Every organization, whether it has one employee or 500 employees, should have an annual Human Resources Audit. An HR audit is similar to an annual health check. It is a means by which an organization can measure where it currently stands and determine what it has to accomplish to improve its HR functions. An audit involves systematically reviewing all aspects of the human resources functions. It also ensures that government regulations and company policies are being adhered to and your organization is not at risk for fines and penalties. An audit is not only a "check up" - you should be prepared to make the necessary changes identified by the audit. A Human Resource audit can help prevent costly lawsuits and fines by identifying weaknesses and correcting them. Who Should Conduct the Audit?

An HR audit can be conducted by your HR staff, an outside consultant or an employment law attorney. This individual must have significant HR experience and should use a checklist or structured method to assess a company's risks and needs. In addition to bringing key advice and knowledge of all pertinent laws to the table, an audit conducted by an outside consultant can add an extra layer of credibility to the findings of the audit. Records from a self-audit do not have the same credibility as audits done by independent sources; however it is better to do a self-audit than not audit at all.

What is reviewed during an audit?

Most audits are comprised of a series of questions separated by topic or functional area. A compliance audit is not a one-day project. It will touch all areas of HR, and may require looking at documents and policies and interviewing HR staff as well as selected employees and managers in other areas of the company. The amount of effort required depends on the size and type of company.

Most audits start with a review of existing employee handbooks and policy and procedures. This provides a starting point to assess needs and risks, identify conflicts or outdated policies and procedures and delete them, and fill gaps where policies are missing. Some of the other areas to target in an HR audit include:

Staffing: An audit of recruiting and hiring practices can quantify turnover trends, reveal gaps in meeting needs and help the organization predict future openings. It can also identify potential issues with discrimination or diversity.

Compensation/Employee Classification: An audit of these areas includes reviewing compensation, overtime, employee classifications (exempt/non-exempt), and time records.

Federal, State and Local Regulations: An effective audit examines compliance with applicable federal, state and local laws -- and can prevent lawsuits and fines. Incomplete or missing I-9 forms can result in an employer being fined between $100 and $1000 for each failure to accurately complete an I-9 form.

Administration: An audit of this area examines regular HR duties, such as benefits administration and attendance tracking, and checks the handling of personnel records and confidential files.

Employee relations: An audit of employee relations issues includes review of communication processes, discipline procedures, and performance measurements.

By regularly auditing your Human Resource functions you will mitigate your risk. If you have significant compliance concerns for your company, you may want to consider an audit structured as an attorney-client privileged investigation. By having an attorney conduct the audit, you can identify and correct problems and protect certain information that may otherwise be accessible to government investigators.

The information provided in this article is based on general human resource management fundamentals, practices and principles and is not intended to be considered legal advice. Consult your employment law attorney for legal advice or legal opinions.