October 25, 2012

MU0013 [Human Resource Audit] Set1 Q5

Q.5 a Write note on Audit of HR Function.


Audit of Human Resource Function
Good starting point of audit process is to take some time and reflect on HR functions which need to be audited. Simply listing them is a good first step. For achieving organizational goals, it is very important to carry out various HR functions smoothly. In this step of audit process, we define the various functions which need to be audited.

In this step consider your areas of responsibility and traditional HR practices covered by the functions, you need to audit. In starting out, it is better to make more general statements and improve from year to year in those areas that you choose to raise the level of performance. For example as an audit manager, you may decide to audit any of following:
All human resource functions.
Any specific function like recruitment process of your company.
Any part of the specific function you have selected for audit like generating applicant pool function of recruitment process, 

The purpose of a Human Resources audit is to assess the effectiveness of the Human Resources function and to ensure regulatory compliance. The audit can be conducted by anyone with sufficient Human Resources experience. Having experience working in more than one company is a plus, as it provides the auditor with a broader perspective. There's an advantage to having the audit conducted by an external consultant. Because the external consultant has fewer biases about the organization and has less personal interest in the outcome than an employee of the company, the external consultant may be more objective.

The main purpose is to study and analyze each one of the specific areas of HRM. The analysis should focus on the planned measures, the method of implementation, and the results obtained. In order to carry this out, the areas that need to be audited must be identified. A list of the indicators corresponding to the different areas of the HR function could contain some of the following:

Description of the staff of the company 
The complete staff can be described by: 
hierarchic levels
years of service
the number of permanent and temporary employees, interns and physically or mentally challenged employees
indexes of personnel rotation and absenteeism

Job analysis
The various indicators of Job analysis are as follows:
The number of described posts 
Occupants per post
Degree to which the job description cards have been updated
The degree of detail in the job description cards
The methods used to analyze and describe the jobs.

HR planning
HR planning, as you have studied in unit 7, is an important area of preplanning includes the methods employed to plan personnel needs, the measures adopted to cover future personnel needs, and the temporary planning horizon.

Recruiting and personnel selection
Main indicators of this are as follows:
the number of days required to a vacant post
the number of applications received by work place categories
the average amount of days between the reception of the application
the average cost of recruitment 
cost of selection per job post 
the degree to which internal and external sources of recruitment are used
the average number of candidates that do not pass the selective tests
the study of the reliability and validity of the selection tests 

Training and development
The training indicators are as follows:
the procedures followed 
frequency to which personnel training needs are analyzed
the criteria followed in the training programs
the evaluation criteria of the efficiency of the training programs
the percentage of the HR budget dedicated to training
the average number of hours of training per employee
The percentage of employees that participate in training programmes by work place categories.

Development of professional careers
These indicators focus on the vacancies covered internally.
These indicators include: 
the percentage of people promoted per number of employees;
the percentage of vacancies covered internally and externally and the average time per employee it takes to receive a promotion.

Collect Data

Assess the mission, vision, strategy, and culture of the organization, from whatever written material there is in the company (check with the department or person who handles public, customer, or shareholder relations). Collect existing data such as:
1. Hiring statistics (acceptance rate, hiring rate, hiring projections) 
2. Turnover 
3. Compensation and benefits philosophy and practice 
4. Exit interview summaries 
5. Employee complaints (discrimination, harassment, safety, other) 
6. Promotion and advancement practices and trends 
7. Human Resources budget and expenditures 

Where possible, compare the data you collected with market data. This information will provide you with a point of view for the next phase of the audit: the interviews. If, during the interview, discrepancies arise between the data and the interviewee's answer, you can explore the reasons for the discrepancy(s).

Conduct Interviews

The purpose of the interview is to collect input from the internal customer on their Human Resources needs and how those needs are being met. Begin the interview with top management. Next conduct interviews with a sample of subordinate managers including first line management. The topics to discuss during the interview include:
1. Perceptions of the company and its goals 
2. Strengths and weaknesses of top management 
3. Employee perceptions of the company and top management 
4. Relations with subordinates 
5. Support of career goals for self and employees 
6. Major Human Resources issues 
7. Which Human Resources functions work well 
8. Which Human Resources functions need improvement 

Conduct the Regulatory Compliance Audit

The following areas should be audited as part of the regulatory compliance audit:
1. Personnel files and recordkeeping (contain only job related information) 
2. Pay equity 
3. Job descriptions (ADA compliance) 
4. Legal postings 
5. Equal Employment Opportunity and Affirmative Action 
6. Forms (applications, internal forms, etc.) 
7. Workers' Compensation 
8. Fair Labor Standards Act 
9. Family and Medical Leave Act 
10. Legal reporting 

Summarize the Results
Consolidate the information you collected. Compare the results with market surveys. Determine which practices are good/popular/effective/competitive. Determine which practices need improvement. Recommend specific improvements referring to the results of both the Effectiveness audit and the Regulatory compliance audit. Justify the recommendations. Determine how to measure whether the improvements are successful.

Obtain Approval from senior Management
Present the preliminary results and recommendations to senior management individually. Point out how these recommendations will support their needs. Obtain their support, then present the final results and recommendations to the senior management staff for final approval.

Implement the Program
Consider implementing the program in part of the organization as a pilot program. Monitor and measure success and seek to continuously improve processes. Be prepared to modify the program if an organizational change requires it. 

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 - This consists of the Human Resource Development Systems and Procedures (HRD), Human Resource Management (HRM), HR Information Systems.
2. Audit Of the Service Role Of HR
3. Audit Of the Compliance Role Of HR
4. Audit Of the Strategic Role Of HR, and
5. 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.

Conducting 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
o Training and development
o Organizational development, and
o Career development

Audit of the HR development systems and procedures that they must support HR management systems and procedures, incorporating:
o Organizational and job design
o HR planning
o Performance management, and
o Recruitment and selection

Audit of the Human Resources Information System that it must support both the HR development and HR management to achieve results, including
o Compensation and benefits
o Employee assistance
o Labor relations, and
o HR research and information systems that provide timely information for decision making

Audit of the service role of human resource, incorporating:
o Tangibles such as facilities, equipment, people
o Reliability of human resource with all their skills, competencies and individual personalities
o Responsiveness of HR as compared to being 'reactive'
o Assurance of quality, and
o 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:
o Job design
o Performance expectation
o Organizational structure
o Compensation policies
o Employment policy
o Employee participation policy
o Business and HR information, and
o 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:
o Planning and staffing activities
o Recruitment efficiency, for example, the required people are recruited on time
o Recruitment effectiveness such as people of the right quantity and quality are successfully recruited
o Compensation measures and their effectiveness in improving productivity
o Benefits total cost
o Orientation cost per employee
o Counseling/disciplinary costs
o Man-hour lost
o Turnover rates showing effectiveness of employee retention plan
o Training and development costs, and
o 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:
o scope
o methods
o time-table
o performance measures
o communication to HR, line and union(s)
o preparation and finalization of questionnaire, and
o preparation balanced scorecard, where deemed necessary

Brief departmental heads on their roles at every stage of the Human Resources Audit.
Conduct audit
o combined effort/teamwork
o carry out audit on policies, procedures, systems, information
o conduct focus groups discussion
o 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 the '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.

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
o 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."
o 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 in fulfilling this expectation. 

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