HR Audit: An Essential Improvement Tool

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The human resources department is often tagged as an “evil” in the organization by the employees and a “soft area” by the management. Despite such tags, the HR function has evolved and broadened in scope and functionality and has assumed varied roles such as the “people’s people,” “change agent,” and “strategic business partner,” to name a few. These new approaches to HR have opened new horizons for the HR function and have given HR professionals the opportunity to establish better credibility both at the strategic and functional level.

The paradigm of HR function has shifted from qualitative to quantitative in nature. HR today speaks the language of numbers: the same language management speaks, understands and expects from its HR department, thus giving HR a more strategic outlook.

The role of HR function has changed dynamically. However, there is always room for improvement which can’t be ignored. For HR, the diagnosis of improvement areas can be done through one essential tool: the HR Audit.  

Auditing, in simple terms, is described as a diagnostic tool to gauge the current status of operations and to identify the gaps between what is intended and what is actually being delivered. The HR audit is a systematic process to examine the HR strategies, policies and procedures being practiced in an organization. Although HR audit is not a new concept, it is one that is not generally utilized as part of an organization’s audit cycle.

The foundation of HR Audit is based upon the understanding that the business environment is dynamic and ever-changing. Human resource processes and practices need to be adaptive and responsive to such changes as these practices have an impact on employee morale, performance and, ultimately, organizational competitiveness. The scope of HR audit is very comprehensive in nature, as it requires a thorough assessment and evaluation of HR function and is not a mere personnel activity.

It generally covers three important areas:HR policies and practices; HR professionals; and HR department.These three broad categories of the audit tend to find out the current state, the gaps between the current and desired states, their link with the overall strategy and the compliance level with the laws and regulations.

Auditing HR Policies & Practices

Audit of the HR policies and practices is the assessment and evaluation of the conventional HR practices being followed in an organization. These include:

• Workforce planning: Assessment of existing resources; future personnel requests; analysis of succession plan; and staff turnover analysis.
• Staffing: Assessment of methods and procedures used in recruitment; recruitment costs; recruitment efficiency in filling vacant positions; efficiency of selection procedures.
• Performance management: Analysis of methods used in the personnel assessment; assessment of results and effects of the personnel evaluation process.
• Training and development: Analysis  of  targets  and  forms  of  training; study of the  training  program;  assessment  of  personnel  after completing  training;  the  efficiency  and  results  of  the training program; analysis  of  development  system  of  personnel  in  the organization;  job  analysis;  analysis  of  the  plan  for personnel development.
• Compensation and benefits: Analysis  of  motivation  forms; their  relationship  with personnel motivation;  analysis  of  the  level  and  structure of compensation.

Auditing HR Professionals: Developing an HR Competency Model 

Audit of HR professionals in an important parameter of HR audit, as it assesses their competence. To carry out effective audit of HR professionals, a competency model must be developed, along with behavioral attributes that complement these competencies and indicate a successful HR professional. Different tools can be used in collecting data that identifies the extent to which the modeled competencies are exhibited by the HR professionals. The results obtained should be quantified in order to have a clear understanding of the strength areas and areas that need improvement, based on these figures further action plan can be devised on how to overcome areas for improvement.

Auditing the HR Department

The audit of the HR Department is an integration of both the HR function and HR competencies. It also involves a more numeric analysis of the HR department in terms of the ratio analysis, the cost and expenditures associated with HR.

The audit process for HR audit is similar to that of any other audit. It includes:

• Defining audit scope and objective: the purpose of the audit and the desired outcomes from the audit.
• Assessing current practices: carrying out the audit activities and looking for evidence.
• Analyzing results: identifing areas of strengths and areas that need improvement.
• Action plan: review and modifications in the overall HR system.
• Reporting: the assessment of effectiveness and efficiency of various areas covered by the audit, areas of concern, and recommendations for improvement to the management.

HR audit can be a powerful lever of change for the human resource department in any organization. HR audit gives the opportunity to align the HR practices with the organizational strategy, identify improvement areas, and keep abreast with the current practices. It allows an organization to assess and evaluate any gaps or potential risks and increase the commitment of HR professionals to continuous improvement. By making the HR audit a part of the audit cycle of the organization, the human resource department can transform itself from the organization’s “evil” to the “People’s Hero,” and from a “soft area” to a credible, strategic business partner.