Article: HR audit landscape: Some startling facts

Strategic HR

HR audit landscape: Some startling facts

The key findings of the People Matters HR Audit Study 2016 reveal startling facts about the HR Audit landscape in India
HR audit landscape: Some startling facts

Only a miniscule number of 4 out of 100 companies have dedicated HR resources for HR audits, reveals the People Matters HR Audit Study. This microscopic number calls for gargantuan attention – as the need for dedicated HR professionals with domain specific knowledge to execute audits is of significance to organizations. However, the gap lies in the lack of auditors with the specialized knowledge in HR practices that would allow them to review processes, assess risks and recommend for improvements and/or mitigation strategies. In the backdrop of Dr. T.V. Rao’s assertion that only an HR professional can be an HRD auditor, this fact is a startling revelation. According to Prithvi Shergill, CHRO, HCL Technologies, it is important to have an HR representative in the audit team. He says, “The HR professional can impart the functional know-how to the team and make the process more efficient and effective.” Being cognizant of the same, HCL has transformed the audit team structure and it now ensures the participation of a HR professional in the audit team. 

The race against time 

The survey also revealed that only half the companies (52 percent) have the guiding objective of using HR audits as an early warning system to identify issues before they become crises. 80 percent surveyed companies said that their guiding objective of HR audits is “to examine organization’s compliance with established regulations and/or company policies.” And understandably so – the abundance of statutes and company policies, and the complexity of processes make it difficult for companies to focus on identifying risks because of their pre-occupation with auditing the former. 

Given the periodicity of audits (6 percent companies do more than 4 audits in a year, 15 percent do quarterly audits, 29 percent do semester audits and 42 percent do annual audits), it becomes a challenge for process owners, since it is a very demanding and exhausting exercise. Dilpreet Singh, Vice President – HR, India and South Asia, IBM shares this pain point along with HCL’s Prithvi Shergill. 

The complexity is further escalated because of the length of audit engagements. While it is advised that the recommended length of an audit engagement be short so that it is not misconceived as a control exercise, it is challenging for companies to be effective in the suggested timelines. The upside is that it is indeed short in a majority companies the typical length of an audit engagement is up to 2 weeks in 49 percent companies; 2-4 weeks in 17 percent companies; and the percentage keeps reducing as the time increases. Therefore organizations have to fulfill their aspirations to ensure process compliance and identify risks in the short amount of time that they have for an audit. It is the prerogative of organizations to find the right balance of what processes to audit, and how to audit them. 

Some organizations, that People Matters spoke to, follow the practice of prioritization of processes. For instance, at Wipro, the selection of processes is entirely based on the degree of vulnerability and importance of the function. Same is the case with HCL, which prioritizes processes when preparing the quarterly audit calendar. Organizations are also deploying innovative approaches to make the audit process constructive and effective – Aditya Birla Group uses a maker-checker process, IBM does peer-peer audits and HCL does audits across 3-levels in the organizations.

HR Audit Study 2016 

Click here or on the image above to view HR Study Infographic

Getting the maximum from the audit procedure 

All the organizations surveyed audited one process or the other. While organizations audit most of the processes, there are some of the processes which were identified to be the most popular functions. These include ‘Compensation and payroll’, ‘Policies and procedures’, ‘Record keeping’, ‘Employee separations’, ‘Legal compliance’ and ‘Recruitment’. A minimum of 85 percent companies audit all the aforementioned processes. Thus, it can be opined that these functions are considered high risk areas by organizations, based on the large proportion of companies that audit these procedures. The processes which are less popular include ‘Communications’, ‘Learning and Development’, Employee Relations’, Performance Appraisal Systems’ and ‘Health, Safety and Security’. These processes are not audited by a minimum of 30 percent organizations. 

The top three benefits that organizations have accrued from audits include identifying and correcting risk gaps, litigation avoidance, and cost avoidance. But in order to derive maximum outcome from audits, it is important that the context of the audit for the business is clarified at the initiation stage of the audit. Both the survey and expert’s view (to follow later in the story) points to the fact that there is a dual understanding of the role of audits in HR. One, it is looked at as a statutory and compliance process that takes care of the financial controls points and labor laws. On the other hand, it is also seen a process review and improvement mechanism that proactively identifies business risk areas and helps improve efficiency of the process. 

Overall, audits need to be seen as a development exercise. “The goal of HR audits is not to pin point responsibilities,” as articulated by Divakar Kaza, President – HR, Lupin Ld. “but it is rather to identify areas of improvement.”

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Topics: Strategic HR, #HRAuditStudy

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