Human resource auditing


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Human resource auditing

  1. 1. 1Auditing HR Function
  2. 2. Dimensions of HR Audit Human Resource HR Auditing 2
  3. 3. Human Resource Information System (HRIS) A method by which an Organization collects, analyses, and reports information about people and jobs. An integration between IT System and HRM process. Offers an adequate, comprehensive and on-going information system about people and jobs. 3
  4. 4. HRIS: System Workflow 4
  5. 5. HR Accounting First developed by Rensis Likert , and he pointed out that the expenses on human resource are fixed in nature and do not offer any immediate return. According to Flamhotiz, “HRA is accounting for people as an organizational resource. It involves measuring the costs incurred by organization to recruit , select , hire, train and develop human assets. It also involves the measuring economic value of people to the organization.” 5
  6. 6. Objectives of HR Accounting Provide cost value information about acquiring, developing , allocating and maintaining human resources. Enable management to effectively monitor the use of human resources. Find whether human assets are appreciating or depreciating over a period of time. Assist in development of effective management practices on the basis of financial consequences. 6
  7. 7. Approaches of HRA  Monetary Measures Non Monetary Measures 7
  8. 8. Monetary Methods Historical cost method Replacement cost method Opportunity cost method Economic value method Assets multiplier method Discounted present value of future earnings method Non-monetary Measures Expected realizable value method 8
  9. 9. Vr= How to Calculate the value of Manpower?  Lev and Schwartz model Vr= Where, Vr = the value of an Individual r year old. I(t)= the individual’s annual earnings up to retirement t = retirement age r= a discount rate specific to the cost of capital to the company 9
  10. 10.  Historical cost method = Recruitment cost + selection cost + Orientation Costs + Training Costs + Development Costs Where, RC= Advertising, travel exp., consultant’s fee, incidental exp. SC= Form costs, testing and interview exp. and other Adm. exp. TC= Trainer’s salary, Facilities cost, trainees time spent in the program measured financially, low productivity during training. DC= Costs incurred in enhancing employee skills and expertise. 10
  11. 11. Controlling Cost of Manpower Ratio Analysis – Cost per hire= – Recruitment Cycle time= Total time taken to recruit new employee – Turnover Rate= – Cost of Training= 11
  12. 12.  Personnel Productivity = Management By Objectives Finally Personnel budgets and Audit 12
  13. 13. Auditing HR Functions 13
  14. 14. What is AUDIT ? Latin verb-audire-means-to listen Listening implies an attempt to know the state of the affairs as they exist & as they are expected to exist 14
  15. 15. AUDIT An audit is an evaluation of a person, organization, system, process, proje ct or product. Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a systems internal control. 15
  16. 16. What is HR audit? An HR audit is a process to review implementation of policies, strategies,structure and procedures with respect to theorganizations HRM, ensure compliance with employment law, eliminate liabilities (gap) , and educate the managers (feedback). 16
  17. 17. Why Auditing HR Function? To reveal the strengths and weaknesses in the human resources system, and any issues needing resolution. To know the extent of HR as CSF, HR can be a CSF if employees are have unique skills To find out current manpower inventory and shortfall or excess, if any for new project. To evolve its HR function to a level where its full potential to support the organization’s mission and objectives can be realized. To find out the effectiveness of various personnel policies and practices. 17
  18. 18. Approaches of HR Audit  Legal Approach Functional Approach  Strategic Approach 18
  19. 19. Approaches of HR Audit  This concept is centered on the verification that the current labor laws are being fulfilled.Legal Approach  The audit should verify if the firm’s policies, practices, and documents Functional Approach regarding employee hiring, retention, discipline, termination, a Strategic Approach nd post-employment are both fair and legal  HR practices and policies must not discrimination on: equal employment opportunities; basis of age and sex; reasonable accommodations for disabled workers; minimum wages etc. 19
  20. 20. Approaches of HR Audit  Observing the procedures applied are the adequate ones and they function correctly in the most cost effective manner. Legal Approach  The function of this level of the HR audit is to study and analyze each one of theFunctional Approach specific areas of HRM.  Area of HR Audit:  Description of company’s staff Strategic Approach  Job analysis  HR planning  Recruiting and personnel selection  Training  Development of professionals  Retribution  Performance evaluation  Work condition 20
