Human Resource Development Audit is a systematic assessment of the strengths, limitations and developmental needs of its existing human resources in the context of organizational performance. This presentation describes how one can strategize a HR Audit for an organization.

1. HR AUDIT

2. HR Strategy
 A strategy is a course of action chosen with a view to
achieve certain objectives.
 HR strategies should flow both from short-term
goals of the organization as well as the long term
business strategies.
 The economic and other environmental changes play
an important role in strategy formulation and goal
setting.

3. Challenges for Building World class
organizations
1. Quality Challenge: High quality products and excellent
services.
2. People Challenge: Employees in world class
organizations are professional, systematic, trustworthy,
competent, innovative, proactive, change oriented,
systems driven, entrepreneurial. How does one recruit,
develop and retain such world class employees?
3. Technology: World class organizations spend on
technology. Keeping upbeat with what new technology
needs to be installed in the organizations requires
changes in the manpower capacities as well.

4. Challenges for Building World class
organizations
4. Culture Challenge: Building a professional, systems-
driven and committed organizational culture is a major
challenge.
5. Speed: World class organizations distinguish
themselves by their speed and response time. Once a
decision is taken, implementation is fast.
6. Sleek: World class organizations are sleek/ lean.
7. Flat & Non-heirarchical structures: Less bureaucracy,
well laid out systems, commitment and responsibility
focused, goal driven instead of procedure driven.
Restructuring the current business structure in order to
build flat and non-hierarchical structure is another
major challenge.

5. Challenges for Building World class
organizations
8. Social Responsibility & High commitment to
country: World class organizations are good
corporate citizens. They perceive such investments
as having economic value. E.g. – By investing in
rural development, new markets are created there
by enhancing the purchasing power of people.
9. Learning Organization: World class organizations
constantly experiment and learn from themselves
and others. They are innovative, learning oriented,
well networked, change prone and adoption prone.
Creating a learning organization is another major
challenge.

6. Audit of Business Strategy
1. Defining Business Strategy:
 Business strategy is the foundation of successful business.
 The best business strategy must steer a course between inevitable internal
pressure for business continuity and demands of a rapidly changing world.
2. Strategy at different levels of a Business:
 Strategies exist a several levels of an organization:
 3 larger levels: Corporate Strategy, Business Unit Strategy & Operational
Strategy
3. Why Conduct a Business Strategy Audit?
 The purpose of a Strategy audit is to arm managers with tools, information,
and commitment to evaluate the degree of advantage and focus provided by
their current strategies.
 An audit produces the data needed to determine whether, a change in strategy
is needed and exactly what changes should be made.
4. Defining a Strategy Audit:
 A Strategy Audit involves assessing the actual direction of a business and
comparing that course to the direction required to succeed in a changing
environment.

7. Major elements of Strategy Audit
1. External Environmental Assessment:
 Step 1: Understand the External Environment at Macro Level
 Overall industry assessment can be done by looking at elements that
influence the environment viz. Capital markets, Industry capacity,
Technological factors, Pressure from competitors, Threat of new
entrants, Economic factors, Political factors, Regulatory factors,
Geographic factors, Social factors, Industry leaders in the sector,
key success factors in industry etc.
 Step 2: Understand the Industry / Sector Components in detail
 Questions should be asked of Competitors, Customers and
Stakeholders.
 Queries should focus on the Competitor’s Strategy issues,
Capabilities, Business objectives and Financial Review, Culture,
Organization details etc.
 Step 3: Integrate the components into an Environmental picture
 Analysis must highlight capabilities needed internally to meet
External Demands.

8. Major elements of Strategy Audit
1. Organizational Assessment:
 Step 1: Assessment
1. Strategy Clarification:
2. Viability & Robustness: Testing strategies against future world
scenarios.
3. Business Processes: Process analysis to assess overall workflow
within a company
4. Capabilities: are bundles of separate skills required to deliver the
products or services that give business a competitive edge.
5. Organization design and Structure: An assessment of whether the
Management structure and system will allow execution of strategy
formulated.
 Step 2: Implementation
 Plans for change must be widely owned.
 Environmental and organizational assessments should drive
strategy selection.

