The document discusses auditing the human resources (HR) function of an organization. It covers dimensions of HR auditing including legal compliance, functional effectiveness, and strategic alignment. Key aspects of the HR audit process include defining the audit scope and statements, accessing current HR policies, practices, and data through documentation reviews and interviews, and analyzing the results to identify strengths, weaknesses, and opportunities for improvement. The audit aims to evaluate if HR supports business objectives and strategies, complies with employment laws, and delivers services efficiently. Ratios on costs, productivity, and turnover are also examined.

1. 1
Auditing HR Function

2. Dimensions of HR Audit
Human Resource
HR Auditing
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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.
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4. HRIS: System Workflow
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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.”
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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.
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7. Approaches of HRA
 Monetary Measures
 Non Monetary Measures
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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
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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
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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, trainee's time spent in the
program measured financially, low productivity during training.
DC= Costs incurred in enhancing employee skills and expertise.
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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=
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12.  Personnel Productivity
=
 Management By Objectives
 Finally Personnel budgets and Audit
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13. Auditing HR Functions
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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
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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 system's internal control.
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16. What is HR audit?
An HR audit is a process to review
implementation of policies, strategies,
structure and procedures with respect to the
organization's HRM, ensure compliance with
employment law, eliminate liabilities (gap) ,
and educate the managers (feedback).
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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.
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18. Approaches of HR Audit
 Legal Approach
 Functional Approach
 Strategic Approach
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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.
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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 the
Functional 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
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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.
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22. Process of HR Audit
Step 1:Defining Auditing Statement
Step 2:Accessing Current Practices
Step 3:Analyzing the Result
Step 4:Preparing the Audit Report
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23. Before beginning the audit
process…
1. Determine who will conduct the audit.
Internal vs. External
2. 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. 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?
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25. 4. Introduce the audit process to your
managers.
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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. 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 ?
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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.
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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
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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
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31. Overtime Rate
Rate Personnel functions to examine
 Overtime rate  Employee planning and
scheduling
 Shortage of staff
 Selection and training
process
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32. Position/Vacancy Rate
Rate Personnel functions to examine
 Position  Recruitment and selection
 Vacancy Rate process
 Salary and benefit package
 Company image in
community
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33. Error/Scrap Rate
Rate Personnel functions to examine
 Error/scrap rate  Recruitment selection and
placement
 Training and development
 Job satisfaction
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34. Training and Development Rate
Rate Personnel functions to examine
 Training and  Recruitment and selection
development rate  Training and development
Grievance Rate
Rate Personnel functions to examine
• Grievance rate • Supervisory practices
• Job dissatisfaction
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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
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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.
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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.
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40. Prepared By:
Tola Kanta Neupane
MBA , 2nd semester, IB&MS
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