White Paper on Hr Audit

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HR Audit: 101
A Nonprofit HR Solutions White Paper

By: Sidney Abrams Senior HR Consultant, Nonprofit HR Solutions

May 2010

Introduction
Do you lie awake at night thinking about questions such as:

 Is my organization in compliance with federal and state guidelines requiring that certain information be posted in view of all employees and applicants?  Are my organization’s jobs properly classified as exempt and non-exempt? Would these classifications pass a Department of Labor audit?  Why does my organization have difficulty attracting and retaining qualified employees? If the answer is anything other than “never,” it may be time for your organization to consider conducting an HR audit. An HR audit is a comprehensive assessment of the organization’s HR function, its structure, systems and procedures, and value delivered to the organization. An audit identifies the relevant effectiveness (or lack thereof) of human resource management practices within an organization as well as measures compliance with ever-changing rules and regulations. A properly executed audit will reveal potential areas of concern and provide recommendations for their remedy.

Why an HR Audit
It is a common fact that many nonprofit organizations are unable to employ a human resource professional to manage the function. HR is often managed by staff from the finance or administrative teams. More often than not, in nonprofits fortunate enough to have an HR professional, this person may also wear many non-HR hats. Either of the above are scary propositions, given the often cumbersome oversight of federal, state and local government regulatory authorities. An organization that is unaware of its HR responsibilities is an organization precipitously close to incurring a costly fine or lawsuit. Examples of penalties include:

 DOL fines of $1,100 for any violation of failing to pay overtime to non-exempt employees;

 OSHA penalties as high as $10,000 for failing to post required safety notices or keeping accurate records; and

 IRS penalties of $100 per day per violation and ERISA penalties of $110 per day per qualified beneficiary for COBRA non-compliance, in addition to damages and court/attorney fees.

HR Audit: 101 May 2010 Page 2

These examples point to the significance and importance of compliance. HR compliance means knowing the laws that apply to your organization, developing policies to support the laws and ensuring policy knowledge and consistent application. Above and beyond compliance, effective HR management practices can accelerate organizational development and make a positive impact on organizational financial performance. For example, an audit will review policies and procedures and ensure consistent application across the organization. Fair policies that are applied consistently can lead to improved employee productivity which can positively impact employee satisfaction and retention. With the cost of turnover calculated minimally at 100% of an employee’s salary, the value proposition for an HR audit is extremely compelling; it likely will pay for itself many times over.

Steps Involved in an HR Audit
HR audits can be – and often are – completed by an internal HR practitioner. However, utilizing an unbiased third party or external consultant to review HR files and interview members of management about HR policies and practices brings added value, objectivity and credibility to the process that an internal HR professional cannot. Typical audits begin with an extensive document review and data collection process. Examples of discoverable items include personnel and I-9 files, 5500s and plan documents, job descriptions, applicant flow records, hiring/termination checklists and policy manuals. This first step will likely include on-site and off-site reviews. Organizations should make sure that only non-confidential documents without personally identifiable information leave their offices. Subsequent to the...
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