Audit – Not A Four-Letter Word

Performing an audit will help your company avoid potential legal liability and the related costs, time and distraction to management and the organization.

Today, increasing sales, reducing costs, bringing new products/services to market and increasing market penetration force business owners to function within a heavily regulated employee environment. The list of complex laws and regulations, such as ERISA, COBRA, EEOC, OSHA, ADA, FCRA, HIPAA, FMLA and FLWA/FLSA, begins to resemble alphabet soup.

In addition, regulations and interpretations of Title VII determine exempt and nonexempt status, unemployment, age discrimination, sexual harassment, immigration reform and control (both state and federal) and worker’s compensation, just to name a few. If these topics do not provide you with enough to worry about, then add other equally important human resource considerations into the mix such as substance abuse; corporate policies and procedures; recruiting, interviewing and hiring; organizational training and development; job descriptions; performance evaluation; discipline; termination; team building; payroll management and a myriad of employee benefit administration issues.

The monetary costs incurred as a result of the aforementioned factors are typically discovered when reviewing the damages related to an outside legal issue. Noncompliance problems are frequently the basis for financial risk and damage. Companies wanting to take proactive measures to prevent these types of problems are instituting an audit of their own human resources department and functions. Performing an audit will help your company avoid potential legal liability and the related costs, time and distraction to management and the organization. The benefits are immeasurable in terms of the potential penalties and settlements that can be avoided, in addition to the improved productivity, reduced absenteeism/turnover, increased retention, etc.

A human resources audit will help develop a framework of analysis with which you can identify and prioritize management issues. A properly constructed audit will also identify related practices and policies that are missing, are inadequate or are not legally defensible. Additionally, it will assess and measure the actual performance of your employees and the necessary action needed to reduce performance deficiencies. Finally, a human resources audit will allow you to determine if your human resources practices are effective, efficient and assisting and supporting your business planning and strategic development.

A human resources compliance audit generally consists of three main parts:

  • A focus on the key human resource issues that affect your company’s performance. Those key areas may consist of recruiting, selection and retention; compensation and benefit administration; performance related issues and management; or training and development issues. Are your policies, procedures and actual practices in step with your organizational desires and goals?
  • A review and analysis of the current performance indicators as they relate to the aforementioned areas. These may include the number of unfilled positions, the length of time to fill positions, employee turnover rates in various departments, number of legal complaints, internal complaints handled, amount of absenteeism, etc.
  • A questioning of the legal compliance of an organization’s policies, procedures and practices. This portion should be performed by a human resources specialist knowledgeable in federal and state employment laws. This step is crucial for that proactive approach to defending your overall employment practices and policies.

So, what are the areas likely to raise their ugly heads during the auditing process? Regarding the avoidance of litigation, topics to be dealt with may include employee interaction during hiring, performance evaluation, disciplinary issues and termination. In general, you will be reviewing the written documentation of the job descriptions, application forms, performance appraisals, disciplinary processes, complaints, grievances, etc. If you do not have written documentation, then you have uncovered a major problem in need of rectification.

In addition, areas in which companies seem to make the most mistakes include the misclassification of employees with respect to their exempt status for overtime compensation; inadequate and/or incomplete personnel files; policies that do not comply with federal or state laws and regulations; inaccurate, incomplete or nonexistent time records; and insufficient or inadequate documentation regarding hiring procedures. (The latter issue typically relates to I-9 forms.)

Human resource practices can make a significant difference in a company’s business results. Human resource audits can be worth the cost if they keep your company running efficiently and effectively, if they help you guard against legal challenges and if they assist in the achievement of your organization’s goals. The human resources audit can be time consuming; however, it is a critically important part of protecting any company from legal liability. In addition, a human resource audit will provide clear direction for developing and implementing effective human resource strategies, practices and policies to further the overall success of your company and its employees.