The HR Audit

The HR Audit
The MEARIE Conference 2013

Nancy Chase, Partner, Risk Consulting,
KPMG LLP

June 20, 2013

2013 KPMG LLP, a Canadian limited liability partnership and a member firmof the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
1
Agenda
The HR Landscape
Industry / HR risks and challenges
Why an Audit?
Governance requirements and expectations
The audit - what it is and what it is not!
What to Expect
Criteria and sources
Approach
Results
Key Success Factors
Closing Comments
2
The HR Landscape
3
Industry Trends and Challenges
Demand for reliable, renewable, sustainable, and efficient power
generation
New technologies and operating models
Rapid pace of change
Aging infrastructure / significant investment required
Safeguarding health and safety
Aging workforce
Cost optimization focus

4
Impact on Human Capital Management
New / different skill sets required
Leveraging of new technologies
Loss of corporate memory / knowledge due to turnover
Increased competition for candidates
Less committed / more transient workforce
Expanded use of outsourcing
Limitations on performance measures and reporting
Integrating cultures and workforces
Retaining and engaging multi-generations

5
Changing Technology and Work Arrangements
Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012
6
HR is Going Mobile
Compared to 3 years ago, how is technology being used by your companys HR function?
7
Retention Key Priority
but only
believe their company
excels at retaining key
talent today

26%
believe HRs #1 focus
for the next three
years must be
retaining crucial skills
and experience within
the business

40%
8
Technology Transforming HR
Web-based and mobile
HR platforms
Technology to capture
performance reviews and
other workplace reports
Social network sites
to recruit talent
Workforce data
analytics used for
business intelligence
Delivering business
applications via the
software as a service
and Cloud models
Social media to
reach alumni
What HR technologies are becoming more common in your organization?
69%
68%
57%
54%
65% 49%
9
Six Areas of Priority
Retaining crucial skills

1
40%

Adopting new technologies

3
23%

Workforce planning

4 20%

Succession planning

5
20%

Managing a flexible workforce

6 20%

Expanding the global workforce

2
26%

10
The Big Three Challenges for HR
Balancing Global and Local
1
2
3
Managing, hiring and identifying talent globally
While retaining local knowledge and insights
Managing a Flexible and Virtual Workforce
2
While maintaining employee loyalty
And continuing to provide career development opportunities
Retaining the Best Talent 3
Maintaining employee engagement in the face of a less
committed, more flexible workforce
11
The Big Three Opportunities for HR
The power to transform HR through technology
1
2
3
Mobile, online, self-service HR to drive efficiencies and reduce costs
Interactive online training programs to cost-effectively enhance the learning
experience
Using social media to access new sources of talent and shift the companys
image to attract a new generation of employees

Data-driven HR

2
Introducing workforce analytics that provide business-critical data
Implementing advanced metrics to measure return on human capital
Using social media and other interactive tools for listening to the
employee environment and gathering data about their level of
engagement

Seizing the opportunity to transform HR into a strategic player
3
Delivering a unique and differentiated people management strategy thats
aligned with the organizations goals
Focusing relentlessly on identifying ways to add value to the rest of the
business

12
Why an Audit?
13
Impact of Risks and Trends on Governance
Fundamental role of the Board = stewardship of the organization to
create shareholder value, including overseeing the management of the
business in the pursuit of the organizations objectives
In this context, the Board is interested in:
Compliance and regulatory requirements
Human capital development strategies (from attraction to succession)
Optimizing skill sets and responsiveness to stakeholder needs
Performance management and accountability
Many of the key challenges facing the power and utilities industry relate
to human capital the Board has an obligation to understand:
How these risks are identified and managed (i.e. how effective are our HR
practices)
How HR practices contribute to the bottom line (i.e. the efficiency factor)

14
The Value of the Internal Audit
What Internal Audit Is:
independent, objective assurance
focused on areas of greatest significance or risk
helps the organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance
clearly linked to the business strategy

Internal Audit Is Not:
a policing function
interested in adding more bureaucracy / more control at all costs
purely compliance focused
15
The Three Lines of Defence

Board/Audit Committee
Senior Management
R
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g
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a
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r
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x
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n
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A
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Financial Control
I
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a
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C
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o
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M
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n
a
l

A
u
d
i
t
1
st
Line of Defence 2
nd
Line of Defence 3
rd
Line of Defence
Security
Risk Management
Quality
Inspection
Compliance
16
What to Expect
17
The Audit Process
18
Common Audit Objectives and Scope
To assess the effectiveness of human capital management practices in
helping to ensure that required critical skill sets and talents are in place
to meet current and future requirements in a cost-effective manner.
To assess the effectiveness and efficiency of HR practices in ensuring
that consistent, reliable, relevant, and timely information and advice is
provided to support HR decision-making.

