There are two words in every organization that evoke trepidation in both management and human resource professionals. Those words are “compliance” and “audit”. As much negative connotation as these two words bring to mind, the underlying purpose of these words is to benefit both the organization and the employees. In the heat of the moment, though, fear of reprisals and unknown consequences overrule any potential outcome of benefit in the minds of most people.
Consider the number of federal and state laws with which compliance is necessary. Within the U.S. Department of Labor (DOL) alone, there are multiple departments such as Office of Workers’ Compensation Programs (OWCP), Occupational Safety and Health Administration (OSHA) and the Wage and Hours Division (WHD) that oversee numerous aspects of employment law. Outside of the DOL, there are other regulatory agencies such as the Immigration and Customs Enforcement (ICE), the Equal Employment Opportunity Commission (EEOC), and the National Labor Relations Board (NRLB), just to name a few, that affect every organizational entity in the United States in regards to compliance. As such, audits may come at any time from many different avenues for many different factors. Often, these audits are initiated due to employee complaints.
The term, audit, is defined by Oxford Dictionaries as “an official inspection of an individual’s or organization’s accounts, typically by an independent body.” Audits examine financial operations, compliance of federal and state laws and the efficiency of operations (https://www.oig.dol.gov/auditprocess.htm).
Instead of living in the unknown, waiting for a letter from the U.S. Department of Labor or another government entity announcing an audit, consider a proactive venture of an organizational human resource audit. A human resource audit will give a realistic picture of where the organization is lacking. It will provide recommendations on steps to become compliant with federal and state laws and regulations. It will also provide recommendations for business and human capital improvement.
In the world of crisis management, it’s well-known that the purpose of good crisis management protocol is that the work of the organization will continue unhindered and even prosper throughout the life of a crisis. Consider a human resource audit as a proactive crisis management tool. It will alleviate organizational paralyzation when a notice of a government audit is received. It will alleviate the number of employees stopping their own important work to accommodate auditors and it will be a great morale booster as the fear of liability is reduced.
Internal vs External audit
Once an organization has determined that it is in their best interest to complete a proactive self-audit, they need to determine whether this will be an internal audit, completed by onsite leadership, or an external audit, completed by a human resource consultant. There are positive and negative aspects in each method but the best practice standard is outsourcing this project for several reasons. First, the outsourced consultant will provide an unbiased view of the systems, structures and procedures. They don’t have history with any employees and they don’t have a personal investment in any internal processes or systems. They also fully understand the legal ramifications of an audit and have already worked with attorneys who specialize in employment law to create the necessary wording to ensure compliancy in documentation.
If the organization is leaning toward an internal audit, it is critical that the following questions are considered when looking at the person who will lead this audit:
- Does this person have the comprehensive knowledge of federal and state laws and regulations?
- Does this person have business savvy and knowledge of best practices in attracting and retaining human capital?
- Is this person able to drop all other responsibilities and focus dedicated time for this involved process?
- Does this person have any bias or personal investment in any part of the system so they will waffle between defending current practices and systems and recommending the implementation of new practices and systems?
- Does this person have good relationships with other leaders and employees so honest input may be received and heard?
- Will the concept of an audit be given the same seriousness to an internal person as to an outsourced consulting firm?
- Does this person have the authority that, if he/she recommends changes, these changes will be valued and implemented?
The Components to be Reviewed in the Audit
All human resources functions will be reviewed in the audit from the recruitment, pre-hire stage through the termination stage. This includes compliance in areas such as onboarding, employment eligibility verification forms, employee categories of exempt and nonexempt status, employee files, employee handbooks, key employment-related policies, job descriptions, performance management, compensation and benefits, internships, payroll and tax records, human resource information systems, training and compliance awareness.
The Audit Process
There are several factors that contribute to the overall body of information needed to perform an audit. The auditor(s) will review all written documentation, including policies, standard operating procedures, the Employee Handbook and personnel files. The auditor(s) will also interview management and key employees asking both objective and subjective questions such as:
- What is your current perception of the HR function?
- What is your current involvement in each of the functional HR areas, such as recruitment and staffing, benefits, compensation, employee relations, training and development, and H.R.I.S and payroll?
- What are your suggestions for improvements in each of the functional HR areas?
- What do you believe is the overall morale of the workforce?
- Do you believe that the employees are engaged in their job and with the mission of the organization?
These questions are intended to open a dialogue that will provide a wider perspective for answers to whether systems and policies are adhered to, weaknesses or concerns, and any unspoken organizational culture trait to be aware of throughout the audit process.
The Summary of Strengths, Weaknesses and Recommendations
At the end of the audit, the HR consultant will provide the organization with a summary of current systems and practices as well as recommendations for both compliance-related concerns and business improvement. The compliance-related concerns come recommended with an urgency to be highly prioritized and implemented to meet federal and state laws and regulations. The business-related recommendations are geared to attracting new employees and retaining current employees through addressing policies and procedures as well as current HR departmental structures. This summary will provide a detailed list of recommended action steps, potential ways to implement the recommendations and also suggestions on outsourcing or hiring the employees needed to implement the recommendations.
Human Resource audits are invaluable and integral to the success of an organization. They provide the means to determine compliancy with federal and state law and they benefit the organization’s ability to attract new employees and retain top performers by examining the efficiency and effectiveness of current operations.
As an organization considers options for an audit, they should determine the viability and best outcome of internal and external audits. Either way, the import of the audit should be stressed to all management. Finally, before the audit begins, set the stage by determining that all outcome recommendations will be seriously considered and all compliance-based recommendations will be implemented with annual review follow-up to ensure continued compliancy.
Although a one-time audit is not a tool that will guarantee organizational compliance indefinitely, no longer will the words “compliance” and “audit” evoke an uncomfortable fear of the unknown. Instead, organizational efforts may refocus thoughts and energy toward productivity and profit.
This material is derived from a human resource audit system created by Owner and President, Kristen Deutsch, of New Focus HR. For additional information on this topic, please contact us at www.NewFocusHR.com.
Written by: Kathi A. Walker