You are on page 1of 6

managers to learn whether certain policies and procedures are understood, practiced and


The HR Audit Process: A Model

The general process of conducting an audit includes seven key steps, each of which is discussed in
greater detail below:

Determine the scope and type of audit.

Develop the audit questionnaire.
Collect the data.
Benchmark the findings.
Provide feedback about the results.
Create action plans.
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, national standards
and/or internal company data. Typical information that might be internally benchmarked includes the
company's ratio of total employees to HR professionals, ratio of dollars spent on HR function relative to
total sales, general and administrative costs, cost per new employee hired, etc. National standard
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.
One 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.
One approach is to designate someone on staff (or an outside consultant) to monitor legal
developments to ensure that HR policies and practices are kept current. 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.

areas that should be carefully reviewed include:

Misclassification of exempt and nonexempt jobs. Almost every company has job positions that
have been misclassified as exempt from overtime eligibility. The complexity of wage and hour laws and
regulations makes it easy to err in classifying a job as exempt, thereby exposing the company to
liability for past overtime.
Inadequate personnel files. A review of sample personnel files often reveals inadequate
documentation of performancefor example, informal, vague and/or inconsistent disciplinary
warnings. Performance evaluations may be ambiguous, inaccurate or outdated. Personal health
information is often found in personnel files, despite medical privacy laws requiring such data to be
kept separate. Accurate and detailed records are essential for employers to defend any type of
employee claim, particularly unemployment compensation or wrongful termination claims.
Prohibited attendance policies. Controlling excessive absenteeism is a big concern for most
employers. However, the complexity of family and medical leave laws, with sometimes conflicting
state and federal protections, has made many formerly acceptable absence control policies
unacceptable. Absences affect workers' compensation, family and medical leave, disability
accommodations and pregnancy laws. Companies often have attendance policies that either do not
comply with relevant laws and regulations or grant employees more protections than required.

Inaccurate time records. Employers typically require nonexempt employees to punch a time
clock or complete time sheets reflecting their time worked each week. The records generated by these
systems typically are the employer's primary means of defense against wage and hour claims, so it is
essential that timekeeping policies and practices be clearly communicated and consistently
Insufficient documentation. Reviews of employer hiring practices often uncover inadequate
documentation, such as missing or incomplete I-9 Forms. Employers can be fined between $100 and
$1,000 for each failure to accurately complete an I-9 Form. Fines for these violations can easily add up,
with reported cases of repayment totaling over $100,000.

Here are a few examples of the most common types of HR audits:

I-9 audit. This audit reviews all I-9 forms for employees and ensures that they all exist, and theyre all filled in
completely and correctly. It can also check for any follow-up needs or additional documentation needs.
Policy or handbook audit. This type of audit typically looks for policy changes that need to be made to
ensure policies are internally consistent and there is nothing within them that is not legally permissible
which is especially important since laws may change. It confirms that all employees have received copies of
all policies, and, ideally, the employer has a signed acknowledgement of such from everyone.
Compliance audit. While the details vary, most HR departments perform compliance audits to ensure legal
compliance with reporting needs as well as compliance with all regulations. For example, many companies
perform audits to ensure compliance with the Americans with Disabilities Act (ADA) or the Family and
Medical Leave Act (FMLA) regulations. Any legal statute could be rationale to prompt an audit to ensure

An HR compliance audit generally consists of two main parts:


An evaluation of the company's operational HR policies, practices and processes with a focus on
key HR department delivery areas (e.g., recruitingboth internal and external, employee retention,
compensation, employee benefits, performance management, employee relations, training and
development, etc.).
A review of current HR indicators (e.g., number of unfilled positions, the time it takes to fill a
new position, turnover, employee satisfaction, internal grievances filed, number of legal complaints,
absenteeism rates, etc.).

Functional audit. Again, the details will vary, but in a functional audit a specific function, such as payroll, is
assessed to confirm it is operating as intended. This type of audit is typically then rotated across all
functions, such as performance management, and complaint investigation.
Wage and hour practices audit. This type of audit looks to uncover any potential problems with wage and
hour practices. For example, it could uncover whether employees who are required to take lunch breaks
have been doing so. It could also look to discover whether all overtime is being calculated and paid properly.
These are just a couple of examples of the types of audits that could be conducted under the wage and hour
Exemption audit. This type of audit assesses whether all employees who are classified as exempt from
overtime are actually qualified to receive that exemption.
Job description audit. While this activity isnt always referred to as an audit, it serves the same function. The
key here is to review job descriptions and update them both for accuracy and for compliance.
Safety audit. As the name implies, this type of audit assesses the safety measures taken within the
organization. (This may or may not fall under HR audits, depending on company structure.) Companies need
to ensure theyre complying with OSHA standards consistently.
Hiring process audit. This type of audit looks at the hiring processes to ensure theyre consistent, efficient,
and nondiscriminatory.
Training and development audit. This type of audit assesses the employee development programs in place
within the organization. It looks to analyze what gaps exist and whether all statutory training has been
Compensation and benefits audit. This type of audit can take many forms, depending on business needs. It
could be used to ensure that all regulations related to implementing and carrying out benefits are being met.
It could ensure that compensation is in alignment with company objectives. It could be used to ensure that
private employee informationsuch as health information related to the administration of a health insurance
benefitis kept completely separate from other employee information.


What is a Skills Audit?
A skills audit is essentially a process for measuring and recording the skills of an
individual or group. The main purpose for conducting a skills audit in an organisation is
to identify the skills and knowledge that the organisation requires, as well as the skills
and knowledge that the organisation currently has.
Skills audits are also usually done to determine training needs so an organisation can
improve its skills and knowledge.
It firstly identifies the skills matrices for the organisation and then delves into what the
current competencies are of each individual against this predefined set of skills required
to fulfill a specific role.

The outcome of the skills audit process is a skills gap analysis. This information will enable the
organisation to improve by providing the appropriate training and development to individuals to
cater for the identified skill gaps.
This information is essential for a number of reasons:
Without this information you don't know where to improve.
With this information your training and development will be better planned and
more focused.
Recruiting needs are better defined and more likely to result in the most
appropriate candidate.
Placement decisions are easier with knowledge of current competence levels.
Career pathing and succession planning is assisted with accurate information on

The process to be followed essentially consists of the following:

a. Determine skills

b. Audit actual skills

c. Determine
development needs
and plan for training/

There are three key stages to a skills audit.

The first is to determine what skills each
employee requires. The second stage is to
determine which of the required skills each
employee has. The third is to analyse the
results and determine skills development
needs. The outcome of the skills audit
process is usually a training needs analysis,
which will enable the organisation to target
and also provide information for purposes
performance management and succession

a. Determine skills requirements

In order to determine skills requirements, an organisation should identify current and
future skills requirements per job. The end result is a skills matrix with related
competency definitions. Definitions can be allocated against various proficiency levels
per job, such as basic, intermediate and complex.
b. Audit actual skills
The actual skills audit process is outlined below and involves an individual self-audit and
skills audit. Results are collated into reporting documents that may include statistical
graphs, qualitative reports and recommendations.
c. Determine development needs and plan for training/restructuring

Once skills audit information has been collected, an analysis of the results may be used
for planning purposes relating to training and development and other Human Resource
interventions. Recommendations are then discussed and agreed actions are