Human Resources Audit Identifies HRM Weaknesses




Human Resources Audit is intended to evaluate the efficiency and effectiveness of the HR management function.

It will prov/ide important feedback whether the HR function is contributing to the achievement of your organization's business objectives.

Senior management needs this information in order to make strategic decisions to improve productivity.

You can use this feedback to take corrective actions and make decisions on improvement plan.

Among various purposes, you can use the Human Resources Audit information:

  • To evaluate whether performance of your HR function is as expected
  • To improve contribution of the HR function to the achievement of your business objectives
  • To comply with the country's laws and organizational policies and procedures
  • To develop the professionalism of your HR people
  • To facilitate better HR planning

It is clear that this involves examining your current HR policies, practices and strategies and to verify their effectiveness in helping your organization improve its productivity and profitability.

Comparison With Financial Audit

It differs from a financial audit which seeks to find inaccuracies or mistakes.

A financial audit looks at past events. An HR audit looks to the future, seeking to discover HR best practices that are relevant to your business activities.




Scope of Human Resources Audit

Scope Of the Audit

This is clear from what Jeff Sacht (September 2001), had put down as the scope of an HR audit.

  1. Audit Of The Functional Role of HR
  2. This consists of the Human Resource Development Systems and Procedures (HRD), Human Resource Management (HRM), HR Information Systems.
  3. Audit Of the Service Role of HR
  4. Audit Of the Compliance Role of HR
  5. Audit Of the Strategic Role of HR, and
  6. Audit Of the Financial Management Role of HR (financial ratios)

Principles Proposed by Ulrich

Dave Ulrich and his associates advocate four key principles in Human Resources Audit whereby HR professionals must ensure the existence of certain specific things.

  • Making available line management-friendly systems and procedures to help management execute their people management role. This is the technical-professional and service role of HR.
  • Equipping line management in order to work within labor relations laws and codes of conduct. This is the compliance role of HR.
  • Implementing HR strategy in each Business Unit in order to increase the value of employees to the business. This is the strategic role of HR, and
  • Running HR systems and procedures at the most cost-effective way. This is the financial management role of HR.

How Do You Conduct an Human Resources Audit?

Prepare well for the audit. Planning plays a very important part in its success.

Patricia Mclagan and team (1990) developed a model to help in preparing an audit questionnaire to audit the role of the HR function.

These are:

  • Audit of the HR development systems and procedures, covering Principles Proposed by Ulrich
  • Dave Ulrich and his associates advocate four key principles in Human Resources Audit whereby HR professionals must ensure the existence of certain specific things.
    • Making available line management-friendly systems and procedures to help management execute their people management role. This is the technical-professional and service role of HR.
    • Equipping line management in order to work within labor relations laws and codes of conduct. This is the compliance role of HR.
    • Implementing HR strategy in each Business Unit in order to increase the value of employees to the business. This is the strategic role of HR, and
    • Running HR systems and procedures at the most cost-effective way. This is the financial management role of HR.
    Dave Ulrich and his associates advocate four key principles in Human Resources Audit whereby HR professionals must ensure the existence of certain specific things.
    • Making available line management-friendly systems and procedures to help management execute their people management role. This is the technical-professional and service role of HR.
    • Equipping line management in order to work within labor relations laws and codes of conduct. This is the compliance role of HR.
    • Implementing HR strategy in each Business Unit in order to increase the value of employees to the business. This is the strategic role of HR, and
    • Running HR systems and procedures at the most cost-effective way. This is the financial management role of HR.
  • Audit of the HR development systems and procedures that they must support HR management systems and procedures, incorporating:
  • Audit of the Human Resources Information System that it must support both the HR development and HR management to achieve results, including
    • Compensation and benefits
    • Employee assistance
    • Labor relations, and
    • HR research and information systems that provide timely information for decision making
  • Audit of the service role of human resource, incorporating:
    • Tangibles such as facilities, equipment, people
    • Reliability of human resource with all their skills, competencies and individual personalities
    • Responsiveness of HR as compared to being 'reactive'
    • Assurance of quality, and
    • Empathy towards workforce
  • Audit of the compliance role of human resource whether management and HR have incorporated any codes of best practice required by legislation and other requirements
  • Audit of the strategic role of HR in:
    • Job design
    • Performance expectation
    • Organizational structure
    • Compensation policies
    • Employment policy
    • Employee participation policy
    • Business and HR information, and
    • Line-HR relations
  • Audit of the financial management role of HR, including financial ratios and scorecard measures. This has bearings on the requirement for Human Resource Managers and HR professionals to be knowledgeable about formulation of HR metrics.

