Why Auditing of the HR Function is Necessary and Important in the Present Times

What is Auditing, Why is it Important, and Its Continuing Relevance in the Present Times

Auditing, or the process of checking and verifying the genuineness of processes, accounts, and functions of any entity are a necessary and important aspect of the organisational processes.

Indeed, any entity that is registered as such, be it governmental, private, or for non profit, needs to be audited periodically both for regulatory as well as efficacy and efficiency purposes.

For instance, world over, the regulators need to see the audited accounts of companies, governmental departments, and the non profit entities.

Auditing is also needed for the shareholders and other stakeholders who should be satisfied that their investments are safe and would deliver returns.

Most importantly, the taxpayers in countries need to be assured that their money which is collected in the form of direct and indirect taxes, is being utilised properly.

Therefore, auditing as an activity is critical and crucial to the functioning of entities. Turning to the corporate world, it is the case that financial audits, strategic audits, operational audits, and IT (Information Technology) audits happen mainly because the senior leadership as well as the other key stakeholders need such audits for both gratification as well as course correction in case of lapses.

The Emerging Case for Auditing the HR Function and its Relevance for Corporates

In contrast, the auditing of the HR or the Human Resources function receives scant attention, though as a procedural measure, its accounts are audited.

In this article, we argue that HR audits should become a permanent feature of corporates, since in the present times, where human resources are the capital that corporates have, means that it is necessary to find out whether such valuable resources are being utilized properly.

Moreover, SHRM, or Strategic Human Resource Management theories that posit human resources as sources of competitive advantage for corporates, necessitate that the HR function be audited.

In addition, with technology accelerating at an exponential pace, and increasingly being used in the HR function to drive efficiencies; it is imperative that there should be a proper assessment of whether it is generating the needed synergies and efficiencies.

Apart from that, with the HR Scorecard and other tools being used to bolster the HR function and track and monitor the progress of HR activities, more than ever, it is critical that there must be a methodical and procedural attempt to identify the Returns to Scale and the Synergies from Integration of the HR processes.

How HR Audits can be Done with Specific Examples from the HR Processes

Turning to the specific ways in which HR processes and functions can be audited, we will start with the recruitment function of the HR.

As recruitment deals with a vital aspect of the overall organisational function and specific HR mandates, audits can reveal whether the ROI or the Return on Investment into the Recruitment function is proper.

This can take the form of measuring the Dollars spent on putting out ads as well as the monies spent on upgrading technology tools such as Artificial Intelligence, Analytics, and Big Data based tools.

The returns can be measured by tracking the performance of the new hires as they progress through the organisation.

In addition, the training function, likewise, can be audited to assess whether the funds spent on organising trainings is yielding the returns by conducting tests of the participants of the sessions once they complete the training programs.

Apart from that, the auditing of the performance management processes as well as the core and noncore processes such as payroll can be done to assure and reassure the relevant stakeholders that the HR function is indeed being managed commensurate with the goals of the overall organisational mandates.

Who Should Audit the HR Function and How the Results can be used and Misused

Now, the question as to whether the HR audits need to be done by internal or external agencies arises and for this, it is important for the senior leadership to take an appropriate call on the same.

For instance, having internal auditors is enough when the gamut of activities carried out by the HR function is limited as well as the overall entities being small and with fewer budgets.

Of course, this means that the much needed objectivity and neutrality of the audits are compromised since internal stakeholders can be biased in their approach.

On the other hand, external auditors are needed whenever the HR function and by extension, the overall organisation is large and varied in its processes.

Moreover, for large corporates that are in the public eye benefit from external auditors since in such cases, tweaking and twisting as well as fudging of the numbers is reduced to a great extent.

Having said that, one must also remember that no matter whether the audits are done by internal or external auditors, it is imperative that the results of the HR audits are not used by the organisational stakeholders to settle scores with each other.

In other words, this calls for maturity from the people who receive the results of the audit.

Concluding Thoughts

Last, in times when corporate fraud is increasing and at the same time, media attention is focused on them, it is imperative that business leaders commission HR audits both as a matter of procedure as well as a measure of whether their organisations and the HR functions in particular are functioning according to their mandate.

Moreover, as the reasons listed earlier for the HR audits make it clear; it is no longer a luxury, but a necessity for the HR function to be audited.

To conclude, corporates exist for profit generation and hence, all functions and the HR function, specifically needs to be audited.


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Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Human Resource Management