Become a certified HR Audit

What is the process of HR Audit?

To understand the process of the HR Audit you need to know its scope first. Moreover, the Human resource audits involve an organization’s strategic actions to take an intensely objective look at its HR policies, procedures, and practices.

So this type of extensive analysis of the company’s current state can help one identify whether specific practice areas or processes are adequate, legal and effective or not. The results obtained from this review can help in identifying gaps in HR practices. And therefore in an effort to minimize lawsuits or regulatory violations HR can then prioritize these gaps, as well as to achieve and maintain world-class competitiveness in key HR practice areas.

Overview of the process of HR Audit

Human resource audits can help you identify whether an HR department’s specific practice areas or processes are adequate, legal and effective. Therefore the results obtained from this review can help identify gaps in HR practices. And so in an effort to minimize lawsuits or regulatory violations HR can then prioritize these gaps, as well as to achieve and maintain world-class competitiveness in key HR practice areas.

Background Check:

Human resource audits are an essential means to avoid any legal and regulatory liability that may arise from an organization’s HR policies and practices. Additional to identify areas of legal risk, audits are frequently designed to provide a company with information about the competitiveness of its HR strategies by looking at the best practices of other employers in its industry. In gist, an HR audit involves the identification of issues and finding solutions to problems before they become unmanageable. It’s actually an opportunity to assess what an organization is doing currently, as well as how things might be done differently, more efficiently or at a reduced cost.

In this competitive climate, organizations operate within the confines of a heavily regulated employee environment. This challenge includes dealing with myriad complex laws and regulations. The scope of the HR function includes establishing and administering a host of policies and practices—many of which involve compliance implications—that significantly influence the productivity and profitability of the enterprise.

Given that many HR departments are both understaffed and overworked, only in retrospect do many organizations become aware of the monetary costs of ignoring HR-related legal hot buttons. Since non-compliance with applicable laws and regulations holds significant financial risk. So to minimize the risk, many organizations purchase employment practices liability insurance. Although there are different measures a company can opt for still chief among these is a voluntary HR compliance audit.

HR Audit Defined

HR Auditing is basically all about- devoting your time and resources to taking an intensely objective look at the organization’s HR policies, practices, procedures and strategies to protect the organization. Therefore establish best practices and identify opportunities for improvement. An objective review of the employer’s current state can help HR evaluate whether specific practice areas are adequate, legal and effective. The results can provide decision-makers with the necessary information needed to decide which areas need improvement.

Generally, HR Compliance audit comprises of two segments:

An evaluation of the organization’s operational HR policies, practices, and processes with a focus on key HR department delivery areas for instance: recruiting—both internal and external, employee retention, compensation, employee benefits, performance management, employee relations, training, and development.

An Analysis of current HR indicators for instance: number of unfilled positions, the time it takes to fill a new position, internal grievances filed, turnover, employee satisfaction, number of legal complaints, absenteeism rates.

HR usually conducts an audit with the help of a questionnaire that asks for the evaluation of specific practice areas. This document helps guide the audit team in scrutinizing all the critical areas of an organization’s HR practices. Also, the audit may involve interviewing or using questionnaires to solicit feedback from selected HR employees and other department managers to learn whether certain policies and procedures are understood, practiced and accepted.

The grounds for Conducting an HR Audit

This new changing nature of HR management demands that HR professionals participate and contribute fully to their organizations as true strategic business partners.

An audit helps an organization understand whether its HR practices help, hinder or have little impact on its business goals. The audit also works towards quantifying the results of the department’s initiatives and provides a road map for necessary changes. Audits can also help the organization achieve and maintain world-class HR practices. This is because an HR Can Play Influential Role in Helping Boards Manage Risk and be a moderator of the Risk.

Understanding the types of Audits

An HR audit can be structured to be either comprehensive or specifically focused, i.e. within the constraints of time, budgets and staff. There are several types of audits, and each is designed to accomplish different objectives. Some of the more common types are:

Compliance

In this, the focus stays on how well the organization is complying with current federal, state, and local laws and regulations.

