Conducting Human Resource Audits SHRM
Conducting Human Resource Audits SHRM
Conducting Human Resource Audits SHRM
SHRM
June 16, 2016
Scope—Human resource audits involve an organization’s strategic actions to take an intensely
objective look at its HR policies, procedures and practices. This type of comprehensive review
of the company’s current state can help identify whether specific practice areas or processes
are adequate, legal and effective. The results obtained from this review can help identify gaps in
HR practices, and HR can then prioritize these gaps in an effort to minimize lawsuits and
regulatory violations, as well as to achieve and maintain world-class competitiveness in key HR
practice areas.
Overview
Human resource audits can help identify whether an HR department's specific practice
areas or processes are adequate, legal and effective. The results obtained from this
review can help identify gaps in HR practices, and HR can then prioritize these gaps in
an effort to minimize lawsuits or regulatory violations, as well as to achieve and maintain
world-class competitiveness in key HR practice areas.
Background
Human resource audits are a vital means of avoiding legal and regulatory liability that
may arise from an organization's HR policies and practices. In addition to identifying
areas of legal risk, audits are often designed to provide a company with information
about the competitiveness of its HR strategies by looking at the best practices of other
employers in its industry. In essence, an HR audit involves identifying issues and finding
solutions to problems before they become unmanageable. It is an opportunity to assess
what an organization is doing right, as well as how things might be done differently,
more efficiently or at a reduced cost.
HR Audit Defined
An HR audit involves devoting time and resources to taking an intensely objective look
at the organization's HR policies, practices, procedures and strategies to protect the
organization, establish best practices and identify opportunities for improvement. An
objective review of the employer's current state can help HR evaluate whether specific
practice areas are adequate, legal and effective. The results can provide decision-
makers with the information necessary to decide which areas need improvement.
HR usually conducts an audit by using a questionnaire that asks for the evaluation of
specific practice areas. This document helps guide the audit team in scrutinizing all
critical areas of an organization's HR practices. The audit may also include interviewing
or using questionnaires to solicit feedback from selected HR employees and other
department managers to learn whether certain policies and procedures are understood,
practiced and accepted.
Types of Audits
What to Audit
When to Audit
Given the resources required for a full-scale audit, most organizations will not want to
go through this process more than once a year; however, mini-audits that allow for
some course correction can be accomplished without too much departmental pain
approximately every six months. Scheduling annual checkups to maintain the discipline
of a regular review is preferable to only occasional or panic audits (e.g., those that take
place only when a potential problem is brewing). Another strategy is to conduct an audit
following any significant event (e.g., new plans, management changes).
What to Expect
A full-scale legal compliance audit in particular covers a great deal of territory and takes
longer to complete as compared with a best-practices audit, which benchmarks one
specific practice against another employer's approach, or a function-specific audit,
which reviews only one key area of the employer's HR practices.
Costs of an Audit
The actual cost of an HR audit depends on the scope of the review, the number of
people interviewed and the size of the audit team. Consequently, the expense varies
greatly from one situation to another. Suffice it to say, though, that the cost of
conducting any full-scale HR compliance audit will be far less than defending (let alone
losing) even one lawsuit. Some insurance carriers even provide audits as a part of their
compliance programs, so the audit could actually be free.
The organization's HR professionals can perform an audit in-house if they have the
expertise, the time, a willingness to objectively acknowledge inadequacies in current
procedures and, most importantly, the clout to make or influence the necessary
organizational changes. However, if the audit is conducted with internal resources or
even with an outside consultant who is not a lawyer, everything connected with the audit
is subject to discovery in litigation relating to employment practices.
If an organization has legitimate concerns about what its HR audit may reveal regarding
the company's noncompliance with various employment laws and regulations, the
organization should follow fairly strict audit procedures and protocols and consider
hiring outside legal counsel to conduct the audit. In doing so, the employer may be able
to safeguard the audit results through the application of at least one of the three legal
privileges against disclosure. See Your Safety Audits May End Up in OSHA's Hands.
The general process of conducting an audit includes seven key steps, each of which is
discussed in greater detail below:
To uncover the needed information, the audit team must determine exactly which areas
to target for review. If the organization has never audited its HR function, or if significant
organizational or legal changes have recently occurred, the audit team may want to
conduct a comprehensive review of all HR practice areas. On the other hand, if
concerns are limited to the adequacy of a specific process or policy, the audit team can
focus its review on that particular area.
The next phase includes the actual process of reviewing specific areas to collect the
data about the organization and its HR practices. Audit team members will use the audit
questionnaire as a road map to review the specific areas identified within the scope of
the audit.
To fully assess the audit findings, the team must compare them with HR benchmarks.
This comparison will offer insight into how the audit results compare against other
similarly sized firms, national standards or internal organizational data. Typical
information that might be internally benchmarked includes the organization's ratio of
total employees to HR professionals, ratio of dollars spent on HR function relative to
total sales, general and administrative costs, and cost per new employee hired. See
ANSI/SHRM Cost-per-Hire Standard (PDF).
National standard benchmarking might include the number of days to fill a position,
average cost of annual employee benefits and absenteeism rates. See Benchmarking
Human Capital Metrics.
At the conclusion of the audit process, the audit team must summarize the data and
provide feedback to the organization's HR professionals and senior management team
in the form of findings and recommendations. Findings are typically reduced to a written
report with recommendations prioritized based on the risk level assigned to each item
(e.g., high, medium and low). From this final analysis, the audit team can develop a
timeline for action that will help determine the order in which to address the issues
raised. In addition to a formal report, the audit team should discuss the results of the
audit with employees in the HR department, as well as with the senior management
team, so that everyone is aware of necessary changes and that approvals can be
obtained quickly.
At the conclusion of the audit, HR leaders must engage in constant observation and
continuous improvement of the organization's policies, procedures and practices so that
the organization never ceases to keep improving. This will ensure that the company
achieves and retains its competitive advantage. One way to do this is to continuously
monitor HR systems to ensure that they are up-to-date and to have follow-up
mechanisms built into every one of them.