The Ultimate Guide to Human Resources Audit

Posted on Aug 13, 2024 in Economy

CONCEPT OF AUDIT:

The audit is a critical, systematic, and impartial assessment conducted by an expert, either internal or external to the organization. It aims to evaluate the current state of a business area or subject, identify observations, and provide recommendations for improvement. The Human Resources Audit, specifically, falls within this scope and often requires a multidisciplinary team of professionals.

HR AUDIT DEFINITION

An HR Audit analyzes a company’s personnel policies, practices, and current performance. It evaluates these aspects and offers suggestions for improvement.

BENEFITS OF CONDUCTING AN HR AUDIT

  1. Identify contributions made by the HR department to the organization.
  2. Improve the professional image of the personnel department through an independent audit.
  3. Encourage staff to take on more responsibility and act with a higher level of professionalism.
  4. Establish clear responsibilities and duties for staff.
  5. Facilitate uniformity in practices and policies.
  6. Detect latent problems and conflicts.
  7. Ensure compliance with legal regulations.
  8. Optimize personnel costs.
  9. Promote necessary changes within the HR department.

An HR audit extends beyond the HR department, impacting all business units. Key aspects to consider include:

  • Identifying the person responsible for each HR activity.
  • Determining clear objectives for each HR activity.
  • Verifying the policies and procedures used to achieve these objectives.
  • Conducting sampling of records and information systems to ensure proper implementation of policies and procedures.
  • Detecting deficiencies in HR processes.
  • Developing action plans and proposals for improvements.
  • Monitoring the implementation of recommended changes.

INTERNAL CONTROL OF HUMAN RESOURCES

The internal control system of human resources encompasses the organizational structure, methods, and procedures used to achieve the following objectives:

  • Adequate protection of human resources, recognizing staff as a valuable intangible asset (human capital).
  • Obtaining reliable and updated information through HR information systems and databases.
  • Measuring the effectiveness of human resources in the organization through key performance indicators (KPIs).
  • Ensuring adherence to policies, rules, and instructions issued by senior management regarding human resources.

SPECIFIC INTERNAL CONTROLS FOR HR

1. Clear Mission, Objectives, and Policies

Ensure the existence and clarity of the HR unit’s mission, objectives, and policies through written statements that are properly distributed and internalized by staff.

2. Effective Organizational Structure

Establish a well-defined organizational structure for the HR unit, including clear roles and responsibilities.

3. Standardized HR Management Methods

Implement standardized methods and procedures for managing human resources within the organization.

4. Transparent Recruitment and Compensation

Establish clear and written criteria for HR recruitment, wage determination, settlement, and payment processes. Ensure proper authorization and segregation of duties in these areas.

5. Confidential Personnel Records

Maintain confidential personnel records for each employee, containing general information (name, address, contact details, etc.) and professional profile data (title, experience, references, etc.). Assign the task of maintaining accurate personnel records to a senior member of the HR department.

6. Scheduled HR Processes

Establish procedures for reviewing and scheduling (calendar) domestic issues such as wages, holidays, promotions, terminations, payment dates, overtime, allowances, training, bonuses, and incentives.

7. Payroll Monitoring and Analysis

Maintain monthly payroll summaries for monitoring and comparing balances between periods and against budgeted figures. This allows for faster analysis of deviations and discrepancies.

8. Accurate HR Expense Allocation

Implement reasonable methods for allocating all HR-related expenses between direct, indirect, and general costs.

9. Regular Bank Reconciliations

Conduct periodic reconciliations between bank accounts and payroll payments to ensure accuracy and identify any discrepancies.

10. Time Control Reconciliation

Reconcile time control systems with paid hours to ensure accurate compensation and identify any discrepancies.

11. Absenteeism and Redundancy Analysis

Analyze the causes of temporary absences (absenteeism rate) and redundancies to identify any underlying issues and implement appropriate solutions.

12. Compliance with Labor Standards

Ensure adequate compliance with labor standards, taxation, pension regulations, and occupational risk guidelines.

13. Access to Expertise

Provide access to internal and external expertise for complex labor-related matters and supervision.

HR AUDIT PROCESS

1. Audit Planning

Define the scope of the audit, including areas to cover, available resources, timeframes, and techniques to apply.

2. Audit Team Formation

Assemble a multidisciplinary audit team that includes HR experts.

3. General Knowledge of the Entity

Gain a comprehensive understanding of the company as a whole, including its internal and external aspects.

4. Specific Knowledge of HR

Acquire in-depth knowledge of the HR area, including its structure, processes, and policies.

5. Internal Control Review

Review the internal control system in place for HR, identifying strengths and weaknesses.

6. Procedure Implementation

Implement audit tools and techniques specific to human resources.

7. Critical Situation Analysis

Analyze critical situations, identifying their causes and potential effects.

8. Alternative Solution Search

Explore and propose alternative solutions to address identified issues.

9. Report Preparation

Prepare a comprehensive audit report summarizing observations, recommendations for improvements, and conclusions.

10. Follow-Up

Establish a follow-up mechanism to monitor the implementation of recommendations and assess their effectiveness.

MAIN AREAS TO COVER IN AN HR AUDIT

1. Human Resource Management Information System

1.1. Human Resource Plans

  • Estimation of supply and demand
  • Staff inventory
  • Succession planning and replacement

1.2. Job Analysis

  • Job levels and standards
  • Job descriptions
  • Job specifications

1.3. Compensation

  • Pay levels
  • Types of compensation (fixed and/or variable)
  • Personnel or services

1.4. Equal Opportunities

  • Communication of opportunities
  • Fair promotion practices
  • Equality standards

2. Personnel Integration and Development

2.1. Recruitment

  • Sources of recruitment
  • Availability of potential candidates
  • Application and request banks

2.2. Selection

  • Selection process
  • Monitoring

2.3. Training and Orientation

  • Orientation and training programs (induction)
  • Objectives and training procedures
  • Effective training rates

2.4. Staff Development

  • Development programs
  • Promotion plans
  • Relocation movements

3. Monitoring and Evaluation

3.1. Performance Evaluation

  • Performance standards and measures
  • Performance assessment techniques
  • Assessment interviews

3.2. Industrial Relations Administration

  • Contract management
  • Economic valuation of contracts
  • Conflict resolution procedures

3.3. Human Resources Control

  • Communication with employees
  • Disciplinary procedures
  • Procedures for change and development

3.4. Quality of Work Environment

  • Potential conflicts
  • Quality circles or equivalent
  • Turnover rate
  • Degree of satisfaction and motivation

INSTRUMENTS FOR CONDUCTING THE AUDIT

  • Compilation of staff casework
  • Interviews
  • Opinion surveys
  • External information
  • HR research

HR AUDIT REPORT

  • Introduction
  • Methodology applied
  • Observations and recommendations
  • Conclusions

GENERAL KNOWLEDGE AND BACKGROUND

  • Articles of Association of the company
  • Organizational chart
  • Description of functions and procedures
  • Annual reports
  • Rules and regulations
  • Staff development plans and programs
  • Performance evaluation systems and skills assessments
  • Selection process documentation
  • Personnel file access procedures
  • Staff nomination process with descriptions of positions, tenure, education, and training
  • Remuneration system details