Human Resources compliance auditing focuses on areas that are subject to federal and state laws concerning the employer-employee relationship. Failure to comply with the HR legal requirements could have severe consequences for any business. This includes reputational risk and possible impact on employees.
For auditors tasked with establishing an auditing software for human resources, it is beneficial to know that laying the foundations for a successful human resource audit process can lead to efficiencies each year. Here are the most effective ways to plan an HR Audit, as well as the five steps of the HR Audit Checklist.
What is an HR Audit?
Auditing Human Resources (or HR) often involves reviewing many compliance, operational and strategic risk factors that may impact an organization’s overall success in achieving its goals. Human Resources (HR) is a broad area covering every aspect of human resources that includes onboarding, development and promotions, performance management, the compensation process, employee well-being, and salary management. A successful HR department is essential for every company because of the growing workforce stress, talent shortage, and the importance of productivity.
The nature of HR audits is varied and can either be done by internal auditors or professionals. Most HR professionals perform self-testing against legal requirements as a routine detective control to ensure compliance. In addition, they can employ a spreadsheet for HR audits or another HR audit checklist they have designed by themselves.
The types of HR Audits
While there are many HR audits, they typically fall into three categories: compliance audits, operational audits, and strategic audits.
Compliance Audits
Audit teams often also include reviewing the company’s compliance to legal obligations, like the Americans with Disabilities Act or the Family and Medical Leave Act regulations (FMLA) or internal policies. In addition, standard audits such as I-9 compliance with filings and tax reporting and salary laws are often tested with HR audit checklists.
Operational Audits
The HR auditing process includes everyday processes such as compensation and benefits administration and the management of performance and safety procedures.
Strategic Audits
The majority of a company’s strategy starts with HR. Every organization faces critical risks, such as filling critical posts, making sure that there are no discriminatory hiring policies, creating and training employees, and planning for succession.
HR Audit Checklist
For compliance audits, the most critical factor to success is often completeness – this is where a checklist for audits can help. To make the most efficient use of the audit, we want to include all relevant regulations or policies in the checklist.
- Study and be aware of the federal and local laws
When you first begin to develop the auditing procedures for an audit of human resources, make sure you base them on federal laws and the local laws in your state. An HR audit’s primary purpose is to satisfy the legal requirements and risk to reputation. So, it’s essential to create procedures for audits that are in line with the laws. In addition, it is essential to be familiar with the different forms of employment, their requirements and the penalties. You could ask yourself, “What rules that should be followed & what kind of tests should we do to be sure we are addressing these requirements?”
- Always check the legality
Human resource laws don’t often change, allowing internal auditors to create templates to leverage from audit to audit. But, it’s wise to double-check for changes or updates to the regulations before attempting to forward existing templates.
- The process will be carried out manually
Due to sensitive nature of handling employees personal information, plan your auditing procedures line with this. Schedule time conduct in-person tests, knowing that you won’t be allowed leave the premises with documents containing sensitive information.
- As soon as issues are raised, they can have them addressed in real-time
Since the majority of issues discovered in the course of an audit of human resources should be dealt with immediately to avoid legal implications – or, in the event of HR-related SOX findings, transforming into mistakes on financial reports — it is crucial to raise problems immediately and prioritize fixing them in real-time. The process of preventing the same issues from happening in the future can be addressed in the HR audit report later.
- Do your best to add value where you can
For instance, some HR functions are covered from an accounting standpoint. Therefore, internal auditors performing SOX tests that spot HR-related operational problems should reserve time to address those issues with HR since these issues can have operational implications for the business.
Ultimate Business System (UBS) provides HRMS software that streamlines all the HR tasks in the organization.
