 Definition - A HR audit is a comprehensive method

to review current HR policies, procedures,

documentation and systems to identify needs for
improvement and enhancement of the HR function
as well as to assess compliances with ever changing
rules and regulations.
 Scope – Covers HR Policies & Practices, HR
Professionals and the HR Dept.
◦ The actual state
◦ The congruence between the desired state and actual state
◦ The alignment with the overall org strategy and goals
◦ The compliance with the laws and regulations
 The word audit is derived from the latin verb Audire,
which means, to listen. Listening implies an attempt
to know the state of the affairs as they exist and as
they are expected to exist.
 Like any audit, HR audit is also a systematic formal
process, which is designed to examine the strategies,
procedures, documentations, structures, systems
and practices with respect to the org’s HRM.
 To make HR function business driven
 To take stock of things and to improve HRD for expanding,
diversifying and entering into a fast-growth phase
 For promoting professionalism among employees and to
switch over to professional management
 MNC’s want to know the reasons for lower labour
productivity and for improving their HRD strategies in the
Indian context
 For growth and diversification
 Dissatisfaction with a particular component
 Change of leadership
 For effective talent utilization, retention and development
and intellectual capital building
Basic purpose of HR-Audit is to find:

 Effectiveness: To review performance of Human resource Dept. and its activities

to determine effectiveness.
 Implementation: To locate gaps, lapses, failings in applying Polices, Procedures,
Practices & HR-directives.
 Rectification: To take corrective steps to rectify mistakes.
 Evaluation: To evaluate HR Staff & employees.
 Modify: To review HR System and Modify to meet challenges in comparison with
other organizations.
 Questioning: To seek answers to ‘What happened’? ‘Why did it happen’? ‘Why did
it not happen’?
 Legal compliance
 Compensation/Salary Administration
 Employment/Recruiting
 Orientation
 Terminations
 Training and Development
 Employee Relations
 Files/Record Maintenance/Technology
 Policies and procedures (including employee handbook)
 Compliance-Employee compensation records, payroll files, job
descriptions and work logs are helpful in an HR audit to determine
alignment between nondiscriminatory employment practices and
compensation policies and current laws and industry practices.

 Workplace Policy Review-Annual reviews of employee handbooks,

standard operating procedures and workplace postings ensure
employers’ rules are consistent with labor and employment laws.

