Human Resource Audit

What is Human Resource Audit?

Human Resource Audit can be understood as a methodical, formal, and periodical review exercise, related to the assessment of the human resource management functions, which determines what should or should not be done, to make certain the effectiveness of Human Resource Management in the organization.

It tends to observe and analyze various HR activities and furnishes a summarized statement that contains the findings, and recommendations for improvements.

In finer terms, Human Resource Audit is all about examining and reviewing the performance of the firm in managing human resources.

Objectives of HR Audit

1. To review and form an opinion on the efficacy of the human resource management system regarding the recruitment, development, utilization, and retaining of the company’s human resources.
2. To ensure that all the labor laws are strictly followed in the organization, with respect to health, sanitation, lighting, safety, compensation, etc.
3. To assess the effectiveness of the company’s human resource department with respect to the implementation of the objectives, policies, practices, and programs.
4. To compare the human resource management system of the organization with other organizations and offer suggestions to appropriately modify and improve the system which helps in coping with the emerging challenges of human resource management.
5. To identify the gaps and shortcomings in the implementation of policies, plans, and procedures of the Human Resource Department

Why Human Resource Audit?

It is to be noted that there is no mandatory legal requirement of undertaking a Human Resource Audit. However, wise employers as per their own will use it as a means to evaluate and control the HR activities. This ensures the development of a better HRM system. The need for an HR audit is due to the following reasons:

• Change in the managerial philosophy: Previously employees were not involved in the management of the organization but now it is important to involve them in the activities and decision making of the management. That is why carrying out HR audits has become an integral part.
• Need for feedback: With the growth and expansion of the organization, regular feedback is required to improve employees’ performance and productivity levels. In this way, the HR audit helps in providing the necessary feedback to the organization.
• Satisfy the demands of Trade Unions: Trade Unions exist in every industry and with the passage of time they have become more and more powerful. Further, they have a crucial role to play in the organization’s human resource management. HR audit may help in maintaining good industrial relations by improving the HR functions of the organization.
• Avoid undue government intervention: To safeguard the interest of the employees, the government makes stringent laws that need to be followed by the employers and intervene frequently if they are not followed by the employers. With the help of HR audit, companies may avoid such intervention.
• Manage workforce diversity: Employees belong to different cultures, backgrounds, languages, ages, gender, marital status, location, community, etc. So there is a heterogeneous composition of employees, which creates difficulty for the HR department, to manage them effectively. An HR audit is necessary to tackle such problems.

Advantages of Human Resource Audit

1. Determines how much the company’s human resource department contributes towards the achievement of organizational objectives.
2. With the implementation of the suggestions and recommendations made by the auditor, the overall image of the HR department gets better.
3. Supports higher responsibility and professionalism among the members of the human resource department of the organization.
4. Ensures the compliance of the legal requirements as to the labor and industrial laws, in a timely manner.
5. Explains and classifies the duties and responsibilities of the human resource department.
6. Encourages consistency of the company’s HR policies, programs, and practices.
7. Ascertains critical human resource issues and raises them.

Scope of Human Resource Audit

Human Resource Audit deals with reviewing the management of people working at different levels in the organization and the performance of the human resource department. It is concerned with:

Auditing of Human Resource Policies: HR audit begins with the examination and review of the company’s policies relating to human resources. These policies determine what should/should not be done in a particular situation. It analyses the entire process followed for framing, executing, communicating, and changing policies. The policy audit determines:

• Are the human resource policies in line with the organization’s objectives?
• Who is responsible for setting up the human resource policies?
• Who can suggest changes in those policies?
• In what way policy formulation and revision is carried out?
• Does the company involve employees in the formulation of policies?
• How well the manpower understands the policies of the organization?

Audit of Human Resource Functions: Human Resource Audit mainly relies on the evaluation of the HR functions, as to planning, recruitment and selection, induction, training and development, performance evaluation, compensation, health and safety, and industrial relations. It analyses:

• What kind of human resource functions are performed by the organization?
• To which extent HR functions are related to the HRM objectives?
• To which extent the functions are capable of meeting the HRM objectives?

Audit of HR practices and procedure: Human Resources Audit checks the way in which human resource activities are carried out and its procedure. It focuses on:

• What are ideal HR practices and procedures and the way in which they can be formulated and implemented?
• Are the company’s HR practices and procedures in line with the HR policies?
• What are the controls that prevail in the organization to ensure a consistent application of HR practices and procedures?

Audit of HR Climate: Human Resource Climate indicates the effect of the human resource policies, practices, procedures, and programs, to develop an environment that is helpful in improving motivation, morale, job satisfaction, the performance of employees. It focuses on:

• What is the rate of labor turnover, absenteeism, and accidents?
• What is the present status of employee complaints and grievances and what actions are taken by the HR department to resolve them?
• How frequently organization conducts attitude and morale surveys and how it has resulted over the years?
• How effectively does the organization manage workforce diversity?

Wrap Up

Human Resource Audit involves methodical research on the effectiveness of the HR activities and acts as a tool for quality control. It collects and analyses information and then determines the actions which could be taken to improve the performance.