HUMAN RESOURCES AUDIT

DEVARAJAN DASA ASSOCIATE PROFESSOR, DEPARTMENT OF COMMERCE, PSG COLLEGE OF ARTS AND SCIENCE, COIMBATORE-14 TAMILNADU Abstract A human resource audit aims at ascertaining the effectiveness of the HR department and its functions. The basic goal of an HR audit is to find out the HR interventions that will increase the firms competitive advantage. It also ensures the compliance of the HR department with the goals, plan and policies of the organization. It a certain the HR policies followed uniformly across the entire organization, it helps in determining not only the efficiency of the HR policies and practices but also their cost to the organization .It helps in assessing the role and contribution of the HR functions in the overall strategic planning of the organization. It assists the organization in the effective formulation of HR strategies which will align well with the overall corporate strategy. It is similar to traditional auditing expect that the latter focuses on financial functions while the former focuses on the HR functions of the organization. The information in an HR audit relates to the people, structures and HR philosophy of an organization. It covers HR functions like employee staffing, training and development, compensation, maintenance, including motivation, communication and leadership, safety and health, and industrial relations. It also focuses on the HR information system, HR research and record keeping, returns on HR investment and policies, procedure, and regulatory compliance. Many organization now realize that their most important and expensive assets are their human resources. They recognize the need to exercise better control over these assets that they make an optimum return on the HR investment. In this regard, the HR audit is seen by the organizations as an invaluable tool to inculcate discipline and accountability among the HR people. The support of the top management is essential for the success of an HR audit. The management must exhibit its commitment to the HR audit through its mission, vision and other statements and policies.The next essential requirements clarity in the objectives of HR auditing. The HR audit objectives alone guide audit plan and process. The organization must decide in advance whether it wants to have a comprehensive or programmatic or restrictive objective for the audit function. The HR audit must be persons of high integrity, value and knowledge, especially in the case of internal auditors. Their recommendations must be highly objective and impartial in nature, otherwise they may not find acceptance among the employees. The organization may make use of the services of external consultants to pre-empt the accusations of bias and prejudice in the audit process and report.

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Introduction A human resource audit aims at ascertaining the effectiveness of the HR department and its functions. The basic goal of an HR audit is to find out the HR interventions that will increase the firms competitive advantage. It also ensures the compliance of the HR department with the goals, plan and policies of the organization. It a certain the HR policies followed uniformly across the entire organization, it helps in determining not only the efficiency of the HR policies and practices but also their cost to the organization .It helps in assessing the role and contribution of the HR functions in the overall strategic planning of the organization. It assists the organization in the effective formulation of HR strategies which will align well with the overall corporate strategy. It is similar to traditional auditing expect that the latter focuses on financial functions while the former focuses on the HR functions of the organization. The information in an HR audit relates to the people, structures and HR philosophy of an organization. It covers HR functions like employee staffing, training and development, compensation, maintenance, including motivation, communication and leadership, safety and health, and industrial relations. It also focuses on the HR information system, HR research and record keeping, returns on HR investment and policies, procedure, and regulatory compliance. Definitions: A human resource audit is defined as an investigative, analytical and comparative process that attempts to reflect the effectiveness of the human resource functions. - Jack J.Phillips The human resource audit is defined as an investigation into size, skill, structure, and all other issues surrounding those currently employed by the organization and its future human resource needs. - David Campbell Features of an HR Audit: The primary goal is to assess how efficiently the HR functions were performed by the HR department. It is an independent, objective and critical examination. It gathers data about the people, process, structure and policies of an organization. It establishes a benchmark for measuring the actual performance of the HR department. It detects non-compliance on matters concerning statutory provisions, corporate goals and HR policies while performing HR functions. It is done by the internal employees or the external consultants. The report is normally sent to the senior management. It carried out at regular intervals is the organization. It may be conducted once in a year. Objectives of an HR Audit: To study about identify the degree of efficiency in the performance of the HR department and implementation the HR policies and practices of the organization. To Study about determine the HR functions according to the established practices and procedure of the organization. To study about measure the HR departments record of compliance with the statutory provisions regarding hiring, compensation, safety and health, dispute settlement, etc. To study about discover the areas where cost savings could be achieved in HR activities. To study about an improved control over and check on all internal operations of the organization. To study about create a sense of accountability, discipline and provide feedback to the employees. Page 91