  21. 21. Approaches of HR Audit Legal Approach  The evaluation of the adaptation of the HR policies and practices in their support Functional Approach of the company’s general strategy..  Strategic approach has been developed as Strategic Approach a means of determining if the HR function is a source of competitive advantage for the company.  Supplies information about the knowledge, abilities, values, managing experience, or other factors of each employee to meet new strategy. 21
  22. 22. Process of HR AuditStep 1:Defining Auditing StatementStep 2:Accessing Current PracticesStep 3:Analyzing the ResultStep 4:Preparing the Audit Report 22
  23. 23. Before beginning the audit process…1. Determine who will conduct the audit. Internal vs. External2. Secure senior management commitment. a. Are they ready to fix what’s broken, even if it costs $$$$? b. Do they agree with the methodology? c. Will they allow access to all departments/information? d. Will they publicly support the process? 23
  24. 24. 3. Define the parameters. 3. Who will be audited? 4. What do you want to audit? 5. What audit tools will you use? 6. How will the process be rolled out? 7. How will results get reported? 8. Who will get the results? 24
  25. 25. 4. Introduce the audit process to your managers. 25
  26. 26. Step 1: Defining Audit Statements Determine whether legal, functional or strategic audit. Determine the area of the HR audit where auditor wants to audit. Determining the every aspects of the each area (detailed) Areas like quality of lifecycle, team based work system and other contemporary issues on HR are should be considered 26
  27. 27. Step 2: Accessing Current Practices It is much objective in nature Collection of data and information from current policies and procedures, employee surveys, interviews with key customers, Human Resource Information System, reports issued to regulatory departments, statistics, etc. But how to conduct ? 27
  28. 28. Step 3: Analysis of Results The purpose of analysis is to sort through the areas of strength and opportunities for improvement in order to take positive action steps to improve the effectiveness of the HR function Examining different indices, ratios Finding out strength and weakness point and opportunity for improvements. 28
  29. 29. Ratios that should be analyzed Turnover Rate Rate Personnel functions to examine Quit rate  Salary and benefits package Termination rate  Supervisory practices  Job design Layoff rate  Retirement plan Retirement rate Length of service rate 29
  30. 30. Job Attendance Rate Rate Personnel functions to examine Absence rate  Exit interviews  Discipline Tardiness rate  Convenience of lunchroom and rest room  Sick-pay policy 30
  31. 31. Overtime Rate Rate Personnel functions to examine Overtime rate  Employee planning and scheduling  Shortage of staff  Selection and training process 31
  32. 32. Position/Vacancy Rate Rate Personnel functions to examine Position  Recruitment and selection Vacancy Rate process  Salary and benefit package  Company image in community 32
  33. 33. Error/Scrap Rate Rate Personnel functions to examine Error/scrap rate  Recruitment selection and placement  Training and development  Job satisfaction 33
  34. 34. Training and Development RateRate Personnel functions to examine Training and  Recruitment and selection development rate  Training and development Grievance RateRate Personnel functions to examine• Grievance rate • Supervisory practices • Job dissatisfaction 34
  35. 35. Step 4: Preparing Audit Report Table of contents Preface Statement of objectives, methodology, scope and techniques used. Summary, conclusion and recommendation of the audit that has been carried out. A clear and in-depth analysis of the data and information, furnished area-wise. Evaluation, discussion, and analysis. Appendix Bibliography 35
  36. 36. Frequency of Audit Generally top mgmt thinks of HR audit only when serious crisis occurs like strikes, increases in the no of grievance or conflict, legal issues etc. This types of audit is just reactive approach. Management has to arrange for regular annual audit of almost all the personnel policies and practices. Certain indicators like absenteeism and employee’s grievances should be audited at the end of every month/quarter depending upon the magnitude of the issues. 36
  37. 37. Problems in Auditing HR Functions No any fixed rules, systems, and regulation for auditing. It compares past ratios, rates of turnover, expenditure etc., with those of other departments and organizations. Organization cannot be taken as standard for comparison and a decision arrived at. Tendency to turn the HR audit into a fault-finding Process. If not done properly, may create more troubles than solutions. Employee may try to pass the buck. 37
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  40. 40. Prepared By: Tola Kanta Neupane MBA , 2nd semester, IB&MS 40