HR Audit as a Tool for Cost Optimization and Risk Identification

Mar 19, 2025 6 min reading

A personnel audit (also known as an HR audit) is a strategic tool that helps companies assess their human resources, process efficiency, and overall financial health from an HR perspective. The goal of the audit is to determine whether human resources are being utilized optimally, whether recruitment, development, and compensation processes are properly set up, and whether the company complies with legal requirements in labor law and human resource management.

Key Areas of a Personnel Audit

Organizational Structure – Reviewing hierarchy, responsibilities, and management efficiency.
Processes and Procedures – Evaluating recruitment, training, performance assessment, and career growth of employees.
Work Efficiency – Analyzing workload, productivity, and talent utilization within the organization.
Company Culture and Employee Satisfaction – Measuring motivation, engagement, and the overall work environment.
Compliance with Legislation – Ensuring adherence to labor law regulations and internal policies.
Personnel Costs – Analyzing salary expenses, benefits, and other employee-related costs.

Internal vs. External Audit

An external personnel audit is conducted by independent experts who are not employees of the organization. This ensures objectivity and impartiality in evaluation. On the other hand, an internal audit is carried out by the organization’s own employees, which may result in a lower level of objectivity, although it can be more confidential when collecting internal information and data, such as from an internal HR system.

An external audit is often linked to an independent assessment of the company’s financial health. It helps identify shortcomings and recommend improvement measures. To evaluate financial health, key indicators such as profitability, liquidity, and debt levels are analyzed. The audit examines factors like cash flow, revenue vs. expenses. A personnel audit can help identify areas where costs can be reduced without negatively impacting employee productivity.

Make Your Work Easier with an HR System

An HR system can also help facilitate data collection and analysis. For example, the People Analytics module from Sloneek offers a comprehensive set of tools that enable data-driven human resource management and can significantly improve the efficiency and accuracy of a company’s HR audit. Here’s how Sloneek can assist with this process:

Comprehensive Data Collection and Visualization – Sloneek provides pre-built HR analytics dashboards displaying key performance indicators (KPIs) such as employee growth, retention, headcount, career development, and absenteeism. These dashboards include both descriptive and predictive analytics, allowing in-depth analysis of current trends and future forecasts.
Overview of Employee Skills – The platform offers a quick view of skills across the organization, making it easy to track and compare competencies. This feature helps identify skill gaps and assess their distribution and development, a key component of the HR audit.
Recruitment Process Analysis – Sloneek allows detailed tracking of recruitment metrics, including the number of open positions, candidate progress through various stages, time to hire, and average recruitment duration. These data points are essential for evaluating the effectiveness of hiring processes during an audit.
Document and Work Tool Management – The system provides an overview of corporate documents and work tools, including their current status and significance. You can analyze data such as the number of corporate documents and tools, their classification by type and status, or the average number of tools per employee, making resource management more efficient.
Support for International and Hybrid Teams – Sloneek enables the management of international and hybrid teams by providing reports segmented by work types and locations. This makes it easier to measure work efficiency, analyze competencies, and track corporate documents and tools across multiple locations, improving audit transparency.

Risk Identification Methods

Risk identification is a crucial element of an HR audit and helps uncover areas that could threaten a company’s stability. Some key methods include:

Employee Turnover Analysis – Tracking turnover rates and reasons for employee departures can reveal issues in leadership, work conditions, or team motivation.
Employee Competency Assessment – Comparing required versus actual skills within a team helps identify gaps in training and development needs.
Workload-Related Risks – Excessive workload leads to decreased productivity and increased sick leave, which can be identified through work hours and absenteeism analysis.
Financial Analysis of Employee Costs – Evaluating total labor costs, including salaries, benefits, and other expenses. Comparing salaries to market rates can reveal inefficient compensation or cost optimization opportunities.
Compliance with Labor Laws – Reviewing adherence to labor codes, occupational health and safety (OHS) regulations, and other legal standards to minimize the risk of legal disputes.
Analysis of Specific Work Processes and other relevant areas.

How Does an Internal Audit Work in Practice?

As mentioned earlier, an internal audit involves reviewing work conditions, processes, employee competencies, and compliance with legal requirements. Here is a step-by-step internal audit process:

Audit Preparation

Define audit goals and focus areas – What specifically do you want to examine?
Form an audit team – Who will be responsible for conducting the audit?
Prepare questionnaires and checklists.

Data Collection

Interviews with key employees and managers.
Analysis of documentation (employment contracts, job descriptions, company policies).
Evaluation of work processes and organizational structure.
Data extraction from the HR system.

Evaluation and Analysis

Identifying strengths and weaknesses.
Assessing compliance with legal regulations.
Comparing with industry best practices and conducting a SWOT analysis.

Recommendations and Action Plan

Suggestions for process improvements and optimization.
Recommendations for cost reduction and efficiency enhancement.

Final Report

Overview of key findings.
Proposed measures and recommendations.
Audit trail report documenting the audit process.

Key Topics and Questions for an Internal Audit

What are the main responsibilities of each position within the organization?
How effective is the recruitment and onboarding process?
What policies govern performance evaluation and compensation?
What are the primary factors influencing employee turnover?
Are working conditions compliant with current labor laws?
How does the company support professional development and employee training?
Are clear internal processes in place for handling workplace disputes?
What are the company’s total salary expenses?
What is the proportion of benefits in total employee costs?
Can any HR costs be optimized without negatively affecting company performance?

For each question, carefully consider what you specifically want to examine and break down the questions into more detailed components.

HR Audit Outputs

Upon completion of the audit, a final report is prepared, summarizing key findings and recommendations for improvement. This may also include an audit trail report—a document that records and tracks all significant actions or changes made within a system or process. This report provides a detailed overview of who, when, and what actions were performed, helping to monitor and verify compliance with policies, standards, or regulations. It serves as a tool for ensuring security, transparency, and accountability within an organization and is often used for auditing financial transactions, database changes, or access to sensitive information.

Conclusion

An HR audit is an essential tool for companies looking to achieve more efficient human resource management and maintain long-term financial health. Whether we like it or not, employees represent a significant cost factor, which must be managed strategically to optimize HR processes, recruitment, and talent management.

The HR audit is crucial for cost optimization and risk identification in organizations. It helps assess the effectiveness of HR processes, organizational structures, and regulatory compliance. Whether you choose an internal or external audit—each has its advantages. The key is to define clear objectives, determine what aspects you want to assess, and focus on audit outcomes—recommendations for process improvements and cost optimization—which contribute to a more efficient and well-functioning company.

If you want to maximize automation and have the best-prepared audit documentation, we recommend implementing an HR system that will significantly simplify the process.