a look at hr within the audit organization

A Look at HR within the Audit Organization

Who Am I? The Speaker… Experienced in public &

private industry, operations & audit

Obtained various audit related certifications,

Bachelors and Masters degrees

Published in professional

journals

Served in leadership and committee roles for professional

organizations

Currently Chief Audit Executive

in Higher Education

A Sun Devil (Go ASU!)

Objectives Discuss the human capital conundrum

Explore common HR risks and Audit Plan relevance

Evaluate examples of HR in action & inaction

Review the added value of auditing audit HR

Human Capital Conundrum

Without humans, there is nobody around to operate a business… that means there is no

business

Human Resources revolves around Human Capital

Buildings we work in cannot

be built

Things cannot be made,

shipped, or sold Vendors and

people cannot be paid

Humans have direct impact on

business operations

Nobody is hired or around to do the

hiring

Human Capital Conundrum Layoffs often the first “go to”

when trying to cut costs

Recruitment, hiring,

retention, background

checks, facilities

Health care, pensions,

safety, professional development

ADA, FMLA, Workers Comp,

Harassment, Non-

Discrimination, FLSA

Personality conflicts, diverse

communication styles

Needing human resources is unavoidable, but there is a business and interpersonal

cost that should be balanced

Inability to manage human capital leads to barriers to

productivity, morale, lawsuits, negative media attention

(reputation barriers)

Human Capital Conundrum

Although some may argue, aren’t auditors

HUMAN too?

• We are recruited, hired, retained, trained

• We use FMLA, require an ADA reasonable accommodation

• We work in a company owned facility

• We get injured on the job

Do we want/need to add value to the

organization?

• Audits cannot get done without people

• We recruit, hire, and train employees

• We contribute to workplace diversity

• We encounter interpersonal conflict

Education Week: Published Online: October 14, 2014 Indiana Eliminates Audits of Extracurricular Accounts Reason: Lack of manpower; Concerns: Absence of oversight could

contribute to new problems with accounts already prone to lax financial controls.

Result: From 2007-2009 the State Board of Accounts decreased annual budget from $22m to $17.5m; decreased staff by 110. Retirees with 30 to 40 years of experience replaced with inexperienced hires.

The audits have proved invaluable in identifying problems with extracurricular accounts. For example, the last audit in Muncie found a lack of controls at Central High School, whose athletic department, softball team, track team, band, student publications, and student council conducted fundraisers that all resulted in losses.

Human Capital Conundrum Wrap Up Ineffective HR

management increases risk of increased costs across operational areas

Audit departments are no different from the other business units within the organization

HR is

capital Auditors are

human capital

Without HR capital, business would not exist

All departments need to demonstrate value

Auditors add value by helping other departments and business functions maximize their value

Common HR Risks-Discrimination Examples of Conduct Organization Audit Department

Inequity in hiring, discipline, promotion, job duties

Peer—Filed HR grievance against a co-worker stating job duties better suited for

a different department

Hiring manager—Clear English,

“perceived” non-confrontational; Not

self-employed

Race, culture, beliefs, personal opinions, personal insecurities to make personnel decisions or assign job duties

Job interview—Appearance better suited for a different department

Hiring manager—Perception favored graduates from a

particular program at particular university

Get a job because of who you know within the organization

Management policy—you have to be related to work

at the business

Hiring Manager—Knew the employee’s

sister. Employee member of the same

personal group

Common HR Risks-Fraud, Waste, Abuse

Examples of Conduct Organization Audit Department

Filing false insurance or worker’s compensation claims

Claims examiner—Colluded with third

parties to file fraudulent insurance claims

Peer—Filed worker’s compensation claim

during time held accountable under

new supervisor

Calling out sick, but not really sick

Employee called out sick, but was observed at the

airport for weekend vacation

Employee called out sick, but was

observed having lunch with another

employee

Using leave to work secondary employment

Manager operates own business outside of

primary employment

Employee used vacation time to work

at a special establishment

Common HR Risks-Harassment, Bullying, Constructive Discharge

Examples of Conduct Organization Audit Department

Insults, intimidation, using other employees to gather information on each other

Employees may not be attending meetings so send other employees

to “check up”

Peer to peer confrontation in work restroom. Saying

“You’re a failure” Repeating remarks in front of staff

Inappropriate advances or other inappropriate material

Inappropriate photographs circulated

via email to other employees

Comments about attire, jewelry, physical

appearance. Elevator eyes

Forcing an employee to resign

Transferring employee to work location far from home; working inconvenient hours

Removing assignments and responsibility. Disallow employee to maintain

professional connections or networks

Common HR Risks- Background Checks

Background Checks Organization Audit Department

Criminal History Hiring an employee with criminal history to

work in purchasing

Employee had unresolved issues in another state, albeit false allegations

Employment and reference verification

Employee hired with false documents

indicating education that was inaccurate

Austin American Statesman July 22, 2010 Rehiring of fired city worker raises questions about role of background checks Reason: Confusion over the policy, and HR began the checks without formal

approval from City Management. In 2007, person offered job as “cash officer” while under federal investigation for mortgage fraud. Employee convicted, which was uncovered after a criminal background check. Employee terminated. City overturned the firing.

