5 Best Practices for an Optimal HR Audit Process
Human resources, or HR, refers to the auditable areas in the organization that fall under federal and state laws pertaining to the employer-employee relationship. For any operating business, the legal risks and ramifications associated with failing to comply with HR laws and requirements, as well as reputational risk to the company and potential impact on employees, are too significant to overlook. Scenarios that can trigger an HR audit differ from organization to organization, and may range from the company implementing a new HR audit software system to an inquiry from the legal department regarding recent lawsuits.
Planning a Human Resource Audit
The decision to conduct a human resource audit begins during the audit planning process as a conversation between internal audit and the company’s leadership team. This discussion regarding what HR areas are of the biggest concern to the company will lay the groundwork for the human resources audit program that internal audit is responsible for implementing.
Best Practices for an Optimal Human Resource Audit Process
For auditors tasked with building a human resources audit program, it is helpful to know that laying the foundation for an effective human resource audit process can lead to efficiencies year after year. Below are best practices for doing so.
HR Audit Checklist
- Study and understand federal and local laws. When initially developing your audit procedures for a human resource audit, develop them based on federal laws and the local laws in your state. The focus of an HR audit is to provide coverage over legal risks and reputational risks your company has concern over; as such, creating your audit procedures based off the law is the surest way to address these risks. Familiarize yourself with employment forms (W-2, I-9, etc), how they should be filled out, and the rules and penalties associated with these contracts. Ask yourself “What are the rules that should be followed and what kind of testing can I perform to make sure we are addressing those rules?”
- Always double-check the law. Human resource laws do not change very often, allowing internal auditors to create templates to leverage from audit to audit. Nonetheless, it is always wise to double check for changes or updates to regulations before proceeding to roll-forward existing templates.
- Expect the process to be manual. Due to the sensitive nature of handling employees’ personal information, plan your audit processes accordingly. Set aside time to perform in-person testing, knowing you will not be allowed to leave the premises with documents containing sensitive information.
- Escalate issues immediately and fix in real-time. Because most issues identified during a human resource audit should be addressed immediately to avoid legal ramifications - or, in the case of HR-related SOX findings, turning into misstatements on a company’s financial reports - it is important to escalate issues immediately and prioritize fixing them in real-time. Addressing how to prevent these issues from occurring in the future can be done in the HR audit report later.
- Be a value-add where you can. For example: some HR areas are also covered from a financial reporting (Sarbanes-Oxley or SOX) perspective. Internal auditors performing SOX testing who notice HR-related operational problems can set aside time to address those issues with the HR department, as these problems have operational ramifications for the company.
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