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HR Audit

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1. Introduction
Human resource management emerged from traditional personnel Management in the
1980s. Traditional personnel management was viewed largely as involving the
performance of basic staffing functions, often conducted without regard to other
organizational activities and without alignment to organizational objectives. Human
resource management as a profession evolvedas an extension of the traditional personnel
role into a more effective organizational activity. Within the field of human resource
management a human resource audit is one method of evaluating or assessing activities.
The word audit comes from the Latin, ‘audire’ (to listen). Auditing has existed for
centuries and can be traced to ancient Egypt, Babylon and Rome. The auditor’s role was
to ‘listen’ to the records and the notion of an independent outsider ‘looking in’ is central
to auditing (Higgins, H. N, 1997). It is not the function of an auditor to take the role of
management; the audit role is one of examination and of critiquing management systems
and procedures (Clardy 2004). In this study the term‘human resource audit’ describes the
professional practice of auditing applied to human resources management activities.
Human resource auditing is located both within and between each of the fields of human
resource management and auditing. This case has two parent disciplines: auditing and
human resource management. Auditing is described as an investigative and information
processing activity, which evolved in response to the need for independently v erified
stewardship reports (McBrayne, I 1990). Within the discipline of auditing a human
resource audit is a functional or activity audit conducted within or across a range of
defined auditing types.
This paper focuses on the uses of HR auditing to evaluate the contribution of human
resource management activities, as defined in the audit scope, to a corporation’s current
and future objectives. It will demonstrate that a human resource management audit can
identify areas whereadditional value can be obtained from a valued, well regardedhuman
resource department.

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2. Human Resource Management
Human Resource Management is the process of managing people in organizations in a
structured and thorough manner. This covers the fields of staffing (hiring people),
retention of people, pay and perks setting and management, performance management,
change management and taking care of exitsfrom the company toround off the activities.
TheSociety for Human Resource Management, describe human resource management as
“the formal structure within an organization responsible for all the decisions, strategies,
factors, principles, operations practices, functions, activities and methods related to the
management of people” (SHRM 2007a).
In relation to human resource management it is observedthat “every manager is a human
resource manager” (Mark A. Huselid, 1998) and that human resource management
involve “all management decisions” emphasizing those human resource activities can also
be undertaken by line managers. They define human resource management as: The
design of formal systems in an organization to ensure effective use of human talent to
accomplish organizational goals.
2.1. Functionsof HRM
human resource strategic planning, human resource planning, manpower panning,
recruitment / selection , induction ,orientation ,training ,management development,
compensation development, performance appraisals, performance management
,succession planning, safety management ,staff communication etc.
2.1.1. Human Resource Planning
HRP is the process including forecasting, developing and controlling-by which a firm
ensures that it has the right number of people and the right kind of people, at the right
places at the right time, doing work for which they are economically most useful.

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2.1.2. Recruitmentand Selection
Recruitment is theattraction of capable candidates toa vacancy,whilst selection concerns
the assessment and identification of the suitability of such applicants from this pool.
Recruitment and selection offer key opportunities for an organization to alter the type of
staff it employs.
2.2.1.3.Compensation andBenefit
Employee compensation refers to all forms of pay or rewards going to employees and
arising from their employment, and it has two main components: direct financial
payments (in the form of wages, salaries, incentives, commissions and bonuses) and
indirect payments (in the form of financial benefits like employer-paid insurance and
vacations).
Benefits are forms of value, other than payment, that are provided to the employee in
return for their contribution to the organization, that is, for doing their job. Prominent
examples of benefits are insurance (medical, life, dental, disability, unemployment and
worker's compensation), vacation pay, holiday pay, and maternity leave, contribution to
retirement (pension pay), profit sharing, stock options, and bonuses.
2.1.4. Training and Development
Training refersto the methods used togive new or present employees, the skills they need
to perform their jobs. Provision of training to the management members as well as to
employees, with the aim of enhancing their knowledge, skill, and ability in making them
always competent and responsive in performing their duties, is considered to be one of
the key strategies that enhance the Corporation’s efforts to achieve its objectives.
2.1.5. Employee/Labor-ManagementRelations
Employee/Labor-Management Relations is a relationship that covers all aspects of
employment relations between the employer and the employees in the context of
organizational operations. It involves, regulation of conditions of service, collective

