Making HRM Effective: HR Audit

Mr. Tushar Panchal Ms Poonam Mehta

tushar_success@yahoo.in mehtapoonam297@gmail.com
09998 406 205 09924 424 118
Assistant Professor, RHPIM Assistant Professor, RHPIM

Category: Human Resources (Track IV)

Abstract:
Having HR unit/dept. in an organization is never sufficient for making sustainable
organization. For being sustainable in today’s competitive era, one should carefully examine,
how their HR function(s) work, whether HR has achieved set objectives or not? The
measurement for the effectiveness of HR function(s) initiated by HR department can only
been done through HR audit. As we know HR is the blood for an organization but one must
eager to know whether they’re working properly or not?
With tremendous significance over the organizational output, we are encouraged to focus on
HR Audit as a tool for effective HR Management. According to us, we can say that HR
Planning (HRP) and HR Audit can make the HR department and ultimately whole
organization muscular to cope up with the uncertain circumstances. Here, we have make
effort on title “Making HRM Effective: HR Audit”.
Human Resource Audit is a tool which can help to assess effectiveness of HR functions of an
organization. The Audit may include one department or whole organization. It gives feedback
about the HR functions to operating managers & HR specialists. it also provides feedback
about how well managers (employees) are meeting their duties. In short, the audit is an
overall quality control check on HR activities and evaluation of how these activities support
the organization’s strategy.
The current study aims to identify ways and outcomes of HR Audit. The scope of study
covers areas like HR functions, HR climate & Managerial compliance. The study concluded
with HR Audit is used to measure the employee performance, environment & Organizational
policies.

Keywords:- HR Audit, HRP, HRM, Performance, Organizational Objective, Effectiveness

 Making HRM Effective: HR Audit
Introduction
Human Resource Management has evolved over the years as a strategic unit for
organizational success. As the HR functions have undergone a typical shift, graduating from
managers to strategic experts, the transition has been quite challenging for many practitioners
(Laabs, 1997). The changing nature demands the HR Practitioners to participate and
contribute fully to their companies as true strategic business professionals. In today’s
competitive environment, companies operate within the detains of a heavily-regulated
employee environment. The scope of the HR function includes establishing and administering
a host of policies and practices—many of which involve compliance implications—that
significantly influence the productivity and profitability of the enterprise. Sometimes HR
department are not sure whether they are doing everything they should be doing so as to
perform at the highest possible level to provide effective delivery (Amy, 2010).
Nowadays emphasis must be given to efficiency and that can be improved by HR
effectiveness. This effectiveness can be analyzed by HR audit. HR audit can be defines as
systematic verification of all activities done by the employees. It is a vital tool to assess the
effectiveness of HR functions of an organization. If HR functions implemented well then the
probability of Organizational performance would be increased. By doing HR audit, we can
have clear idea about what has gone wrong? Furthermore, we can make HR functions on
track.

Increased emphasis on the need to improve the efficiency of HR services is leading to

