & increasing opportunities for competitive advantage in human resource management.
36.3.5. In order to protect employee interest, central & state governments intervene more often & more extensively. Human resource audits can be helpful in avoiding such intervention.
36.3.6. Growing proportion of technical, professional & women employees creates more difficult problems in human resource management. Human resource audit is required to tackle problems.
36.4. Benefits of Human Resource Audit:
The Human Resource Audit can be carried out by a suitably qualified person of the organisation. The Human Resource Audit is a tool for evaluating the personnel activities of an organisation. It gives feedback about how well the Human Resource specialist and the line managers who practice Human Resource applications are doing. It acts an overall quality control check on Human Resource function & the evaluation reveals how these activities support the overall strategy of the organisation. The benefits that results from such an audit are:
36.4.1. To identity the contribution of Human Resource dependent on the organisation.
36.4.2. To identity & take corrective actions on the shortcomings / and or weaknesses that were noticed as a result of the audit.
36.4.3. To improve the performance of personnel department & the performance of line managers who practice Human Resource management in day to day discharge of their duties.
36.4.4. It clarifies Human Resource department’s duties & responsibilities.
36.4.5. To locate critical personnel problems & take necessary action to resolve them.
36.4.6. To find out how Human Resource department can become more effective.
36.5. Limitations of Human Resource Audit:
Human Resource audit is the examination & verification of Human Resource aspects. It is a very useful process. There are many advantages of Human Resource Audit but its limitations are following:
36.5.1. Lack of Proper Response from Employees:
During audit process, the employee thinks that this is unnecessary activity & it may go against them so they hesitate to share information with auditors. Some give half response or sometimes avoid giving information. As a result there is no output from the audit.
36.5.2. Special care is needed to conduct Human Resource Audit:
When conducting Human Resource Audit, Special care should be taken regarding selection of auditors, activities for audit selection & timing for audit. The trained auditor should be selected on the basis of their experience & proven past records. The activities & timing for audits are to be decided so that it should not affect the audit as well as routine work of the organisation.
36.5.3. Shortage of Time:
When audit is conducted, the auditors are given very less time to audit a lot of human resource related activities. The auditors do not find sufficient time to study all activities & collect data. They carry out the work hurriedly & they are likely to given half or wrong report sometime.
36.5.4. High Cost of Conducting Audit:
During audit process a lot of arrangements are to be made for the auditors. For them lodging, boarding, transportation, entertainment & fee arrangement are to be made. The total cost for conduct audit for a fortnight period, a large amount is involved. It adds to the costs of the organization & profitability goes down.
36.5.5. Evaluation of Units & Systems not for Individuals:
In Human Resource Audit the activities or subsystem involved are evaluated. The efforts are put to find out the gap between planning & actual work carried. The comparison of these two finds the deviation in activities. But efforts are not put to evaluate the caliber required & possessed by the individual employee.
Despite its limitations, Human Resource Audit is very useful. It provides information to assess all aspects of Human Resource and helps to improve the overall effectiveness of the organisation.
36.6. Scope of Human Resource Audit:
The scope of human resource audit is very wide. It covers the management of people at all levels. It is not limited to a review of the performance of human resource department. Human Resource audit can be conducted to evaluate the policies, procedures and programmes of human resource management. It can also be directed at the results (both achievements and failures) in the area of human resources.
36.6.1. Auditing Human Resource Policies:
Human resource policies are broad statements of what should be done in the area of human resource management. The policy audit attempts to judge the coverage of human resource policies. It analyses the policy formulation, policy communication and policy change.
36.6.1.1. Policy Formulation:
The auditor should seek answers to these questions i.e.
- Who establishes policy?
- Who suggest changes in the policy?
- What type of research is carried on policy?
- Are employees consulted in the formulation of policies? etc.
36.6.1.2. Communication of Policy:
The way policies are communicated to employees should be examined. Wherever policies are written in the form of a manual, the auditor should review the policy manual. He should find out whether it is easily available to and understood by the staff.
36.6.1.3. Consistency of Policies:
Policy audit must reveal whether human resource policies are consistent with the organizational objectives and current thinking. There should be no contradiction between different policies.
Thus, policy audit provides answers to the following questions:
- What are the company’s human resource policies?
- How are these policies formulated?
- How are these policies communicated?
- How will people understand these policies?
- Are these policies consistent with organizational objectives and current thinking?
36.6.2 Auditing Human Resource Programmes:
Human resource programmes are the means for implementing human resource policies. Human resource programmes state how the human resource activities are to be carried out. Audit of human resource programmes help to reveal well the human resource policies are implemented. For instance, evaluation of job descriptions, application blank, selection tests and employment interviews may record the need for revision of either of these because they have become outdated.
