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Dieza, Maureen Mae Linssen D.

Auditing the HR Function

Definition of HR Audit A Human Resource 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. Purpose of an HR Audit The purpose of an HR Audit is to recognize strengths and identify any needs for improvement in the human resource function. A proper executed Audit will reveal problem areas and provide recommendations and suggestions for the remedy of these problems. Some of the reasons to conduct such a review include: Ensuring the effective utilization of the organizations human resources

Reviewing compliance concerns with a myriad of administrative regulations Instilling a sense of confidence in management and the human resources function Maintaining or enhancing the organizations and the departments reputation in the community Performing due diligence review for shareholders or potential investors/owners Establishing a baseline for future improvement for the function

Why conduct an HR Audit? Routine check-up (uncover any conditions you may have and set up a treatment plan) Determine how you can best align HR operations with organizational goals Ensure compliance with federal and state regulations

How to conduct a HR AUDIT?


Getting Started
a. Developing a Checklist

After audit goals and success criteria have been defined, it is helpful to develop a checklist that can be used to determine the presence or absence of certain practices, and to compare and contrast practices with policy or legal requirements. For example: What policies should be audited? The selected policy should be stated, followed by an indication of how one would verify that the policy is being carried out, and, ultimately, by measurement of the degree to which compliance or lack thereof is taking place. What practices should be audited? The selected practice should be stated, followed by what the policy or law requires, and, ultimately, by measurement of the degree to which compliance or lack thereof is taking place. What records should be reviewed? The selected record should be stated, followed by what the record should contain, and, ultimately, by measurement of the degree to which compliance or lack thereof is taking place. What trends should be tracked? The selected trend should be stated, follow ed by an X-andYchart defining the measurement points, and ultimately, by analysis of the implications of the historical data plotted on the chart (for example, cost per hire, cost per placement, pay rates, headcount, benefit costs, tardiness and absenteeism, turnover, training expenditures, etc.). What analysis will be done? Audits lead to tremendous insights in and understanding of how an organization functions. However, reducing information obtained from an audit to meaningful components can be overwhelming. Experience has shown that by following the sequence suggested below, the auditor can navigate more quickly through the data and compress the analytical process. As the auditor moves through the data reduction process, analysis should become more complex and intuitive. b. Description: Questions to be asked during the audit should be framed to solicit a written or oral description; for example: What are the key objectives? What is the mission? Transcribing the answers makes it possible to later engage in systematic verification through comparison with existing written records and reports. Inconsistencies usually are the result of unequal access to information. c. Clarity: Once descriptive information has been collected, the next step is to probe for common understanding. Often, a discrepancy among individuals as to what something means is the result of poor communication. d. Agreement: Individuals may be consistent and accurate in providing requested information, but may not agree with it. Although not everyone must agree with everyone else on every issue, in

fundamental areas such as goals, performance expectations, roles, direction, and strategy, the key principals must agree if the organization is to be successful. Lack of clarity and inadequate information may be reasons for disagreement, but such disagreement is easily resolved. It is far more difficult to try to resolve differences in philosophy, policy, and style. e. Fit: Individuals may be clear and agree on a course of action, but clarity and agreement are not an indication that a particular action is the right one to take. The organization may not have the resources to implement the action; managers may not know how to carry it out; and, most important, the action may be undesirable from the user's or customer's perspective.

2. Planning Questions
The word audit comes from the Latin verb audire-to listen. Listening is used here in a broader sense than just listening with our ears. It includes using our eyes, as well, when we search for answers to important organizational or functional issues. Developing a systematic set of questions to take the place of eyes and ears can be tedious. Avoiding significant omissions and preventing duplication are keys. The answers to the auditor's questions must lend themselves, to the extent possible, to quantitative analysis. For example, the auditor may start with an open-ended question and immediately follow with some specific and quantifiable follow-up questions. The respondent's answers, when plotted, should illustrate both strong and weak performance points. In order to measure the net contribution of any one factor to output, it is useful to determine what might or would happen to output if all other inputs remained the same.

3. Collecting Data and Implementing the Audit

Collecting information can be laborious and time-consuming. Depending on the size of the target audience, the available time, and the type of data to be collected, it may be necessary to use and blend the strengths of a number of different data collection methods. Such methods include interviews, questionnaires, and a review of relevant records, observation, or a combination of these methods. Sources from which HR data can be obtained for auditing purposes include: human resources policies, the HR mission statement, employee handbooks, affirmative action plans, employee surveys, absenteeism and turnover studies, cost per hire studies, employee lawsuits, bulletin board notices, organization charts, published salary surveys, EEO compliance reports, classification studies, operating budgets, and workers' compensation claims. Sources of data for a more specific auditing purpose, say, staff performance, might include manager assessments, self-assessments, and surveys and interviews.