9. Auditing Business Goals
 A case study: Abedon (Legal Process Outsourcing, UAE) : Business
Assumptions FY 2005-2006
Business Assumptions Your recommendations
We have no competition
All we need is 2% of the market share
Our Product will sell itself
Our financial projections are realistic
We can manage business ourselves
We can save money if we do it ourselves
Our patents will protect our business
That weakness wont matter later on
We can easily make enough sales to
make a profit

10. HR Strategies at the Corporate Level
Apart from Strategies of attracting, retaining, developing, motivating
and utilizing employees and their competencies of effective
organizational functioning & growth, the below given Strategies
are required for creating a World Class Organization:
1. Communication Strategy
2. Accountability, Ownership and Commitment
3. Quality Strategies
4. Introducing Quality and Customer orientation throughout the
company
5. Cost Reduction
6. Developing an entrepreneurial spirit among employees
7. Culture building exercises
8. Restructuring

11. Auditing HR Strategies
 HRD Audit starts with an understanding of the business
goals and strategies of the organization – both for short
term and long term.
 The auditors do not question the business strategies or
plans.
 They attempt to understand if enough thought has been
given to the HR Strategies to achieve the business goals.
 They audit the extent to which the HR strategies are
aligned with the Business strategies.
 Sharing business plans can be very confidential and
sensitive for some organizations and hence the auditors
have to maintain high ethics and get information on only
that has implications for HR strategies.

12. Helpful questions…
1. What are the competencies required to meet the future
business requirements of the organization?
2. What are the business challenges the organization is likely
to face?
3. What are the immediate and future business
opportunities perceived by the company?
4. What competencies are required by the organization to
meet these challenges and opportunities?
5. What are the competencies required to meet these
challenges or utilize the opportunities at the top level,
senior and middle levels, supervisory level, field or
grassroot level?
6. What are the levels of competencies existing at the
corporation at the time of the audit?

13. Helpful questions…
7. What are the competencies in terms of technology
management systems, attitude, behaviour etc?
8. What are the gaps and how are they being planned to be
filled? Through Recruitment, Development etc? What is the
time frame to be used?
9. Are the plans aligned properly with the needs? Are they
realistic?
10. How are the various HR Tools / Processes being used to
ensure that the business goals are understood and
commitment is build in the employees for the good of the
organization?
11. What is being done to ensure continuous linkages between
employee development and business development; employee
satisfaction and customer satisfaction?
12. Are there adequate feedback mechanism? Are there adequate
monitoring systems to ensure that the human process
variables are enablers for achieving business goals?

14. Auditing HR & Business linkages
 The Strategy audit should lead to an assessment of the business
linkages of the HR function:
 The extent to which HR strategies, systems, practices, activities, processes, etc.,
are derived from the business needs or organisational goals of the company; and
 The extent to which there are internal processes to ensure that the HR plans,
processes, investments are sensitive to the changing needs of the organization.
 An exhaustive list can be made for listing all important business
needs on basis of organizational mission, vision, plan, current
concern viz – cost reduction, productivity improvements, quality
orientation, market change, new product introductions, emphasis
on R&D etc.
 Auditors should look for HRD systems that address these.
 Auditors should query the participation of HR director in the
strategic planning exercises, role played by HR department in policy
formulation, extent to which HR staff and director are made
members of various committees and task forces etc.
 These indicate business linkages of HR function.

15. Approaches to HR Audit
 Auditors use one or a blend of these approaches while conducting
the HR Audit:
1. Benchmarking Approach: Benchmarking the organization’s
current state, setting improvement standards and taking
subsequent measures.
2. Return on Investment Approach: This approach attempts to
measure how HR contributes to the bottom line and to outline
that HR is not merely a support function.
3. Key Performance Measures Approach: KPM are non financial
measures developed by an international working group from
major global corporations to help companies better manage their
business. Some of them are:
1. Quality of Output,
2. Customer satisfaction / Retention
3. Employee Training
4. R&D investments and Productivity
5. New product development
6. Market growth/ success
7. Environmental competitiveness

16. Approaches to HR Audit
4. Programme Evaluation Approach: Various programmes/
processes/ initiatives are evaluated in this approach.
 This approach can provide a baseline data for setting improvement
targets.
5. Strategic HRM Profiling Approach:
 The process is facilitated by a ‘profiler’ from HR Department or
Strategic planning team.
 The process begins with the leadership team defining its strategic task
and its values.
 An employee task force of 8 high potential employees (1-2 levels below
the Top team) is appointed to interview 100 employees and customers
for assessing barriers / enablers to strategy implementation.
 Data collected by the task force is fed back to the top management
processed in a 3-day profiling meeting.
 1st day – meeting is devoted to feedback with task force. 2nd day –
devoted to rigorous diagnosis using a diagnostic model. 3rd day – is
devoted to developing a vision as to how the organization and its
management processes must be redesigned.

