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It is common business practice for companies to perform an audit of their financial records and accounting procedures. An audit may be legally required for some businesses as well as some retirement plans. Auditors are checking for the accuracy of transactions, proper reporting of assets and adherence to accounting standards. The auditor makes recommendations for corrective action and future direction. This type of audit is looked upon as a necessary part of doing business.
Employees have a significant impact on the bottom line, so an audit of the HR function would be favorable. Audits can be limited in scope focusing on specific areas that may need attention such as hiring practices, compensation and/or benefits, or they may be more extensive looking at the HR function as a whole.
The purpose of conducting a human resource audit is to support the overall business plan of the organization. The process has three parts: to identify and prioritize management issues relating to human resources; identify gaps between the current practices and policies with that of the business objective; and to identify any legal difference and potential exposure. Unfortunately most companies who perform an audit only focus on compliance and miss those items that could really make a difference in one’s business over the long term.
The Human Resource audits should be done every twelve to eighteen months and should coincide with the organizations business planning cycle. While some will say that the audit should be done annually, but since it is such a large task pushing it to every eighteen months is fine but definitely should not go beyond two years. The other option is to establish an audit cycle to break the task into manageable sized pieces.
When planning an audit of your Human Resource function, here are a few things to consider:
Timing: When would be the best time to conduct an HR audit is dependent upon a number of considerations such as the audit cycles of other functions. It may be difficult to have two audits going on at the same time.
What is the normal cycle for implementing changes? If benefits change at one time during the year and there is a series of open enrollment meetings, that may also be the best time to announce any changes that come out of the HR audit. So the audit should be conducted far enough in advance of the open enrollment period to allow for development of new HR initiatives.
Scope: What areas if not all of the Human Resource Function should be reviewed? Does one particular area need special attention? The business plan may also identify areas for review based upon future products, sales, marketing initiatives or expansion.
The Audit Team: When selecting the audit team, consider individuals from different disciplines within the organization and not solely the human resources staff. This will provide a fresh perspective for looking at the HR function.
The team coordinator may be an internal individual or an external consultant with a background in HR. The advantages of having an external person involved, is that they have the time to devote to this project as it is their sole job while an internal person may still have the demands of their own position on them. As independents they do not have cultural issues to contend with and have outside experiences upon which to form comparisons.
Follow-up: Taking action on the audit team’s recommendation is critical to the success and creditability of the audit. As important as selecting the audit team is the selection of the individual or group of individuals who will be charged with the responsibility of carrying out the recommendations and implementing the changes. This individual or individuals needs to have the position and authority to carryout the changes and recommendations. The reporting relationship needs to be directly to the CEO and/or the board of directors.
When done correctly auditing all or portions of the human resource function should strengthen HR’s position and keep it aligned with the business plan of the organization.
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The Human Resource Audit by Eric Branson, SPHR |
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Eric Branson and Associates Providers of Human Resource Management |
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For more information on Human Resource Audits and other Human Resource issues, contact Eric Branson, SPHR at:
Eric Branson and Associates, P.O. Box 281 Mason City, Iowa 50402 Tel. 641-425-5806. e-mail: eric@ericbranson.com |