innovative approaches to redesign HR delivery systems. Today, it becomes necessary to
focus instead, on the opportunities to develop competitive advantages within an organization
to increase its capacities. HR’s challenge is to help the organization realize success. At the
same time, it is also necessary to protect and leverage the investment in human capital by
way of training and development in order that organizations benefit from employees’ efforts
and contributions (Byham & Riddle, 1999). Evolving roles of HR necessitate HR
professionals be responsible first and foremost for understanding and furthering business
needs. In order to provide useful information to managers, it is necessary to evaluate the
results generated by the design and implementation of personnel policies. The diagnosis of
HR functions can be done through one essential tool –HR Audit.
In general, any audit seeks to identify who is responsible for each activity, determine the
objectives of each activity, review the policies and procedures used, sample the available
records to find if the policies and procedures are being followed, prepare an audit report
commending proper objectives, policies and procedures, develop an action plan to correct
errors in objectives, policies and procedures, and follow up on the action plan at a later stage,
to see if it solved the problems found through the audit (Berry, 1967).
HR audit is a functional audit. Thus, one could say that HR auditing consists of diagnosing,
analyzing, evaluating, and assessing future lines of action within the framework of HRM. It is
a systematic assessment of the strengths, limitations, and developmental needs of its existing
human resources in the context of organizational performance (Flamholtz, 1987). The key to
an audit is to remember that it is a learning or discovery tool, not a test. Whenever the HR
audit is taken up, the scope is decided. Audit need not be exhaustive, but should be focused
on particular function of HRM such as Training and Development, Performance Appraisal,
Compensation, etc. The HR audit should inspect the extent and meaningfulness of the
processes and support materials in place that ensure the skill sets needed, so it becomes
important for the HR department to understand why those practices are carried on. In such
situation HR audit helps to build on essential areas and eliminate those areas that are not
important.
HR audit must perform two basic functions. First, it must be a management information
system whose feedback provides information about the situation in order to facilitate the
development of managing processes or the development of HR. On the other hand, it must be
a way of controlling and evaluating the policies that are being applied, as well as the
established processes. The results can be valued through their cost (Walker, 1998). The
Things that get measured get managed (Kaplan & Norton 2008). HR Audit is very much
helpful to face the challenges and to increase the potentiality of the HR personnel in the
organization. It involves a company’s strategic actions to take an intensely objective look at
its HR policies, procedures and practices.
The fundamental performance questions addressed in a strategic audit of HR are “Does the
department align human resources and management practices, policies and procedures with
the organization’s strategic objectives. The basic functions of the audit of conformity or of
performance as an element of HR auditing are threefold. The first function is examining to
see if the firm is fulfilling all its administrative social obligations, as well as those relative to
the collective rights of its personnel. The second is to study the relationship between the
employees and the firm based on the legal statutes. The final function is verifying if the firm
fulfills its financial obligation as well as its informative ones.
This study is relevant although the concept of HR audit is not a new concept, it is one that is
not generally utilized as part of an organization’s audit cycle and there is not enough
literature available, needs in-depth study. Therefore it was decided to conduct a study to
understand the experiences of top management, Managers and executives of HR about the
effectiveness of the existing HR functions, practices and analyze whether HR audit is a
systematic process to examine the HR strategies, policies and procedures being practiced in
an organization.
Theoretical Aspects
HR Audit means the systematic verification of job analysis and design, recruitment and
selection, orientation and placement, training and development, performance appraisal and
job evaluation, employee and executive remuneration, motivation and
morale, participative management, communication, welfare and social security, safety and
health, industrial relations, trade unionism, and disputes and their resolution. HR audit is very
much useful to achieve the organizational goal and also is a vital tool which helps to assess
the effectiveness of HR functions of an organization.
The HR Audit Process
The progression of conducting an audit includes seven main steps, each of which is
deliberated in better feature below:
1. Determine the scope and type of audit.
2. Develop the audit questionnaire.
3. Collect the data.
4. Benchmark the findings.
5. Provide feedback about the results.
6. Create action plans.
7. Foster a climate of continuous improvement.
Determine the scope and type of the audit
To uncover the needed information, it is important to determine exactly what areas should be
targeted for review. If the organization has never audited its HR function, or if there have
been recent significant organizational or legal changes, the audit team may want to conduct a
comprehensive review of all HR practice areas. On the other hand, if concerns are limited to
the adequacy of a specific process or policy, the audit focus should be limited to a review of
that particular area.
Develop the audit questionnaire
Whether conducting a comprehensive audit or an audit of a specific practice, it is important to
invest sufficient time in developing a comprehensive document that elicits information on all
the subjects of the inquiry. A list of specific questions must be developed to ensure that the
questionnaire is complete.
Collect the data
The next phase includes the actual process of reviewing specific areas to collect the data
about the company and its HR practices. Audit team members will use the audit questionnaire
as a roadmap to review the specific areas identified within the scope of the audit.
Benchmark the findings
To fully assess the audit findings, they must be compared with HR benchmarks. This
comparison will offer insight into how the audit results compare against other similarly sized
firms. Typical information that might be internally benchmarked includes the company’s
ratio of total employees to HR professionals, general and administrative costs, cost per new
employees hired, etc. Benchmarking might include the number of days to fill a position,
average cost of annual employee benefits, absenteeism rates, etc.
Provide feedback about the results
At the conclusion of the audit process, the audit team must summarize the data and provide
feedback to the company’s HR professionals and senior management team in the form of
findings and recommendations. Findings typically are reduced to a written report with
recommendations prioritized based on the risk level assigned to each item (e.g., high,
medium and low). From this final analysis, a roadmap for action can be developed that will
help determine the order in which to address the issues raised. In addition to a formal report,
it is critically important to discuss the results of the audit with employees in the HR
department, as well as the senior management team, so everyone is aware of necessary
changes and approvals can be obtained quickly.
Create action plans
It is critical actually to do something with the information identified as a result of an audit.
The company must create action plans for implementing the changes suggested by the audit,
with the findings separated by order of importance: high, medium and low. It actually
increases legal risk to conduct an audit and then fail to act on the results.
Foster a climate of continuous improvement
At the conclusion of the audit, it is important to engage in constant observation and
continuous improvement of the company’s policies, procedures and practices so that the
organization never ceases to keep improving. This will ensure that the company achieves and
retains its competitive advantage. On way to do this is to continuously monitor HR systems to
ensure that they are up-to-date and to have follow-up mechanisms built into every one of
them.
Likewise, it is important to keep track of the audit findings/changes made, turnover,
complaints filed, hotline issues, employee survey results, etc. to identify trends in the
company’s employment-related issues. Identifying problematic issues, growth areas or
declining problem spots can help in the decision of where to allocate time, money and
preventive training resources in the future.