17. Approaches to HR Audit
6. Legal Compliances Approach:
 This concept is centered on the verification of current labour laws
being fulfilled.
 Firm’s policies, practices, documents regarding employee hiring,
retention, discipline, termination and post-employment are both
fair and legal.
 Minimum wages, social security payments should be verified.
7. Financial Analysis Model Approach:
 This concept measures efficiency of the HR systems, structure and
processes through efficiency measurements viz. Employee
turnover, quits and discharges as % of total employees, average
tenure of employees in various jobs, absenteeism, employee
productivity, intellectual capital etc.
 This data is compared to past data if available & discrepancies are
then taken up.

18. Approaches to HR Audit
6. Value Addition Approach: Hudson evolved this
approach which was more comprehensive that the
others stated.
 Diagnosis: This stage seeks to identify the level of maturity of
the human resources which matches the current situation in
a company through a questionnaire. The questionnaire
evaluates HR as a Strategic Partner, Employee Partner,
Business Partner and Administrative Partner.
 Defining the Strategy: Situation existing in the market place
is benchmarked and Key development areas are given to an
organization to optimise its HRM policy.
 Production of an audit report: The process ends by
identifying key points for development and by drawing up an
estimate of the financial and human investments required to
achieve the objectives.

19. Case Study on HR Structure

20. Case Study on Labour Laws
Audit

21. Labour Laws Audit
 A labour law audit is a thorough check of the company’s
policies and procedures with the goal of preventing
prosecutions or lawsuits.
 The legal audit provides a risk profile of the company
from a legal perspective to detect any potential liabilities
in its daily affairs.
 It exhaustively covers the rules and legislations
applicable to the respective industry of business
enterprise.
 The audit reviews the prevailing system, practices and
level of compliance governing the business segment.
 It helps in implementation of an effective compliance
system.

22. Labour Laws Audit: Major Laws applicable
1. Industrial Employment (Standing Orders) Act, 1946:
2. The Contract Labour (Regulation & Abolition) Act, 1970:
3. The Industrial Disputes Act, 1947:
4. The Trade Unions Act, 1926:
5. The Bombay Shops and Establishment Act, 1948:
6. The Factories Act, 1948:
7. The Maternity Benefit Act, 1961:
8. The Payment of Bonus Act, 1965:
9. The Payment of Gratuity Act, 1972:
10. The Payment of Wages Act, 1936:
11. The Workmen’s Compensation Act, 1923:
12. The Employees’ State Insurance Act, 1948:
13. The Employees’ Provident Fund and Misc. Provisions Act, 1952:

23. Labour Laws Audit: Critical compliances at a
glance
1. Fatal accident:
 Has the company informed the factories inspector immediately through a telegram or
personally through a messenger? Has the concerned person in HR or in admin filled the
accident form and sent it to the office of the factories inspector within 48 hours from the date of
accident with a copy to the local office of ESI?
2. Dismissal, Discharge, Retrenchment or Termination of a workman’s service:
 Does the company follow all processes stated under the Industrial Disputes Act 1947 and
Industrial Employment Standing Orders Act 1946?
 Has the company taken care not to terminate or dismiss or discharge or retrench the services of
a workman who is on ESI sick leave? (6 months in case of ordinary sick leave and 2 years in case
of extended or serious sickness).
3. Maintenance of a register or an e-file containing deadlines for submission of
returns:
 Does the company maintain a manual register or e-file from which one can find out the dates of
sbmission of various periodical returns, forms, monthly, quarterly, bi-yearly and yearly returns,
the dates for renewal of licenses and dates of payments such as PF and ESI employees’
contributions? (Late payment attract penal actions of fine and imprisonment and levy damages
of 100% of dues payable. In case of any default, the MD/ CEO is prosecuted.)
4. Nomination:
 Have nominations for PF & Gratuity been taken in prescribed forms as per the Act at the time of
an employee joining an organization?
5. Date of Birth:
 Has the date of birth of all employees been clearly and accurately mentioned in the records of
the company? Have all employees submitted their certificates of birth at the time of joining of
the company?