 HR Processes-Auditing human resources processes reveals whether

a company is operating in as efficient a manner as possible. Human
resources staff qualifications and expertise are often part of an
audit to assess the strength and capabilities of the department.
 Quality Management - HR audits that assess the quality of
work performed by outside providers enable better decision-
making related to retaining the services of that provider or
creating ways to improve the quality of employee services
performed in-house.
 Due Diligence-The purpose of an HR audit for due diligence
inspection facilitates a seamless transition for employment
processes during mergers and acquisitions. Records review
and examination of HR files can uncover issues that must be
resolved before finalizing a merger transaction. This type of
audit also may highlight potential liability for previous
employment actions and give acquiring companies a heads-
up on future expenses for legal representation concerning
past practices.
 The HR audit champions are members of staff expected to
contribute to the process. They do not have to have management
responsibilities. These champions are early adopters and advocates
for the project who want the audit to succeed and believe that
carrying out this process will be beneficial to the organisation.
 They understand the purpose and relevance of the project for them
and the organisation. The project manager must be clear and
manage expectations throughout. It must be clearly established at
the start of the project that they can commit the time necessary to
be a champion. The champions’ involvement and enthusiasm must
also be recognised as appropriate.
 How to choose HR audit champions
◦ Should be a member of staff, volunteer or board member;
◦ Usually drawn from department(s) being audited;
◦ Can demonstrate commitment to the process (essential);
◦ Need to be given the time and recognition by management
to undertake the role.
 Build commitment through effective
communication: Develop and maintain a
communication plan to ensure that expectations of
the project remain in line with reality. Creating a
framework of objective; strategy; by whom; by
when, might be useful.
 Acknowledge and manage resistance. Recognise
and manage any resistance to the technology and
new or changed business processes associated
with the project needs.
 Build synergy through teamwork. Synergy is
developed to create an atmosphere that allows
individuals from different backgrounds and with
diverse skills, experience, needs and aspirations to
work together. Ensure that the champions are active in
any training and follow-up activities.
 Equip the champions. Ensure that the necessary
resources and support are available throughout the
whole duration of the HR audit process.
 Encourage ownership. Ensure that the HR audit
champion accepts ultimate responsibility for its
successful implementation.
 The following approaches are adopted for purpose
of evaluation:
 Comparative approach
 Outside authority approach
 Statistical approach
 Compliance approach
 Management by objectives (MBO) approach
 In this, the auditors identify Competitor Company as the
model. The results of their organization are compared with
that Company/ industry.
 In this approach, a benchmarking strategy is used. Auditors
identify a competitor organization which is used as a model
in comparison. The audit reports are compared analytically to
find areas to make corrections.
 The benchmarking process is quite tedious as it involves;
 Forming a team to take care of the process.
 Identifying the most suitable organization to partner for the
benchmarking.
 Collection of data from both organization/companies.
 Proper analyzing and interpretation of the data.
 Creating an action plan and working on loopholes identified.
 Standards set by outside consultants are used by the
audit team to benchmark for comparison with their
own results. Data from published research finding
and research films/ documentaries are also a source
for benchmarking, to explore for causes of the
problem.
 Statistical Approach is also known as a quantitative and
qualitative approach. This method uses statistical tools
and information recorded in the organization’s system.
The recorded information may include employee
turnover and absenteeism. The checking and auditing of
employees involve complex mathematical formulas
which form a standard on which all activities and
programs are examined.
 With the mathematical data as a base, mistakes can be
discovered and corrected from an early point. Other
times statistical approach is supplemented with records
from different sources such as films and surveys.
 It is an approach based on legal and organization’s
policies. Auditors take a thorough look at past
actions to examine whether the organization’s
activities are in line with legal requirements
together with the set standards, policies and
procedures. Although many don’t view it as an
efficient approach because it uses past information
which may be biased due to various reasons.
 This is a goal and objective-based approach. Specific
targets are laid down against which the
organization’s performance is measured so as to
arrive at a final decision. The Audit team conducts a
survey of the actual performance then compares
that performance with the desired objectives of the
organization.
 It is noted that irrespective of the approach, it can be
grouped as a comprehensive plan or special focused
plan, with staff, time and costs as factors.
 In this method, the HR evaluates not only the financial performance
of the organization but also takes into the consideration the key
performance indicators of customer service, internal business
process and learning & growth achieved by the organization.
 The four dimensions that make the balanced scorecard are:
 Financial Dimension: The management can determine the long
term and short term financial performance of the organization that
results from the actions undertaken by the management during the
financial year.
 Customer Service: Through this dimension, the management tries
to find out the perception of customers towards the organization
and also the customer retention and satisfaction levels.
 Business Process: Under this, the management evaluates the
efficiency of the production processes in terms of, how well
the order was processed, when the delivery was made, and
what was the cost incurred per order.
 Learning and Growth: This dimension talks about if any
new technology or novice product introduced in the
organization, the customer retention and the efficiency of
training programs conducted for the personnel. It focuses on
how well the organization’s resources were utilized; that
results in the overall growth of the organization.
 Earlier, the evaluation tools just focused on the financial
performance of the organization through its past records, but
with the balanced scorecard, the organizations can keep a
track of past as well as forecast the future performance of its
operations.
 Arthur Anderson
◦ five stages----
◦ 1. The clarification stage : firm focus on impact of mgt’s
philosophy on human capital
◦ 2. The assessment stage: calculates the cost of investment
on human capital
◦ 3.The design stage: creates prg that yield better returns on
human capital
◦ 4. The implementation stage: proposed changes into
practice
◦ 5. The monitoring stage: check new system against strategy
 Identification of the contributions of the HR department
to the Organisation.
 Encourages greater responsibility and professionalism
among members of the HR department.
 Clarifies HR department’s duties and responsibilities.
 Creation of increased acceptance of the necessary
changes in the HR department.
 Activities
 Behaviors
 Risk Assessment
 Internal Controls
 Outcomes
 HR Audit is comprehensive evaluation of following
 Structure
 Strategies
 Systems
 Styles
 Skills/Competencies
 Culture(Shared Values)
◦ And their appropriateness in achieving short-term & long-
term goals.