Research Methodology
Research Objectives
 To identify the awareness about HR Audit
 To discover ways of doing HR Audit for effective HRM
 To identify scopes of HR Audit
Research Methods
Secondary as well as Exploratory research methods have been adopted for research.
Sampling
By Convenience Random Sampling, 14 HR Professionals of various organizations have been
selected as Sample
Data Collection Method
Survey Method has been used to collect the data relevant to HR Audit.
Sources of Data
Primary as well as Secondary data
Research Instrument
Unstructured questions have asked to respondents about HR Audit.
Suggestions/Implications
As per literature and views of HR Professionals, HR Audit work as a improvement tool for
not only HRM but for whole organization. Most of HR Professionals are aware about the
concepts of HR Audit and ways to implement HR Audit. Based on the study, the various
aspects, ways, scope and benefits for organization are explained below:
What does HR Audit entail?
An HR Audit basically aims to evaluate the effectiveness of the following aspects of the HR
functions in an organization namely:
 Employment/recruiting
 Orientation
 Training & Development
 Employee relations
 Communications
 Evaluation of legal and statutory compliances
  Salary Administration
 Terminations
 Record Maintenance
 Policies and Procedures
The HR Audit also serves to educate employees on the latest trends and best practices used
by their peers and industry counterparts.
By reviewing the respondents, respondents are now ready to take regular follow up and
appropriate implementation of audit findings. Conclusions with approaches and scope have
been drawn in figure as shown below.

