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Human Resource Auditing
1. Introduction
Human resource management emerged from traditional personnel
Management in the 1980s. Traditional personnel management was viewed
largely as involving the performance of basic staffing functions, often
conducted without regard to other organizational activities and without
alignment to organizational objectives. Human resource management as a
profession evolved as an extension of the traditional personnel role into a
more effective organizational activity. Within the field of human resource
management a human resource audit is one method of evaluating or
assessing activities.
The word audit comes from the Latin, ‘audire’ (to listen). Auditing has
existed for centuries and can be traced to ancient Egypt, Babylon and
Rome. The auditor’s role was to ‘listen’ to the records and the notion of an
independent outsider ‘looking in’ is central to auditing (Higgins, H. N,
1997). It is not the function of an auditor to take the role of management;
the audit role is one of examination and of critiquing management systems
and procedures (Clardy 2004). In this study the term ‘human resource
audit’ describes the professional practice of auditing applied to human
resources management activities.
Human resource auditing is located both within and between each of the
fields of human resource management and auditing. This case has two
parent disciplines: auditing and human resource management. Auditing is
described as an investigative and information processing activity, which
evolved in response to the need for independently verified stewardship
reports (McBrayne, I 1990). Within the discipline of auditing a human
resource audit is a functional or activity audit conducted within or across a
range of defined auditing types.
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This paper focuses on the uses of HR auditing to evaluate the contribution
of human resource management activities, as defined in the audit scope, to
a corporation’s current and future objectives. It will demonstrate that a
human resource management audit can identify areas where additional
value can be obtained from a valued, well regarded human resource
department.
2. Human Resource Management
Human Resource Management is the process of managing people in
organizations in a structured and thorough manner. This covers the fields of
staffing (hiring people), retention of people, pay and perks setting and
management, performance management, change management and taking
care of exits from the company to round off the activities.
The Society for Human Resource Management, describe human resource
management as “the formal structure within an organization responsible
for all the decisions, strategies, factors, principles, operations practices,
functions, activities and methods related to the management of people”
(SHRM 2007a).
In relation to human resource management it is observed that “every
manager is a human resource manager” (Mark A. Huselid, 1998) and that
human resource management involve “all management decisions”
emphasizing those human resource activities can also be undertaken by line
managers. They define human resource management as: The design of
formal systems in an organization to ensure effective use of human talent to
accomplish organizational goals.
2.1. Functions of HRM
human resource strategic planning, human resource planning, manpower
panning, recruitment / selection ,
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induction ,orientation ,training ,management development, compensation
development, performance appraisals, performance
management ,succession planning, safety management ,staff
communication etc.
2.1.1. Human Resource Planning
HRP is the process including forecasting, developing and controlling-by
which a firm ensures that it has the right number of people and the right
kind of people, at the right places at the right time, doing work for which
they are economically most useful.
2.1.2. Recruitment and Selection
Recruitment is the attraction of capable candidates to a vacancy, whilst
selection concerns the assessment and identification of the suitability of
such applicants from this pool. Recruitment and selection offer key
opportunities for an organization to alter the type of staff it employs.
2.2.1.3. Compensation and Benefit
Employee compensation refers to all forms of pay or rewards going to
employees and arising from their employment, and it has two main
components: direct financial payments (in the form of wages, salaries,
incentives, commissions and bonuses) and indirect payments (in the form of
financial benefits like employer-paid insurance and vacations).
Benefits are forms of value, other than payment, that are provided to the
employee in return for their contribution to the organization, that is, for
doing their job. Prominent examples of benefits are insurance (medical, life,
dental, disability, unemployment and worker's compensation), vacation pay,
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holiday pay, and maternity leave, contribution to retirement (pension pay),
profit sharing, stock options, and bonuses.
2.1.4. Training and Development
Training refers to the methods used to give new or present employees, the
skills they need to perform their jobs. Provision of training to the
management members as well as to employees, with the aim of enhancing
their knowledge, skill, and ability in making them always competent and
responsive in performing their duties, is considered to be one of the key
strategies that enhance the Corporation’s efforts to achieve its objectives.
2.1.5. Employee/Labor-Management Relations
Employee/Labor-Management Relations is a relationship that covers all
aspects of employment relations between the employer and the employees
in the context of organizational operations. It involves, regulation of
conditions of service, collective bargaining, management of strikes,
industrial democracy, employer-trade unions’ relations, and organization
personnel policies etc.
2.1.6. Safety and Security
Creating a safe, healthy and happy workplace will ensure that your
employees feel homely and stay with your organization for a very long time.
3. Definition of HR auditing
The word audit comes from the Latin verb audire to listen; the auditor’s role
was to ‘listen to the records’ (Higgins, H. N, 1997). Auditing has been
defined as: the accumulation and evaluation of evidence about information
to determine and report on the degree of correspondence between the
information and established criteria. Auditing should be performed by a
competent, independent person. (Clardy, A 2004).
