HUMAN RESOURCE AUDIT

Prevalence of HR Audit

Research Univ of Iowa(USA- 1991): Abt 1/3rd firms U/Sur Seldom or never conducts reviews.
Final 1/3rd somewhere in Mid.

Business Today - Gallup MBA India Bangalore Mkt Research 1995; How people being managed
in various Orgns across India. Survey n = 653, Line Mgrs (477), HR Mgrs (98). CEOs
(78).Chosen across 350 Companies. Findings Hiring: 83% CEOs, 72% Mgrs , 77% HR Mgrs
(98): Feel HR Mgrs Doing good Job in appointing people with requisite
skills.

Job Satisfaction:3/4th Line Mgrs & HR Mgrs : are satisfied with the level of attention paid
to Employee welfare & Work Culture in their Organizations.

Training & Dev: Majority feels that attention paid to Employee Growth & Dev is
satisfactory.

Appraisal System: Majority are not happywith the system they have in their organizations.

HR Audit: How often they conduct audit: was out side the purview of Survey

Human Resource Audit

HRA is well practiced in western world. Alike, Financial Audit No full Personnel Audit in India.
HRA is Evaluation, Examination, Review and Verification of Completed Activities to find the
true state of affair in the deptt.

HRA refers to Examination & Evaluation of Polices, Practices & Procedures to detect
Effectiveness & Efficiency of HRM And Verify if Mission, Objectives, Polices, Procedures,
Programs are chased and expected results achieved

HRA also suggest future improvements based on past activities measurement

HRA-OBJECTIVES

Basic purpose of HR-Audit is to find:

How various units are functioning?

How they met policies & guidelines Pre-agreed upon?

To assist Rest of Organization locating gaps between Objectives & Results.

Finally, Formulate Plan for corrections.

Objectives are:

1. Effectiveness: To review performance of Human resource Deptt and its activities to

determine effectiveness.2.Implementation: To locate gaps, lapses, failings in applying Polices,
Procedures, Practices & HR-directives. Also to see areas of wrong/ non- implementation that
hindered the planned programs & activities. 3.Rectification: To take corrective steps to rectify
mistakes, shortcomings contesting effective work performance of HR Deptt. 4.Evaluation: To
evaluate HR Staff & employees.5. To evaluate the extent to which Line Managers Applied
Policies Programmes & Directives initiated by Top Management & HR Deptt.6.Modify: To
review HR System and Modify to meet challenges in comparison with other organizations.
7.Questioning: To seek answers to ‘What happened’? ‘Why did it happen’? ‘Why did it not
happen’? while implementing Policies, Practices & Directives in managing HRs

Need for HR Audit-

Though, to audit HR- Policies & Practices No legal obligation exists, some Modern
Organizations chase to:

Increase size of Orgn & Personnel

Change Philosophy of Mgt towards HR

Increase Strength & Influence of Unions

Modern Organizations chase to:

Change HRM Philosophy hence Affect Change in Personnel Policies & Practices World Wide.
Increase Organizational dependence on HR System & its Effective Funtioning

HRA Significance: lies in following

Mgt’s Feel, that Employee Participation in Activities is Essential for Orgn-success. It Provides
Required Feedback. Managing Rising Labor Costs & increasing Opportunities for Competitive
Advantage of HRM.HRA can avoid Govt-intervention & Protect Employees interests.

Scope of Audit

The audit should be broad. HRA has vide scope, involves much more than Mgt. of HR.HRA
covers concept of ‘people Mgt’ by supervisors at all levels. Covers Areas: HR Philosophy,
Policies, and Programmes & Practices and Personnel Results. [ Functions, Procedures, Impact on
Employees] Involves all activities of HR Functions like Major Areas: Planning - Forecasting,
Scheduling; Staffing & Development, Organizing; Motivation & commitment ; Admn –
leadership styles, supervision, delegation, negotiation; Research & Innovation – Experiments &
theory testing in all Areas. Covers Specifically following Areas:

Audit of HR Function. Audit of Managerial Compliance. Audit of HR Climate/ Employee

satisfaction. Audit of Corporate Strategy

See Tables:

HR AUDIT - Areas & Levels.