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Levels of an HR Audit: The primary purpose of an audit is to ensure that the human resource management processes are effectively united with the corporate strategies. HR audit needs to be done at various levels of organization. Top Level Organization Since the information for the department are issued by the people at the top level of the management, it is essential to include top-level activities within the field of an HR audit. The HR auditor must ascertain the relevance, completeness and accuracy of the top level plan, mission, vision and other directives which provide a broad framework and directions for the HR activities of an organization. HR audit at top level usually focuses on issues relating to the designing of organizational structure, institution of reporting and accountability structure among the various levels of management. In addition to the information available through policies, documents and other reports of the organization, the HR auditor can also collect supplementary information through interviews with the top managers. The focus of such interviews should be on ascertaining the present and future plans of the top management for the organization. Middle Level Organization In this level organization to HR-related activities like performance evaluation, on-the-job training, and grievance identification and resolution are done mostly at the departments where employees are occupied. The HR auditor should examine and evaluate critically the extent to which middle level managers apply the HR policies and practices while dealing with the employees. The rate of labour turnover is affected more by what middle level managers do in their own department than what anyone at the HR department is doing. The middle level managers can be interviewed as part of the HR audit process to gather their views about the HR policies, practices and programmes of the organization. They may also be encouraged to share their views about the performance of the HR department, especially in the areas of recruitment and selection, training and so on. An HR audit at this level may focus on issues concerned with the identification and description of authority and responsibilities of employees of various departments, preparation of job profile of staff members, and identification of possible HR cost-saving areas. Low Level Organization In authenticity the main focus of the HR audit would be on the HR department, which performs all the HR activities of the organization. The HR audit is primarily concerned with the way the HR department is carrying out the activities assigned to it. It also assesses the competency levels of the staff of the HR department by assessing how well or how badly they performed their tasks and the net result of their actions. An HR audit at this level generally focuses on the design and development of various human resources policies and procedures and proper functioning of the human resources department. HR Audit Process 1. Determining the objectives 2. Developing a rough audit plan 3. Gathering data 4. Determining the data collection 5. Compact the audit plan 6. Gathering complete data 7. Developing audit report 8. Achievement based on the report Volume:01, Number:08, Dec-2011 : RJSSM www.theinternationaljournal.org Page 92

Determining the objectives: The HR audit process involves making a decision regarding the objectives of the HR audit. The HR audit may attempt to know the efficacy of the HR policies, procedures and practices, the regulatory compliances by the HR department. An unambiguous objective can keep the HR auditor focused and help him choose relevant information from the numerous reports and personnel files. At this stage, the organization can also decide to entrust the task of HR audit to internal HR specialists or to external consultants. When it decides to assign the job to the external auditor, the organization should set the terms and conditions in writing. Developing a rough audit: The HR auditor prepares a rough sketch about where he should begin, how he should proceed, which areas must be focused on and which sources must be used. A rough audit plan would help the auditor foresee the likely hurdles in the audit process. This kind of a rough audit also facilitates the determination of men, money and material required for the entire audit exercise. The auditor can also identify tentatively the sources to be tapped for gathering relevant information.

Determine the objective

Develop a rough audit plan

Gather data

Decide the data collection

Firm up the audit plan

Gather the complete data

Develop the audit report

Achievement based on the report

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Gathering data: Now, the auditor gathers information about the external and internal factors. Regarding the external environment, the HR auditor may seek information on the competitive positions of the organization, an industry overview and the regulatory environment within which the organization normally functions. The auditor may also gather specific information about the present competitive strategy of the organization, the labor market conditions and shifts, the intensity of competition, the long-term threats and opportunities for the industry and the organization, the environmental constraints in the form of statutory regulation, the political factors, the socio-cultural factors and their impact on staffing and other HR functions. Determining the Data Collection The organization also finalizes the instruments of data collection like the interview schedule, questionnaire, documents reviews, focus groups and observation. Depending upon the nature, intensity and size of the data required, the selected tool should facilitate. The accurate identification of performance gaps and impending practices The recognition of good practice which need to be strength ended The detection of legal obligations and the organizations risk of non-compliance with relevant workplace legislation. The identification of misalignment between corporate strategy and HR strategy. Finalizing the Audit Plan Based on the background information gathered and the experienced gained, the HR auditor may make final changes in the rough audit plan. This may include changes in the audit goals, sources of data, and techniques of data collection. After thoroughly revising the rough draft, the auditor should now firm up the tentative plan as the final audit plan. The final audit plan must have complete clarity on the audit objectives, the timeframe for auditing, the target departments and the people, the type of data needed, the data collection technique to be used for each sources and the cost of the intended exercise. After finalizing the audit plan, the HR auditor would now proceed with the data collection process. Gathering the Complete Audit Data The crucial phase of any audit process is data gathering. Guided by the audit objectives and plan, the HR auditor must compile all relevant information from different sources. The data collection process is influenced by the scope and focus of audit, the end-user requirements and the ultimate application of results. The HR auditors may conduct interviews with the senior management to gather the relevant information. The interview mode permits the auditor to interact with the management so that he can gain an insight into their thought and opinions about the various aspects of the HR management in the organization. As regards the line manager, the auditor may employ questionnaires and interviews both to assemble the necessary data. For instance, the auditor may first collect information from all the line managers through questionnaires, and then if he desire more information from a few line managers, he can conduct personal interviews with only those managers. Finally, the Hr auditors may use comprehensive questionnaires for gathering necessary data from the employees of HR and other pertinent departments. Once the auditor gather all relevant information about the various aspects of the HR management, he must now analyse those information on the basis of the final audit plan. The primary purpose of such an analysis is to be the strengths and weaknesses of the existing system.