24. Labour Laws Audit: Critical compliances at a
glance
6. Old Records:
Has the company ensured that old records are kept in the safe custody for 8 years? In case it wishes to
destroy the records before expiry of 7 years, has it taken relevant permissions?
7. Documentation:
 Every issue is unique and requires absolute and perfect documentation. Has the company
ensured perfect documentation and deputed an officer in their department for ensuring the
same?
8. Factories Act: Has the company complied with the following provisions under the
Factories Act, 1948 and the rules made thereunder?
 Provision of creches if the company employs 30 or more female workers.
 Provision of canteen/s if the company employs 250 or more workmen.
 Shelters, rest rooms, lunch rooms to be provided if the company employs 150 or more workmen.
 Appointment of qualified welfare officer if the company employs 500 or more workmen.
 Appointment of a qualified Safety officer if the company employs 1000 or more workmen.
 Ambulance room with qualified staff must be provided if the company employs 500 or more
workmen.
9. Payment of Wages Act 1936:
 For employee strength of 1000 or less persons, wages shall be paid on or before 7th of every
month. Where the number is 1000 or more, e shall pay wages on or before 10th of every month.
10. Payment of Minimum Wages:
 Minimum wages are fixed by the State government and are revised once in every 6 months. It is
mandatory for an employer to pay minimum wages to his workers who are employed by him to
do any skilled, unskilled, semi skilled or manual or clerical work under the Minimum Wages Act,
1948.
 Contract workers are also eligible to receive minimum wages.

25. Labour Laws Audit: Critical compliances at a
glance
11. Employee’s State Insurance:
 Return of declaration forms should be submitted within 10 days of furnishing the
particulars and return of contribution cards within 42 days from termination of
contribution to the concerned authority. Failure to do so results in prosecution of the
CEO.
12. Provident Fund:
 Any employee whose monthly salary exceeds Rs. 6500/- is not covered under the
provisions of the Act. He is defined as an excluded employee. But if the organization
continues to deduct PF from an employee once he/ she crosses this limit of salary, they
continue to be covered under the provisions of the Act for life as a regular member of the
fund and not as an excluded member.
13. Payment of Gratuity:
 Payment of Gratuity can be forfeited under the following grounds:
 Financial loss or damage caused by an employee to the extent of loss so caused.
 Termination of employee’s services on account of his violent, riotous, disorderly
behaviour or conduct which ahs been proved during the course of an independent
domestic or departmental enquiry and has been held guilty by the enquiry officer.
 Termination of an employee’s services on account of an offence committed by him
involving moral turpitude (e.g. robbing , offences against women, dacoity, kidnapping,
misappropriation of public money etc)
 Completion of continuous service is not necessary when the termination of employment
is due to death or disablement.

26. Labour Laws Audit: Critical compliances at a
glance
14. Employment of Contract labour:
 Every employer which employs 20 or more workmen as ‘contract labour’ is required to
register itself under the Act.
 Every contractor who employs 20 or more workmen is also required to obtain a licence
under the Act to execute any work through contract labour.
15. Maternity Benefit:
 Every woman entitled to maternity benefit under this Act shall also be entitled to receive
from her employer a medical bonus of Rs. 1000/-, if no pre-natal confinement and post
natal care is provided for by the employer free of charge.
 The central government may by notification in the official gazzette, increase the amount
of medical bonus subject to the maximum of 20000 rupees.
16. Misconduct, Sexual Harassment at work:
 Sexual harassment at work is added as a ‘Misconduct’ in the Model Standing orders.
 According to the guidelines issued by the apex court, each organization and an
establishment is expected to frame and implement an definite policy on ‘Sexual
harassment at work.
17. Misconduct, Disciplinary proceedings and domestic/ Departmental
Enquiry:
 For industrial relations issues such as internal fights, long absence of leave, violence at
work etc the issue might be treated as misconduct. Each misconduct needs to undergo
Disciplinary proceedings and an enquiry as prescribed under the Model Standing Orders.
Failing to do so has penalties as well as prosecution against the Factories inspector as well
as the Managing Director of the organization.