In 1990 the city required all departments to check the backgrounds of

prospective and current employees who work with children or elderly people. Those across-the-board checks began in 2004.

The city planned for years to require background checks on employees who

evaluate contracts, handle cash or otherwise directly influence public spending. There was not a policy in place when HR began conducting such checks in 2008. City management still has not approved background checks for employees who handle city contracts and financial transactions.

Common HR Risks-Effect Examples of Potential Risk Organization Audit Department

Lawsuits and employee turnover lead to additional costs, but also increases costs to recruit, hire, train new employees—hinders productivity and morale

Financial strain, resources potentially

pulled from other buckets to meet

demand

Credibility, decrease productivity,

potential for decrease quality of work.

Reputation-bad place to work, poor management, lack of leadership

Difficulty in recruiting and hiring

quality candidates

Difficulty in recruiting and hiring

quality candidates

Overall challenges to meet mission and operate efficiently, effectively, and economically

Yes Yes

Common HR Risks-Audit Plan

So why aren’t we looking at HR internally as part of our own continuous improvement?

Why aren’t more HR related data analytics collected or considered for audit planning purposes?

Likelihood of HR issue occurring

# of employees

$ spent on human capital investments $ spent

responding to human capital events

HR Risks Wrap Up Audit plan should include

HR self-assessment, but also identify business-wide HR issues to review.

HR

is risky business

HR analytics untapped

market

Cost to address issues correlates to # of

employees and $ spent on human capital

Audit entities encounter same challenges as all business units

HR in Action & Inaction Real Case Scenario 1—Action or Inaction?

Employee has a history of disgruntled behavior toward the organization and the department. “Does your family own a dry cleaner or taxi cab business?” “I’m sure you eat a lot of egg rolls and rice.” “It should be called White-mate,” Comments made often over time. Co-worker overheard a remark, confronted employee in front of others. Unknown where employee was at any given point in time. Periodically, employee observed in other departments, including that of leadership. Co-worker received a reprimand and encouraged to post the memo for staff to see. Worker instructed to take it down, and received another reprimand for insubordination. Employee wrote a memo on department letterhead. Circulated it to committee members expressing specific recommendations for a particular piece of regulation. Response: Any guesses?


Eyewitness News KABC7 March 25, 2014: Fullerton firefighters concerned over hazards, respiratory issues Firefighters complaining about respiratory problems, runny eyes/noses and coughing at some stations. Claim officials have known about the health hazards, but nothing has been done. Occurring at 3 stations. Black debris from an air vent tested positive for fiberglass among the dirt. It was cleaned last month. One station, documents show officials knew in 2006 about an asbestos problem. Unsure when repairs will start. Another station posted a warning "not to enter the attic." It says "the department will deal with the situation as soon as possible." That memo was dated March 24, 1995. Tests performed last year at one station show mold and asbestos. Work is expected to begin there in April. The Fullerton Firefighters Association filed a complaint with Cal/OSHA.


Time Magazine Online August 10, 2010 Top 10 CEO Scandals RadioShack CEO David Edmonson: Apparently thought he could get away with claiming to have received two degrees — one in psychology and one in theology — from Pacific Coast Baptist College in California (now called Heartland Baptist Bible College and located in Oklahoma). The problem was that Edmondson finished only two semesters at the school — which has never even offered a psychology major. He admitted in 2006 that he had falsified the résumé, resigning in disgrace after nearly 11 years at the company and having recently been promoted to the top of the ladder.

HR Action & Inaction Wrap Up Common issues face public

and private industry

Inappropriate behavior occurs in all departments and organizations, including audit

News

Personal & Business

Reputation/ Credibility

Tone at the Top

Cost of doing nothing v doing something

Value of Auditing Audit HR Opportunity for CAE to demonstrate leadership and serve as an example of Tone at the Top

Encourage internal reflection of work environment without fear of retribution

Opportunity to improve internal culture and processes

Train staff in policies that may be misunderstood, and reinforce expectations

Hold management accountable for developing and implementing improvement strategies

Value of Auditing Audit HR Opportunity for internal audit to lead by example and serve as an a model of Tone at the Top

Conduct HR analytics and audits that show results that include the audit department.

Opportunity to demonstrate the audit department is secure in itself to acknowledge it can also improve.

Perform reviews of itself in the same manner as other business units.

Hold management accountable for developing and implementing improvement strategies.

Value of Auditing Audit HR Opportunity for internal audit to review its approach to audit planning and the risk elements that make up the Plan

Conduct HR analytics and separate into prioritized cost centers so that can be compared to other risk centers of the organization

Maintain commitment to continuous improvement and risk-based approach to audit project selection

Continue to support professional and personal development, that is not only inclusive of audit certifications, but other degree programs and audit plan subjects

Hold management accountable for developing and implementing improvement strategies

Value of Auditing Audit HR Wrap Up

Human capital is the foundation of any entity, including the audit function.

Audit has same HR challenges as other business units

Commit to creating a positive work culture while showing stakeholders

that auditors hold themselves just as accountable, which builds credibility

Include HR audits and continuous improvement projects in the audit

plan. These are value-adding steps to mitigate risk and lead by example

Questions

a look at hr within the audit organization

Documents