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Developing an Audit Report After completing the review of relevant documents and personnel interviews at various levels, the auditor would begin the task of developing a comprehensive audit report. The audit report usually covers all the key areas of HR operation like hiring, training, compensation, it may also deal with other HR-related factors like regulatory environment, global HR strategy, functional utilization of HR, strategic KR planning and management, work environment, legal environment, socio-technical integration, job designs, internal and external relations, decision-making style, communication style, the degree of decentralization, and the human resource information system (HRIS). Usually, the audit report provides information on three broad headings, namely the strengths of the existing HR system, the areas of concern to be addressed by the authorities, and the areas where more information is required for an effective audit in the future. While writing the report, the auditor may classify the information under a few broad categories as follows. Urgent and important needs (UI) Not urgent but important needs (NUI) Neither urgent nor important needs (NUNI) Important opportunities needs (IO) It is desirable if the auditor employs the SWOT (strengths, weaknesses, opportunities, and threats) technique for the analysis and presentation of information for a better exposition of facts and figures. Act Based on the Audit Report This is the final stage in the audit report, and the entire purpose of the audit report would be served only through action taken on its basis. The organizational response to the audit report would depend on the HR auditors recommendations. The actions may emerge in different forms like changing the HR Policies and practices, resting the priorities of the HR department and HR activities, realigning the corporate and HR strategies and initiating necessary action against the people for lapses and performance gaps. Approaches to HR Auditing: Though the HR audit is a recent concept, it has emerged as an invaluable technique for improving the efficiency of the HR management of an organization. Due to the growth of service sector in the economy, the importance of human resources has increased enormously in the organizations, and this has hastened the process of the introduction of HR audit in those organization. The role of the HR audit in these firms is to steamline the managerial control over HR activities. Based on the role and utility of the HR audit, two major approaches have been developed. Internal Approach External Approach Internal Approach: The HR audit focuses on examining the effectiveness of the contribution of the HR department to the internal operations of the organization. From this perspective, the emphasis of the HR audit in on the cost benefit of the HR activities measured in terms of organizational at the lowest cost, speed and reliability are some of the criteria used in its activities. Quantity, quality, cost, speed and reliability are some of the criteria used in measuring the performance of the HR department in this method. External Approache: The emphasis of the HR audit is on measuring the contribution of the HR activities to the external performance of the oaganization. For the instance, the organization may obtain competitive advantage Volume:01, Number:08, Dec-2011 : RJSSM www.theinternationaljournal.org Page 95

in the market through the efficiency of the HR department. When the HR department is able to reduce the cost of hiring, training and compensation, it provides the organization the opportunities to vary the prices of the goods or services to its advantage. Certainly, the ultimate benefit of efficiency of any operation must come only from outside the organization. Essential of HR Audit: Many organization now realize that their most important and expensive assets are their human resources. They recognize the need to exercise better control over these assets that they make an optimum return on the HR investment. In this regard, the HR audit is seen by the organizations as an invaluable tool to inculcate discipline and accountability among the HR people. Top Managements Commitment: The support of the top management is essential for the success of an HR audit. The management must exhibit its commitment to the HR audit through its mission, vision and other statements and policies. Clarity in HR Audit Objectives: The next essential requirements clarity in the objectives of HR auditing. The HR audit objectives alone guide audit plan and process. The organization must decide in advance whether it wants to have a comprehensive or programmatic or restrictive objective for the audit function. Auditors Integrity and Efficiency: The HR audit must be persons of high integrity, value and knowledge, especially in the case of internal auditors. Their recommendations must be highly objective and impartial in nature, otherwise they may not find acceptance among the employees. The organization may make use of the services of external consultants to pre-empt the accusations of bias and prejudice in the audit process and report. Effective Communication: The management must ensure that there is an effective flow of the information at all levels of the organization. All information about rules, regulations, statutory provisions and policies concerning HR functions must be circulated widely among all the staff members connected with those activities. Regularity and Continuity: The HR audit should not be viewed as a one time activity. It must be done on a regular basis with prior information to the employees. Only when it is done routinely would it force the employees to observe self discipline, otherwise, their actions are sure to be criticized by the HR auditor. References: Human Resource Development John P Wilson, Published by Vinod vasishtha for kogan page India private Limited Delhi. Human Resource Management Prof.P.k.Gupta, published by A.R.EMM International Human Resource Management D.K.tripathi, Wisdom Publications Delhi Designing and Managing Human resource System - T.V.Rao, Oxford & BH Publishing Company (P) Ltd Delhi Human Resource Management Dr. N.K. singh Nikash Arora Seema Arora, Global Vision Publishing house Delhi Volume:01, Number:08, Dec-2011 : RJSSM www.theinternationaljournal.org Page 96

Human Resource Management Mirza S Saiyadain, Tata Mcgraw hill Education (P) ltd Delhi Human resource Management At Work - Mick and Marchington Adrian Wilkinson, Pinnacle Delhi Human resource Management Competitive Advantaged - K.Ramesh, B.S.murthy K.Sivaran Krishnan, G V V Vijaya Kumar Anuraj Jain for Excel Books - Delhi ***

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