APPROACHES SCOPES

MBO HR Functions

Comparison Managerial Compliance

HR AUDIT
Outside Authority Employee Satisfaction
Statistical Corporate Strategy
Compliance

Approaches to HR Audit
 In the comparative approach the auditors identify another company as the model. The
results of their organisation are compared with those of the mode company.
 Often, the auditors use standards set by an outside consultant as benchmark for
comparison of own results. This approach is called the outside authority approach.
 The third approach is the statistical approach. Here, statistical measures of
performance are developed based on the company’s existing information.
 Compliance approach, auditors review past actions to determine if those activities
comply with legal requirements and company policies and procedures.
 A final approach is for specialists and operating managers to set objectives in their
areas of responsibility.
 The MBO approach creates specific goals against which performance can be
measured. Then the audit team researches.
Scope of Audit:
Generally, no one can measure the attitude of human being and also their problems are not
confined to the HR department alone. So it is very much broad in nature. It covers the
following HR areas:
 Audit of all the HR function.
 Audit of managerial compliance of personnel policies, procedures and legal
provisions.
 Audit of corporate strategy regarding HR planning, staffing, IRs, remuneration and
other HR activities.
 Audit of the HR climate on employee motivation, morale and job satisfaction.
Benefits of HR Audit
It provides the various benefits to the organization. These are:
 It helps to find out the proper contribution of the HR department towards the
organization.
 Development of the professional image of the HR department of the organization.
 Reduce the HR cost.
 Motivation of the HR personnel.
 Find out the problems and solve them smoothly.
 Provides timely legal requirement.
 Sound Performance Appraisal Systems.
 Systematic job analysis.
 Smooth adoption of the changing mind set.
Data Analysis
Below is the consolidated table of some of the questions asked for Auditing:

Outcomes of Audit questionnaire of Recruitment

Question Outcomes Remark

Do you use executive search services to Yes, for the higher level as and Good
help you in the recruitment area? when require
How is the recruitment methodology? It is based on recruitment policy Good
Does it attract desirables workers? and manpower planning.
Does it match capabilities of candidates
wth competency requirement for - Take specific requirement from
positions? department for vacancy, have
proper job specification for the
profile, Bases of the scrutinize
best suitable
Do you use executive search services to Yes, for the higher level as and Good
help you in the recruitment area? when required
What recruitment sources are used? Personal Good
contacts,consultants,sometimes
advertisement through
newspaper, Portals like naukari,
Times Job, Monster
Is training provided for those who No Companies
conduct interview? should provide
for better
recruitment
What are the procedures for hiring in Collect manpower requisition for Good
your organization? the position, Searching CV’s for
the position through sourses,
Scruitinise shortlisted CV’s, call
for an interview, select right
candidate.
Outcomes of audit questionnaire of recruitment (continue)

Question Outcomes Remark

How are the reference checks Reference checks through mails -

documented? and telephones.
What are your organization’s future 1)Retention of talents 2)Decision Good
needs for personnel? making for all levels 3)
Strengthen team work across the
organization 4)Culture
development
How is the recruitment process? Manpower requition form- Up to the hr
Approval-Job Responsibility- policy
consultancy-Shortlist of Profiles
Does it eliminate unsuitable applicants Yes, Through databank of Good
early and focus on promising candidates, and through gaps
candidates? between rejection and next
interview
Are current employees given Yes, talented ones will have Good
appropriate consideration for promotion chance to groom.
or lateral position changes?

Who does the preliminary screening of HR department, Outsourced -

candidates? agencies
Who selects candidates for interviews? HR, agencies or departments -

What is the interview process that is Depend on the position -

used? 1. individual, .2 sequential,3
panel
Training & development
Question Outcomes Remark
Does the company have a clear Yes, company have training plan Good
development or training plan monthly/yearly
/strategy?
What is the current training and -On the job training They should
development system for employees? focus more on
-Class room training “on the job
training” for new
-Videography employee at least
month.
-External Training only for
GM,HODs of Company
Of the total amount of training hours Formal classroom-55% -
offered, what percentage was?
Computer based-10%

On the job- 30%

Off site- 5%
How do you conduct training need By training need identification Good
analysis? form and annual appraisals

Do managers and employees find the Partially fulfilled Poor

training program relevant to their
needs?
What is the average length of time an Average 1.5 years only. Poor
employee stays with your
organization? Does it vary by
position type?
Is there a formal training program for Formal training is provided for Poor
employees and managers? if so, employees but not regularly for
please describe. managers. In certain cases
external training is provided
only.
Training & development
Question Outcomes Remark

Is there distance learning course or Yes, but very rare Not up to the
external training program conducted company policy
by HR department?