4. Analyzing Audit Data

After data are collected, it is important to examine the information with an eye toward assessing readiness for change and identifying possible reasons for resistance to change. Resistance, whether based on real or perceived fears, will be a formidable block to action consideration and action-taking, which result from analysis and application of audit results. The more information available as to what may trigger resistance; the better will be the quality of the recommendations suggested to overcome it. Readiness for change can be measured using force field analysis-what organization development practitioners call the unfreezing-refreezing method. A force field analysis makes HR incumbents examine the restraining forces (-) on one side and the positive forces (+) on the other for any given status quo situation. Restraining forces are for maintaining the status quo; examples are: inertia, threat to social status, job security, lack of motivation, lack of resources, etc. Positive forces are for changing the equilibrium. Improved job satisfaction is one example of a positive force; others are: Management is asking for it. People want to do it. The law requires it. Employees are asking for it. Unless the balance of forces is altered, no change is likely to occur. Not all the forces, restraining or positive, are of equal strength; some require significant effort (that is, reduce, eliminate, or add), while others are relatively easy to change (that is, add or increase). The balance of forces can be changed either by adding new positive forces or eliminating one or more negative forces. Taking the latter action is recommended, because it does not add tension to the status quo situation; its effect is to turn a negative into a positive. Adding positive forces does add tension, and the minute management takes its eye off the ball, the situation reverts back to the status quo.

5. Next Steps
Ultimately, to be useful, an audit must clearly communicate its findings and their consequences, and suggest ideas for improvement. To the extent that management can see the benefits of any suggested changes-and believes that the cost of acting is reasonable-the likelihood that changes will be implemented is higher. Once the audit data are analyzed, a number of gaps ( what is versus what should be or what could be) will surface for which measurable payoffs, such as cost avoidance, litigation avoidance, increased productivity, greater job satisfaction, better customer service and satisfaction, etc., should be obvious. Not all gaps will be the same. Some, if resolved, will yield an immense payback; others will produce only marginal benefits. Action-taking-applying the lessons contained in the data analysis or suggested by the list of opportunities for increased effectiveness and efficiency-requires first identifying the areas where payoff or risk is apt to be greatest, then programming those actions that will reduce or eliminate the gaps, and, finally, taking measurements,

over time, to ensure that the actions taken are yielding the anticipated results at the expected cost without triggering undesirable side effects. HR Emerging Issues Executive management ethics Skyrocketing healthcare costs HR outsourcing Baby boomer exodus labor shortage, aging and diverse workforce Knowledge work managing knowledge workers

Typically Out of Scope Payroll Safety and Health Workers Compensation Retirement Plans Health Insurance Plans Deferred Compensation Programs Unemployment

HR Department Basics Strategic Management Department Structure & Staff Competencies HR Facilities HR Technology & Information Control

Strategic Management Strategic Plan Operational Plan HR Performance Management HR Budget

Legislative/Regulatory Environment

Key Administrative Advisors

Chief HR Officer Chief Information Officer Chief Financial Officer

Agency Head
HR is Strategic Partner when: HR leader has/is: strong knowledge of HR roles and functions, business strategy and operations perceived as a credible advisor by his/her peers and executive management. Top HR position is organizationally on the same level as other program directors and administrative directors HR Dept. is viewed as approachable and trusted to provide accurate information. HR Dept. is part of a network of HR Depts. in peer organizations that share experiences, strategize regarding common problems, and stay abreast of latest HR trends and developments. Strategic HR plan is closely linked to overall strategic plan. Performance assessment of HR programs, including key metrics, is routinely completed.

Department Structure & Staff Competencies HR Organizational Chart HR Staff Competencies

HR Competencies

Cultural & Change Steward

Business Ally

Talent Manager

Credible Activist

Operations Executor

Strategy Architect

HR Facilities Physical facilities of the HR department Reception of job candidates Legal and other employment notices Private areas for interviews and employee consultations HR convenient to employees Easy access to HR employee for questions

HR Technology & Information Control HRIS Information Management Processes

Key HR Risk Areas

Workforce Planning & Employment HR Development Total Rewards Employee & Labor Relations Risk Management

Workforce Planning & Employment Workforce Needs Determination Organizational Design Recruiting Programs Selection Process Contractor Management Succession Planning Turnover and Employee Relations Regulations Compliance Fraud

HR Development Training Needs Assessment New Employee Training Technical Training

Supervisory Training Training Assessment Employee Coaching Performance Appraisal Counseling Discipline

Total Rewards Compensation Philosophy Job Documentation Market Analysis Salary Structure Development Job Evaluation Salary Administration FLSA Determination & Overtime Benefits Administration Payroll

Employee & Labor Relations Policies and Procedures Employee Attitude Surveys Employment Records Employee Compliant and Grievance Process Labor Relations

Risk Management Safety & Health

Outsourcing and Co-sourcing Needs Assessment Vendor Selection Process

Vendor Management