Items Description of Module

Subject Name Management

Paper Name Human Resource Management
Module Title Human Resource Audit
Module ID Module 40
Pre-Requisites Understanding the nature of HR audit
Objectives To study the objectives, scope, levels, steps, various approaches
and essential conditions to human resource audit
Keywords H R audit, Corporate, Managerial, Functional, Objectives, Scope
 QUADRANT –I

1. Module : Human Resource Audit

2. Learning Outcome
3. Introduction
4. Objectives of human resource audit
5. Scope of human resource audit
6. Levels of human resource audit
7. Steps in a human resource audit
8. Approaches to human resource audit
9. Essential conditions to human resource audit
Summary

1. Module 40: Human Resource Audit

2. Learning outcome
 After reading this module, you shall be able to:
 Discuss the objectives of Human Resource Audit
 Discuss the scope of Human Resource Audit
 Enumerate the levels of a Human Resource Audit
 Explain the steps in a Human Resource Audit Process
 Explain the various approaches to Human Resource Audit
 Discuss the essential conditions for an effective Human Resource Audit

3. Introduction
Human resource audit involves the logical collecting and investigation of the related
information periodically. The HR information in an HR audit is concerned to the people,
structures and HR philosophy of an organization. The HR audit normally extends over
HR functions like employee hiring, training and development, compensation,
maintenance, including motivation, leadership, safety and health, and workers relations
with management in an industry. It also covers the HR information system, HR research
and record keeping, return on HR investment and policies, procedure, and regulatory
compliances.
HR audit may be defined as a systemic inquiry into the efficacy of the philosophy,
policies and practices concerning HR management in terms of organizational
performance and its level of alignment with the overall organizational strategies.

4. Objectives of an HR Audit
 To review the performance of the Human Resource Department and its
connected activities for the purpose of assessing the effectiveness on the
implementation of the different policies to accomplish the Organizational
goals.
 To identify the gaps, lapses, irregularities in the process of implementation of
the directives, policies, procedures and practices of the Human Resource
Department and to suggest remedial actions.
  To know the factors detrimental to implementation of the planned programs
and activities
 To suggest measures and take corrective steps to rectify the, shortcomings if
any, for direction, and suggest result-oriented performance of Human
Resource Department.
 To evaluate the Personnel staff and employees with reference to the reports of
Performance Appraisal and make appropriate recommendations for
improvement in the efficiency of the employees.
 To assess the job chart of the middle level managers for the implementation of
the direction and instruction for result-oriented management of the Human
resources in their respective divisions.

5. Scope of an HR Audit
The HR audit has a very wide scope. It assumes that the management of human
resources involves much more than the mere practice of recruiting, hiring, retaining and
firing employees. It investigates the people management at all levels. It hovers over
areas like HR philosophy, policies, programs, practices and personnel results. The top
management has interest in auditing all the programs concerned to employees,
irrespective of where they come from, or the channels o their administration.
The main areas of HR audit comprise:
 Programming, forecasting and scheduling to meet organization and personnel
needs
 Recruitment, selection, career planning and development, promotion, training
and development etc.
 Leadership, welfare amenities, grievance management, performance appraisal,
employee mobility, and industrial relations.
 Hiring policies, practices and procedures.
 Job description and job specification statements.
 All files and records maintained by the HR department and all HR related files
and records maintained by other departments.

6. Levels of Human Resource Audit

The basic objective of an HR audit is to ensure that the human resource management
processes are effectively aligned with the corporate strategies so that the firm gets a
competitive advantage out of its human resources. The HR audit attempts to identify the
degree of alignment and also the cases of misalignment, if any. Since the success of HR
activities depends on the involvement and commitment of the different levels of
management, HR audit needs to be done at various levels of organizations. These levels
are corporate level, managerial level and functional level as shown in Fig.1.
6.1 Corporate Level
People at the corporate or top level of management issue directions for the HR
department. It is essential to include corporate level activities within the scope of the HR
audit. The HR audit must determine the relevance, completeness and accuracy of the
corporate strategies, mission, vision and other directives which provide a broad
framework and directions for the HR activities of an organization. HR audit at corporate
level usually emphasizes on issues relating to the designing of organizational structure,
institution or reporting and accountability among the different tiers of management.
Moreover, the information made available through policies, documents and other reports
of the organization, the HR auditor can also conduct interviews with the top managers
for gathering supplementary information. Such interviews should focus on ascertaining
the present and future plans of the top management for the organization.