How do you evaluate training By evaluation of training records Have to improve

effectiveness? of an individuals it.

Is there particular time limit of No -

training in a calander year?

What are the elements of new Induction presentation-briefing Good

employee orientation program? by HR dept-joining formalities-
plant round-Induction in all other
dept.
What was the total cost for training 2.3lacs -
in the previous year?

Does each employee has individual Yes, By annual appraisals and Good
development plan? how are need indentificational form.
individual plans and needs Training matrix prepared.
identified?

Does IDP work effectively? If it No, Because of workload and Poor

doesn’t work effectively, what is the time constraints, Attitudes of
cause of it? employees (they don’t have
interest)

Conclusion
As a conceptual study and to justify the title; 14 HR professional have been asked questions
about nature, importance, ways and outcomes of Audit and how audit can be improved? Also,
about implementation of audit findings. Respondents have replied with concepts of audit and
they know the significance of it. Organizations are conducting HR audit regularly with
reports of audits. But, they are speechless when we’ve asked about implementation. This
behavior has been observed as they are lacking in implementation of audit findings. Also,
they are convinced that if they implement what to change or develop then outcome may be
different what they are having right now.
Indeed HR audit is an effective tool to assess the efficiency of the current HR activities. HR
audit gives opportunity to align the HR practices with the organizational strategy, identify
improvement areas, and keep side by side with the present practices. It permits an
organization to judge and estimate any gaps or potential risks and increase the commitment of
HR professionals towards continuous improvement.
On the whole HR audit increases the efficiency of Human Resource function, helps
contribute towards the organization effectiveness, and develops professional image of the HR
department. HR audit also helps in reducing HR cost and increasing motivation of the HR
personnel. All the HR functions such as performance appraisal, training and development etc.
are fine-tuned as a result of HR audit. Thus it goes without saying that the human resource
department can transform itself to be a strategic business partner by making the HR audit a
part of the audit cycle of the organization. The HR Audit can be a powerful lever of change in
your department and organization. In one sense it is simple, in that each step can be
completed fairly quickly and with ease. Also, the degree of detail and definition of
performance is within the control of the audit developer. Finally, we can say that “HR Audit
as a tool to make HRM effective”.

References
 Amy, L. (2010). Improving your organization with the integrity HR audit. Retrieved
from http://www.youtube.com/watch?v=WhWDWgy27M0
 Berry, J. W. (1967). Independence and conformity in subsistence-level societies. Journal
of Personality and Social Psychology, Vol. 7, pp. 415--418
 Byham, W. C., Riddle, S. L. (1999). Outsourcing: a strategic tool for a more strategic
HR. Employment Relations Today, 26 (1), 37-55.
 Flamholtz. (1987). Need for H.R. Top Management Retrieved from
http://www.dragonflygroup.com/index.php?option=com_content&view=article&id=21&
Itemid=18&lang=en&56f721d951010f6f334c9b0c71b23b90=1c447c728e59b744b7b3d
dc028b20562
 Kaplan, R. S., Norton, D. P. (2008). Execution premium. Harvard Business Press.
 Laabs, J. J. (1997). Stay a step ahead with 5 key skills. Workforce, 76 (10), 56-65.
 Brown Judith, Conducting a HR Audit, IPMA-hr
 Ashwathappa K, Human Resource Management and Personnel Management, Tata Mc
Graw Hill, New Delhi
 Rao, T V, HRD Audit: Evaluating HR Functions for Business Improvements, Response
books, Sage India, New Delhi, 1999.