The human resource auditor must ensure that human resource procedures and practices are consistent with the human resource policies. He should also find out whether any deviation from the established human resource programme has taken place.
Thus, audit of human resource programmes seek answers to the following questions:
- What are the standards human resource procedures and practices?
- How are these procedures and practices drafted?
- How are these procedures and practices communicated?
- Are these procedures and practices consistent with human resource policies?
- What controls exist for ensuring uniform application of these procedures and practices?
Source: Dale Yoder: Op. Cit., page. 719.
36.7. Approaches to Human Resource Audit:
The following approaches are adopted for purposes of evaluation.
36.7.1. Comparative Approach:
In this, the auditor identifies competitor’s company as a model. The results of the organisation are compared with those of the model company. Benchmarks for comparison may be decided by an outside consultant.
36.7.2. Outside Authority Approach:
In this, auditor standards set by an outside consultant as benchmark for comparison of own results.
36.7.3. Statistical Approach:
In this, statistical measures of performance such as absenteeism & turnover rates are used to assess performance which is considering the company’s existing information.
36.7.4. Compliance Approach:
In this, auditor review past action to calculate whether these activities comply with legal requirement & industry policies & procedures.
36.7.5. Management by Objectives (MBO) Approach:
This approach creates specific goals, against which performance can be measured , to arrive at final decision about organisation actual performance with the set objectives.
36.8. Human Resource Audit process:
Audit was applied in human resource for smooth functioning. It also check & verify HR practices to measure the health of human resource functions. The Human Resource process is a complicated and in it a number of activities or steps are taken in sequence. It is time consuming process. The steps involved in Human Resource audit are interrelated. Each step is logically depending upon its preceding steps so that the organisation gets a clear view of health of HR function. The steps involved in process are:
36.8.1. Framing of policy:
36.8.1.1. Policies for Human Resource Managers:
For development of human resource the function to perform are to be decided in discussion with other managers responsibility of HR, fixing job, responsibility & accountability, expected standard of performance, competencies needed, duration for performing such functions, cost involved are to be decided in the policy.
36.8.1.2. Audit policies for conducting audits:
Areas of Human Resource audits, selection of auditors, schedule for conducting audit, responsibility for conducting Human Resource audit, procedure for conducting audit, and cost involved in audit are to be decided for smooth functioning of audit work.
36.8.1.3. Preparation to implement the Audit:
The Auditors are to be selected as per the policy guidelines. The audit schedule for the whole year is to be finalized & communicated to all concerned. The responsibility for audit is fixed & budget is made available for auditors expenses.
36.8.2. Pre – Audit Preparations:
The auditors appointed for conducting Human Resource audit prepare themselves for conducting audit. They go through published work of the company such as Human Resource manuals, reports, handbooks, training records, forms & other for collecting relevant information. The Human Resource manager should supply these records & reports to the auditors. If not done so then a pre – audit information request is to be forwarded to the client who is responsible for audit in the company.
36.8.3. Conducting Human Resource Audit:
According the schedule prepared, the auditors visits the different locations in the company to get ideas regarding various aspects related to human resource. The auditors may be internal team or outsiders. The necessary arrangement is to be made for their lodging, boarding & transportation of the auditors. The auditors check various records, reports, conduct interview of employees & managers who are connected with particular activities. Records & reports related to selection, training opportunities offered, promotion, transfers, rewards & recognitions, compensation packages, grievances related to these topics are checked & verified.
36.8.4. Preparation of Audit Report:
After conducting audit with the help of interviews, record checking, questionnaires, referring to various published works of the company, workshop & observations, the auditor prepare a audit report. This team of auditors discusses every issue they have come across & final report is submitted to client. During the audit whatever discrepancies observed are recorded & highlighted along with the activities, department & person responsible in the report. The report suggests remedial steps for discrepancies removal.
36.8.5. Follow up Actions:
After submission of the auditor’s report, the client is asked to take corrective actions so that the discrepancies can be removed in time. The objective is to bring improvement in Human Resource functions & policy. A time limit is given to the concerned manager. On expiry of such period, auditor expect response from client, if they don’t get it corrective response are again sent to the client and if no attention is paid on it, then report is done to the head of the company to apply corrective actions suggested in human resource.
Human Resource Audit, thus, contributes towards the best possible use of internal resources & maximizing the effectiveness of human capital in the organisation. At the same time, it is useful in streamlining the Human Resource process & practices with the industry best practices & standards.
Summary:
Human resource records are the documents and files concerning employees. It facilitates human resource decision and provide legal evidence which pertains to employment, training, compensation, industrial relations and other areas of Human Resource Management. Human resource audit is actual evaluation of human resource policies, programmes and results. After completion of audit the human resource auditor submits a written report containing actual data and recommendations.
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