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bargaining, management of strikes, industrial democracy, employer-trade unions’
relations, and organization personnel policies etc.
2.1.6. Safety and Security
Creating a safe, healthy and happy workplace will ensure that your employees feel homely
and stay with your organization for a very long time.
3. Definition of HR auditing
The word audit comes from the Latin verb audire tolisten; the auditor’s role was to ‘listen
to the records’ (Higgins, H. N, 1997). Auditing has been defined as: the accumulation and
evaluation of evidence about information to determine and report on the degree of
correspondence between the information and established criteria. Auditing should be
performed by a competent, independent person. (Clardy, A 2004).
The Human Resources Audit is a process of examining policies, documentation, systems,
and practices with respect to an organization’s HR function. The purpose of the audit is
to reveal the strength and weaknesses in the human resources system, and all issues,
which need resolution. The audit is focused on analyzing and improving HR function in
the organization.
The audit is a diagnostic tool, not a prescriptive instrument. It will help the managers to
identify what is missing or need to improve in the organization, but it can’t tell what else
is necessary to do to address these issues. It is most useful when an organization is ready
to act on the findings, and to evolve its HR function to a level where it’s full potential to
support the organization’s mission and objectives can be realized.
A Human Resources Audit is a comprehensive method (or means) to review current
human resources policies, procedures, documentation and systems to identify needs for
improvement and enhancement of the HR function as well as to ensure compliance with
ever-changing rules and regulations. An Audit involves systematically reviewing all
aspects of human resources, usually in a checklist fashion (Phillips, 1996).

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An HR audit helps a company's senior management evaluate the efficiency of its human
resources department and programs. Depending on the needs of the individual company,
an HR audit evaluates the department's effects, services and its place in the achievement
of company goals and objectives. It also assesses HR compliance with state and federal
laws and determines any weaknesses in the human resources management program.
Senior management can use the audit to make any necessary changes and evaluate its
overall approach to the human resources function (Phillips, J, 1996).
Encyclopedic Dictionary of Human Resource Management (Mark A. Huselid, 1998)
human resource audit is defined as:
‘… a series of systematic, formal procedures designed to evaluate the efficiency and
effectiveness of the firm's HR management system, compare its performance to relevant
internal and external benchmarks, evaluate the appropriateness of this system for
implementing the firm's strategic and operational objectives, and thereafter provide a
framework for improving the way in which the firm manages people’.
3.1. Goals of the HR Audit
The review process should provide answers to several important questions regarding the
application of company’s policies. The audit’s goals are to determine whether company’s
policies are being applied consistently, whether they are the norm for companies and
branch location, and whether they are consistently communicated to all employees. The
audit should also provide insight as to which individuals are responsible for the
implementation and enforcement of policies. Finally, it should distinguish between
policies that are applicable to non-union employees, and the terms and conditions of
employment for employees who are represented by a labour organization.
3.2. Benefits of HR Audit
Human resource audit also provides an opportunity to assess the financial advantages
and disadvantages of human resource functions, benchmark the function, evaluate the
effectiveness of the function, ensure compliance, establish standards, promote change

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and creativity, bring human resources closer to line managers, focus staff on critical
human resources issues and to improve the quality, image and contributions of the
human resource function (Walker, J. W, 1998).
Several benefits that result from an HR audit are:
 Identification of the contributions of the HR department to the organization,
 Improvement of the professional image of the HR department,
 Encouragement of greater responsibility and professionalism among members of
the HR department
 Clarification of the HR department’s duties and responsibilities,
 Stimulation of uniformity of HR policies and practices,
 Finding critical personnel problems,
 Ensuring timely compliance with legal requirements,
 Reduction of HR costs through more effective personnel procedures,
3.3. Approaches to Human Resource Audits
There are five common approaches for the purpose of auditing of HR in any organization:
3.3.1. Comparative approach: In this approach, another division or company
that has better practices or results is chosen as the model. The audit team audits and
compares the audited firm’s results with the best practices of the model organization. This
approach is commonly used to compare the results of specific activities or programs. The
approach is often used with turnover, absence, salary data and staffing levels. It helps
detect areas where improvement is needed. It also makes sense to compare where a
procedure is being used for the first time.

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3.3.2. Externalaudit: In this approach, standards set by a consultant or taken from
published research findings serve as the benchmark for the audit team. The consultant or
research findings may help diagnose the cause of problems.
3.3.3. Statistical: This approach relies on performance measures drawn from the
company’s existing information system. From existing records, the audit team generates
statistical standards against which activities and programs are evaluated. With the
mathematical standards as a base, the team may uncover errorswhile they arestill minor.
Often this approach is supplemented with comparative data from external sources such
as other firms, or industry association surveys. The information is usually expressed in
ratios or formulas that are easy to compute and use.
3.3.4.Compliance approach:This approach reviews past practices, to determine
if actions taken followed legal requirements and company policies and procedures. The
audit team here often examines a sample of employment, compensation, discipline and
employee appraisal forms. The purpose of the review is toensure that the field offices and
the operating managers have complied with internal rules and legal regulations, such as
minimum wages and equal employment opportunity laws. By sampling elements of the
human resources information system, the audit team looks for deviations from laws and
company policies and procedures. The teamcan then determine the degreeof compliance
achieved.
3.3.5.Management by Objectives(MBO): In this management by objectives
approach, managers and specialists set objectives in their areaof responsibility. Then they
create specific goals against which this performance can be measured. The audit team
researches actual performance and compares it with the previously set objectives. They
can then evaluate the trends in this area.

