When your executive leadership team asks, “How are things in HR?”   Do you answer, “Everything’s just fine” with your fingers crossed, or are you confidently able to report that, “We’ve just completed our annual audit and although we have a few recommendations for improvement, we’re in full compliance and employee satisfaction is up 10 points from last year?”

Now don’t cringe.  Audits can be very beneficial for an organization.  Yes, they do take time, but they result in recommendations for growth and improvements.  However, with all the time and expense organizations put into human resource policies, practices and procedures, it’s important to ensure that these safeguards remain up-to-date and are actually working the way they were intended to.  The organization creates an obvious target for lawsuits when it establishes policies and practices and then doesn’t comply with what it declared it would do.  Conducting annual HR audits provides for the assurance of compliance with federal, state and local regulations, as well as providing the opportunity to ensure that stakeholders of the HR function are satisfied with performance and results.

Just as with every other aspect of business, we’ve seen significant change in the HR auditing process; the value derived and the tools utilized.  According to an article entitled, The Evolution of HR Audits by Ronald Adler, HR audits have come a long way from a simple checklist of dos and don’ts to a comprehensive, sustainable process that:

• is an integral part of the organization’s internal controls, due diligence and risk management
• is a fundamental activity of strategic management
• uses sophisticated auditing products and consulting services

The good news is that results from HR audits help organizations identify prioritized actions to minimize lawsuits and regulatory violations, as well as to achieve and maintain world-class competitiveness. 

Overview of the Audit

The HR Audit used to be a process often conducted by internal resources. Today, however, we usually see independent, third-party consultants asked to perform the review.  This partnership with an external, unbiased expert brings the assurance of objectivity and appropriate reporting on findings.  Often outside counsel will retain the consultant on the company’s behalf in order to protect the audit results from being discoverable in a lawsuit. 

The systematic evaluation of the HR function usually targets the following objectives:

• compliance with employment regulations
• achievement of business and talent management objectives
• identification and development of appropriate mitigation approaches to human resource management risks
• assessment of the value the organization’s human capital is adding
  

Influencing Factors

You read about it everywhere, the organizations that will succeed in the future are those that understand and attend to the importance of its human resources in determining competitiveness, productivity, innovation, sustainability and profitability. 

As if that’s not a big enough driver for why periodic HR audits are necessary, add a layer of economic, political and social drivers.  These drivers are further impacted by stakeholder perceptions resulting from a flood of recent corporate scandals, the shameful behaviors of financial institutions, and stockholder demands for greater transparency.

Companies today are operating within the confines of a heavily-regulated environment.  And, current legislation being considered by Congress could significantly increase these regulations.  The Department of Labor alone currently administers and enforces over 180 employment laws!  These regulations require employers to establish, administer and maintain policies and practices that influence productivity and profitability, and may also involve compliance requirements.  These may involve:

HR Policies and Practices Impacted by Regulations

Is It Time For Your Checkup?

There are many factors that impact the scope and urgency for conducting an HR audit.  Some of these might include:  the size of the organization, industry, financial health, employee morale, organizational commitments such as “best place to work”, or intention to be acquired or merger.

When did you conduct your last HR audit?  Perhaps in conjunction with your 2011 strategic planning it would be a good idea to schedule an audit that can evaluate your performance as it relates to regulatory compliance, as well as:

• ensuring alignment of HR practices with business objectives
• assessing the outcomes vs. stated HR goals
• developing appropriate human resource metrics that measure value added, achievement of EEO and diversity goals and to benchmark best practices
• conducting a SWOT Analysis to identify areas of vulnerabilities as well as opportunities
  

Audits don’t have to conjure up ideas of painful experiences.  If conducted in an open and collaborative manner, by knowledgeable and experienced HR consultants, the results can be extremely beneficial for the organization, as well as all of its stakeholders.