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The Human Resources Audit is a process of examining policies,
documentation, systems, and practices with respect to an organization’s HR
function. The purpose of the audit is to reveal the strength and weaknesses
in the human resources system, and all issues, which need resolution. The
audit is focused on analyzing and improving HR function in the
organization.
The audit is a diagnostic tool, not a prescriptive instrument. It will help the
managers to identify what is missing or need to improve in the organization,
but it can’t tell what else is necessary 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 it’s full potential to support the
organization’s mission and objectives can be realized.
A Human Resources Audit is a comprehensive method (or means) to review
current human resources policies, procedures, documentation and systems
to identify needs for improvement and enhancement of the HR function as
well as to ensure compliance with ever-changing rules and regulations. An
Audit involves systematically reviewing all aspects of human resources,
usually in a checklist fashion (Phillips, 1996).
An HR audit helps a company's senior management evaluate the efficiency
of its human resources department and programs. Depending on the needs
of the individual company, an HR audit evaluates the department's effects,
services and its place in the achievement of company goals and objectives.
It also assesses HR compliance with state and federal laws and determines
any weaknesses in the human resources management program. Senior
management can use the audit to make any necessary changes and evaluate
its overall approach to the human resources function (Phillips, J, 1996).
Encyclopedic Dictionary of Human Resource Management (Mark A.
Huselid, 1998) human resource audit is defined as:
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‘… a series of systematic, formal procedures designed to evaluate the
efficiency and effectiveness of the firm's HR management system, compare
its performance to relevant internal and external benchmarks, evaluate the
appropriateness of this system for implementing the firm's strategic and
operational objectives, and thereafter provide a framework for improving
the way in which the firm manages people’.
3.1. Goals of the HR Audit
The review process should provide answers to several important questions
regarding the application of company’s policies. The audit’s goals are to
determine whether company’s policies are being applied consistently,
whether they are the norm for companies and branch location, and whether
they are consistently communicated to all employees. The audit should also
provide insight as to which individuals are responsible for the
implementation and enforcement of policies. Finally, it should distinguish
between policies that are applicable to non union employees, and the terms
and conditions of employment for employees who are represented by a
labour organization.
3.2. Benefits of HR Audit
Human resource audit also provides an opportunity to assess the financial
advantages and disadvantages of human resource functions, benchmark the
function, evaluate the effectiveness of the function, ensure compliance,
establish standards, promote change and creativity, bring human resources
closer to line managers, focus staff on critical human resources issues and
to improve the quality, image and contributions of the human resource
function (Walker, J. W, 1998).
Several benefits that result from an HR audit are:
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Identification of the contributions of the HR department to the
organization,
Improvement of the professional image of the HR department,
Encouragement of greater responsibility and professionalism among
members of the HR department
Clarification of the HR department’s duties and responsibilities,
Stimulation of uniformity of HR policies and practices,
Finding critical personnel problems,
Ensuring timely compliance with legal requirements,
Reduction of HR costs through more effective personnel procedures,
3.3. Approaches to Human Resource Audits
There are five common approaches for the purpose of auditing of HR in any
organization:
3.3.1. Comparative approach: In this approach, another division or
company that has better practices or results is chosen as the model. The
audit team audits and compares the audited firm’s results with the best
practices of the model organization. This approach is commonly used to
compare the results of specific activities or programs. The approach is often
used with turnover, absence, salary data and staffing levels. It helps detect
areas where improvement is needed. It also makes sense to compare where
a procedure is being used for the first time.
3.3.2. External audit : In this approach, standards set by a consultant
or taken from published research findings serve as the benchmark for the
audit team. The consultant or research findings may help diagnose the
cause of problems.
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3.3.3. Statistical: This approach relies on performance measures
drawn from the company’s existing information system. From existing
records, the audit team generates statistical standards against which
activities and programs are evaluated. With the mathematical standards as
a base, the team may uncover errors while they are still minor. Often this
approach is supplemented with comparative data from external sources
such as other firms, or industry association surveys. The information is
usually expressed in ratios or formulas that are easy to compute and use.
3.3.4. Compliance approach: This approach reviews past practices,
to determine if actions taken followed legal requirements and company
policies and procedures. The audit team here often examines a sample of
employment, compensation, discipline and employee appraisal forms. The
purpose of the review is to ensure that the field offices and the operating
managers have complied with internal rules and legal regulations, such as
minimum wages and equal employment opportunity laws. By sampling
elements of the human resources information system, the audit team looks
for deviations from laws and company policies and procedures. The team
can then determine the degree of compliance achieved.
3.3.5. Management by Objectives (MBO): In this management
by objectives approach, managers and specialists set objectives in their area
of responsibility. Then they create specific goals against which this
performance can be measured. The audit team researches actual
performance and compares it with the previously set objectives. They can
then evaluate the trends in this area.