Scope can include:
Attraction and recruitment
Engagement and retention
Performance management
Human capital planning / talent management strategy
Ethics and values
Labour relations
Termination and dismissal

19
Audit Criteria
The standards against which HR processes and practices are assessed.
Expressed in terms of reasonable expectations for HR processes and
practices to achieve expected results and outcomes related to human
capital management within the organization.
Developed with reference to:
recognized control frameworks (e.g. COSO)
relevant legislation / regulatory requirements
organizational policies
leading practices

Key Success Factors:
Objectives and scope focused on key risk areas
Recognized and defensible audit criteria used to assess current practices
20
Common HR Audit Procedures
Interviews
Benchmarking
HR programs
HR size and structure
Process walkthroughs
Documentation review
Control testing
Employee / stakeholder surveys
Data analysis
IT access and system testing

Information obtained through each audit procedure is analyzed against
the audit criteria to enable a conclusion.
21
Example Audit Criteria

Criteria
Plans, practices, and/or systems are in place to identify the number and type of staff and skill
sets required for current and future operations.
HR components of operational plans are linked to strategic and business requirements,
reflect available financial resources, and are based on proper demographic analyses and
other information.
Critical positions have been identified and succession and/or career development plans have
been developed for each.
Mechanisms to assess and monitor employee satisfaction and morale are in place.
The HR function provides consistent, reliable, and timely advice and information for analysis,
planning, and decision making purposes.
Opportunities to increase process efficiency are periodically identified and implemented.
Performance evaluation processes align employee goals and performance with
organizational objectives and priorities and require objective assessments of actual
performance against goals at least semi-annually.
Roles, responsibilities, and accountabilities are clearly defined, communicated, and
understood.
22
Results of the Audit
Audit report will provide commentary on practices that are working well,
as well as provide recommendations for any areas for improvement or
issues identified.
Provides management and the Board with assurance on:
the effectiveness of key controls
the efficiency of established processes
the performance of the HR function and the extent to which the organization
manages its human capital in accordance with defined policies / expectations
resolution of weaknesses identified
Additionally can showcase the contribution of the HR function in
supporting the achievement of the organizations overall objectives.

23
Key Success Factors
Be open with risks, challenges, concerns sharing this information
helps focus the audit on areas that can bring you the most value
Identify peer organizations for benchmarking purposes
Review the planned criteria and ask clarifying questions when
necessary
Advise your team of the audit and its objectives reiterate that it is not
an individual performance assessment
Identify critical documents and interviewees that will help the audit team
assess each criteria
Be open to suggestions for improvement
Develop a formal action plan to respond to recommendations, monitor
progress, and report on this progress to EMT/Board

24
In Conclusion
25
Final Thoughts.
HR audits can highlight:
How human capital strategies and practices support the businesss priorities
The true value of the HR function and how it is measured
The adoption of technologies to drive efficiencies
HR audits can also:
Provide support for additional investment
Save costs down the road by identifying areas for improvement and proposing
solutions
Use the HR Audit as an opportunity to validate what you think is working
well and to assist addressing areas of concern or uncertainty.
Remember that internal auditors are inherently advising/consulting by
the very nature of their work. The internal audit has the added benefit of
providing assurance over your HR practices.
KPMG CONFIDENTIAL
The information contained herein is of a general nature and is
not intended to address the circumstances of any particular
individual or entity. Although we endeavor to provide accurate
and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on
such information without appropriate professional advice after
a thorough examination of the particular situation.
2013 KPMG LLP, a Canadian limited liability partnership
and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity. All rights reserved.
The KPMG name, logo and cutting through complexity are
registered trademarks or trademarks of KPMG International.
Thank you

Nancy Chase, Partner, Risk Consulting
KPMG LLP
(613) 212-2817
nchase@kpmg.ca

The HR Audit

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