“ Human Resources Audit”

UCP
3/26/2010
Introduction to Human Resources Audit:

The Human Resources (HR) Audit is a process of examining policies, procedures,

documentation, systems, and practices with respect to an organization’s HR
functions. The purpose of the audit is to reveal the strengths and weaknesses in the
nonprofit’s human resources system, and any issues needing resolution. The audit works
best when the focus is on analyzing and improving the HR function in the organization.

The audit itself is a diagnostic tool, not a prescriptive instrument. It will help you
identify what you are missing or need to improve, but it can’t tell you what you need to
do to address these issues. It is most useful when an organization is ready to act on
the findings, and to evolve its HR function to a level where its full potential to
support the organization’s mission and objectives can be realized.

Why Do An Audit?

• To insure the effective utilization of an organization’s human resources.

• To review compliance with a myriad of administrative regulations.
• To instill a sense of confidence in management and the human resources function
that it is well managed and prepared to meet potential challenges.
• To maintain or enhance the organization’s and the department’s reputation in the
community.
• To perform a "due diligence" review for shareholders or potential
investors/owners.

Scope of Audit:

Generally, no one can measure the attitude of human being and also their problems are
not confined to the HR department alone. So it is very much broad in nature. It covers the
following HR areas:
• Audit of all the HR function.
• Audit of managerial compliance of personnel policies, procedures and legal
provisions.
• Audit of corporate strategy regarding HR planning, staffing, IRs, remuneration
and other HR activities.
• Audit of the HR climate on employee motivation, morale and job satisfaction
Approaches to HR Audit:

There are five approaches for the purpose of evaluation of HR in any organization:
• Comparative approach
• Outside authority
• Statistical
• Compliance approach &
• Management By Objectives(MBO)

How does the Audit Process works?

It includes following steps;

• Interview key staff
• Review relevant documentation
• Complete a comprehensive questionnaire
• Compile data a prepare and customized written report
• Make specific recommendations to improve the efficiency and performance of
HR function.

After the comprehensive assessment of the systems identify areas for improvement and
provides practical solutions. The best HR practices involve a legally defensible frame-
work, training of employees, and accurate marketplace data. HR AUDIT help you
look at the whole picture, at what your programs mean today, and the implications for
your organization down the road.

How should it be conducted?

The audit process consists of a series of questions covering the eight primary components
of the HR function and they are;
1. Roles, head count, and HR information systems (HRIS)
2. Recruitment
3. Documentation
4. Training, development, and career management
5. Compensation and benefits
6. Performance measurement and evaluation
7. Termination and transition
8. Legal issues and personnel policies.
1. Roles, Head Count, & Human Resource Information Systems (HRIS):
1. How many employees are currently on staff?
2. How many employees are:
3. Regular
4. Probationary
5. Temporary
6. Full Time
7. Part Time
8. Exempt
9. Non-Exempt
10. What is the definition of a part-time employee? (i.e., What is the maximum
number of hours an employee can work to be considered part-time?)
11. What is the minimum number of hours an employee has to work to be considered
full-time?
12. How long is the probationary period?
13. Are employees aware of their status?
14. How long can an employee be temporary?
15. How many employees have supervisory responsibility?
16. Are there currently up-to-date job descriptions for all employees? If not, which
ones don’t have descriptions?
17. Are independent contractors used? If so, how many are being used? And, for what
functions?
18. Is the 21 point test for Independent Consultants being used for classification?
19. Have issues related to classification of employees been raised?.

2. Recruitment:
1. How did the work force get to be the current size?
2. What are some of your organization’s future needs for personnel?
3. What are the procedures for hiring in your organization?
4. What recruitment sources are used? (e.g., advertisements, referrals from other
agencies, personal contacts)
5. Are current employees given appropriate consideration for promotion or lateral
position changes?
6. Who does the preliminary screening of candidates?
7. Who selects candidates for interviews?
8. Is training provided for those who conduct interviews?
9. How is the recruitment, screening, and selection process documented?
10. What is the interview process that is used (e.g., individual, sequential, panel)?
11. Who holds final authority to hire?
12. Who checks references?
13. How are the reference checks documented?
14. Who makes the offer of employment?
15. Where is the hiring paperwork generated?
16. Who negotiates compensation packages?
17. List the practices you believe are unique to your organization.
18. What is the turnover rate (percent of employees leaving each year) in your
organization? Has this changed over time?
19. Who gives references for former employees?

3. Documentation:
1. Where and with whom are the personnel files currently held?
2. What documents are held in personnel files?
3. How are the following documented by your organization?
4. Hiring: Application, Interviewing, and Reference Checks
5. Compensation and Benefits
6. Transitions
7. Paid Time Off
8. Training
9. Discipline
10. Work History
11. Work Assignments
12. Significant accomplishments
13. Emergency contact information
14. Performance evaluation and performance management

4. Termination
1. How long are files held and where are they stored after employees leave?
2. What is the interface between HR and Finance?
3. Is a payroll service used, and if so, which one?
4. Does the payroll service provide all governmental employment filings?
5. Is there training of managers and employees about personnel files, and policies
and procedures for accessing them?
6. How is Paid Time Off documented?
7. When requests for information are made to your organization, who fills the
request?
8. Is an HRIS system being used, and if so, which one?
9. Training, Development and Career Management
10. Who is responsible for new employee orientation?
11. What are the elements of the new employee orientation program?
12. Where and to whom do new employees go when they have questions about your
organization or their jobs?
13. Is there a formal training program for employees and managers? If so, please
describe it.
14. What training and development initiatives have occurred in your organization?
15. How are managers and supervisors trained and prepared for their roles?

