The Evolution of HR Audits

Evolution is a process of change. Over the last 25 years we have seen significant change in the HR auditing process, the value derived from HR auditing, and the HR audit tools used. HR audits have evolved from a simple checklist of dos and don’ts or periodic affirmative action plans to a comprehensive, sustainable process that:

1) is an integral part of the organization’s internal controls, due diligence, and risk management;
2) is a fundamental activity of strategic management; and
3) uses sophisticated auditing products and consulting services. Increasingly HR audits are conducted of HR rather than by HR.

This white paper reviews the changes in HR audits, discusses the external and internal forces affecting the process and use of HR audits, and provides information about the leading HR auditing process.

Overview of HR Audits
The HR auditing process is or should be an independent, objective, and systematic evaluation that provides assurance that:
1) compliance and governance requirements are being met;
2) business and talent management objectives are being achieved;
3) human resource management risks are fully identified, assessed, and managed; and
4) the organization’s human capital adds value.
Under this definition, HR audits are more than an audit activity that solely collects and presents evidence of compliance. HR audits are increasingly expected to look behind and beyond the organization’s assertions of sound and proper HR management practices and to assess the assumptions being made, to benchmark the organization’s processes and practices, and to provide the necessary consultative services that help the organization achieve its business goals and objectives.

External and Internal Forces
Numerous external forces and factors have had an impact on the demand for and scope of HR audits. First, in the global economy, human capital is becoming the OSHA Training For Cannabis Businesses single most important determinant of competitiveness, productivity, sustainability, and profitability. Increasingly, the organization’s human capital is being recognized as the source of innovation and a driver of business success. Thus to be effective in the global economy, HR audits must be diagnostic, predictive, and action oriented.

Second, a confluence of economic, political, and social factors, including corporate scandals, the failure of the financial industry to adequately assess risks, and increasing stockholder initiatives, have resulted in increased statutory and regulatory requirements, a call for greater transparency, and increased internal and external audit activity. Consider:

1) Sarbanes-Oxley requires effective internal controls. While Sarbanes-Oxley specifically requires effective internal financial controls, the financial and organizational costs of employment related claims and litigation can have a material effect on an organization’s bottom line; can have a negative impact on earnings per share and the organization’s valuation; and because employment litigation can negatively affects the organization’s employment brand, can impact the organization’s long-term sustainability.

2) Securities and Exchange Commission Guidelines require management to “…exercise reasonable management oversight.” If human capital is one of the organization’s most important assets it is certainly one of the organization’s largest expenses is it not reasonable to expect that management applies the same level of oversight and due diligence to the management of the organization’s human capital as it does to the management of the organization’s other assets.

3) The U.S. Federal Sentencing Guidelines require that management demonstrate that it took reasonable steps to engender an organizational culture of compliance and to “monitor and audit” compliance activities, behaviors, and results. Ethical conduct and legal compliance, including nondiscriminatory employment practices, are achieved by management setting “the tone at the top.” Audits including HR audits provide the C-suite and boards of directors with important feedback about how effectively they are communicating the message.

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