6.2 Managerial Level

Line managers play a crucial role in the implementation of HR policies of an
organization. For instance, HR related activities like performance evaluation, on- the-job
training, and identification of grievance and its resolution are mostly done at the level of
departments where employees are engaged. Therefore, the line managers should also
be brought under the purview of an HR audit. The HR auditor should examine and
evaluate critically the extent to which line managers apply the HR policies and practices
while dealing with the employees. As a matter of fact, the rate of labor turnover is
affected more by what line managers do in their own department than what anyone at
the HR department is doing. The line managers can be subjected to interview as part of
the HR audit process to obtain their opinions regarding the HR policies, practices and
programs of the organization. They may also be encouraged to share their views about
the performance of the HR department particularly in recruitment and selection, training
and development so on. An HR audit at this level may focus on issues concerned with
the identification and assignment of authority and responsibilities to employees of
different departments, preparing of job profile of staff members, and identification of
possible HR cost-saving areas. Besides, the line manager’s opinion about the role they
 foresee for the HR department and the HR activities in heir department should also be
obtained.

6.3 Functional Level

In fact, the main focus of the HR audit mainly focuses on the HR department, which is
responsible for performing all the HR activities of the enterprise. Primarily, it is
concerned with the way the HR department is carrying out the activities assigned to it. It
also evaluates the competency of the HR personnel by determining how well or how
badly they performed their tasks and the net result of their actions. The HR audit
examines the contribution of the HR department to the accomplishment of the overall
organizational goals in detail. An HR audit at this level generally focuses on the design
and development of various human resource policies and procedures and proper
functioning of the human resource department. The HR audit may specifically focus on
the levels of employee commitment, involvement and morale in the HR department. The
HR auditor may make use of exhaustive questionnaires to gather information about the
employees’ roles, activities, and dissensions in order to assess the internal strengths
and weaknesses of the HR department.

7. Steps in an HR Audit
There are various steps in the HR audit process.
7.1 Determine the Objectives of the HR Audit
The first stage in an HR audit process involves making a decision regarding the
objectives of the HR audit. The HR audit may attempt to know the efficacy of the HR
policies, procedures and practices, the regulatory compliance by the HR department, or
the degree of alignment between the corporate strategy and the HR strategy. Further, it
may also focus on identifying and solving specific problems like high industrial disputes,
labor turnover, and absenteeism. An unambiguous objective can keep the HR auditor
focused and help choose relevant information from the numerous reports and personnel
files. At this stage, the organization can also decide whether to entrust the task of HR
audit to internal HR specialists or to external consultants. It determines to assign the job
to the outside auditor; the organization should fix the terms and conditions in writing. In
case the organization prefers internal persons for the job, it should ensure that the
person enjoys high integrity and objectivity and is not high on hierarchy.

7.2 Develop an audit plan and its process:

The next step is to design a layout for conducting the audit. This layout includes the
identification of the goals of the audit, assembling the audit team and creating a
timeframe for accomplishing the audit.

7.3 Gathering and analyzing the data: Once the HR audit begins, the audit team collects
all the documents and forms application for the audit and review current and potential
legal actions.

7.4 Determining the Criteria and Technique of Data Collection

Based on the background data, auditor finalizes the nature of data to be collected and
the time and duration of such collection. Most importantly the organization decides on
the criteria for evaluating the data. It serves as the benchmark for each HR activity which
is to be measured. The criteria used to evaluate the company’s personnel and their
action must reveal both its value and performance. The organization also finalizes the
 instruments of data collection like the interview schedule, questionnaire document
reviews, focus groups and observations. Depending upon the nature, intensity and size
of the data required the auditor may choose a single or multiple tools for effective data
collection.

7.5 Finalizing the Audit Plan:

Finalizing the audit plan may include changes in the audit goals, sources of data, and
techniques of data collection. After thorough revision the auditor should not firm up the
tentative plan as the final audit plan having complete clarity on the audit objectives, the
timeframe for auditing, the target departments and the people, the type of data needed,
the data collection technique to be used for each source and the cost of the intended
exercise.

7.6 Gathering the Complete Audit Data

The HR auditor must compile all relevant information from different sources. The scope
and focus of audit, the end-user requirements and the ultimate application of results
influence the data collection process. The interviews may also be conducted to gather
information from the senior management which permits the auditor to interact with the
management so that he can gain an insight into their thoughts and opinions about the
various aspects of the HR management. For collecting data from middle level managers,
the auditor may employ questionnaires and comprehensive questionnaires for gathering
necessary data from the employees of HR and other pertinent departments.

7.7 Developing the Audit Report

After conducting review of relevant documents and interviews at various levels, auditor
begins the task proceeds with the development of a comprehensive audit report.
Usually, the audit report covers all the key areas of HR operation. Usually, the audit
report provides information on three broad heads, namely the strengths of the existing
HR system, the areas of concern authorities should address and the areas requiring
more information for an effective audit.

