Human Resource Audit In India & its Type?

Human Resource Audit In India & its Type ?

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.

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.

In today's competitive climate, organizations operate within the confines of a heavily regulated employee environment. This challenge includes dealing with myriad complex laws and regulations. The scope of the HR function includes establishing and administering a host of policies and practices—many of which involve compliance implications—that significantly influence the productivity and profitability of the enterprise.

Given that many HR departments are both understaffed and overworked, only in retrospect do many organizations become aware of the monetary costs of ignoring HR-related legal hot buttons. Noncompliance with applicable laws and regulations involves significant financial risk. To minimize the risk, many organisations purchase employment practices liability insurance. Though this is a sound strategy, organizations can take other proactive measures. Chief among these is a voluntary HR compliance audit.

An HR compliance audit generally consists of two main parts:

  • An evaluation of the organization's operational HR policies, practices and processes with a focus on key HR department delivery areas (e.g., recruiting—both internal and external, employee retention, compensation, employee benefits, performance management, employee relations, training and development).
  • A review of current HR indicators (e.g., number of unfilled positions, the time it takes to fill a new position, turnover, employee satisfaction, internal grievances filed, number of legal complaints, absenteeism rates).
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.

Rationale for Conducting an HR Audit

The changing nature of HR management demands that HR professionals participate and contribute fully to their organizations as true strategic business partners.

An audit helps an organization understand whether its HR practices help, hinder or have little impact on its business goals. The audit also helps quantify the results of the department's initiatives and provides a road map for necessary changes. Audits can also help the organization achieve and maintain world-class HR practices. 

Types of Audits

An HR audit can be structured to be either comprehensive or specifically focused, within the constraints of time, budgets and staff. There are several types of audits, and each is designed to accomplish different objectives. Some of the more common types are:
  • Compliance. Focuses on how well the organization is complying with current federal, state, and local laws and regulations.
  • Best practices. Helps the organization maintain or improve a competitive advantage by comparing its practices with those of companies identified as having exceptional HR practices.
  • Strategic. Focuses on strengths and weaknesses of systems and processes to determine whether they align with the HR department's and the organization's strategic plan. 
  • Function-specific. Focuses on a specific area in the HR function (e.g., payroll, performance management, records retention).

The HR Audit Process: A Model

The general process of conducting an audit includes seven key steps, each of which is discussed in greater detail below:

  • Determine the scope and type of audit.
  • Develop the audit questionnaire.
  • Collect the data.
  • Benchmark the findings.
  • Provide feedback about the results.
  • Create action plans.
  • Foster a climate of continuous improvement.

DETERMINE THE SCOPE AND TYPE OF THE AUDIT

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.

DEVELOP THE AUDIT QUESTIONNAIRE

Whether conducting a comprehensive audit or an audit of a specific practice, the audit team should invest sufficient time in developing a comprehensive document that elicits information on all the subjects of the inquiry. HR must develop a list of specific questions to ensure that the questionnaire is complete.

COLLECT THE DATA

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.

BENCHMARK THE FINDINGS

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. 

National standard benchmarking might include the number of days to fill a position, average cost of annual employee benefits and absenteeism rates.

PROVIDE FEEDBACK ABOUT THE RESULTS

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.

CREATE ACTION PLANS

It is critical that the organization actually to do something with the information identified as a result of an audit. The organization must create action plans for implementing the changes suggested by the audit, with the findings separated by order of importance: high, medium and low. Conducting an audit and then failing to act on the results actually increases legal risk.

FOSTER A CLIMATE OF CONTINUOUS IMPROVEMENT

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.

One approach is to designate someone on staff (or an outside consultant) to monitor legal developments to ensure that HR policies and practices are kept current. Likewise, organizations should keep track of the audit findings and changes made, turnover, complaints filed, hotline issues, and employee survey results to identify trends in the organization's employment-related issues. Identifying problematic issues, growth areas or declining problem spots can help in the decision of where to allocate time, money and preventive training resources in the future.


Created & Posted by (Twinkle)
Accountant at TAXAJ

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