5. Compensation and Benefits:

1. Is there a formal compensation program?
2. How are wages set?
3. Are formal salary ranges set?
4. If formal salary ranges are set, are they made public to employees?
5. How are jobs rated?
6. How frequently are jobs re-evaluated or updated?
7. Are any salary surveys used? If so, which ones?
8. Are pay ranges revised as a result of these surveys? How frequently?
9. Who in your organization (what position) administers the compensation program?
10. Are COLA’s given, and if so what is the basis for the COLA?
11. Are merit increases given, and if so, are they integrated with performance
evaluation?
12. Is there a bonus system, and if so how is it structured?
13. How is the compensation program and total compensation package communicated
to employees?
14. What are the “cultural issues” or beliefs related to compensation in your
organization?
15. How is employee communication regarding compensation and benefits delivered
in your organization?

6. Health and Welfare Benefits:

1. Describe the health insurance program provided by your organization.
2. Are dependents covered, and if so, in part or in full?
3. Are domestic partners covered?
4. What are the eligibility requirements for health insurance and other benefits?
5. Which of the following health and wellness benefits are offered, and what are the
limits and requirements for coverage?
6. Dental
7. Vision
8. Disability
9. Employee Assistance Program
10. Life Insurance
11. Other wellness benefits
12. Flex benefit plan
13. Other benefits
14. Compensation And Benefits.

7. Pension and Retirement:

1. What is the pension or retirement plan?
2. What is the vesting period?
3. Can employees contribute?
4. Can pretax dollars be put into some form of deferment plan? Paid Time Off
5. What holidays are paid and who is eligible for them?
6. Is there a PTO system, or is it split between vacation and sick leave? If it is
straight PTO, what are the rates of accrual and caps?
 7. What is the vacation schedule, and how is it earned?
8. What is the eligibility requirement for vacation?
9. Is there a cap to limit the amount of vacation accrued?
10. Are employees permitted to substitute sick leave for vacation?
11. How is unused accrued vacation treated?
12. Can employees contribute sick leave to other employees, and if so, what are the
limits?
13. Performance Management And Evaluation
14. Describe the past and current performance appraisal system in your organization.
15. If a performance appraisal instrument is used, please attach a copy. (If the
instrument differs by position, please attach all instruments.)
16. What type of process is used (360o–supervisor only–peer evaluation–outcome)?
17. What type of training is used in relationship to performance evaluation?
18. What is the role of the supervisor/manager in performance appraisal?
19. What is the focus of performance management in your organization?
20. How often and consistently is the process used?

8. Termination And Transition:

1. Is your organization an “at-will” employer?
2. What other causes or conditions of termination of employment exists?
3. What procedures are used for:
4. Termination for Cause
5. Job Closure
6. Resignation
7. What level of approval is needed before a termination can occur?
8. Is there any formal checklist or legal review prior to termination?
9. Are exit interviews performed for all employees who leave?
10. What documentation is required for all employee transitions?
11. How are references handled in your organization?
12. Who is responsible for internal communications regarding difficult terminations?
(i.e., communicating the termination to other employees.)
13. Legal Issues / Personnel Policies
14. To your knowledge, are all employees appropriately classified?
15. What personnel policies are currently being used? (Please attach a copy)
16. When was the last time these policies were reviewed and updated?
17. Is there a disparity between policies and practices?
18. Who has organizational responsibility for legal or employment questions?
19. Is harassment training regularly provided?
20. How are employee grievances dealt with?

The team works to collect information to answer the HR audit questions in each of
these categories. The focus is on how these activities and tasks are actually performed
in the organization. The first step is to collect all the pertinent information. The process
of getting information, in and of itself, can be quite informative.
Benefits of HR Audit:
It provides the various benefits to the organization. These are:
• It helps to find out the proper contribution of the HR department towards the
organization.
• Development of the professional image of the HR department of the organization.
• Reduce the HR cost.
• Motivation of the HR personnel.
• Find out the problems and solve them smoothly.
• Provides timely legal requirement.
• Sound Performance Appraisal Systems.
• Systematic job analysis.
• Smooth adoption of the changing mindset.

Conclusion:
The auditors always prepare and submit an audit report to authority of the
organization, which may be clean or qualified. The clean report indicates the
appreciative of the department's function, but the latter one represents the gaps in
performance and therefore contains remarks and remedial measures. HR Audit is very
much helpful to face the challenges and to increase the potentiality of the HR
personnel in the organization.