The MD of a Germany-based company in Gujarat maintained that the company’s growth was predictable and going to stagnate at 8 percent given the future market conditions. He was reluctant to audit the HR processes because he felt that HR could only have a miniscule impact, if it were to have any. After some persuasion from the CHRO, he did agree and commissioned the audit. And it was found that there was a lot of scope for improvement in the internal processes and systems linked to the HR function like the need for a focussed target setting by various departments through KPAs and competency mapping. The MD implemented the recommendations diligently after seeing the presentation of the HR audit report. It even cascaded to his German counter parts who decided to undertake similar exercises in other units. The definitive result was an enhancement of their growth rate in subsequent years. 

This example elucidates the potential of an HR audit and its impact on business. Thus, besides identifying gaps in competencies and processes, identifying risks and checking for compliance, ‘effective’ audits identify areas of strengths and weaknesses and leverage the results to transform the existing structures in place so that they have the maximum impact on business. 

For an HR audit to be effective and make a significant impact, it must give an answer to critical questions, some of which are: 

Questions that a good HR audit answers! 

• Are your HR strategies and systems aligned with your short and long term business goals and plans?
  
  
• How effectively are your HR strategies and systems designed, structured and implemented?
  
  
• How effective is your PMS, L&OD, Competency Mapping, Recruitment and placement, succession planning etc. systems? Are they needed? How could they be restructured and how can they be implemented better for an enhanced ROI?
  
  
• What are the competency gaps in your HR staff and what areas do they need to be strengthened? 
  
  
• Do your line managers and other employees have the requisite learning attitudes and are they learning to get themselves equipped continuously to meet business challenges from time to time? 
  
  
• Do your top level managers have the right kind of styles that promote a HRD culture (enabling, empowering and engaging)? 
  
  
• What is the HRD Culture of your organization? Is it aligned with your ambitions and Talent management? 
  
  

But in order to answer such questions, the HR Auditor or the team leader of HR audit should be professionally-trained and be an expert in HR systems, processes, with good theoretical background and partial experience in implementing HR. Answering these questions requires an in-depth study and analysis of various HR systems, competencies, culture and their impact.

Capability building of HR Auditors – L&D for HR Auditors 

The auditors need to be empathetic, positive evaluators, researchers and analysts and need to be trained in observation, interviewing, constructing and other evaluation methods of human processes. 

Only HR professionals can be HR auditors as domain knowledge of HR and comprehension of HR functions is imperative. Line managers can be trained in acquiring such skills and knowledge and their capability to conduct a functional audit can be built. For example, a team of line managers can be trained exclusively to do a ‘training audit’ as a part of larger HR audit or ‘PMS audit’ of quality circles audit etc. However, they can’t be called HR auditors as an HRD auditor is required to a comprehensive audit of all HRD systems, structure, strategies, competencies, culture and impact of HR. However, they can only be functional auditors; they cannot be called HR auditors, as an HRD auditor is required to a comprehensive audit of all HRD systems, structure, strategies, competencies, culture and its impact. HR auditors should constantly update themselves with research and new developments in HR. There are also programs which are available to train HR auditors. 

Benefits of HR Audits 

The degree of effectiveness of an HR Audit is dependent on the skill level of the auditor, which in turn determines the degree of the benefit accrued from the process. There are manifold advantages of HR audits. Below are a couple of examples to illustrate this point: 

• HR Audit as a “hook tool”: The HRD Audit of an USA based MNC located in India revealed that the organization has employed young staff, paid them higher than market rate and had some excellent HR practices with a lot of informality and empowering culture. The audit revealed that while the HR systems are excellent, the only area of improvement was found to be the uncertain future career growth experienced by many of the employees. The employees had no idea of the growth plans of the company and consequently their own career growth. The audit suggested some long term planning for the company along with evolving some form of career planning for the young and energetic employees of the company. The CMD and the top management of the company expressed their inability to influence the top management headquartered in the US who did not care much for the small unit in India. The report pushed the MD and top management to give thought to this and prepare a plan and present the HR audit report along with a long term plan for the company HQ. The US board got attracted by the plan and audit report and approved the company plans. This is one of the reasons why we call HR Audit as a “Hook Tool”. It hooks the top management to find high and low points and attend to low points and leverage high points in HR.
  
  
• Being a lens to the top management: In another company, the HR audit found that the open door policy of the MD was being used by senior and middle-level managers well but it did not percolate down the hierarchy. And his insistence on discipline got interpreted as an ‘inhuman’ approach. After it was brought to the MD’s information, he changed his communication style and methods that also lifted up the morale and motivation of employees.
  
  

The making of a successful HR audit 

The benefits can be amassed, only when the process and audit design is effective. And like any other system, the success of the HRD audit depends on its implementation. Here are the factors that make a successful HR Audit: 

• It should be commissioned by the CEO or the MD with full understanding and support of the top management. It should begin with a presentation and dissemination of its purpose and intended outcomes through a series of presentations or sessions by the top management with the help of the auditors.
  
  
• Audit should be projected properly as a systematic evaluation to improve the future of the company and its people through HR polices, practices and competencies and not a fault finding exercise. All employees and particularly the HR staff should be assured of its development impact.
  
  
• The auditors should win the trust of the employees by their own conduct and the way they put questions and examine records or interview people. The best way is to start with a talk on various HR practices globally and how HR enhances business results and employee futures.
  
  
• The audit should not be prolonged. Once started it should be completed in a few days to weeks. Prolonged audits give rise to unnecessary apprehensions.
  
  
• The audit report should focus on strengths of the organisation and suggest mechanisms to leverage the same. 
  
  
• The audit report also should give recommendations for improvements in each area: systems, competencies, culture, alignments and impact of HR etc. 
  
  

The challenges and pain points 

The benefits are also accompanied with a set of challenges. HR audits present gaps and also could be threatening to the HR staff. In fact this is one reason why most CHROs are afraid of getting audits done. 

Audit reports if not used properly could help unscrupulous elements play internal politics. Transparency from beginning helps to a large extent. 

Audits point out to improvements in all or many areas and it may not be possible to implement all at once, and phasing out of implementation is necessary. Auditors should suggest the same as an implementation plan. 

If the top management cannot share their plans fully with trust on the auditor the auditors can’t do justice in terms of aligning HR to future. However such plans for reasons of confidentiality of cannot be shared, the auditors should respect the same and carry out the audit within the data available for them.