Best practices

This helps the organization maintain or improve competitive advantage by comparing its practices with those of companies/organizations identified as having exceptional HR practices.

Strategic

Here to determine whether they align with the HR departments and the organization’s strategic plan the focus stays on strengths and weaknesses of systems and processes.

Function specific

This focuses on a specific area in the HR function e.g. payroll, performance management, records retention

What to Audit?

This question largely depends on the calculated weaknesses prevailing in an organization’s HR environment. Therefore the type of audit is decided on these factors and also the availability of the resources. So keeping a track of the issues that have aroused but still aren’t covered int he organization’s procedures or the policies that help to identify the areas of the potential and exposure that HR can address during the final analysis process, i.e. if they need not be addressed immediately.

Moreover, the organizations are particularly vulnerable in certain types of areas. Most lawsuits can be traced to issues that are related to- hiring, discipline, performance management or termination. Some additional risk areas that employers should carefully analyze in an audit include:

Misclassification of exempt and non-exempt jobs

If we look carefully almost every organization has got job positions that are misclassified as exempt from the overtime eligibility. So this complexity of the wages and hours laws and regulations make it easy to err in the classifying a job as an exempt. Therefore exposing the employer to the liability for the past overtime done.

Inadequate personnel files

An analysis of sample personnel files frequently reveals inadequate documentation of performance. For instance: informal, vague or inconsistent disciplinary warnings. Performance evaluations may be inaccurate, ambiguous, or outdated. The personal health information is often found in personnel files, despite medical privacy laws requiring such data to be kept separate. To defend any type of employee claim, wrongful termination claims or particularly unemployment compensation accurate and detailed records are essential to have by the employer.

Prohibited attendance policies

For most employers controlling excessive absenteeism is a big concern. Though, the complexity of family and medical leave laws, with sometimes conflicting state and federal protections, has made many formerly acceptable absence control policies go unacceptable. As absences affect workers’ compensation, family and medical leave, disability accommodations, and also the pregnancy laws. There are organizations that often have attendance policies that do not comply with relevant laws and regulations or that grant employees more protections than is required.

Inaccurate time records

Employers are customarily required to have non-exempt employees to punch a time clock or complete the timesheets reflecting their time worked each week. This is because the records generated by these systems typically are the employer’s primary means of defense against wage and hour claims. So time-keeping policies and practices must be clearly communicated and consistently administered at intervals or the time of hiring.

When to Audit

As given the requirement of resources for a full-scale audit, most of the organizations would not want to go through this process more than once a year or whenever the need arises. Although mini-audits that allow for some course correction can be accomplished with less administrative pain so half-yearly. So scheduling annual check-ups to maintain the discipline of a regular review is preferable to only occasional or alarm check-ups – for instance, those audits that only take place when a potential problem brews. While another strategy is to conduct an audit following any significant event like- management changes, new plans, etc.

What to Expect

A thorough audit is actually a time-consuming task and it’s a focused project that may require the review of numerous documents and the policies, as-well-as soliciting feedback from the HR staff, managers and the selected staff from the other departments. So the time and effort involved direct depend on the size and type of the organization. Also, the type of information and the organization hopes to glean the scope of the audit and the number of people on the audit team.

A full-scale legal compliance audit, in particular, covers a great deal of colony and takes much longer to complete when compared with a best-practices audit, which benchmarks one specific practice against another employer’s approach, or a function-specific audit, which reviews only one key area of the employer’s HR practices.

Costs of an Audit

The cost is not standard for conducting an HR audit; this depends on the scope of the analysis, the number of people interviewed and the size of the audit team. Subsequently, the expense varies highly from one scenario to another. So far it suffices to say the cost involved in conducting any full-scale HR Compliance audit would be pretty less than the cost involved in defending even one lawsuit. Also, there are some insurance carriers providing audits as a part of their compliance program. So the audit could actually be free if considered.

Who Should Conduct an Audit?