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3.5. Who should conduct HR audit?
The audit can be conducted by internal managers of the
organization, as external HR/Management expert or by a Labor Law
expert. Whoever is In-charge of audit must have excellent knowledge
about HR policies and should be able to maintain a check list to check the
existing policies with its present requirements. An audit conducted by
outside HR expert adds extra value to the whole process apart from
giving an insight into the whole issue.
Gaps between what are being practices and what is desirable can
always only are identified in a better way by external HR expert.
Being independent, his views are always considered to be better than
internal person’s opinion.
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HR AUDIT QUESTIONNAIRE/CHECKLIST
HR Audits help to determine effectiveness of an HR department and/or HR
systems. They are a systematic, objective tool to assess regulatory or policy
compliance in the workplace. For EIC Human Resource Staff
Please put a tick () mark inside the box that indicate your level of agreement for each question
HR AUDIT question/CHECKLIST
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Human Resource Planning The organization have plans for ensuring its development I believe that HRM is a strategic tool for an organizations that helps for sustainable competitive advantage Restrict hiring, giving compensation, reducing working, early retirement are the strategy that this organization are going to be act in case of surpluses of employees exist The organization estimates the size and composition of future to ensure survival and growth for sustainable competition with others Job analysis provides information about jobs currently being done in organization Labor turnover, retirement, resignation, termination, death are the factors that decrease internal supply of organization, but in my company these all factors do not affect the human resource planning
Recruitment and Selection There is a policy in place stating the organization philosophy on recruitment and selection The policy contain procedures to guide managers through the recruitment and selection process There is a formal process in place for identifying job vacancies Recruitment was done proactively from a planning mode as well as reactively to immediate replacement and new job openings Mobility of human resources and expansion of the company are the factors that necessitate for new vacancy(recruitment) HR department does perform all initial screening of candidates Exams and personality profiles are used in the selection process of the company
Compensation and Benefit The compensation policy of the company contain procedures to guide managers on how to implement the compensation system Distribution of compensation among departments are reviewed by
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management for consistency and equity before awarding increasesThe organization have a policy clearly stating its position on employees compensation(salary) The organization compensation philosophy clearly communicated to all employees The organization have a clear policy regarding employee benefits
Performance Management and Evaluation Performance appraisal do reflect an employee's positive behavior as well as results
HR AUDIT QUESTION/CHECKLIST
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The company's performance appraisal include a written plan to improve employees knowledge and skills The company's performance evaluation establish clear objectives, expectations and performance measurement criteria linked to the specific job Employee who are better performers receive higher pay increase than poor performers
Staff Socialization The HR department fulfill their responsibilities by guiding and giving a full information for the selected employees to socialize shortly with the environment The company has practiced and allocated budget for welcoming program for new selected employees
Training and Development There is a policy that states the organization philosophy on employee training & development There is a process for assessing the organizations immediate training needs and individual development needs There is also a process to assess the organization's future training needs Job skills, knowledge and ability are considered in assessing training needs New technologies, processes, products, services, market changes and community needs are considered in assessing training needs All training programs and opportunities well communicated to employees The results of training programs are monitored and evaluated The organization has to give a sponsorship for employee to study in higher education
Employee/Labor-Management Relations The organization has clearly state its philosophy on labor relations and implement guiding procedures for managers Top management is informed and supportive of labor management
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strategies and goalsThere is an atmosphere of management respect for union representation Company encourage employees to play a proactive role in improving the labor-management relationship The management has assess the employees motivation and job satisfaction towards employees benefit and company's productivity There is an atmosphere of management respect for union representation The management body understand the laws that govern collective bargaining Employees are given the opportunity to exchange information with superiors as well as assimilate information being transmitted from the top down There is a program that provides for management and employee participation in the discipline process
HR AUDIT QUESTION/CHECKLIST
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Safety and Security
safety hazards reported to the appropriate personnel Workplace accidents, near-misses, injuries, and illnesses reported and investigated Measures are in place to prevent intruders from entering the grounds or buildings There is a reliable response system in place in the event an alarm is triggered Employees are encouraged to promptly report incidents, and suggest ways to reduce or eliminate risks Structures are readily accessible to disabled employees
Recordkeeping and other documentation personnel files are current Personnel files are completed accurately and on time and currently held Documents regarding employees are kept for their required duration All appropriate labor posters are displayed in an easily visible place HRIS system are being used There is training of managers and employees about personnel files, and policies and procedures for accessing them?
Employee Communication Company creates an environment of open communication between
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employees and managementThe corporate capture the creative insight of employees by soliciting their ideas for improvement? Company create environment to delegate decision making to the lowest level possible
THANK YOU FOR YOUR TIME IN FILLING THIS QUESTIONNAIRE AND HELPING ME WITH YOUR VALUABLE INPUTS. M M
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