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3.5. Who should conduct HR audit?
The audit can be conducted by internal managers of the organization, as external
HR/Management expert or by a Labor Law expert. Whoever is In-charge of audit
must have excellent knowledge about HR policies and should be able tomaintain a check
list to check the existing policies with its present requirements. An audit conducted by
outside HR expert adds extra value to the whole process apart from giving an
insight into the whole issue.
Gaps between what are being practices and what is desirable can always only are
identified in a better way by external HR expert. Being independent, his views are
always considered to be better than internal person’s opinion.

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HR AUDIT QUESTIONNAIRE/CHECKLIST
HR Audits help to determine effectiveness of an HR department and/or HR systems. They are a
systematic, objective tool to assess regulatory or policy compliance in the workplace.
For EIC (Ethiopian Insurance Corporation) Human Resource Staff
Please puta tick() mark inside the box thatindicate yourlevelof agreementforeachquestion
HR AUDIT question/CHECKLIST
Strongly
Agree
Agree
Neutral
Disagree
Strongly
Disagree
Human ResourcePlanning
The organization have plans for ensuring its development
I believe that HRM is a strategic tool for an organizations that helps for sustainable
competitive advantage
Restrict hiring, giving compensation, reducing working, early retirement are the strategy that
this organization are going to be act in case of surpluses of employees exist
The organization estimates the size and composition of future to ensure survival and growth
for sustainable competition with others
Job analysis provides information about jobs currently being done in organization
Labor turnover, retirement, resignation, termination, death are the factors that decrease
internal supply of organization, but in my company these all factors do not affect the human
resource planning
Recruitment and Selection
There is a policy in place stating the organization philosophy on recruitment and selection
The policy contain procedures to guide managers through the recruitment and selection
process
There is a formal process in place for identifying job vacancies
Recruitment was done proactively from a planning mode as well as reactively to immediate
replacement and new job openings
Mobility of human resources and expansion of the company are the factors that necessitate
for new vacancy(recruitment)
HR department does perform all initial screening of candidates
Exams and personality profiles are used in the selection process of the company
Compensationand Benefit
The compensation policy of the company contain procedures to guide managers on how to
implement the compensation system
Distribution of compensation among departments are reviewed by management for
consistency and equity before awarding increases
The organization have a policy clearly stating its position on employees
compensation(salary)
The organization compensation philosophy clearly communicated to all employees
The organization have a clear policy regarding employee benefits
Performance Managementand Evaluation
Performance appraisaldo reflect an employee's positive behavior as well as results

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HR AUDIT QUESTION/CHECKLIST
Strongly
Agree
Agree
Neutral
Disagree
Strongly
Disagree
The company's performance appraisal include a written plan to improve
employees knowledge and skills
The company's performance evaluation establish clear objectives,
expectations and performance measurement criteria linked to the specific job
Employee who are better performers receive higher pay increase than poor
performers
Staff Socialization
The HR department fulfill their responsibilities by guiding and giving a full
information for the selected employees to socialize shortly with the environment
The company has practiced and allocated budget for welcoming program for
new selected employees
Training and Development
There is a policy that states the organization philosophy on employee training
& development
There is a process for assessing the organizations immediate training needs
and individual development needs
There is also a process to assess the organization's future training needs
Job skills, knowledge and ability are considered in assessing training needs
New technologies, processes, products, services, market changes and
community needs are considered in assessing training needs
All training programs and opportunities well communicated to employees
The results of training programs are monitored and evaluated
The organization has to give a sponsorship for employee to study in higher
education
Employee/Labor-ManagementRelations
The organization has clearly state its philosophy on labor relations and
implement guiding procedures for managers
Top management is informed and supportive of labor management strategies
and goals
There is an atmosphere of management respect for union representation
Company encourage employees to play a proactive role in improving the
labor-management relationship
The management has assess the employees motivation and job satisfaction
towards employees benefit and company's productivity
There is an atmosphere of management respect for union representation
The management body understand the laws that govern collective bargaining
Employees are given the opportunity to exchange information with superiors
as well as assimilate information being transmitted from the top down
There is a program that provides for management and employee participation
in the discipline process

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HR AUDIT QUESTION/CHECKLIST
Strongly
Agree
Agree
Neutral
Disagree
Strongly
Disagree
Safetyand Security
safety hazards reported to the appropriate personnel
Workplace accidents, near-misses, injuries, and illnesses reported and
investigated
Measures are in place to prevent intruders from entering the grounds or
buildings
There is a reliable response system in place in the event an alarm is triggered
Employees are encouraged to promptly report incidents, and suggest ways to
reduce or eliminate risks
Structures are readily accessible to disabled employees
Recordkeeping and other documentation
personnel files are current
Personnel files are completed accurately and on time and currently held
Documents regarding employees are kept for their required duration
All appropriate labor posters are displayed in an easily visible place
HRIS system are being used
There is training of managers and employees about personnel files, and
policies and procedures for accessing them?
Employee Communication
Company creates an environment of open communication between
employees and management
The corporate capture the creative insight of employees by soliciting their
ideas for improvement?
Company create environment to delegate decision making to the lowest level
possible
THANK YOU FOR YOUR TIME IN FILLING THIS QUESTIONNAIRE AND
HELPING ME WITH YOUR VALUABLE INPUTS. M M