    The measures refer to:

    • Planning and staffing activities
    • Recruitment efficiency, for example, the required people are recruited on time
    • Recruitment effectiveness such as people of the right quantity and quality are successfully recruited
    • Compensation measures and their effectiveness in improving productivity
    • Benefits total cost
    • Orientation cost per employee
    • Counseling/disciplinary costs
    • Man-hour lost
    • Turnover rates showing effectiveness of employee retention plan
    • Training and development costs, and
    • Organizational development measures, for example, risk taking, stress

Identifying the HR Outcomes of Human Resources Audit

These are some of the outcomes that you can expect:

  • Cost-effectiveness of the recruitment and selection process
  • Competency level of employees in the performance of their job
  • Effectiveness of training and development programs
  • Employee commitment to assigned tasks
  • Ability to achieve defined performance targets
  • Rewards and incentive system that can motivate employees to perform better
  • Strategies to retain good employees

Implementation Plan

  • Conduct meeting to agree on audit set-up.
  • Agree on:
    • scope
    • methods
    • time-table
    • performance measures
    • communication to HR, line and union(s)
    • preparation and finalization of questionnaire, and
    • preparation balanced scorecard, where deemed necessary

  • Brief departmental heads on their roles at every stage of the Human Resources Audit.
  • Conduct audit
    • combined effort/teamwork
    • carry out audit on policies, procedures, systems, information
    • conduct focus groups discussion
    • analyze and evaluate findings
  • Finalize report based on both quantitative and qualitative findings. Present the results to senior management for information and endorsement. It must state the performance gaps and propose remedial actions.
  • Obtain feedback on the Human Resources Audit.

HR Management Audit Methods

You may adopt one of the methods used by many organizations.

  • Develop standards from the statistics generated by the HR Audit. Use these to evaluate your HR activities to detect mistakes and weaknesses.
  • Make use of the elements of your HR information system to find out whether your HR activities comply with the law and organizational policies.
  • Use 'management by objectives (MBO)' approach. Compare the objectives with actual results. This detects poor performance, enabling you to take timely remedial action.
  • Using an outside party to conduct the audit depending on the situation

Choose which approach fits the situation in your organization.

Sources of Information

Ask the right questions to identify the types of records that you can refer to when conducting the Human Resources Audit.

You may end up with records such as recruitment cost data, job descriptions, employment interview records, accident records, appraisal interview records, and grievance records. Find out whether there are other relevant documents.

You need these records to gather information to facilitate a good Human Resources Audit. Inadequate or inaccurate information leads to inaccurate analysis and conclusions.


Human Resources audit can check the effectiveness of the HR function

HR Function Contribution

There is an increasing call for the HR functions to contribute towards the profitability of organizations.

The Audit findings can help you to:

  • Identify and assess HR contribution to the organization
  • Create or improve your human resource business plan
  • Build up the professional image of HR
  • Ensure that the HR function achieves its objectives
  • Make uniform human resource policies, processes and practices
  • Clarify HR duties and responsibilities
  • Verify your organization's compliance with current regulations and procedures
  • Identify risks and areas where you can reduce cost
    • An article in HR Focus quotes Adler, a leading consultant, author, and speaker in the area of HR audits:
      • "The risks that organizations explore when they conduct HR audits tend to relate to financials, the organization’s reputation, the employment brand, and the ability to attract and retain top talent."
    • It states further that risks identification and control have been the traditional drivers for the HR Audit and that from such audits, many best practices have sprung.
  • Facilitate mindset change among employees
  • Develop a user-friendly human resource information system that everybody can easily understand and implement.

HR Participation in Human Resources Audit

It is beneficial if HR is involved in the audit. It can help towards better management of the HR function.

As the Human Resource Manager or an HR professional you are expected to identify HR performance indicators that translate into cash.

Conducting a Human Resource Audit helps you fulfill this expectation.

Remember

When you make preparation and subsequently conduct an HR Audit, take into consideration:

  • its connection with your organization's overall objectives
  • your Human Resource management objectives
  • your Human Resource activities, and
  • the HR outcomes that you want to achieve.

Conducting a Human Resources audit adds value to your organization and your HR department. It helps to make the department more relevant to organizational activities.




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