Human Resource Audit: Meaning, Need, Objectives, Process and Areas

HR audit is an important management control device. It is a tool to judge organisations performance and effectiveness of HR management. According to Dale Yoder, “Personnel audit refers to an examination and evaluation of policies, procedures and practices to determine the effectiveness of personnel management.”

It is an analytical, investigative and comparative process. It gives feedback about HR functions to operating managers and HR specialists. It enables to know about the effectiveness of personnel programmes. It further provides feedback about how well managers are meeting their HR duties. It provides quality control check on HR activities. It refers to determine the effectiveness and efficiency of HRM.

Organizations are increasingly finding it imperative to improve returns on investment, in order to stay competitive. Traditionally, accounting norms were viewed only from the financial perspective and were applied to all departments ranging from marketing, production, distribution, etc. HRM was limited to salary and administration and, while doing so, it was analysed from the perspective of provisioning and expenditure.

Human Resource (HR) Audit is not only a tool for evaluating the personnel activities of an organisation, but also an important aspect of the human resource management. It is a great deal of attention from Human Resource Practitioners.

It basically review the effectiveness of human resource practices. It gives feedback about HR functions not only to operating managers, but also the HR department about how very well operating managers are meeting their HR duties.

Need

(1) Mounting pressures from trade unions of employees and their participation in formulating employment policy and questioning of managerial competence have raised the need for HR audit.

(2) An effective two way communication system has also facilitated the need for HR audit.

(3) The managements of organisations have realized the need for HR audit because of powerful influence on motivation of employees at work due to participation of employees in decision making.

(4) Growth of organisation needs HR audit. Large organisation requires continuous feedback for improvement in performance of its employees.

Objectives

• To review the performance of the Human Resource Department and its relative activities in order to assess the effectiveness on the implementation of the various policies to realize the Organizational goals.
• To identify the gaps, lapses, irregularities, short-comings, in the implementation of the Policies, procedures, practices, directives, of the Human Resource Department and to suggest remedial actions.
• To know the factors which are detrimental to the non-implementation or wrong implementation of the planned Programmes and activities.
• To suggest measures and corrective steps to rectify the mistakes, shortcomings if any, for future guidance, and advise for effective performance of the work of the Human Resource Department.
• v To evaluate the Personnel staff and employees with reference to the Performance Appraisal Reports and suggest suitable recommendations for improving the efficiency of the employees.
• To evaluate the job chart of the Human Resource Managers, Executives, Administrative Officers, Executive Officers, Recruitment Officers, whether they have implemented the directives and guidelines for effective Management of the Human resources in their respective Departments.

Process

1. Determining the Scope and Type of Audit:

Since HR is a very wide field, the company may either choose to conduct a comprehensive review of all HR functions or it may decide to review a few specific areas as it deems necessary. For example, a company may choose to review only the policies and procedures related to recruitment, selection and orientation policies.

2. Determining the Audit Method:

HR audits are usually conducted by using a questionnaire that elicits information about the relevant HR areas. The audit may also be conducted by interviewing managers and employees of the HR department to analyze how well they have understood the company’s policies and how efficiently these policies are being implemented. When using a questionnaire, care should be taken to design it in such a way that it elicits all necessary information regarding the areas to be audited.

3. Data Collection:

This step includes the actual process of collecting data about the organization and its HR practices. Information is collected by using the questionnaire and by interviewing relevant HR personnel about the HR procedures and policies being used in the company.

4. Setting the Standards:

To assess the efficiency of HR functions, the information collected has to be compared with some pre-determined standards. These standards have to be pre-set and any acceptable level of discrepancies should be specified clearly. Comparing the actual results with the standards will give an idea about the efficiency with which the HR functions are being performed.

5. Feedback about the Results:

After collecting information and comparing the results, the audit team summarises the findings and provides feedback to the company’s HR personnel and senior management in the form of an audit report.

The results of the audit should be discussed with the employees of the HR department so that they are made aware of the present condition of the HR functions in the company. Discussion with employees will also throw up new ideas for improving the policies and procedures in future.

6. Develop Action Plans:

Once the results of the audit are out, this information should be used for improving the working of the HR department. The findings of the audit should be categorised according to order of importance: high, medium and low. The organization should examine the areas of weaknesses as revealed by the audit and find ways to overcome them. Conducting HR audit would serve no practical purpose if no actions are taken.

Areas

(1) Research and Innovation:

Research and innovation is yet another area of HR audit. Here several experiments are conducted and theories are put to test by the experts relating to quality design, marketing etc. Results obtained through this Endeavour can be evaluated on the basis of changes brought about, experiments made and reports and other similar publications.

Auditors can evaluate the results. They can also examine the programmes and procedures adopted for R and D efforts. The management’s policy in respect of R & D efforts can be examined by the auditors and necessary suggestions can be made by them in this regard.

(2) Administration:

HR auditors have to examine the style of leadership adopted by the management in dealing with the subordinates. Leadership may be authoritative or participative should be evaluated. One of the benchmark in this respect is delegation of authority.

Delegation is more in participative style. Auditors can assess the results of style of leadership adopted in getting the things done through others by inviting suggestion, going through grievances of the staff, disciplinary actions taken against the subordinates etc. Leadership results can also be visualized if auditors examine the union management relationship and the employees getting promotions.

(3) Commitment:

Enterprise wants committed employees. Efforts are taken by the management in this respect for motivating individual and groups of employees. HR auditors have to examine the results of motivation through increase in productivity, improvement in performance and costs. They also have to examine the programmes and procedures followed for job enrichment, wage and salary administration, fringe benefits, morale of employees. They have to verify the satisfaction level of employees through the HR policies adopted by the organisation. A satisfied employee is committed to the work.

(4) Organizing:

Organisational structures are meant for facilitating coordination, communication and collaboration. HR auditors have to evaluate effectiveness of organisation structure in attaining the results. They can obtain feedback from the employees and from reports and records. They can check the jobs assigned to the individual employees, authority delegated to the subordinates, special task forces etc. H.R. auditors can also evaluate the policy formulated for encouraging employees to accept change. They can also verify effectiveness of three way communication.

(5) Staffing and Development:

Staffing and development is yet another are a need to be evaluated with reference to results obtained, programmes and procedures adopted and policies framed. Staffing is done through recruitment and selection. Here the HR auditors need to evaluate the sources of recruitment and the number of persons hired by the organisation. The success of these programmes depends upon the contributions made by the hired persons in the achievement of organisational objectives.

Auditors have to see whether committed workforce is procured through recruitment and selection programmes. They can then make appraisal of recruitment and selection policies, practices and results. As for results are concerned they depend upon the effectiveness of H.R. policies and practices adopted by the enterprise. For conducting the audit of results the HR auditors need to adopt the methods such as questionnaires, checklists, personal data, and attitude and morale surveys productivity data, and costs, time.

(6) Planning:

Planning is one of the major areas where human resource audit can be conducted. Planning of HR requirement and effectiveness of forecasting and scheduling can be ascertained through HR audit. It is to be seen whether the needs of HR were identified in time or not. If there is an indication through audit about inaccurate forecast, the efforts can be made to improve the forecasting techniques for accurate results in future. Through audit management knows whether there is surplus or shortage of manpower.

A review of recruitment and selection practices can be made to meet the future HR requirements. Better programmes and procedure can be adopted by way of cost benefit, budgets. The training programmes can be reviewed in terms of results obtained. Motivation of employees at all levels is the key aspect in HRM. Evaluation of employee motivation will show whether they feel at ease at work and have better prospect if they work hard.