PTU Tables 1.2 & 1.1 pages 22 & 21

AND

Before we discuss Further

LET US

Please understand little about

Audit process
Audit of HR Function

Involves all activities of HR Functions, From HRP to IR. Major Areas: Planning - Forecasting,
Scheduling; Staffing & Development, Organizing; Motivation & commitment ; Administration ;
Research & Innovation. For each activity Auditors must: 1 determine objective of activity.2
Identify who is responsible for its performance. 3 Review the performance.4 Develop action plan
to correct deviation, between Results & Goal. 5 Follow up action plan. HR Evaluation must
justify existence of deptt & its expenses. Deptt has no reason to function if fails to contribute to
Company’s bottom-line, Prune expenses to make deptt viable.

Audit of Managerial Compliance

Involves audit of managerial compliance of Personnel Policies, Procedures & Legal Provisions.
Saves Mgt of guilty of offence in case of violations.
Audit of HR Climate

HRM Climate has impact on Motivation, Morale and Job Satisfaction. Quality of Climate
can be measured by examining: 1.Employee Turnover, 2.Absenteeism, 3.Safety Records 4.
Attitude Surveys

Employee Turnover:

ETO Implies the process of Employee Leaving & Joining - deaths, transfers, retirements,
resignations. High ET incurs increased costs – Recruitment, Selection, Trg, Disruption of Prodn,
QC-Problems, and Team & Morale Building. Certain % turnover is Unavoidable. Avoidable
ETO causes Concern to HRM, gives excellent measure of HR Climate, as it can be reduced.
Specific Actions can Minimize ETO - Better Hiring Practices, Orientation Trg, Working
Conditions, Remuneration & Benefits, Advancement Opportunities. Quality ETO Better Than
Quantity ETO

Absenteeism

Refers to Failure on part of Employee to report for work. (Unauthorized Absence). It costs
money and reflect dissatisfaction with Orgn. Unavoidable Absence sanctioned. Mgr must step in
to remove causes of Avoidable Absenteeism – night shifts, earning extra income, indebtness, and
lack of job security, job dissatisfaction, and unfriendly supervision.

Accidents

Organizations keep records. Accidents cost money and also reflect prevailing Org-climate.
Managements must have Safety Plan, implement, Evaluate its Effectiveness.

Attitude Surveys

Are Most Powerful Indicators of Org-climate. Attitudes determine employee’s feeling towards
the Orgn, supervisor, peer & activities. ASs conducted thro’ face-to-face interviews or
anonymous questionnaires. Resulting Info – an invaluable Insight What They Feel & Think.
Useful to address Business Problems linked to Productivity, Turnover, Absenteeism, Tardiness,
Work-Group Effectiveness & IR.
Audit of Corporate Strategy

HR Professionals do not set CS, but determine its success. CS gains competitive advantage.
Assessing Orgn Internal Strengths & Weaknesses and its External strengths & opportunities
enable Mgt gain advantage. Coy may adopt any Approach, HRM always affected. Understanding
thro Audit, CS strongly influences HR planning, staffing, remuneration, IRs & other activities.

Audit and Human Resource Research

Auditors highly rely on HRR Data. Research - systematic goal-oriented investigations of facts
establishing relationship between two/ more phenomenon – lead increased understanding of &
improvement in HR Practices. HRR major Topics:

Wage Surveys, Effectiveness of various recruitment sources, Effectiveness of Trg Efforts,

supervisor’s Effectiveness Survey, Job Satisfaction Survey, Employee needs Survey, Attitude
towards Reward Sys- Survey, High Accident Frequency Areas.

FIVE Approaches to HRA

Auditors may choose any of the five approaches for the purpose of Evaluation. Comparative
Approach. Outside Authority Approach. Statistical Approach. Compliance Approach.
MBO Approach

Comparative Approach – Auditors Identify another Company as a MODEL. Result of their

Organisation compared with those of Model Company.

Outside Authority Approach – Often, Auditors use standard set by Outside Consultant as
BENCHMARK for comparison of own Results.

Statistical Approach – Here, Statistical Measures of Performance are developed (Absenteeism,

ETO rates) Based on company’s existing information. These Data help auditors evaluate/assess
performance.
Compliance Approach – Auditors review Past Actions to determine if those activities
comply with legal requirements and Company Policies, & Procedures. A Final approach is
for Specialists & Operating Managers to set objectives in their areas of responsibility.

MBO Approach – creates Specific Goals against which performance can be measured.
Then the Audit Team Researches ACTUAL PEERFORMANCE and COMPARES WITH
THE OBJECTIVES.

Audit Report

The Prog comes to end with preparation of Report. Report may be Clean or Qualified. It is
Qualified if HR Performance contains Gaps for which remedies suggested. Report is Clean
where Performance is fairly Satisfactory