7.8 Action based on the Audit Report

The organizational response to the audit report would depend on the HR auditor’s
recommendations. The actions may emerge in different forms like changes in the HR
policies and practices, determining the priorities of the HR department and HR activities,
realigning the corporate and HR strategies and initiating necessary action against the
people for lapses and performance gaps.

8. Approaches to HR Audit
The following approaches are adopted for purpose of evaluation. .
These steps are shown in Fig. 2.
8.1 Internal Approach
In this approach, the HR audit focuses on examining the effectiveness of the contribution
of the Hr department to the internal operations of the organization. From this
perspective, the emphasis of the HR audit is on the cost-benefit of the HR activities
measured in terms of organizational productivity and overall cost. When the HR
department is able to provide its services to the organization at the lowest cost, it is said
to have achieved the required efficiency in its activities. Quantity, quality, cost, speed
and reliability are the criteria applied for gauging the performance of the HR department.

8.2 External Approach

This approach emphasizes HR audit on measuring the contribution of the HR activities
to the external performance of the organization. For instance, the organization may
obtain competitive advantage in the market through the efficiency of the HR department.
The ability of the HR department to reduce the cost of staffing, training and
compensation, it gives the organization an opportunity to change the prices of the goods
or services to its advantage. Certainly, the final benefit of an increase in efficiency of any
operation must flow only from outside the organization. In this method, the criteria would
include external performance of the organization.

8.3 The Self-directed Team Approach

A self-directed team is a team of employees who combine themselves to work towards
common goals without any external supervision. In this approach, a self-directed team is
formed within an organization to audit its HR activities. The advantage of a self-directed
team is that its members take all the decisions on their own and enjoy complete
autonomy. Further, their decisions are time-bound and superior. In an internal HR audit,
the self-directed team members’ actions are influenced more by principles and values,
and less by departmental rules, supervisory direction, and management edict.

8.4 The Task Force Approach

 In this approach, a task force with members drawn from various departments of the
organization with different enterprise is form to carry out an HR audit in the organization.
Usually, an HR task force is formed by including line managers as members with an
internal HR expert as chairman or supervisor. This task force is a temporary group
formed exclusively for the purpose of auditing the HR functions and HR department.
Unlike a self-directed team, the task force functions in a supervisor-led environment. It is
more formal than a self-directed team. The members of the task force gather and
analyze data relating to the HR activities and evaluate the human resources of the
organization. The task force makes recommendations which help the organization in
getting rid of the weaknesses and building on the strengths of the HR activities

8.5 The Consultant Approach

In external consultant approach, the auditors are HR experts appointed by the
organization for the specific purpose of auditing its HR activities. Generally, the external
auditors function more objectively and impartially as they are not connected with the
organization in any way. The external HR auditors with their vast experience are able to
locate the strengths and weakness of the system with ease. Their findings and
recommendations usually meet less resistance from the employees as the latter cannot
adduce motives to the actions of an external person.
Besides these approaches, the HR auditors may also approach their task of auditing
through a traditional method called legal approach.

8.6 The Legal Approach

Since an HR audit is derived from a financial audit, which is statutory in nature, the HR
auditors may also follow the same legal approach to the task of HR audit. The focus of
the legal approach is on ensuring whether the statutory provisions concerning human
resource management are strictly complied with. The HR auditor, in this approach,
verifies the implementation of relevant labor laws in different HR functions like hiring,
compensation, dispute settlement, disciplinary actions and separation. The purpose of
the legal approach is to prevent any form of discrimination and unfair practices so that
the organization is protected from legal problems at a later stage.

Summary

Human resource audit involves the logical collecting and investigation of the related
information periodically. The HR information in an HR audit is concerned to the people,
structures and HR philosophy of an organization. HR audit may be defined as a systemic
inquiry into the efficacy of the philosophy, policies and practices concerning HR
management in terms of organizational performance and its level of alignment with the
overall organizational strategies.
There are various objectives of HR audit as to review the performance of the HR
department, to identify gaps, lapses, irregularities in the process of implementation of
policies, procedures and practices of HR department.
The HR audit has a very wide scope. It assumes that the management of human
resources involves much more than the mere practice of recruiting, hiring, retaining and
firing employees. It investigates the people management at all levels. It hovers over
areas like HR philosophy, policies, programs, practices and personnel results. The top
management has interest in auditing all the programs concerned to employees,
irrespective of where they come from, or the channels of their administration.
The HR audit is required to be done at here levels of organization: corporate, managerial
and functional level.
The various steps in an HR audit process include determining the objectives of the HR
audit, development an audit plan and its process, gathering and analyzing the data,
determining the criteria and techniques of data collection, finalizing the audit plan,
gathering and completing the audit data, developing the audit report, taking action based
on the audit report.
The approaches are adopted for purpose of evaluation of HR audit including internal
approach, external approach, self-directed team approach, task force approach,
consultant approach and legal approach.