The respective organizations/Companies’ HR professionals can actually perform an in-house audit if they have the required knowledge and expertise. The qualities required also involve time, willingness to objectively acknowledge the inadequacies in the current procedure and most importantly the leverage to make or influence the necessary organizational changes. Moreover, if the audits are being conducted with the internal resources or say even with the outside consultants (who aren’t a lawyer) then everything connected with the audit is subject to the discovery in the lawsuit relating to the employment practices.

Therefore, if an organization has legitimate concerns about what its HR audit may reveal regarding the company’s noncompliance with various employment laws and regulations. Then the organization should follow fairly strict audit procedures and protocols and consider hiring outside legal counsel to conduct the audit. As in doing so, the employer may be able to safeguard the audit results through the application of at least one of the three legal privileges against disclosure.

The HR Audit Process:

The general process of an HR Audit involves the following seven key steps:

  • Primarily determine the scope and type of audit.
  • Secondly, develop the audit questionnaire.
  • Then collect the data.
  • Next benchmark the findings.
  • Then provide feedback about the results.
  • Subsequently, create action plans.
  • Next, foster a climate of continuous improvement.
  • In fine determine the scope and type of the audit

Determine the scope and type of audit

No to find the exact needed information the audit team first must determine exactly which areas to be targeted for the analysis. Also if the respective organization has never performed or conducted the Audit then the audit team may want to conduct a thorough analysis of all the HR practice areas. While on the other hand if the concerns are limited to the adequacy of a specific process or the policy then the audit team can focus clearly on its analysis on that particular region.

Develop the audit questionnaire

It doesn’t matter whether the audit being conducted is a comprehensive audit or an audit of a specific practice. The audit team should invest sufficient time in developing a comprehensive document that elicits information on all the subjects of the inquiry. So the HR must develop a comprehensive list of specific questions to ensure that the questionnaire is complete.

Collect the data

No, this next phase involves the actual process of reviewing specific areas to collect the data about the organization and its HR practices. As the audit team members will use the audit questionnaire as a road map to analyze the specific areas identified within the scope of the audit.

Benchmark the findings

Now to fully assess the audit findings, the team must compare them with HR benchmarks. This comparison will offer a complete insight into how the audit results compare against other similarly sized firms, national standards or internal organizational data. The general information that might be internally gauged involves- the organization’s ratio of total employees to HR professionals, the ratio of currency spent on HR function relative to total sales, general and administrative costs, and cost per new employee hired, etc.

Provide feedback about the results

Now at the conclusion of the audit process, the audit team must summarize the data and supply feedback to the organization’s HR professionals and senior management team in the form of findings and recommendations. The findings are customarily reduced to a written report with recommendations prioritized based on the risk level assigned to each item e.g. high, medium and low.

Therefore, from this final analysis, the audit team can develop a timeline for action that will help determine the order in which to address the issues raised. Additional to this a formal report, the audit team should discuss the results of the audit with employees in the HR department, as well as with the senior management team, so that everyone is aware enough of the necessary changes and therefore the approvals can be obtained quickly.

Create action plans

It is critical that the organization actually does something with the information identified as a result of an audit. So the] organization must create an action plan for contriving the changes suggested by the audit. With the findings separated by order of importance: i.e. high, medium and low. Also, conducting an audit and then failing to act on the results actually increases legal risk.

Foster a climate of continuous improvement

Now at the conclusion of the audit: the HR leaders must engage in constant observation and continuous improvement of the organization’s policies, procedures, and practices. So, the organization never ceases on the improvement part. Also, this will ensure that the company achieves and retains its competitive advantage. So, the one way to do this is to continuously monitor HR systems for ensuring that they are up-to-date and to have follow-up mechanisms built into every one of them.

To Conclude:

One of the best approaches is to designate someone on staff or an outside consultant- to monitor legal developments to ensure that HR policies and practices are kept current. And likewise, organizations should keep track of the audit findings and complaints filed, changes made, turnover, hotline issues, and employee survey results to identify trends in the organization’s employment-related issues. Therefore identifying problematic issues, growth areas or declining problem spots can help in the decision of where to allocate time, money and preventive training resources in the future.

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