HUMAN RESOURCE AUDIT

Module 1
Prepared by : Dr. Khushbu Dave

Contents
1. Human Resource Audit
• Introduction
• Concepts
• Objectives
• Components
• Need
• Benefits

INTRODUCTION
• A human resource audit aims at ascertaining the
effectiveness of the HR department and its functions.
• An HR audit also ensure the compliance of HR
department with the goals, plans and policies of the
organization.
• HR auditing is similar to traditional auditing except that the
latter focuses on financial functions while the former
focuses on the HR functions of the organizations.

CONCEPT
• Measuring the effectiveness of the HR activities of an
organization is the essence of the HR audit definition.
• “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

OBJECTIVES
• To identify the degree of efficiency in the performance of
the HR department.
• To propose appropriate strategies and corrective action in
case of performance and efficiency gaps.
• To determine whether the HR functions are performed
according to the established practices and procedure of
the organization.
• To measure the HR departments record of compliance
with the statutory provisions.
• To discover the areas where cost savings could be
achieved in HR activities.
• To have an improved control over and check on all
internal operations of the organization.

OBJECTIVES
• To create a sense of accountability and discipline among the
employees by investigating their past actions periodically.
• To provide feedback to the employees about the area of good
performance and areas where improvements are required.
• To convert HR management from an abstract concept into a
measurable and quantifiable activity.
• To determine the HR areas and functions which require further
research and development.
• To recognize the good work done by the HR people and reward
them appropriately.
• To prepare the organization for countering the possible legal
actions from the aggrieved employees effectively.

COMPONENTS

COMPONENTS
1. Activities: The starting point of the HR auditing process
is a review of the organization’s activities, that is, the
tasks and actions that create or implement employment
policies, practices, procedures, and programs.
2. Behaviours: Behaviours in this context are actions and
conduct that affect - either positively or negatively - the
implementation or effectiveness of the organization’s
policies, practices, procedures, and programs, and
demonstrate the organization’s commitment to stated
goals and objectives

COMPONENTS
3. Risk Assessment: Risk assessment is the identification of
current and/or future events that have the potential to cause
loss, peril, or vulnerabilities, and management’s willingness to
accept those risks. Risk assessment is also the identification of
events or conditions that create new opportunities for the
organization to achieve its business objectives.
4. Internal Controls: Internal controls are processes, tests, and
assessments that help ensure compliance, manage risks,
identify fraud, and help ensure the achievement of organizational
goals. HR auditing activities include: 1) assessments of the
effectiveness and efficiency of HR management processes,
policies, practices, and procedures; 2) the reliability and
accuracy of HR management reporting; and 3) the level of
compliance with: laws and regulations; industry and professional
standards; codes of conduct and ethics; organizational policies;
and budgets.

COMPONENTS
5. Outcomes: Outcomes are quantitative and qualitative
measurements and metrics that measure and help assess
the achievement of organizational goals and objectives.

NEED
• It infuses a sense of professionalism among the HRD
staff.
• It reduces cost of Human Resource operation through
more effective HR practices.
• HR audit ensures that all company policies and programs
are in lieu with the legal requirements necessary for that
purpose.
• Such audit finds critical HR problems and appropriate
solutions to them.
• It enhances positive image of the Human Resource
Department.

NEED
• The audit reviews the HRD performance and gauges the
overall efficacy of the company’s policies.
• It evaluates performance of staff using various tools such as
Performance Appraisal Reports and others while putting
forward appropriate recommendations for more improvement in
their productivity.
• HR audit helps to analyse factors which are detrimental to
company’s health in the long run due to implementation and
non-implementation of certain policies.
• HR audit suggests corrective measures to identify mistakes
and shortcomings if any relating to the company’s day to day
activities.
• HR audit lets the business firm analyse where it stands in front
of its competitors.

BENEFITS
• Identifies the contribution of Human Resource department
to the organization
• Improves the professional image of the Human Resource
department.
• Encourages greater responsibility and professionalism
among member of the Human Resource department.
• Clarifies the HR department’s duties and responsibilities.
• Stimulates uniformity of HR policies and practices.

BENEFITS
• Finds critical HR problems.
• Ensures timely compliance with legal requirements.
• Reduces human resource cost through more effective
Human Resource procedure.
• Creates increased acceptance of needed change in the
Human Resource department.
• Requires thorough review of Human Resource
department’s information system.

APPROACHES FOR HRA
COMPARATIV
E
APPROACH
OUTSIDE
Authority
APPROACH
STATISTICAL
APPROACH
COMPLAINCE
APPROACH
MBO
APPROACH

Defining Audit Team
• A Team is a group of people who come together for
completing a job, assignment or a task.
• They have complementary skill, have high
interdependence, share authority and accountability and a
common purpose.
• An effective team develops synergy and delivers results
which are greater than some of the individual efforts of the
team members.

Characteristics of Team
• A team may address the social needs of an individual.
• A team may be flexible in its structure in the sense that it may
build itself in a manner which is effective in a particular org.
setting.
• The type and nature of the team used for audit may differ
• Parameters may differ
• Formed on the basis of need for HR audit.
• Structure of the client organization.
• Availability of the Audit staff with required skills and knowledge.
• Preference of decision makers
• Economic importance attached to audit firm.
• Ability to achieve high level of quality in audit.

Challenges in Audit team Formation
• Individual skills and interest members in aligned to the
need to the org.
• The level of motivation differs for each member.
• Needs of client and skills set of the audit team need to
compliment each other.
• Audit teams should be aware of the requirements of the
clients as the level of expertise required in audit team will
depend on these factors.
• It may not be possible to train every member of the audit
team before every audit assignment.

HUMAN RESOURCE AUDIT

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