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How to Conduct an HR Audit

With regular self-inspections, HR professionals can keep their organizations out of legal trouble and improve policies and practices.

A doctor holding a clipboard with a stethoscope.

​Few people relish going to dental checkups, but those cleanings can help stave off a painful root canal procedure. Similarly, regular HR audits can help minimize potentially painful legal risks and offer opportunities to improve HR policies and practices.

But a solo HR practitioner’s days are already crammed full, and auditing takes considerable time. So be sure to devote enough energy and resources to develop a plan of attack.

Define exactly what to audit and then ensure that the organization’s leaders support that process, says Sarah L. Davis-Temple, SHRM-SCP, talent management business partner for Greenway Health in Tampa, Fla. 

“Build rapport with leadership to find out what’s important to them and what the response might be to something identified as a problem,” she says.

Some business leaders have a high tolerance for risk and may not support the HR professional’s proposal for corrective action, while others will want to address every issue. “The level of tolerance is directly tied to what to audit and how,” Davis-Temple says.

Prioritize problems that need to be addressed immediately. Note any issues that aren’t covered in the organization’s procedures or policies. These are areas of potential exposure that HR should address during an annual or semiannual review process.

“I strongly recommend focusing on one or two audit areas,” Davis-Temple says. “Trying to tackle everything from A to Z will simply overwhelm an HR practitioner,” especially one who is the only HR person at the company.

Risky Business

Focus first on any practice that can harm the business if it’s not done correctly, recommends Priscilla Tomestic, SHRM-CP, HR compliance manager for a branch office of Aspen Air Conditioning in Boca Raton, Fla. 

An HR compliance audit can help ensure that HR practices abide by the multitude of frequently changing laws and regulations. The compliance audit generally has two parts: an evaluation of the organization’s HR policies, practices and processes, and a review of current HR data. Indicators of potential problems include internal grievances filed, pending legal complaints, and turnover and absenteeism rates. 

  • Most lawsuits can be traced to issues related to hiring, performance management, employee discipline or termination. Other high-risk areas include:
  • Misclassification of exempt and nonexempt jobs.
  • Inadequately maintained personnel files.
  • Prohibited attendance policies.
  • Inaccurate wage and hour or time records. 
  • Form I-9 errors.
  • Outdated federal and state labor and employment law posters. 
  • Insufficient record retention.

Research the requirements for each of these areas, determine the scope of the audit, gather the necessary information, and then create action plans to correct or mitigate the risks.

As a solo HR practitioner, Tomestic is responsible for everything from onboarding new hires to handling payroll administration and safety and risk management. She even issues employees their equipment and uniforms. To manage the multitude of tasks, she has devised a system that incorporates regular mini-audits of onboarding and payroll requirements into her normal daily duties.

“I regularly audit employee files to make sure everything required is in them,” she says. “I track I-9s, onboarding paperwork and wet signatures on my own spreadsheet so that nothing’s missed.”

She also handles her company’s performance management process, which includes 30-, 60- and 90-day feedback sessions held with new hires, as well as annual performance reviews. She uses checklists to help ensure that reviews are done in a timely fashion and that all the necessary paperwork is prepared for each employee file.

Divisional managers also perform quarterly internal “desk audits,” or spot checks, of HR practices at each of the branches, aided by risk management software that generates lists of requirements to maintain regulatory compliance, Tomestic says.

The best audits are the ones you control, Davis-Temple says. The worst are those prompted by a dreaded letter from a government agency.

“If I find something in an audit, I go to my leaders and say I found it and want to understand whether it’s a problem,” she says.

Preventive Maintenance

Once immediate needs have been addressed, schedule audits of other HR functions to head off future problems. The beginning of a plan year is a great time to conduct a quick audit of employees’ benefits selections to ensure that the correct amount of money is being deducted from their paychecks, Davis-Temple says.

Spot checks can be done at other times. When addressing a performance issue, for example, HR professionals can check files on other cases of disciplinary action to ensure that no records are missing, Tomestic says.

HR audits help determine how work can be done more efficiently or less expensively. For instance, HR professionals can help improve their company’s business position by comparing its HR practices with those of other companies. 

“Audits are particularly useful in identifying areas in which the organization may benefit from implementing technology or outsourcing certain functions to remain compliant,” Davis-Temple says. While there are expenses associated with moving in either of these directions, there are also potential costs when the company fails to comply with laws and government regulations. 

“The best thing an HR practitioner can do is thoroughly vet the issue, understand what the potential risks are, and then develop a business case for the implementation of a new technology or outsourcing a particular function that will help maintain compliance,” Davis-Temple says.

Audits also can focus on strengths and weaknesses of systems and processes to help determine whether they align with the HR department’s and the organization’s strategic plans.

As Tomestic conducts audits, she makes notes on how she can improve her own processes to encourage better compliance from others. These “self-audits” help her develop goals for herself and improve her performance.

“Be truthful with yourself,” she says. “No one’s perfect; there’s always room for improvement.”

Treat auditing as a continuous process by weaving it into the culture of the organization, HR professionals advise. 

“Clean up one issue at a time, making it the best you can make it, then move on to the next thing,” Tomestic says. “Taking the time to get it right proves HR’s worth and adds value to the company.”

Davis-Temple has this advice: “Once you perform your audit, you need to be planning for the next one and improving that process each time. Performing audits should be as routine as any other function in the organization. It makes them less daunting and more of a cultural norm.”  

Theresa Minton-Eversole is a writer based in Alexandria, Va.


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