An HR audit can uncover issues, mitigate liability, and help ensure that your HR department and managers are doing the best possible job of identifying, hiring, training, mentoring, and developing your employees into valued contributors.
Or, to be more succinct, a good HR audit can make sure your organization is in compliance with all government and industry regulations and is using best practices at every level.
With the rise of social media, as well as the challenges of COVID-19 on your operations, an HR audit is a more important tool than ever. Former and current employees, as well as clients and vendors, are quick to voice critical opinions on social media. The pandemic has changed the way virtually every organization operates. An HR audit can spot issues and suggest improvements before a critical opinion hits social media.
Two Types of Audits
Audits can help an organization in two main areas, depending upon the goals.
A risk mitigation audit looks for areas of exposure that could be problematic to the organization or its employees. Often, these audits look at policies as they relate to federal and state guidelines and laws. Other risk-related audits may focus on practices that don’t follow industry standards and may put the company at a competitive disadvantage. The goal is generally to reduce potential liability. Sometimes these types of audits are triggered by pending or existing enforcement action or upcoming government inspections.
A value creation audit evaluates and finds ways to improve policies and procedures to better align HR functions with critical business strategy, goals, or needs. In competitive industries, for example, these types of audits can help organizations attract and retain critical top talent.
The goal of a good audit, regardless of the type of audit or reason for conducting one, is to receive actionable data that can improve processes.
Components of a Good Audit
HR audits can be comprehensive or focus on one or several areas. The audits ask both basic and complex questions. Some of the common areas explored include the following.
- Plans for workforce expansion or contraction
- Type of organization (nonprofit, for-profit, government)
- Are unions representing workers?
- History of employment labor claims to federal or state agencies
Hiring and Onboarding
- Review of recruitment process, hiring manager training
- Assessment of job description compliance with applicable regulations
- Interview process review, including whether questions are legally compliant
- Application process and requirements
- Background testing and drug testing policies
- Job-related testing and validation
- Acceptance and rejection procedures
- Use of independent contractors or contingent workers
- Onboarding paperwork, procedures review
General Employment Practices
- Employee handbook review for completeness and compliance with federal and state rule
- Acknowledgment of receipt of handbook and applicable policies
- Process for employee performance evaluation
- Existence of policies for dispute mediation, ethics reporting, sexual harassment and discrimination training and reporting
- Employee discipline and termination procedures
Wages and Benefits
- Review of defined employee classification levels
- Payment of exempt and non-exempt employees in compliance with federal and state laws
- Time-recording procedures and systems
- Existence of policies about absenteeism, tardiness, and paid time off
- Sales commission policies defined and followed
- Benefits communication and compliance, including health care and retirement plans
- Defined and communicated bonus and severance pay plans
- Assessment of leave plans for illness, pregnancy, family leave, military leave, and disability in accordance with applicable laws
Safety and Security
- Compliance with federal and industry notification guidelines
- Use and scope of safety training and injury prevention programs
- Review of emergency response and communication plan
- Process for managing workers’ compensation leaves and communication
- Plan for preventing workplace violence
Record-Keeping and Documentation
- Use, definition, storage, and security of personnel files
- Existence of areas for postings of mandated information
- Plan for communicating required notices to employees
Who Should Do the Audit?
An outside auditor is almost always a better option than an internal auditor for several reasons.
First, an internal auditor will generally be someone in HR who wears many hats, with auditing only one of their responsibilities. They may know their organization inside and out, but will have much less (or no) knowledge of industry best practices. As a result, they may not be aware of industry or legislative changes that affect HR policies and procedures. Also, an insider may be biased by having a stake in the outcome, since they may have helped shape the HR policies and procedures.
But the biggest reason to use an outside auditor is simple: You don’t know what you don’t know. An outside auditor will ask questions an internal person might not have known to ask, and will examine areas that an internal person wouldn’t.
The cost of an outside auditor will vary, depending upon the scope of the audit. But the cost will be much less than the costs of employee lawsuits and complaints, lost time from injuries, hiring the wrong employees, and the loss of reputation on social media.
An outside auditor may also be able to help an organization trim expenses. For example, the auditor may have insights into more cost-effective insurance and other HR-related expenses.
An audit can suggest simple changes that potentially make a huge difference.
For example, the audit of a Denver financial services firm uncovered a significant potential liability: how the firm defined an applicant.
Previously, the company had defined applicants as anyone whose resume met minimum requirements and had been reviewed. The auditors recommended that the definition be narrowed to those who apply for a position, are qualified, and have their applications retained.
The reason? The process improvement helped the company remain in better compliance with federal affirmative action laws.
Other simple fixes uncovered in audits included ensuring that certain sensitive and legally protected paperwork was kept in secured cabinets with limited access, employee reviews and deductions were fully documented, and I-9s and other documents were stored separately from employee files.
How and When to Do an Audit
In the absence of a pressing regulatory or compliance need, high-performing organizations should conduct an audit every 1-2 years.
Make sure the organization and the auditors are clear on the goals, expectations, and processes before the audit begins, and use an auditor that knows the organization’s industry. If there are specific concerns, such as employee satisfaction or retention, make sure they’re addressed.
The Lindenberger Group has conducted audits for organizations in virtually every industry. Our fees are significantly lower than the industry average, and we provide a comprehensive, holistic view of your organization, as well as actionable items.
For more information or to discuss your HR needs, please contact us at 609-730-1049 or send us an email.