Human resource audit

Meaning
Human resources are the people in an organisation, so a human resource audit is a look at
those people and the processes that put them in place to make sure the system is working
effectively. Personnel or human resource audit refers to checking the organisation‘s
performance in its management of human resources.
Human resource auditing is something that many companies do
annually, just as they audit their financial information. This gives them an accounting of their
workforce and the efficiency with which the organisation as an entity deals with its people.
Definition
According to Dale Yoder, Personnel audit refers to an examination and evaluation of policies,
procedures and practises to determine the effectiveness of personnel management.

Objectives of HR Auditing
1. To review the system of recruitment, selection, training, development, allocation of human
resources in the organisation.
2. To evaluate the extent to which the personnel management policies and procedures are
implemented by the various departments in the organisation.
3. To find out any deficiencies in the management human resources.
4. To evaluate the manpower in the organisation.
Need and Significance of HR Audit
1. To attract human resources and to retain human resources in our organisation.
2. As an organisation grows, continuous feedback is required to improve the performance of
the personnel .This feedback is provided by the human resource audit.
3. Higher labour costs and greater opportunities for competitive advantage in the
management of people is another cause which compels management to conduct human
resource audit.
4. Government interferences in the business is increasing nowadays, in order to protect
employee interest. Human resource audit can help in avoiding such intervention.
5. There has been a change in the philosophy of management. Worker’s participation and
identification in the activities of the organisation is being regarded as a powerful influence for
the success of the organisation. This changed philosophy has recognised the need for human
resource audit.
Benefits of HR auditing
1. To find out deviation from basic policies.
2. Identifies contribution of HR department.
3. Foster greater responsibility and professionalism among HR staff.
4. Classifies HR department’s responsibilities and duties.
5. Identifies critical personnel problems.
6. Ensures timely legal compliance requirements.
7. Reduces HR costs.

Scope of HR audit
1.Auditing HR policies

Human resource policies deal with the relationship between employer and employees. The
policy audit attempts to judge the coverage of human resource policies. While conducting a
policy audit the answers to the questions such as, what are the company’s human resource
policies?, How these policies established?, How these policies communicated?, Are these
policies consistent with organisational objectives? are provided.
2.Auditing HR programmes

HR programmes may be described as “how things are to be done”. These are the means for
implementing HR policies. The HR auditor must ensure that programmes are consistent with
policies. He should also try to find out any deviations from the established HR programmes.

3. Audit of HR results

While auditing the results the auditor depends largely on HR records and reports supplied by
the HR department. He should ensure that these records and statistics are properly and
accurately maintained. Auditors also tend to place heavy significance on behaviour reactions
of employees, supervisors and managers. The information relating to these is found in the
records of absentees, disciplinary actions, promotions, transfers and others.

Moreover, HR audit may become a fault finding exercise. Whenever certain deficiencies are
detected, the workers and management may start blaming each other. To avoid such problems
the focus should be on removing the cause of mistakes so that the same are not repeated in
future. The scope of HR audit can also be extended to forecasting of HR, scheduling,
recruitment, career development advancements, welfare schemes, leader development etc.

Auditing process: Steps in HR Audit

1. Briefing and orientation

2. Scanning material information

3.Surveying employees
Surveying employees involves interview with key managers, functional executive, top
functionaries in the organization and even employees’ representatives if necessary. The
purpose is to pinpoint issue of concern, present strengths, anticipated needs and managerial
philosophies to human resources.

4. Conducting Interviews
The direction which audit must follow is based on issues developed through the scanning of
information gathered for the purpose. The questions to be asked on topics need to be framed
very carefully. The process of the interview and the sequence of questions is often as
important as their content. Focus interview can also be used.
5. Synthesizing
The data thus gathered is synthesized to present the current situation, priorities, staff pattern
and issues identified.
6. Reporting
In this process the issues that get crystallized are brought to the notice of the management in
a formal report. Follow ups are necessary after an audit. A periodic and systematic audit
helps human resource planners to develop and update employment and programme plans.
Audit Report

After examining the policies, programmes and results, the human resource auditor should
submit a written report containing its findings, conclusions and recommendations. The report
is called audit. In case of human resource audit there is no prescribed format of the report.
The overall format style of the report will depend upon the auditor.

The following items are generally included in the report.

1. Table of contents
2. Preface giving brief statements of objectives.
3. Summary and conclusions.
4. The report proper in which each major decision or department is separately covered. A
separate section may be given for each department.
5. Summary: It is general in nature and is relevant to all the persons concerned.
6. Appendix containing supporting data that might be too voluminous to appear in the body
of the report.

Challenges of HR Audit
• There is no well-developed practice as compared to financial accounting.
• There are no ratios for comparison.
• Auditing independence: The audit result must have credibility. It must be a product of
an indepedent and unbiased review.
• Auditor’s capacity: The auditor, we hire must have adequate skills and abilities to
carry out the audit process.
Internal and External HR Audit
Personnel audit may be internal or external. Internal audit is done by employees of the
personnel department of the organization. External audit is conducted by external specialists
or consultants in personnel management. Personnel audit may also be regular audit or crisis
audit. Crisis audit is just like post mortem of the situation. It conducts when serious situations
come up. Regular audit is the audit of almost all the personnel policies and practices.
HR audit is not a fault finding enquiry rather a way of finding mistakes.