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There are numerous external and internal forces and factors that have an impact on organizations. Increasingly this list includes the strategic, tactical, and legal activities of managing their human capital. Like the management of their financial capital, effective management of organizations’ human capital plays a critical role in determining their success. And like the benefits of financial audits, HR audits provide management with a method of determining whether human capital is effectively used, where human capital is incorrect – or unlawfully — used, and how to improve human capital return on investment.
HR audits are designed to help organizations focus their attention on their human resource management practices, policies, procedures, processes, and outcomes by providing them with a structured and systematic series of questions about key compliance, risk management, internal auditing, and human resource management issues. As an auditing process, HR audits are designed to help organizations identify potential and actual problem areas, help assess the effectiveness of HR management activities, help assess weaknesses in HR internal control processes, and help assess human capital strategic and compliance-related risks. HR audits then typically provide suggestions for corrective action.
Importantly, the HR audit process considers human capital related risks and opportunities from an enterprise risk management (ERM) perspective. That is, HR audits take a holistic approach in assessing human capital risks and attempts to indicate the interrelationships and interactions between HR and other management and organizational issues.
Recognizing that no two employers are alike and that the practices, policies, and processes that may be appropriate and effective for multinational corporations may not be appropriate for small and medium-size companies or non-profits, HR audits are typically designed to help organizations develop and tailor their employment practices, policies, procedures, and processes to meet their specific needs. Thus, HR audits typically provide organizations with the “right” questions to ask about various employment practices issues; then help them determine the optimal answer.
While a human resources audit program alone will not guarantee that an organization’s workplace will be selected as a “best place to work” or be free from all legal challenges, it will serve as an important guide through the maze of human resource management best practices and employment and labor laws and regulations. As a result, an HR audit will further enhance the value of your organization’s human capital, enhance your organization’s competitiveness, and reduce your organization’s exposure to employment practices liabilities.
This session discusses the development and use of HR Audits in addressing such critical risk management issues as:
In the global economy, human capital has become for many organizations the single most important determinant of competitiveness, productivity, sustainability, and profitability. Increasingly, an organization’s human capital is the source of innovation and a driver of business success.
Additionally, there is a confluence of economic, political, and social factors that have resulted in increased statutory and regulatory requirements, a call for greater transparency, and increased internal and external audit activity.
Finally, governmental agencies have become more active—some would argue more aggressive—and have committed more resources to conduct assessments of employment policies and practices. Importantly, the EEOC, the OFCCP, U.S. DOL, and ICE have advised employers that they consider self-assessments and audit a “best practice.”
How effectively is your organization managing its human capital? Is your human capital helping you achieve organizational objectives? Are your employment practices creating material risks and liabilities? This session discusses the development and use of HR Audits in answering these questions and in addressing critical risk management and due diligence issues.
The threats and risks from human resource management issues are increasing. No longer measured in only fines, and penalties for non-compliance, human resource management affects keys business metrics, including the organization’s valuation and credit rating. Further, improper human resource management can significantly reduce managerial prerogatives, and seriously damage the organization’s reputation and employment brand. Thus, HR audits have become a critical tool in identifying problem areas and are evolving from an ad hoc audit activity to a critical element of an organization’s risk management and compliance processes.
In this environment, HR audits have become an independent, objective, and systematic evaluation that provide assurances that:
1) The organization is in compliance with employment laws and regulations and that governance requirements are being met;
2) The organization’s business and talent management objectives are being achieved;
3) The organization’s 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 audit processes 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.
As a result, there has been a 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 HR audit 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; 3) uses sophisticated auditing products and consulting services.
These changes and the growing importance of human capital now require ongoing and continuous HR auditing activities.
Ronald Adler is the president-CEO of Laurdan Associates, Inc., a veteran-owned, human resource management consulting firm in Rockville, Md., specializing in HR audits, employment practices risk management, benchmarking and HR metrics, strategic HR, employee surveys, and unemployment insurance issues. Ronald has more than 42 years of HR consulting experience working with U.S. and international firms, small businesses, and non-profits, insurance companies and brokers, and employer organizations. He is a consulting expert on workforce, employment practices, and unemployment insurance issues to Bloomberg BNA, HR Magazine, and other publications and newspapers across the country. His research findings have been used by the Federal Reserve Board, the Equal Employment Opportunity Commission (EEOC), the National Conference of State Legislatures, the National Association of Manufacturers, the National Federation of Independent Business, insurers, and international organizations.